Regional bank CEO on private credit, impacts from AI

2026 might be off to a rocky start as investors digest Greenland threats, impending Supreme Court tariff and Federal Reserve-related cases, and the first row of fourth-quarter earnings. And as earnings season always starts, the big banks report first, followed by the regional banks. No doubt, there's a lot to look forward to.

Maybe even more so if you're a regional bank.

While the S&P Regional Banking ETF ($KRE) is up just 4.87% over the last 12 months, the ETF is up more than 17% since its Nov. 17, 2025, lows. By contrast, the S&P Financial Sector ($XLF), which includes larger banks, is up barely 4% from its own November lows.

Surely helping matters is Wall Street's notoriously selective memory. While investors have remained anxious about the health of commercial real estate (CRE) loans and investments since the pandemic, a private credit-related tumult that led to a protracted downturn in regional and larger multinational banks in October and November has gone by the wayside.

But to further understand the state of things in the regional banking sector, including where they could go from here, we sat down with John Buran toward the end of 2025. Buran is the CEO at Pershing Financial Corporation and Flushing Bank, which recently announced that it would merge with another financial organization.

We talked about the progress on the commercial real estate situation, the private credit question, and what might move the needle for the sector. Here's what he had to say:

The regional banking industry in 2026: An interview with Pershing Financial CEO John Buran

For the last few years, it seems like the big thing over regional banks' heads has been commercial real estate (CRE), but it seems like the entire sector is turning a corner. Can we talk a little bit about where we're at with that?

The whole area of commercial real estate remains a bit of a question mark. Our credit has been solid for many years, but there is a lot of activity with respect to office and issues surrounding the aftermath of the pandemic, but oddly enough, that appears to be turning around as well as Class A office space is starting to see a resurgence — certainly here in the north and definitely around the country as well, so we're starting to see loosening.

It's a combination of the Fed moves and the generation of new lending activity, which has been good for regional banking, and the trends are looking brighter than they did six to ten months ago.

It seems that maybe there's a lot of purging of excess taking place right now, with things sort of coming to a head. Is that the way to read it?

Yeah. I think it's a national thing: you're getting to a point where things are normalizing, and whatever valuations are being cleaned out of those types of valuations, people are taking a hit.

The other thing that has occurred is that a lot of institutions, particularly non-bank institutions, have been heavily involved in the CRE space and while there have been some abuses in terms of the banking system, the non-banks has seen much more stretching in prior years in terms of their underwriting criteria so a lot of what you're seeing today is the result of that.

There are certain things that were long-time poor practices in the industry like interest-only loans, anticipating rental increases in underwriting, things that tended to be more prevalent in non-banking and certainly at some banks but it looks out the shakeout is occurring and those valuations are coming down and you have this situation — especially in the small regional banking space — that stuck to a really conservative approach and we're coming out of this in good shape.

For example, we only had seven basis points of charge-offs in the last quarter (Q3), which is an excellent level of credit activity. And by and large, we're getting a stabilization taking place that, and the clearing taking place is good.

Let's talk a little bit more about the excesses. Private credit has been a hot-button issue in recent weeks, prompting a small selloff in the financial sector after the press around some of the recent auto-related failures. How is private credit affecting big banks or regional banks and whether it's not a systemic risk to the financial system at large if we continue to have what the industry has started referring to as "cockroaches."

We, by and large, stayed away from those types of practices, but clearly, you know, there are a couple of things going on.

One, of course, is that there's no one doing ... let's say, prudential examinations and risk examinations to those in private credit, so the whole idea of private credit is okay. We're going to build our protection into the yield, so you know, we [banks] may get margins in the 2.5 to 3% area, and they [private credit lenders] may be getting margins in the 9% area to cover the incremental times of stress.

In times of stress, though, it doesn't make much difference how much you know, how much space you have in the times of extreme stress, like the office market, for example, [auto].

