The paragraph is an introduction to the Comerica Bank Third Quarter 2024 Earnings Call. The operator begins with a greeting and notes that the call is in a listen-only mode, with a Q&A session to follow. The call is hosted by Kelly Gage, Director of Investor Relations, and includes presentations from key executives such as Curt Farmer (CEO), Jim Herzog (CFO), Melinda Chausse (Chief Credit Officer), and Peter Sefzik (Chief Banking Officer). The presentation includes slides available on the SEC's website and Comerica's website and contains forward-looking statements and non-GAAP measures. Curt Farmer reports third-quarter earnings of $184 million or $1.33 per share, surpassing expectations.

The paragraph outlines the strong financial performance of a bank, driven by increased customer activity and higher average deposits, which offset lower loan demand. Despite high inflation and elevated rates, the bank saw growth in net interest income and a significant improvement in tangible book value. The bank credits its strong credit quality and proven underwriting discipline for maintaining low net charge-offs. Customer sentiment is cautiously optimistic, with an uptick in business activity as rates decline, though further rate reductions and economic stability are needed for more significant changes. The bank also celebrated its 175th anniversary, highlighting its historical resilience and commitment to supporting customers.

The paragraph discusses the company's financial performance in the third quarter. Charge-offs remained low, below historical averages, and non-customer income declined slightly but was offset by favorable trends in customer-related fees and well-managed non-interest expenses. The company maintained a conservative capital approach, with an increase in the CET1 ratio to 11.97%, surpassing the strategic target. Loans experienced some fluctuations, particularly in National Dealer Services and Corporate Banking, but showed improvements towards the end of the quarter. Commercial real estate utilization continued to grow, and Environmental Services saw growth due to a focus on renewables. Overall, it was a positive quarter with momentum heading into the year's end.

In 2022, the company formed a successful renewables team, enhancing its position in the Environmental Services industry. Loan yields declined slightly due to reduced non-accrual interest and lower short-term rates. Customer deposit activity was strong, with average deposits increasing by 1.3%, enabling the repayment of $900 million in brokered CDs. Total deposits grew by over $600 million, driven by higher rates attracting deposits to interest-bearing accounts. Non-interest bearing balances remained stable at 38% of total deposits. The company adjusted deposit pricing in response to rate cuts and aims to balance customer and business needs. An improvement in the securities portfolio valuation led to a $130 million increase, offsetting repayments and maturities.

The company anticipates enhanced earnings in upcoming quarters due to expected repayments and portfolio maturities, even considering potential investments in 2025. Despite the impact of the BSBY cessation, net interest income increased due to reallocation of cash collateral, strong customer deposits, and strategic management of swaps and securities, which mitigated some financial pressures. This approach made the company's balance sheet slightly liability sensitive, protecting profitability in a declining rate environment. Credit quality remains strong, with low net charge-offs and stable criticized and non-performing asset levels. While the economic outlook is stable, an increase in the allowance for credit losses was recorded due to lower average loans, although the portfolio remains strong. The company’s conservative credit discipline is expected to enable it to outperform peers.

The paragraph discusses the financial performance and changes from the second to the third quarter. Non-interest income decreased by $14 billion to $277 million, primarily due to a $5 million loss on a Visa B derivative and a $10 million decline in risk management hedging income. Despite these declines, positive trends were observed in customer-related categories such as indication fees and commercial lending fees. Expenses increased by $7 million, driven by higher salaries and benefits, but were partly offset by reduced FDIC expenses. Overall, expenses were managed well, and the company achieved a strong capital position with an estimated CET1 of 11.97%.

The paragraph discusses the company's strong financial position, noting an estimated CET1 of 9.12% and an improvement in AOCI, which has increased their tangible common equity ratio. As a result, they plan to repurchase $100 million of common stock shares in the fourth quarter, while prioritizing customer loan needs. They will monitor economic and regulatory factors to adjust their strategy accordingly. Additionally, there is no meaningful update on the Direct Express program transition, but they anticipate no impact on 2024 deposit balances, non-interest income, or expenses, and believe the transition may take longer due to the program's complexity.

