19 Sep, 2025
Our September analysis of the Q2 PrecisionLender commercial loan and deposit pricing database takes a look at how pricing metrics have behaved since the end of July, in anticipation of the September 17 Fed rate cut.
We also continued our year-long comparison of new fixed-rate loans versus the Covid Era loans rolling off the books in 2025.
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.
Pricing volume is unchanged
Commercial loan pricing volume did not change from July to August, remaining above the January benchmark and slightly above the monthly average in 2025.
Priced Commercial Loan Volume
$ Indexed to January 2025 = 100
FHLB Curve Drops Across the Board
Market participants widely anticipated the Sept. 17 Fed rate cut and recent shifts in the FHLB curve support that expectation, with a universal drop across the length of the curve.
Market rates dropped 33 basis points from the July 31 snapshot to Sept. 13 for the 36-month point (3.99% down to 3.66%) and the 60-month point (4.10% down to 3.77%). This drop may influence bankers’ willingness to reduce coupon rates on fixed-rate loans. (Note that we elected to include the mid-September snapshot to get a better view of activity in the run-up to the Sep. 17 rate cut.)
Since the Aug. 30 snapshot we also saw the first movement of the 1-month rate in 2025, as it dropped from 4.47% down to 4.31%. This could be an indication that floating rate coupons may be moving lower as well.
FHLB Curve
Selected Dates
The curve inversion persists from the 1 to 60-month tenors, as it moved to -61 bps at the end of August before settling at about –54 bps last week. As for the steepness beyond the trough, the 24-120 month carry has remained in the +75 bps range since April.
FLHB Curve Carry
Between Common Tenors
Turning back to the potential significance of the near parallel 15-20 bps drop from the end of August to mid-September, we noted that this overall shift differs from what we saw in the time period around the previous Fed rate cut, in December 2024. From the Nov. 30 snapshot before the cut to the Dec. 31 snapshot in its aftermath, short-term rates dropped, while tenors beyond 12 months increased. Meanwhile, 1-month rates had been virtually unchanged all year, until now.
FHLB Funding Curve Shifts From Nov. 30-Dec. 31 2024
Across Common Tenors
One more data point to note: The 1-month CME SOFR index (not shown) has also dropped, from 4.34% at the end of July, to 4.28% by the end of August and then another 13 bps, to 4.15%, by mid-September. This index change will affect SOFR coupon rates.
Floating-rate spreads drop, while fixed-rate spreads remain steady
In addition to reductions in underlying market index rates, bankers eased up on spreads for both SOFR- and Prime-based loans. SOFR spreads in August (2.23%) were at the low end of the range for 2025, while Prime spreads (.02%) were at their lowest point since November 2024. Fixed rate spreads (not shown) moved up slightly by 3 bps (to 1.72%) but also remained at the low end of their recent range, well below the April mark of 1.92%.
All three spreads have not recovered in 2025 since dropping from the levels they reached in late 2024.
Weighted Average Spread to SOFR
Weighted Average Spread to Prime
SOFR and Prime coupons move in opposite directions
The SOFR coupon gave up 8 bps in August and has dropped another 11 bps thus far in September, as both spreads and the index value have dropped. This is the first time the SOFR coupon has dropped below 6.5% in 2025 after previously remaining in a tight range from 6.52-6.60%.
Meanwhile, the Prime coupon fell 4 bps in August but then bounced back up 16 bps thus far in September, as spreads have rebounded from the previously noted low mark in August.
The fixed coupon dropped 21 bps in August. This was driven by the month-over-month 24 bps drop in funding costs that was only slightly offset by the 3-bps improvement in spreads that month. The fixed coupon has since climbed up 2 bps in September.
Coupon Rate by Month
Rolling Trend
Funding costs drop
SOFR funding costs mirrored the FHLB curve, moving down by 12 bps in September, to 4.92%. Meanwhile, fixed-rate funding costs have dropped 30 bps (4.39% to 4.09%) since July.
All-in COF by Month
Rolling Trend
Fixed NIM steady while SOFR NIM falls
SOFR NIM fell in August (from 1.92% to 1.83%) as funding costs remained unchanged while spreads and the index value were both down. It has been unchanged thus far in September.
Fixed NIM moved up in August thanks to a slight increase in spread but has dropped back 2 bps so far in September.
NIM by Month
Rolling Trend
We use the NIM performance measure to capture the effect of pricing and funding. As we approached mid-September, revenue drivers eased and funding expectations moved consistently lower.
Deposit rates remain steady
Despite the drop in market funding rates, we observed no changes in deposit rates through August.
Interesting-Bearing Non-Time (MDDA, CWI, Savings)
Rate Paid
Roll-off watch: Modest improvements
As part of our continued examination of how bankers are handling the repricing of fixed-rate loans from the COVID era, we noted a slight improvement in performance thus far in Q3. NIM on new and repriced fixed-rate loans in July and August climbed up by 6 bps, closing the gap to the NIM of the roll-off loans to 22 bps (1.99% vs. 1.77%). Meanwhile the coupon rates and new and repriced Q3 fixed-rate loans increased by 7 bps, to 106 bps higher than the rates of the loans rolling off the books.
Roll-Off vs. New: NIM and Rates
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.
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