Zions Bancorp slumped after the regional lender reported soaring deposit costs, as elevated interest rates force banks to pay up for customer funds.
(Bloomberg) — Zions Bancorp slumped after the regional lender reported soaring deposit costs, as elevated interest rates force banks to pay up for customer funds.
The Salt Lake City-based lender said the cost of total deposits and borrowings soared ten fold in the third quarter to 2.1%, compared with 0.22% for the same period a year earlier. That was up 22 basis points from the second quarter alone as reciprocal deposits, which are often more costly than those gathered through typical checking accounts, doubled to $6 billion.
Deposit levels were up from the prior quarter, but still missed analyst estimates. The shares fell as much as 6% in late trading in New York before paring some of those losses.
Banks are being forced to compete harder for customers by offering higher interest rates to savers, which can erode what they earn on lending, slashing earnings. Zions said net interest income for the quarter was $585 million, down 12% from a year earlier.
Still, the company said its outlook for NII over the next year is now “stable” as the benefits it gets from higher interest rates continues to offset the pressure it feels from rising deposit costs. That’s actually improved from its forecast in the second quarter, when it said its outlook for NII in the ensuing 12 months was “stable to slightly decreasing.”
Read More: ‘Hot Money’ Scorches Regional Bank Profits After Deposit Flight
Regional lenders were swept up in turmoil earlier this year, squeezed by higher interest rates that hurt the value of bonds bought when rates were historically low, while depositors fled in search of better returns amid fears about the stability of smaller lenders.
“Our third quarter results reflect a stabilization of the net interest margin in the wake of the industry-wide turbulence,” Zions CEO Harris Simmons said in the bank’s earnings statement. “Credit quality remains well controlled, and capital continues to strengthen.”
Zions also said non-performing assets rose 45% to $68 million, largely because of two suburban office commercial real estate loans totaling $46 million.
Incorporated in 1873, the bank now operates in 11 western and southwestern US states, according to its website. The firm grew through a string of acquisitions since the 1960s, its website shows.
(Updates share move, adds CEO comment and further earnings details from third paragraph.)
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