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Two straight quarters in the black is not good enough for Grayson Hall, the chief executive of Regions Financial Corp., to proclaim "mission accomplished."
April 19 -
Richard Davis, the top executive at U.S. Bancorp and chairman of the Financial Services Roundtable, said it's a toss-up as to whether the Federal Reserve presses ahead with a 12-cent proposed cap on debit interchange transactions.
April 19 - Texas
"The first quarter [pace] was a 33% payout," said Comerica CFO Beth Acton, in reference to dividend payments and stock buybacks. "Our goal is to get to a full-year payout of 50%."
April 19 -
New York Community Bancorp Inc. in the first quarter partially offset a slowdown in home-mortgage production with more fees from New York apartment-building owners who repaid loans early.
April 19 -
Questions about M&A are likely to dominate first-quarter conference calls among regional banks in the coming weeks. But beyond the standard "we're open to opportunities" line from executives, the real story will be in the numbers.
April 12 -
A surprising number of banks staved off an expected compression in net interest margins last earnings season. There won't be as many surprises this time around.
January 20 -
Click on individual bank names in the table below to access American Banker's coverage of each company's earnings report. Links to relevant coverage, filings, releases, and bank benchmark profile data can be found in the Related Links area of each article.
April 29
It was going to be hard enough for banks to avoid a compression in net interest margin last quarter. At U.S. Bancorp and Comerica Inc., a surprisingly strong influx of deposits made it impossible.
Awash in liquidity, both companies kept billions of dollars in excess cash last quarter parked at the Federal Reserve. The 25 basis points earned in the federal funds market dragged down margin rates overall, with U.S. Bancorp reporting a net interest margin of 3.69% — down 14 basis points from the fourth quarter — and Comerica's margin decreasing 4 basis points, to 3.25%.
Plenty of banks had been bracing for a squeeze on net interest margin, with deposit pricing and borrowing costs in many cases both about as low as they could go. U.S. Bancorp had predicted even more margin stress as it bought up $6 billion of low-yielding securities during the quarter — a previously disclosed strategy for meeting future liquidity requirements under Basel III.
But a surge in retail and wholesale deposits provided an element of unanticipated pressure on margins.
"We grew our deposit base $14 billion on a linked-quarter basis, and almost $7 billion of that was core growth, not related to any acquisitions. Customers are very liquid," U.S. Bancorp's chief financial officer, Andrew Cecere, said in an interview. "At the same time, loan growth was a little lower than last quarter, 0.7% versus 1.5%."
Unable to plow the excess liquidity into enough new loans, the Minneapolis company kept about $7 billion of cash with the Fed.
Comerica, which had been expected by analysts to hold the line on net interest margin, was similarly affected by a wave of fresh deposits. The Dallas company kept an average of $2.3 billion deposited with the Fed during the first quarter, up $500 million from the previous three months, as it accommodated an extra $290 million in average core deposits that came in during the quarter.
"Excess liquidity is expected to dissipate throughout the year due to debt maturities, combined with the slowing of deposit growth and increasing loan growth," said Beth Acton, Comerica's CFO.
For the remainder of 2011, Comerica expects a slight increase in its loan book and a net interest margin in the range of 3.25% to 3.3%, in line with the past two quarters.
The prospect of persistently low interest rates contributed to a more muted margin outlook at New York Community Bancorp. The Westbury, N.Y., thrift saw its margin contract 3 basis points from the end of the fourth quarter to 3.54% for the first quarter, and warned of a further decline of up to 7 basis points if interest rates stay low and fewer apartment owners pay off their loans early.
"Rates are still very low," Thomas R. Congemi, New York Community's CFO, said in a call with analysts. "Assume we have a lower spread."
Some banks found enough wiggle room in the first quarter to buck the broader trend of margin compression.
A reduction in subordinated debt conversions at Zions Bancorp. helped the Salt Lake City company widen its margin to 3.76% from 3.49%.
Excluding the impact of debt conversions and acquired loans, Zions reported that its "core" net interest margin dropped 1 basis point from the prior quarter, to 4.06%.
Regions Financial Corp. extended a string of gradual improvements to net interest margin, as it worked to reprice higher cost deposits. Net interest margin in the first quarter widened to 3.07%, 7 basis points better than in the fourth quarter and 30 basis points better than in last year's first quarter.
"We've been able to reduce [our] funding cost materially over the past five quarters and we've had an improving margin as a result," Regions' president and chief executive, Grayson Hall, said in an interview.
Going forward, however, the Birmingham, Ala., company believes margin improvement primarily will be dependent upon loan spreads and changes in loan mix.
David Turner, the company's CFO, said during a call with analysts Tuesday that the bank expects the margin to remain relatively stable for the remainder of the year, barring any unexpected movement in interest rates.
Though the economic picture remains murky, many banks are constructing their securities portfolio in a way that benefits them if rates begin to rise. "We believe that a 200-basis-point increase in interest rates over a 12-month period … would result in about a $100 million increase in annual net interest income," Comerica's Acton said. U.S. Bancorp also expects to earn more net interest income when rates start to climb, because more assets than liabilities would get repriced in the near term.
Banks also could use some strengthening in loan pricing to keep margins healthy. But that's highly dependent on loan demand — something banks have not yet seen enough of to counter the effects of increased deposits.
At U.S. Bancorp, loan commitments rose 2% from the fourth quarter to the first, but utilization rates on wholesale credit lines dropped from 26% to 25%, a discouraging signal for anyone looking for signs of pent-up demand for credit.
On a conference call to review first-quarter results with analysts, U.S. Bancorp's chairman and CEO, Richard Davis, hypothesized that the nascent recovery in U.S. loan demand took something of a time-out these past few months as rising oil prices and supply-chain disruptions caused by the earthquake-related trouble in Japan caused some uncertainty.
"The first measure of our customers using their confidence to grow and to invest in things would be the use of their own demand deposits, and they're not using that," Davis said.
Jeff Horwitz, Sara Lepro and Matthew Monks contributed to this story.
