Commercial Loan Pricing Update (April 2023)

As banking sector uncertainty that began in March worked its way into April, we saw a moderate downturn in activity volume. Based on continued news headlines around credit tightening, we examined activity across several dimensions for recent trends that may signal banks and bankers beginning to be more restrictive in pricing. Dimensions include:​

  • Funding costs​
  • Liquidity costs​
  • Loan loss provision costs​
  • Capital assignments​
  • Spread to index ​

We find banker respect for increases in funding and liquidity costs, along with rising spreads to index, are indications of a tightening environment. On the other hand, provision costs and capital assignments have not moved significantly upward year to date.

Other key takeaways from April's data:

  • The volume downturn combined with higher coupon spreads—a high point for SOFR-based structures and an uptick on the fixed-rate side back to Q3 2021 levels—which led to steady net interest margin measures​.
  • Fixed-rate structures continue to struggle relative to others for overall performance and cede volume to SOFR and SOFR swap structures, but fixed has gained ground in performance based on the inverted curve.  ​
  • An overall review of portfolio balance mix and contractual (maturity date based) roll off indicates 59% of balances are floating rate maturity through December 2024, and 32% are fixed.  ​

Volume Contracts Across Segments and for Most Institutions​

Banker pricing activity contracted in April compared to March but posts the second-highest activity year to date. We notice that, within banking segments, the downturn was consistent. The Community segment declined 6% month over month compared to 10% for the Regional+ segment, and 68% of institutions showed a downtick in pricing activity.​

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

Coupon Rate

The floating-rate coupon trend pushes upward, with Prime structures through 8% and SOFR at 7.45%. Both moved higher on increases in respective index value and spread. April results show banks' and bankers' ability to pass on higher costs to borrowers. In discussion with bankers, we hear more frequently now than we did earlier in the year about greater selectivity on deals to pursue. As balance sheet liquidity has been consumed over recent months, bankers are recognizing the value of increases in spreads on overall performance.

Coupon Rate by Month


Spreads to Index

SOFR moves upward for April to 2.56%. This is the highest measure we have published. As part of the credit tightening theme, higher spreads can contribute. In terms of balance mix, SOFR floating rate structures posted 43%, and SOFR swaps add 6%. SOFR structures overall represent nearly 50% of balances priced, and fixed rate brings in 27% of the total.

Spread to Prime rebounded back to 13 bps in April from 8 bps in March. The overall spread trend is down modestly from a run rate of about 20 bps since July 2022 to January 2023.  ​  

Weighted Average Spread to SOFR

Cost of Funds Moves Higher​

Cost of funds trends continue to diverge: SOFR structures' COF moves upward tracking the index value while fixed structures' COF drifts lower tracking the degree of the funding curve inversion. For April, this condition brings 5.55% for SOFR structures funding compared to 4.27% for fixed-rate structures.

We have reported on the increased liquidity premium trends in 2023. In this post, we report on the liquidity costs embedded within the overall funding costs mentioned above. This is a new reporting measure, so we pulled the recent trend for 2023. In addition, we found that liquidity costs are used more frequently by the Regional+ banking segment (more than $8 billion) compared to the Community segment (less than $8 billion). The results indicate that liquidity costs moved higher in April compared to Q1 2023 to 50 bps for the Regional+ segment. We will continue to monitor these trends.  

Cost of Funds by Month, Rolling Trend

Liquidity Premium Within Overall Cost of Funds

Net Interest Margin Holds

SOFR NIM held steady at 2.25% following the pass through of funding cost increases, including liquidity charges. Fixed-rate NIM improved on changes in the shape of the funding curve (variations in the inversion), not on banker resolve for improved performance. We cite the drop in coupon rate while all others increase month over month.

Net Interest Margin by Month, Rolling Trend

Spread Comparisons

We brought this chart with a long view of spreads to demonstrate that fixed-rate structures have rebounded since the Fed rate hikes began in March 2022. Up from the low of 150 bps, fixed-rate structures have moved to 200 bps. It is clear, though, that the inverted curve has helped the spreads more than banker-led pricing improvements.

Fixed-Rate Coupons Spread and Floating Spread to Index


Credit Risk Protections

We monitor credit risk protection measures within the pricing activity and report on them from time to time. We are sharing this baseline view for 2023 as part of measuring evidence of credit tightening standards across the Q2 PrecisionLender client base. We examined two key measures of credit risk: provision costs and equity allocation. For equity allocation, we found a moderate upward trend year to date from approximately 9.8% of earning assets to 10.05% in April. Turning to provision assignments, the Regional+ segment has consistently placed more protection than the Community segment at 45 bps versus 20 bps, respectively, on April activity.   ​

Provision Trends

Baseline Loan Portfolio Measures

We examined the expected roll off balances for commercial term loans (CRE, C&I) on a best effort basis. For Q2 PrecisionLender Relationship Awareness clients, we found approximately 25% of this book has contractual maturity by December 31, 2024, and the roll off pattern, by quarter, runs from 12% to 18%—the highest expected roll off is in the current quarter.  

In terms of rate type mix, 59% are identified as floating rate instruments. We examined the current yield by rate type and found that both floating-rate and adjustable-rate instruments carry 7.29% at the end of March 2023. Fixed-rate loans show 4.83% yield.

To capture the expected repricing gap on these loans—the expected increase in rate needed to retain the current NIM—we found floating- and adjustable-rate loans show 40 and 50 bps, respectively. Fixed-rate loans would need approximately 223 bps of rate increase to maintain NIM. Stated differently, rolling over current rates carries an implied NIM, or spread compression, of 223 bps. We will continue to monitor this baseline value. As market rates change over the coming months, this measure may contract or expand.  ​

Current Yield by Rate Type

Estimated Roll Off Concentration

Balance Mix

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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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