Banks have spent two years rebuilding their balance sheets. The FDIC’s latest numbers confirm it worked.
The FDIC’s Quarterly Banking Profile for the first quarter of 2026 shows an industry in recovery: Deposits grew for a seventh consecutive quarter, loan balances expanded at their fastest annual pace since mid-2023, and net income rose from both the prior quarter and the year-ago period. Domestic deposits climbed nearly $390 billion during the quarter, while total loans and leases grew 7.1% from a year earlier to $13.7 trillion. Commercial and industrial lending drove the strongest annual loan growth rate since the second quarter of 2023.
But recovery and profitability are not the same thing. Net interest margins remain under pressure, and traditional lending economics are harder to count on. That reality is pushing banks to find revenue where the rate cycle can’t touch it.
Net Interest Margins Dip
At the same time, however, net interest margin declined to 3.31%, down eight basis points from the previous quarter. Asset yields fell more quickly than funding costs, compressing the spread between what banks earn on loans and securities and what they pay for deposits and other funding sources.
That spread remains one of banking’s foundational profit drivers. When margins widen, institutions can generate greater earnings from the same balance sheet. When margins narrow, growth alone does not necessarily translate into stronger profitability.
The first-quarter results illustrate that reality. Quarterly earnings improved, but much of the increase came from noninterest income rather than traditional lending activity. The FDIC reported that noninterest income rose 5.8% from the prior quarter, supported by higher trading revenue and gains on loan sales, while net interest income declined 0.8%.
Banks are also contending with a renewed rise in unrealized securities losses. Those losses increased by $19 billion during the quarter to $325.1 billion, reflecting higher long-term rates and declines in the value of mortgage-backed securities. Although those losses remain well below year-ago levels, they serve as a reminder that interest-rate volatility continues to influence bank earnings and capital management.
Beyond the Spread
As lending economics become more difficult to forecast, many institutions are looking beyond spread income for growth. Payments, treasury services, cross-border money movement, embedded finance and digital distribution increasingly represent revenue opportunities that are less dependent on interest-rate cycles.
PYMNTS Intelligence research points to several areas where banks are already moving in that direction. By way of example, we noted in our report “Global Money Movement: How Digital Wallets Are Transforming Cross-Border Payments,” 62% of banks in the United States and United Kingdom that are pursuing innovation in cross-border payments said they are exploring partnerships with FinTechs. The report argues that banks face a strategic decision about whether digital wallet providers and FinTech firms should be viewed as collaborators or competitors in the evolving payments landscape.
Elsewhere, PYMNTS Intelligence’s “Credit Union Innovation Readiness: How Credit Unions and FinTechs Are Innovating Together,” done with Velera, found that 56% of credit unions say external partners help them innovate at a much faster pace or larger scale than they could achieve internally, more than double the level reported earlier in 2025. The research also found that 61% cite faster implementation of innovative solutions as a key benefit of partnerships, while 66% expect external partners to support mobile and digital payments initiatives over the next three years.
Banks that can connect customers to broader payment networks, treasury tools and embedded financial services may be able to diversify revenue streams at a time when net interest margins remain vulnerable to changes in rate policy and deposit competition.
