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Key takeaways from the earnings call:
– Comerica achieved its $5 billion small business lending goal ahead of schedule and is focusing on further growth in this sector.
– The bank’s credit quality remains strong, with minimal net charge-offs.
– Comerica highlighted its investments in technology and its partnership with Ameriprise to boost noninterest income.
– The bank expects its highest annual loan growth rate in a decade for 2023, while it anticipates a 13% decrease in average deposits.
– Comerica expects another record year of net interest income in 2023 but projects a 5-6% reduction in Q4 net interest income.
– Noninterest income exceeded expectations, while noninterest expenses are expected to rise.
– Share buybacks remain on hold as the bank focuses on expense management and capital growth.
During the earnings call, executives discussed the company’s financial outlook. They highlighted their focus on loan growth and capital utilization, with a commitment to balancing buybacks with loan growth. The CFO mentioned that they are relatively interest-neutral and have no plans to acquire additional swaps. The company is monitoring the balance sheet and noninterest-bearing deposits and feels well-prepared for a potential drop in rates.
The executives also touched on credit quality, with a focus on commercial real estate and auto loans. They expect no losses in commercial real estate but are building reserves. The company plans to manage expenses efficiently and expects modestly higher growth in 2023 compared to 2024. They are working on initiatives to reduce expenses and offset near-term pressure. The company aims to strike the right balance between expenses and investments.
Looking at the InvestingPro data, Comerica has a market cap of $5000M and a P/E ratio of 4.7, indicating it’s trading at a low earnings multiple. The bank has also maintained a steady dividend growth, with a yield of 7.48%, a testament to its commitment to returning capital to shareholders. This is supported by the fact that Comerica has maintained dividend payments for 53 consecutive years, a noteworthy InvestingPro Tip.
The executives also discussed the potential trajectory of net interest income (NII) and net interest margin (NIM). They expect NII to bottom in Q1 2023 and anticipate NIM to improve as cash and purchase funds decrease. However, if rates stay higher for longer, there may be pressure on NIM. The company is focused on pricing discipline and loan growth to offset potential impacts.
The company is working towards complying with regulatory requirements to reach $100 billion in assets and has initiatives underway to support that. They plan to repay debt in the fourth quarter, which will lower their cash and purchase funds below $100 billion. The company is comfortable with its current AOCI risk management and does not feel the need to take any synthetic actions to manage it.
In terms of fixed-rate loans, which make up about 8% of the company’s book, only around $300 million of these will come up for repricing in 2024. The company expects a net benefit from fixed asset repricing next year, a small benefit from loans, and a lift up from securities.
Despite a recent decrease in the stock’s price, as per InvestingPro data showing a 1-week price total return of -9.1%, analysts predict the company will be profitable this year, another valuable InvestingPro Tip. For more insights and tips like these, consider checking out InvestingPro’s subscription service.
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