The Federal Reserve cut interest rates by 50 basis points in 2025. Fed Governor Christopher Waller indicated the central bank has room to cut another 50 to 100 basis points in 2026.
These cuts will create divergent performance paths for banks based on loan portfolio composition. Banks holding variable-rate loans—particularly those repriced during 2022-2023 rate increases—will maintain net interest margins as those loans stay at elevated rates despite falling deposit costs. Banks dependent on deposit spreads face margin compression as the gap between what they pay depositors and earn on new loans narrows.
PNC Financial expects commercial real estate charge-offs between $200 million and $225 million in Q4 2025. The bank cited weak office property fundamentals as the driver. This signals credit quality deterioration in rate-sensitive sectors where borrowers face refinancing challenges as property values decline.
The divergence matters for sector rotation. Banks with diversified loan books outperform CRE-heavy portfolios as rate cuts progress. Variable-rate commercial loans originated at higher rates continue generating income while new fixed-rate originations at lower rates drag down margins for competitors chasing volume.
Net interest income growth rates separate winners from losers. Banks that locked in variable-rate spreads during the rate-hiking cycle maintain earnings power. Those that competed aggressively on deposit rates during 2023-2024 now face compressed margins as they lower deposit rates slower than loan yields fall.
The 2026 rate environment tests portfolio construction decisions made during the hiking cycle. Banks that prioritized variable-rate lending and maintained pricing discipline on deposits enter the easing cycle with structural advantages. CRE exposure becomes a critical differentiator as office sector fundamentals remain weak and refinancing risk concentrates among properties financed at lower pre-2022 rates.
Investors should compare net interest margin trends across banks with different loan portfolio compositions. Rising charge-off rates in CRE-heavy banks signal credit costs will offset some margin benefits as rate cuts materialize through 2026.

