US regional banks grow deposits, but net interest margin pressure persists in Q1

Most US regional banks posted both sequential and year-over-year deposit growth in the first quarter even as competition remained intense.

Likewise, deposit pricing stayed high, causing all US banks with total assets between $100 billion and $1 trillion that reported earnings between April 15 and April 22 to report net interest margin (NIM) deterioration, according to an S&P Global Market Intelligence analysis.

Deposits on the rise, but NIMs stay under pressure

Six of the nine banks in the analysis reported quarter-over-quarter increases in total deposits. Of those, five also reported year-over-year increases.

Truist Financial Corp. was the only bank to report both sequential and year-over-year declines in deposits. The company attributed the sequential decline to a $1.9 billion drop in brokered deposits, a continued shift to interest-bearing accounts from noninterest-bearing and continued deposit competition.

"One of the benefits of operating in such attractive high-growth markets is, is they're attractive to others as well. And so it's always been a competitive marketplace for us," CFO Mike Maguire said on the company's first-quarter earnings call. "We're going to pay a competitive rate to defend the relationships that you would expect us to defend."

As such, the company's NIM dropped 11 basis points from the linked quarter. The company amended its full-year revenue guidance to be down between 4% and 5% from its prior, broader range between 3% and 5% due to the higher-for-longer rate outlook and continued deposit mix shift pressure, Maguire said.

Conversely, U.S. Bancorp reported the largest quarterly deposit increase at 3.1%. U.S. Bancorp also updated its guidance due to the higher-for-longer outlook and customer behavior, lowering its 2024 net interest income (NII) expectation to between $16.1 billion and $16.4 billion.

"Client behavior across the industry is adjusting in response to the potential higher-for-longer interest rate environment that has impacted our deposit mix and pressured deposit costs," Chairman, President and CEO Andy Cecere said during the company's first-quarter earnings presentation.

M&T Bank Corp. reported the largest sequential NIM decline at 14 basis points; however, the company expects the declines to stall, providing guidance of NIM in the 3.50% range for full year 2024. Regions Financial Corp. reported the largest year-over-year decline at 62 basis points.

Fifth Third Bancorp reported the smallest sequential NIM decline of any bank in the group, as the company reported stabilizing deposits competition and costs. As such, the company predicts its NIM and NII trough is behind it.

"There's certainly some risk that the competition can reaccelerate, but it does feel like overall deposit competition did soften at the end of last year and that continued too," CFO Bryan Preston said.

– Download a template to compare a bank's financials to industry aggregate totals. – Download a template for a comprehensive profile on a selected bank or thrift. – View US industry data for commercial banks, savings banks and savings and loan associations.

EPS remains down YOY despite sequential increases

Year-over-year earnings trends were negative in the first quarter as all banks in the analysis reported declines. However, seven of the nine banks in the analysis reported earnings-per-share increases sequentially.

Fifth Third and Regions were the only banks in the analysis to report both sequential and year-over-year EPS declines.