Bank Earnings Season: What Top Performing Community Banks Say About Banking and the Economy

This year in April I had Copilot analyze the earnings releases of the big four banks to give us signals on the US banking industry and economy. 

This earnings season, I selected five community banks from a list of nationwide, publicly traded banks between $1 billion and $25 billion for their signals as to the strength of the banking industry and health of the economy. The five chosen were in the top 25 banks in return on average assets and from different regions of the country. 

Cherry picking high performers and limiting Copilot's learning to their investor releases, which tend to be more optimistic (read 2006-07 earnings releases and investor presentations) than candid conversation, might not look strongly enough at the negatives. But it is clear that even community banks are not feeling economic headwinds right now. Which could be a great time to ensure balance sheets are prepared for economic headwinds. 

That said, here is what they collectively and summarily had to say.

Banking Industry & Economic Read-Through: What Five Community/Regional Banks Are Saying

Copilot reviewed recent earnings releases, investor presentations, and investor disclosures published during the last roughly three months by Tompkins Financial, City Holding Company, ServisFirst Bancshares, F S Bancorp, and West Coast Community Bancorp. While these institutions operate in different markets, their commentary is remarkably consistent and provides a useful lens into current banking and economic conditions.

Executive Summary

The collective message from these five banks is:

• Loan demand has improved materially, especially commercial lending and owner-occupied real estate.
• Deposit competition has eased, helping net interest margins stabilize or expand.
• Credit quality remains exceptionally strong, with no evidence of broad-based deterioration.
• Commercial real estate concerns appear manageable at community and regional banks with relationship-based portfolios.
• Economic activity remains resilient, although management teams continue to monitor policy uncertainty, inflation, and business investment trends.
• Capital and liquidity positions are strengthening, giving banks more flexibility for dividends, repurchases, and growth initiatives.

1. Loan Growth Is Reaccelerating

The strongest common theme across all five institutions is renewed loan growth.
Tompkins Financial management reported:

• Loans increased 6.9% year-over-year
• Quarterly annualized loan growth exceeded 7%
• Management highlighted "healthy levels of loan and deposit growth" supporting record profitability.

ServisFirst Bancshares was among the most bullish banks reviewed:

• Annualized loan growth exceeded 15%
• Management stated virtually all markets contributed to growth
• Florida, Tennessee, Houston and Texas were particularly strong
• Loan pipeline reached a record level.

F S Bancorp

• Loans increased from $837 million to $911 million, an 8.8% increase year-over-year.
• Management described core earnings and loan demand as strong.

West Coast Community Bancorp CEO Krista Snelling emphasized:

"solid loan and deposit growth" despite earnings being impacted by debt redemption expenses.

City Holding Company
City's loan portfolio continued to expand while loan yields improved modestly.

Industry Read-Through

Businesses appear increasingly willing to borrow after a prolonged period of rate uncertainty.
This suggests:

• Investment activity is improving.
• Middle-market companies are not behaving as though a recession is imminent.
• Borrower confidence has improved versus 2023-2025 conditions.

2. Margin Pressure Has Bottomed

A year ago, many banks were fighting for deposits and experiencing margin compression.
That trend appears to be reversing.

Tompkins Financial

• Net interest margin reached 3.58%
• Up 50 basis points year-over-year
• Cost of funds declined versus prior year.

ServisFirst Bancshares

• Net interest margin expanded to 3.63%
• Management expects further expansion.
• Deposit pricing discipline remains a major driver.

City Holding Company

• Net interest margin held steady at an impressive 3.97%
• Net interest income continued increasing.

FS Bancorp

• Net interest income rose approximately $1.8 million year-over-year.

Industry Read-Through
Banks generally indicate:

• Deposit betas are cooling.
• Funding costs are stabilizing.
• Asset yields remain attractive.

This is one of the healthiest margin environments community banks have seen since rates began rising.

3. Credit Quality Remains Surprisingly Strong

Perhaps the most important observation is that none of these banks are reporting widespread stress.

City Holding

• Nonperforming assets improved from 0.27% to 0.24%.
• Past dues remained only 0.19% of loans.

