Takeaways From a Highly Anticipated Bank Earnings Season

As they report earnings for the first time in 2023—and the first time since a liquidity crisis spread fears across the industry—are there signs that banks are bouncing back? Even though some are reporting solid numbers, the answer is a bit of a mixed bag.

• While many banks are reporting that net interest income growth handily beat expectations, those results could be short-lived if rates plateau and fall later in the year, as some are forecasting.
• Another potential hit to future earnings is the race to secure deposits—which were, to no one’s surprise, down in the first quarter after “the biggest U.S. bank deposit drawdown in decades.” Banks could be forced to continue raising deposit interest rates to attract and retain account holders.
• Banks are setting aside more in reserves for loan losses in anticipation of a weakening economy, with some banks specifically mentioning office real estate as especially lagging. One bank official said that the sector “will play itself out over multiple quarters, if not multiple years.”

Even with mixed results coming in from regional banks early this week, stocks were largely up, a sign that we might be turning the corner from market turmoil. “When juxtaposed against the banks’ stock movement,” CNBC reported, “it seems investors were more concerned about profitability than the size of deposits, which could be a promising signal that it’s back to business as usual in the sector.”