Banking Sector Performance

Regional banks shifted 62% of new loan originations to lower-risk commercial and industrial loans in 2025 after small business charge-offs drove non-performing assets to 46 basis points at First Bank. Banks are reducing small business exposure while targeting owner-occupied real estate and C&I segments.

The Federal Reserve cut rates 50 basis points in 2025 with Christopher Waller signaling another 50-100 basis point cut possible in 2026. Banks with variable-rate loan portfolios will sustain earnings from previous rate increases, while deposit-dependent banks face margin compression. PNC expects commercial real estate charge-offs of $200-225 million in Q4 2025 as weak office property fundamentals expose credit risks in rate-sensitive sectors.