The paragraph is an introduction to Comerica's Fourth Quarter and Fiscal Year 2024 Financial Review Conference Call. The operator welcomes participants, mentions that the call is in listen-only mode initially, and states that a Q&A session will follow the presentation. The call is being recorded. Kelly Gage, Director of Investor Relations, introduces key participants from Comerica, including President and CEO Curt Farmer. The presentation will use slides that are available online, and the call will include forward-looking statements with associated risks. Non-GAAP measures will be referenced, with reconciliations available on Comerica's website. Curt Farmer then begins the main presentation.

In 2024, the company focused on strengthening its foundation for long-term success, with positive customer trends and a conservative capital management approach resulting in an increase in the CET1 capital ratio and resumed share repurchases. Despite muted loan demand, the company saw improved trends in Q4 and expects growth in 2025. Credit quality remained strong with low net charge-offs. The company optimized liquidity and advanced strategic priorities, such as investing in relationship managers and expanding wealth management, closing their first M&A advisory transaction, and modernizing their technology infrastructure. It continued to support communities, worked towards category 4 readiness, and executed expense recalibration initiatives to create capacity for strategic investments.

The paragraph discusses the company's financial performance and strategic outlook for 2024 and beyond. Despite industry disruptions in 2023 affecting year-over-year averages, the company reported earnings of $698 million, or $5.02 per share, with positive trends in several categories. While high rates diminished loan demand, customer sentiment improved, expecting a better business environment. Average deposits were impacted by 2023 events and a strategic reduction in brokered deposits, but customer balances grew. Non-interest income and expenses were influenced by specific factors, and private credit showed strong results. In the fourth quarter, earnings were $170 million, or $1.22 per share, with loan deposits and net interest income performing as anticipated. The company managed deposit pricing well and, despite some pressures on non-interest income and expenses, is optimistic about growth in 2025. Jim Herzog then takes over to review financial results.

In the paragraph, the company reports a slight decline in average loans, mainly due to expected paydowns in commercial real estate and senior housing exits, while energy loans increased. Despite growth in certain areas, overall loans remained flat due to a significant reduction in commercial real estate. Total commitments were stable as decreases in some areas were balanced by increases in middle market, energy, and environmental services. Loan yields rose slightly due to changes in interest rates and other factors. On the deposit side, average deposits fell by $550 million, but excluding brokered CDs, customer deposits actually grew by $800 million, with interest-bearing deposits showing strength. Period-end deposits rose by $700 million, and net customer deposits increased by $400 million after adjustments. A reduction in brokered CDs and a successful pricing strategy led to a 40 basis points decrease in deposit pricing.

The paragraph discusses the company's strategy for managing its financial portfolio and interest rates. They aim to balance customer needs with profitability while monitoring market conditions. Their securities portfolio experienced a decline due to rate shifts, and they made adjustments by selling $800 million in lower rate treasuries and reinvesting at current market yields. They expect to recover a $19 million pretax loss in 2025. There are no plans for significant securities reinvestment until later this year. Net interest income rose to $575 million, partly due to beneficial market conditions and effective management strategies. The company believes that its approach protects profitability from rate fluctuations and maintains asset neutrality, despite potential impacts on noninterest-bearing deposits. Credit quality is highlighted as a strength, with low net charge-offs reported.

The paragraph discusses the financial institution's handling of persistent inflation and high interest rates, which have impacted customer profitability and led to an expected increase in criticized and non-performing loans, primarily in the middle market segment. Despite this, the institution has maintained its allowance for credit losses at 1.44% of total loans, thanks to a conservative credit approach. The fourth quarter saw a $27 million decrease in non-interest income, mainly due to securities repositioning losses and a decline in deferred compensation. Expenses rose by $25 million due to seasonal costs, higher legal expenses, and increased charitable contributions, though lower operational losses and real estate gains helped offset some costs. Expense management remains a focus, and the institution's capital approach is conservative, with a CET1 ratio of 11.89%, exceeding its strategic target and proposed regulatory requirements.

The company experienced unrealized losses due to movement in the forward curve but expects improvement over time. Despite volatility, they returned $100 million to shareholders through share repurchases and plan an additional $50 million in the first quarter. Future repurchases will be considered carefully, taking loan trends and economic factors into account. For 2025, they anticipate flat to 1% growth in average loans with increases outside of commercial real estate, which is expected to see paydowns offsetting growth in other sectors. A sequential quarterly loan growth is projected, leading to a 3% increase by the end of 2025. They plan to reduce brokered time deposits, causing a 2-3% decline in full-year average deposits, but expect customer deposits to grow 1%, particularly after a seasonal dip in the first quarter.

The paragraph discusses financial projections for 2025. Despite elevated interest rates, the company anticipates growth in interest-bearing balances and expects the non-interest-bearing deposit mix to remain consistent. Net interest income is projected to rise by 6% to 7% compared to 2024, driven by the cessation of BSBY, optimized funding, and increased loans, despite lower non-interest-bearing balances. A slight decline in net interest income is expected in the first quarter due to several factors, but growth is anticipated throughout the year, with 2025 surpassing 2024 levels. The company also expects manageable credit migration and projects net charge-offs to be at the lower end of the normal range. Non-interest income is expected to grow by 4%, including a 2% increase in customer income. Seasonal declines in the first quarter will be followed by growth in customer fees. Non-interest expenses are anticipated to rise by 3%, mainly due to higher salaries, benefits, reduced real estate gains, and increased pension costs.

