Fourth-quarter loan payoffs at regional banks totaled $135 million in Q4 2025, nearly equaling the combined $140 million from the first three quarters, according to Andrew Hibshman. The prepayment spike represented 47% of all annual payoffs, creating unexpected liquidity management challenges.
Total deposits declined $21 million during the quarter, driven mainly by a $27.1 million drop in specific deposit categories, Hibshman reported. The outflows coincided with Treasury yield volatility—the 10-year benchmark swung from -0.6 to +10 basis points within one week, triggering portfolio repositioning across retail and commercial depositors.
Time deposits fell $38 million, an 18% annualized decline, as banks reduced exposure to high-cost funding, according to Darleen Gillespie. The drawdown comes as $800 million in CDs mature in the first two quarters of 2026, with weighted average rates creating repricing pressure, Michele Kawiecki noted.
The timing mismatch between accelerated loan prepayments and deposit volatility squeezed quarterly funding despite stable annual loan growth. Banks now face a concentration risk: roughly 40% of their CD book reprices within six months, potentially at lower rates if depositors seek alternative investments.
Peter Cahill emphasized the $135 million Q4 figure represented an anomaly compared to quarterly averages of $35-40 million earlier in 2025. The prepayment velocity suggests borrowers anticipated either refinancing opportunities or needed liquidity ahead of economic uncertainty.
Regional banks must now navigate $800 million in CD maturities while managing deposit pricing to retain customers. The Q4 dynamics indicate depositors are actively managing rate risk rather than maintaining static positions, forcing banks to compete on pricing or accept runoff.
Net interest margin compression is likely if banks increase CD rates to retain maturing deposits while loan yields decline from prepayments. The Q4 2025 pattern shows heightened sensitivity to rate expectations rather than actual Fed moves, complicating liquidity forecasting for 2026.