1/22/2025

speaker
Rob
Moderator/Operator

Greetings and welcome to the Comerica fourth quarter and fiscal year 2024 financial review conference call. At this time all participants will be in listen only mode. The question and answer session will follow the formal presentation. If you'd like to ask a question today, please press star 1 from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. If anyone today should also require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, it is now my pleasure to introduce Kelly Gage, Director of Investor Relations. Thank you, Kelly. You may now begin.

speaker
Kelly Gage
Director of Investor Relations

Thanks, Rob. Good morning and welcome to Comerica's fourth quarter and fiscal year 2024 earnings conference call. Participating on this call will be our President, Chairman, and CEO, Kurt Farmer, Chief Financial Officer, Jim Herzog, Chief Credit Officer Melinda Chausse and Chief Banking Officer Peter Cepcic. During this presentation we will be referring to slides which provide additional details. The presentation slides and our press release are available on the SEC's website as well as in the investor relations section of our website Comerica.com. The presentation and this conference call contain forward looking statements and in that regard you should be mindful of the risks and uncertainties that can cause actual results to differ materially from expectations. Forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update any forward-looking statements. Please refer to the Safe Harbor Statement in today's earnings presentation on slide two. Also, the presentation and this conference call will reference non-GAAP measures. And in that regard, I direct you to the reconciliations of these measures in the earnings materials that are available on our website, Comerica.com. Now I'll turn the call over to Kurt, who will begin on slide three.

speaker
Kurt Farmer
President, Chairman, and CEO

Good morning, everyone, and thank you for joining our call. We felt 2024 was a year of strength as we prioritized further enhancing our foundation to better position ourselves for long-term success and saw promising customer trends. We continue to favor a conservative approach to capital management, producing an 80 basis points increase in our estimated CET1 capital ratio while resuming share repurchases. Even with ongoing volatility in the rate curve, we grow both book and tangible book value. Although loan demand remained muted throughout much of the year, we saw encouraging trends in the fourth quarter with improved sentiment and higher production levels, which supports our expectation for growth in 2025. Credit quality remained a strength as we maintained our discipline underwriting and produced historically low net charge-offs. Through deliberate reduction in wholesale funding and with favorable customer trends, we optimize liquidity benefiting net interest income. Beyond our financial results, we advance strategic priorities such as investing in relationship managers and growth businesses and financial advisors in support of our wealth management focus. Investments in capital markets produce results as the teams close their first M&A advisory transaction and build a strong pipeline for expanded revenue in the coming years. We continue to modernize our real estate footprint and technology. In fact, we expect to have almost all of our applications managed in the cloud or on a SaaS platform by the year 2025. Supporting our communities remained a priority as we provided critical business resources to small businesses and helped nonprofits broaden their reach. In preparing for the future, we continue to make progress towards eventual Category 4 readiness. And lastly, with an ongoing commitment towards driving efficiency, we executed expense recalibration initiatives, creating capacity for strategic and risk management investments. We believe our progress towards these important initiatives will help us achieve our long-term strategic objectives. Moving to a summary of 2024 on slide four, we reported earnings of $698 million, or $5.02 per share. Although the 2023 industry disruption weighed on year-over-year average comparisons, we saw encouraging trends throughout the year across a number of categories. Persistently higher rates muted loan demand across the industry, but late in the year we saw improved customer sentiment, anticipating a more favorable business and regulatory environment. Although the subsequent risk of higher rates dampened that optimism somewhat, We still hear customers are bullish about increasing business investment throughout 2025. Average deposits were pressured by 2023 events, but also reflected an intentional reduction in broker time deposits. Other than broker deposits, we saw growth in customer balances from year end 2023 to 2024. Both non-interest income and expenses were impacted by notable items, and our private credit management approach produced very strong results. Slide five summarizes the fourth quarter, where we generated earnings of $170 million, or $1.22 per share. Loan deposits and net interest income performed consistent with commentary we provided at a fourth quarter industry conference. Leveraging our strong relationship model, we believe we successfully managed deposit pricing commiserate with rate cuts. A modest securities repositioning pressured non-interest income and a number of other specific items impacted non-interest expenses for the quarter. In all, we feel the momentum with customer deposits and net interest income, coupled with improving sentiment, positions us for growth in 2025. Now I'll turn the call over to Jim to review our financial results.

