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    Comerica Inc (CMA)

    Q1 2024 Earnings Summary

    Reported on Feb 12, 2025 (Before Market Open)
    Pre-Earnings Price$49.82Last close (Apr 17, 2024)
    Post-Earnings Price$51.55Open (Apr 18, 2024)
    Price Change
    $1.73(+3.47%)

    What went well

    • Comerica expects significant loan growth in the second half of 2024, supported by increasing customer sentiment and improving pipelines, particularly within their core middle market business. This is anticipated to drive a "hockey stick" improvement in loan growth, contributing to enhanced profitability.
    • Maturing swaps and securities portfolios are projected to provide a substantial tailwind to net interest income (NII), with the bank expecting a benefit "pretty far north of $100 million" in 2025 from these maturities. This is expected to boost NII and provide positive earnings momentum throughout 2024 and beyond.
    • Comerica maintains a strong capital position, with an estimated CET1 ratio of 11.47%, well above their 10% strategic target. Their conservative risk management and commitment to maintaining capital ratios position the bank favorably for future growth and regulatory compliance.

    What went wrong

    • The company may face increased credit risk in its multifamily commercial real estate portfolio, as recent appraisals have declined by 10% to 20% in the last 90 days. Although current loan-to-value ratios are sub-60%, further declines could impact collateral values and necessitate additional loan loss reserves.
    • The expectation of significant loan growth in the second half of the year may be overly optimistic. If the Federal Reserve does not cut interest rates as projected, or if economic conditions remain uncertain, the anticipated "hockey stick" improvement in loan growth might not materialize, potentially affecting earnings forecasts.
    • There is a risk of continued pressure on net interest margins due to potential shifts from noninterest-bearing to interest-bearing deposits. If interest rates stay higher for longer, commercial clients might reassess their deposit balances, leading to increased deposit costs and impacting profitability.

    Q&A Summary

    1. NII and NIM Outlook
      Q: Can NIM reach prior levels despite fewer rate cuts?
      A: Yes. Although net interest income (NII) dollars are expected to trough in the second quarter, the net interest margin (NIM) percentage has already bottomed in the first quarter. Excluding a negative $3 million BSBY impact in the second quarter, NIM percentage is expected to be close to 2.90% in Q2. By year-end, NIM is projected to be near or slightly above 3%.

    2. Loan Growth Confidence
      Q: What gives confidence in back-half loan growth?
      A: The bank expects 4% to 5% point-to-point loan growth for 2024, driven by the middle market segment. Prior rationalizations affected early 2024, but the pipeline has grown, and customer sentiment continues to improve. The bank feels confident about the trajectory in the second half of the year.

    3. Credit Quality in CRE and Multifamily
      Q: Are there concerns about CRE and multifamily exposure?
      A: Credit quality remains strong, with nonperforming assets less than half of long-term averages. The increase in criticized assets is mainly from senior housing, but the majority has recourse, and only one nonperforming asset. In multifamily, appraisals are down 10–20%, but loan-to-values are sub-60%, and there are no criticized assets or delinquencies. Conservative underwriting and strong markets make losses unlikely, even if rates rise 50–100 basis points.

    4. Deposits Mix and Stability
      Q: Is the shift from NIB to IB deposits over?
      A: Yes. The bank believes the move from non-interest-bearing (NIB) to interest-bearing (IB) deposits is over. Customers are confident, and rates offered are competitive. While discussions may continue if rates stay higher for longer, the substantial shift has likely completed.

    5. Capital Management and Share Repurchases
      Q: When might share repurchases resume?
      A: Resumption depends on stability in interest rates and regulatory clarity. The bank prioritizes supporting customers with expected significant loan growth in the second half. While capital ratios are strong, they await stability before turning repurchases back on.

    6. Expense Management and Cost Savings
      Q: How are cost-saving initiatives progressing?
      A: The bank is on track to achieve $45 million in cost savings. Headcount reductions are proceeding as planned, with most colleagues already notified. Savings will be partially reinvested, particularly in risk management.

    7. Tailwinds from Maturing Swaps and Securities
      Q: How significant are benefits from maturing swaps and securities?
      A: The bank anticipates a net benefit "far north of $100 million" next year from maturing swaps and securities, depending on how liquidity is redeployed. This benefit will increase momentum into 2025 and beyond.

    8. Deposit Beta Assumptions
      Q: What beta assumptions underpin NII guidance?
      A: The bank assumes a down beta of 60% with about a one-month lag relative to Federal Reserve rate cuts. This aligns with the current cumulative beta of 62%.

    9. Wholesale Funding Reduction
      Q: Can wholesale funding be further reduced?
      A: Significant reductions have already been made. No near-term Federal Home Loan Bank (FHLB) maturities remain, and further repayment may incur penalties. Brokered deposits maturing this year may be allowed to roll off or be rolled over, depending on balance sheet needs.

    10. Securities Portfolio Outlook
      Q: When will the securities book reach its trough?
      A: The bank expects the securities portfolio to reach a trough around the first quarter of next year. Historically, securities comprised mid- to high teens percentage of total assets; going forward, this may increase slightly to enhance liquidity.

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