(Reuters) – Fifth Third Bancorp posted a 10% drop in first-quarter profit on Friday as higher deposit costs weighed on the lender’s interest income.
Regional banks have steadily increased the interest rates they offer on deposit accounts to retain customers looking for higher returns by parking their money in higher-interest alternatives.
Cincinnati, Ohio-based Fifth Third’s net interest income on a reported basis (the difference between what a bank earns on loans and pays on deposits) fell nearly 8.8% to $1.38 billion in the quarter.
The net interest margin shrank to 2.86% in the first quarter, compared to 3.29% in the same period a year ago.
Fifth Third still expects NII to decline 2% to 4% in 2024. Analysts on average expect a decline of 3.4%, according to LSEG data.
Regional peers US Bancorp and KeyCorp reported earnings Thursday and posted similar NII declines.
The provision for credit losses fell to $94 million in the quarter from $164 million last year.
Higher interest rates have also dampened loan demand as borrowers sit on the sidelines waiting for rate cuts.
Fifth Third’s total average portfolio loans and leases fell 4% to $117.33 billion in the quarter, reflecting a decline in its consumer and commercial portfolios.
Meanwhile, the bank’s total average deposits rose 5% to $168.12 billion, helped by higher interest payments and money market accounts.
The lender’s net income available to common shareholders fell to $480 million, or 70 cents per share, for the three months ended March 31, compared with $535 million, or 78 cents per share, a year earlier.
Shares of Fifth Third are down 0.8% so far this year, from their previous close, compared with a 14.2% decline in the KBW Regional Banking Index.
(Reporting by Arasu Kannagi Basil in Bengaluru; Editing by Ravi Prakash Kumar)