speaker
Jim Herzog
Chief Financial Officer

Thanks, Kurt, and good morning, everyone. Turning to loans on slide six, average loans declined less than one-half of 1%, attributed largely to expected pay downs in commercial real estate from a higher pace of refinancing or sale of projects. As a reminder, our commercial real estate line of business strategy is geared towards originating construction loans, and we do not generally expect to be a permanent lender in that space. Declines in corporate banking were partially attributed to senior housing exits, and energy grew by winning new and expanding existing relationships. Throughout the quarter, we saw increases across a number of businesses, but period end loans were flat as that growth was offset by a $500 million reduction in commercial real estate. Total commitments were relatively flat as declines in commercial real estate and corporate banking were offset by production in middle market general, energy, and environmental services. Average loan yields increased one basis point as the impact of BISB cessation and higher non-accrual interest offset the impact of a lower rate environment. On slide seven, we continue to be encouraged by customer deposit activity. Average deposits decreased $550 million, or 0.9%. Excluding the impact of the $1.4 billion decline in brokered CDs, customer deposits grew over $800 million, or over 1% in the quarter, with the largest contribution coming from middle market general. Growth continues to be centered in interest-bearing deposits, and although cyclical pressures persisted, non-interest-bearing deposits, as a percentage of total, remained flat at 38%, continuing to reflect the compelling mix. Period-end deposits increased $700 million. Adjusting for the timing-related increase in direct express deposits and the decline in brokered CDs, period-end customer deposits grew $400 million on a net basis. Lower brokered CDs, coupled with a successful pricing strategy, drove a 40 basis points decline in deposit pricing quarter over quarter. Going forward, we intend to continue our relationship pricing approach, monitoring the rate and competitive environment, while balancing customers' objectives with their own funding needs and profitability. Our securities portfolio on slide eight declined as the shift in the rate curve reduced the valuation and we saw continued pay downs and maturities. Late in the fourth quarter, we executed a modest repositioning, selling approximately $800 million over lower rate treasuries and reinvesting at a market yield. We expect to accrete the $19 million pre-tax loss in the net interest income within 2025. Beyond the modest level of purchases to replace treasury maturities, we do not currently project a more meaningful securities reinvestment cadence until late this year. Turn to slide nine. Net interest income increased $41 million to $575 million. Excluding the benefit of BISB cessation, net interest income would have grown $16 million quarter over quarter. The benefit of maturing swaps and securities, higher customer deposits, strong deposit betas, and non-accrual interests all contributed to a strong net interest income quarter. Moving to slide 11, we continue to believe the successful execution of our interest rate strategy allows us to better protect our profitability from rate volatility. Despite the slight benefit this slide shows in a lower rate environment, we generally consider ourselves to be asset neutral, though we remain cognizant of the impact the rate environment may have on non-interest-bearing deposits. By strategically managing our swap and securities portfolios while considering balance sheet dynamics, we intend to maintain our insulated position over time. We feel credit quality remained a competitive strength as shown in slide 12. Net charge-offs remain low at 13 basis points and only reflect a slight increase from the prior quarter with lower fourth quarter recoveries. Persistent inflation and elevated rates continue to pressure customer profitability and drove expected normalization in both criticized and non-performing loans largely in our general middle market businesses. Overall, the modest migration observed was expected and already factored into our reserves, and as a result, our allowance for credit losses remained relatively flat at 1.44% of total loans. We feel our proven conservative credit discipline continues to position us well to offer former peers through the cycles. On slide 13, fourth quarter non-interest income decreased $27 million, including the $19 million realized loss from the securities repositioning and a $4 million decline in deferred compensation, which was largely offset with the non-interest expenses. Despite modest pressures observed in the quarter across select categories, we continue to prioritize non-interest income and expect to see customer-related income growth in 2025. Expenses on slide 14 increased $25 million over the prior quarter, inclusive of seasonally higher costs, which impacted a number of line items, including salaries and benefits. In addition, we saw an increase in legal and litigation-related