Q1 2025 Comerica Inc Earnings Call
Greetings and welcome to Comerica First Quarter 2025 earnings conference call. At this time, all participants are in a listen only mode.
A Question and Answer session will follow the formal presentation.
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Speaker Change: If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kelly Gage, Director of Investor Relations. Thank you. Please go ahead.
Kelly Gage: Thanks, Donna. Good morning and welcome to Comerica's first quarter, 2025 Earnings Conference Fall. Participating on this call will be our President, Chairman, and CEO , Kurt Farmer, Chief Financial Officer, Jim Herzog, Chief Credit Officer, Melinda Chausse, and Chief Banking Officer, Peter Sefzik.
Kelly Gage: 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: The presentation in this conference call contained forward-looking statements in that regard you should be mindful of the risks and uncertainties that can cause actual results to differ materially from expectations.
Kelly Gage: For Looking Statements, speak only as of the date of this presentation and we undertake no obligation to update any for Looking Statements.
Kelly Gage: Please refer to the Safe Harbor Statement in today's burning presentation on slide two.
Speaker Change: Also, the presentation and this conference call will reference non-gat measures in that regard I direct you to the reconciliation of these measures and 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.
Kurt: We're good morning everyone, and thank you for joining our call. This is the strong quarter for Comerica.
Speaker Change: We exceeded expectations across the number of categories resulting in higher profitability over the prior quarter, although we saw a seasonal deposit outflows.
Kurt: Non-Instabaring Valences performed well and contributed to net interest income outperforming goddess.
Kurt: Movement and the right curve benefited our tangible common equity ratio and drove an increase in our book value at quarter end.
Kurt: Conservative Capital Management remained a priority, and we grew our estimated CET-1 ratio of all returning 143 million to common shareholders through share repurchases and dividends.
Beyond Our Financial Results,
Kurt: customer sentiment took a step back as the market saw an increase in macroeconomic uncertainty.
Kurt: As our customers are right, further clarity, we plan to continue competently executing on our relationship model, striving to provide customers with the consistency and support they need to adapt and succeed.
Kurt: Comerica's legacy is built on successfully managing through cycles, and we still are unique model positions as well to navigate a dynamic environment.
Kurt: Credit as a competitive differentiator with net charge-alls that have historically outperformed peers.
We are regarded for our underwriting discipline.
Kurt: It's in our DNA and it's the crucial part of our culture.
Kurt: We've been at this from a diversified, commercially oriented business mix and have limited consumer exposure.
Kurt: We enjoy long-tended customer relationships with seasoned leadership teams who in many cases has successfully weathered downturns before.
Kurt: Our capital position provides a flexibility with an estimated CET-1 ratio well above our strategic target.
Kurt: We took deliberate steps to minimize our exposure to rate volatility.
Kurt: In fact, if race decline, we expect to benefit. And in the last down race cycle, we saw outside of the positive right relative to our peers.
Kurt: There are still a number of unknowns, and we, along with the market, will continue to monitor
Kurt: Regardless of the direction of the economy, we feel confident in our playbook and track record to perform competitively.
Kurt: Moving back to summary the first quarter on slide 4, we reported earnings of 172 million or $1.25 per share.
Kurt: Mutant Loan Demand, coupled with the clients in National Dealers Services and Commercial Ville State, drove a modest reduction in average loan balances in a quarter.
Kurt: Good Deposit Trends, the Intact Impact of Biz-Bee Sensation, and the structural benefit of our swapping securities portfolios all set the negative impact of lower loans, keeping net interest income flat.
Kurt: These factors also drove at 12 basis points, expansion of our net interest margin.
Kurt: Our credit portfolio remained resilient, and despite inflationary pressures continuing to impact customers, our credit metrics remain historically low.
Kurt: Although net charge also increased over the very low level seen post-COVID, they remained at the low end of the normal 20 to 40 basis point range.
Kurt: Non-interesting come grew, but we saw CVA non-customer-related and seasonal pressures across several line items.
Kurt: Nine interest expenses decline as we prioritize efficiency but also solve some slowdown in business activity. Count will remain the strength with an estimated DT1 ratio at 12.05 percent.
Kurt: Hopefully above our strategic target, again providing us flexibility to navigate the economic environment.
Kurt: and all we thought great about the quarter until we are positioned to support our customers
Jim: Now I'd like to turn the call over to Jim for further details.
Thanks, Kurt, and good morning, everyone.
Speaker Change: Delemer's inventory levels came down from a urine peak, and at the end of the quarter, they saw an uptick in car sales.
Total commitments to climb largely due to commercial real estate trends.
Speaker Change: Although commitment utilization increased slightly, this was partially due to deor in the nature of floor plan facilities.
Excluding your, utilization would have been relatively flat, quarter to quarter
Speaker Change: Average loan yields came down 12 basis points as lower rates and not a cruel interest, more than offset the benefit of the SWAT portfolio and disbises the station.
Speaker Change: On slide 6, average deposits outperform guidance in the first quarter.
Speaker Change: While seasonality can be challenging to predict, another macroeconomic factors may influence balances. Our strong deposit focus and offerings have helped us to mitigate some of the seasonality we've seen thus far.
Speaker Change: Named for sparing deposits as a percentage of total remain flat at 38% continuing to reflect
pureed end-to-pods has decreased $2.3 billion.
Speaker Change: Adjusting for the timing-related impact from direct expressed disbursements, the period in decline would have been $1.2 billion. Concentrated almost entirely in inter-spaired
Speaker Change: The proactive execution of our pricing strategy drove a 26 basis points decline in deposit pricing in the first quarter.
Speaker Change: Our deposit portfolio has long been a key strength of our franchise and we are continuing to make investments in products, processes and talent to further enhance this competitive funding source.
Speaker Change: We have already seen results from this strategic focus, including efficient pricing, new products and deposit acquisition, and we are encouraged by what we see as the potential for future success.
