Our August analysis of the Q2 PrecisionLender commercial loan and deposit pricing database looks at July 2026 activity, and for the first time in several months, the picture is broadly positive. Spreads expanded across all three rate structures, coupons rose in tandem, and net interest margin improved on both fixed and floating deals.
July was also notable for what happened on the fixed side specifically. Fixed-rate spreads had been narrowing since January, and July marked the first month to reverse that trend. Meanwhile, the funding curve continued to steepen, keeping upward pressure on fixed-rate funding costs even as bankers managed to push revenue higher.
Deposit rates, for their part, haven't followed the path many treasury officers anticipated when the Fed cut rates last fall. With loan activity remaining strong, deposit pricing dynamics may bear watching in the months ahead.
Read on for more details.
Data Notes
Pricing activity remained strong in July, with volume coming in as the second-highest month of the year. The Q2 PrecisionLender activity index—now benchmarked to January 2026 = 100—averaged 114 through the first seven months of the year, with July landing above that average.
Priced Commercial Loan Volume
Indexed to January 2026=100
Month-over-month measures of pricing activity volume show consistency and expansion over the past 18 months.
July brought a notable shift in the spread picture. All three rate structures—fixed, SOFR, and Prime—expanded month over month. For fixed-rate deals, July marked the first uptick in spread since January. On SOFR structures, April represented the low point, and spreads have now moved higher in each of the three months since.
Weighted Average Spread to SOFR
Weighted Average Spread to Prime
Fixed-Rate Spread Over COF
Fixed-rate spread over COF rose 12 bps (1.41% to 1.53%), the largest single-month gain on the fixed side in some time. SOFR spreads rose 4 bps (2.12% to 2.16%), and Prime spreads moved similarly higher.
We will continue to monitor roll-on spreads for supporting evidence of spread momentum.
With spreads expanding across the board, coupons followed. All three structures posted month-over-month increases in July, with fixed-rate deals seeing the largest move.
Coupon Rate by Month
Rolling Trend
Fixed-rate coupons rose 23 bps (5.90% to 6.13%), putting fixed above its January 2026 level for three consecutive months. SOFR coupons rose 10 bps (5.74% to 5.84%), while Prime coupons added 6 bps (6.77% to 6.83%). SOFR and Prime remain roughly in line with where they started the year. The fixed-rate move is the more significant departure, driven by widely reported increases in market interest rates this year.
The Q2 PrecisionLender all-in marginal funding curve shifted upward across its entire term structure in July. Short-term rates rose modestly. The one-month point was up approximately 8 bps at month-end while longer-term rates moved considerably more. The five-year point rose 24 bps, and the 10-year point rose 30 bps, adding further steepness to a curve that has been tilting in this direction for several months.
Q2 PrecisionLender All-In Marginal Funding Curve
On a monthly average basis, one-month SOFR came in at 3.69% in July versus 3.65% in June. The five-year Treasury averaged 4.32% versus 4.21% in June. The steepening shape means that fixed-rate pricing is being done against an increasingly expensive benchmark when loan terms extend. Variations in maturity have more effect on fixed-rate loan pricing now compared to six months ago.
The movement in the funding curve translated into higher fixed-rate funding costs in July. All-in fixed COF continued its upward march and is now 34 bps above where it started the year. That persistent increase has pushed fixed-rate funding costs above SOFR funding costs, a reversal of a relationship that held for most of the past year.
All-In Cost of Funds by Month
Rolling Trend
SOFR funding costs, by contrast, have remained relatively stable year-to-date, ending July at 4.35%. The divergence between fixed and floating funding costs is one of the more significant structural shifts in the pricing equation this year.
With costs rising but revenue rising faster, NIM improved in July across both deal types. Fixed NIM rose 14 bps (1.70% to 1.84%). Essentially the full spread expansion flowed through to margin. SOFR NIM improved 8 bps (1.70% to 1.78%), supported by both the spread increase and additional fee income on floating deals.
Net Interest Margin by Month
Rolling Trend
July’s NIM data point is a positive move at midyear 2026—but a single move. We will continue to monitor the composition and movement of NIM measures in the months ahead.
The Federal Reserve cut short-term rates by 75 bps last fall, but deposit rates in the Q2 PrecisionLender portfolio have not followed that move lower—at least not by anything close to that magnitude. With loan activity running at elevated levels, banks appear to be prioritizing the retention of existing deposit sources over repricing them down.
Interest-bearing non-time deposit rates for Community banks edged up 4 bps in July (1.99% to 2.03%). Regional+ rates held flat at 2.72%. CD rates, which had been declining through much of 2026, showed the same pattern: up 2 bps for Community and flat for Regional+. Deposit balances, meanwhile, remain flat year to date.
Deposits have held their relative value as a prime funding source for FIs, evidenced by the fact that rates paid have not declined in step with the Fed's moves. A recent uptick in interest-bearing non-time rates may indicate that some institutions see room to raise deposit pricing to attract incremental balances as loan demand stays strong. It will be interesting to see whether that tendency continues.
Our banking consultants and data scientists are combing through Q2 PrecisionLender pricing data every day. If there is anything you'd like to know about what they're seeing, please send your questions to insights@q2.com.