We're not in the auto business, but I know auto is starting to feel a little bit of strain as well, so you know, you have those asset categories, and it's very, very easy to repeat the same mistakes that took place 15 or 20 years ago. And you know, you're saying, "things are going great." And thinking, that's something that even happened in the real estate business, where people over-lend in a low-rate environment, not realizing well or not, or ignoring the fact that we've seen this or say the same, and it's the same thing with respect to the credit cycle as well.

You know, economies go up, and economies go down. And then you have oddball events coming out of the blue. If you're not dotting your Is and Crossing Ts every minute of the day, you're gonna get hit by that.

I think it all comes down to underwriting, understanding, understanding your risks, and really being cognizant of the fact that environments that you may be dependent upon or overdependent upon don't last forever, and you've got to be flexible enough to get you to work your way through those leaner times, so to speak.

Just thinking, in recent memory, it's very interesting how regional banks have survived the pandemic. There were the naysayers who, after the Silicon Valley Bank implosion, were saying there'd be a contagion, similar to what happened during the Great Recession.

It seems like there's a credit reversion, but none of that strikes anybody as really existential in the way that some of the issues over the last few years have been presented. Do you think that regional banks are kind of tracking back to the mean?

That's 100% true, and the rate environment is helping that. I think there's a little bit of a wild card now with respect to how we don't know the ultimate effect of tariffs, so that's still kind of out there as a looming risk or an unknown that we certainly don't know for sure.

But you know, regional banks tend to not have a lot in terms of [activity of that nature] that would be major areas of problem. And even with the government shutdown, there are things like SBA Loans which [were] caught up ... and when it ends, there's a backlog. So, there's a little bit of anticipated positive activity in the business sector that may be deferred.

Obviously, it would be ideal that we get a nice bumper start to the quarter. However, I think a lot of Americans are worried about a slowdown. The economy has been driven by wealthy Americans and AI investment, so I am wondering if the economy does end up backsliding for any reason, how that might affect regional banks differently from large banks, and how that might look in the next 12 to 24 months?

I think I think we can separate — I want to call them temporary — things that are episodic in some way versus long-term trends.

So, you know, a lot of what we're talking about now are events associated with things that will probably be resolved at some point in time down the road. Then those are, let's call them, speed bumps that we're dealing with in the economy. The things I think are negative is, the time of the year that we're at, which is another kind of speed bump, is a time where [businesses] have not yet put their budgets together.

They don't know what they're going to be doing [for 2026.] So, nobody's hiring right now, and they're holding their own. And then the other reason why they're sitting in place is the AI, which, when you think about layering these things on, you have to think in terms of AI being the big layer and the thing that could have the most impact over a period of time — and then you have these other little bumps in the road along the way.

It certainly can indicate a more stressful situation. So, AI, though we're talking about improving productivity, it could also possibly have a negative effect on job creation. Maybe in the short term? It seems pretty optimistic that things will turn around because I really do think we're going to get a lot out of AI.

I think that seems to be a common theme among business leaders, which is interesting since it pales in comparison to the consumer view at times. People bring up the dot-com bubble a lot, and they talk about how lots of money was spent, and there's a long list of benefits that were ultimately realized from the shakeout or popping.

It's not a question of if there was long-term tangible benefit from telecom spending all that benefit in retrospect, but I am curious what factors could help bring regional banks towards parity with larger financial institutions — is the answer AI, consolidation, or a mix of things?

The big guys are far ahead of the regionals at this stage of the game, but what typically has occurred on all of these innovations is that the big guys spend millions and millions of dollars to be the first movers, and they clearly get the benefits of being the first movers.

But then the regional guys replicate what's going on, and then they chase spend. This pattern happened during the beginning of the digital age, where I was at Citibank at the time, and we developed our own computer banking system. Then, three or four years later, all of a sudden, people are selling it to regional Banks for 1/100th of the cost that Citi put in place to open it.

So there's a lot of that impact that takes place. These innovations are kind of game changers, too. When you think about the innovation that happened maybe 10 years ago or so, remote deposit all of a sudden allowed us as Regional Banks to be a provider of services in California, even while I was sitting in New York.

