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Fed Set to Cut Rates Tomorrow: 3 Bank Stocks Stand to Benefit
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Key Takeaways
The Fed is expected to cut rates by 25 bps, shifting toward monetary easing.
MTB, OZK and TCBI can benefit from stronger NII and improved credit quality.
Lower rates may fuel loan demand and greater bank profitability.
The Federal Open Market Committee (FOMC) begins its two-day September meeting today amid mounting anticipation that the Federal Reserve will announce its first interest rate cut of the year as the meeting wraps up tomorrow.
After keeping rates unchanged for five straight meetings over the past nine months, market participants are widely expecting policymakers to lower the benchmark rates by 25 basis points, bringing the policy rate to 4.00-4.25%. Such a move would mark a potential pivot toward monetary easing as the Fed balances slowing economic growth and weakening labor market against lingering inflationary pressures.
Factors Driving Expected Rate Cut & How it May Impact Banks
The Fed is expected to cut rates as recent data indicate a weakening U.S. economy, with slower hiring and a rising unemployment rate signaling a softening labor market. Broader indicators show sluggish consumer demand and cooling business activity, pointing to slower economic growth.
Although inflation remains above the Federal Reserve’s 2% target, the uptick in unemployment is increasing pressure on policymakers to shift focus from fighting inflation toward supporting growth and financial stability.
The Fed’s rate reductions, already totaling 100 basis points in 2024, have begun to stabilize banks’ funding costs. Any further rate cut will support net interest income (NII) expansion, a critical earnings driver for banks. While lower benchmark rates can compress yields on loans and securities, the easing of funding pressures helps preserve margins.
Also, a rate cut makes refinancing more affordable, reducing the risks of defaults. This, in turn, can help banks improve credit quality and limit the need for higher loan-loss provisions. Further, relatively lower rates are expected to encourage consumers and businesses to borrow. Such increased lending activity can result in larger profitability for banks as they earn more interest on these loans.
3 Bank Stocks to Bet On
M&T Bank: The bank’s NII witnessed a compounded annual growth rate (CAGR) of 15.4% over the past four years ended 2024. Though the trend reversed in the first half of 2025, a rise in lending demand and the Fed rate cuts will support NII expansion in the upcoming period. Management projects NII (tax equivalent basis) to be $7.05-$7.15 billion, suggesting a rise from the $6.85 billion reported in 2024. The company expects the net interest margin (NIM) to be in the mid to high 3.60%.
M&T Bank’s initiatives to strengthen non-interest income will further bolster top-line growth. Non-interest income is expected between $2.5 billion and $2.6 billion, indicating a rise from the $2.4 billion reported in 2024.
Additionally, MTB’s management expects 2025 average loans and leases between $135 billion and $137 billion, while average total deposits are projected to be $162-$164 billion in 2025. Last year, total loans and leases amounted to $135.5 billion, while total deposits reached $161 billion. These favorable projections will likely support the company’s top line.
The Zacks Consensus Estimate for 2025 and 2026 earnings implies year-over-year increases of 10.9% and 13.7%, respectively. The Zacks Consensus Estimate for 2025 and 2026 sales implies year-over-year growth of 3.5% and 3.8%, respectively.
Earnings Estimates
Image Source: Zacks Investment Research
Bank OZK: Given relatively low rates, the company's NII rose in the first half of 2025 and management projects the metric to continue improving in the remaining quarters of 2025. Also, management expects NIM to stabilize over time as the cost of interest-bearing deposits (COIBD) decreases.
OZK has grown rapidly through new branches and acquisitions, seeing a 10.8% revenue CAGR from 2019 to 2024, fueled by 11.1% loan growth and higher fee income. Revenue growth is expected to continue in the quarters ahead, with plans to add 40 branches by 2026, expand mortgage banking and diversify the loan portfolio.
The Zacks Consensus Estimate for Bank OZK’s 2025 and 2026 earnings implies a year-over-year rise of 3.6% and 5.9%, respectively. The Zacks Consensus Estimate for 2025 and 2026 sales implies a year-over-year growth of 4.2% and 5.8%, respectively.
Earnings Estimates
Image Source: Zacks Investment Research
Texas Capital: The company’s NII witnessed a CAGR of 4.1% over the past three years ending 2024, with the uptrend continuing in the first half of 2025. Going forward, the expected rate cuts and improving loan demand will support its NII expansion.
Texas Capital is advancing its 2021 strategic plan to improve efficiency and diversify revenues. In 2024, the bank agreed to acquire a $400-million healthcare loan portfolio to expand its corporate banking and healthcare presence, while steadily growing its investment banking business to build consistent, recurring revenues.
The company is also rolling out technology-driven process upgrades to enhance customer experience and cut costs, and has launched Texas Capital Securities Energy Equity Research and Texas Capital Direct Lending. These initiatives are expected to lift NII and reduce non-interest expenses in 2025.
TCBI expects total adjusted revenues to witness year-over-year growth in the low-double-digit percentage in 2025.
The Zacks Consensus Estimate for 2025 and 2026 earnings implies year-over-year rallies of 39.1% and 11.4%, respectively. The Zacks Consensus Estimate for 2025 and 2026 sales suggests year-over-year improvements of 12.4% and 9.4%, respectively.
