Loan growth at Comerica could be relatively muted throughout 2025, with gains being potentially offset by the ongoing paydown of commercial real estate loans, executives said Wednesday.
The Dallas-based parent company of Comerica Bank expects this year's average loan growth to be flat to up 1% year over year. The interest rate outlook — which forecasts fewer rate reductions after three cuts in 2024 — is driving more commercial real estate loan payoffs this year and "possibly into 2026," Chief Banking Officer Peter Sefzik told analysts Wednesday.
To be sure, Comerica is starting the year with "a better pipeline" than it had a year ago, Sefzik said.
"And it's pretty broad-based," he said during the company's fourth-quarter earnings call. But "the only business where we really just don't feel like there's a whole lot of activity going on is [commercial real estate]. So … we expect that to be a headwind going into 2025."
Excluding the impact from commercial real estate loans, Comerica's outlook for average loan growth is slightly better at 2% year over year. The $79.3 billion-asset company is projecting no real change in average loans between the fourth quarter, which ended on Dec. 31, and the first quarter of 2025 but expects sequential quarterly loan growth for the rest of the year.
For the fourth quarter, average loans at Comerica were $50.6 billion, down 4.1% year over year and reflecting the paydowns on commercial real estate loans. That business is largely focused on the origination of construction loans, and the company does "not generally expect to be a permanent lender in that space," Chief Financial Officer James Herzog said on the call.
Average deposits were $63.3 billion, a decline from $66 billion in the year-ago quarter. The company is deliberately reducing its portfolio of higher-cost brokered time deposits and subsequently expects average deposits in 2025 to decline by 2% to 3%, Herzog said.
Net income, meanwhile, was $170 million, a sharp uptick from the same quarter in 2023 when net income totaled $33 million. The year-ago period was impacted by certain one-time items, including a special Federal Deposit Insurance Corp. charge of $109 million, the bank said.
Earnings per share came in at $1.22, falling short of expectations. Analysts polled by S&P Capital IQ had projected earnings of $1.28 per share for the quarter.
Net interest income totaled $575 million for the three-month period, down about 1.5% from the year-ago period. Fee income came in at $250 million, up about 26% year over year.
Expenses totaled $587 million, which was an improvement from $718 million recorded in the same quarter of 2023. Legal-related charges rose $17 million compared with the third quarter.
Net interest income is projected to rise 6% to 7% this year, while fee income could be up by 4%, the company said. Expenses are projected to increase about 3%.
Comerica had a litigious fourth quarter. In mid-November, it preemptively filed a lawsuit against the Consumer Financial Protection Bureau, accusing it of pursuing an overly aggressive investigation of its management of the Treasury Department's Direct Express program.
About three weeks later, the CFPB sued Comerica's banking subsidiary for allegedly egregious customer service related to its treatment of people receiving benefits through the program. In its suit, the bureau accused Comerica of charging illegal ATM fees to customers, mishandling fraud complaints and intentionally terminating nearly 25 million customer-service calls from recipients.
In response, Comerica said it would "continue to vigorously defend [its] record as the financial agent for the Direct Express program and remain committed to serving our cardholders."
Comerica's contract with Treasury to operate the Direct Express program expired on Jan. 2. The Bank of New York Mellon was set to take over the lucrative contract the following day.
During Comerica's third-quarter earnings call in October, Herzog said the shift away from Direct Express "may be longer rather than short," given its "complexity and critical nature."
Comerica has operated the program since 2008. At the end of the fourth quarter, Comerica had about $3.5 billion of deposits tied to the program, it said.
Comerica's troubles with Direct Express — which provides federal benefits on prepaid cards to 4.5 million Americans, including those who receive Social Security — have been brewing for some time. Last year, reporting by American Banker showed Comerica faced allegations that it violated contractual obligations by outsourcing fraud complaints from Direct Express cardholders to a vendor in Pakistan, and also by sharing sensitive customer data with vendors.
In response to an analyst's question, executives on Wednesday reiterated that the impact of losing Direct Express deposits probably won't be felt this year or possibly even next year.
In November, the company said it entered into a three-year extension of services "to allow for the orderly transfer of services" to BNY.
The bank's stock was down about 4.6% as of midday Wednesday.
