US Mid-cap Banks: Key debate: Deposit margin erosion

Research evidence excerpt

US Mid-cap Banks: Key debate: Deposit margin erosion

Accessible version

US Mid-cap Banks

Key debate: Deposit margin erosion

Industry Overview

Mirror image 25 June 2026

This quarter a year ago, mid-cap banks were operating in an environment defined by Equity

improving earnings visibility. Prospective rate cuts allowed deposit cost pressures to United States

abate while loan growth accelerated. In 2Q26, banks are confronted with a hawkish Fed, Banks

limited incremental deposit-repricing benefit, and a more competitive lending backdrop. Brandon Berman

Consensus is forecasting median mid-cap interest-bearing deposit cost increases 4bp Research Analyst

QoQ in 2Q26 vs. -5bp in 2Q25. The debate has shifted from peak funding pressure BofAS+1 646 855 3933

recovery to whether banks can protect NIMs amid elevated competition while investors brandon.berman@bofa.com

evaluate AI-led disruption risks to bank deposits. Ebrahim H. Poonawala

Research Analyst

BofAS

+1 646 743 0490Most pressure felt among banks with high L/D ratios

ebrahim.poonawala@bofa.com

Recent management commentary has highlighted elevated deposit competition from

new entrants and rate pressures, though most managing through relationship-based

strategies and selective pricing discipline in the near-term (CBSH, ZION). Comments Acronyms:

reveal a direct correlation between elevated loan/deposit ratios and intensified deposit

APY: annual percentage yield

competition. Those banks pursuing above-average loan growth indicated incremental

CD: certificates of depositdeposit cost pressure (TCBI, FNB, FHN). Competitive pressure varies significantly by

region. The Midwest stands out as the most consistently cited pressure point (KEY, CTD: cycle to date