expenses, and we made the strategic decision to increase funding to increase the size of our charitable foundation. These increases more than offset lower operational losses and the gains of real estate, which we as we continue to optimize our real estate and banking center footprint. Expense discipline remains a key priority as we continue to focus on drive and efficiency. As shown in slide 15, we continue to favor a conservative approach to capital with our estimated CET1 at 11.89%. This remained well above our 10% strategic target, and even if the proposed Basel III removal of the AOCI opt-out was in effect, we would have exceeded regulatory minimums and buffers. Movement in the forward curve caused unrealized losses in AOCI to shift higher in the quarter, but we expect them to improve over time with maturities and paydowns. Even with volatility in the rate curve, we returned capital to shareholders through $100 million in share repurchases in the fourth quarter and intend to repurchase approximately $50 million of common stock in the first quarter. As we consider future capital decisions, We intend to be measured in our approach and calibrate the size and frequency of future repurchases with expected loan trends. We will also continue to closely watch the forward curve, our profitability, the economy, and any regulatory updates as they may also influence our strategy. Our outlook for 2025 is on slide 16. We project four-year average loans to be flat to up 1% in 2025, with expected growth in most businesses largely offset by anticipated pay downs in commercial real estate. In fact, excluding the impact from commercial real estate, we project 2% average loan growth year over year. And in the first quarter, commercial real estate pay downs are expected to fully offset production in most other businesses, resulting in a relatively flat average loans compared to fourth quarter of 24. As we move throughout the year, We project sequential quarterly loan growth, resulting in an estimated 3% point-to-point increase in total loans by year-end 2025 compared to year-end 2024. We intend to continue our deliberate reduction in broker time deposits, which is expected to drive a 2% to 3% decline in full-year average deposits in 2025. Excluding brokered CDs, we expect full-year average customer deposits to grow 1%. Following seasonal declines in the first quarter, we project customer deposit growth throughout the rest of 2025. With the elevated rate environment, we expect most of that growth will continue to be concentrated in interest-bearing balances, but believe our non-interest-bearing deposit mix will remain relatively consistent in the upper 30s. Also, as a point of clarity, we are not assuming deposit attrition in 2025 for direct express within this outlook. based on our current understanding of the transition strategy. We expect full-year 2025 net interest income to increase 6% to 7% compared to 2024 with the benefit of BISB cessation, maturing and replaced securities and swaps, a more efficient funding mix, and higher loans, more than offsetting lower non-interest-bearing balances. In the first quarter, we expect net interest income to take a slight step down with a 1% to 2% decline from the fourth quarter as the impact of day count, lower non-interest-bearing deposits, and lower non-accrual interest income offsets the benefit of BISB cessation and our swap and securities portfolios. From there, we expect to see growth through the rest of the year, and even without the benefit of BISB cessation, we expect non-interest income to be significantly stronger in 2025 than 2024. With the potential for ongoing inflationary pressures and elevated rates, we expect manageable migration towards more normal credit levels to continue in our portfolio. As a result, we project four-year net charge-offs to be at the lower end of our normal 20 to 40 basis points range in 2025. We expect 2025 non-interest income to increase 4% over reported 2024 levels, which includes a 2% expected growth in customer income. For the first quarter of 2025, we expect seasonal declines in customer-related non-interest income, and then generally expect to see growth in customer fees through the balance of the year. Full-year non-interest expenses are expected to grow 3% with higher salaries and benefits, lower gains on sale of real estate, and an increase in pension expense. First quarter 2025 expenses are projected to increase 2% over the fourth quarter of 2024, with normal seasonality and compensation expenses. Expense discipline remains a priority as we seek to sell funds for teacher and risk management investments to support our future efficiency. Moving to capital, we continue to appreciate the importance of a strong capital position and intend to consider a number of variables, including loan growth, the forward curve, and the broader economic environment as we execute our plan for the year. We intend to maintain a CET1 ratio well above our 10% strategic target for 2025. In all, we expect favorable sentiment and trends to drive responsible customer-related growth throughout 2025. Now, I'll turn the call back to Kurt.

