Rising Funding Costs Force Banks to Choose Growth or Margins

Commercial banks earn most of their core revenue from the spread between yields on loans and the cost of deposits and other funding. That model becomes harder to manage when credit demand strengthens while customers move cash into higher-paying accounts. Banks can preserve market share by extending more loans, but if deposit growth lags, they must tap pricier wholesale funding, diluting the net interest margin. Second-quarter results therefore spotlight whether balance-sheet expansion is producing profitable growth or merely adding volume at thinner spreads.

Atlantic Union Bankshares said on July 21 that loans held for investment rose $727 million in the quarter to $28.67 billion at June 30, a 10.4% annualized pace. Deposits increased just $77 million to $30.47 billion, while borrowings jumped $576 million to $1.88 billion, largely through Federal Home Loan Bank advances. The lender cut its 2026 fully tax-equivalent net interest income forecast to $1.32 billion-$1.33 billion from $1.34 billion-$1.35 billion and narrowed its NIM outlook to 3.90%-3.95% from 3.90%-4.00%, citing a shift into higher-yielding deposits.