2Q Preview: Staying Constructive as Banks Have More Room to Run

Research evidence excerpt

2Q Preview: Staying Constructive as Banks Have More Room to Run

asset-sensitive

franchises to gravitate toward the upper end of existing ranges. That said, we acknowledge the risk

that higher short-term rates could pressure deposit costs, particularly against an already competitive

deposit backdrop, an offsetting risk factor to what we otherwise view as a solid NIM/NII setup.

However, even if deposit costs face more meaningful pressure in the back half of the year, we expect

strong loan growth to help sustain healthy NII growth. Beyond the macro backdrop, we believe NIM/

NII outlooks should continue to benefit from more structural tailwinds, including fixed-rate asset

repricing, funding mix improvement (reduced reliance on wholesale funding), and diminishing hedge

drags. Recent management commentary points to loan (especially in CRE) and deposit competition

remaining elevated but broadly stable, even as short-term rates hold steady for now while funding

needs to support strong loan growth continue to build. Our models now assume the Fed funds rate

sees 1.5 25 bp hikes through 2026, consistent with the current forward curve.

Loan growth for 2Q is tracking toward a strong quarter, in our view, supported by better-than-

historical H.8 trends and resilient C&I-led demand, positioning banks to reiterate, and potentially

bias toward the higher end of, full year guidance ranges. While some uncertainty persists from

geopolitical factors and market volatility, many banks are reporting that clients are increasingly viewing

the current environment as the "new normal" and continuing to move forward with investment plans.

Against this backdrop, we believe 2Q loan growth is tracking toward a strong outcome, supported

by H.8 data which is trending above historical 2Q seasonal levels.