The demand for new technology keeps on rising and requiring additional investment, so you have those trends that are kind of standardized trends that stay in place, that are not changing, and those drive further consolidation of the industry.

Part of the reason I'm interested in the regional banking rebound, and I reckon others are as well, is because financials represent a pretty healthy portion of the Russell 2000's actually profitable companies. I think most people know that small caps are largely unprofitable, but if you're a small-cap investor, you're basically hoping that regionals have a solid track record because their success makes up for the low quality of the rest of the index.

That said, where do regional banks already boast advantages and have the opportunity to expand them?

They have a sphere of influence that is more well-defined, and as a result, they're able to focus much better on that particular sphere of influence and stay closer to those sub-markets that could be very profitable for them.

Having spent a lot of time at large banks — the beginning of my entire career was at large banks — they've got to offer the same thing to everybody, and so there's a great degree of a lack of customization. Now that's changing as well. Technology gives you some opportunity for customization, but when you're talking about lending to businesses, for example, particularly dealing with entrepreneurs, it's a very intimate, face-to-face, high-touch business, and I don't see that changing.

I think that small institutions will always have an advantage in dealing with that sector, that entrepreneurial sector, and taking those businesses up to a certain level. You may lose them when they get to be 100 million dollars in sales, but you generally retain some pieces of those businesses even as they grow.

To round this out, I wanted to talk about what you said earlier about being greatly optimistic. I'd love to hear more about that — what keeps you optimistic in your field, whether it's something close to home or broad about our economy or country?

I guess I would look at it this way. The bank started during the Great Depression, around 1929. We made it through the Great Recession. We made it through the liquidity crisis of 2023. We made it through the biggest run-up in funding costs since the 1980s.

So, it is hard not to be optimistic when I see the trends starting to reverse. We're starting to see long pipelines grow, and the economic environments, though they go up and down, are under control. I'm also very positive about the opportunities of AI in doing even small things.

Right now, we've got a little bit of a project going on where you have to review your loans on an annual basis — you have to review the businesses on an annual basis just to be sure that everything's working. Some of it is very labor-intensive, and we've already found ways of doing that in a much more efficient manner.

It's a small thing for us, but for the four or five people who have to do it on a daily basis, I can see those types of trends replicating themselves over time. I remember going through the whole digital situation where we went from electric typewriters to computers on desks. It took a while before the value of those things really was seen; it's kind of a slow build, and all of a sudden you wake up one day and say, "I used to have 20 people in this department, and now I have six." That type of productivity makes a big difference, and I think we'll see that in this round of innovation associated with AI.

Kind of wrapping this up in a neat bow, but does that ultimately boil down to job elimination, fewer people working in banks, or does this result in people landing in different sorts of positions and jobs?

"I think it creates new jobs. Think about the ratio between the manufacturing and service industries 15 years ago and today. Today, you're not going out to the grocery store as much; you're calling up Amazon to deliver your groceries. You're going out to dinner more than you ever did, or certainly more than my parents ever did.

The entire level of — I don't know if you call it satisfaction, but certainly the way you live your life — changes quite a bit. Now, if you want a box of paper clips, you can call up Amazon. You don't have to go to the hardware store and find out where they keep them, so things have changed so much.

I don't see any negatives associated with those changes. I just see positives because by generating more productivity, more output, and more value out of every throughput, you create this excess. That excess is then used to buy other things. As long as you're happy with having a consumer economy and saying that this is a good thing for either public policy or human beings themselves, you’ve got to feel that this is an optimistic or positive trend.

A note from TheStreet: Several weeks after this interview, Flushing Financial Corporation announced that it would merge with OceanFirst Financial Corp. and receive an investment from Warburg Pincus. They'll combine for $23 billion in assets, largely concentrated near the New York City metro area.

This interview was before that Dec. 29, 2025 announcement. However, it is an increasingly common result in the regional banking industry, where consolidation is becoming a popular way to scale in the face of challenge from both new fintech challengers and well-resourced big banks.