speaker
Kurt Farmer
President, Chairman, and CEO

Thank you, Jim. As one of the few banks who have celebrated 175 years in business, we understand the importance of strong capital, credit, and liquidity and delivering long-term success. And as discussed, we feel those foundational strengths really shine through in 2024. On top of that, we saw positive customer deposit trends, successfully managed deposit pricing, and returned capital to shareholders through resumption of share repurchases. As we look forward, we feel our model is compelling. We have a unique geographic strategy that is diversified and focuses on growing markets. Our talent is differentiated and tenured colleagues who have deep expertise and deliver consistency to our customers. We continue to invest in our development program, which creates a consistent pipeline of colleagues with the right mix of sales and credit skills. Our product suite is strong, tailored to meet the needs of our customers, and we are making strategic investments which will enhance our solution set. Importantly, we feel well-positioned to deliver responsible loan growth supported by higher deposits, complemented by increased customer-related fee income. No doubt there's always some level of economic uncertainty, but we are managing our business for the long term by making important investments that support existing customers and win new relationships. Before we go to Q&A, I'd like to take just a moment and acknowledge the individuals and businesses who have navigated the unprecedented flooding in the Southeast late last year and the recent wildfires in California. Our thoughts are with our Comerica colleagues and customers impacted by these tragic events. And with that, we are happy to take your questions.

speaker
Rob
Moderator/Operator

Thank you. At this time, we'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. Run a confirmation tone to indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, It may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from the line of John Arstrom with RBC Capital Markets.

speaker
John Arstrom
Analyst at RBC Capital Markets

Good morning, John. Hey, good morning. Can you touch a little bit on your loan growth outlook? You talked a little bit about the pipelines maybe being a little bit better, but I think you're showing commitment stable as well, but you said better sentiment. Can you talk a little bit about what you've seen over the last few months?

speaker
Peter Cepic
Chief Banking Officer

Yeah, John, it's Peter. So over the last few months, I think the tone has changed. You know, 90 days ago, we were hearing a lot more about interest rate relief needed, per se, to stimulate loan growth. And I think that that is, I don't want to say totally gone away, but it certainly seems to have subsided with more customer engagement optimism going into the new year, and so I think that that overall customer sentiment is encouraging. We're starting the year off with a better pipeline than we did a year ago, so I think all that together is pretty encouraging, and it's pretty broad-based. I mean, the only business where we really just don't feel like there's a whole lot of activity going on is CRE, as we discussed, so we expect that to be a headwind going into 2025, but Across the rest of the book, I think customer sentiment has improved quite a bit over the last 90 days and seems less tied to interest rate outlook than maybe it did when we finished the third quarter.

speaker
John Arstrom
Analyst at RBC Capital Markets

Okay. And just to follow up, Peter, just the CRE payoff outlook, when do you expect that to change? I mean, when do you expect some of those headwinds to eventually fade out?

speaker
Peter Cepic
Chief Banking Officer

John, that's a good question. I probably should add a disclaimer to what I just said. I think interest rates are probably affecting that business more than any. And so I suspect that, you know, we will see payoffs through 2025, possibly into 2026, with sort of the current interest rate outlook that the, you know, that the country has at the moment. Could that change? You know, could we see Less payoffs if rates were to stay where they are possibly. Could it speed up if rates were to drop? Maybe so. I think rates going up would certainly impact that business, both in just opportunities out there and balances probably staying on longer. So a little bit of moving parts. I think our baseline is just expecting sort of quarterly payoffs through the rest of this year and probably into the first or second quarter of 26. Okay.

speaker
John Arstrom
Analyst at RBC Capital Markets

All right. I'll step back. Thank you guys very much. Thanks, John. Thanks, John.

speaker
Rob
Moderator/Operator

Our next questions are from the line of Marion Gosalia with Morgan Stanley. Please proceed with your questions.

