04:11 PM EDT, 07/11/2025 (MT Newswires) -- US mid-cap banks' loan growth could surprise to the upside beginning in the second quarter, driven by robust commercial lending, UBS Securities said Friday.

Commercial and industrial loans expanded by 1.7% in the second quarter, compared with a 0.1% increase in the preceding quarter, the brokerage said in a note, citing data in the Federal Reserve's H8 report. As one of the strongest second-quarter pickups over the last decade, this likely "sets up well" for the second half of the year, analyst Nicholas Holowko wrote.

"Given the macro uncertainty that's accompanied policy volatility since April, we think commercial loan growth -- a key driver of the bull thesis for the group -- is set to show green shoots in (the second quarter)," Holowko said. "Year to date, and particularly (in the second quarter), loan growth showed notable improvements in both C&I and non-depository financial lending."

Total loans have grown by 1.5% year to date, mainly driven by a 1.7% increase in C&I and a 3.8% jump in other loans, the brokerage said. Other loans largely comprise lending to non-depository financial institutions.

"These mark notable improvements (versus) last year, where both total and C&I loans grew just 0.6% in (the first half)," Holowko wrote.

Total loan growth for the industry is up 1.7% quarter-to-date, though estimates seem "conservative," according to the UBS note. Estimates for the full year appear "similarly conservative given limited acceleration (versus the second quarter), especially as outlooks largely pointed to back-half weighted growth," Holowko said.

The brokerage identified Webster Financial ( WBS ) as its "best idea" for the quarter and the year. The lender "has a coming inflection in credit, unique deposit growth catalysts, and room for capital return," the analyst wrote. All these factors are expected to support a re-rating in "due course," according to the note.