As bank earnings kick off, Mendon Capital Advisors President Anton Schutz says the sector has a “strong setup,” even as the Federal Reserve debates its next rate move. The comments came during an appearance on Mornings with Maria, where he outlined why lenders may be better positioned than investors expect. With results due from major institutions in the coming days, Wall Street is watching loan growth, credit quality, and funding costs for signs of strength or stress.
Why This Earnings Season Matters
Bank stocks have swung with each shift in the interest-rate outlook. Higher rates helped net interest income as asset yields climbed faster than deposit costs. But that tailwind faded as savers demanded better returns and borrowers delayed activity. Now, the focus is on how banks manage through a late-cycle mix of sticky deposit costs, cautious loan demand, and rising credit losses from select consumer and commercial segments.
Schutz framed the reporting period as a meaningful check on the health of the system, suggesting management teams have tightened expenses and built reserves where needed. He also pointed to the value in select regional lenders that reined in risk after last year’s turmoil.
The Fed’s Path and Bank Margins
The Fed’s next move looms over earnings. A cut could ease funding costs and spur loan demand. It could also pressure net interest margins if asset yields reprice faster than deposits. A hold keeps deposit rates elevated but supports asset yields and securities income. Either way, balance sheet mix will drive outcomes more than the headline decision.
Schutz argued that banks with lower-cost core deposits and shorter asset durations are better positioned. He highlighted that discipline on pricing, along with a steady shift into fee income, can cushion margin swings. He added that investors will look for commentary on deposit betas and the pace of repricing across both loans and securities.
Credit Quality: Still Manageable, But Uneven
Credit costs are rising from very low levels. The pain is not uniform. Consumer credit cards and auto loans show higher delinquencies after rapid growth. Some office commercial real estate remains pressured by weak occupancy and refinancing hurdles. Community lenders with concentrated property exposure face extra scrutiny.
Even so, Schutz indicated that charge-offs remain within planned ranges for many institutions. He expects banks to emphasize conservative underwriting and higher reserve coverage where stress is visible. The market will parse whether loss rates are peaking or have further to go in 2025.
Regional Banks Seek Stable Ground
Regional banks remain in the spotlight after last year’s deposit flight and securities losses hit a small group of firms. Since then, many have added liquidity, sold long-duration holdings, and leaned into core relationships. Funding is more stable, though still expensive.
According to Schutz, select regionals trade at steep discounts to book value despite progress on risk. He said share buybacks, if allowed, and cleaner balance sheets could help close the gap. He cautioned, however, that regulatory shifts and higher capital targets may limit capital returns at some banks.
Regulation and Capital: A Moving Target
The regulatory agenda continues to evolve. Proposals affecting capital standards, liquidity buffers, and interest-rate risk management could raise costs. Larger banks may absorb changes more easily. Smaller lenders could face tougher choices on growth and payouts.
Schutz noted that clarity on final rules would reduce uncertainty for investors. He also said banks ready to meet higher standards will likely highlight strong liquidity coverage, deposit stickiness, and interest-rate hedging in their calls.
“It’s a strong setup for banks,” Schutz said, pointing to disciplined deposit management, tighter costs, and opportunities in select regionals as earnings begin.
What to Watch in the Results
- Net interest margin trends and deposit pricing.
- Credit card, auto, and office CRE loss rates.
- Loan demand and guidance for the second half of the year.
- Fee income growth in payments, wealth, and capital markets.
- Capital levels, buybacks, and commentary on pending rules.
Schutz’s cautiously optimistic view leans on bank discipline and select undervaluation. The earnings season will test that thesis. Investors should track whether deposit costs ease, loss rates stabilize, and loan pipelines refill. If banks show stable margins, steady credit, and clearer regulatory paths, the sector could gain support. If funding stays tight and losses rise, pressure may return. The next few weeks will offer the clearest read on which story wins.
