Two regional banks, Zions Bancorporation and Fifth Third Bancorp, both lowered their guidance for net interest income this week as their deposit costs continue to rise.
The revised outlooks highlight pressures that are affecting many banks — and which figure to take up a lot of the oxygen during second-quarter earnings season next month. Net interest income is the difference between interest income and interest expenses, the latter of which has been rising.
Salt Lake City-based Zions disclosed on Monday that it expects its net interest income will decrease between the first quarter of this year and the same period in 2024 by more than it had previously anticipated.
Zions did not not provide specific numbers in its latest guidance. But back in April,
When Zions revised its guidance, it said that it is targeting a reduction in operating expenses to offset the lower revenue forecast.
Zions identified rising deposit costs as the key factor in its revised outlook. At the end of May, its average cost of total deposits was 1.4%, up from 0.47% in the first quarter and 0.20% in the fourth quarter of last year.
As of June 9, the $88.6 billion-asset bank was paying 5.2% on selected certificates of deposit, compared with 4.15% on May 10, according to analysts at Jefferies.
Like many U.S. banks, Zions has been contending with the impact of rising interest rates on its cost of funds. It has also been affected by fallout from
At a Morgan Stanley conference on Tuesday, Zions President and Chief Operating Officer Scott McLean suggested that the bank's relatively large share of non-interest-bearing deposits offers an advantage over other banks. During the first quarter, 49% of Zions' total deposits were non-interest-bearing.
"We've been an industry leader in that regard for decades, and it's not accidental. It is related totally to our strategy and our focus on banking small and medium-size businesses," McLean said. "They're more focused on their top line than making an extra 50 basis points on a $50,000 balance, or a $75,000 balance."
Fifth Third CEO Tim Spence spoke Wednesday at the same Morgan Stanley conference. He said that the Cincinnati bank is not "immune to the competitive landscape" when it comes to deposit prices.
As competitors have increased the rates they are paying, Spence said, Fifth Third has "defended" its deposit base.
Fifth Third also disclosed that it expects that its total revenue will fall by 2%-3% between the first and second quarters. It had previously projected that total revenue would remain stable.
Still, Spence said that Fifth Third is positioned to pursue growth while managing potential liquidity challenges.
"We create stability by focusing on stable, core deposit funding, a consistently strong credit profile and diversified revenue streams," he said, citing the bank's expansion efforts in the
The largest U.S. banks are also clawing for deposits —
"The environment is certainly very competitive," Jennifer Piepszak, co-CEO of consumer & community banking at JPMorgan Chase, said Tuesday at the Morgan Stanley conference. "And there are more headwinds than tailwinds on deposit growth."
"The way we think about it is that the war is really for customers," Piepszak added. "And deposits are really more like a battle."
