Three major U.S. regional banks met or beat profit expectations on Wednesday as higher interest rates allowed them to charge more for loans, while deposits stabilized, sending shares across the sector up.
Investors have been anxiously awaiting regional bank second quarter earnings as they look for reassurance that the turmoil that rocked the sector earlier this year has finally passed.
M&T Bank Corporation and Citizens Financial Group both beat Wall Street estimates from charging clients higher interest rates after the U.S. Federal Reserve raised borrowing costs to rein in stubborn inflation.
M&T said net interest income (NII), which measures the difference between what banks earn on loans and pay out on deposits, surged 27% to $1.81 billion on the same quarter last year, while Citizens said its NII increased 5.5% to $1.59 billion. At US Bancorp, NII was up around 28%.
Big U.S. banks on Tuesday likewise said higher interest rates had helped boost second quarter profits, causing shares to spike, but a pullback in consumer spending, slower loan growth and increased deposit costs may cloud the sector outlook.
That sentiment was underscored by USB, which warned on Wednesday that now it now expects full-year NII to be between $17.5 billion and $18.0 billion, falling short of average analyst estimates of $18.1 billion, according to Refinitiv data.
M&T shares were up 2.6% and Citizens added 4.55% in morning trading, while US Bancorp was up 3%. The KBW Regional Bank Index and S&P regional bank index were each gaining nearly 2% in line with the broader market.
Zions Bancorp reports later on Wednesday, while Truist Financial, KeyCorp and Fifth Third Bancorp report on Thursday.
The results follow a tumultuous first quarter in which Silicon Valley Bank and two other lenders collapsed after deposit runs, leading panicked consumers to yank deposits from small banks and place them with bigger Wall Street players. That has forced some banks to offer consumers higher returns.
"For the regionals, the thought process was they were going to be pretty weak and they haven't been so far," said Dennis Dick, market structure analyst at Triple D Trading.
"After everything that we saw happening in the regional banking crisis a couple months ago, there were concerns about a lot of withdrawals, but I would say it has been better than expectations."
M&T's deposits rose to $162.1 billion from $159.1 billion at the end of the first quarter, but fell about 4.9% year-on-year. US Bancorp said total average deposits were at $497.27 billion, down 2.6% sequentially but up 9% on the year. At Citizens, deposits fell less than 1% sequentially to $173.2 billion.
(Writing by Michelle Price; reporting by Manya Saini, Jaiveer Singh Shekhawat, Johann Cherian and Bansari Mayur Kamdar in Bengaluru, and Chibuike Oguh in New York; Editing by Nick Zieminski)
