This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Bank Stocks and the Secret of NIM (Update 2)

Stocks in this article: BAC JPM WFC RF FMER

While the company's average total loans declined 1% sequentially to $74.622 billion in the fourth quarter as commercial real estate and residential mortgage loans continued to decline, average commercial and industrial loans grew 1% to $26.414 billion. The company also reported that its average auto loans grew by 7% sequentially and 26% year-over-year, to $2.295 billion in the fourth quarter.

FBR analyst Paul Miller on Wednesday said "we forecast Regions' NIM to remain relatively stable compared to other large peers through 2013 given potential offsets which will help minimize the impact of asset yield declines and net loan runoff." Underlining the need to look at net interest dollars rather than just focusing on net interest margin, Miller said that "even assuming flat margins, we expect that Regions will have a difficult time holding net interest income levels flat in light of its declining total loan balances."

Miller rates Regions "Market Perform," with a $7 price target.

First Merit's shares declined 2% on Wednesday to close at $15.18.

With "27 of the top 100 regional banks" having reported their earnings through Friday, McEvoy said in a note on Monday that "the ability of banks to increase net interest income in '13 will rest on whether loan growth can offset net interest margin compression."

In his fourth-quarter review for large-cap banks, Credit Suisse Moshe Orenbuch on Tuesday said that "there was differentiation between those banks that were able to stabilize the NIM despite low rates and those were more susceptible to NIM pressure including WFC."

Defending NIM Beautifully


A look at sequential changes in net interest margin and net interest income underlines Rodis's view that net interest income is holding up nicely for many banks, despite the prolonged hostile rate environment. Wells Fargo (WFC - Get Report) reported that its tax-adjusted fourth-quarter net interest margin was 3.56%, narrowing by 10 basis points from the third quarter. Meanwhile, the company's net interest income declined to $10.643 billion in the fourth quarter from $10.662 billion the previous quarter. On a percentage basis Wells Fargo's net interest margin was down by 2.7%, while the company's net interest income was down by just 0.2%.

The company said that "the primary driver of the decline, approximately 8 basis points, was strong deposit growth of $30 billion in the quarter," with the incoming money invested in short-term securities, so that the new deposits "were essentially neutral to net interest income."

Wells Fargo said that during the fourth quarter, loan-portfolio income "rose slightly from prior quarter, reflecting both organic growth in consumer and commercial loans and the retention of $9.7 billion in high-quality, conforming first real estate mortgages in the fourth quarter." That would indicate that the company didn't sell as much newly originated mortgage product to Fannie Mae (FNMA) and Freddie Mac (FMCC) as it could have.

2 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,672.60 -141.38 -0.79%
S&P 500 2,051.82 -11.33 -0.55%
NASDAQ 4,757.8790 +7.4820 0.16%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs