2Q26 Earnings Preview: ‘Hot Deposit Summer‘ as Funding Costs Take Center Stage

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2Q26 Earnings Preview: ‘Hot Deposit Summer‘ as Funding Costs Take Center Stage

Barclays | U.S. Mid-Cap Banks

growth, as these institutions may be more exposed to higher funding costs. In our view, the

priority catalysts needed to attract incremental long-only interest are: 1) continued clean credit

performance; and 2) favorable commentary around deposit costs.

Thoughts on the Quarter

We think deposit costs will dominate the conversation amid a strong lending backdrop and

limited credit concerns: While management teams struck a relatively cautious tone in April,

sentiment appears to have improved as the quarter progressed despite geopolitical uncertainty.

Commentary at industry conferences generally pointed to stronger than expected growth

trends, with H.8 data showing small-bank loan growth of 1.3% Q/Q (see Figure 13). The primary

debate now is not growth itself, but the cost of funding that growth. Recent investor

conversations have centered on where the risks lie within NIM and NII outlooks, particularly

with respect to deposit pricing.

We're tactically positive on CFR, BOH, and ASB into earnings: At ASB, Street and buy-side

estimates remain dispersed due to the ANC acquisition, but we believe growth momentum will

continue to impress while shares remain inexpensive relative to the group. Expense discipline,

future AI-related efficiency benefits, and improving deposit and C&I franchise trends should

support higher profitability over time. We believe CFR and BOH have among the clearest paths

to raising guidance this quarter, supported by low loan-to-deposit ratios that provide funding

flexibility in an increasingly competitive lending environment. While BOH's growth story

remains relatively modest, shares have underperformed the KRE by roughly 370bps since 1Q