ServisFirst
Management stated:

• No systemic weakening is visible.
• Nonperforming assets declined.
• Charge-offs remain modest.
• Loan loss reserves remain stable.

F S Bancorp

• Delinquencies were only 0.08% of loans.
• Quarterly net charge-offs totaled just $1,200.
• A $4.9 million problem credit paid off in full.

Tompkins
While provision expense remains elevated relative to 2024 levels, management continues to characterize the balance sheet as healthy and well-capitalized.

Industry Read-Through
The feared wave of credit losses from higher rates has not materialized among these banks.
What we're seeing instead:

• Consumers remain current.
• Small business borrowers continue to perform.
• CRE portfolios are generally holding up.

4. Deposits Are Stable to Growing

Deposit stability is another major positive.

Tompkins - Deposits increased 4.7% year-over-year.
FS Bancorp - Deposits remained near $1.2 billion. Deposit mix improved as time deposits declined and relationship deposits increased.
West Coast Community Bancorp - Management highlighted continued deposit growth throughout the quarter.
ServisFirst - Deposit growth accompanied strong lending growth while maintaining margin expansion.

Industry Read-Through
Deposit migration concerns that dominated discussions in 2023 and early 2024 appear largely behind these banks.

That is important because:

• Deposit retention supports earnings.
• Liquidity risk declines.
• Banks can fund loan growth internally.

5. Capital Positions Are Strengthening

Several institutions highlighted stronger capital metrics.

Tompkins - Tier 1 leverage ratio increased to 10.69%.

West Coast Community Bancorp - Management emphasized: Strong capital ratios; No outstanding borrowings; Capacity for future growth and dividend increases.
F S Bancorp - Equity increased substantially year-over-year; Repurchased stock while maintaining dividend growth.

Industry Read-Through
After the banking stress period of 2023, institutions have spent several years rebuilding liquidity and capital. These disclosures suggest many community banks are now operating from a position of strength.

6. Regional Economic Signals

Northeast (Tompkins) - Economic activity appears steady in New York and Pennsylvania with good commercial lending activity and improving profitability.
Appalachia/Mid-Atlantic (City Holding) - West Virginia and adjacent markets continue showing stable credit quality and strong profitability despite slower-growth demographics.
Southeast (ServisFirst) - The strongest growth story among the group. Management repeatedly pointed to Florida, Tennessee, Texas, and Houston as sources of exceptional loan demand.
Midwest (F S Bancorp) - Economic conditions support continued profitability and loan growth despite competitive funding markets.
California (West Coast Community) - West Coast Community remains optimistic on Central Coast and Silicon Valley markets and is actively expanding through private banking initiatives.

What This Means for the U.S. Economy

These five banks collectively point toward a soft-landing economic environment rather than a recessionary one.

• Evidence Supporting Economic Strength
• Commercial borrowing is increasing.
• Loan pipelines are growing.
• Credit quality remains strong.
• Deposits are stable.
• Net interest margins are improving.
• Capital levels are strengthening.
• Banks are increasing dividends and repurchasing stock.

Remaining Caution Signs Mentioned

• Inflation and interest-rate uncertainty.
• Potential policy and tariff impacts on business activity.
• Commercial real estate exposures requiring continued monitoring.
• General economic uncertainty affecting investment decisions.

Key Takeaway for Readers

My headline from Copilot's take would be:

The operating environment has improved meaningfully. Margin recovery, renewed loan growth, stable deposits, and resilient credit performance have largely replaced the liquidity and funding concerns that dominated banking discussions over the previous two years.

The most notable signal from these five institutions is not merely that conditions are stable, but that management teams are increasingly discussing growth opportunities rather than defensive balance-sheet management. That is typically a late-cycle positive indicator for both the banking sector and the broader U.S. economy.

My cautionary note is that I chose high performing banks through a five-year cycle. A soft landing or mild recession usually presents opportunities for strong management teams as banks with weaker balance sheets try to fortress them in the midst of economic headwinds, leaving many good customers in the lurch. 

Bank Earnings Season: What the Big Four Are Telling Us About the U.S. Economy

It's earnings release season and pundits are out in full force reading the tea leaves from banks in their coverage universe. I took a different approach.

