Preparing for a Seamless Transition from LIBOR

Updated: April 2023

Sandy Spring Bank has been preparing for the cessation of the London Interbank Offered Rate or LIBOR for some time. Work is well underway to make the transition easy for clients who have a LIBOR-based loan that does not mature before June 30, 2023. 

If you have a LIBOR-based loan that does not mature before June 30, 2023, you will receive additional information from us in May 2023.  This information will outline the change to your benchmark interest rate index. 

Please see the Frequently Asked Questions (FAQs) below for additional information.  If you still have questions after reading the FAQs, please contact your relationship manager, branch manager, mortgage representative or the Client Service Center at 800.399.5919, option 2.

Frequently Asked Questions (FAQs)

Wealth Secured Lines of Credit

  • Question

    When is LIBOR going away?
    Answer

    The London Interbank Offered Rate or LIBOR will no longer be published after June 30, 2023.  In accordance with regulatory guidance, Sandy Spring Bank ceased making new LIBOR-based loans as of December 31, 2021. 

    Existing LIBOR-based loans that are scheduled to mature after June 30, 2023 require remediation, which means the LIBOR index will need to be replaced with an alternative interest rate index.  This change affects all financial institutions, including Sandy Spring Bank. 

    At Sandy Spring Bank, existing LIBOR-based loans include commercial loans, wealth secured lines of credit, and adjustable rate mortgages.

  • Question

    What will be my new interest rate index?
    Answer

    If you have a LIBOR-based wealth secured line of credit with Sandy Spring Bank, your loan documents do not specify a replacement index for LIBOR.  Your interest rate index will convert to a replacement index in accordance with regulations issued by the federal banking regulators.

  • Question

    What replacement indexes were chosen by the federal regulators?
    Answer

    In March 2022, Congress passed The LIBOR Act, which applies to LIBOR-based contracts that do not include a specific replacement index for LIBOR.  In December 2022, the Federal Reserve issued final regulations implementing The LIBOR Act. You may access a copy of the federal regulations here. 

    In accordance with the federal regulations:

    • If your wealth secured line of credit is tied to overnight LIBOR, your index will convert to SOFR plus a spread adjustment of 0.00644.
    • If your wealth secured line of credit is tied to 1-month LIBOR, your index will convert to 1-month CME Term SOFR plus a spread adjustment of 0.11448.
    • If your wealth secured line of credit is tied to 3-month LIBOR, your index will convert to 3-month CME Term SOFR plus a spread adjustment of 0.26161.
    • If your wealth secured line of credit is tied to 6-month LIBOR, your index will convert to 6-month CME Term SOFR plus a spread adjustment of 0.42826.
    • If your wealth secured line of credit is tied to 12-month LIBOR, your index will convert to 12-month CME Term SOFR plus a spread adjustment of 0.71513.
       
  • Question

    What is SOFR?
    Answer

    SOFR stands for the Secured Overnight Financing Rate.  It is published and administered by the Federal Reserve Bank of New York.  SOFR has been endorsed by the federal banking regulators as a reliable replacement index for LIBOR.  You may learn more about SOFR here.

  • Question

    What is CME Term SOFR?
    Answer

    CME Term SOFR is another replacement index for LIBOR that has been endorsed by the federal banking regulators.  CME Term SOFR is published and administered by CME Group and includes reference rates with terms of 1 month, 3 months, 6 months, and 12 months.  You may learn more about CME Term SOFR here. 

  • Question

    Why is a spread adjustment added to the replacement index?
    Answer

    The spread adjustments specified in The LIBOR Act and the implementing regulations are intended to address certain differences between SOFR and LIBOR, including the fact that LIBOR is unsecured and includes an element of bank credit risk that may cause it to be higher than SOFR.

  • Question

    Will my overall interest rate go up?
    Answer

    It depends. Your interest rate index will change, but any margin or spread set forth in your loan documents will not change.  If there is a difference between your current LIBOR index and your replacement index, then your all-in rate may go up or down accordingly.

  • Question

    When will my interest rate index be converted?
    Answer

     Your interest rate index will be converted on July 1, 2023.

    If you have a wealth secured line of credit, any billing statement or invoice that you receive for interest accrued during the first billing cycle after July 1, 2023 and each billing cycle thereafter will reflect your new index.

  • Question

    Do I have to take any action to ensure my interest rate index converts to a replacement index?
    Answer

    No, you do not need to take any action to ensure that your loan is converted from LIBOR to a replacement index. In early May 2023, you will receive a written notice in the mail from Sandy Spring Bank regarding your replacement index.

  • Question

    Do I have to sign a new promissory note or loan agreement?
    Answer

    No, you do not need to take any action to ensure that your loan is converted from LIBOR to a replacement index. 

  • Question

    What if I have additional questions about the transition?
    Answer

    Please contact your private banker with questions.  You may also visit one of our branches or contact our Private Client Service Center at 800.770.5417.

