Bank 2Q Earnings Preview

Earnings season will start to really pick up on Friday when $WFC and $JPM each report 2Q Earnings.  The good news for those who are impatient is that the Fed releases aggregated balance sheet data on a weekly basis, so we can already get some sense of how the quarter went for the banking system as a whole.

Unfortunately, loan growth, which is the most important driver of value creation for banks, wasn’t particularly strong in Q2.  Systemic loan balances grew only 2.9% y/y and 0.5% q/q.  That’s down from 3.8% y/y growth at the end of the first quarter.  The trend isn’t good especially considering that most management teams assured investors that Q1 was only weak because loan demand had been pulled into 4Q12.

On the other side of the balance sheet, deposit growth slowed modestly, but remains in line with the growth rate from the mid 2000′s at 7.7% y/y.  Higher deposit growth has allowed banks to shift their liabilities to lower cost sources of funding, which should be good for NIMs over time.

Bank stocks have had big gains recently on hopes for this NIM expansion as interest rates have risen.  However, it may take time for this expansion to be felt in earnings, especially given the loan environment.  Let’s hope that buyers of bank stocks are taking a long view and wont be caught off guard by sluggish loan growth.

Bank Loan and Deposit Growth

 

Source: Fed H.8 Release

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