Comerica(US:CMA)2022-04-20 19:51Financial Data and Key Metrics Changes - The company generated earnings of $1.37 per share, with solid broad-based loan growth momentum, partially offset by a significant decrease in Mortgage Banker due to lower refinancing volumes and typical first-quarter slower purchase volume [14][15] - Net interest income decreased by $5 million, including a $10 million decline in PPP income, while the net interest margin increased by 15 basis points mainly due to a decrease in excess liquidity [28] - Credit quality metrics remained strong, with net charge-offs at only 6 basis points and a provision credit of $11 million, leading to a modest reduction in the allowance for credit losses to 1.21% of loans [30][31] Business Line Data and Key Metrics Changes - General middle market average loans increased by 16% year-over-year, excluding PPP loans, while large corporate loans rose by 20% [7] - Mortgage Banker saw a significant decline, with a drop in utilization attributed to seasonal factors and a slowdown in refinancing activity [19][80] - The pipeline for loan commitments increased in most businesses, with positive trends continuing in general Middle Market and Corporate Banking, both growing over $400 million [19] Market Data and Key Metrics Changes - Average deposits declined in the first quarter due to seasonality, following record deposit growth in the fourth quarter, but were up 11% year-over-year [24] - The loan-to-deposit ratio remained low, and the average cost of interest-bearing deposits stayed at an all-time low of 5 basis points [24] - The company expects deposits to remain elevated but to slowly decline as the Fed increases interest rates and shrinks its balance sheet [24][43] Company Strategy and Development Direction - The company is taking a fresh look at its retail banking approach, corporate facilities, and technology platform to adapt to the evolving post-COVID environment [11][12] - There is a focus on transforming service delivery in retail banking, enhancing small business focus, and optimizing facilities for employees [12] - The company aims to prudently manage expenses while enhancing customer and colleague experiences, with ongoing investments in digital initiatives [37][100] Management's Comments on Operating Environment and Future Outlook - Management noted that the economy in the first quarter was relatively strong, with customers remaining cautiously optimistic despite challenges such as COVID and geopolitical tensions [6] - The outlook for 2022 includes expectations for broad-based average loan growth in the mid-single-digit range, excluding the decline in PPP loans, and a stable credit quality outlook [42][44] - Management anticipates that non-interest income will be lower than 2021 due to anomalous income levels that are unlikely to repeat [71] Other Important Information - The company is focused on reducing asset sensitivity as rates rise, having entered into significant fixed receive contracts to stabilize net interest income [59][63] - The CET1 ratio decreased to an estimated 9.93%, with a focus on monitoring loan trends and capital generation [38] - The company expects to continue to invest in modernization efforts, which may lead to additional charges in subsequent quarters [100][101] Q&A Session Summary Question: Discussion on fee income and customer optimism - Management expressed confidence in fee income growth due to seasonal factors and the removal of anomalous impacts from the first quarter, alongside cautious optimism from customers [54][56] Question: Rate hike assumptions and asset sensitivity - Management clarified that the decision to lower asset sensitivity was intentional, with significant fixed receive contracts entered to stabilize net interest income [59][63] Question: Revenue growth expectations for 2022 - Management indicated a bifurcated approach to revenue growth, with net interest income expected to grow significantly while non-interest income is anticipated to decline [71] Question: Outlook on Mortgage Banker business - Management remains positive about the Mortgage Banker business despite a decline in utilization, expecting continued growth in warehouse lines [80] Question: Deposit balances and future expectations - Management confirmed that the first quarter would be the worst for deposit contraction, with expectations for modest declines moving forward [83]