(Reuters) – Fifth Third Bancorp reported a fall in second-quarter profit on Friday, as costlier deposits eroded the regional lender’s interest income.
Banks such as Fifth Third have been paying higher interest rates on deposits to retain customers chasing better returns elsewhere.
Shares of the bank fell 1.7% in premarket trading.
The surge in deposit costs has cut into the bank’s net interest income, or the difference between what they earn on loans and pay out on deposits.
Cincinnati, Ohio-based Fifth Third’s NII fell 5% to $1.39 billion in the quarter. Net interest margin, a key measure of lending profitability, contracted to 2.88% from 3.10% a year earlier.
The bank maintained its outlook on NII, which is expected to decline between 2% and 4% in 2024 compared with last year’s $5.85 billion. Analysts on average expect it to fall 2.8%, according to LSEG data.
Higher interest rates have also deterred customers from taking out loans at a time when borrowing costs are at their highest since the global financial crisis.
Fifth Third’s total average loans and leases fell 5% from a year earlier to $117.28 billion, hurt by a decrease in its consumer and commercial portfolios.
The bank now expects average loans and leases to fall 3% in 2024 compared with last year. It had earlier forecast a decline of 2%.
Fifth Third said it was currently not pursuing new office commercial real estate loans. The bank has a office CRE portfolio of $1.20 billion, which represents 1% of its total loans.
Net income available to common shareholders fell to $561 million, or 81 cents per share, in the three months ended June 30, from $562 million, or 82 cents per share, a year earlier.
Earlier this month, the U.S. Consumer Financial Protection Bureau fined the bank $20 million in civil fines over charges that it opened unauthorized accounts and illegally repossessed their cars.
(Reporting by Arasu Kannagi Basil in Bengaluru; Editing by Krishna Chandra Eluri)
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