What Are Bank Stocks Telling Investors?
What was expected to be a prosaic first quarter was anything but that. It was punctuated by the failures of SVB Bank and Signature Bank, the wind down of Silvergate Bank and the near(ing) failure of First Republic Bank (NYSE: FRC; see the article on page 4). Ironically, failures that were precipitated by deposit runs were triggered by fears of unrealized losses in bond portfolios that occurred five months after Treasury yields peaked.
Year-to-date (through April 26) the Nasdaq Bank Index declined 28% compared to 13% for the S&P Bank Index as deposits flowed into the presumed safety of “too big to fail” institutions. JPMorgan Chase & Co. (NYSE: JPM) is an outlier among banks in that its shares are up slightly YTD. Also notable is the outperformance of Technology Select Sector (NYSE: XLK) this year in a reversal of 2022 when tech stocks underperformed in the market.
To the extent falling stocks are foreshadowing poor earnings or dilutive equity raises at low share prices, it was not evident in first quarter earnings among community banks ($1-$10 billion of assets) and regional banks ($10 billion to $50 billion of assets) reports as of April 25. Earnings were fine, albeit down from the fourth quarter as is often the case given the 90 days to accrue interest compared to 92 days in the fourth quarter.
The median year-over-year increase in EPS was 2% for community banks compared to 14% for regional banks.
The median decrease in EPS from 4Q22 was 9% for both community and regional banks – a much larger than normal seasonal decrease between the two quarters.
Both groups reported a median return on tangible common equity of about 15%, boosted somewhat by the mark-to-market losses net of taxes in AFS investment portfolios as reflected in GAAP equity.
The median NIM for community banks was 3.61%, down 16bps from 4Q22 and up 44bps from 1Q22.
The median NIM for regional banks was 3.37%, down 28bps from 4Q22 and up 49bps from 1Q22.
Loan growth for community banks was up 1% from year-end compared to 2% for regional banks, while deposit growth for both was close to nil.
Asset quality metrics continue to reflect very low net charge-offs and a modest uptick in NPAs.
Though not a trend, several banks reported losses on corporate bonds held in investment portfolios.
Also in This Issue
Public Market Indicators
M&A Market Indicators