Weekly Report – January 24th, 2024

Graph 2024.01.24

Highlight of the Week

Regional Banks Report Q4 Earnings

  • Regional bank earnings decreased on a quarterly and yearly basis with Net Interest Margin (‘NIM’) compression and notable one-time expenses.
    • NIM fell at many regional banks in the fourth quarter due to higher deposit costs. Compared to the largest banks, regional banks have offered higher deposit yields in an effort to attract deposits, with the increased costs squeezing NIM in the fourth quarter.
    • The notable one-time expenses at regional banks were similar to the expenses seen at larger banks. Among the recorded expenses were the FDIC special assessment fee, securities repositioning costs, and costs associated with workforce reduction and corporate real estate consolidation. Comerica was impacted by the BSBY cessation announcement, and Truist recorded a $6.1 billion goodwill impairment charge that ‘reflects the current turbulence in the overall industry’.
  • Q4 earnings showed that credit quality remained surprisingly resilient and net charge-offs continued to normalize. With that said, many regional banks continued to build up reserves against commercial real estate and will continue to closely monitor exposure into 2024.
  • Deposit and loan balances at regional banks also remained generally stable in Q4. 2024 guidance provided a mixed outlook for loan and deposit balances, depending on the focus of each bank moving forward.
  • Many banks also warned that potential rate cuts from the Federal Reserve will further dent margins. Regional banks are largely expecting 2024 NII to decline compared to 2023, with hopes that NIM will trough early in the first or second quarter and gradually increase throughout the year into 2025. Against this backdrop, there will likely be a strong focus on repricing deposits down as banks reposition balance sheets to take advantage of a down-rate environment.

Rate Curves

Graph 2024.01.24
Category: Market Updates
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