Deposits, liquidity will take center stage on Q1 US bank earnings calls

Factors at the center of recent market turmoil, such as deposits and liquidity, will be the focus of US banks' first-quarter earnings calls.

Banks with between $10 billion and $100 billion in assets start reporting first-quarter earnings on April 17. Of the 70 publicly traded regional banks with at least five normalized earnings per share estimates from analysts, consensus estimates forecast a linked-quarter EPS rise for just 10 companies and no change for two, according to an S&P Global Market Intelligence analysis. The rest are expected to report lower EPS compared to the fourth quarter of 2022. Conversely, compared with the first quarter of 2022, most banks in this asset range are expected to report higher EPS.

However, all eyes will be on banks' deposit bases and liquidity positions following the recent market turmoil spurred by bank failures, which raised concerns about liquidity and deposit concentrations.

Much like how the COVID-19 pandemic pushed banks to be more transparent about their exposure to various industries of concern, banks are expected to provide and discuss granular details about their balance sheets due to recent events.

On first-quarter earnings calls, banks will "likely illustrate the hard work accomplished to shore up liquidity and prove deposit outflows were not an issue," Hovde Group LLC analysts wrote in a March 27 note.

Deposit discussion

Deposits played a large role in recent events. Both Silicon Valley Bank and Signature Bank had large amounts of uninsured deposits and experienced runs prior to their failures. The fallout of the failures spurred deposit outflows at other banks.

To give equity investors some assurance, banks will provide granular detail on their deposit bases, such as amounts of insured versus uninsured, concentration levels and inflow and outflow data, since March 8 and potentially even after March 31, according to Stephen Scouten, managing director of FSG research at Piper Sandler. Banks will also likely break out municipal deposits and other items that make the amount of uninsured seem higher than it is, he said.

"You'll see a lot of information around deposit bases," Scouten said in an interview.

Liquidity

The recent failures have also sparked concerns about the industry's liquidity. As a result, banks will discuss their liquidity positions and the levers they have to pull to shore up liquidity if needed.

Bond books will also be a topic of discussion, said Ben Gerlinger, managing director at Hovde. If a bank did not provide disclosures in this area last quarter, it is "much more likely to" this quarter, Gerlinger said.

Credit cracks

Once banks have quelled concerns about deposits and liquidity, "the conversation will turn to credit quality and what management teams are seeing for demand [and] their willingness to lend," Hovde analysts wrote.

In an interview, Gerlinger said he anticipates openness from banks related to commercial real estate (CRE), particularly about office and retail.

"Office is a big area of, let's say, heartburn for investors," Gerlinger said. "Not that it's anything imminent, but it is an area of concern, economically speaking."

Wells Fargo analysts in an April 5 note also expressed concerns about potential CRE defaults and charge-offs, especially involving office, and said Bank OZK has one of the largest exposures to CRE.

Banks hesitant

While investors are eager for increased disclosures around deposits, liquidity and credit quality, banks will likely be hesitant to provide that detail. Scouten noted that some banks have filed Forms 8-K to provide midquarter updates after recent events, and based on the reactions, other banks will potentially be thinking about whether to disclose information.

"Seemingly, whatever a bank disclosed, the market seemed to react negatively and have more unanswered questions," Scouten said.

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Banks also will likely be hesitant to provide longer-term outlooks given the intensifying uncertainty.

"It's hard to forecast the latter half of this year because it's a little hard to forecast next week," Gerlinger said. "So I think the commentary around growth is going to be a wider range. Frankly, it's so opaque that management might not necessarily give it until the middle of the year."

Banks with $50B-$100B in assets

Only one bank with between $50 billion and $100 billion in assets is expected to report higher linked-quarter EPS: Wintrust Financial Corp. However, all but three are expected to report higher earnings year over year.

Banks with $20B-$50B in assets

Texas Capital Bancshares Inc., Bank OZK, BankUnited Inc., SouthState Corp., Ameris Bancorp and Eastern Bankshares Inc. are the banks in the $20 billion to $50 billion asset range expected to report higher linked-quarter EPS. Similar to their larger peers, most are expected to report higher year-over-year EPS.

Banks with $10B-$20B in assets

Berkshire Hills Bancorp Inc., Seacoast Banking Corp. of Florida and Stellar Bancorp Inc. are the only banks in the $10 billion to $20 billion asset range expected to report higher linked-quarter EPS.

The majority of these banks are expected to report higher year-over-year earnings. Stellar is newly formed after a merger of equals and therefore is not comparable to a year ago.