3 Answers to look for in 1Q17 Bank Call Report Data Release

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In about a week, 1Q17 call report data will be released to give the market a full picture as to how banks performed in the most recent quarter. If the public bank earnings season so far is any indication, the call report data should show a very strong overall industry performance. Through April 25th, approximately 40% of the S&P’s financial stocks have reported earnings in which many have beat consensus expectations:

Source: Investopedia, as of 4/25/17

“The majority of banks have beaten both top- and bottom-line expectations despite slower loan growth, with strong trading results at a number of the large banks and several noting improving net interest margins as higher interest rates finally began to have a positive impact” — Bank of America

So what should we look for in the upcoming call report data release to see if the rest of the industry follows suit?

Did loan growth continue to slow just for big banks?

As noted by several larger banks that have reported earnings, loan growth has slowed down over the last two quarters. The first quarter performance is not a total surprise as first quarters tend to have a cyclical slowdown in lending activity. However, the continued decline in loan growth from 4Q16 at banks with assets greater than $10 billion should be noted. Those banks saw the largest quarterly drop of 12-month net loan growth in over 4 years from 3Q16 to 4Q16.

But when looking at the rest of the industry, the loan growth change was much less pronounced:

Source: Stackfolio || Click For Full Interactive Graph

So we’ll be looking to see how the rest of the industry’s 12-month loan growth performed from 4Q16 to 1Q17 .

How did the increasing Fed Funds rate affect net interest margins?

As noted above, net interest margins (NIMs) have widened despite a continued slow down in loan growth. The banks with improved NIMs credit rising interest rate as the catalyst for increasing key bank loan product rates while keeping liability costs muted.

In fact, NIMs across all bank asset ranges have been steadily improving since hitting a 5-year low in 12/31/2014. All US banks saw average NIMs rise from 2.95 to 3.05 in that time frame, with the banks under $1 billion in assets having the highest NIMs at 3.82.

We’ll see if the additional Fed Fund rate increase pushed NIMs to widened quicker than the recent trend of 1–2 bps quarterly improvement.

Did Deposit Growth and Yields trends continue?

In our previous article on deposit rate strategies, we pointed out that deposit rates have been at or near all-time lows for several years and will likely lag increasing Fed Funds rate by several months.

So far, the banks that have reported earnings pointed to keeping deposit rates steady and not needing to compete for deposits — in spite of increasing regulatory pressures short-term liability management.

We’ll look to see if deposit growth continued its solid trend as most bank asset ranges have seen an average increase of at least 7% since 12/31/2015.

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