Comerica Inc. expects the rate environment to continue to impact net interest income in the first quarter of 2020, executives said on a call to discuss financial results for the fourth quarter of 2019.
Net interest income at the Dallas-based bank fell by $42 million sequentially to $544 million in the fourth quarter as its net interest margin tumbled 32 basis points to 3.20%. Comerica forecasts that rates will reduce net interest income by another $10 million to $15 million in the first quarter of 2020.
The vast majority of Comerica's loans are commercial, with about 60% priced to the 30-day London interbank offered rate.
"Given the nature of our portfolio, our loans repriced very quickly," interim CFO James Herzog said.
If rates remain stable, however, the rate impact will ease later in 2020, becoming "closer to a negligible number in the third and fourth quarters," Herzog added, with growing loan balances helping to lift net interest income from first-quarter levels.
"You should see volume overtake rate once we get beyond the first quarter," he said. "We believe the bulk of impact from lower rates is behind us."
Comerica continued to add hedges in the fourth quarter of 2019 and in January 2020 in an effort to stabilize its NIM, bringing it to more than $5.5 billion of swaps under which it pays 30-day Libor and receives fixed rates.
The bank also unloaded brokered deposits and lowered the deposit rates it pays as deposit balances increased swiftly, but Herzog said a significant amount of the growth was seasonal. Overall, the cost of Comerica's interest-bearing deposits fell 7 basis points from the linked quarter to 92 basis points in the fourth quarter of 2019.
Herzog expects deposit costs to continue to fall in the first quarter of 2020 but by a smaller amount, mostly reflecting "actions taken to date."
"It really depends on the competition," he said. "I've seen a little bit of follow the leader out there in terms of deposit pricing."