Comerica Q4 2024 Earnings Call Transcript

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Provided by Quartr
January 22, 2025
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Operator

Greetings, and welcome to the Comerica Fourth Quarter and Fiscal Year 20 24 Financial Review Conference Call. At this time, all participants will be in listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. At this time, it's now my pleasure to introduce Kelly Gage, Director of Investor Relations.

Operator

Thank you, Kelly. You may now begin.

Kelly Gage
Kelly Gage
Senior VP & Director of Investor Relations at Comerica

Thanks, Rob. Good morning, and welcome to Comerica's 4th quarter fiscal year 2024 earnings conference call. Participating on this call will be our President, Chairman and CEO, Curt Farmer Chief Financial Officer, Jim Herzog Chief Credit Officer, Melinda Chasse and Chief Banking Officer, Peter Sefzik. During this presentation, we will be referring to slides, which provide additional details. The presentation slides and our press release are available on the SEC's website as well as in the Investor Relations section of our website, comerica.com.

Kelly Gage
Kelly Gage
Senior VP & Director of Investor Relations at Comerica

The presentation and this conference call contain forward looking statements. And in that regard, you should be mindful of the risks and uncertainties that can cause actual results to differ materially from expectations. Forward looking statements speak only as of the date of this presentation, and we undertake no obligation to update any forward looking statements. Please refer to the Safe Harbor statement in today's earnings presentation on Slide 2. Also, the presentation and this conference call will reference non GAAP measures.

Kelly Gage
Kelly Gage
Senior VP & Director of Investor Relations at Comerica

And in that regard, I direct you to the reconciliations of these measures in the earnings materials that are available on our website, comerica.com. Now, I'll turn the call over to Kurt, who will begin on Slide 3.

Curtis Farmer
Curtis Farmer
Chairman, CEO & President at Comerica

Good morning, everyone, and thank you for joining our call. We felt 2024 was a year of strength as we prioritize further enhancing our foundation to better position ourselves for long term success and saw promising customer trends. We continue to favor a conservative approach to capital management producing an 80 basis points increase in our estimated CET1 capital ratio, while resuming share repurchases. Even with ongoing volatility in the rate curve, we grow both book and tangible book value. Although loan demand remained muted throughout much of the year, we saw encouraging trends in the 4th quarter with improved sentiment and higher production levels, which supports our expectation for growth in 2025.

Curtis Farmer
Curtis Farmer
Chairman, CEO & President at Comerica

Credit quality remained a strength as we maintained our disciplined underwriting and produced historically low net charge offs. Through deliberate reduction in wholesale funding and with favorable customer trends, we optimized liquidity benefiting net interest income. Beyond our financial results, we advanced strategic priorities such as investing in relationship managers in growth businesses and financial advisors in support of our wealth management focus. Investments in capital markets produced results as the team closed their first M and A advisory transaction and build a strong pipeline for expanded revenue in the coming years. We continue to modernize our real estate footprint and technology.

Curtis Farmer
Curtis Farmer
Chairman, CEO & President at Comerica

In fact, we expect to have almost all of our applications managed in the cloud or on a SaaS platform by year end 2025. Supporting our communities remained a priority as we provided critical business resources to small businesses and help non profits broaden their reach. In preparing for the future, we continue to make progress towards eventual category 4 readiness. And lastly, with an ongoing commitment towards driving efficiency, we executed expense recalibration initiatives, creating capacity for strategic and risk management investments. We believe our progress towards these important initiatives will help us achieve our long term strategic objectives.

Curtis Farmer
Curtis Farmer
Chairman, CEO & President at Comerica

Moving to a summary of 2024 on slide 4, we reported earnings of 698,000,000 dollars or $5.02 per share. Although the 2023 industry disruption weighed on year over year average comparisons, we saw encouraging trends throughout the year across a number of categories. Persistently higher rates muted loan demand across the industry, but late in the year we saw improved customer sentiment, anticipating a more favorable business and regulatory environment. Although the subsequent risk of higher rates dampen that optimism somewhat, we still hear customers are bullish about increasing business investment throughout 2025. Average deposits were pressured by 2023 events, but also reflected an intentional reduction in brokered time deposits.