The company plans to focus on targeted deposit strategies to strengthen its funding position for an eventual transition. For 2024, they anticipate a 5% decrease in average loans compared to 2023 due to muted demand and optimization efforts. Modest growth is expected in Q4, but commercial real estate loan balances may decline rapidly depending on further rate cuts. Average deposits for the year are projected to decrease by 3% to 4%, primarily due to a $1 billion reduction in brokered time deposits, not customer trends. Deposit growth will likely remain centered on interest-bearing accounts, maintaining a favorable mix. Net interest income for 2024 is expected to decline by 13% to 14%, which is slightly better than previous guidance due to strong Q3 results.

In the fourth quarter, net interest income is expected to grow by 6% over the previous quarter, or 1% to 2% when adjusting for the cessation of BSBY. The anticipated pressures on non-interest bearing deposits should be offset by benefits from swaps and securities. Credit quality remains strong with low net charge offs, and full year net charge offs are expected to be below the normal range. Non-interest income is projected to be flat year-over-year or down slightly, due to trends in risk management hedging income, despite some benefits from the lower forward curve. Full year non-interest expenses are expected to decrease slightly on a reported basis but grow after adjustments. The focus remains on expense discipline to achieve positive operating leverage.

In the paragraph, the company's executives discuss their expectations for a strong fourth quarter, forecasting that their Common Equity Tier 1 (CET1) ratio will remain above the 10% target, despite modest loan growth and share repurchases. They note the Federal Reserve's shift away from a prolonged high-rate environment. For Comerica, this shift, along with strategic adjustments to minimize asset sensitivity, is expected to protect net interest income and improve credit quality and loan activity. They highlight disciplined credit management, cost control, and share repurchases as drivers of positive momentum for solid returns. During the Q&A, Manan Gosalia from Morgan Stanley asks about the rise in average deposit rates due to brokered time deposits, to which Jim Herzog attributes success in increasing interest-bearing deposits in the third quarter, noting a $2.2 billion rise.

The paragraph discusses Comerica's successful strategy in attracting interest-bearing deposits, despite the industry's trend of increasing pay rates in a high-rate environment. The bank has intentionally focused on gathering core deposits while reducing reliance on wholesale funding. An 8 basis point increase in deposit costs aligns with industry norms and Comerica's goals. Manan Gosalia inquires about deposit cost projections after a Fed rate cut, to which Jim Herzog responds that the bank's pricing strategy has been effective, with rates trending up slightly throughout the quarter. He credits the product managers for their strategic repricing and product design efforts.

The paragraph discusses the bank's success in repricing deposits, achieving a cumulative beta slightly over 60%, which is higher than their standard beta of 47%. They anticipate a fourth-quarter beta to hover between these figures due to factors such as core deposit growth and market shifts. However, the scenario involves many variables, including customer and competitor responses. Looking ahead to 2025, there is uncertainty about whether deposit betas will accelerate or remain stable, largely depending on the rate of interest cuts and potential loan growth. Jim Herzog notes that the extent of rate cuts will depend on the broader economic situation.

The paragraph discusses the expectation of a "soft landing" for the economy, which may slow the pace of beta changes in interest rates. The speaker believes that while some mid-tier rates are reluctant to move down, betas will likely increase in pace through mid to late 2025 before tapering off as rates approach a floor. This pattern might resemble a "u-shaped curve" and will depend on the broader economic situation. In a conversation with John Pancari from Evercore ISI, Jim Herzog expresses optimism for net interest income (NII) in 2025, forecasting mid- to high single-digit growth despite modest loan demand and competitive pressures on deposit pricing. The second quarter of the current year is seen as an inflection point for positive NII growth.

