Regional Banks Find Margin Relief as Deposit Costs Dip
Smaller lenders are seeing net interest margins expand as the cost of funding eases and loan portfolios shift toward higher-yield products.
Coverage: 10 of 14 companies in this theme (CAC, LC, GCBC, GNL, FCFS, BGC, SHO, MRP, RPC, AHR) — a sample, not the full set.
Net interest margins are recovering for regional lenders as the pressure from rising deposit costs begins to subside. Camden National Corporation (CAC) saw its net interest margin expand by 20 basis points year-over-year as of March 31, 2026, while its core NIM rose by 24 basis points. This expansion was fueled by a 16 basis point decline in deposit costs to 1.54%.
Funding dynamics are shifting toward higher-yield instruments. Camden National (CAC) grew its HELOC portfolio by 21% year-over-year. The bank also saw a migration in its deposit base; while brokered deposits plummeted 45% and CDs fell 7%, savings and money market accounts grew 8%. The company expects this momentum to continue with a further 2 to 5 basis points of core NIM expansion in the second quarter.
Other small lenders are reporting similar margin gains despite rising overhead. Greene County Bancorp (GCBC) reported a net interest margin of 3.03% for the quarter ended March 31, 2026, a significant jump from 2.47% in fiscal year 2025. However, the bank faced a 12.3% increase in noninterest expenses, which rose to $11.3 million.
Credit quality remains stable across these portfolios, though concentrations vary. Greene County Bancorp (GCBC) maintains a heavy weighting in commercial real estate, which accounts for 65.9% of its total loans. Despite this exposure, its nonperforming assets to assets stood at 0.10% as of March 31. Camden National (CAC) reported nonperforming loans to total loans of 0.22%, a slight increase of 7 basis points year-over-year.
In the broader financial services space, consolidation is the primary driver of scale. FirstCash Holdings (FCFS) agreed to acquire Ramsdens Holdings for approximately $273 million, a move that will expand its global footprint to over 3,500 pawn locations. Ridgepost Capital (RPC) also expanded its reach by acquiring Stellus Capital Management, adding $3.8 billion in assets under management, the majority of which is held in permanent capital vehicles.
Real estate activity is characterized by strategic divestments and capital returns. Sunstone Hotel Investors (SHO) agreed to sell the Hyatt Regency San Francisco for $279 million, a transaction representing a 3.5% cap rate on net operating income. The company deployed nearly $70 million of those sale proceeds into repurchasing common and preferred shares during 2026.
Asset growth is diversifying for diversified lenders. Camden National (CAC) achieved 11% organic growth in assets under management. To manage risk, the bank reduced the proportion of residential mortgage sales to 49% of its originated volume, down from 55% in 2025. This shift, combined with synergies from its Northway acquisition, is intended to push its efficiency ratio into the mid-50s.