Nathan Stovall

After years of trading at the steepest discount in the broader market — dead last among all major sectors — the banking industry is finally positioned to narrow that gap, according to KBW CEO Tom Michaud. Michaud said in the latest Street Talk podcast that the best fundamental environment in years, historic levels of excess capital, a once-in-a-generation change in the regulatory environment and rebounding M&A activity should support stronger valuations for regional banks in 2026.

Net interest margin expansion has driven returns higher across the banking industry in 2025. Earnings growth should continue in the coming quarters, even as credit costs continue to migrate higher. US bank earnings have continued to grow as strong margin expansion and benign credit quality supported performance. While credit costs should continue to normalize, we expect favorable results to continue, buoyed by additional margin expansion and steady loan growth.

Strong net interest margins have supported earnings at US community banks' in 2025 and earnings growth should continue in the coming quarters, even as credit costs continue to migrate higher. Community bank margins have expanded as the benefit from fixed-rate assets repricing has overshadowed modest increases in funding costs. Community banks in aggregate reported strong earnings growth in 2025, but the pace of earnings growth is anticipated to moderate in 2026 due to the higher credit costs.