Q2 Outlook for U.S. Commercial Banks Performance: Has Profitability Hit a Trough?

Higher-for-longer interest rates have put pressure on banks' net interest margins and put deposits in the spotlight. Regulators have heavily scrutinized banks' liquidity and commercial real estate concentrations as well in the aftermath of the trio of large bank failures in the spring of 2023, causing institutions to prize deposits and slow loan growth.

Bank margins should trough in 2024, but the pace of improvement remains in question as customers continue to shift funds into higher-cost deposits. While credit quality has largely held up thus far, institutions recognize that significantly higher rates will challenge borrowers that need to refinance loans coming due soon, particularly those looking to refinance commercial real estate credits. Credit losses will increase, but most industry observers don’t expect a severe meltdown.

During this discussion, FIG Research Director Nathan Stovall will review his proprietary projections for commercial bank performance and discuss the profitability outlook with an esteemed U.S. bank investor.