Speaker Change: Our Securities, Portfolio, and Slide 7ing, pre-slightly, is the benefit of lower under-lices losses at quarter-end, more than offset pay-downs and maturitys.
Speaker Change: We've spent future repayments and maturities to continue to benefit ALCI over time.
Speaker Change: Beyond periodic purchases to replace treasury maturities, we are not currently expecting more meaningful of both securities rate investments to begin until late this year.
Speaker Change: Turning to slide 8, that is for 6th number, main stable, quarter over quarter at $575 million.
Speaker Change: Stronger than expected, non-intersparing deposits and successful deposit pricing strategies helped
Speaker Change: We also saw the benefit of our modest fourth quarter security's repositioning.
Speaker Change: With the structural tailwinds associated with our swap of securities portfolios, as shown in Slide 9, we continue to see promising trends for continued net interest income growth.
Speaker Change: Moving to slide 10, we continue to believe the successful execution of our interest rate strategy allows us to better protect our profitability from rate volatility.
Speaker Change: If we do see a reduction in rates as the forward curve predicts, our modeling shows a slight benefit to income.
Speaker Change: That said, we generally consider ourselves the asset neutral and by strategically managing our swap and securities portfolios while considering the balance sheet dynamics we intend to maintain our insulated position over time.
Speaker Change: Our press portfolio is shown in Slide 11, performed as expected.
Speaker Change: Net charge-offs increased to 21 basis points, but were the low end of a normal range.
Speaker Change: Consistent with prior quarters, persistent inflation and elevated rates, pressured customer profitability, driving continued but expected normalization and criticize loans and notably they remain well below historical levels.
Non-performing loans were made welcome full and below our long-term average.
Speaker Change: The allowance for credit losses was down slightly due to lower loan balances, stable credit metrics, and a relatively benign economic forecast at quarter end.
Speaker Change: With the benefit of our relationship model, we plan to stay close to our customers as they better understand potential supply chain implications on their businesses and formulate their action plans.
Speaker Change: We feel confident in our highly regarded approach to credit and of a proven track record of navigating cycles over many years.
Speaker Change: Onside 12, first quarter, 9% income increased $4 million, largely due to the $19 million fourth quarter loss for a security's repositioning, which didn't ever beat in the first quarter.
Speaker Change: Setting aside that benefit, the largest decline was in the CDA, which reduced $5 million due to rate and commodity price movement.
Speaker Change: We also saw non-customer and seasonal compliance across several other line items.
Speaker Change: Despite pressures observed in the quarter, we continue to prioritize non-tristan income and expect to drive positive momentum in customer-related fees.
Speaker Change: We also incurred lower outside processing expenses, correlated with lower business activity and products like CARB.
Speaker Change: While we did not see the level of gains related to real estate that we saw in the fourth quarter, we did recognize the size of the gain on the sale of a leasing asset.
Speaker Change: Expense discipline remains a key priority as we continue to focus on drive-in efficiency.
Speaker Change: As shown on slide 14, we continue to favor a conservative approach to capital and value the flexibility our position provides us.
Speaker Change: With an estimated CET-1 at 12.05%, we are above our strategic target even after returning capital to shareholders through repurchases and dividends in the quarter.
Speaker Change: Movement in the forward curve, reduced unrealized losses to NAOCI, contributing to an 82 basis point improvement in our tangible common equity ratio and growing book value.
Our Outlook for 2025 is on slide 15.
Speaker Change: Given increased economic uncertainty, we see potential for a wide range of outcomes if market trends differ from our economic assumptions.
Speaker Change: By way of context, our outlook assumes uncertainty begins to abate, and while we are not assuming a recession, we do assume slower GDP growth in 2025 than in 2024.
Speaker Change: We project 4 year 2025 average loans to be down 1 to 2% [inaudible]
Speaker Change: Although pipelines and activity levels remain strong, we expect customers to await federal visibility before staying strong or upticking loans to ban.
Speaker Change: Recognizing that may not be immediate, we think the second quarter average loans will continue to move down slightly relative to the first quarter.
Speaker Change: From there we expect to see long growth resume in the second half of the year.
Speaker Change: Our deposit forecast remains unchanged as we expect lower broker CDs to drive 4-year-old average deposits down 2-3% in 2025.
Speaker Change: We believe the second quarter average deposits will be relatively flat to the first quarter, as core deposit growth is offset by a small decline in average broker time deposits.
Speaker Change: Although we anticipate continued success in winning interest-bearing balances, we believe our non-fersparing deposit mix will remain relatively consistent in the upper 30% range.
Speaker Change: Based on our current understanding of the transition strategy, we are still not assuming direct express deposit attrition within our 2025 outlook.
Speaker Change: We expect four year 2025 net interest income to increase five to seven percent with a benefit of this visa station, but churring and replace securities and swaps, and a more efficient funding mix, all more than offsetting lower average non-transparent balances and loans year-to-year.
Speaker Change: We expect the second quarter to be relatively unchanged from the first quarter, as the lower benefit of business cessation is offset by the impact of day count.
Speaker Change: You can find details on the business association in the appendix, and excluding this fee, we expect to see growth in net interest income quarter to quarter throughout 2025.
Speaker Change: We expect four-year 2025 and 9% come to increase approximately 2%, considering the negative pressure we saw in the first quarter, including the credit valuation adjustment and deferred compensation.
Speaker Change: We expect the second quarter to be stronger than the first and project growth and customer related see-and-come to the balance of the year.
Speaker Change: 4-year 2025 none of your expenses are expected to grow 2-3% with the objective of managing within this range subject to the revenue trajectory as we progress through the year.
Speaker Change: We expect second quarter expenses to pick up slightly from the first quarter as we continue to balance strategic and risk management investments with the drive towards efficiency.
Speaker Change: Considering our strong credit metrics, proving underwriting approach and insistent portfolio monitoring, we expect for your net charge-offs that be in the lower end of our normal 20 to 40 basis point range.
Speaker Change: Moving the Capitol, we continue to appreciate the importance of a strong Capitol position and we intend to maintain a CT1 ratio well above our 10% strategic target throughout 2025.