Commercial Loans

  • Question

    When is LIBOR going away?
    Answer

    The London Interbank Offered Rate or LIBOR will no longer be published after June 30, 2023.  In accordance with regulatory guidance, Sandy Spring Bank ceased making new LIBOR-based loans as of December 31, 2021. 

    Existing LIBOR-based loans that are scheduled to mature after June 30, 2023 require remediation, which means the LIBOR index will need to be replaced with an alternative interest rate index.  This change affects all financial institutions, including Sandy Spring Bank.

    At Sandy Spring Bank, existing LIBOR-based loans include commercial loans, wealth secured lines of credit, and adjustable rate mortgages.

  • Question

    What will be my new interest rate index?
    Answer

    If you have a LIBOR-based commercial loan with Sandy Spring Bank, your loan documents may specify a replacement index.  If so, your interest rate index will convert to the replacement index set forth in your loan documents.

    If your loan documents do not specify a replacement index, your interest rate index will convert to a replacement index in accordance with regulations issued by the federal banking regulators, unless your loan is subject to a derivative or swap transaction. 

  • Question

    What replacement indexes were chosen by the federal regulators for commercial loans?
    Answer

    In March 2022, Congress passed the LIBOR Act, which applies to LIBOR-based contracts that do not include a specific replacement index for LIBOR.  In December 2022, the Federal Reserve issued final regulations implementing the LIBOR Act.  You may access a copy of these regulations here. 

    In accordance with the federal regulations, your index will convert as set forth below, unless your loan is subject to a swap transaction:

    • If your commercial loan is tied to 1-month LIBOR, your index will convert to 1-month CME Term SOFR plus a spread adjustment of 0.11448.
    • If your commercial loan is tied to 3-month LIBOR, your index will convert to 3-month CME Term SOFR plus a spread adjustment of 0.26161.
  • Question

    What will be my replacement index if my loan is subject to a swap transaction?
    Answer

    If your loan is subject to a swap transaction, your loan documents most likely include language that allows the Bank to choose a replacement index for LIBOR.  The Bank has selected the same replacement index for LIBOR that was chosen by the International Swaps and Derivatives Association (ISDA) and the federal regulators for derivative transactions, which is Fallback Rate (SOFR).  This avoids any economic mismatch between your loan and your swap transaction.

  • Question

    What is SOFR?
    Answer

    SOFR stands for the Secured Overnight Financing Rate. It is published and administered by the Federal Reserve Bank of New York. SOFR has been endorsed by the federal banking regulators as a reliable replacement index for LIBOR. You may learn more about SOFR here.

  • Question

    What is CME Term SOFR?
    Answer

    CME Term SOFR is another replacement index for LIBOR that has been endorsed by the federal banking regulators. CME Term SOFR is published and administered by CME Group and includes reference rates with terms of 1 month, 3 months, 6 months, and 12 months. You may learn more about CME Term SOFR here. 
     

  • Question

    What is Fallback Rate (SOFR)?
    Answer

    Fallback Rate (SOFR) is the spread adjusted compounded average of SOFR over a given term. It was selected and adopted by ISDA to replace LIBOR and is published by Bloomberg Index Services Limited. Fallback Rate (SOFR) has a LIBOR to SOFR historical spread adjustment built into its calculation that is consistent with the spread adjustments set forth in the federal regulations. You may learn more about Fallback Rate (SOFR) here. 

  • Question

    Why is a spread adjustment added to the replacement index?
    Answer

    The spread adjustments specified in The LIBOR Act and the implementing regulations are intended to address certain differences between SOFR and LIBOR, including the fact that LIBOR is unsecured and includes an element of bank credit risk that may cause it to be higher than SOFR.

  • Question

    Will my overall interest rate go up?
    Answer

    It depends. Your interest rate index will change, but any margin or spread set forth in your loan documents will not change. If there is a difference between your current LIBOR index and your replacement index, then your all-in rate may go up or down accordingly.

  • Question

    When will my interest rate index be converted?
    Answer

    Your interest rate index will be converted on July 1, 2023. 

    If you have a commercial loan, any billing statement or invoice that you receive for interest accrued in July and each month thereafter will reflect your replacement index.

  • Question

    Do I have to take any action to ensure my interest rate index converts to a replacement index?
    Answer

    No, you do not need to take any action to ensure that your loan is converted from LIBOR to a replacement index. In early May 2023, you will receive a written notice in the mail from Sandy Spring Bank regarding your replacement index.

  • Question

    Do I have to sign a new promissory note or loan agreement?
    Answer

    No, you do not need to take any action to ensure that your loan is converted from LIBOR to a replacement index. 

  • Question

    What if I have additional questions about the transition?
    Answer

    Please contact your relationship manager or banker with questions. You may also visit one of our branches or contact our Client Service Center at 800.599.3919.

Adjustable Rate Mortgages (ARMS)

  • Question

    When is LIBOR going away?
    Answer

    The London Interbank Offered Rate or LIBOR will no longer be published after June 30, 2023. In accordance with regulatory guidance, Sandy Spring Bank ceased making new LIBOR-based loans as of December 31, 2021.  

