Non-interest expenses decreased 11% from the prior quarter, due in large part to the bank's ongoing efforts to reduce its physical footprint. Net charge-offs improved sequentially, totaling $101 million, or 42 basis points of average loans, down from $121 million, or 50 basis points.
Total revenue of $1.73 billion was flat compared with the prior quarter. Non-interest income ticked down slightly on a securities sale, while net interest income inched ahead.
The $154 billion-asset bank said its deposit costs are tapering and could gradually decline if the Federal Reserve cuts interest rates later this year. Another positive sign: New loans are coming onto the bank's books with yields higher than those rolling off.
The combination could drive a ramp-up in interest income, particularly if loan growth picks up in the second half of this year and into 2025, as the bank anticipates.
said it expects loans to end this year roughly in line with 2023. But given slower lending in the first half of the year, including second-quarter loans that were down slightly, the outlook implies increased lending over the third and fourth quarters.
"The driver going forward will be balance sheet growth. … We think we are in pretty good shape," Chief Financial Officer David Turner Jr. told analysts Friday during the company's earnings call.
Moody's banking analyst Chris Stanley said high rates and competition from nonbank lenders intersected to dampen overall loan demand for large banks this year. But
One of the banks that stands to benefit from potential Fed rate cuts is Cincinnati-based Fifth Third Bancorp. On Friday, Fifth Third CEO Tim Spence told analysts that rate cuts would boost loan demand and support the bank's credit quality.
Fifth Third's second-quarter results showed deposit costs beginning to level off, and the repricing of certain loans pulled in stronger yields.
"We remain cautious due to the wide range of potential economic and geopolitical scenarios that could unfold," Spence said. "As a result we will remain disciplined and will not chase loan growth at the expense of our return targets."
Given the industrywide challenges, Piper Sandler analyst Scott Siefers called
Stronger interest income would provide support for the bank's net interest margin, which decreased by four basis points during the second quarter to 3.51%.
"Activity is somewhat muted. Customers remain cautious … but activity is improving," he said. "We're seeing more and more competition," but "we also continue to recruit across our markets" and new bankers are helping to fill pipelines of loans for coming quarters.
Additionally, he said credit losses likely reached a peak in the first half of the year. The bank may not see a precipitous decline in bad loans, but charge-offs are not expected to prove a substantial drag, he said.
"We think we've reached a point of some stabilization," the chief executive said.
While there are ongoing challenges in sectors that have struggled in recent years, including office buildings and senior housing, he said
"We think we have a good handle on that exposure," the chief executive said.
Catherine Leffert contributed to this story.
