Release Date: October 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Comerica Inc (CMA, Financial) reported third quarter earnings of $184 million or $1.33 per share, exceeding expectations across most line items.
- Strong customer activity drove higher average deposits, which helped net interest income outperform guidance for the quarter.
- Credit quality remains solid with net charge offs historically low, reflecting proven underwriting discipline.
- The company celebrated its 175th anniversary, highlighting its long-standing history and strength in navigating industry changes.
- Comerica Inc (CMA) plans to repurchase $100 million of its common stock shares starting in the fourth quarter, indicating strong capital management.
Negative Points
- High inflation and elevated rates continue to pressure loan demand, with a projected 5% decline in average loans for 2024.
- Non-interest income decreased by $14 million from the second quarter, primarily due to non-customer related income.
- The company expects full year 2024 net interest income to decline 13% to 14% compared to 2023.
- Commercial real estate loans are expected to decline, posing a potential headwind for future growth.
- There is uncertainty regarding the timing and specifics of the transition of the Direct Express Program, which could impact future deposit balances.
Q & A Highlights
Q: Can you expand on what drove the overall average interest-bearing deposit rates higher this quarter and provide the spot deposit costs as of September 30 or October 15?
A: James Herzog, CFO, explained that the increase in interest-bearing deposits was intentional, with average deposits up $1.5 billion and ending deposits up $2.2 billion. The increase in pay rates was a common trend due to the higher rate environment. The spot rate at the end of the quarter was slightly lower than the previous month, indicating success with their pricing strategy.
Q: How do you see net interest income (NII) trajecting beyond the fourth quarter, given modest loan demand and competitive deposit pricing pressures?
A: James Herzog, CFO, expressed optimism about NII in 2025, noting an inflection point in the second quarter of 2024. He anticipates a general upward trend in NII beyond 2024, with continuous loan growth expected in 2025, although specific guidance for 2025 was not provided.
Q: Can you discuss the potential acceleration of share buybacks in 2025, given your strong CET1 ratio?
A: James Herzog, CFO, stated that while they acknowledge strong capital levels, they aim to stay above an 11% CET1 target to prepare for Basel III endgame. They plan to prioritize capital for loan growth and monitor the economic environment and regulatory updates before deciding on future buybacks.
Q: What is your philosophy on hedging and rate management, and how should we think about NII and margin trajectory if the Fed continues cutting rates?
A: James Herzog, CFO, described Comerica as slightly liability sensitive, but largely interest neutral from a pure rate standpoint. He emphasized that the real wild card is deposit pay rates and customer reactions, which have a wider range of outcomes than asset and liability sensitivity assumptions.
Q: How do you view loan growth potential once borrowers get past election hurdles and more rate cuts occur?
A: Peter Sefzik, Chief Banking Officer, expects Comerica to grow at or above the industry rate post-election and with further rate cuts. He highlighted their strong presence in Texas and California and specialty businesses as factors that could drive growth above the industry average.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