speaker
Marion Gosalia
Analyst at Morgan Stanley

Good morning, Anand. Hi, good morning. On broker deposits, I know those are coming down nicely and you expect to pay down some more as you go through the first half of the year. Can you talk about how much room there is to pay down some of these higher cost sources of funding as we go through the year if loan growth remains weak?

speaker
Jim Herzog
Chief Financial Officer

Yes, good morning, Manan. Yeah, we did end the year with just over about $1.1 billion of broker deposits. And we do see those coming down pretty continuously throughout 2025, you know, probably more so starting in the second, third quarters, but all the way through early fourth quarter. It's very feasible that we have no broker deposits, no broker time deposits by the end of 2025. So those are a little bit pricey. We're paying about 5.4% for those. And it is our goal, with strong core customer deposit growth, to eliminate most or all of those by the end of 2025. And that will, of course, depend on low growth trends and other factors. But overall, we continue to improve the efficiency of our funding mix, and we're quite optimistic about that.

speaker
Marion Gosalia
Analyst at Morgan Stanley

Got it. And in terms of capital, I know you're managing that reported CET1 to about 10%, but is there a number you're managing to for CET1, including AOCI?

speaker
Jim Herzog
Chief Financial Officer

You know, there is no one number because there are a number of capital ratios that different constituencies value. So we are considering kind of a smorgasbord of capital ratios, but of course, CET1 is likely the most important there. You know, with higher levels of ALCI like we had this quarter, you know, we are being a little bit more cautious on capital. But I think it's fair to say, regardless of where things go this year, we plan on staying, you know, well above 11% CET1. And then as ALCI continues to come down, you know, later this year and into 26, you know, that gives us more options from a capital standpoint. But overall, considering a number of ratios, and I think it's fair to say we'll be well above 11% for this year.

speaker
Marion Gosalia
Analyst at Morgan Stanley

So is it fair to say that if the long end of the curve goes up more and that CET1, including AOCI, comes down, you would just manage your capital levels by flexing buybacks and you still have enough balance sheet available for customers if loan growth should pick up?

speaker
Jim Herzog
Chief Financial Officer

Absolutely. We have a lot of options with capital. Certainly, loan growth is not an issue. You know, loan growth, as Peter was saying, is going to be a little bit of a wild card depending on where commercial real estate goes. So first and foremost, you know, we will pay attention to where loan growth trends go in determining what we do with capital. But again, AOCI is probably the number two factor right behind, you know, where loan growth goes.

speaker
Marion Gosalia
Analyst at Morgan Stanley

Great. Thank you.

speaker
Rob
Moderator/Operator

Our next question is from the line of John Fancari with Evercore ISI. Please receive your questions.

speaker
Kurt Farmer
President, Chairman, and CEO

Morning, John. Morning.

speaker
John Fancari
Analyst at Evercore ISI

Just looking at the expense side, you're running at a high 60s efficiency ratio currently. As you look at 2025, given your guide, it looks like you may still be in that general range. I mean, what do you view as the appropriate long-term efficiency ratio for Comerica and what can drive you you know, back, you know, down, you know, off of that upper 60s level? Is it primarily going to be a revenue catalyst, or is there an expense opportunity there?

speaker
Jim Herzog
Chief Financial Officer

Good morning, John. Yeah, we have seen some elevated efficiency ratios, and we really saw this take place, you know, following the regional bank crisis with some of the shifts in deposit mix. So we are working to return back to what we think is an acceptable efficiency ratio, which we believe ultimately needs to be in the 50s. To hit some of the ROE objectives that we have in the future. So we are working towards that. It's always a combination of both revenue and expenses. But we are very committed to making sure that we have very strong revenue. You know, we're not going to short expenses and investment for the sake of any short-term objectives. The important thing over time is to grow revenue. But clearly, expenses need to grow at a lower rate than revenue. We need positive operating leverage on a consistent basis to get there. So, a combination of both. But, you know, in the long run, I believe it is, you know, more of a revenue play with responsible investment and expense decisions and making sure that we have positive operating leverage.