I analyzed the earnings releases and the earnings calls of the U.S.'s top four banking companies: JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo. Together, they represent a hard-to-ignore $13.4 trillion of total assets. 

I didn't do it to gauge these banks prospects. Instead, I did it to decipher their financial performance, condition, and their commentary on the U.S. economy and banking sector. Below is a summary of those four banks disclosures, aided by Copilot to help absorb a lot of information.

1. The U.S. Economy: Resilient, Not Reaccelerating

Unambiguous signal:
The U.S. economy in early 2026 is holding together better than feared, but it is not entering a new growth phase.

Across all four banks:

• Consumers are still spending

• Corporate balance sheets remain solid

• Credit deterioration is limited and gradual

• Confidence is cautious, not retreating

Yet no CEO described demand as accelerating. The language was consistent: “Resilient,” “stable,” “cautious,” “selective,” “uneven.”

It would be unusual for a financial institution to clamor about bubbles bursting or economic decline because that happens for multiple reasons, one of which is consumer and business confidence. Why buck the confidence game? The bankers' comments point to a late‑cycle soft‑landing environment rather than a boom or a slowdown cliff.

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2. Where the U.S. Economy Is Strong

A. The U.S. Consumer (Top Half of Consumers Are Carrying the Load)

What banks see:

• Debit and credit card spend volumes are still growing
• Travel, leisure, and services spend remains firm
• Wealth clients are active
• Credit card losses are higher than cycle lows, but below stress thresholds

Important nuance from calls:

• Wells Fargo and JPM both emphasized bifurcation
• Upper‑income households and asset owners are fine
• Lower‑income consumers are under pressure—but not yet cracked

Translation:
Aggregate data looks healthy because the top half of consumers is offsetting softness below. That’s sustainable for a while—but not indefinitely. The highly leveraged are vulnerable. 

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B. Corporate America: Balance‑Sheet Strength > Confidence

Across all four banks:

• Investment‑grade borrowers dominate new lending
• Revolver utilization remains below historical norms
• Cash balances are solid
• Debt issuance is active, especially in investment grade and term markets

What’s missing:

• No surge in utilization
• No capex boom
• No hiring acceleration

Translation:
Firms are financially strong but waiting, not expanding aggressively. Volatile and changing government policies and priorities are keeping us in a hovering mode.

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C. Financial System Health

This may be the strongest message of all.

• CET1 ratios are strong across the board
• Liquidity is abundant
• Funding is stable
• No signs of liquidity strain
• Nonbank exposures (NBFI, private credit, fund financing) are actively monitored and structurally conservative. The fact they had to emphasize this makes me think there is something to the weakness in this lending.

Translation:
Whatever macro risks lie ahead, the U.S. banking system is well positioned to absorb them. At least much more so than 2008.

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3. Where the U.S. Economy Is Weak or Vulnerable

A. Growth Is Narrow, Not Broad

Growth is currently relying on:

• Consumer spending
• Financial services activity
• Capital markets normalization

It is not relying on:

• Manufacturing boom
• Wage acceleration
• Productivity surge
• Broad business investment

This makes the expansion slow and fragile, even if not imminently unstable.

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B. Lower‑Income Consumer Stress Is Real (But Contained—for Now)

Multiple banks independently referenced:

• Higher sensitivity to fuel and commodity prices
• Thinner household and business financial buffers
• More price elasticity in discretionary categories

Credit data has not yet turned sharply—but early warning signals are visible.

Translation:

This is not a recession signal—but it is a reminder that the consumer story rests on a narrower base than headline numbers imply. Bubbles bursting might be a recessionary signal, but air is slowly seeping from would-be bubbles, as it has in the commercial real estate and multi-family markets.

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C. Rates Are a Double‑Edged Sword

• Banks are no longer getting easy net-interest income lift from falling rates
• Asset‑sensitive banks (WFC, BAC) are facing NIM compression
• Rate cuts would help borrowers—but hurt bank earnings power particularly in under-valuing deposits
• Higher‑for‑longer stabilizes income but pressures marginal borrowers

Translation:

Monetary policy is now distributional, not uniformly stimulative or restrictive. The 2Y Treasury is 3.83%, 10Y is 4.34%. Fed Funds, an overnight rate, sits between the 1Y and 2Y.