Curtis Farmer
Curtis Farmer
Chairman, CEO & President at Comerica

Other than brokered deposits, we saw growth in customer balances from year end 2023 to 2024. Both non interest income and expenses were impacted by notable items and our proven credit management approach produced very strong results. Slide 5 summarizes the 4th quarter where we generate earnings of $170,000,000 or $1.22 per share. Loans, deposits and net interest income performed consistent with commentary we provided at our 4th quarter industry conference. Leveraging our strong relationship model, we believe we successfully managed deposit pricing commensurate with rate cuts.

Curtis Farmer
Curtis Farmer
Chairman, CEO & President at Comerica

A modest securities repositioning pressured non interest income and a number of other specific items impacted non interest expenses for the quarter. In all, we feel the momentum with customer deposits and net interest income coupled with improving sentiment positions us for growth in 2025. Now I'll turn the call over to Jim to review our financial results.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

Thanks, Kurt, and good morning, everyone. Turning to loans on Slide 6. Average loans declined less than 0.5% of 1%, attributed largely to expected pay downs in commercial real estate from a higher pace of refinancing or sale of projects. As a reminder, our commercial real estate line of business strategy is geared towards originating construction loans, and we do not generally expect to be a permanent lender in that space. Declines in Corporate Banking were partially attributed to senior housing exits, and Energy grew by winning new and expanding existing relationships.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

Throughout the quarter, we saw increases across a number of businesses, but period end loans were flat as that growth was offset by a $500,000,000 reduction in commercial real estate. Total commitments were relatively flat as declines in commercial real estate and corporate banking were offset by production in middle market general, energy and environmental services. Average loan yields increased 1 basis point as the impact of Bisbee cessation and higher non accrual interest offset the impact of a lower rate environment. On Slide 7, we continue to be encouraged by customer deposit activity. Average deposits decreased $550,000,000 or 0.9%.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

Excluding the impact of the $1,400,000,000 decline in brokered CDs, customer deposits grew over $800,000,000 or over 1% in the quarter with the largest contribution coming from middle market general. Growth continues to be centered in interest bearing deposits, and although cyclical pressures persisted, non interest bearing deposits as a percentage of total remained flat at 38%, continuing to reflect a compelling mix. Adjusting for the timing related increase in direct express deposits and the decline in brokered CDs, period end customer deposits grew $400,000,000 on a net basis. Lower brokered CDs, coupled with a a successful pricing strategy, drove a 40 basis points decline in deposit pricing quarter over quarter. Going forward, we intend to continue our relationship pricing approach, monitoring the rate and competitive environment, while balancing customers' objectives with their own funding needs and profitability.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

Our securities portfolio on Slide 8 declined as the shift in the rate curve reduced the valuation and we saw continued pay downs and maturities. Late in the Q4, we executed a modest repositioning, selling approximately $800,000,000 of our lower rate treasuries and reinvesting at a market yield. We expect to accrete the $19,000,000 pretax loss in the net interest income within 2025. Beyond the modest level of purchases to replace treasury maturities, we do not currently project a more meaningful securities reinvestment cadence until late this year. Turning to Slide 9.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

Net interest income increased $41,000,000 to $575,000,000 Excluding the benefit of Bisbee cessation, net interest income would have grown $16,000,000 quarter over quarter. The benefit of maturing swaps and securities, higher customer deposits, strong deposit betas and non accrual interests all contributed to a strong net interest income quarter. Moving to Slide 11, we continue to believe the successful execution of our interest rate strategy allows us to better protect our profitability from great volatility. Despite the slight benefit this slide shows in a lower rate environment, we generally consider ourselves to be asset neutral, though we remain cognizant of the impact the rate environment may have on non interest bearing deposits. By strategically managing our swap and securities portfolios while considering balance sheet dynamics, we intend to maintain our insulated position over time.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

