Net interest margins have stayed stubbornly low throughout the banking industry this year. As the St. Louis Fed calculated, margins for all banks slipped to about 3.45% in the first quarter. The downward pressure should continue, Evercore analyst John Pancari wrote in a note today because of “the prolonged low rate environment, sluggish loan growth, and yield curve flattening (3m-10yr Treasury spread down 166 bps over past year).” But different banks will feel the effects in different ways.
“Certain banks are more exposed to downside NIM pressure owing to a higher component of loan repricing, relatively high earning asset yields, abating accretable yield benefit, and limited incremental room to lower funding costs.”
Based on Evercore’s analysis, the banks with the most significant exposure in 2013 to ticght net interest margins include FirstMerit (FMER), BB&T (BBT), Commerce Bancshares (CBSH), Wells Fargo (WFC), M&T Bank (MTB), First Niagara (FNFG), PNC Financial (PNC), and Bank of America (BAC). Pancari lowered his estimates on numerous banks in response to the interest concerns — he cut 2013 EPS estimates for Bank of America and Wells Fargo by 2%. He also downgraded City National (CYN).
But other banks, including KeyCorp (KEY) and Regions Financial (RF), should be able to withstand the pressure. Based on his NIM analysis, Pancari also raised his 2013 EPS estimates for Citigroup (C) and JPMorgan Chase (JPM) by 3% and 2% respectively.
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