The paragraph discusses the financial outlook and strategic priorities for the bank in 2025. It projects a 2% increase in expenses in the first quarter of 2025 due to normal seasonality and compensation, while emphasizing the importance of expense discipline to fund investments in strategy and risk management. The bank plans to maintain a strong capital position, with a CET1 ratio above 10%, considering factors such as loan growth and the economic environment. The bank aims for favorable sentiment and responsible growth. It highlights its long history, capital strength, and positive trends in customer deposits, with successful management of deposit pricing and share repurchases. The bank emphasizes its unique geographic strategy, expert talent, and strategic investments to support responsible loan growth and increased fee income.

The paragraph is part of a discussion during a Q&A session where Jon Arfstrom from RBC Capital Markets asks about Comerica's loan growth outlook. Peter Sefzik responds, noting an improvement in customer sentiment over the last few months, with less emphasis on the need for interest rate relief to stimulate loan growth. The pipeline of loans looks better than it did the previous year, showing broad-based optimism across most sectors except for Commercial Real Estate (CRE), where there's limited activity. Additionally, the paragraph starts by acknowledging the impact of recent natural disasters on Comerica's colleagues and customers.

The paragraph discusses the impact of interest rates on the payoff outlook for commercial real estate (CRE) loans. Peter Sefzik notes that interest rates significantly affect this business and predicts payoffs could continue through 2025 and possibly into 2026, depending on the rate environment. Changes in interest rates might alter the pace of payoffs. Sefzik anticipates quarterly payoffs into early 2026. Following the discussion, Manan Gosalia from Morgan Stanley asks about brokered deposits, noting their reduction and inquiring about further potential reductions if loan growth remains weak. Jim Herzog acknowledges their position, ending the year with approximately $1.1 billion in brokered deposits.

The paragraph discusses the ongoing strategy to phase out broker deposits by the end of 2025, as these deposits are costly, with a current rate of 5.4%. The goal is to replace them through strong core customer deposit growth, contingent on loan growth trends and other factors. The focus is also on maintaining a healthy capital level, specifically a CET1 ratio above 11%, even with fluctuating AOCI levels. The management is cautious but optimistic, with plans to manage capital flexibly, including buybacks, while ensuring ample balance sheet capacity to support potential loan growth.

The paragraph discusses Comerica's financial strategy, focusing on their efficiency ratio, which is currently in the high 60s but aims to return to the 50s to achieve long-term return on equity (ROE) goals. John Pancari asks about driving factors for improving the efficiency ratio, whether through revenue growth or expense reduction. Jim Herzog responds that while both revenue and expense management are important, the primary focus should be on revenue growth, supported by responsible investment and expense decisions to ensure consistent positive operating leverage.

The paragraph contains a discussion among Peter Sefzik, John Pancari, and Bernard Von Gizycki about deposit balance expectations and expansion efforts. Peter Sefzik states that there are no anticipated changes in the Direct Express deposit balances for the foreseeable future, into 2025 and 2026, based on current agreements. He mentions they are working on the transition process and will communicate any updates as necessary. Bernard Von Gizycki asks about expansion efforts, particularly in the Southeast and Mountain West regions, and Peter Sefzik responds that they are focusing on opportunistic hiring in these areas. While significant hiring was done in recent years, they are looking to capitalize on opportunities that arise as they prepare for 2025.

The paragraph discusses the company's strategy for growth in various U.S. markets. While they plan to continue expanding in regions like Florida, the Mountain West, Denver, and Phoenix, they also see opportunities in cities such as Dallas-Fort Worth, Houston, Los Angeles, and San Francisco due to strong economic and population growth. When asked about mergers and acquisitions (M&A), Curt Farmer emphasizes that the company's strategy remains focused on organic growth rather than acquisitions, highlighting their selective approach to adding talent and maintaining a balanced product mix. They prioritize their strong commercial, wealth management, and retail services, adopting a patient approach towards potential acquisitions.

The paragraph discusses a financial discussion where Peter Sefzik mentions that their 2025 loan growth outlook does not account for an increase in utilization rates, which have remained flat and below historical averages. If utilization rates were to rise, it would be beneficial. Anthony Elian from JPMorgan asks for further details on non-performing assets (NPAs), and Melinda Chausse explains that a $58 million increase in NPAs is minor for their portfolio, mostly involving four or five names, including a commercial real estate loan of about $30 million.

The paragraph discusses the impact of higher interest rates on profitability and debt servicing, particularly affecting companies in the consumer discretionary sector. Despite some pressure, the overall credit portfolio performed well, with expected migration trends. Non-Performing Assets (NPAs) have increased but remain low at about 60 basis points, half of the long-term average, which is considered manageable. In the subsequent discussion, Chris McGratty questions Jim Herzog about a recent bond sale and why the company is not being more aggressive with balance sheet restructuring, given their capital. Jim Herzog explains that the company prefers share repurchases over securities repositioning for capital return, as they believe repurchases provide a better return to shareholders.

In the paragraph, Chris McGratty seeks clarification from Jim Herzog regarding the guidance on NII (Net Interest Income) fees and expenses in relation to GAAP (Generally Accepted Accounting Principles) reported numbers, to which Jim confirms their relativity. The operator notes no further questions, and Curt Farmer thanks the participants for joining the call, expressing appreciation for their interest in Comerica and wishing them a good day. The operator concludes the conference call, allowing participants to disconnect.

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