Following the 2nd full week of quarterly earnings results, the percentage of beats crept higher to 72% while the median size of Earnings per Share surprise lessened to 5.7%. Sequential EPS increased 2.6% but the year over year comparison of median quarterly EPS fell back into decline. The mix of 2024 EPS revisions higher and 2025 EPS estimates lower now has median mid-cap bank EPS estimates growing just 5%. As we look out to 2026 estimates, current group median EPS growth is projected to accelerate meaningfully to almost 13%.

The full summary of key metrics continues to find Net Interest Margin expansion of 1.5% from the June quarter and Net Interest Income higher by more than 2%. The Non-performing Assets to Assets ratio is higher by 35% from a year ago as credit performance normalizes from the period of historically pristine asset quality. Despite lower Provision expense, reserve coverage and capital ratios increased.

As I think about the composite outlook from the approximately 100 industry updates, optimistic themes include hiring teams to gather deposits and to increase commercial lending capabilities. My concern as an outside observer is not everyone will be a share winner as teams shuffle between banks. The only clear winner will be those receiving higher salaries as banks look to share growth while loan demand remains depressed and available deposits shrink amid ongoing Quantitative Tightening.

In quarterly call commentary, some executives point to the competitive dynamic that we should expect to take place. CBU CEO Dimitar Karaivanov commented, “everybody in the banking space is looking forward to cutting rates on deposits. On the flip side, everybody is also now all of a sudden trying to grow their assets. And there is not a lot of liquidity that we generated over the past number of quarters. So I think both of those are going to go in different directions in terms of determining that beta.â€

Reinforcing the competitive aspect of deposit gathering, ONB CFO John Moran stated, “we’re going to stay on offense. I mean, if somebody else is out there flashing a 50% down beta, I view that as Old National’s opportunity. I think we’re very much interested in continuing to have deposits keep pace with our loan generation. And so we’re still putting on good spread, right? And as long as that’s the case, we’ll stay on offense on deposits.â€

With respect to loan demand, BANC CEO Jared Wolff noted (my emphasis), “Our head isn’t so down, it’s more up and looking out and expanding and looking for opportunities to expand. I just don’t see the economy moving that fast right now. But as I mentioned earlier, we’re going to be ready when it happens.†Wolff added that the expected pick up in demand post-election may be too optimistic, “payoffs are going to pick up as well when lending starts. You’ll see a lot of refinancings. And so payoffs have been slower than we expected. We’ve had some good loan originations. But mostly I think it’s going to take a little bit. And I think we’re just trying to position ourselves as well as possible to take advantage of that. We’re excited to grow. But again, we don’t want to push on things too hard when the economy is a little bit slower. So we’ll be ready for it when the economy picks up.â€

Today the 88 mid-cap banks with assets between $10B and $100B trades at a median 2025 estimated P/E of approximately 11.5x. This valuation is only slightly below the long term range of 12 to 14x. Time will tell us if this adequately discounts forward earnings risks, but I am amused that the concerns that kept investors sidelined in 2023 are no longer prominent in headlines or general conversation.

For example, 18 months ago, Commercial Real Estate loans were allegedly poised to take down the entire industry. The doom sayers proclaimed more than half the U.S. banks were insolvent. We took the view that the world ends only every so often. Today it seems trees grow to the sky once again. We boldly think reality lies somewhere between apocalypse and nirvana.

That is my long lead in to comments from BKU COO Tom Cornish noting that even in high in-migration geographies such as Florida CRE risks remain. In the BKU call Cornish stated, “As you look at even what people think are the most favored asset classes right now, which would generally be looked at as multifamily and industrial. The last 12 to 18 months was pretty robust construction in both of those asset classes. We have seen upticks in vacancy rates in both of those areas. So while we like them a good deal, we are cautious when it comes to building these concentrations and ensuring that we’re within the overall asset class segmentation strategy that we have. And that’s really the limiting factor rather than the sort of a big picture up number.â€