Commercial Loan Pricing Update (January 2023)

As we moved into the new year, Q2 PrecisionLender data reflected some of the effects of repeated rate hikes. Our key takeaways for January 2023:

  • Volume rebounded: The December 2022 to January 2023 volume increase is twice as high as the December 2021 to January 2022 posted.​
  • Market preference for SOFR continues, with fixed close behind.​
  • Deposit costs increased, and liquidity premiums are some of the highest we've seen in three years.​

Volume Rebounds

Mild holiday downticks at the end of 2022 rebounded quickly in January 2023 to 131. We note from banker conversations that many reported high closing activity during December (from pricing pipeline activity earlier in the quarter) and a fast start to 2023 indicated by January activity. The rebound from December 2022 to January 2023 activity is twice as high as the December 2021 to January 2022 posted.

Priced Commercial Loan Volume, by Month, Indexed to January 2022 = 100

SOFR and Fixed Are in a Two-Horse Race

Market preference for floating rate SOFR structures post 41% in the “two-horse race” with fixed-rate structures at 31% of January activity. Prime structures ebb to 11% for the same period, down from 14% for the fourth quarter 2022 and 16% in first quarter 2022. Currently, Prime structures carry a high starting point measured by the coupon rate shown to borrowers. We’ll continue to monitor this sensitivity to borrowing cost in the comparative volume of Prime-based structures versus alternatives.

Rate Type Mix, Selected Months

SOFR Spreads Remain Steady While Prime Spreads Move Up

Overall spreads to SOFR continue in the narrow range we’ve cited for several months—running between 2.45% and 2.50% of the index value. Bankers continue to protect the profitability of these structures.

Weighted Average Spread to SOFR

Meanwhile Prime-based structures moved up 7 bps to 20 bps, aligned with recent run rate since August.

Weighted Average Spread to Prime

Rate Hikes Push SOFR and Prime Coupons Above Fixed

Since November, when we last reported, there have been two Fed rate hikes, which have pushed SOFR and Prime coupons well above the fixed-rate alternative. During January, SOFR posted about 90 bps premium to fixed rate after being nearly equivalent only 60 days ago. Fixed coupons are responding to the market rate curve inversion—21 bps drop in coupon since November to now 6.02%. Prime coupons are now 80 bps over SOFR after being within 10 bps as recently as July 2022. This coupon premium for Prime structures may be deflating some borrower demand when alternative structures are considered.

Coupon Rate by Month, Rolling Trend

Comparing Fixed Versus Adjustable Structures

In November 2022, SOFR and fixed-rate funding costs were within 16 bps of one another. Since then, SOFR has moved upward while fixed has dropped—the funding cost difference is nearly 75 bps as of January. In this post, we’re bringing in adjustable-rate structures as a comparison. To get started, we note that funding costs are nearly equivalent for fixed and adjustable structures. More on the performance implications coming up.

Cost of Funds by Month, Rolling Trend

We've been reporting for several months about how fixed structures lag floating-rate structures. This condition remains true in January activity even though fixed has gained about 20 bps over the past seven months compared to slight decreases in the better-performing floating-rate structures. Meanwhile, adjustable-rate structures' NIM performance in recent months is consistently superior to fixed-rate and most recently superior to SOFR-based structures. Adjustables currently post 50 bps superior NIM to fixed and about 20 bps superior to SOFR.

Net Interest Margin by Month, Rolling Trend

Adjustable-rate structures carry a higher coupon and NIM compared to fixed-rate structures in recent months. In addition, adjustable rate appears less sensitive to curve inversion than the fixed-rate structure. We notice 38 bps premium in adjustables now. We noted the similarity of funding costs for both structures. Overall NIM performance leans toward the adjustable structures. Since October, for example, fixed coupons have decreased while adjustable-rate coupons have increased. This is because adjustable-rate structures have a variable rate component.​

Coupon Comparison

NIM Comparison

Fixed Rate Mix and Value

When we look at fixed rate as if it were multiple structures, we see there is variability in terms of value. ​These two groups—3- to 5-year structures and 7- to 10-year structures—make up about 70% of volume. The 3- to 5-year structures are increasing value more than the 7- to 10-year structures. The coupon spread is 2.13% versus 1.52%, respectively. From a coupon standpoint, staying inside the five-year mark is bringing more dollars of income, all else being equal. ​

Fixed Rate Volume Mix, Selected Maturities

Fixed Rate Coupon Spread, Selected Maturities

Deposit Costs and Liquidity Premiums Reflect Bank Strategy

Deposit costs as shown in Relationship Awareness indicate continued increases in rates paid to depositors. Time deposits were up about 100 bps since August, and interest-bearing non-time deposits were up about 80 bps.

Time Deposits Rate Paid

Interest-Bearing Non-Time Deposits Rate Paid

The rising deposit costs contribute to high liquidity premiums. Even though liquidity premiums are down a bit from November 2022, they're still some of the highest premiums we've seen in Q2 PrecisionLender since March and April 2020, during the pandemic. One reason for the January downtick is because the CD curve inverted. To sum it up, banks are seeking liquidity from their depositors and demonstrating that through increased deposit costs, in addition to liquidity premiums.

Q2 PrecisionLender Liquidity Curve

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

About the Market Update

Since March 2020, we’ve posted regular updates on the commercial loan pricing markets based on what we’ve seen when examining the Q2 PrecisionLender dataset. We look at several popular metrics and point out areas in which there have been noteworthy changes.  

Q2 PrecisionLender’s data reflects actual commercial opportunities priced (loans, deposits, and other fee-based business) by more than 150 banks in the United States, ranging in size from small community banks to top 10 U.S. institutions. In addition to their variance in size, these banks are also geographically diverse, with borrowers in all 50 states. 

If you’d like to see our previous loan pricing market updates, you can find them here. If you have questions about metrics that have appeared in previous posts but not this latest one, please reach out to us at

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