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What the Four Banks Say About the U.S. Banking Sector

4. Sector Diagnosis: Strong, Profitable, but Entering a New Phase

The earnings collectively show the banking sector has moved from:

Post‑crisis repair → Post‑pandemic stabilization → Post‑rate‑hike normalization

We are now in a phase where:

• Earnings are solid
• Credit is manageable
• Capital is abundant
• Growth depends on execution, balance sheet and revenue mix, and discipline

This is not a leverage‑driven cycle. Which speaks to the ability of balance sheets to withstand recession.

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5. Strengths of the U.S. Banking Sector

A. Capital & Liquidity Are Not the Constraint

Every bank emphasized:

• Excess capital
• Share buybacks
• Ability to support clients in stress-although the temptation to abandon stressed clients is there
• Regulatory clarity improving (Basel, G‑SIB)

This is the opposite of 2008 or 2020.

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B. Credit Underwriting Is Conservative

Evidence across banks:

• High share of investment‑grade exposure
• Structural protections in NBFI lending
• Sub‑60% advance rates in private credit
• Limited CRE office exposure relative to system capital

The industry has learned—perhaps overly learned—the lessons of the last cycle.

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C. Fee Businesses Are Doing the Heavy Lifting

An underappreciated macro point:

• Payments, treasury services, asset management, and markets are now core earnings engines
• This reduces dependence on rates
• It stabilizes earnings across cycles

Citigroup’s Services and JPMorgan’s payments ecosystem are emblematic here. Community financial institutions can learn something here, stop talking about it, and start making the investments necessary for fee businesses to be a larger contributor to revenues and profitability.

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6. Weaknesses and Structural Challenges

A. Earnings Are More Sensitive to Confidence Than Credit

Paradoxically, the biggest risk is not defaults—it’s activity.

Banks need:

• Deal flow
• Markets activity
• Client engagement
• Balance‑sheet utilization

A confidence shock—even without a deep recession—would hit earnings faster than credit losses because bank balance sheets are positioned for moderate credit shocks.

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B. Margin Compression Is Structural

Net interest margins are no longer expanding easily.

• Deposit betas are higher. As pricing becomes more transparent and money movement easier, this is unlikely to change.
• Asset mix is shifting to lower‑yielding products
• Competition is rational but real

This pushes banks toward:

• Cost discipline
• Fee growth
• Balance‑sheet optimization

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C. The Cycle Is Now About Sorting, Not Survival

The era when “banks move together” is over.

• Strong franchises gain share
• Execution matters more than a unique strategy
• Management and markets remain key ingredients

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Bottom‑Line Interpretation

What the Big Four Are Telling Us—Taken Together

About the U.S. economy:

• It is resilient but not robust
• Slow growth is holding, not accelerating
• Risks are asymmetric but manageable
• A soft landing remains the base case

About the banking sector:

• It is healthy, liquid, and profitable
• Credit risk is contained
• Capital is a strategic asset again
• The next phase rewards discipline, not leverage

~ Jeff

What Really Drives Bank Value—and What To Do Next

Earlier this month, I attended Bank Director’s Acquire or Be Acquired conference. As always, the sessions were strong and the hallway conversations even stronger. But the most thought‑provoking insights I carried with me didn’t start at the conference—they started on the plane ride there.

I was listening to Street Talk by S&P Capital IQ, hosted by longtime industry colleague and friend Nathan Stovall. His guest was Jonah Marcus, a buy‑side fund manager with deep experience evaluating banks—and someone I’ve had the privilege of working with as a board member at one of our strategic planning clients.

I’ve seen Jonah operate up close. He understands what creates real value in banking—and more importantly, what doesn’t. His perspective is worth paying attention to.

Valuations: The Market Isn’t Coming to Save You

One message Jonah was unequivocal about: banks should not expect valuation multiples to rise in the near term.