We feel credit quality remained a competitive strength as shown on Slide 12. Net charge offs remained low at 13 basis points and only reflect a slight increase from the prior quarter with lower 4th quarter recoveries. Persistent inflation and elevated rates continue to pressure customer profitability and drove expected normalization in both criticized and non performing loans, largely in our general middle market businesses. Overall, the modest migration observed was expected and already factored into our reserves. And as a result, our allowance for credit losses remained relatively flat at 1.44 percent of total loans.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

We feel our proven conservative credit discipline continues to position us well to our former peers through the cycle. On Slide 13, 4th quarter non interest income decreased $27,000,000 including the $19,000,000 realized loss from the securities repositioning and a $4,000,000 decline in deferred compensation, which was largely offset with the non interest expenses. Despite modest pressures observed in the quarter across select categories, we continue to prioritize non interest income and expect to see customer related income growth in 2025. Expenses on Slide 14 increased $25,000,000 over the prior quarter, inclusive of seasonally higher costs, which impacted a number of line items, including salaries and benefits. In addition, we saw an increase in legal and litigation related expenses, and we made the strategic decision to increase funding to increase the size of our charitable foundation.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

These increases more than offset lower operational losses and the gains of real estate, which we as we continue to optimize our real estate and banking center footprint. Expense discipline remains a key priority as we continue to focus on driving efficiency. As shown on Slide 15, we continue to favor a conservative approach to capital with our estimated CET1 at 11.89%. This remained well above our 10% strategic target. And even if the proposed Basel III removal of the AOCI opt out was in effect, we would have exceeded regulatory minimums and buffers.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

Movement in

James Herzog
James Herzog
CFO & Senior EVP at Comerica

the forward curve caused unrealized losses in AOCI to shift higher in the quarter, but we expect them to improve over time with maturities and paydowns. Even with volatility in the rate curve, we returned capital to shareholders through $100,000,000 in share repurchases in the 4th quarter and intend to repurchase approximately $50,000,000 of common stock in the Q1. As we consider future capital decisions, we intend to be measured in our approach and calibrate the size and frequency of future repurchases with expected loan trends. We will also continue to closely watch the forward curve, our profitability, the economy and any regulatory updates they may also influence our strategy. Our outlook for 2025 is on Slide 16.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

We project full year average loans to be flat to up 1% in 2025, with expected growth in most businesses largely offset by anticipated pay downs in commercial real estate. In fact, excluding the impact from commercial real estate, we project 2% average loan growth year over year. And in the Q1, commercial real estate pay downs are expected to fully offset production in most other businesses, resulting in a relatively flat average loans compared to Q4 of 'twenty 4. As we move throughout the year, we project sequential quarterly loan growth resulting in an estimated 3% point to point increase in total loans by year end 2025 compared to year end 2024. We intend to continue our deliberate reduction in brokered time deposits, which is expected to drive a 2% to 3% decline in full year average deposits in 2025.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

Excluding brokered CDs, we expect full year average customer deposits to grow 1%. Following seasonal declines in the Q1, we project customer deposit growth throughout the rest of 2025. With the elevated rate environment, we expect most of that growth will continue to be concentrated in interest bearing balances, but believe our non interest bearing deposit mix will remain relatively consistent in the upper 30s. Also as a point of clarity, we are not assuming deposit attrition in 2025 for Direct Express within this outlook based on our current understanding of the transition strategy. We expect full year 2025 net interest income to increase 6% to 7% compared to 2024 with the benefit of business cessation, maturing and replaced securities and swaps, a more efficient funding mix, and higher loans, more than offsetting lower non interest bearing balances.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