Speaker Change: with an estimated CET-1 at over 12 percent, we feel we have ample capacity in our position to continue repurchases in the second quarter, perhaps even as much as we repurchased in the fourth quarter of 2024.
Speaker Change: Given the volatility in the market and the movement in the forward curve, we are not committing to a targeted amount today.
Speaker Change: Instead, we intend to closely monitor market conditions and execute opportunistically with consideration to economic developments throughout the quarter.
Kurt: Stepping back, as we in the market await more clarity, we will continue to stay close to our customers, prioritize responsible loan growth where it makes sense, and focus on our deposit gathering efforts while conservatively managing capital, expenses, and credit. Now I'll turn the call back to Perth.
Thank you, Jim.
Kurt: Tons of uncertainty, we understand what is important to our customers. They seek stability.
Kurt: They prioritize consistent access to capital and a value-added partner who is patient and understands how to help them overcome obstacles. We have a proven track record of doing just that for over 175 years.
Kurt: with the Foundation of Conservative Capital, Credit, and Equity Management. We have demonstrated resiliency.
Kurt: We understand there is uncertainty in the marketplace and we see this in an opportunity to stay close with our customers.
Kurt: History would tell us that these are the times where Co-America's relationship model and strategy tends to shine.
Kurt: We have a geographically diverse model, Tindard Kotly, an experienced leadership team, a conservative approach underwriting a blue chip customer base which altogether positioned us well to outperform through cycles.
Kurt: So with that, I'd be happy, we'd be happy to take your questions
Thank you. The floor is now open for questions.
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Speaker Change: Our first question is coming from Jon Arfstrom of RBC Capital Markets, please go ahead.
Speaker Change: Thanks. Good morning. Good morning, Jon. Thank you. Maybe for you, Peter, I guess.
Speaker Change: I'm a long growth outlook. I think we all understand it. You guys are really a proxy for commercial lending but can you talk a little bit about what you're hearing right now from your lenders and borrowers, maybe some of the very near term conversations.
Speaker Change: and then maybe talk a little bit more about the longer term outlook. It sounds like you're still thinking the pipelines are there and the growth outlook could get better as the year progresses, but you know, maybe very near term stuff and then confidence in the longer term.
Speaker Change: Yeah, Jon, so I think I would say near-term, if I had to describe the whole portfolio, I would say that what you're hearing from customers is that they're not putting the brakes on but they're taking their foot off the accelerator.
Speaker Change: and different speeds, if you will, to that approach. I think in markets like Michigan, we've probably seen...
Speaker Change: of a pullback in our equity fund services businesses versus our environmental services business that is still pretty robust. So, it really kind of depends on the business. It depends on the type of services they do geographically where they are.
Speaker Change: But I think in the near term, and I think that's sort of where we're going with our outlook for the second quarter is that there's a lot of folks that are pulling their foot off the accelerator, but they're not necessarily putting the brakes on. Now all that said,
Speaker Change: We continue to hear really good long-term outlook and we do continue to see our pipeline creep up.
Speaker Change: It's a little bit interesting to see the pipeline go up, but not necessarily feel like we're going to see outstanding in the next quarter per se.
Speaker Change: But throughout the year, as it goes on, we feel like it's going to, I guess you might say, get better with loan demand. And again, we're not projecting a recession. We don't feel that way. We feel like the economy is going to grow this year.
Speaker Change: and we feel like we're in the right markets and lines of business to benefit from that growth, even if it's not what we've seen over the last year or two.
Speaker Change: Okay, I've got it. And can we talk about this maybe in past quarters? Can you talk a little bit more about commercial real estate and what you're seeing there? It seems like there's still some headwinds and I'm curious if there's any, you know, hope for stabilizing that category.
Speaker Change: Candidly, I think there is some hope for stabilizing it. Part of our outlook actually includes commercial real estate not coming down as much as we thought it would. 90 days ago, we still foresee it being a headwind but I don't think it's maybe blowing as hard as it was 60, 90 days ago. We've seen deal flow pickup and commercial real estate.
Speaker Change: I was really glad last year we want one of the first banks to kind of get back to doing deals second quarter of last year and I think that's benefited us so.
Speaker Change: You know, we're seeing some opportunities and the extent that our borrowers need us, you know, we're putting out commitments in commercial real estate. So,
Speaker Change: I do think as we go into next year we'll probably continue again to see it level off, we'll see what interest rates do to that business but as of right now you know it's a headwind but maybe not as strong actually as it was 60 days ago.
Okay, all right. Thank you very much. Thanks, Jon.
Speaker Change: Thank you. The next question is coming from Scott Ciphers of Piper Sandler. Please go ahead.
Morning everybody, thanks for taking the question.
Speaker Change: to get to the updated guides, maybe sort of how do you do so, and then by contrast, you know, on the expense side looks like the guidance would suggest that the second half expense base will be lower than what you experienced in the first half, maybe just sort of some color on how the flow works to your thinking.
Yes, good morning Scott, you know, looking at non-percent income.
Speaker Change: We did have some non-customer trends that appeared in the first quarter, probably put $6 to $7 million of pressure.
Speaker Change: on the overall guidance that we provided back in January . And some of those will probably continue to some extent. Maybe not to the same pace that we had in the first quarter, but we do expect a little more pressure from not a percent come.
Related to Expenses [inaudible]
Speaker Change: You know, I really think that we're going to have to monitor that as the year goes on and see how PP&R progresses.
Speaker Change: You know, certainly there's a piece of that that's in the bag, you know, certainly the sale and equipment in the game we had there will be pocketed and won't be going away.
Speaker Change: But we had some other expenses related to, you know, maybe timing, maybe challenging of projects and expenses that we'll have to make decisions on as we move through the year and try to calibrate to how revenue progresses through the year also [inaudible]
Speaker Change: So we do a little bit more control obviously on the expenses and we do in the non-interest income. We do see non-interest income for the customer categories.
