Q4 2024 Earnings Summary
- Improved customer sentiment and stronger loan pipelines: The company observed that over the last few months, customer sentiment has improved significantly, with more optimism going into the new year. They are starting the year with a better loan pipeline than they did a year ago, which is encouraging for loan growth in 2025.
- Potential upside from utilization rate increases: The 2025 loan growth outlook does not factor in any uptick in utilization rates, which have been flat and below historical levels. If utilization rates were to pick up, it would positively impact loan growth beyond current expectations.
- Commitment to returning capital to shareholders through share repurchases: The company favors returning capital to shareholders via share repurchases over securities repositioning, indicating a strong capital position and focus on delivering real returns to shareholders.
- Elevated Efficiency Ratio with Uncertainty on Improvement: Comerica is operating with an efficiency ratio in the high 60s, higher than their long-term target in the 50s needed to achieve return on equity objectives. Management acknowledges that this elevation is due to shifts in deposit mix following the regional bank crisis. While they emphasize the importance of positive operating leverage and revenue growth to improve this ratio, there is uncertainty surrounding the timing and ability to reduce expenses relative to revenue growth.
- Increase in Nonperforming Assets Indicating Potential Credit Risk: Nonperforming assets increased by $58 million quarter-over-quarter, including a $30 million commercial real estate loan moving into nonperforming status. Additionally, companies oriented towards consumer discretionary products are experiencing pressure from higher interest rates affecting profitability and debt servicing capabilities. Although management considers the overall levels manageable, the rise in nonperforming assets may signal growing credit risk.
- Pressure on Capital Ratios Due to Higher AOCI Levels: Comerica experienced higher levels of Accumulated Other Comprehensive Income (AOCI) losses in the quarter, prompting management to adopt a more cautious approach to capital. While they aim to maintain a Common Equity Tier 1 (CET1) ratio well above 11%, the increased AOCI losses could constrain capital deployment options and impact the bank's ability to absorb potential future losses or engage in shareholder returns.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Interest Income | Q4 2024 | Projected to grow 6% over Q3 (or 1%-2% when adjusted) | no guidance | no current guidance |
Loans | Q4 2024 | “Modest, broad-based loan growth is anticipated” | no guidance | no current guidance |
Deposits | Q4 2024 | Decline of 2% with customer deposits remaining flat | no guidance | no current guidance |
Noninterest Income | Q4 2024 | Decline of 1%-2% relative to Q3 | no guidance | no current guidance |
Noninterest Expenses | Q4 2024 | Increase 3% over Q3 (or 4% on an adjusted basis) | no guidance | no current guidance |
Net Interest Income | FY 2024 | Expected to decline 13%-14% compared to 2023 | no guidance | no current guidance |
Loans | FY 2024 | Average loans projected to be 5% lower than 2023 | no guidance | no current guidance |
Deposits | FY 2024 | Expected to decline 3%-4% from 2023 | no guidance | no current guidance |
Noninterest Income | FY 2024 | Expected to be flat or decline 2%-3% when adjusted | no guidance | no current guidance |
Noninterest Expenses | FY 2024 | Decline 2%-3% on a reported basis and grow 4% after adjustments | no guidance | no current guidance |
Credit Quality | FY 2024 | Net charge-offs forecasted to remain well below 20–40 bps | no guidance | no current guidance |
Capital (CET1 Ratio) | FY 2024 | Expected to remain well above the 10% strategic target | no guidance | no current guidance |
Net Interest Income | FY 2025 | no guidance | Expected to increase 6%–7% compared to 2024 | no prior guidance |
Customer Deposits | FY 2025 | no guidance | Expected to grow 1% | no prior guidance |
Net Charge-Offs | FY 2025 | no guidance | Projected at the lower end of 20–40 bps range | no prior guidance |
Noninterest Income | FY 2025 | no guidance | Expected to increase 4% over reported 2024 levels (including 2% customer income growth) | no prior guidance |
Noninterest Expenses | FY 2025 | no guidance | Expected to grow 3% | no prior guidance |
Capital (CET1 Ratio) | FY 2025 | no guidance | Expected to remain well above the 10% strategic target | no prior guidance |
Loans | FY 2025 | no guidance | Projected to be flat to up 1% (or 2% excluding CRE) | no prior guidance |
