Wrapup 1: US regional banks' Q2 profits squeezed by deposit costs, tepid loan demand

First Foundation

19/07/2024 14:23

By Manya Saini
       July 19 (Reuters) - Several U.S. mid-sized and regional
banks reported a fall in their second-quarter profit, as income
from charging customers interest was squeezed by higher deposit
costs and tepid demand for loans.
    Most U.S. banks are expecting a decline in net interest
income (NII) this year as high interest rates have impeded loan
activity, while efforts to retain customers have pushed up
deposit costs.
    "High interest rates, an uncertain economic outlook and
alternative financing challenge continue softening demand for
traditional bank lending," said Chris Stanley, banking industry
practice lead, Moody's.
    "Banks of all sizes must critically examine growth
assumptions amid these conditions," Stanley added.
    Net interest margin, a key measure of banking profitability
that takes into account earnings from interest on loans and
payments on deposits, also contracted across the industry for
the third straight quarter.
    Huntington Bancshares  HBAN.O , Fifth Third Bancorp
 FITB.O , Regions Financial  RF.N  and Comerica  CMA.N  joined
rivals in reporting lower second-quarter profit on Friday.
    Shares in Fifth Third fell 1.5% before the bell, while
Regions and Comerica declined 3% and 11%, respectively.
    Several banking executives have said they were actively
working to lower expenses to counter interest income headwinds.
    Lenders' loan books are also under investor scrutiny since
turmoil at New York Community Bancorp  NYCB.N  earlier this year
and more recently at First Foundation  FFWM.N  put the spotlight
on stress in the commercial real estate sector, particularly
office and multi-family portfolios.
    CRE pressures and weakening consumer health amid higher
rates have also prompted banks to build up their allowances for
credit losses or the buffer of capital lenders put aside to
cover potential loan defaults.
    The U.S. Federal Reserve's stress test also showed that
banks' credit card loans and corporate credit portfolios could
be tricky.
    Earnings from NYCB and First Foundation late next week will
round-out what has so far been a dull second quarter for smaller
lenders.

 (Reporting by Manya Saini, Pritam Biswas, and Arasu Kannagi
Basil in Bengaluru; Editing by Shilpi Majumdar)
 ((Manya.Saini@thomsonreuters.com))