Truist Joins US Regional Banks Posting Higher Deposit Costs

Truist Financial Corp. and two other US regional banks reported rising deposit costs as higher interest rates squeeze their profitability.

(Bloomberg) — Truist Financial Corp. and two other US regional banks reported rising deposit costs as higher interest rates squeeze their profitability.

At Charlotte, North Carolina-based Truist, second-quarter average deposits fell 2.1% from the prior three months, to $399.8 billion, the company said in a statement Thursday. The bank cited client tax payments as one factor. Cleveland’s KeyCorp and Cincinnati-based Fifth Third Bancorp reported a similar pattern.

Moves by the Federal Reserve to tamp down inflation have pressured regional banks on both sides of their balance sheets. Higher interest rates have eroded the value of fixed-income assets such as loans and government-issued debt while increasing the cost of deposits and other liabilities used as funding.

Those twin pressures sparked a series of bank failures earlier this year. The lenders still standing have been forced to reward depositors with higher interest rates, often countering the increased yield on their loans. Some lenders are opting to shrink their balance sheets, boost liquidity and strengthen capital levels by selling or securitizing assets.

Truist, the nation’s third-largest regional bank, said the average cost of total deposits increased 39 basis points to 1.51%, and expenses tied to both its long- and short-term borrowings also rose.

Shares of Truist fell 4.1% after the bank decreased full-year revenue guidance. KeyCorp advanced 0.7% and Fifth Third rose 2%.

KeyCorp said average deposits dropped while the cost of those deposits rose. The trend ate into net interest income, a metric that tracks the revenue earned on interest-bearing assets such as loans against the costs of interest-bearing liabilities such as deposits.

Fifth Third Bancorp’s interest expense increased to $913 million from $125 million in the second quarter a year earlier. Its period-end total deposits increased 1% to $164.13 billion from the first quarter.

“Actions undertaken during the quarter include a continuation of deposit gathering activities, which sustained the recent deposit mix shift trends from demand to interest-bearing accounts with higher costs,” the lender said in a statement.

Truist joined the ranks of lenders selling assets, unloading a $5 billion student loan portfolio that it described as “non-core” in late June. Proceeds from the sale went toward reducing wholesale funding, according to the bank.

Chief Executive Officer Bill Rogers said on a conference call with analysts that the transaction will boost the net interest margin and balance sheet efficiency, “exactly what we should be doing in an environment where cost of capital and funding has increased meaningfully.”

–With assistance from Katherine Doherty.

(Adds share prices in sixth paragraph.)

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