Comerica projects deposits will fall 9%-10% this year

Comerica now expects a steeper decline in deposits this year than it did in January, when the company projected a 7%-8% drop.

Troy Harvey/Bloomberg

Comerica expects that its deposits will decline between 9% and 10% this year, a more downbeat forecast than the bank offered in January, as rising interest rates continue to put pressure on banks’ low-cost funding.

Chief Financial Officer James Herzog said at an investor conference Tuesday that the Dallas bank is “closely monitoring portfolio dynamics.”

“We think we’ve done a good job on deposit pricing — striking the right balance between retaining customers and not necessarily overpaying for certain types of accounts,” Herzog said.

Those remarks came before Federal Reserve Chairman Jerome Powell told Congress that the central bank wouldn’t shy away from once again using steeper interest-rate hikes to battle inflation.

When Comerica reported its fourth-quarter earnings in January, Herzog said the bank expected a full-year deposit decline of between 7% and 8%. At the time, Comerica said that it saw signs of an easing in deposit pressures thanks to the Fed’s projected slowdown in interest-rate hikes.

Last year, when higher interest rates prompted many companies to rethink where they keep their money, Comerica reported notable deposit outflows. Much of the deposit base at the $85.4 billion-asset bank comes from commercial customers.

Higher rates make it more difficult for financial institutions to hold onto deposits as customers find higher-return investments for their money than traditional bank accounts.

Bank industry deposits have been declining since the first half of 2022. Total deposits at U.S. commercial banks hit $17.6 trillion in late February, down from $18.1 trillion a year earlier, according to Fed data.

“To fund loan growth, we expect increased funding competition and higher costs for quality deposits,” Jill Cetina, associate managing director of the financial institutions group at Moody’s Investors Service, said last week during a panel on U.S. credit conditions.

Comerica said Tuesday that it expects single-digit loan growth this year. The bank’s management team has no concerns whatsoever in terms of funding the balance sheet, Herzog said.

“We have a lot of diversified places to go to fund loan growth or a deposit run-off, should it continue,” he said.

Those places include brokered deposits and $7 billion available to borrow from Federal Home Loan Banks, according to Herzog.

Comerica had $71.4 billion of deposits at the end of 2022, a decline of more than 15% from late 2021. The bank said Tuesday that it anticipates a deposit decline between 3% and 4% in the first quarter of 2023 compared with the final quarter of 2022.

Shares of Comerica closed at $66.61 on Tuesday, down 3.7%.

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