Speaker Change: getting largely back to plan or back to consensus and outlook that we had back in January .
Speaker Change: And so we do think we're going to get some bounce back there, but we did have a weaker customer quarter in the first quarter, we did a weaker non-customer quarter, and some of those non-customer trends may continue to a very small degree.
Speaker Change: We'll let the overall revenue pace inform both our expense control and as we continue to monitor the 9% come flows.
Speaker Change: Do or do not see long demand, return and sort of stabilization from the economy to think of whether or not we have.
Speaker Change: Recession. Again, we're seeing that probability a little bit lower. We're really calibrating how we think about expenses going forward.
Speaker Change: We are very committed to the things that we have in flight, the expansion of many of our businesses, product development, technology, expansion into new markets that we've talked about previously.
Speaker Change: But the pace upon which we are doing some of those things could be calibrated if we really do see a more elongated disruption to the market or certainly if we saw a recession.
Speaker Change: Got it, perfect, all right, Curtin Jim, thank you very much. Thanks Scott.
Speaker Change: Thank you. The next question is coming from Ken Usdin of Autonomous Research. Please go ahead.
Thanks, good morning, good morning guys.
You're doing a great job reducing the power of the cost.
Speaker Change: I'm going to continue to show a really fast data on the downside. I'm just wondering how much more room do you have to either remix the pauses further, take down broker and CDs within that, and then I'll ask a follow-up. Thanks.
Speaker Change: All right, Ken, good morning, it's Jim. Yeah, we have had great success with deposit pricing. A little better than we'd actually expected in the first quarter. You know, so far as I look at our deposit betas, if I go back to when that started cutting rates in the third quarter last year. Yeah.
Speaker Change: You know, we are running about a 71% beta, you know, through the first quarter, so that's obviously higher than the, you know, 60% or so that we long-term think we'll get back to, you know, we are well above that 71% obviously in the first quarter, so we are having great success.
Speaker Change: As I mentioned, I think at the January earnings call and certainly at the conference that we attended in March.
Speaker Change: We do expect to see that slow up a little bit. In fact, we may give it how proactively we move. We may actually in some small pockets have to give it a little bit back to customers.
But having said that, as rates continue to move down...
Speaker Change: So we certainly have room to continue to react, it's right to continue to go down, but we will have probably some pockets of pressure upward.
Speaker Change: Now, you mentioned broker deposits? Yes, we do expect to run off really that remaining, you know, about about a billion dollars of broker deposits by the end of the year.
Speaker Change: You know, we aren't paying in the low to mid 5% range on those, so that will certainly be a big benefit too, so those roll off.
Speaker Change: But we expect to get even a nice beta on the non-broker deposits, the quarter-posit, two-thirds continue to move down.
Speaker Change: So overall, a really good story, probably won't continue at the same pace that we've seen, but certainly can continue to adjust as the FOMC continues to lower rates. So that's one that we also have to monitor overall market trends.
Speaker Change: I have mentioned in the past two we do plan on being fairly proactive in gathering more interest-faring deposits and in some cases we may pay up for those. We're happy to do that if we can garner them. We still make money in those. There's still a preferred funding source versus purchase funds.
Speaker Change: And so, you know, overall, I'm just really good about the deposit story, both the volume as well as the success we've had with pay rates thus far.
Speaker Change: Got it, great. And the second question just relates to deposits as well. You mentioned very clearly that the direct express, there's no changes in the 25.
Speaker Change: Outlook, I believe you said it really wouldn't be in play until the out years. Can you give us an update on how you're thinking about that? And if the positive growth continues to be strong, do you think about starting to get ahead of some of that mixed shifting at some point? Thanks guys.
Speaker Change: Kenneth Peter. There's no real change to our outlook on what we see with direct express. We think that balances really aren't going to be impacted at all in 25.
Speaker Change: We haven't provided, obviously, outlook for next year, but we continue to believe that the transition here is quite long. And so what I would tell you is that as far as running the rest of the company, we're very focused on [inaudible]
Speaker Change: Deposits in all the other businesses that we have, whether that be in small business and what we do in some of our corporate businesses that are deposit gathering.
Speaker Change: and really even what we do on the consumer side. I think there's a tremendous opportunity there for us to increase our deposit base through those channels. So we are looking at that pre-regally, I'd say that's a kind of a constant conversation that we have, but at the moment there's no real updates about what the transition plan for direct express. I think our messaging is consistent at the current time.
Okay. Thanks very much. Yep. Peace, kids.
Speaker Change: Thank you. The next question is coming from Manan Goslia of Morgan Stanley . Please go ahead.
Manon Goslia: Hey, good morning. Can you expand on how you're thinking about the trajectory of NII from here and the jumping off point for 2026?
Speaker Change: As you noted, the Bizby benefits fade, which might be masking some nice growth in core NII. So can you talk about the factors driving that increase as we go through the air?
Kelly Gage: Sure, good morning, Manan. Yeah, excluding the bisbee impact, which, you know, we do have that schedule in the appendix, as we always do, you know, we are expecting steady growth in the interest income, both dollars and, you know, a little take up each quarter and then percentage also a little slightly.
Kelly Gage: A number of drivers there. You know, we are expecting deposits to continue to grow as we move through the rest of 2025 so deposits will certainly be a key contributor.
Kelly Gage: Non-itre-sparing could be just a very small tray in the second quarter because we were higher than we expected in the first quarter. But then in the second half of the year, we do see the potential for some small increases in non-itre-sparing. But most of those deposit increases will be on the inter-sparing side, all contributing to increasing net interest income.
Kelly Gage: Of course, the loan growth that we expect to happen in the second half of the year will be a key contributor also and then if you look at our maturity schedule for swaps and securities
Kelly Gage: You know, we do expect to get, you know, a few million dollars, you know, range is anywhere from two million to six, to do the math each quarter, benefit on, make sure I swap some security so that will be a contributor to, and that's obviously more of a known factor, I don't expect that to bounce around very much.