In the Q1, we expect non interest income to take a slight step down with a 1% to 2% decline from the 4th quarter as the impact of day count, lower non interest bearing deposits and lower non accrual interest income offsets the benefit of Bisbee cessation at our swap and securities portfolios. From there, we expect to see growth through the rest of the year. And even without the benefit of business V cessation, we expect net interest income to be significantly stronger in 2025 than 2024. With the potential for ongoing inflationary pressures and elevated rates, we expect manageable migration towards more normal credit levels to continue in our portfolio. As a result, we project full year net charge offs to be at the lower end of our normal 20 to 40 basis points range in 2025.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

We expect 2025 noninterest income to increase 4% over reported 2024 levels, which includes a 2% expected growth in customer income. For the Q1 of 2025, we expect seasonal declines in customer related noninterest interest income and then generally expect to see growth in customer fees through the balance of the year. Full year non interest expenses are expected to grow 3% with higher salaries and benefits, lower gains on sale of real estate and an increase in pension expense. Q1 2025 expenses are projected to increase 2% over the Q4 of 2024 with normal seasonality in compensation expenses. Expense discipline remains a priority as we seek to self fund strategic and risk management investments to support our future and quality and efficiency.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

Moving to capital, we continue to appreciate the importance of a strong capital position and intend to consider a number of variables, including loan growth, the forward curve and the broader economic environment as we execute our plan for the year. We intend to maintain the CET1 ratio well above our 10% strategic target for 2025. In all, we expect favorable sentiment and trends to drive responsible customer related growth throughout 2025. Now, I'll turn the call back to Kurt.

Curtis Farmer
Curtis Farmer
Chairman, CEO & President at Comerica

Thank you, Jim. As one of the few banks who have celebrated 175 years in business, we understand the importance of strong capital, credit and liquidity in delivering long term success. And as discussed, we feel those foundational strengths really shine through in 2024. On top of that, we saw positive customer deposit trends, successfully managed deposit pricing, return capital to shareholders through resumption of share repurchases. As we look forward, we feel our model is compelling.

Curtis Farmer
Curtis Farmer
Chairman, CEO & President at Comerica

We have a unique geographic strategy that is diversified and focuses on growing markets. Our talent is differentiated and tenured colleagues who have deep expertise to deliver consistency to our customers. We continue to invest in our development program which creates a consistent pipeline of colleagues for the right mix of sales and credit skills. Our product suite is strong, tailored to meet the needs of our customers and we are making strategic investments which will enhance our solution set. Importantly, we feel well positioned to deliver responsible loan growth supported by higher deposits complemented by increased customer related fee income.

Curtis Farmer
Curtis Farmer
Chairman, CEO & President at Comerica

No doubt there's always some level of economic uncertainty, but we are managing our business for the long term by making important investments that support existing customers and win new relationships. Before we go to Q and A, I'd like to take just a moment and acknowledge individuals and businesses who have navigated the unprecedented flooding in the Southeast late last year and the recent wildfires in California. Our thoughts are with our Comerica colleagues and customers impacted by these tragic events. And with that, we are happy to take your questions.

Operator

Thank you. At this time, we'll now be conducting a question and answer session. Thank you. Our first question is from the line of Jon Arfstrom with RBC Capital Markets. Please proceed.

Curtis Farmer
Curtis Farmer
Chairman, CEO & President at Comerica

Good morning, Jon.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Hey, good morning. Can you touch

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

a little bit on your loan growth outlook? You talked a little bit about the pipelines maybe being a little bit better, but I think you're showing commitments stable as well, but you said better sentiment. Can you talk a little bit about what you've seen over the last few months?

Peter Sefzik
Peter Sefzik
Senior EVP & Chief Banking Officer at Comerica

Yes, John, it's Peter. So over the last few months, I think the tone has changed. 90 days ago, we were hearing a lot more about interest rate relief needed per se to stimulate loan growth. And I think that that is I want to say totally gone away, but it certainly seems to have subsided with more customer optimism going into the New Year. And so I think that that overall customer sentiment is encouraging.