Institutions trading at 10–11x earnings are unlikely to suddenly revert to historical averages of 12–14x. The same holds true for price‑to‑tangible book. In today’s market, valuation expansion is not a given—it is earned.

So what separates banks that trade at a premium?

• High‑quality, durable earnings
• Consistent profitability
• A clear specialty or niche that drives growth
• Strong core funding
• Superior, sustainable expense management that produces best‑in‑class efficiency ratios

In other words, the market rewards banks that execute exceptionally well—not those waiting for macro conditions to improve.

If your strategy depends on “multiple expansion,” it’s time to revisit the plan. Value creation today comes from disciplined execution, not market optimism.

Recession Watch: Two Perspectives Worth Weighing

Jonah also pointed to meaningful economic and credit tailwinds. Non‑performing loans remain historically low. Capital levels are far stronger than they were heading into the 2008 financial crisis. Banks have improved loan concentrations and overall risk discipline.

Nathan echoed this view at the conference, noting that there are few—if any—early warning “cockroaches” signaling an imminent recession.

I’m slightly more cautious.

We’re beginning to hear about “one‑time” or “isolated” credit events in third‑ and fourth‑quarter earnings calls, particularly from more aggressive lenders—those making larger loans or expanding outside their core markets. Historically, recessions often begin with asset bubbles bursting. Today, we still have a high‑flying stock market and residential real estate prices at elevated levels.

Reasonable people can disagree—and they do.

Whether you’re optimistic or cautious, now is the time to stress‑test assumptions, re‑examine concentrations, and ensure your balance sheet can withstand headwinds should they come. Hope is not a strategy.

Technology: Where Banks Are Falling Behind—and How to Catch Up

The most compelling part of the discussion centered on technology.

Jonah sees technology as a key differentiator today—and an even bigger one tomorrow. In his view, technology should deliver four outcomes:

1. Lower costs
2. Greater scalability
3. Delighted customers
4. Data‑driven, personalized sales and service

Here’s the reality check:

• Banks are generally doing well on cost reduction.
• They’re doing okay on scalability.
• They are largely failing at delighting customers and leveraging data.

Too many banks remain overly dependent on their core processors. Too few are using customer data to meet clients where they are—in an increasingly digital, personalized world.

Jonah’s point was simple but powerful:

If banks can leverage technology to achieve all four outcomes—even competently rather than perfectly—growth becomes easier, margins improve, customer satisfaction rises, and powerful network effects begin to take hold.

That’s how banks lift their heads above an increasingly commoditized competitive landscape.

Fintechs have already proven this model. Many are now seeking bank charters for a reason.

Jonah supports a crawl‑walk‑run approach to technology adoption—avoiding shiny objects and infrastructure strain. But in his view, given where financial technology stands today, banks should be much closer to walk‑to‑run than crawl.

If your technology strategy is still focused primarily on cost containment, you’re missing the bigger opportunity. The real upside is growth, differentiation, and customer relevance.

 

What This Means for You—and How We Can Help

For readers who know me, you’re aware that The Kafafian Group recently merged with Wolf & Company, P.C., a Boston‑based CPA and advisory firm. Together, we now bring deeper capabilities and broader execution support to financial institutions.

What does that mean in practice?

• Strategic plans that don’t just sit on shelves—but get executed
• AI and technology advisory aligned with business outcomes
• Deeper profitability analysis at the product, line‑of‑business, and center level
• Process improvement informed by internal audit and best‑practice insights
• Financial advisory that goes beyond negotiating the deal and running the numbers

Simply put: we can do more, and we can go deeper.

If these themes resonate—valuation pressure, technology differentiation, disciplined growth—I’d welcome the conversation.

You can reach me through this blog, at Jeffrey.Marsico@WolfandCo.com, or at (717) 468‑3208.

And yes—we’re continuing our This Month in Banking podcast, which celebrated its 10‑year anniversary in January 2026. Thanks for keeping us in your listening lineup.

Let’s keep the dialogue going.

~ Jeff

 

 

Note: This post was written by me, and improved by AI, which methodically is breaking my propensity for run-on sentences. Sister Mary Ryan would be pleased.