Brokered Deposits | FY 2025 | no guidance | Expected decline of 2%–3% | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Loan Growth | Mentioned as modest but expected to rise once rates decline; CRE paydowns offset gains in other areas. | Expects flat to 1% total loan growth in 2025, with 2% growth excluding CRE, supported by improved sentiment and pipelines. | Slightly improved outlook with CRE still a headwind but better pipelines. |
Customer sentiment | Generally cautious in early 2024, then turned more cautiously optimistic in Q3 2024. | Significantly improved optimism, less tied to rate relief and more broad-based, aiding loan pipeline. | More positive sentiment heading into 2025. |
Loan pipelines | Growing pipelines starting in Q2 2024, especially in National Dealer Services and specialty lines. | Stronger pipelines entering 2025, supported by higher optimism outside of CRE. | Strengthened further vs. prior quarters. |
Utilization rates | Fluctuated slightly, with CRE usage higher in Q3; otherwise remained below historical levels. | Management does not assume higher utilization in 2025; rates remain flat and below historical norms. | No change expected in 2025 utilization. |
Share repurchases | Paused in early 2024 due to rate environment; resumed with $100M planned in Q4 2024. | Repurchased $100M in Q4 and plans ~$50M in Q1 2025, with a measured approach going forward. | Resumed in 2024, continuing cautiously in 2025. |
Efficiency ratio | Not mentioned in Q1–Q3 calls [—]. | Elevated in high 60s due to deposit mix shifts; aiming to reduce it into the 50s through revenue growth and expense control. | Newly discussed; focus on lowering ratio long term. |
Nonperforming assets | Remained below historical averages; slight increases noted in certain segments (e.g., senior housing in Q1). | Up by $58M, driven partly by one $30M CRE loan; still ~60 bps, half of long-term average. | Modest increase but still below long-term levels. |
Credit risk | Overall credit quality strong; net charge-offs remain below normal range; slight upticks expected with higher rates. | Net charge-offs at 13 bps; allowance at 1.44% of loans; some pressure in consumer discretionary segments; still manageable. | Slight normalization but disciplined risk management intact. |
Capital ratios | CET1 above 10% target, ranging ~11.47% to ~11.97% in prior quarters. | CET1 at 11.89%; expects to stay above 11% through 2025; monitors AOCI and regulatory changes. | Stable at high levels, maintaining >11% CET1. |
AOCI | Volatile in 2024 but improved in Q3 due to rate curve movement; monitored for capital planning. | Higher unrealized losses this quarter; expected to decline over time with maturities and paydowns. | Slight increase this quarter, still a focus area. |
Net interest income (NII) | Projected to trough in mid-2024, then recover; sensitive to rate declines. | Up to $575M in Q4 (including BSBY benefit); expecting 6–7% full-year NII growth in 2025 despite a Q1 step down. | Continues upward trend into 2025. |
Maturing swaps and securities | Seen as a key tailwind to NII from 2024 into 2025, with a ~$100M benefit forecast. | Contributed to higher Q4 NII; expected to support 2025 NII growth. | Sustained tailwind for 2025. |
Environmental Services and renewables | Showed promise and growth in Q3, tied to renewables team launched in 2022. | No mention in Q4 2024. | No longer mentioned this period. |
$100B asset threshold | Discussed in Q3 as a data/reporting readiness effort; planning minimal expense spikes. | No mention in Q4 2024. | No further updates provided. |
Positive operating leverage | Emphasized goal for 2025, requiring calibrated expense control and revenue growth. | Critical to improving efficiency ratio; focusing on higher revenues vs. expense growth. | Continued focus to meet ROE goals. |
Deposit mix shift | Pressures from higher rates; shift from noninterest-bearing to interest-bearing in Q2–Q3. | Efficiency ratio impacted by mix changes; noninterest-bearing stable at 38%; expects 1% total deposit growth in 2025 with more interest-bearing. | Ongoing shift but partially stabilized. |
Noninterest-bearing deposits | Maintained ~40% mix during most of 2024; cyclical pressure awaited rate declines. | Held at 38% of total deposits in Q4, expected to remain in upper 30% range. | Remained stable despite rate environment. |
Competition in deposits and loans | Intensified across 2024; deposit pricing rose, loan demand stayed muted, especially in CA. | Relationship pricing drove deposit growth; loan growth still subdued, with CRE remaining soft. | High competition persists; selective strategies in place. |
