Commercial Loan and Deposit Pricing Market Update: June 2025

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Anna-Fay Lohn

Our June analysis of the Q2 PrecisionLender commercial loan and deposit pricing database, revealed a market that is getting more challenging for every type of pricing, but particularly for fixed-rate loans. While liquidity pressure remains high, the chance of another fed rate cut seems to be waning.

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 dips slightly but remains high

The pricing volume in May (117, indexed against July 2024 levels as 100) did drop from the April spike (129), but was still well above the average for the past 11 months (110). We have noted in previous posts that repricing activity was expected to be higher in Q2 2025 than Q1. This activity may be playing a role in the increased volume numbers over the past two months.

Priced Commercial Loan Volume in $
Indexed to January 2024 = 100

Floating-rate spreads remain stagnant

Last month we commented that spreads lacked resilience. That perspective remains when viewing the May numbers.

While spreads to SOFR did pick up 4 basis points (bps) in May (to 2.27%) they are still well below the levels in the second half of 2024, after the fed rate cuts. Prime rate spreads are little changed and posted 12 bps over the index during May.

Weighted Average Spread to SOFR

Fixed-rate spreads drop

Meanwhile the spread between the fixed-rate coupon and the cost of funds fell by 12 bps in May, from 1.92% down to 1.80%.

The coupon and COF charts later in this post will lay out the specifics, but this is essentially the result of bankers being unable to move fixed-rate coupons upward to keep up with rising funding costs. As with the volume story, repricing activity is playing a role. We will share more specifics on that later in this piece.

Fixed Rate Coupon Over COF

Funding curve rises with the biggest jump in the midsection

While the 1-month rate remained stationary when comparing the April 30 and May 30 snapshots, the rest of the curve rose, with the biggest increases occurring in the midsection. This shift appears to reinforce reduced expectations of future rate cuts.

FHLB Curve
Selected Dates

After a few months of growing inversion in the lower end of the curve, the negative carry from 1-60 months decreased by 18 basis points, from .50% on April 30 to .32% on May 30.

Meanwhile the curve flattened slightly (by 5 bps) in the 24–120-month section, as the increase for the 24-month term (26 bps) was slightly more than for the 120-month term (21 bps).

FHLB Carry
1 to 60 Months vs. 24 to 120 Months

Liquidity costs remain firm

While the market pricing for funding rose, the liquidity costs bankers have been using in their internal funding calculations remained firm. Liquidity costs for floating-rate loans rose by 1 bps (to .65%) and dropped by 2 bps on fixed-rate loans (to .39%).

Approximate Liquidity Cost
Rolling Trend

All-In COF rises for fixed-rate loans

As the previous sections indicate, all-in COF for fixed-rate loans jumped up in May, increasing by 15 bps to 4.41%. Meanwhile, all-in COF for floating-rate loans move up just one 1 bps, to 5.09%.

All in COF by Month
Rolling Trend

Deposit rates story remains the same

The charts for both Overall Deposit Rate Paid and Interest-Bearing Non-Time Rate Paid have varied little in 2025, particularly for the Regional+ segment.

Overall Deposit Rate Paid
Includes NIB Base

Looking back to August 2024 rates – just before the first 50 bps Fed rate cuts – we see that the deposit beta is 64 (3.77% to 3.13%) for Regional+ institutions, and just 17 (2.38% to 2.21%) for community institutions. While the deposit rates paid have moved downward less than generally expected over the past 8 months, by comparison the corresponding revenue generator, coupon rate, has moved downward more. We’ll have data on that in the next section.

Interest-Bearing Non-Time (MMDA, CWI, Savings) Rate Paid

Note: Deposit rate paid information is from portfolio snapshots sent from institutions throughout the month and is not a single month-end view.

Fixed-rate coupons continue to drop

Like deposit rates so far in 2025, coupon rates on floating rate loans have been largely stagnant since January, with Prime coupons down 7 bps during that period (7.68% down to 7.61%) and SOFR coupons dropping 2 bps (from 6.60% to 6.58%).

But looking back to August 2024 we see a 1.06% drop in the SOFR coupon and a .97% drop in the Prime coupon, both well above the aforementioned deposit betas, and roughly equivalent to the 100 bps fed rate cuts.

Meanwhile, after trending upward in the second half of 2024, fixed-rate coupons have shed 29 bps in 2025 (6.50% down to 6.21%), even after a 3 bps gain in May.

Coupon Rates by Month
Rolling Trend

Fixed-Rate NIM drops below 2.0%

It all adds up to a difficult picture for both floating-rate and fixed-rate NIM.

SOFR NiM increased 1 bps month over month, but is down 29 bps since January (2.09% to 1.80%). The combination of firm liquidity costs, static spreads, and unchanging base funding costs have combined to exert downard pressure on SOFR NIM.

Meanwhile, after an initial 32 bps jump in the immediate aftermath of the fed rate cuts in 2024, bankers have given back all their fixed-rate NIM gains and more.

A minor increase in the fixed-rate coupon failed to offset the much larger jump in funding costs in May, bringing fixed-rate NIM down to 1.99%, the first time it has been below 2.0% since early 2022, when the market was just emerging from the COVID period.

NIM by Month
Rolling Trend

Fixed rate new/renewed vs. roll-off:

Again, it should be noted that all of these fixed-rate metrics are occurring within the context of the large post-COVID repricing event we have been documenting throughout 2025. That repricing activity picked up in Q2, as the activity midway through the quarter had already matched the entirety of the activity in Q1.

While the fixed-rate coupon in May was not enough to offset increased funding costs, coupons on new/repriced loans so far in Q2 2025 have been 130 bps higher than the rates of the deals rolling off the books. (6.15% to 4.85%). That is an improvement over the 121-bps coupon move in Q1.

That coupon gain then decreased the NIM gap between loans rolling off (1.80%) and the repriced loans replacing them in Q2 (1.63%) down to 17 bps, a marked improvement over the 40 bps NIM shortfall in Q1 2025.

(The parameters for this ongoing analysis are listed below the chart.)

NIM and Rates, Roll-Off vs. New
2Q25

Analysis Parameters

• The KPI is 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.
• We also used the December 2024 snapshot to capture the expected /implied interest rate shock for each quarter in 2025. This estimate may change as 2025 progresses: the expected rate shock now for 4Q25 will likely not be same then as it is today. Rate shock is an estimation of how much additional interest expense borrowers could face if they refinance their loans rolling off in 2025 at current market rates.
• Note that the roll-on coupon and NIM are different than the overall fixed-rate pricing metrics. We attribute this variance to different data sources and timing.

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.