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    Comerica Inc (CMA)

    Q2 2024 Earnings Summary

    Reported on Feb 12, 2025 (Before Market Open)
    Pre-Earnings Price$56.33Last close (Jul 18, 2024)
    Post-Earnings Price$50.27Open (Jul 19, 2024)
    Price Change
    $-6.06(-10.76%)

    What went well

    • Anticipated $100 million uplift in 2025 from maturing swaps and securities, which will positively impact net interest income.
    • Strong credit quality in the C&I loan portfolio, showing improvements across various industries, with no major concerns identified.
    • Expectations for noninterest-bearing deposits to rebound and start growing from Q4 onwards, reinforcing their industry-leading ratio of 40%, which is about double the peer average.

    What went wrong

    • Potential loss of significant deposits due to the anticipated end of the Direct Express program, which averaged $3.3 billion in low-cost noninterest-bearing deposits in the second quarter. The bank acknowledges that they "do not expect that Comerica Bank will retain the business long-term", and the transition may impact their deposit balances.
    • Ongoing pressure on noninterest-bearing deposits as customers seek higher yields in a high-rate environment. Management noted that as long as rates stay higher for longer, they expect to see "modest pressure on noninterest-bearing deposits", acknowledging they are at the "apex of the cycle with maximum pressure".
    • Increased competition in both deposits and loans, which could pressure margins and limit growth opportunities. The competitive environment is "about as competitive as we've seen it in a long time", with other regional banks expanding nationally.

    Q&A Summary

    1. Direct Express Impact
      Q: What is the impact of losing the Direct Express program?
      A: Management expects a long transition period before the $3.3 billion in deposits related to the Direct Express program leave the bank. They intend to replace these deposits over time with core customer deposits that better fit their business model, minimizing any long-term impact on profitability.

    2. Noninterest-bearing Deposits
      Q: How will noninterest-bearing deposits trend going forward?
      A: The bank expects modest pressure on noninterest-bearing deposits as long as rates stay high, with a decline of slightly more than $1 billion in Q3. However, they anticipate a turning point later this year as rates move down, expecting noninterest-bearing deposits to increase in Q4 and continue growing into 2025.

    3. Loan Demand Outlook
      Q: When will loan demand pick up?
      A: Management believes lower interest rates are the main factor to stimulate loan demand. They expect positive loan growth in the second half of 2024, with a 2% point-to-point loan growth anticipated, supported by robust pipelines across their businesses.

    4. Interest Rate Sensitivity
      Q: How will interest rate changes affect earnings?
      A: The bank is modestly liability sensitive, which is beneficial at this point in the cycle. They expect a $100 million uplift in 2025 from maturing swaps and securities, but actual benefits may vary depending on rate movements and other balance sheet factors.

    5. C&I Credit Quality
      Q: Any concerns in C&I credit quality?
      A: Management is not seeing major concerns in the C&I portfolio. Customers have managed the high-rate environment well, and the portfolio performed strongly this quarter. They feel well-reserved for any potential issues that may arise.

    6. Competitive Landscape
      Q: How does competition affect your strategy, including M&A?
      A: While acknowledging a competitive environment, management believes their diversified, national model provides advantages. They have been patient in acquisitions, focusing on organic growth, and remain open to strategic opportunities that fit culturally and geographically.

    7. High NIB Deposits
      Q: Why is your noninterest-bearing deposit ratio so high?
      A: The high ratio of 40% is due to their focus on payments and treasury management services, which differentiates them. Their commercial orientation emphasizes acquiring deposits and treasury services when extending credit.

    8. Balance Sheet Management
      Q: How will you manage the balance sheet amid deposit changes?
      A: They plan to use cash from the bond portfolio, which will continue to run down this year, to fund loan growth. They see the bond portfolio as a short-term tactic and aim to replace lost deposits with core customer deposits over time.

    9. Direct Express Loss
      Q: Why didn't you retain the Direct Express program?
      A: Management cannot comment on the fiscal service's decision. They submitted a competitive bid based on their extensive experience managing the program and felt confident in their proposal.

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