Peter Sefzik
Peter Sefzik
Senior EVP & Chief Banking Officer at Comerica

We're starting our year off with a better pipeline than we did a year ago. So I think all that together is pretty encouraging and it's pretty broad based. I mean the only business where we really just don't feel like there's a whole lot of activity going on is CRE as we discussed. So we expect that to be a headwind going into 2025. But across the rest of the book, I think customer sentiment has improved quite a bit over the last 90 days and seems less tied to interest rate outlook than maybe it did when we finished the Q3.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Okay. And just a follow-up, Peter, just the CRE payoff outlook, is anything when do you expect that to change? I mean, when do you expect some of those headwinds to eventually fade out?

Peter Sefzik
Peter Sefzik
Senior EVP & Chief Banking Officer at Comerica

John, it's a good question. I probably should add a disclaimer to what I

Peter Sefzik
Peter Sefzik
Senior EVP & Chief Banking Officer at Comerica

just said. I think interest rates are probably affecting that business

Peter Sefzik
Peter Sefzik
Senior EVP & Chief Banking Officer at Comerica

more than any. Interest rates are probably affecting that business more than any. And so I suspect that we will see payoffs through 2025, possibly into 2026 with sort of the current interest rate outlook that the country has at the moment. Could that change? Could we see less payoffs if rates were to stay where they are possibly?

Peter Sefzik
Peter Sefzik
Senior EVP & Chief Banking Officer at Comerica

Could it speed up if rates were to drop? Maybe so. I think rates going up would certainly impact that business, both in just opportunities out there and balances probably staying on longer. So a little bit of moving parts. I think our baseline is just expecting sort of quarterly payoffs through the rest of this year and probably into the 1st or second quarter of

Peter Sefzik
Peter Sefzik
Senior EVP & Chief Banking Officer at Comerica

of 2020.

Operator

Our next question is from the line of Marian Gosalia with Morgan Stanley.

Manan Gosalia
Manan Gosalia
Equity Analyst at Morgan Stanley

Hi, good morning. On broker deposits, I know those are coming down nicely and you expect to pay down some more as you go through the first half of the year. Can you talk about how much room there is to pay down some of these higher cost sources of funding as we go through the year if loan growth remains weak?

James Herzog
James Herzog
CFO & Senior EVP at Comerica

Yes. Good morning, Manon. Yes, we did end the year with just over about $1,100,000,000 of brokered deposits. And we do see those coming down pretty continuously throughout 2025, probably more so starting in the second, third quarters, but all the way through early Q4. It's very feasible that we have no broker deposits, no broker time deposits by the end of 2025.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

So those are a little bit pricey. We're paying about 5.4% for those. And it is our goal with strong core customer deposit growth to eliminate most or all of those by the end of 2025. And that will, of course, depend on loan growth trends and other factors. But overall, we continue to improve the efficiency of our funding mix and we're quite optimistic about that.

Manan Gosalia
Manan Gosalia
Equity Analyst at Morgan Stanley

Got it. And in terms of capital, I know you're managing that reported CET1 to about 10%. But is there a number you're managing to for CET1 including AOCI?

James Herzog
James Herzog
CFO & Senior EVP at Comerica

There is no one number because there are a number of capital ratios, the different constituencies value. So we are considering kind of a mortgage order of capital ratios, but of course, CET1 is likely the most important there. With higher levels of AOCI like we had this quarter, we are being a little bit more cautious on capital. But I think it's fair to say, regardless of where things go this year, we plan on staying well above 11% CET1. And then as AOCI continues to come down later this year and into 'twenty six, that gives us more options from a capital standpoint.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

But overall, considering a number of ratios, and I think it's fair to say we'll be well above 11% for this year.

Manan Gosalia
Manan Gosalia
Equity Analyst at Morgan Stanley

So is it fair to say that if the long end of the curve goes up more and that CET1 including AOCI comes down, you would just manage your capital levels by flexing buybacks and you still have enough balance sheet available for customers if loan growth should pick up?

