Hello! Kiah here. Welcome to Fintech Takes Banking, my weekly newsletter where I highlight things I think are interesting or important for bankers and the surrounding environs.

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Q2’26: Whoa, We're Halfway There

We’re halfway through 2026 and not a moment too soon!

The economy continued to deal with impacts from U.S. military actions in Iran, the retaliatory closure of the Strait of Hormuz and renewed tensions going in the second half of the year. Gas prices modulated somewhat during the quarter, but the personal consumption expenditures price index hit 4.1% in May compared to last year and was up from 3.8% in April. The largest political fight in the financial services space was over crypto (still!); while lawmakers worked out the details, federal banking agencies commenced limited rulemaking.

But there was other stuff too: testing the resiliency of banks, identifying emerging risks, a surprising amount of DIDMCA updates and more Federal Reserve news. Let’s get into it.

How are banks doing?

Banks enjoyed strong fundamentals during the first quarter, according to the Federal Deposit Insurance Corp.’s quarterly banking profile.

The industry reported net income of $80.5 billion for the first quarter, which was up 3.6% from the quarter prior, and a return on assets of 1.26%. Driving that was a $5 billion increase of noninterest income quarter-over-quarter that the FDIC attributed to larger institutions, partially offset by higher noninterest expense and lower net interest income. Net income at community banks grew 3.9% from the last quarter. Community bank ROA was 1.42%, up 7 basis points from the prior quarter and 26 basis points a year ago.

Total loans grew by 1.6%, or $215 billion, during the quarter, with commercial and industrial loans and loans to nondepository financial institutions growing by the greatest dollar amounts. The annual rate of loan growth was 7.1%, which the FDIC said was “the fastest annual growth rate since first quarter 2023.” At community banks, total loans grew 80 basis points from the quarter prior, due to commercial real estate and C&I lending.

Domestic deposits rose $389.7 billion during the first quarter, or 2.1%. Driving that was a $233.5 billion increase in uninsured deposits; insured deposits also grew 1.7% in the quarter.

In longer-term trends, the percentage of longer-term assets to total assets fell to 33%, its lowest level since 2020, according to the FDIC. Provision expenses for banks rose 2.3% in the first quarter, to $21.4 billion, but was down 4.6% from a year ago.

One bank failed during the first quarter. On May 1, regulators closed Community Bank and Trust - West Georgia, a $288 million bank based in LaGrange, Georgia. Anchor Bank of Palm Beach Gardens, Florida, assumed substantially all the insured deposits and certain assets. About $27 million of deposits exceeded FDIC insurance limits. The FDIC estimated the failure would cost the insurance fund about $97 million, although that figure could change as it sells the retained assets.

The FDIC also published its 2026 Risk Review during the quarter. Interest rate risks are still elevated, even as net interest margins have improved and unrealized losses continue to fall. The number of institutions that had unrealized losses above 25% of their Tier 1 capital fell from a peak of 2,259 in the third quarter of 2022 to 472 by the end of 2025, aided by maturity runoff, bond sales and falling rates.

Credit quality appears to be stable apart from certain pockets of commercial real estate and consumer lending. In its review period, the FDIC found that business loan demand was weak, with small borrowers pressured by tighter underwriting standards and higher financing costs. The risk review also flagged the growth and concentration of lending to nondepository financial institutions, which was one of the fastest-growing loan segments in recent years and is concentrated among a group of small, albeit large, banks. Credit quality to NDFIs remains favorable.

DIDMCA Updates

After decades of an essentially settled understanding of interest rate exportation for state-chartered banks, ongoing litigation has generated a handful of updates recently: Iowa about-face, Oregon lawsuit and more fintech M&A.

I wrote in March that Iowa, which has continuously opted out of DIDMCA, has seemingly conceptualized its interest rate cap as applying to loans made to its citizens by any state-chartered banks. This approach was articulated in a 2022 assurance of discontinuance with Ogden, Utah-based TAB Bank, which Colorado cited in its brief arguing against an en banc review after its victory in the Tenth Circuit.

“Iowa has maintained a consistent opt out and enforces it against out-of-state, state-chartered banks,” the state wrote. “If the Panel Opinion’s interpretation of § 1831d’s opt-out provision, which is consistent with Iowa’s, threatened the dual banking system, then Iowa’s interpretation would have already caused the challenges amici claim.”

