Shares of Comerica (CMA), Zions (ZION), and KeyCorp (KEY) fell on Thursday following news of deposit outflows and loan loss allowances, causing a setback in the recent uptick of regional bank stocks. This was a day after Western Alliance (WAL) reported an increase in new deposits, which caused a rally in the shares of other troubled regional lenders such as First Republic (FRC) and PacWest (PACW). However, this rally did not last long as investors reacted to new Q1 results from several regional lenders, including Truist (TFC), Fifth Third (FITB), and Huntington Bancshares (HBAN).
The latest results show that regional banks are facing challenges such as deposit outflows and loan loss allowances, unlike larger banks like JPMorgan Chase (JPM) or Bank of America (BAC), which have more pricing power and diversity. Deposits at Comerica fell 9%, and Zions saw a decline of 3.4% during the first quarter, indicating the difficulties of retaining customers in a highly competitive market.
Furthermore, many regional banks are also paying more to keep existing depositors or attract new customers, which is cutting into their net interest income, a key measure of profitability. This income has declined for most of these institutions compared to the previous quarter. Deposit costs for Zions more than doubled, while at Truist, it went up by 46 basis points from last quarter.
Regional banks also face the challenge of increasing their loan loss allowances as economic conditions worsen, which may cause more loans to go bad. Despite this, many regional banks are still making more loans, with Zions, Truist, Fifth Third, Key, and Comerica reporting an increase in total loans. However, the struggle to keep existing customers and attract new ones, coupled with the rising loan loss allowances, is affecting the stock prices of regional banks.