Kelly Gage: So, a lot of tailwinds contributing to, you know, kind of consistent, you know, small to moderate increases each quarter and overall we just feel good about the overall trajectory of that interest income.
Speaker Change: That's helpful, appreciate it. And maybe just to switch over to credit.
Speaker Change: Are there any early signs of stress you're seeing among your client base at all, whether it's in CNI or CRE, small business anywhere that you're particularly focused on?
Speaker Change: Manannas Melinda, I would say overall, the credit environment remains strong and stable.
Speaker Change: You can see that by the metrics that are shown on our slide. I mean, Criticized Balances were never so slightly. That was really driven by the commercial real estate line of business.
Speaker Change: So as Peter mentioned, you know, the payoff pace we think is going to be a little bit slower than what we had originally anticipated sort of coming into the year and that's really driven by the fact that rates have remained.
Speaker Change: Somewhat elevated obviously there's a lot of uncertainty and some of the leasing times on some of the construction projects are elongated and so that's where we're seeing a little bit of...
Speaker Change: Migration into the Non-Pass. The absolute levels of non-pass and commercial real estate remained very manageable, and we're still seeing resolution, you know, every single quarter on non-pass credit, so we have some migrating in, some migrating out.
Speaker Change: As it relates to CNI, I would call this quarter very stable. If you bifurcated charge off this quarter, they were very stable from a CNI perspective. We did see two charge-offs in commercial real estate, which is really what drove the increase between the fourth quarter and the first quarter in terms of the basis point. So,
Not really seeing anything yet. [inaudible]
Speaker Change: That the reality is there's an enormous amount of uncertainty right now and risk in the economy. Supply change disruption is bound to happen. We don't know exactly where that's going to land and what that's going to look like.
Speaker Change: But we have very good visibility into our customers. We have excellent portfolio management.
Speaker Change: Proven track record of managing through economic cycles. And so I'm really confident that the portfolio with a whole is going to perform. We're just going to have to wait and see, you know, some of this uncertainty to sort of evate and folks to have a little bit more clarity on how they're going to manage supply chains going forward. We're going to have to wait and see, you know, we're going to have to wait and see, you know, we're going
That's good color. Thank you so much. Welcome.
Speaker Change: Thank you. The next question is coming from Bernard Gizycki of Twitchobank, please go ahead.
Speaker Change: Hey guys, good morning. Just on the first question, just on the sharey purchases, I know you did the 50 million during the quarter and you noted, you know, it's going to depend on market conditions and economic developments. Any thoughts on how you're going to think about, you know, 2Q or any expectations you could share?
Yes, good morning, Bernard.
Bernard: Yeah, as I mentioned, you know, we do see the potential and we certainly have the capacity to do additional shared purchases. We've done $100 million in the fourth quarter. We dialed that down to $50 million in the first quarter.
Bernard: Now, we are keeping our eye on, you know, a number of factors there. You know, we've seen the 10 year really ping pong around the last few weeks and the last few months.
Bernard: So, you know, we're long-term rates going, what the curve does, the AOCI is something we continue to keep our eye on.
Bernard: Credit, while very stable and performing very well, Melinda was saying in this environment, it's prudent to keep an eye on that also.
Bernard: And then loan demand, of course, is a factor also. I want to make sure that we're there to show this uncertainty of bait. You know, we see the potential for loan demand may be surprised to the higher side if, again, the uncertainty of baits.
Bernard: So keeping an eye on a number of factors, but having said that, we recognize that 12.05% is a very healthy
Bernard: C-D-1 ratio, so I think you expect this to likely be active on the share of purchase side, but we are going to keep right on this week to week as we move through the second quarter, which is why we're not committing to a very specific amount of certainty at this point in time.
Speaker Change: Okay, and then just one modeling question, Jim, I know you mentioned there was a slight benefit.
Speaker Change: from the 4Q Securities Oppositioning and Netage Syncom. I might have missed it, but could you size that benefit in the quarter and then just what the remaining benefit could be for the rest of the year.
Speaker Change: Yeah, you know, if you look at our net interest income slide, you see that security's income overall was up.
Speaker Change: You know, I would say, you know, just a little over half of that was due to the securities repositioning, the rest of it, due to other factors such as just the normal maturities on a quarter to quarter basis. And so we have, you know, recognized, I think most of that benefit going forward, you see it in the run rate right now.
Speaker Change: and, you know, we will certainly have some additional securities, just naturally ventures, we'll move through the rest of the year here.
Okay, great. Thanks for taking my question.
Thank you. Thank you.
Speaker Change: Thank you. The next question is coming from Jon Pancari of Evercore ISI. Please go ahead.
Morning.
Speaker Change: Also, can you maybe give your thoughts on your ability to achieve positive operating leverage in 2025 and the degree of which you think could be reasonable?
Speaker Change: Yeah, good morning, Jon. You know, as we indicated, I see the range of expense growth for us and, you know, for 2025.
Speaker Change: We are going to keep our eye on revenue trends and try to calibrate accordingly.
Speaker Change: But we do have a certain degree of flexibility there, and I think that in this environment with all the uncertainty, where it's very hard to predict where the year is going to go, I think we do have to be prepared to...
Speaker Change: Continue to take expense reduction steps if the revenue doesn't come. I will say at the same time we aren't pretty committed to a lot of the investments for making it also.
Speaker Change: So, we're certainly not going to turn down or turn off key investments that we're in the middle of making right now on the product side, the risk management side, you know, getting ready for category 4, but his curtainites that are earlier, we just plan on trying to calibrate as best we can to the overall PP and R stream that we see.
Great. Thanks, Jim. And then...
Speaker Change: Separately, on the M&A front, I know you tried yourselves on your independence and that said there's clearly a need for scale that's developing and intensifying in this.
Speaker Change: in the regional bank space and the regulatory backdrop might actually be improving.
Speaker Change: to M&A. Is there anything that you look at that would be to Comerica considering either being a buyer and pursuing a...
