A recent U.S. banking sector report from Jefferies provides commentary on the latest H.8 loan data and interest rate updates. According to the Federal Reserve's weekly H.8 data through December 17, the non-annualized average quarterly loan growth for the fourth quarter of 2025 to date (4QTD) stands at 1.4%. This figure surpasses the 10-year historical average for the same period of 1.1% and matches the 1.3% growth recorded in the third quarter of 2025. Commercial & Industrial (C&I) loans, which include non-depository financial institutions (NDFI), have shown a non-annualized growth of 2.1% for 4QTD. This performance is notably higher than the 10-year historical trend for this category (including NDFI) of 0.7%. Conversely, Commercial Real Estate (CRE) loans have experienced a non-annualized growth of just 0.7% for 4QTD, falling short of its 10-year historical trend of 1.4%. Federal funds futures indicate a 16% probability of a 25-basis-point rate cut at the Federal Open Market Committee (FOMC) meeting on January 28. Looking further ahead, the market prices a 34% chance of two rate cuts from the current target range of 3.50%-3.75% by the June 17, 2026, meeting. Interest rate curve signals remain mixed: the spread between the 1-month Secured Overnight Financing Rate (SOFR) and the 5-year U.S. Treasury yield held in negative territory at -0.05%, narrowing by 4 basis points from the prior week but widening by 34 basis points over the past 90 days. Meanwhile, the spread between the 2-year and 10-year U.S. Treasury yields remained positive at +0.65%, narrowing by 1 basis point from the prior week but widening by 14 basis points over the last 90 days. The Federal Reserve's weekly H.8 data through December 17 reaffirms a non-annualized average quarterly loan growth of 1.4% for 4QTD, exceeding the 10-year historical average of 1.1% and equaling the 1.3% growth seen in the third quarter of 2025. Based on the H.8 data, the most significant loan growth category for 4QTD is loans to Non-depository Financial Institutions (NDFI), which posted a non-annualized growth of 5.6% this quarter to date. This compares to an NDFI loan growth of 7.5% in the third quarter of 2025. Large banks saw their NDFI loans grow at a non-annualized rate of 5.2% (compared to 7.4% in Q3), while small banks experienced non-annualized NDFI loan growth of 8.2% (compared to 8.5% in Q3). Consumer loans grew at a non-annualized rate of 1.6% for 4QTD, up from 0.9% in the third quarter of 2025. This increase was primarily driven by small banks, which saw growth of 2.4% (up from 2.0% in Q3), while large banks recorded non-annualized consumer loan growth of 1.4% (up from 0.7% in Q3). C&I loans excluding NDFI grew at a slower pace than consumer loans, showing a non-annualized growth of 0.0% (flat) for 4QTD, slightly below the 10-year historical average of 0.1%. In the third quarter of 2025, C&I loans excluding NDFI had declined by 1.5%. The growth in C&I loans excluding NDFI for 4QTD was driven by small banks, which posted a non-annualized increase of 0.2% (the same as in Q3 2025). In contrast, large banks saw a decline, with a non-annualized decrease of 0.1% for 4QTD (compared to a -2.3% decline in Q3). C&I loans including NDFI grew at a non-annualized rate of 2.1% for 4QTD, outperforming the 10-year historical average of 0.7%. Both large banks (non-annualized growth of 2.2%, up from 1.6% in Q3) and small banks (non-annualized growth of 1.7%, up from 1.6% in Q3) contributed to this growth. Residential real estate loans saw moderate growth, with a non-annualized increase of 0.6% for 4QTD, compared to 0.7% in the third quarter of 2025. Large banks' residential real estate loans grew by 0.4% (up from 0.2% in Q3), while small banks' grew by 1.0% (down from 1.4% in Q3). Commercial Real Estate (CRE) loans returned to positive growth with a non-annualized increase of 0.8%, although this remains below the 10-year historical average of 1.4%. CRE loan growth was 0.4% in the third quarter of 2025. Small banks' CRE loans grew at a non-annualized rate of 0.8% for 4QTD (up from 0.6% the previous quarter), while large banks' CRE loans grew by 0.7% (a rebound from -0.2% in Q3). As of December 17, end-of-period (EOP) deposits increased by $97 billion, or 0.6%, reaching a total of $17.4 trillion. Large bank deposits rose by $93 billion (0.8%), while small bank deposits increased by $6 billion (0.1%). Meanwhile, total borrowings increased by $11 billion, a non-annualized growth of 0.9%. Large bank borrowings rose by $13 billion (a 1.2% increase from the prior week), while small bank borrowings remained flat week-over-week. According to the Federal Reserve's H.4.1 report (through December 17), discount window borrowings increased by $531 million from the prior week. The balance of the Federal Reserve's primary credit program (the discount window) increased by $531 million to $8.87 billion. The average balance for the week was $8.85 billion.
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