2Q26 First Look: Core EPS Beat, but Results More In-Line Excl. Prepayment Fees

Research evidence excerpt

2Q26 First Look: Core EPS Beat, but Results More In-Line Excl. Prepayment Fees

increased 9 bps 19

L/Q to 3.35%, still better than anticipated. All told, NII excluding the prepayment fees 18

came about in-line with us as the better core NIM expansion was offset by softer balance 17

sheet growth. We would note that the bank's total cost of deposits fell 10 bps L/Q to 16

2.40% (cost of funds down 14 bps L/Q to 2.61%) while core loan yields increased 5 bps 15

(to 5.93%). While the reported NIM will compress for 3Q, on an adjusted basis FVCB 14

should continue to experience expansion given asset re-pricing that remains a tailwind. 13

• Elevated payoffs drove net loan contraction; deposit growth a highlight. EOP loans Jul-25 Sep-25 Nov-25 Jan-26 Mar-26 May-26 Jul-26

decreased 1.2% L/Q (unannualized), driven by the previously mentioned prepayment Source: Bloomberg

activity, most of which was unexpected. We'd note that excluding the unexpected

payoffs, net loans would've actually increased by a similar magnitude (or up 1.3%).

Nonetheless, origination activity did also slow a bit sequentially and in the release

management commented that some originations got pushed to 3Q. Deposits were

meanwhile up 1.2% L/Q (unannualized) and excluding wholesale balances were up

2.5% sequentially with really good growth in the NIB category (increased from 18% of

total balances at 3/31 to 20%). Resultantly, the loan-to-deposit ratio declined to 93%,

from 95% at 3/31.

• Core fees a bit better than expectations while operating expenses were above our

forecast. Core fees (excluding the Bearing gain) increased nearly 50% L/Q, a penny

better than our model and driven by better results out of Atlantic Coast Mortgage. We

note fees represented ~6% of operating revenues in the period.