Speaker Change: Transaction on the whole bank side more actively than you may have in the past or conversely consider partnering with a larger acquireer. [inaudible]
Thanks.
Speaker Change: John , I would say that we continue to be focused on our independence and we know we have to earn that right every day and certainly on long history as an institution.
Speaker Change: We've been a very patient acquirer and certainly right now I think the M&A environment is a little bit murky.
Speaker Change: from a go forward standpoint, but we would certainly consider opportunities as they came along that made sense for us, that were aligned with our strategic direction or focus as an organization, would be complimentary to our businesses, our geography, etc.
Speaker Change: That said, the number of institutions that sort of fit that category is fairly small. And so I think what we can focus on what we can control is what we've historically done, which is organic growth.
Speaker Change: We've done a good job of that, including expansion into some new markets like the Southeast, but also expansion.
Speaker Change: and into our existing market. As you know, we operate in some of the largest indices in the U.S. and just great opportunities for us in markets like Dallas and LA and Houston and other markets that we operate in.
and then maybe from the broader perspective, there's...
Speaker Change: There's always noise about M&A and the industry I've been doing this for over 40 years and it abs and flows that I don't think
Speaker Change: Personally, that you're going to see a lot of M&A in the next 12 to 18 months in the industry.
Speaker Change: And I go back to what I said earlier, we are focused really on our independence and believe we've got the right model, could be successful going forward with the geographic balance we have, with the product line balance we have with our commercial orientation. Thank you Jon.
Speaker Change: with the strategic investments that we've made, and then all the financial underpinnings are strong capital positions, strong liquidity, and the bank that historically has managed well through credit cycle, especially if we end up facing a credit cycle in the next 12, 18, 24 months.
God, thank you so much. Appreciate it.
Speaker Change: Thank you. The next question is coming from Chris McGratty of KBW. Please go ahead.
Speaker Change: Um, on the balance sheet, I mean, can you prepare to marks you talked about, you know, waiting for the back half of the year to really step up the re-investment of the securities portfolio? I guess maybe a little bit inside of that view, what's driving that view? And then what could, what could make you change your view of either stepping up the pace or restructuring the securities book like you did a little bit in the fourth quarter? [inaudible]
Good morning, Chris.
Speaker Change: You know, in terms of how we size our balance sheet and security positioning, you know, we do keep an eye on our equity metrics and just the overall composition of the balance sheet. You know, we do think we're a little high right now relative to the overall size of the security portfolio given where the balance sheet is.
Speaker Change: So we're obviously in the very high teams right now. Historically, we've been kind of in that mid to upper team range and I would actually expect this one form to be again more in the upper teams, not just quite as high as we are today.
Speaker Change: So we do want to see it come down just a little bit more before we start reinvesting in the MBS.
Speaker Change: It's probably going to be the fourth quarter of this year, but that's always dependent upon just the overall size of the balance sheet, you know, liquidity needs.
Speaker Change: Curatoristics of a Deposit, you know, a pretty robust wave looking at that.
Speaker Change: In terms of security's repositioning, that is not something that we are a big fan of, in terms of doing it in a big way. We did do a little hygiene in the fourth quarter.
Speaker Change: But we do think a better use of capital is to put it towards shared repurchase.
Speaker Change: You know, both in the second quarter, and then hopefully throughout the remainder of the year also.
Speaker Change: Or again, it's just time geography. You still end up with the same TVV at the end of the day.
Speaker Change: Whereas, we think we can increase and improve tangible book value over time with Sherry Purchase. So, that's where our focus is going to be. It's going to be more Sherry Purchase and Lone Growth.
Speaker Change: and supporting that lone growth as opposed to doing any kind of securities repositioning. Having said that, we may choose to do a little bit here and there. Again, it's just normal hygiene and smoothing out maturity schedules and so on, but it's not anything that we expect to do in a real big way.
Speaker Change: Okay, great. Thank you. And then my follow-up on your slides where you highlight the higher risk portfolios and those portfolios haven't ever changed.
Thank you.
Speaker Change: Either additional portfolio, maybe this was touched upon earlier.
Speaker Change: You're looking at more closely given the terror situation, given your C&I, well maybe within C&I, where could we be surprised if we are going to be surprised?
Speaker Change: Yeah, Chris. Obviously, our leverage portfolio and automotive, which are considered higher risk. We have great visibility and really good monitoring and 10-year teams monitoring those portfolios.
Speaker Change: The other ones that are on high alert at this point would be anything related to manufacturing whose inputs are steel and aluminum, wholesale and retail trade and consumer discretionary.
We're watching all of those.
Great. Thank you.
Speaker Change: Thank you. The next question is coming from Anthony Elian of JPMorgan. Please go ahead.
Speaker Change: Good morning Tony. Hi everyone. On your outlook slide for fiend come specifically does it assume an uptick in capital markets income, XCVA and more broadly what are you seeing in that business now?
Speaker Change: Tony, it's Peter. So in our capital markets business, it does assume a little bit of an uptick throughout the year. And if you think about what our business is made up of, it's our syndications business.
Speaker Change: What we do is some of our risk products for our customers. So, interest rate, FX, and energy.
Speaker Change: and then what we also do, we've started an M&A business that is pretty much in its second year of starting to generate positive fee income, so we're very excited about what's happening there.
Speaker Change: And then we do some work in our capital markets where we participate in bonds and securities offerings, which actually had a really good first quarter. So when we added all together, we feel like 2025 is going to be an uptake year for our capital markets business. And so I think between activity levels, what we see out in the market, opportunity wise, that's something that we feel like is going to be a growth business through the year. [inaudible]
Speaker Change: Thank you. Then my follow-up in the National Dealer portfolio you saw a decline in one queue of about a couple hundred million dollars. What are you veering from that segment on potential supply chain impacts and the impacts from tariffs? Thank you.
Speaker Change: Tony, it's Peter again. I think what we're hearing is a little bit of to be determined. I think that what our customers would say is they've had a great practice run at supply chain with COVID.