speaker
John Fancari
Analyst at Evercore ISI

Male Speaker Okay. All right. Thanks. And then, separately, on the deposit side, You had indicated the direct expressed $3.5 billion in average deposit balances. You don't expect a material change based upon the extension and the way the agreement is right now. Is there anything that could change that, and if you could see potentially a faster decline in those balances than you anticipate at this point?

speaker
Peter Cepic
Chief Banking Officer

John, it's Peter. I think the answer to that question is yes. No, nothing could change that that we foresee at the moment. We're still working on what the transition process looks like. But as the year unfolds, we will certainly communicate that as we can to what the outlook appears to be. But at the moment, we don't see anything changing in 25 and really certainly into 26 at the moment either. So I think the answer is we don't see any real changes to what we've communicated the last several quarters on this, and to the extent that it does, we will do our best to share that, but no changes at the moment.

speaker
John Fancari
Analyst at Evercore ISI

Okay, great. Thanks for the call. Thanks, Sean.

speaker
Rob
Moderator/Operator

Our next question is from the line of Bernard Von Puzicki with Deutsche Bank. Please receive your questions.

speaker
Kurt Farmer
President, Chairman, and CEO

Good morning, Bernard.

speaker
Rob
Moderator/Operator

Hey, guys. Good morning.

speaker
Bernard Von Puzicki
Analyst at Deutsche Bank

Just a question on expansion efforts. So, you know, you've talked about expanding in areas like the southeast and the mountain west. Are there targets for, like, number of hires you're looking to add this year? Is there just a way to think about how much of the expense base is in incremental expense initiatives?

speaker
Peter Cepic
Chief Banking Officer

Bernard is Peter. So in the southeast, I would say that we are certainly looking at opportunistic hiring. We did a lot of hiring the last couple of years and feel pretty good at sort of the ramp up that we've had so far. I think we feel like going into 2025, we're going to see opportunities and we tend to take advantage of those in the southeast. But probably not the same ramp up that we had the last two years, but definitely looking at folks and adding that market, particularly in our Florida market. In the Mountain West, it's a little bit more, probably a little more aggressive in the Mountain West to the extent that we can find talent. We're certainly looking at opportunities in the Denver market as well as in Phoenix. And so, you know, I think that that's both of those are markets that we would continue to add folks in. Now, I would remind you, too, though, we have tremendous opportunity to add folks in markets like DFW, in Houston, in Los Angeles, and San Francisco. So, you know, we feel fortunate that we are in such great markets where the economy is doing really well, there's population growth, and we feel like there's opportunities to continue to add folks in each of those markets on a go-forward basis.

speaker
Bernard Von Puzicki
Analyst at Deutsche Bank

Okay, I appreciate that. And then maybe just on M&A, like with an easing in the regulatory environment expected from here, you know, just thoughts on, you know, how would you think about potentially doing a whole bank deal or a branch or like a portfolio acquisition, just any areas of those that could be a potential interest?

speaker
Kurt Farmer
President, Chairman, and CEO

Thank you, Bernard. The strategy for us has really not changed. You know, we have historically been a very patient acquirer. We've only done one deal in the last 20 plus years and are continuing to focus on organic growth. Peter just talked about the markets that we operate in. We think we've got lots of opportunities to continue to grow in those markets and also to continue to add talent selectively where it makes sense for us to do so. And we feel like we've got the right balance of sort of product mix and focus as an organization, especially with our strong commercial network. focus as the best bank for what we believe businesses in the marketplace, but also really strong wealth management and retail franchise. So we'll continue to be patient and really focus primarily on organic growth. Certainly there might be some opportunities that come along that in terms of team lift outs, in terms of product capabilities, et cetera, that we'll look at periodically, but again, primarily focused on organic growth.

speaker
Bernard Von Puzicki
Analyst at Deutsche Bank

Okay, great. Thanks for taking my questions.

speaker
Rob
Moderator/Operator

The next questions are from the line of Anthony with JP Morgan.

speaker
Anthony
Analyst at JP Morgan

Good morning, Anthony. Hi, everyone. Does your loan growth outlook for 2025 include any uptake in utilization rates, which look like have been flat the past couple of quarters?

