trending Market Intelligence /marketintelligence/en/news-insights/trending/KG4efAro6DlSQ-QFzcfQ6w2 content esgSubNav
Log in to other products

Login to Market Intelligence Platform


Looking for more?

Contact Us
In This List

For superregionals, NIM trend up amid 'sluggish' loan growth in Q3'17

Banking Essentials Newsletter December Edition Part 2

Banking Essentials Newsletter - November Edition

University Essentials | COVID-19 Economic Outlook in Banking: Rates and Long-Term Expectations: Q&A with the Experts

Estimating Credit Losses Under COVID-19 and the Post-Crisis Recovery

For superregionals, NIM trend up amid 'sluggish' loan growth in Q3'17

Thirteen of the 15 U.S. superregionals — select banks with $50 billion to $500 billion in total assets — reported double-digit EPS growth in the third quarter.

Fueled by margin expansion, the group's median normalized EPS growth on a year-over-year basis of 16.7% was the highest since the first quarter of 2013.

Vining Sparks analyst Marty Mosby highlighted in an interview that superregionals are benefiting from three factors: low credit costs, increasing net interest margins from Federal Reserve rate hikes and accelerated deployment of excess capital and liquidity.

SNL Image

The group's median net interest margin was 3.17%, flat compared with the second quarter but up 18 basis points from the year-ago quarter. Fourteen of the banks experienced elevated margins on a year-over-year basis, led by Dallas-based Comerica Inc. (up 64 basis points) and Buffalo, N.Y.-based M&T Bank Corp. (up 49 basis points).

San Francisco-based First Republic Bank was the outlier. Its margin retreated to 3.12% from 3.18% a year ago. In an earnings call, CFO Michael Roffler said that competitive loan pricing in its markets has pressured the company's yields and that the margin could be under modest pressure going forward. Despite margin contraction, First Republic grew normalized revenue by 11.3% and normalized EPS by 14.0%.

Projections for deposit betas, which measure how much banks pass on rate increases to their depositors, drew mixed opinions from the analyst community. Mike McTamney of DBRS does not expect deposit betas to rise until after one or two more rate hikes. John Mackerey, also of DBRS, added that banks will try to "keep rates as low as possible for as long as possible." Raymond James analyst Michael Rose predicts that deposit betas will go up from here on out and Mosby thinks that they are going to pick up three times faster next year compared to this year.

Higher margins in the group more than offset a downward trend in loan growth. The median year-over-year net loan growth was 1.3%, down from 3.1% in the second quarter and the lowest rate since the first quarter of 2011. Five of the banks reported a lower net loan balance compared to a year ago, including Birmingham, Ala.-based Regions Financial Corp. at -2.0%.

Regions experienced a surge in loan payoffs and paydowns during the quarter, partially attributed to large corporate customers refinancing in the fixed-income market. Commercial retail loans at Regions declined to $4.96 billion from $5.20 billion at June 30, including approximately a 20% decrease in the REIT and investor real estate portfolios related to shopping malls.

Analysts agreed that loan growth was "sluggish." McTamney and Mackerey explained that several companies had some headwind because they were shrinking certain portfolios, particularly in the commercial and industrial area. "Optimism remains, but there is still uncertainty regarding potential regulatory relief, tax reform, healthcare reform, etc.," McTamney said. According to Rose, "Banks have talked about pipelines improving, but paydown activity remains challenging." He also pointed out that some banks have turned to specialized lines of business, which is helping alleviate some of the core C&I and commercial real estate softness.

SNL Image

SNL Image

Did you enjoy this analysis? Click here to set-up real-time alerts for data-driven articles on the U.S. financial sector.

Click here for a template that compares the market performance for a portfolio of companies.

Click here to view a webinar on SNL's Peer Analytics tool to learn how to run a custom peer analysis for SNL-covered public companies.