How Interest Rate Declines Are Reshaping Banking Net Interest Income

The U.S. banking sector is experiencing a pivotal shift as falling interest rates reshape profitability dynamics. Among regional banks faring through this transition, M&T Bank Corporation MTB, Fifth Third Bancorp FITB, and U.S. Bancorp USB are demonstrating different trajectories in managing net interest income expansion.

The Peer Comparison: Who’s Faring Better?

Net interest income performance across major regional banks reveals distinct patterns. U.S. Bancorp is faring with resilience, posting a five-year CAGR of 4.4% through 2024. The bank reported NII (tax-equivalent basis) of $4.251 billion in the first nine months of 2025, representing 2% year-over-year growth. Its net interest margin stood at 2.75% as of September 30, 2025, compared to 2.74% the prior year.

Fifth Third Bancorp is faring with stronger momentum, achieving a five-year CAGR of 4.2% through 2024. During the first nine months of 2025, the bank’s NII surged 6.2% to $4.4 billion on a tax-equivalent basis, while its net interest margin expanded to 3.10% from 2.88% year-over-year. Management guidance projects adjusted NII growth of 5.5–6.5% for 2025.

M&T Bank’s Commanding NII Expansion Strategy

M&T Bank is faring exceptionally well in NII growth, having registered a robust 15.4% CAGR over the past five years ending 2024. In the first nine months of 2025, NII climbed nearly 1% year-over-year, setting the stage for continued expansion.

The bank’s outlook reflects optimism around rate dynamics. Following the initial rate cut in 2024 and three successive reductions in 2025, the federal funds rate now ranges from 3.50% to 3.75%. This easing cycle creates multiple tailwinds for M&T Bank’s profitability.

Lower funding costs and margin expansion. As rates decline, the cost of deposits and borrowings stabilizes, directly supporting NII growth. M&T Bank’s management expects net interest margin to remain in the mid-to-high 3.60% range in 2025, compared with 3.58% a year prior.

Improved credit quality. Reduced interest rates ease debt servicing burdens for borrowers, enhancing repayment capacity. This dynamic typically lowers delinquency rates and charge-offs, improving overall asset quality and reducing loan loss provisions.

Accelerated lending demand. As borrowing becomes more affordable, consumers and businesses expand credit utilization. Increased loan origination volume translates directly into higher interest income for banks like M&T.

Financial Guidance and 2025 Outlook

M&T Bank’s management has provided concrete guidance reflecting confidence in NII expansion. For 2025, the bank projects net interest income (tax-equivalent basis) between $7.05–$7.15 billion, up from $6.9 billion in 2024. Average loan and lease balances are expected to reach $135–$137 billion in 2025, compared with $134.7 billion in 2024.

These projections underscore how the bank is faring through the current rate environment by leveraging balance sheet growth to drive NII.

Looking Ahead to 2026

At the Goldman Sachs 2025 U.S. Financial Services Conference, M&T Bank’s leadership outlined a cautiously optimistic 2026 outlook. While broader rate expectations remain mixed, the bank anticipates modest easing throughout the year. Management expects loan and deposit expansion to sustain balance sheet growth, with net interest margin projected to hold in the low 3.70% range—supporting continued NII expansion.

Stock Performance in Context

M&T Bank shares have appreciated 6.9% over the past six months, lagging the broader financial services industry’s 20.3% gain. The company currently carries a Zacks Rank #3 (Hold) rating, reflecting a measured investment posture amid banking sector dynamics.

The varying performance among regional banks—particularly how each is faring with net interest income management—highlights the importance of deposit stability, loan growth execution, and margin optimization in the current economic environment.