Fourth-quarter results show a clear inflection for U.S. regional banks as rate cuts began to flow through balance sheets. Roughly 90% of institutions in the $100B–$1T asset range reported both sequential and year-over-year net interest margin expansion. Across the group, quarterly margin gains ranged from mid-single-digit to low-double-digit basis points, with year-over-year improvements reaching nearly 40 bps in some cases.
Deposit trends were also broadly supportive. About 70% of banks posted sequential deposit growth, while almost all reported higher deposits year over year. Funding costs continued to ease, helped by mix shifts away from higher-cost sources, contributing to margin improvement even where total deposits were flat.
Importantly, margin gains were not solely driven by one-time items. While non-recurring benefits added a few basis points for some institutions, underlying margin levels are expected to build gradually through 2026, with exit-rate targets clustering in the mid-3% range under current assumptions.
Not all banks moved in lockstep. A minority experienced mid-single-digit basis-point declines as rate cuts flowed faster into lower-yielding assets, highlighting that timing, asset mix, and deposit sensitivity remain critical differentiators.
The takeaway: the sector has shifted from rate-cycle pressure to execution. With funding costs trending lower and deposit bases stabilizing, margin performance in 2026 will be shaped less by policy moves and more by balance-sheet discipline.
Arnab Pandey 