It seems, however, that Iowa’s stance may have changed, if an amici brief filed early in June by the Utah Attorney General in support of the National Association of Industrial Bankers is anything to go by. The brief was joined by 20 other state AGs — including Iowa Attorney General Brenna Bird. In the world of the DIDMCA debate, this is a major policy shift! What an understated, and terrible, way to announce it. I have many questions.

On June 15, three financial service trade associations filed suit in federal court to block Oregon’s DIDMCA opt-out law from going into effect. Oregon had adopted an opt-out interpretation similar to Colorado's, which had leveraged the aforementioned Iowa approach. The law would apply the state’s 36% interest rate cap to loans of $50,000 or less if the loan is made to an Oregon borrower by a state-chartered bank. The parties are the NAIB, Online Lenders Alliance and American Financial Services Association.

Two fintechs that could potentially be affected by conflicting DIDMCA opt-outs interpretations are not waiting around to see what the courts decide. In December 2025, consumer and small business online lender Enova announced it agreed to acquire Grasshopper Bancorp for $369 million; the deal is expected to close in the second half of 2026. At the end of April, OppFi agreed to acquire BNCCORP and its subsidiary BNC National Bank in a $130 million deal.

Of course, there are many reasons why a fintech would be interested in acquiring a bank, including streamlining and simplifying its compliance and regulatory management, and that sweet, low-cost, sticky deposit funding. Still, it feels strange to me to see “national bank charter” pop up in deal rational, never mind the opening quote from a CEO, but here we are:

"The transformative combination of OppFi's digital-first platform and BNC's national bank charter unlocks significant opportunities for growth and product diversification," said Todd Schwartz, CEO and Executive Chairman of OppFi."

Source

New Era at the Federal Reserve

The Federal Reserve Board’s leadership transitioned during the quarter. In April, the U.S. Department of Justice dropped its lawsuit against former Chair Jerome Powell, which cleared up a confirmation block for incoming chair Kevin Warsh in the Senate Banking Committee. Powell decided to stay on as a Fed governor for an unspecified period of time; his term runs through January 2028.

Warsh’s first meeting as chair was in June. It was notable for several reasons, according to The Wall Street Journal: unanimous consensus among the Federal Open Market Committee members, a forecast that indicates a strong pivot toward raising interest rates in 2026 in response to inflation and his approach to central bank’s communication, with a shorter policy statement than his predecessor.

Later that day, Vice Chair for Supervision Michelle Bowman spoke at a “invitation-only, private dinner that Bank of America hosted for clients” the evening of the FOMC interest rate announcement, an engagement that The Wall Street Journal reported fell “squarely within the central bank’s communications blackout period.” Bowman said she did not share her views on monetary policy during the dinner and has complied with applicable FOMC ethics rules. The event organizer stated the blackout rule constraints in her introduction of Bowman, and Bowman reiterated the policy when asked about the interest rate projections.

At the end of June, the Federal Reserve Board announced that all 32 banks passed the 2026 stress test, staying above the minimum CET1 capital requirement while absorbing $708 billion in potential losses. Raymond James analysts wrote that the results demonstrated “better aggregate capital outcomes despite facing a more challenging scenario characterized by a more severe CRE shock and wider corporate credit spreads.” Several big banks have already announced increases in their dividends following the results announcement.

At the end of June, the U.S. Supreme Court ruled against President Donald Trump's efforts to fire Fed Governor Lisa Cook. The 5-4 decision, authored by Supreme Court Chief Justice John Roberts, rejected the administration's argument that the decision could not be reviewed by the court. Trump vowed on social media to continue his efforts to remove her from her post.

FROM THE VAULT

What’s on my mind and filling my time:

🍱 Recipes I’ve made recently that slap: crispy rice with canned tuna/salmon (still in my tinned fish era) and kimchi cucumbers. Easy and affordable bites that feel fancy and will be a hit at cookouts, watch parties and picnics.

🧟‍♀️ Zombie coupons: Who knew I should’ve kept that pile of crumpled Bed, Bath and Beyond coupons that were in my car? The brand, and the iconic 20% off coupons you could use past their expiration date, are back.

📋 Is this the end of my travel spreadsheet? I’ve been test-driving AwardHack (not an affiliate link), a website that offers broken brain credit card points people a dashboard and travel tool kit to manage their unwieldy cards, and I’m impressed. It tracks cards, points, travel bonuses, helps you search for and track travel redemptions and use hotel and restaurant credits. Track two cards for free, with an option to add more through a premium membership.

Thanks for reading! Hope you're having a great summer so far, staying cool and enjoying the World Cup! ⚽