The paragraph discusses financial expectations for the company's future, highlighting a positive trend in net interest income expected to continue beyond 2024, despite potential quarterly fluctuations. Loan growth is anticipated in 2025, although specific figures are not yet provided. Additionally, the company is considering capital management strategies, with the intention to resume $100 million in buybacks in the fourth quarter, despite their CET1 ratio being just below 12% against a 10% target. While no specific plans for 2025 are detailed, the company aims to maintain a capital buffer above 11% to prepare for future regulatory changes under Basel III.

The paragraph discusses the company's financial strategy and outlook, highlighting their commitment to maintaining strong earnings and prioritizing capital for loan growth. They are attentive to interest rates and economic conditions, as longer-term rates have slightly increased. The company is cautious about accumulated other comprehensive income (AOCI) and profitability within the regulatory context, monitoring these factors quarterly through 2025 while feeling confident about their capital position. The company is also starting a share repurchase. Jim Herzog explains their approach to hedging and rate management, noting they are slightly liability sensitive. He describes the company as essentially interest neutral and explains that sensitivity to rates involves assumptions about non-interest-bearing balances growing when rates fall, impacting net interest income (NII) and margin trajectory if the Federal Reserve cuts rates.

The paragraph discusses the company's current position regarding interest rates, describing it as close to neutral and not expecting significant quarter-to-quarter changes due to this. The main uncertainty lies in how deposit pay rates will be affected by competition and customer reactions. Jon Arfstrom suggests there are early signs of customer acceptance towards lower deposit rates, which Jim Herzog and Peter Sefzik confirm. They are pleased with how customers understand the situation, recognizing the need for symmetry between rate increases and decreases, and acknowledge the success of their relationship managers in communicating these changes.

The paragraph is a financial discussion involving Jon Arfstrom, Peter Sefzik, and Bernard Von Gizycki. Jon Arfstrom asks about the impact of Commercial Real Estate (CRE) loan payoffs and potential lending growth if interest rates fall, specifically regarding 2025 growth. Peter Sefzik acknowledges that while CRE loans have peaked and may decline in the future, he hopes other parts of the portfolio will grow to offset this decline, especially if interest rates decrease. Bernard Von Gizycki then asks a modeling question regarding the impact of a 25 basis point interest rate cut on risk management hedge income and net interest. Jim Herzog responds that there isn't a specific rule of thumb, but he suggests looking at movements in three to five-year treasuries this quarter compared to the previous one, as swaps are tied to those and have a shorter duration than the bond portfolio.

The paragraph discusses a shift in income from noninterest to net interest income, with net interest income benefiting by $8 million in the third quarter and expected to continue benefiting in the fourth quarter. This positive shift has improved their financial outlook, aiming for a closer alignment with the 13% decline prediction. Bernard Von Gizycki and Jim Herzog discuss the changing forward curve, which affects the estimation of unrealized losses in securities. Herzog notes it's challenging to pin down a specific impact due to fluctuations since September 30, mentioning that most sensitivities relate to bonds. He concludes that the final impact will depend on fourth-quarter interest rates.

In the paragraph, Ben Gerlinger questions Peter Sefzik about the lack of loan demand despite the anticipated benefits from interest rate cuts, noting that expectations for loan growth were not met. Sefzik responds that the modest rate cut of 50 basis points was insufficient to stimulate significant loan demand and suggests that a further reduction of 50 to 100 basis points might be needed for noticeable economic stimulation. He indicates that earlier predictions of increased loan demand in the latter half of 2024 have not materialized, and now it seems more likely that this growth might be seen in the second half of 2025.

The paragraph suggests that business owners are hesitant to make investment decisions until after the election and a clearer tax outlook. Interest rates need to decrease by 50 to 100 basis points to encourage capital investment. While clarity in politics could help, the lack of "animal spirits" or economic enthusiasm is a concern. Some national and specialty businesses are seeing increased activity, but middle-market companies are largely holding off on borrowing. They are waiting for lower interest rates and are currently building cash reserves and making profits, expecting favorable rate changes in the future.

