Commercial lending is in the midst of a longer-than-expected slump — and legislative delays in Washington are a major culprit.

Expect to hear more about that when earnings season kicks off Thursday. JPMorgan Chase, Wells Fargo, Citigroup and several regional banks lead the pack, reporting their first-quarter results and hosting conference calls that morning.

The tone of the calls will likely be less rosy than it was three months ago. In January, bank CEOs were brimming with optimism that Congress would move swiftly on pro-business legislation — including overhauling Obamacare and slashing taxes. Several also described a rise in business confidence following the Republican sweep in the elections, implying that a so-called “Trump bump” in lending was looming around the corner.

But it’s not here yet. Weekly lending reports from the Federal Reserve have shown weak loan growth during the first quarter. Commercial loans have been particularly anemic, increasing at large banks at a pace of about just over 1% from the prior quarter, and 5% from a year earlier.

“There’s not enough certainty in Washington,” said Brian Klock, an analyst with Keefe, Bruyette & Woods.

Business confidence remains high, but executives are holding off on borrowing — to expand or invest in equipment — until they have more information on proposals such as the Republican plan to tax imports, or the likelihood of a lower corporate tax rate, Klock said.

Bob Ramsey, an analyst with FBR Capital Markets, noted that loans are growing at their slowest pace since 2011.

“General optimism has kept banks from lowering guidance, but we worry that loan growth this year is going to disappoint unless things turn quickly,” he wrote in an April 7 research note to clients.

Political chatter is likely to come up in other ways on the first-quarter calls.

One of the biggest looming questions in banking is who President Trump will pick to lead the regulatory agencies. Analysts will likely press bank management teams for their thoughts on the matter.

There are several vacancies on the horizon. Fed Gov. Daniel Tarullo stepped down this week, leaving open a powerful post at the central bank. Comptroller of the Currency Thomas Curry’s term expires this month — and his counterpart at the Federal Deposit Insurance Corp., Martin Gruenberg, finishes his term in November.

“There are a number of things that regulators can do to make it easier for the banks, in addition to, and separately from, legislative changes,” said Gerard Cassidy, an analyst with RBC Capital Markets.

Here are a few other metrics to keep an eye on.

Margin boost

After watching net interest margins shrink for the better part of a decade, banks are eagerly embracing the reversal beginning to take place.

Analysts expect the data to show first-quarter margins expanded slightly, continuing a welcome trend that began last year after the Fed hiked rates in December 2015 for the first time in nearly a decade. The industry’s average net interest margin was 3.13% during the fourth quarter of last year, an increase of 6 basis points from a year earlier, according to the FDIC.

Rate hikes from the Fed in December and, to a lesser extent, March also likely aided first-quarter margin growth, analysts said.

“It is, single-handedly, the biggest income statement item that investors are looking at,” Cassidy said.

Recent increases in the one-month and three-month London interbank offered rates also probably contributed to margin expansion, according to a recent client note from Sandler O’Neill.

Such an increase in margins would be fortuitous, helping to drive net interest income higher during a lending slump. Over the past few years, banks primarily relied on higher loan volume to boost net interest income.

“Now we have a narrative where margins are expanding, and that’s going to expand [net interest income] growth,” Klock said.

Outlook for deposit competition

Banks have also bolstered their margins by keeping deposit costs low. With additional rate hikes from the Fed expected later this year, however, the days of dirt-cheap deposit funding are coming to an end.

On the quarterly calls, analysts will likely question bank CEOs on their outlook for deposit rates in the year ahead, looking to get a better sense of how the competition for deposits will play out.

“That’s the $64,000 question that everyone has — and it’s impossible to predict,” Cassidy said.

There are several reasons why. The industry is awash in deposits, making it possible for some banks to relinquish deposits before deciding to boost rates. Further, digitally savvy consumers can easily and quickly move money on their mobile devices, to chase higher yields. New liquidity rules could also make competition fierce, encouraging big banks to hold high balances of retail deposits.

During JPMorgan Chase’s investor day in February, Chief Financial Officer Marianne Lake said the company expects deposits to reprice at a faster pace than in previous cycles. Analysts will likely look for other executives to weigh in on the matter in the weeks ahead.

For the time being, though, big banks may defy Wall Street expectations and continue to reap the low deposit rates.

“What you’re going to see is deposit costs are going to be a lot lower than the Street are expecting,” Klock said.

Warning signs on credit?

No major credit problems are expected to pop up in the first-quarter reports. Still, auto and commercial real estate will remain a key focus.

Analysts will likely ask bankers about their outlook for multifamily loans. Apartment construction has recently boomed in major cities across the country to meet rising demand for rental units. But as millennials have started to reach their mid-30s, many have begun moving out to the suburbs — meaning cities could face a glut of apartments in the years ahead, according to Cassidy.

“Every major city in the country is going to have a multifamily problem” in the next few years, Cassidy said.

In densely populated markets such as New York, supply issues may be limited to luxury units, as rents for midpriced apartments remain stable, he added.

Auto loans will also be in the spotlight. While most big banks have recently pulled back from the market, amid concerns about pricing and credit quality, several regional banks such as BB&T and Huntington Bancshares have sizeble auto portfolios.

BB&T is one of the major banks with significant exposure to subprime auto borrowers, through Regional Acceptance Corp., its subsidiary auto division. While the company’s auto portfolio is still small, generating about 6% of net income during the fourth quarter, yields have recently fallen and charge-offs have edged upward.

“Banks are reassessing their risk in that sector,” Klock said.

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Kristin Broughton

Kristin Broughton

Kristin Broughton is a reporter for American Banker, where she writes about the business of national and regional banking.