Speaker Change: And that was a period where the dealers actually performed really, really well. So to be interesting to see...
Speaker Change: How many cars get sold this year? I mean, I think the outlook is still over 15 million cars to be sold, so it would be interesting to see what that ultimately looks like, how much do...
Sort of car manufacturing looks like through the year, but-
Speaker Change: As far as our dealer customers go, I think that they are very prepared to weather this, particularly again with what they've been through the last few years, so...
Speaker Change: Right now there's still a little bit of weight and sea and as I was describing earlier I think a lot of our customer or dealer customers are probably they've definitely taken their foot off of the accelerator and are just kind of cruising to find out how things are going to play out here.
Thank you. Yep.
Speaker Change: Thank you. The next question is coming from Brian Foreign of Truist. Please go ahead. Morning, Brian .
Brian Foran: Good morning. I wanted to ask one follow up on your MNA and then one on loans. So on the MNA
Brian Foran: I mean, I think we can all appreciate things are uncertain and murky, I think, was the word you used but just on this comment that you don't think there there will be a lot of the activity in the industry, I think you said for 12 to 18 months.
Brian Foran: You know, it's the murkiness, regulatory rules, the economy, interest rates, and the marks, all of the above, maybe just kind of what's underneath the hood that you think is going to hold up deals for the next year or so.
Brian Foran: Well, first of all, this is just my opinion, so no one knows for sure, but I think it's all about that you just mentioned.
Speaker Change: Okay, and then on loan growth, what do you think the leading indicators are most likely to be over the next three to four months on whether this is a pause or kind of builds on itself are there? You know, it's a commitment utilization, certain sub-portfolios, you think will move first.
Speaker Change: If any thoughts like if we're sitting here three months from now, it'll be kind of the two or three metrics that'll either be showing activity coming back or the pause building on itself.
Speaker Change: Gosprin. I mean, I think it probably is a little bit of even the factors that we talked about throughout the call. I mean, I do think...
Speaker Change: What interest rates do and what the outlook there is for the rest of 25 will be a factor, I think.
Speaker Change: I think if we continue to stay out of a recession which we project that we will, you know I think our outlook we feel really really good about it.
Speaker Change: Macro Economy continues to move in the direction it's moving. I think that's going to be a real positive for us across our geographies.
Speaker Change: and I think, too, when I look at all of our businesses, I think probably, as Melinda discussed a little bit earlier, we're watching Michigan middle market, the auto situation there more than any, and that's probably where we've seen, at least in our middle market businesses, the slowdown has occurred mostly in Michigan versus what we've seen in the Southeast, Texas and California, so...
I think if we are sitting here...
Speaker Change: Next quarter and a number of the factors that we've got going on the economy continue to level out then you know I think that the outlook we have we feel really good about and as Jim said there may be some upside to that if things continue.
Speaker Change: If things were to go the other direction, and you started to see...
Speaker Change: The economy pulled back stronger. You started to see unemployment tick up. You started to see interest rates going up instead of down. I think all of those are going to be a real headwind to loan demand.
Speaker Change: in the second half of the year and really into 26. So those are probably the big variables that we're watching.
I appreciate that. Thank you. Thanks, Brian .
Speaker Change: Thank you. The next question is coming from Ben Gerlinger of City. Please go ahead. Morning Ben.
Ben Gerlinger: We think about just kind of commentary, and we kind of give it to graphic representation on point Michigan versus Texas, but we think about the group itself, some of the competition has
Speaker Change: Crun a little bit, I'm sure some of them just wanted to share the name, but when you look at pricing, accountants, are you seeing anything in the market that would kind of remove the indicator on kind of their growth?
Ben Gerlinger: I've been saying name, name, journey, thing, but I'm just kind of trying to think of it as a compelling market itself, or are people trying to lead with a rate to order to?
Speaker Change: It's a little hard to hear it, but I can hear it. Yeah, Ben, we're having a little trouble hearing you, but I think that you're asking about the competitive environment.
Speaker Change: Credit or impacting the competition. I think that's your question, or at least that's what I'm going to answer based on what we thought you heard you say.
Speaker Change: And I guess I would say that it is extremely competitive right now and I think that across all of our geographies, we compete inter-businesses, we compete with lots of different institutions.
Speaker Change: I continue to feel like we want to stay really, really focused on being responsible on credit.
Speaker Change: I will tell you I think pricing in the industry has probably gotten a little more aggressive than it was 90 days ago and again I think each you know each customer in each relationship. Yeah.
Speaker Change: Warren's different decisions that you have to make at any one time. And I feel very confident in our ability to win on pricing. And I think that the value we provide to our customers ends up helping us win the business. So, you know, I also do think that the banks in general continue to be.
Ben Gerlinger: Pretty responsible quite candidly across the board and a lot of these businesses when it comes to credit. So pricing is probably a bigger factor today than per se credit statistics that you see being put out. So that's what we think you asked.
Okay, thank you again.
Speaker Change: Thank you. We'll move on to the next question. Our next question is coming from Terry McAvoy of Stevens. Please go ahead.
Terry Mcevoy: Hi, good morning. Just one question left on my list. If I look at average loan growth in the other markets, it increased from eight and a half.
Terry Mcevoy: to $8.9 billion. Could you maybe update us on the progress in the southeast and in the Mountain West region where you've been making investments and maybe I'm assuming that growth was within those two regions?
Terry Mcevoy: Yeah, when we say other markets, it could actually also include some of our businesses that we have offices in New York, we have offices in Boston, up in Washington, so sort of around the country, but I'll answer your question in general about the Southeast. It's a great story for us. We expect Long Grove this year down there to be.
Terry Mcevoy: Just fantastic. North of 50%. We continue to add really, really good relationships. We're continuing to add bankers in the market.
Terry Mcevoy: All the way from Florida to North Carolina, and so that is very exciting for us.
