27 Oct, 2025
Our October analysis of the Q2 PrecisionLender commercial loan and deposit pricing database takes a look at the immediate period following the mid-September 25 bps Fed rate cut. We examined shifts in borrowing costs and deposit costs in comparison to shifts around the September 2024 Fed rate cut.
We also took a closer look at pricing performance at the segment level for community institutions.
Read on for more details.
Data Notes:
• When we discuss the cost of funds (COF) on loan pricing activity, we refer to the marginal duration matched funding cost employed in pricing, not the bank’s actual average (historical) cost of funds.
• We define Regional+ as institutions with $8B+ in assets, while Community are <$8B.
Volume reaches new high mark
Commercial loan pricing volume in September reached a new high mark for 2025, with an indexed value of 122. The growth came more from the regional+ segment than the community sector. (We’ll have more regional+ and community comparisons later in this update.)
Commercial Loan Pricing Volume
Indexed to January 2025 = 100
FHLB curve inversion drops at key term points
During September, short- and long-term end of the FHLB curve dropped by about 20 basis points (bps) month over month, as shown in the 1- and 3-month points and the long end 240- and 360-month points.
However, the downward shift was not universal throughout the curve. Instead, the mid-section of the curve, which serves as the base funding costs reference for fixed-rate loans, increased ~5 bps in the 24–60-month range (circled in red in the chart below).
FHLB Curve
Selected Dates
Though the 60-month rate did increase in September, the overall trend in 2025 remains a clear downward slope.
FHLB 60-Month Rate
2025 Trend
The drop in the 1-month point along with the increase at the 60-month point combined to decrease the inversion trough by 24 bps in September, to -37.
FHLB Curve Carry
Between Common Tenors
Funding costs drop
Funding costs fell for both SOFR and fixed-rate structures. As noted above, the 1-month point on the FHLB curve dropped 20 bps from the Aug. 30 snapshot (4.47%) to Sep. 30 (4.27%). This drop was partially offset by a 4-bps increase in SOFR liquidity costs, up to 0.60%.
Though the FHLB curve 60-month point rose 5 bps from the Aug. 30 snapshot (3.86%) to Sept. 30 (3.91%). But during the month in between, the average 60-month point was 11 bps lower than the Sept. 30 snapshot. This move, along with a slight dop in fixed liquidity costs (down 1 bps to .31%) explained the 13-bps drop in all-in COF for fixed structures in September (from 4.15% to 4.02%).
All-in COF by Month
Rolling Trend
SOFR liquidity costs for September (0.60%) were at the high end of their 12-month range of 50-64 bps. In contrast, fixed liquidity costs (0.31%) are toward the low end of their 12-month range (28-44 bps).
Approximate Liquidity Cost
Rolling Trend
Deposit rates finally drop
Overall deposit costs fell month-over-month by 5 bps in the regional+ segment and 6 bps in the community segment. This change compares similarly to the drop from August to September 2024 of 8 bps (regional+) and 4 bps (community) Aug-Sept change 2024 of 8 and 4 bps. However, the September 2024 rate cut was 50 bps, compared to 25 bps in September 2025. We will continue to monitor how responsive institutions are to this movement.
Overall Deposit Rate Paid
Includes NIB Base
Next, we turned to CD portfolios and found a month-over-month decrease of 4 bps for both segments, matching the Aug.-Sept. 2024 change.
CD Portfolio Rate Paid
Finally, interest-bearing non-time deposits, which includes many management-set rates, dropped 11 bps month-over-month for regional+ and 8 bps for community. These drops are similar to the 10 bps (regional+) and 11 bps (community) drops a year ago.
Within this group, which is a bellwether for rate elasticity, we found about 25% of the financial institutions moved downward by 15 bps or more, with 2/3 of those coming from the regional+ segment.
Interest-Bearing Non-Time (MMDA, CWI, Savings) Rate Paid
Spreads held steady to expanded in September
Underlying market index rates moved lower, due to the Fed rate cut, contributing to reductions in revenue, but bankers held on to spreads in September compared to August.
Spreads to SOFR were unchanged, at 223 bps. This level was held both before and after the mid-September rate cut.
Weighted Average Spread to SOFR
Prime rate spreads gained ground for the first time since March. The regional+ segment led the increase, to 16 bps. Previously prime spreads had trended lower in 2025, so we’ll continue to watch this metric to see if the September shift stabilizes.
Weighted Average Spread to Prime
Finally, fixed-rate spreads showed a modest improvement of 1 bps, up to 1.73% in September.
Fixed Rate Coupon Over COF
Fixed and SOFR coupons fall; Prime coupon remains stable
The combination of lower funding costs and stable spreads resulted in lower coupon rates for both SOFR and fixed-rate structures. SOFR coupons fell by 16 bps, while fixed-rate coupons dropped by 13 bps, tracking the COF drop from August to September.
Coupon Rate by Month
Rolling Trend
NIM stable in short-term, down for the year
Despite stable spreads, fixed-rate NIM dropped 4 bps in September due to lower fee income. SOFR NIM was essentially static, as the lower coupon tracked lower funding costs.
Looking back to the beginning of this round of rate cuts in September 2024, fixed-rate NIM is down 31 bps (2.35% to 2.04%), while SOFR NIM is down 13 bps (1.95% to 1.82%). Bankers have not expanded performance beyond market spreads, funding costs, and liquidity costs.
NIM by Month
Rolling Trend
Community segment analysis: Varied performance on fixed and floating spreads
Returning to our regular check-in on key revenue drivers within the community segment, we found some interesting developments.
After normally performing well above the rest of the overall market in July and August, spreads to prime in the community segment fell below the average in September (0.14% to 0.16%) as regional+ institutions drove the previously noted increase in the overall metric.
Spread to Prime
Community vs. Overall
Community institutions lost spread on SOFR-based loans in September (down 11 bps to 2.55%) while the overall metric was static month-over-month.
Spread to SOFR
Community vs. Overall
It was a different story with fixed-rate spreads over COF, where the community segment pushed up its performance by 18 bps in September (from 2.30% to 2.48%) while the overall metric was static month-over-month.
Fixed Rate Spread Over COF
Community vs. Overall
Roll-off watch: NIM gap widens; coupon gap narrows
As we continue to monitor how coupon rates and NIM for pandemic-era loans rolling off the books in 2025 compare to loans that are being newly priced/repriced now, it’s worth returning to our rules of the road for the analysis.
• The KPI will be the degree (+/-) to which original NIM compares with NIM for new and renewed loans. It is not a record-for-record match of matured loans and their replacement attributes.
• Using the December 2024 portfolio snapshot as the basis, we’ve aggregated 2025 roll off activity by quarter and presented static coupon measures associated with each quarter. These values may change as 2025 progresses due to early payoffs, curtailments, or other activity.
As noted at the beginning, September featured a high volume of new/repriced fixed-rate loans. The NIM gap between those loans (1.72%) and the roll-off loans in Q3 (1.99%) grew by 5 bps from August to September. Meanwhile, the gap between the coupon rates on the new/repriced fixed-rate loans (6.16%) and the roll-off loans in Q3 (5.24%) fell by 14 bps from August to September (1.06% to 0.92%). For the nine months in 2025, replacement NIM has fallen short of the roll off NIM by ~25 bps.
Roll-off vs. New/Repriced: NIM and Coupons
Got questions?
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.