Seeing Beyond the Numbers in a Shifting Economic Landscape 

As community banks approach the 2026 planning horizon, the economic environment presents both challenges and opportunities. Falling interest rates, evolving commercial real estate dynamics, and changing borrower cash flows are reshaping how institutions think about portfolio health. In this context, stress testing and scenario planning are not just operational exercises, they are a lens through which banks can anticipate risk, understand sensitivity, and align strategy with emerging market realities. 

Why Stress Testing Matters Today 

The fourth quarter offers a unique vantage point for examining potential outcomes. By leveraging the most recent loan review data, institutions gain visibility into borrower performance trends and portfolio exposures, creating a bridge between historical performance and forward-looking insight. 

In today’s environment, stress testing illuminates questions that static reporting cannot: 

• How might incremental rate changes influence margins across different loan types? 

• Which segments of the commercial real estate portfolio are most exposed to valuation shifts? 

• Where could borrower cash flow pressures signal emerging risk? 

Approaching stress testing with this perspective adds  a valuable strategic tool to your portfolio analysis tool belt, giving leadership actionable insight during a pivotal planning period. 

Emerging Themes in Portfolio Sensitivity 

Interest Rate Dynamics – Even modest shifts in interest rates have ripple effects across portfolios. Sensitivity analysis reveals where income may be compressed, where repricing opportunities exist, and how rate volatility interacts with overall net interest margin. 

Commercial Real Estate Exposure – CRE continues to represent a focal point of portfolio concentration. Scenario analysis highlights segments most vulnerable to value shifts, occupancy fluctuations, or refinancing challenges, providing a view into potential systemic and borrower-specific impacts. 

Borrower Cash Flow Pressures – Rising operating costs and margin constraints are influencing borrower behavior. Observing these patterns through loan-level data enables banks to anticipate repayment stress and evaluate the broader implications for portfolio performance.