Next, Cramer laid out the most important ways for investors to evaluate the bank’s individual performance, starting with the net interest margin.
The No. 1 key metric for the industry, net interest margin is the difference between what banks pay individuals for their deposits and what they charge individuals for loans.
“It’s still the primary way that banks make their money,” Cramer said. “Given that we got three rate hikes last year and the last quarter the net interest margins were pretty impressive, there’s some real reason for optimism here and I think it could prevail.”
If net interest margins go up this quarter, the regional banks — which are purer plays on lending than the larger institutions — would benefit the most, Cramer said.
The second-most important metric for the banks is loan growth, also a key indicator for the health of the broader economy.
Strong loan growth means good things for the banks and for business confidence, as companies become more willing to borrow based on improved prospects.
But Cramer was most excited to hear about the big banks’ plans for their dividend and share buyback programs. Lower tax rates and a less strict regulatory environment have created a more favorable environment for returning capital to shareholders, he said.
And with a former investment banker about to become the new Federal Reserve chairman, Cramer expected the banks to feel encouraged, if not eager, to reward their investors.
“They are sitting on boatloads of cash, so let’s see how much they can increase their buybacks or signal large dividend boosts without risking the ire of the Fed,” he said.