James Herzog
James Herzog
CFO & Senior EVP at Comerica

Absolutely. We have a lot of options with capital. Certainly loan growth is not an issue. Loan growth, as Peter was saying, is going to be a little bit of a wildcard depending on where commercial real estate goes. So 1st and foremost, we will pay attention to where loan growth trends go in determining what we do with capital.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

But again, AOCI is probably the number 2 factor right behind where loan growth

James Herzog
James Herzog
CFO & Senior EVP at Comerica

goes.

Manan Gosalia
Manan Gosalia
Equity Analyst at Morgan Stanley

Great. Thank you.

Operator

Our next question is from the line of John Pancari with Evercore ISI. Please proceed with your question.

Curtis Farmer
Curtis Farmer
Chairman, CEO & President at Comerica

Good morning, John.

John Pancari
Senior Managing Director & Senior Research Analyst at Evercore ISI

Good morning. Just looking at the expense side, you're running at a in the high 60s efficiency ratio currently. As you look at 2025, given your guide, it looks like you may still be in that general range. I mean, what do you view as the appropriate long term efficiency ratio for Comerica? And what can drive you back down off of that upper 60s levels?

John Pancari
Senior Managing Director & Senior Research Analyst at Evercore ISI

Is it primarily going to be a revenue catalyst or is there an expense opportunity there?

James Herzog
James Herzog
CFO & Senior EVP at Comerica

Good morning, John. Yes, we have seen some elevated efficiency ratios and we really saw this take place following the regional bank crisis with some of the shifts in deposit mix. So we are working to return back to what we think is an acceptable efficiency ratio, which we believe ultimately needs to be in the 50s to hit some of the ROE objectives that we have in the future. So we are working towards that. It's always a combination of both revenue and expenses, but we are very committed to making sure that we have very strong revenue.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

We're not going to short expenses and investment for the sake of any short term objectives. The important thing over time is to grow revenue. But clearly, expenses need to grow at a lower rate than revenue. We need positive operating leverage on a consistent basis to get there. So a combination of both, but in the long run, I believe it is more of a revenue play with responsible investment and expense decisions and making sure that we have positive operating leverage.

John Pancari
Senior Managing Director & Senior Research Analyst at Evercore ISI

Okay. All right. And then separately on the deposit side, you had indicated the Direct Express $3,500,000,000 in average deposit balances. You don't expect a material change based upon the extension and the way the agreement is right now. Is there anything that could change that?

John Pancari
Senior Managing Director & Senior Research Analyst at Evercore ISI

And if you could see potentially a faster decline in those balances than you anticipate at this point?

Peter Sefzik
Peter Sefzik
Senior EVP & Chief Banking Officer at Comerica

John, it's Peter. I think the answer to that question is no, nothing could

Peter Sefzik
Peter Sefzik
Senior EVP & Chief Banking Officer at Comerica

change that that we foresee at the moment. We're still working on what

Peter Sefzik
Peter Sefzik
Senior EVP & Chief Banking Officer at Comerica

the transition process looks like. Foresee at the moment. We're still working on what the transition process looks like. But as the year unfolds, we will certainly communicate that as we can to what the outlook appears to be. But at the moment, we don't see anything changing into in 'twenty five and really certainly, in changing in 'twenty five and really certainly into 'twenty six at the moment either.

Peter Sefzik
Peter Sefzik
Senior EVP & Chief Banking Officer at Comerica

So, I think the answer is we don't see any real changes to what we've communicated the last several quarters on this. And to the extent that it does, we will do our best to share that, but no changes at the moment.

John Pancari
Senior Managing Director & Senior Research Analyst at Evercore ISI

Okay, great. Thanks for the color.

Peter Sefzik
Peter Sefzik
Senior EVP & Chief Banking Officer at Comerica

Thanks, Sean.

Operator

Our next

Operator

question is from the line of Bernard Von Cusicki with Deutsche Bank. Please proceed with your questions.

Curtis Farmer
Curtis Farmer
Chairman, CEO & President at Comerica

Good morning, Bernard.

