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In This List

For regional US banks, rising margins led to strong Q2 results

StreetTalk – Episode 69: Banks left with pockets full of cash and few places to go

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For regional US banks, rising margins led to strong Q2 results

U.S. regional banks felt the positive impact of higher interest rates in their second-quarter results, as rising net interest margins produced robust year-over-year growth in normalized earnings and operating revenue.

S&P Global Market Intelligence examined the financial results of 30 public U.S. banks and thrifts with total assets between $20 billion and $50 billion as of June 30. The median operating revenue growth was 9.4% year over year, and the median growth rate for normalized EPS was 12.5%, up from 5.9% in the year-ago quarter. The efficiency ratio of the group on a median basis was 58.23%, the lowest level since the fourth quarter of 2009.

The median NIM increased to 3.35% from 3.22% in the first quarter and 3.19% a year ago. Rounded out to two decimal places, 21 of the banks experienced year-over-year margin expansion, while two others saw their margins unchanged.

Texas Capital Bancshares Inc., SVB Financial Group, BOK Financial Corp. and UMB Financial Corp. saw the most substantial margin expansion from the year-ago period among regionals.

SVB Financial's second-quarter NIM was up to 2.99% from the prior quarter's 2.84% and the year-ago quarter's 2.72%, primarily driven by the impact of rising interest rates. The Santa Clara, Calif.-based company narrowed its NIM outlook for full year 2017 to between 3.00% and 3.10%, from its previous outlook of 2.90% to 3.10%.

For BOK Financial, its quarterly NIM of 2.84% was also boosted by the rate hike as well as a modest increase in the cost of interest-bearing liabilities. CFO Steven Nell said during the July 26 earnings call that the Tulsa, Okla.-based company is "still seeing very little deposit pricing pressure."

Bank of the Ozarks, which crossed over $20 billion in total assets in the second quarter, saw its NIM go up to 4.98%. The bank has acquired four banks since 2015, and is the top revenue grower in the regional bank space. Bank of the Ozarks reorganized in June, when its former holding company merged into the bank. The bank's chief lending officer and real estate specialties group president, Dan Thomas, resigned on July 27.

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On the other hand, Popular Inc. saw the biggest drop in NIM among regionals, falling to 4.01% from 4.33% in the first quarter and 4.58% in the second quarter a year ago. President and CEO Ignacio Alvarez noted during the July 26 earnings call that the margin was affected by the increase in Puerto Rico government deposits, but that "we haven't actually seen a lot of deposit pricing pressure in Puerto Rico so far."

New York Community Bancorp Inc. also bucked the industry trend of higher margins, with NIM falling to 2.65% from 2.71% in the linked quarter and 2.98% in the year-ago quarter. CFO Thomas Cangemi said during the July 26 earnings call, "If the Fed's done raising interest rates, the margin should start to go up. If the Fed continues to put on an aggressive stance of raising short-term interest rates, we'll have further pressure."

Of the 30 regionals, New York Community reported the most significant year-over-year decline in normalized EPS and operating revenue, down 16.1% and 14.2%, respectively. FBR & Co. analyst Steve Moss noted that the environment remains unfriendly for New York Community Bancorp. In a July 28 research report, Moss wrote, "While NYCB expects to resume loan growth after a long period of tiptoeing under the [$50 billion] line, exposure to rising short-term rates and costs associated with crossing [$50 billion means] the earnings outlook is a significant challenge — even if NYCB successfully avoids becoming a CCAR bank." Moss projects a NIM of 2.50% in the third quarter and 2.55% in the fourth quarter.

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Click here for a template that shows the financial metrics for a select banking institution.

Click here for an analysis of second-quarter 2017 earnings at the four biggest public U.S. banks by total assets.

Click here to read about earnings at superregional banks in the U.S.