    Existing LIBOR-based loans that are scheduled to mature after June 30, 2023 require remediation, which means the LIBOR index will need to be replaced with an alternative interest rate index.  This change affects all financial institutions, including Sandy Spring Bank.

  • Question

    What will be my new interest rate index?
    Answer

    If you have an adjustable rate mortgage that originated before June 1, 2021, your loan documents provide that your variable interest rate is based on 12-month LIBOR and do not specify a replacement index. Your interest rate index will convert to a replacement index in accordance with regulations issued by the federal banking regulators.

  • Question

    What replacement indexes were chosen by the federal regulators for consumer loans?
    Answer

    In March 2022, Congress passed The LIBOR Act, which applies to LIBOR-based contracts that do not include a specific replacement index for LIBOR.  In December 2022, the Federal Reserve issued final regulations implementing The LIBOR Act. You may access a copy of the federal regulations here.

    If you have an adjustable rate mortgage that originated before June 1, 2021, your loan documents provide that your variable interest rate is based on 12-month LIBOR and do not specify a replacement index. In accordance with the federal regulations, consumer loans tied to 12-month LIBOR will convert to 12-month CME Term SOFR plus a spread adjustment.

    The regulations provide that for the first year after conversion, the spread adjustment will transition linearly each business day from the difference between 12-month CME Term SOFR and 12-month LIBOR the day immediately before the conversion date to 0.71513.  Commencing on the date that is one year after conversion and each day thereafter, the spread adjustment will be equal to 0.71513.
     
    The all-in replacement index (that is, the index amount plus the spread adjustment) for 12-month LIBOR will be published by Refinitiv Limited under “USD IBOR Cash Fallbacks” for “Consumer” products and may be accessed here.

  • Question

    What is SOFR?
    Answer

    SOFR stands for the Secured Overnight Financing Rate. It is published and administered by the Federal Reserve Bank of New York. SOFR has been endorsed by the federal banking regulators as a reliable replacement index for LIBOR. You may learn more about SOFR here.

     

  • Question

    What is CME Term SOFR?
    Answer

    CME Term SOFR is another replacement index for LIBOR that has been endorsed by the federal banking regulators. CME Term SOFR is published and administered by CME Group and includes reference rates with terms of 1 month, 3 months, 6 months, and 12 months.  You may learn more about CME Term SOFR here. 

  • Question

    Why is a spread adjustment added to the replacement index?
    Answer

    The spread adjustments specified in The LIBOR Act and the implementing regulations are intended to address certain differences between SOFR and LIBOR, including the fact that LIBOR is unsecured and includes an element of bank credit risk that may cause it to be higher than SOFR.

  • Question

    Will my overall interest rate go up?
    Answer

    It depends. Your interest rate index will change, but any margin or spread set forth in your loan documents will not change. If there is a difference between your current LIBOR index and your replacement index, then your all-in rate may go up or down accordingly.

  • Question

    When will my interest rate index be converted?
    Answer

    For adjustable rate mortgages, interest rate adjustments are determined 45 days before the adjustment becomes effective.  If your interest rate is scheduled to adjust on or before August 1, 2023, it will be adjusted based on 12-month LIBOR. If, however, your interest rate is scheduled to adjust on September 1, 2023 or any time thereafter, it will be adjusted based on 12-month CME Term SOFR plus a spread adjustment. Once your interest rate adjusts based on 12-month CME Term SOFR, any billing statements or invoices that you receive after that date will reflect this new index.

  • Question

    Do I have to take any action to ensure my interest rate index converts to a replacement index?
    Answer

    No, you do not need to take any action to ensure that your loan is converted from LIBOR to a replacement index.  In early May 2023, you will receive a written notice in the mail from Sandy Spring Bank regarding your replacement index.

  • Question

    Do I have to sign a new promissory note or loan agreement?
    Answer

    No, you do not need to take any action to ensure that your loan is converted from LIBOR to a replacement index. 

  • Question

    What if I have additional questions about the transition?
    Answer

    Please contact your relationship manager or banker with questions.  You may also visit one of our community banking offices or contact our Client Service Center at 800.599.3919.

New Variable Rate Loans and Lines of Credit

In accordance with regulatory guidance, Sandy Spring Bank ceased making new LIBOR-based loans in December 2021.

Sandy Spring Bank offers the following benchmark indexes for new variable rate loans:

  • SOFR (Secured Overnight Financing Rate) is the benchmark index for new variable rate commercial loans.
  • AMERIBOR is the benchmark index for new variable rate wealth-secured lines of credit.
  • SOFR is the benchmark index for new adjustable rate mortgages.

Thank you for trusting Sandy Spring Bank with your financial needs. Should you have additional questions about the transition from LIBOR, please contact your relationship manager, branch manager, mortgage representative or the Client Service Center at 800.399.5919, option 2.

This publication does not constitute legal, accounting, or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material. Information regarding LIBOR, SOFR, CME Term SOFR, and USD IBOR Cash Fallbacks came from their respective websites and is for informational purposes only.