Bernard Von Gizycki
Bernard Von Gizycki
Equity Research Analyst at Deutsche Bank

Hey, guys. Good morning. Just a question on expansion efforts. So, you talked about expanding in areas like the Southeast and the Mountain West. Are there targets for like number of hires you're looking to add this year?

Bernard Von Gizycki
Bernard Von Gizycki
Equity Research Analyst at Deutsche Bank

Is there just a way to think about how much of the expense base is in incremental expense initiatives?

Peter Sefzik
Peter Sefzik
Senior EVP & Chief Banking Officer at Comerica

Bernard, it's Peter. So in the Southeast, I would say that we are certainly looking at opportunistic hiring. We did a lot of hiring the last couple of years and feel pretty good at sort of the ramp up that we've had so far. I think we feel like going into 2025, we're going to see opportunities and we tend to take advantage of those in the Southeast, but probably not the same ramp up that we had the last 2 years, but definitely looking at folks and adding that market, particularly in our Florida market. In the Mountain West, it's a little bit more probably a little more aggressive in the Mountain West to the extent that we can find talent.

Peter Sefzik
Peter Sefzik
Senior EVP & Chief Banking Officer at Comerica

We're certainly looking at opportunities in the Denver market as well as in Phoenix. And so I think that that's both of those are markets that we would continue to add folks in. Now I would remind you too though, we have tremendous opportunity to add folks in markets like DFW, in Houston, in Los Angeles and San Francisco. So we feel fortunate that we are in such great markets where the economy is doing really well, there's population growth, and we feel like there's opportunities to continue to add folks in each of those markets on a go forward basis.

Bernard Von Gizycki
Bernard Von Gizycki
Equity Research Analyst at Deutsche Bank

Okay. Appreciate that. And then maybe just on M and A, like with an easing in the regulatory environment expected from here, just thoughts on how would you think about potentially doing a whole bank deal or a branch or like a portfolio acquisition, just any areas of those that could be a potential interest?

Curtis Farmer
Curtis Farmer
Chairman, CEO & President at Comerica

The strategy for us has really not changed. We have historically been a very patient acquirer. We've only done one deal in the last 20 plus years and are continuing to focus on organic growth. Peter just talked about the markets that we operate in. We think we've got lots of opportunities to continue to grow in those markets and also to continue to add talent selectively where it makes sense for us to do so.

Curtis Farmer
Curtis Farmer
Chairman, CEO & President at Comerica

And we feel like we've got the right balance of sort of product mix and focus as an organization, especially with our strong commercial focus as the best bank for what we believe businesses in the marketplace, but also really strong wealth management and retail franchise. So we'll continue to be patient and really focus primarily on organic growth. Certainly, there might be some opportunities that come along that in terms of team lift outs, in terms of product capabilities, etcetera, that we'll look at periodically, but again, primarily focused on organic growth.

Bernard Von Gizycki
Bernard Von Gizycki
Equity Research Analyst at Deutsche Bank

Okay, great. Thanks for taking my questions.

Operator

The next question is from the line of Anthony Ayn with JPMorgan. Please proceed with your question.

Curtis Farmer
Curtis Farmer
Chairman, CEO & President at Comerica

Good morning, Anthony.

Anthony Elian
Anthony Elian
Equity Research Analyst at JP Morgan

Hi, everyone. Does your loan growth outlook for 2025 include any uptick in utilization rates, which look like have been flat the past couple of quarters?

Peter Sefzik
Peter Sefzik
Senior EVP & Chief Banking Officer at Comerica

Anthony, it's Peter. No, it really doesn't. I think that you might consider that the alpha probably to all of banks loan outlook. I think utilization has been pretty flat for quite a while now. It's certainly been below historical numbers that people have been in this a long, long time.

Peter Sefzik
Peter Sefzik
Senior EVP & Chief Banking Officer at Comerica

But we aren't necessarily factoring that into the outlook that we're providing. And to the extent utilization were to pick up, that would be a good thing. Of course, any one of our businesses is going to have utilization sort of moving up and down depending on what's going on in that particular industry. But on the whole, what I would tell you is we've kind of we've pretty much kept it flat.