Earnings Estimates
Image Source: Zacks Investment Research
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Fed Set to Cut Rates Tomorrow: 3 Bank Stocks Stand to Benefit
Key Takeaways
The Federal Open Market Committee (FOMC) begins its two-day September meeting today amid mounting anticipation that the Federal Reserve will announce its first interest rate cut of the year as the meeting wraps up tomorrow.
After keeping rates unchanged for five straight meetings over the past nine months, market participants are widely expecting policymakers to lower the benchmark rates by 25 basis points, bringing the policy rate to 4.00-4.25%. Such a move would mark a potential pivot toward monetary easing as the Fed balances slowing economic growth and weakening labor market against lingering inflationary pressures.
This shift can be a tailwind for banks. Hence, today we bring M&T Bank (MTB - Free Report) , Bank OZK (OZK - Free Report) and Texas Capital Bancshares (TCBI - Free Report) , which stand to benefit from a lower-rate environment. These bank stocks have gained more than 15% over the past year and carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price Performance
Factors Driving Expected Rate Cut & How it May Impact Banks
The Fed is expected to cut rates as recent data indicate a weakening U.S. economy, with slower hiring and a rising unemployment rate signaling a softening labor market. Broader indicators show sluggish consumer demand and cooling business activity, pointing to slower economic growth.
Although inflation remains above the Federal Reserve’s 2% target, the uptick in unemployment is increasing pressure on policymakers to shift focus from fighting inflation toward supporting growth and financial stability.
The Fed’s rate reductions, already totaling 100 basis points in 2024, have begun to stabilize banks’ funding costs. Any further rate cut will support net interest income (NII) expansion, a critical earnings driver for banks. While lower benchmark rates can compress yields on loans and securities, the easing of funding pressures helps preserve margins.
Also, a rate cut makes refinancing more affordable, reducing the risks of defaults. This, in turn, can help banks improve credit quality and limit the need for higher loan-loss provisions. Further, relatively lower rates are expected to encourage consumers and businesses to borrow. Such increased lending activity can result in larger profitability for banks as they earn more interest on these loans.
3 Bank Stocks to Bet On
M&T Bank: The bank’s NII witnessed a compounded annual growth rate (CAGR) of 15.4% over the past four years ended 2024. Though the trend reversed in the first half of 2025, a rise in lending demand and the Fed rate cuts will support NII expansion in the upcoming period. Management projects NII (tax equivalent basis) to be $7.05-$7.15 billion, suggesting a rise from the $6.85 billion reported in 2024. The company expects the net interest margin (NIM) to be in the mid to high 3.60%.
M&T Bank’s initiatives to strengthen non-interest income will further bolster top-line growth. Non-interest income is expected between $2.5 billion and $2.6 billion, indicating a rise from the $2.4 billion reported in 2024.
Additionally, MTB’s management expects 2025 average loans and leases between $135 billion and $137 billion, while average total deposits are projected to be $162-$164 billion in 2025. Last year, total loans and leases amounted to $135.5 billion, while total deposits reached $161 billion. These favorable projections will likely support the company’s top line.
The Zacks Consensus Estimate for 2025 and 2026 earnings implies year-over-year increases of 10.9% and 13.7%, respectively. The Zacks Consensus Estimate for 2025 and 2026 sales implies year-over-year growth of 3.5% and 3.8%, respectively.
Earnings Estimates
Image Source: Zacks Investment Research
Bank OZK: Given relatively low rates, the company's NII rose in the first half of 2025 and management projects the metric to continue improving in the remaining quarters of 2025. Also, management expects NIM to stabilize over time as the cost of interest-bearing deposits (COIBD) decreases.
OZK has grown rapidly through new branches and acquisitions, seeing a 10.8% revenue CAGR from 2019 to 2024, fueled by 11.1% loan growth and higher fee income. Revenue growth is expected to continue in the quarters ahead, with plans to add 40 branches by 2026, expand mortgage banking and diversify the loan portfolio.
The Zacks Consensus Estimate for Bank OZK’s 2025 and 2026 earnings implies a year-over-year rise of 3.6% and 5.9%, respectively. The Zacks Consensus Estimate for 2025 and 2026 sales implies a year-over-year growth of 4.2% and 5.8%, respectively.
Earnings Estimates
Image Source: Zacks Investment Research
Texas Capital: The company’s NII witnessed a CAGR of 4.1% over the past three years ending 2024, with the uptrend continuing in the first half of 2025. Going forward, the expected rate cuts and improving loan demand will support its NII expansion.
Texas Capital is advancing its 2021 strategic plan to improve efficiency and diversify revenues. In 2024, the bank agreed to acquire a $400-million healthcare loan portfolio to expand its corporate banking and healthcare presence, while steadily growing its investment banking business to build consistent, recurring revenues.
The company is also rolling out technology-driven process upgrades to enhance customer experience and cut costs, and has launched Texas Capital Securities Energy Equity Research and Texas Capital Direct Lending. These initiatives are expected to lift NII and reduce non-interest expenses in 2025.
TCBI expects total adjusted revenues to witness year-over-year growth in the low-double-digit percentage in 2025.
The Zacks Consensus Estimate for 2025 and 2026 earnings implies year-over-year rallies of 39.1% and 11.4%, respectively. The Zacks Consensus Estimate for 2025 and 2026 sales suggests year-over-year improvements of 12.4% and 9.4%, respectively.
Earnings Estimates
Image Source: Zacks Investment Research