By: Janet Lee, Steven Alexopoulos, Billy Young, Bradly D'Alessandro, Noah Kasten
Oct. 15, 2025 - 2 minutes 30 seconds
Overview:
- The U.S. mid and small cap bank sector is trading at a depressed valuation just as a wave of catalysts is building, creating one of the most attractive entry points in decades.
- Our We look at ten of the most differentiated banks in the U.S., each positioned to be a long-term outperformer.
- Bank mergers and acquisitions (M&A) are poised to accelerate and revive sector interest
- While we are bullish on our banks overall with the sector appearing at least 20% undervalued at current levels, we see the greatest upside on our top picks.
The TD Cowen Insight
We are initiating coverage with a bullish call on mid and small cap banks. With this group trading at a sizable valuation discount to the historical average, we see catalysts ahead. With our money-making framework also in hand, we unveil the "TD Cowen 10: Mid-Sized Mavericks," which are the ten most differentiated U.S. banks. We also reveal 36 banks that look ripe as M&A candidates.
Our Thesis
We see one of the most attractive entry points into mid and small cap bank stocks in decades.
With the sector primarily viewed through a size lens, however, regional and small banks are often lumped together (and viewed as essentially being the same). As we dive deep into the names, we see the mid and small cap banks as a richly woven tapestry made up of diverse histories, geographic footprints, strategic specializations and distinct business models. Taking a more nuanced view of the sector, we see an opportunity to take advantage of most banks trading in a similar range and uncovered some incredible businesses at very cheap valuations.
What is Proprietary?
Within this launch we reveal the _TD Cowen 10: Mid-Sized Maverick_s, which are ten regional banks with deep moats and a growth trajectory that aligns with our framework to position for long-term outperformance. Our aim is to provide a "one-stop shop" for bank research with the coverage of large, mid and small cap banks working seamlessly together.
Financial and Industry Model Implications
As the organic growth backdrop improves, we see a fissure in the landscape emerging. While the more differentiated banks look poised for a favorable revaluation, we see pressure building (including from activists) for the laggards to create value via a sale.
What to Watch
We look for a pivot in key fundamentals, with net interest margins (NIMs) stable to improving as banks drive down funding costs, loan growth renewed and banks going on offense with capital. With a more conducive regulatory environment, we look for a return of M&A to revive sector interest.
Subscribing clients can read the full report, US Mid And Small Cap Banks Launch - Ahead Of The Curve Series, on the TD One Portal