Anthony Elian
Anthony Elian
Equity Research Analyst at JP Morgan

Thank you. And then my follow-up, could you provide more color on NPAs maybe for Melissa? I know you called out the impacts from higher rates, but was there anything specific in the Q4 that contributed to the increase you saw? Thank you.

Melinda Chausse
Melinda Chausse
Senior EVP & Chief Credit Officer at Comerica

Yes, this is Melinda. The NPA increase was about $58,000,000 quarter over quarter, which on the whole for a portfolio of our size, I would consider that very, very modest. It was centered in around 4 or 5 different names, so it's still very granular. We did have one commercial real estate loan move into the NPA category, and that was approximately $30,000,000 So nothing really unusual. Again, the commonality there is pressure from higher interest rates on overall profitability and ability to service debt.

Melinda Chausse
Melinda Chausse
Senior EVP & Chief Credit Officer at Comerica

And the other commonality that we've seen not just in NPAs, but really in the charge offs this quarter were companies that have an orientation towards serving consumer discretionary product. There's just still some pressure there from a consumer perspective in terms of what they have available. But on the whole, the credit portfolio, I think performed quite well and the migration that we saw was pretty much expected and very much in line with sort of the normalization trends. Just as one other comment, our absolute levels of NPAs at about 60 basis points is about half of what our long term average is. So yes, we saw an increase, but still relatively low and consider that pretty manageable from our perspective.

Anthony Elian
Anthony Elian
Equity Research Analyst at JP Morgan

Thank you.

Melinda Chausse
Melinda Chausse
Senior EVP & Chief Credit Officer at Comerica

Welcome.

Operator

Our next question is from the line of Chris McGratty with KBW. Please proceed with your question.

Curtis Farmer
Curtis Farmer
Chairman, CEO & President at Comerica

Good morning, Chris.

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Hey, good morning. Jim, question on the modest balance sheet pretty compelling. I guess the question, why not be more aggressive either now or in the next coming quarters? You've got the capital to absorb it and just it would, I think, unlock that range and efficiency that you talked about? Good morning, Chris.

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

When we

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

range and efficiency that you talked about?

James Herzog
James Herzog
CFO & Senior EVP at Comerica

Good morning, Chris. When we look at the options for capital return, we still really do favor share repurchase over securities repositioning. Securities repositioning is essentially neutral intangible book value in the long run. It's just time geography.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

I realize it does move around earnings and maybe from an optic standpoint spruce things up. But if we have to make choices, we would much rather put it in the share repurchase and other capital return options that we think have a real return to shareholders.

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Okay. And then I guess my follow-up, just a clarification, Jim, on the guidance.

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Are all the

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

guide NII fees expenses relative to GAAP reported numbers? Can you confirm that?

James Herzog
James Herzog
CFO & Senior EVP at Comerica

Yes. Yes. Very relative to GAAP numbers.

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Thank you.

James Herzog
James Herzog
CFO & Senior EVP at Comerica

As all the guidance are.

Operator

Thank you. At this time, there are no additional questions. I'll now turn the call back to Mr. Kurt Farmer for closing remarks.

Curtis Farmer
Curtis Farmer
Chairman, CEO & President at Comerica

Thank you to all of you for joining our call this morning. As always, thank you for your continued interest in Comerica. We hope you have a very good day. Thank you.

Operator

This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation and have a wonderful day.

Executives
    • Kelly Gage
      Kelly Gage
      Senior VP & Director of Investor Relations
    • Curtis Farmer
      Curtis Farmer
      Chairman, CEO & President
    • James Herzog
      James Herzog
      CFO & Senior EVP
    • Peter Sefzik
      Peter Sefzik
      Senior EVP & Chief Banking Officer
    • Melinda Chausse
      Melinda Chausse
      Senior EVP & Chief Credit Officer
Analysts
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Earnings Conference Call
Comerica Q4 2024
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