11:50 AM EDT, 06/24/2024 (MT Newswires) -- Banks are expected to show mixed pre-provision net revenue trends in Q2, with ongoing challenges in credit quality, subpar loan growth and net interest margins reaching their near-term lows, Wedbush said in a note Monday.

Deposit levels should remain stable overall, with a slowing negative shift in deposit mix leading to slight sequential decline in net interest margins, the investment firm added.

Wedbush expects noninterest-bearing deposits to remain stable or decline slightly, but their ratio to total deposits will decline "as most incremental deposit growth is coming from the interest-bearing side, and deposit pricing competition remains elevated but is incrementally easing."

Credit quality is expected to deteriorate, especially in commercial real estate and commercial and industrial sectors, due to prolonged high interest rates, Wedbush said.

Loan growth will likely remain weak, hindered by high rates and stringent underwriting, while fee income shows mixed results and banks focus on operational efficiencies to manage expenses, Wedbush added.

The investment firm said banks are expected to adopt a conservative approach to capital management due to the uncertainty around capital regulations and will likely keep repurchase plans on hold in the near term.

Wedbush is keeping a cautious outlook on banks and expects a mild recession within 18 months due to the impacts of elevated interest rates and quantitative tightening as the Federal Reserve keeps rates higher for longer.

M&T Bank ( MTB ) , First Citizens BancShares (FCNCA), East West Bancorp ( EWBC ) , First Horizon ( FHN ) and Wintrust Financial ( WTFC ) are Wedbush's top picks.

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