Comerica Expects Net Interest Income to Decline in Q4
Comerica Anticipates Lower Net Interest Income in Current Quarter
Comerica, a financial institution listed on the New York Stock Exchange, announced on Friday that it expects its net interest income to decline in the fourth quarter. This decline is due to banks facing pressure to offer higher interest rates to retain depositors, even as rates rise.
Increase in High-Yielding Alternatives to Bank Deposits
The U.S. Federal Reserve’s decision to maintain higher interest rates for an extended period has prompted customers to seek high-yielding alternatives to traditional bank deposits. Money market funds have emerged as a popular choice among these customers.
Projected Decline in Net Interest Income
Comerica, headquartered in Texas, foresees a decline of 5% to 6% in its net interest income (NII) for the fourth quarter. NII represents the difference between the interest earned on loans and the interest paid out on deposits. This projection follows a significant decrease of 106% in Comerica’s third-quarter NII compared to the previous year, amounting to $601 million. Additionally, the net interest margin contracted from 3.51% to 2.84% during the same period.
Positive Non-Interest Income Offset Declining NII
Despite the decline in net interest income, Comerica managed to surpass per-share profit estimates for the third quarter. This accomplishment was attributed to a 17% increase in non-interest income, which reached $295 million compared to the same period last year. In the third quarter, Comerica achieved a profit of $1.84 per share, exceeding analysts’ projections of $1.69 per share profit.
Growth in Average Deposits
During the third quarter, Comerica experienced a 2.4% growth in average deposits, totaling $65.89 billion. This growth indicates a stabilization in bank deposits, as customers regain confidence in regional banks. Following a crisis in March that led customers to transfer funds from smaller banks to larger, “too-big-to-fail” institutions, the recent trend suggests a restoration of trust in regional banks.
Similar Projections from Peers
Comerica is not alone in its forecasted decline in net interest income for the fourth quarter. Fifth Third Bancorp and Regions Financial, both prominent players in the banking industry, have also projected decreases in their NII for the same period.
By providing a comprehensive overview of Comerica’s anticipated decline in net interest income and its implications, it becomes evident that banks are facing challenges in retaining depositors amidst rising interest rates. The impact of this trend will be closely monitored in the coming months.