speaker
Peter Cepic
Chief Banking Officer

Anthony, it's Peter. No, it really doesn't. I think that... you might consider that the alpha probably to all the banks' loan outlook. I think utilization has been pretty flat for quite a while now. It's certainly been below historical numbers that people have been in this a long, long time. But we aren't necessarily factoring that into the outlook that we're providing. And to the extent utilization were to pick up, that would be a good thing. Of course, any any one of our businesses is going to have utilization sort of moving up and down depending on what's going on in that particular industry. But on the whole, what I would tell you is we've kind of, we've pretty much kept it flat.

speaker
Anthony
Analyst at JP Morgan

Thank you. And then my follow-up, could you provide more color on NPAs maybe for Melissa? I know you called out the impacts from higher rates, but was there anything specific in the fourth quarter that contributed to the increase you saw? Thank you.

speaker
Melinda Chausse
Chief Credit Officer

Yeah, this is Melinda. The NPA increase was about $58 million quarter over quarter, which on the whole for a portfolio bar size, I would consider that very, very modest. It was centered in around four or five different names, so still very granular. We did have one commercial real estate loan move into the NPA category, and that was approximately $30 million. So nothing really unusual here. Again, the commonality there is pressure from higher interest rates on overall profitability and ability to service debt. And the other commonality that we've seen, not just in MPAs, but really in the charge-offs this quarter, were companies that have an orientation towards serving consumer discretionary products. There's just still some pressure there from a consumer perspective in terms of what they have available. But on the whole, the credit portfolio, I think, performed quite well, and the migration that we saw was pretty much expected and very much in line with sort of the normalization trends. And just as one other comment, our absolute levels of NPAs at about 60 basis points is about half of what our long-term average is. So, yes, we saw an increase, but still relatively low, and consider that pretty manageable from our perspective.

speaker
Anthony
Analyst at JP Morgan

Thank you.

speaker
Bernard Von Puzicki
Analyst at Deutsche Bank

You're welcome.

speaker
Rob
Moderator/Operator

Our next question is from the line of Chris McGrady with KVW. Let's just hear your questions.

speaker
Kurt Farmer
President, Chairman, and CEO

Good morning, Chris.

speaker
Chris McGrady
Analyst at KVW

Hey, good morning. Jim, a question on the modest balance sheet restructuring that you did in the quarter, the bond sale. I mean, the earn back within a year is pretty compelling. I guess the question, why not be more aggressive either now or in the next coming quarters? You've got the capital to absorb it. Just do it. I think unlock that efficiency that you talked about.

speaker
Jim Herzog
Chief Financial Officer

Good morning, Chris. You know, when we look at the options for capital return, you know, we still really do favor bonds. share repurchase over securities repositioning. You know, securities repositioning, you know, is essentially neutral or tangible book value in the long run. It's just time geography. I realize it does, you know, move around earnings and maybe from an optic standpoint spruce things up. But if we have to make choices, we would much rather put it in the share repurchase and other capital return options that we think have a real return to shareholders.

speaker
Chris McGrady
Analyst at KVW

Okay. And then I guess my follow-up, just a clarification, Jim, on the guidance. Are all the guides NII fees, expenses relative to GAAP reported numbers? Can you confirm that?

speaker
Kurt Farmer
President, Chairman, and CEO

Yes.

speaker
Jim Herzog
Chief Financial Officer

Yeah, yeah, very relative to GAAP numbers.

speaker
Kurt Farmer
President, Chairman, and CEO

Thank you.

speaker
Jim Herzog
Chief Financial Officer

As all the guides are.

speaker
Rob
Moderator/Operator

Thank you. At this time, there are no additional questions. I'll now turn the call back to Mr. Kurt Farmer for closing remarks.

speaker
Kurt Farmer
President, Chairman, and CEO

Thank you to all of you for joining our call this morning. As always, thank you for your continued interest in Comerica. We hope you have a very good day. Thank you.

speaker
Rob
Moderator/Operator

This will conclude today's conference. We disconnect your lines at this time. We thank you for your participation and have a wonderful day.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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