Banks: Q1 2025 Earnings Season Themes

Economic Trends:

Investors and analysts will be interested in hearing about the economic trends that banks are seeing in their particular markets, particularly since the outlook for the economy has worsened since the last earnings season. In particular, there will be interest in seeing if banks are seeing the impact of tariffs on loan demand or asset quality, particularly for banks whose markets have a significant amount of manufacturing and agricultural activity where tariffs are having a greater impact.

Loan Growth:

Many banks indicated that they expected to see a higher level of loan growth in 2025 due to lower interest rates and the resolution of the election uncertainty. Industry wide data has indicated that loan growth remained sluggish in the first quarter, some of which could be due to seasonally low loan demand in the first quarter each year, so it will be interesting to see if some banks are seeing higher level of loan growth than others. Although it could be a case of higher loan demand showing up in loan pipelines at this stage, but not loan growth yet, which would be indicative of higher loan growth as we move through the year. There will be interest in which areas or sectors are seeing higher loan demand, including CRE, where demand has been low over the past few years due to higher interest rates, but with rates coming down, some banks have indicated that they are starting to see more demand. Many mid-quarter updates from banks indicated that loan demand and loan growth was not increasing, so it’s possible that first quarter loan growth across the industry will be minimal.

Deposit Growth and Pricing Trends:

Many banks were able to successfully reduce deposit costs in the second half of 2024, so there will be interest in seeing if they have continued to reduce rates and to what extent that has impacted deposit flows and deposit growth. There will be interest in hearing about the competitive environment in markets and if some banks are still being aggressive in pricing to win deposits.

NIM Trends:

Many banks saw expansion in their net interest margin in the fourth quarter and there will be interest in seeing if this trend continued in the first quarter. In addition, with the outlook for additional rate cuts by the Fed being more uncertain than it was last earnings season, there will be interest in hearing how banks expect their net interest margins to trend if there are no rate cuts during the first half of the year.

Credit Quality:

Broadly speaking, asset quality was generally pretty stable across the industry in the fourth quarter, although a number of banks had an elevated level of NCOs in the fourth quarter in what was characterized as end of the year portfolio clean-up to position themselves for lower credit costs in 2025. There will also be interest in seeing if credit trends are starting to turn positive.

Capital Utilization:

Investors will be interested in getting an update on priorities for capital utilization, including if M&A and stock buybacks are becoming a greater possibility, particularly since banks may not feel they need as much capital to support organic loan growth with loan demand not increasing as much as previously thought.

Updated Outlook for 2025:

Given the change in the outlook for the economy and possible Fed rate cuts since last earnings season, as well as a full quarter of performance now recorded, investors and analysts will be interested in hearing if banks have made any change to the guidance that was previously provided for expected loan and deposit growth, NIM trends, fee income, expenses, and asset quality.

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