Deposit costs fall in Q4 2024 as US banks react to Fed rate cuts

Several US banks responded to the Federal Reserve's rate cuts by aggressively reducing deposit costs in the fourth quarter of 2024.

Among the 24 major exchange-traded banks that reported fourth-quarter 2024 earnings as of Jan. 17, all but two recorded sequential decreases in their costs of interest-bearing deposits, according to S&P Global Market Intelligence data. Many attributed the declines to the impact of interest rate cuts, with the Fed having reduced rates by 100 basis points in 2024.

Fed officials have penciled in two 25-bps cuts for 2025, fewer than their previous forecast of four cuts.

While the Fed's moves will continue to affect banks' deposit pricing, Bank7 Corp. President and CEO Thomas Travis cautioned during an earnings call that cutting deposit costs will become more difficult as the Fed further reduces rates. Among the 24 banks in Market Intelligence's analysis, Bank7 booked the largest quarter-over-quarter decline in cost of interest-bearing deposits, a 52-bps drop to 3.62%.

Aside from the Fed's rate decisions, the competitive environment influences deposit cost repricing, said First Horizon Corp. Chairman, President and CEO D. Bryan Jordan. First Horizon logged the third-biggest drop in cost of interest-bearing deposits of 34 bps to 3.10%.

"We made very good progress in the third and fourth quarters [of 2024], and we're looking to optimize the cost of our deposit base, but we also intend to defend that deposit base," Jordan said during an earnings call.

First Horizon CFO Hope Dmuchowski noted that deposit competition has slowed. "The competitive environment for guaranteeing rates for 90 days or six months that we saw earlier last year was not out there in the market for our clients to get calls on or for us to have to match or compete with," Jordan said.

The large deposit cost decreases at many US banks occurred while the industry experienced sluggish loan growth.

Huntington Bancshares Inc., which is bullish on loan growth in 2025, expects further deposit pricing reductions even as it speeds up growth in loans. Its cost of interest-bearing deposits fell 29 bps to 2.65% in the fourth quarter of 2024.

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The Big Four US banks — JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. — were all among the banks that cut their interest-bearing deposit costs.

Wells Fargo's deposit costs stabilized or declined across all its deposit-gathering businesses.

"In response to the Federal Reserve rate cuts, we have reduced standard pricing for commercial clients as well as pricing for promotional deposit offers and [certificates of deposits] in our consumer businesses," CFO Michael Santomassimo said during an earnings call. "Lower deposit costs also reflected the slowdown of customer migration to higher-yielding deposits. Additionally, lower cost consumer deposit balances in checking and saving accounts have continued to stabilize."

Westamerica Bancorp. and Plumas Bancorp moved in a different direction from the other banks included in Market Intelligence's analysis.

Plumas Bancorp's cost of interest-bearing deposits climbed 13 bps quarter over quarter during the fourth quarter of 2024. In its earnings release, Plumas Bancorp disclosed that the average rate paid on interest-bearing deposits increased to 1.10% in 2024 from 0.73% during the 2023 quarter, related mainly to an increase in average money market rates.

"Included in money market accounts are several large accounts of public entities. We have offered a higher rate to the larger public entity accounts, which has resulted in an increase in balance and average rate earned on money market accounts," Plumas Bancorp said in an earnings release.

Despite the increases, the cost of interest-bearing deposits was 0.48% at Westamerica Bancorp. and 1.10% at Plumas Bancorp, well below those of their peers.