US Mid-Sized Bank Shares Slump as Interest Income Forecasts Disappoint
Concerns Rise as Mid-Sized US Banks Report Disappointing Earnings
Shares of mid-sized US banks took a hit on Friday as a series of earnings reports raised concerns among investors that the Federal Reserve’s interest rate hikes were losing their impact. The lackluster performance of these banks has prompted worries that the boost they received from the rate hikes is tapering off.
Regions Financial Shares Plummet after Missing Profit Estimates
Regions Financial, one of the affected banks, saw its shares drop over 12% to $14.44 after failing to meet profit estimates. The crisis began when three banks experienced a significant outflow of deposits. Regions Financial expects its net interest income (NII) to decline by around 5% in the fourth quarter.
Wells Fargo analyst Mike Mayo expressed his concerns, stating, “We see the entire bank group as inexpensive but, on a relative basis, we would rather invest elsewhere.” Mayo also added that the headwinds from higher rates could last longer than expected.
Regions Financial Reports Lower-than-Expected Third Quarter Profit
Regions Financial reported a profit of 49 cents per share for the third quarter, falling short of analysts’ average estimate of 58 cents. The lender also missed its estimates on net interest income, credit costs, and expenses. Additionally, the share of bad loans increased at a faster pace than expected.
US Regional Banks Struggle Following Deposit Outflows
US regional banks have been grappling with tepid performance since the collapse of three lenders earlier this year, which triggered deposit outflows. This ongoing struggle has put earnings under pressure for these banks.
Higher Interest Rates and Loan Demand Slowdown Affect NII Growth
Earnings reports from several banks this week have highlighted the impact of the Fed’s rate hikes. Many banks have had to pay higher interest on deposits to prevent customers from migrating to alternatives like money-market funds. The expected slowdown in loan demand as borrowing costs increase has also dampened expectations of net interest income (NII) growth in the fourth quarter.
“The higher for longer environment will continue to pressure net interest margins and overall profitability, as well as the risk of certain borrowers who are unable to repay,” said Terry McEvoy, a banking analyst at Stephens.
Stocks of Huntington Bancshares and Comerica Drop
Huntington Bancshares’ stock dipped 3.88%, while Comerica dropped 8.5%, dragging down the Banks index by over 2%. The KBW Regional Banking index also fell by over 3.50%. Lenders such as Fifth Third Bancorp and Comerica have also forecast a drop in net interest income.
Huntington Bancshares reported an 8% drop in third-quarter profit due to declining interest income. Analysts expect its margins and net interest income to improve throughout 2024, but increased expenses could weigh on its performance.
Overall, mid-sized US banks are facing challenges as the impact of the Federal Reserve’s interest rate hikes diminishes. The struggle to maintain net interest income growth amid higher interest rates and a slowdown in loan demand is causing concern among investors. These banks will need to find innovative strategies to navigate these challenges and maintain profitability in the future.