The paragraph involves a discussion about projected loan growth and net interest income (NII) for a business going into the fourth quarter and potentially the next year. The speaker mentions modest to flat loan growth due to mixed performance across different sectors, with some areas showing growth despite interest rate challenges. Chris McGratty asks Jim Herzog for clarification on the NII guidance for Q4, confirming it to be 6% above the third quarter's $534 million figure, likely resulting in an NII of mid-$560 million to $570 million. Additionally, they discuss the potential impact of earnings credit rates (ECRs) on expenses, suggesting some benefit as rates fall, though the impact on service charges will be noticeable but not substantial.

In the paragraph, Samuel Varga from UBS asks about the company's margins and liquidity management for the fourth quarter, specifically concerning broker deposits. Jim Herzog responds by saying that they expect the balance sheet to be more efficient in the fourth quarter, with lower wholesale funding and a decrease in broker deposits, which were initially inflated due to anticipated loan growth that didn't occur. Herzog anticipates an improvement in the Net Interest Margin (NIM), despite disliking discussing it, and projects it to be around 3% due to a more efficient balance sheet. Varga also inquires about the company's Environmental Services teams.

In the paragraph, Peter Sefzik discusses the positive outlook and growth expectations for their Environmental Services business, which has consistently performed well. They have recently expanded into the renewables sector and expect continued growth at a similar pace to recent years. Sefzik expresses confidence in their team and the specialty nature of their middle-market business, citing its benefits such as loan size and fee income. Additionally, responding to Michael Rose, Sefzik acknowledges increasing industry commentary about robust hiring to drive loan growth, and mentions cost considerations as they approach $100 billion in assets.

The paragraph discusses the intense competition for talent in various markets and highlights Comerica's strategy to address it through a robust training program for relationship managers, emphasizing internal growth over hiring from other banks. This approach is seen as cost-effective and beneficial for nurturing company culture and brand. The focus is on expanding talent, particularly in Texas and California. Additionally, the paragraph briefly mentions Comerica's familiarity with managing assets exceeding $100 billion, referring to past experiences and practices, with acknowledgment that standards have increased over time.

The paragraph discusses the bank's strong capital planning, stress testing practices, and efforts to prepare for reaching $100 billion in assets. The primary focus is on the data and reporting required for this growth, which has been a significant effort over the past 1.5 years. The bank aims to integrate these costs gradually to avoid sharp expense increases. A goal is to maintain positive operating leverage, despite challenges from the regional bank crisis impacting 2024. The bank is optimistic about achieving positive operating leverage by 2025.

The paragraph is a response to a question from Anthony Elian of JPMorgan Chase about the future loan growth expectations of a company in relation to the industry. Peter Sefzik, a representative of the company, explains that historically they have grown at or above the industry rate during certain years, specifically referencing the period from 2019 to 2022. He indicates that despite facing challenges, such as the commercial real estate (CRE) sector downturn, they expect to grow at or above the industry rate by 2025 and 2026, particularly given their strong presence in Texas and California. He concludes that the company has proven its capacity to outperform industry growth in the past, excluding major disruptive events. Curt Farmer begins to add to the discussion as the paragraph ends.

The paragraph discusses the positive performance and growth expectations of the markets in which the company operates, anticipating loan growth and strong funding positions. It highlights the company's focus on capital management, readiness for expansion, and efforts in training and hiring to increase capacity. Additionally, it addresses the growth in equity fund services deposits, noting that while private equity activity has slowed, the company expects loan growth and is focusing on establishing bilateral relationships to boost deposits and income.

The paragraph is from a conference call where a representative discusses the strength of customer relationships and the bank's proven reliability for holding deposits. The call concludes with the operator ending the session and Curt Farmer, the President, Chairman, and CEO, expressing gratitude for participation and interest in Comerica.

This summary was generated with AI and may contain some inaccuracies.