Terry Mcevoy: When we talk about the Mountain West, we're also very excited there. We've hired some new leadership to leave that whole region. We've hired a new leadership in our Phoenix market.
Terry Mcevoy: and we're trying to add bankers in both Denver and Phoenix, and so we're very excited about what those opportunities are as well, but
Terry Mcevoy: When we say other markets too, it could be a lot of our job. We are a national bank, even though we get described often as a regional bank, but we play around the entire country. We have customers in many, many states and cities, and so those could be some of the other markets that are included there as well.
Great. Thanks for that. Yep. Thanks, Terry.
Thank you. The next question is coming from Nick.
Holoco of UBS, please go ahead.
Morning, Nick.
Good morning. Thanks for taking my question.
Speaker Change: Maybe your first one on expenses. You know, I know last quarter in the past, he talks about working towards getting to that high 50s efficiency ratio over time in terms of reaching your rocky targets over the next couple of years. Just looking at the expense outlook and pairing now with the revenues. [inaudible]
Speaker Change: Seems like it's still pointing to an upper 60 efficiency ratio type range in the second half. So how should we think about the timeline of improving that efficiency ratio and when you think you can get back to that high 50s type range?
Speaker Change: Good morning, Nick, it's Jim. We are expecting ourselves to move back into the 50% range at some point. That won't be a real near-term. I will say it was all this uncertainty. I think it's hard to make any kind of commitment right now until things become a little more clear in terms of where the economy is headed. I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: But we do think that the key to achieving that ratio and moving into the 50s.
Speaker Change: We think first and foremost it's going to be driven by revenue and as you kind of model this out it's really hard to expensive yourself into the 50s. I mean you can do that for any one year or two and make a little bit of progress.
Speaker Change: But if you start compounding that backwards, you really start starving the bank of the investments it needs to make. You get diminishing returns at some point. Conversely, we like what we have going in terms of revenue initiatives. We talked about some of those at the big investor conference in March.
Speaker Change: We do think that revenue has the potential to compound itself in an upward fashion over time, and so we are very much focused on a number of revenue initiatives, which again we laid out at that investor conference. We'll be talking more about some of those revenue initiatives as time goes on.
Speaker Change: Having said that expenses are part of the equation, so we do need to be diligent in terms of...
Speaker Change: How we manage expenses, we want to make sure that we're spending money, it's for investment and revenue oriented activities and making sure that we're managing those as tight as we can, especially the discretionary expenses.
Speaker Change: So we have our eyes on both sides of the equation but really revenue over the next two, three, four years that's really what we think is going to start moving our efficiency ratio in the right direction.
Speaker Change: Wunderstood, thank you. And then maybe just one last one on the long growth outlook.
Um, you know...
Speaker Change: Obviously, the backdrop kind of is what it is, but you highlighted the environmental services as being relatively more robust. Can you just remind us what sort of drives the strength in that business and how long you think it can continue to sort of outperform here in this software growth backdrop? Thank you.
Speaker Change: Nick, in the appendix on slide 37 is a break out of that business and I think we really talk about two verticals there are waste management business which you know continues to just grow with the economy, with population. I mean it's a fantastic growth business for us.
Speaker Change: and then we've also started our renewables energy business that we show on the Environmental Services slide, which is...
Speaker Change: continues to be a real growth opportunity for us as well. So, you know, I think when you look at that on an outlook quarter by quarter basis, I think we're gonna continue to see just nice, steady growth.
Speaker Change: and really both of those verticals, and we are really excited about continuing to add people and customers in that space.
God, thank you very much. Thanks, Nick.
Speaker Change: Thank you. The next question is coming from Bill Carcacci of Wolf Research. Please go ahead. Morning, Bill.
Speaker Change: Yeah, Bill, let me clarify that. When I talked about being willing to pay up for deposits, that was interest-sparing deposits, so...
Speaker Change: You know, we do expect to see a small take up in non-afforsparing as we move through the latter part of the year but the greater proportion of our deposit growth that we're rejecting will be, you know, inter-sparing deposits. Now, broker deposits will continue to come down so we still think that non-afforsparing percentage will stay in the upper 30s.
Speaker Change: But in terms of our core deposits, I believe we'll see more growth on the interest bearing side as we have a number of initiatives in place and
Speaker Change: In many cases, we'll actually garner those deposits, a pay rate similar to what we have today, but in some cases, we may be willing to pay up for those deposits and, again, happy to do so, to the extent we can be successful in gathering deposits.
Speaker Change: Hopefully that helps clarify it. Yeah, and Bill, just to emphasize there, that's not a strategy of iris to pay up for intersparing deposits, but it's more just what we think the market might give us as the years would have played out and things would have settled down.
Speaker Change: Now, if we sort of go through a recession, et cetera, that may be a different story, as we typically have seen deposits grow for us, especially in the non-intersparing category.
Speaker Change: and Vision, that part of the business would be helpful.
Speaker Change: Yeah, Bill, none of the sparing deposits are a very key part of our business model as you point out.
Speaker Change: We do think that if and when rates start to lower a little bit, we'll actually see that as a positive tailwind to growing non-transparent deposits as customers become a little less sensitive to how they store their mix of deposits.
Speaker Change: You know, we also expect, you know, to the extent we have some inflation, which it looks like we may continue to have some inflation or environment with us.
Speaker Change: And of course we're doing a lot on the product side with our Treasury Management Services, which are key to garnering additional non-transparent deposits. So very much a focus of ours from a product development standpoint.
Speaker Change: and we also think just economic trends will also be beneficial to not just bearing deposits. So, it's been a little bit of a tough go on not just bearing deposits the last couple of years, but we do see some tailwinds going forward in the future.
That's very helpful. Thank you for taking my questions.
Speaker Change: Thank you, Bill. Thank you. At this time, I'd like to turn the floor back over to Kurt Farmer, President, Chairman, and Chief Executive Officer for closing comments.
Curt Farmer: Both always thank you for your ongoing interest in Comerica and for joining our call today. I hope you have a nice day.
Curt Farmer: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.