US banks' aggregate loan-to-deposit ratio went up in the first quarter, marking the fourth consecutive quarter in which the ratio has increased.

The industry aggregate was 65.2% in the first quarter, compared to 63.6% in the fourth quarter of 2022 and 57.0% in the first quarter of 2022, according to S&P Global Market Intelligence data. The ratio remains below the pre-pandemic ratio of 72.4% in the fourth quarter of 2019.

Liquidity crunch

Investors often use a bank's loan-to-deposit ratio to assess liquidity, a topic that made headlines late in the first quarter due to the failures of Silicon Valley Bank and Signature Bank and the emergence of a liquidity crunch.

Deposit outflows accelerated in the quarter, with dozens of banks logging declines in excess of 5%. In the first quarter, banks' deposits stood at $18.742 trillion, a 2.5% decrease from the previous quarter and a 6% drop from the prior-year quarter.

Loans at banks totaled $12.212 trillion, slightly down 0.1% on a quarter-over-quarter basis but up 7.5% on a year-over-year basis. Banks reported weaker demand and tighter underwriting in several loan categories, according to the results of the Federal Reserve's April 2023 Senior Loan Officer Opinion Survey on Bank Lending Practices.

JPMorgan Chase & Co., the largest US bank by total assets, recorded a loan-to-deposit ratio of 49.3% for the first quarter, compared with 50.6% a quarter ago and 44.6% a year ago.

While many other banks logged deposit outflows during the quarter, JPMorgan recorded inflows of "somewhat flighty deposits."

"They just came into us. So it's prudent and appropriate for us to assume that they won't be particularly stable," CFO Jeremy Barnum said on the company's first-quarter earnings call held April 14.

On lending, the company is not tightening standards aggressively, Barnum said.

"We [did not] loosen our underwriting standards when all the numbers looked crazy good during the pandemic. And we're not going to like overreact now and tighten unreasonably. Some of that correction happens naturally," Barnum said.

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Largest increases

Of the 20 banks with the largest year-over-year increase in their loan-to-deposit ratios during the first quarter, 17 booked declines in total deposits and increases in total loans. United National Corp. led the list with a 62.3-percentage-point increase in its ratio.

PacWest Bancorp ranked 19th with a 27.7-percentage-point yearly hike in its loan-to-deposit ratio to 101%. On a year-over-year basis, the Beverly Hills, Calif.-based bank holding company's first-quarter deposits dropped 15.2% to $28.19 billion, while loans rose 16.9% to $28.47 billion.

PacWest recorded heavy deposit outflows following the bank failures in March. Even prior to the deposit event, PacWest has been trying to shrink its balance sheet and became "very selective" in lending, President and CEO Paul Taylor said on the company's April 26 first-quarter earnings call.

Largest declines

The 20 banks with the largest year-over-year decrease in their loan-to-deposit ratios posted deposit growth. Of the 20 banks, 14 reported loan growth.

SoFi Technologies Inc. topped the ranking as its loan-to-deposit ratio plummeted 458.6 percentage points to 159.8%.

New York Community Bancorp Inc., the buyer of substantially all the deposits and certain loan portfolios of Signature Bridge Bank NA, was part of the list. The Hicksville, NY-based bank holding company's loan-to-deposit ratio slipped 24.3 percentage points year over year to 98.9% as its loans grew 79.3% to $83.85 billion and deposits climbed 123.4% to $84.80 billion.

The transaction enables New York Community to pay down high-cost borrowings, rightsizes the company's loan-to-deposit ratio and substantially improves its liquidity positioning, Compass Point Research & Trading analyst David Rochester wrote in a March 20 note. In the previous quarter, the company's loan-to-deposit ratio was 119.4%.