In the first series of earnings reports since the recent bank failures, investors are scrutinizing banks' deposit flows to judge the health of individual banks as well as the banking sector as a whole.
In the wake of those March bank runs on California's Silicon Valley Bank and New York's Signature Bank, some consumers and businesses moved their money from smaller and regional banks to bigger, national banks in the hopes their funds would be safer.
Minneapolis-based U.S. Bancorp, which reported its first-quarter results Wednesday, is among the larger banks that saw an uptick in deposits in the days immediately following the high-profile failures.
Terry Dolan, U.S. Bancorp chief financial officer, said the bank saw a "pretty significant inflow of deposits" in the first 10 days or so after Silicon Valley Bank collapsed.
Customers — mostly corporate and commercial — opened about a thousand new accounts, he said. There was also a "significant increase" in its consumer accounts in California, which seemed tied to the fallout.
U.S. Bancorp also saw about $10 billion of inflows into its money market funds, he added.
Executives at other big banks — including JPMorgan, Citigroup and Wells Fargo — have also professed in recent days to have seen a bump in deposits after the bank failures. But that wasn't always reflected on their first-quarter balance sheets, as inflation and higher interest rates have also negatively impacted overall deposit flows.
U.S. Bancorp, the nation's fifth-largest bank and the largest in Minnesota, lost $19 billion in total deposits in the first quarter, a 3.6% decline from the end of the fourth quarter.
Dolan said that was mostly because of seasonal outflows it typically sees from its sizable corporate trust business. Executives also expected about $6 billion of deposits from its recently completed acquisition of MUFG Union Bank to go away, which it did, he said.
JPMorgan was one of the notable standouts to show an increase in ending deposit levels for the first quarter, while Wells Fargo and Citigroup showed small percentage declines. Compared with a year ago, U.S. Bancorp was the only one of these four banks to show an increase in deposits, though that was mostly from the December 2022 merger completion that gave it $90 billion in deposits.
The Federal Reserve said U.S. commercial banks averaged a 2.8% decrease in deposits from a quarter ago and a 4% decrease from a year ago. Charles Schwab is one of the banks with a larger deposit outflow, with an 11.2% decrease this quarter and 30.1% decrease from last year at this time.
Nonetheless, many of the bigger banks posted solid first-quarter results as they benefitted from higher interest rates on loans. U.S. Bancorp saw its profit and revenue climb, beating analysts' expectations.
Dolan said there could be more volatility in the banking sector in the coming months, but added that banks with a diversified portfolio, such as U.S. Bancorp, are better positioned to weather it.
"I do think that there's going to be stress in the banking industry, simply because of the fact that with higher interest rates, deposit costs are higher, and there's going to be a strong competition for deposits as we continue to move forward through 2023," he said after the company reported its results Wednesday morning. "And that puts pressure on especially smaller banks, community banks, midsize regional banks, etc., that do not have a diversified business model."
He added that U.S. Bancorp has nearly 3,000 branches spread across the country and a broad mix of different kinds of customers. By comparison, Silicon Valley Bank's customers were concentrated in tech, and most of its branches were in the same region.
Still, investors remain wary. U.S Bancorp's shares, down more than 20% since the beginning of March, edged up 2% on Wednesday.
U.S. Bancorp's first-quarter net income increased 9.1% to $1.7 billion. When adjusted for merger-related charges, its earnings per share came in at $1.16, better than the $1.12 per share analysts expected.
It recorded $244 million in merger-related charges and increased its rainy-day fund for bad loans by $427 million, as the company acknowledged the economy will likely hit some speed bumps later this year.
"We expect a soft recession, a moderate recession, in the later half of this year," CEO Andy Cecere told analysts.
Its revenue grew 28% to a record of $7.2 billion, which a 45.9% increase in net interest income boosted. The growth also reflected the first full quarter to fully incorporate the bank's integration of MUFG Union Bank, an $8 billion acquisition.
The bank said the transition is progressing as planned. It remains on track to convert Union Bank to the U.S. Bank brand during Memorial Day weekend.