Deposits grow for majority of banks with $100B to $1 trillion of assets in Q2'23

The majority of US banks with assets between $100 billion and $1 trillion reported sequential gains in total deposits, while net interest margin declined across the board during the second quarter amid the rising cost of funds and intense competition for deposits.

Although the deposit total increased on a quarterly basis for most of the banks that reported earnings through July 21, it declined for six of them on a year-over-year basis.

All nine US banks in the category reported sequential net interest margin (NIM) declines. Even so, year-over-year NIM changes were positive for seven out of the nine banks, according to an analysis of S&P Global Market Intelligence data.

Deposits bounce back

Seven of the nine banks in the analysis reported a quarter-over-quarter increase in total deposits, but only three banks reported year-over-year increases in total deposits. PNC Financial Services Group Inc. and Regions Financial Corp. were the only two banks to report quarter-over-quarter decreases in total deposits, down 2.1% and 1.2% respectively.

PNC's deposit outflows were a result of quantitative tightening, increased spending activity and consumer tax payments, the company's executives said on a second-quarter earnings call. PNC is pricing its deposits competitively to keep its client base, President and CEO William Demchak said during the call.

"You're seeing that in the mix shift from non-interest-bearing to interest-bearing and the increase in the beta," Demchak said. "We're not out chasing, trying to do broker deposits or big [certificate of deposit] pushes or something to boost deposits."

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The quarter-over-quarter deposit increases were inverse from the first quarter when eight of 10 banks in the analysis reported a quarterly decline in total deposits.

U.S. Bancorp and Citizens Financial Group Inc. tied for the highest percentage quarterly increase in total deposits at 3.2%. However, U.S. Bancorp expects a decline in deposits as the Federal Reserve continues quantitative tightening, John Stern, the company's head of finance, said during a second-quarter earnings presentation.

"Even though we had a large seasonal uplift as typical in the second quarter from our corporate trust and commercial businesses that bring in deposit balances, as that begins to normalize, we think we're probably in line with the industry, which we anticipate being more of a decline," Stern said.

NIM declines

KeyCorp and Huntington Bancshares Inc. were the only two banks to report year-over-year declines in NIM at 48 basis points and 4 basis points, respectively. The banks also posted the two biggest quarter-over-quarter declines in NIM, with KeyCorp reporting a 35-basis-point drop and Huntington registering a 25-basis-point drop.

KeyCorp's swap portfolio, short-dated Treasurys, high interest-bearing deposit costs and a shift in its funding mix negatively impacted the company's NIM during the quarter, CFO Clark Khayat said during the company's second-quarter earnings call.

"As we drive more benefit from the repricing of our swaps and treasuries in 2024, we expect growth in both our net interest income and net interest margin," Khayat said.

The pressure on NIM reflected the rising cost of funds in the bank industry, with customers becoming increasingly rate-conscious and banks competing aggressively for low-cost deposits amid rapid Fed interest rate hikes.

Weakening EPS

Year-over-year earnings trends were a mixed bag in the second quarter, with three of the nine banks in the group reporting an EPS increase compared to the year-ago period, four reporting a decrease and two reporting no change. Quarter-over-quarter earnings were decidedly more negative, with seven of the banks reporting sequential EPS declines.

The two banks that reported quarter-over-quarter EPS gains also reported increases on a year-over-year basis, namely Fifth Third Bancorp and M&T Bank Corp. Four banks reported both linked-quarter and year-over-year declines, while two reported quarterly declines but no change year over year. Citizens Financial Group Inc. was the only bank to report a quarterly EPS decline despite a year-over-year increase.