Loan demand: Recent H.8 data and management commentary has generally indicated strong loan demand and loan growth during the second quarter of 2022, particularly for C&I loans. Analysts and investors will want to understand the extent to which banks think that loan growth in the second quarter was attributable to a pull forward in demand ahead of higher interest rates. They will also be interested in how loan pipelines are trending and if the Fed Funds rate increases in May and June are starting to have an impact on loan demand.

Slowing commercial real estate market: During the first quarter of 2022, the volume of commercial real estate transactions increased substantially over the prior year, with transactions up 55% in January, 79% in February, and 62% in March (according to S&P Global Market Intelligence). The rate of growth declined to just 1% in April and 3% in May as inflationary pressures and higher rates started to have a greater impact. For those banks that are more reliant on CRE lending, investors and analysts will be interested in hearing how their loan production and pipelines are trending and if their expectations for loan growth over the second half of the year are being lowered. They will also be interested in hearing about initiatives designed to diversify the loan portfolio and compensate for lower CRE demand with higher production in other asset classes.

Deposit costs: At the beginning of the year, many banks indicated they did not expect to see any meaningful change in deposit costs through the first couple of rate increases. But the pace of interest rate increases has been faster than initial expectations as the Fed attempts to reduce inflation. Banks should be prepared to provide information on the trends they have seen in depositor behavior as rates have increased and if these trends have caused them to adjust their expectations for deposit beta in this cycle. Among the areas of interest for investors and analysts will be the extent to which more rate- sensitive depositors are asking to participate in the rate increases and if commercial depositors are starting to shift excess liquidity out of noninterest-bearing accounts and into interest-bearing accounts..

Credit quality: Asset quality has generally remained strong in 2022, but recent data indicates that the prolonged period of inflation is having a greater impact on consumer confidence and future spending plans. Investors and analysts will want to see if banks are seeing early signs of deterioration in any particular areas of their portfolio, how this is impacting provisioning, and if they are starting to limit their exposure to certain asset classes and industries that might be more impacted in the current environment.

Mortgage activity: Multiple headwinds have caused demand for residential mortgages to decline in 2022. The second quarter generally marks the start of the seasonally strong period for the housing market when demand for new purchases positively impacts mortgage production. But higher rates, elevated home prices, and limited housing supply are creating challenges for the new purchase market to offset the steep decline in demand for refinancings this year. Banks should be prepared to speak to the trends they are seeing in their markets and if they are reducing their expectations for mortgage banking revenue in the second half of 2022. For those banks that provide mortgage warehouse lines of credit, they should be prepared to speak to trends in utilization, if they have opportunities to add new relationships to offset declines in utilization rates, and how this will impact total loan growth over the rest of the year.

Expenses: Inflationary pressures and the tight labor market continue to present challenges to managing expense growth. Investors and analysts will want to understand if banks are looking more closely at opportunities to offset these challenges, such as branch consolidations and reducing headcount in areas where demand is down like mortgage banking, as well as if hiring plans have been scaled back given the high level of competition for talent.

AOCI: Higher interest rates resulted in a significant hit to AOCI for many banks in the first quarter, and with rates continuing to increase during the second quarter, further impact to AOCI is expected. Banks should be prepared to talk about any additional actions they are taking in the investment portfolio to mitigate the impact of further increases in interest rates on tangible book value.