Commercial real estate (CRE) risk | Payoffs anticipated; headwinds into 2025; senior housing under scrutiny; stable performance overall. | CRE headwind continues; one $30M loan moved to NPA; strategy to focus on construction lending vs. permanent loans. | Still challenging but contained risk. |
Direct Express deposit program | Expected longer transition period; not a big impact on 2024–2025 balances. | ~$3.5B in average balances, unchanged outlook for 2025–2026; no material shifts expected. | No immediate changes to deposit levels. |
Multifamily CRE appraisals | Down 10–20% in Q1 but loan-to-values remain <60%, considered low risk. | No mention in Q4 2024. | Not discussed this quarter. |
Interest rate environment | Seen as main driver for muted loan demand and deposit mix changes in earlier quarters. | Higher rates challenged CRE, but less tied to growth sentiment; NII set to benefit from future rate moves. | Still pivotal to CRE and deposit strategies. |
Geographic expansion in Texas and California | Strong presence cited, more challenging in CA vs. TX growth. | Sees opportunities in Dallas-Fort Worth, Houston, Los Angeles, and San Francisco; continuing to add staff. | Continued emphasis on TX/CA expansions. |
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Loan Growth Outlook
Q: What's your loan growth outlook for 2025?
A: Customer sentiment has improved over the last 90 days, with a better pipeline than last year. We expect loan growth outside of commercial real estate (CRE), which remains a headwind into 2025. Utilization rates are expected to stay flat in our outlook. -
Brokered Deposits Reduction
Q: How much can you reduce higher-cost brokered deposits this year?
A: We ended the year with about $1.1 billion in brokered deposits at a rate of 5.4%. We plan to reduce these deposits continuously throughout 2025 and aim to eliminate most or all by year-end, improving our funding mix efficiency. -
Capital Management and CET1 Ratio
Q: Are you managing CET1 including AOCI, and what levels are targeted?
A: While considering various capital ratios, we plan to stay well above 11% CET1 in 2025, even with higher AOCI levels. As AOCI reduces into 2026, we'll have more capital options. We prioritize loan growth and may adjust buybacks accordingly. -
Efficiency Ratio Goals
Q: What is your target efficiency ratio and how will you achieve it?
A: We aim to return to an efficiency ratio in the 50s to meet our ROE objectives. This will come from revenue growth outperforming expense growth, ensuring positive operating leverage consistently over time. -
Non-Performing Assets Increase
Q: What caused the increase in NPAs this quarter?
A: NPAs increased by about $58 million, largely due to 4 or 5 names, including a $30 million commercial real estate loan. This is modest for our portfolio size, and NPAs remain at 60 basis points, about half our long-term average. Higher rates are pressuring some borrowers, but overall credit performance is in line with expectations. -
CRE Payoff Outlook
Q: When do you expect CRE headwinds to fade?
A: We anticipate quarterly CRE payoffs through the rest of 2025 and possibly into early 2026, influenced by the current interest rate outlook. Changes in rates could affect this timeline. -
Expansion and Hiring Plans
Q: Are there targets for hiring in expansion areas this year?
A: We plan opportunistic hiring in the Southeast, especially Florida, but not at the past two years' pace. In the Mountain West, we're more aggressive, focusing on Denver and Phoenix. We also see opportunities in markets like Dallas-Fort Worth, Houston, Los Angeles, and San Francisco due to strong economic growth. -
M&A Strategy
Q: How do you view potential acquisitions amid regulatory easing?
A: Our strategy remains focused on organic growth. We've been patient acquirers, doing only one deal in over 20 years. We'll continue to look at team lift-outs and product capabilities but primarily concentrate on growing organically in our existing markets. -
Direct Express Deposits Stability
Q: Could Direct Express deposit balances decline faster than expected?
A: We don't foresee any changes impacting the $3.5 billion in average Direct Express deposits in 2025 or into 2026. We're working on the transition process, but currently anticipate no material changes. -
Capital Allocation Preferences
Q: Why not be more aggressive with balance sheet restructuring?
A: We prefer share repurchases over securities repositioning for capital return. While restructuring can improve optics, we believe share buybacks offer a real return to shareholders and better capital utilization.