Regional banks in the United States recorded concentrated credit losses in small business lending during 2025, prompting a strategic shift toward commercial and industrial loans—a pattern emerging across developed markets as monetary tightening strains smaller borrowers.
First Bank's non-performing assets reached 46 basis points of total assets in Q4 2025, up from 36 basis points the prior quarter. Chief Credit Officer Andrew Hibshman said charge-offs occurred "almost exclusively in the small business portfolio," echoing trends at regional lenders in Australia and Canada where small business defaults have climbed throughout 2025.
The bank redirected originations toward C&I and owner-occupied real estate, which comprised 62% of 2025 lending according to Chief Lending Officer Peter Cahill. CEO John Martin projected charge-offs "in a 15-20 basis-point range" ahead, signaling sustained pressure on small business segments.
The shift mirrors credit quality deterioration in small business lending globally. European banks tightened standards on SME loans in 2024 as the European Central Bank's rate increases pressured borrowers. UK small business insolvencies rose 30% year-on-year in Q3 2025, according to government data.
Regional banks in the US hold higher concentrations of small business loans than larger institutions, making them more vulnerable to sector-specific stress. C&I loans and owner-occupied commercial real estate historically carry lower loss rates during credit cycles due to stronger covenants and borrower involvement in underlying assets.
Small business loans typically show stress earlier than other commercial segments during economic downturns due to thinner capital reserves and revenue volatility. The portfolio rebalancing reflects proactive risk management as uncertainty extends into 2026.
Regional bank investors are monitoring non-performing asset ratios and charge-off guidance as credit cycle indicators. Banks with high small business exposure face pressure to demonstrate prudent risk management while meeting loan growth targets in a slowing economy.
Sources:
1 Globe Newswire, "Willis partners with Circle Asia to launch Asia’s first insurance facility for collectors and galler" (March 23, 2026)
2 Yahoo Finance, "CNOOC Names Huang Yongzhang as Chief Executive Officer" (March 23, 2026)
3 Yahoo Finance, "First Bank Q4 Earnings Call Highlights" (January 27, 2026)
4 Yahoo Finance, "First Bank (FRBA) Q1 2025 Earnings Call Transcript" (January 26, 2026)
5 Yahoo Finance, "Varex Imaging Says Demand Steady Despite Geopolitics; Tariff Relief to Lift Margins, India Ramp Ahea" (March 22, 2026)