Regional Banks’ Financial Results Fail To Impress Investors

A slew of regional banks of various asset sizes posted earnings this week. Even though many benefitted from a rising interest rate environment, investors were not impressed. The S&P Regional Banks Select Industry Index is at 1, 346.95 today. This is a 34% decline from where it stood on March 8, 2023, right when Silicon Valley Bank announced it was selling $1.25 bn in stock. There are no signs that this index is recovering any time soon. The KBW Nasdaq Regional Banking Index tells the same story.

Deposits at Regional Banks

Unsurprisingly, deposits decreased in the first quarter of 2023 at numerous regional banks. It is important to monitor regional banks’ deposit levels, because unlike globally systemically important banks, regional banks rely much more heavily on deposits to fund themselves. Those banks that lost deposits will have to will have to pay more this quarter to attract deposits. This will increase their interest expenses in a period when interest rates will probably no longer rise as they have in the last twelve months. This could put pressure on regional banks’ net interest margins.