Funding pressures intensified in the fourth quarter of 2022, leading to declining net interest margins for some of the largest U.S. banks and deposit runoff for most of those institutions.
The majority of the 11 U.S. banks with between $100 billion and $1 trillion in total assets that reported earnings through Jan. 20 saw both quarter-over-quarter and year-over-year declines in total deposits in the fourth quarter of 2022. Also during the quarter, the majority of the banks in the analysis saw net interest margin expansion, but a few started to see net interest margin pressure as funding headwinds amplified.
Deposit trends
Six of the 11 banks in the analysis reported both a quarter-over-quarter and year-over-year drop in total deposits.
Signature Bank reported both the largest linked sequential and yearly drop at 13.8% and 16.5%, respectively. The drops were partly related to the company's conscious effort to decrease digital asset deposits and reduce the size of its relationships in that space.
The company hopes to grow traditional deposits in 2023, but "clearly, this is difficult given the current environment," Co-Founder, President, and CEO Joseph DePaolo said on the company's fourth-quarter 2022 earnings call.
A few banks bucked the deposit runoff trend in the quarter, such as First Republic Bank, which posted 2.4% quarter over quarter and 12.9% year over year deposit growth.
Net interest margin trends
However, that deposit growth came at a cost. First Republic's net interest margin declined by 27 basis points linked quarter and 23 bps year over year as the company opts to build customer relationships using higher-cost deposits. The company expects net interest margin to be approximately 25 to 30 bps lower than the fourth quarter.
Certificates of deposits, or CDs, made up 14% of First Republic's total deposits at Dec. 31, 2022, up from 9% at Sept. 30, 2022. Meanwhile, checking accounts made up 59% of total deposits, down from 64%, during that same time period. The company expects that trend to continue throughout 2023, provided guidance that its full-year net interest margin will be down by about 25 to 30 bps compared to the fourth quarter of 2022.
"The growth rate will probably be greater in CDs than it will be in checking given where the rates are this year, and that's reflected in our outlook," President and CEO Mike Roffler said on the company's 2022 fourth-quarter earnings call.
SVB Financial Group and Signature Bank also reported quarter-over-quarter declines in their net interest margins. SVB Financial expects customers' preference to shift to interest-bearing deposit accounts to continue applying pressure on its net interest margin in the first half of 2023.
However, "we expect the shift towards interest-bearing deposits to stabilize and could see an inflection point in net interest income and NIM in the second half of the year," President and CEO Gregory Becker said on the company's Jan. 19 earnings call.
Earnings per share trends
Year-over-year earnings were mostly positive in the fourth quarter of 2022, with eight of the 11 banks with between $100 billion and $1 trillion in assets that reported earnings through Jan. 20 seeing an EPS increase.
Quarter-over-quarter earnings were more of a mixed bag with six banks in the analysis reporting a linked-quarter increase in EPS and five reporting a decline.
First Republic, SVB Financial, and KeyCorp all reported both a quarter-over-quarter and year-over-year decline in EPS while six banks reported both a quarter-over-quarter and year-over-year increase in their EPS during the fourth quarter of 2022.
