Is Comerica Bank in Trouble? Key Financial and Stock Insights

Comerica Bank has faced increased scrutiny amid concerns about the stability of regional banks. Investors and customers are closely watching its financial health, stock performance, and regulatory standing.

Understanding Comerica’s capital position, loan trends, and market sentiment provides insight into its current situation.

Capital and Liquidity

A bank’s financial strength depends on its capital levels and funding stability. Comerica’s liquidity position and asset quality indicate how well it can manage economic fluctuations and maintain depositor confidence.

Capital Ratios

Capital ratios measure a bank’s ability to absorb losses. Comerica’s Common Equity Tier 1 (CET1) ratio stood at 10.35% as of the first quarter of 2024, above the regulatory minimum of 4.5% but lower than some regional peers. A higher CET1 ratio provides a stronger buffer against financial stress.

The bank’s Total Capital Ratio, which includes additional forms of capital beyond common equity, was 12.8%, exceeding the required 8%. Larger institutions often maintain ratios above 14%, giving them a stronger cushion. If economic conditions worsen, Comerica may need to bolster capital through retained earnings, debt issuance, or equity offerings.

Funding Sources

Comerica’s funding mix includes customer deposits, wholesale funding, and borrowing from the Federal Reserve. Rising interest rates have led some depositors to shift funds into higher-yield alternatives like money market accounts and Treasury securities.

To offset deposit outflows, Comerica has increased its reliance on wholesale funding, including Federal Home Loan Bank (FHLB) advances and repurchase agreements. While these sources provide liquidity, they are more expensive than core deposits, pressuring profitability. The bank also has access to the Federal Reserve’s Bank Term Funding Program (BTFP), allowing it to pledge securities for cash. However, heavy reliance on short-term borrowing raises costs if market conditions tighten.

Asset Quality

Comerica’s loan portfolio is heavily exposed to commercial real estate (CRE) and corporate lending, sectors facing stress due to higher interest rates and economic uncertainty.

Non-performing loans (NPLs) have increased, with the NPL ratio rising to 0.89% at the end of March 2024 from 0.75% a year earlier. The bank has also increased its loan loss reserves, with its allowance for credit losses (ACL) at 1.45% of total loans. If economic conditions deteriorate, particularly in commercial real estate, additional reserves may be needed, impacting earnings.

Analysts are monitoring delinquency trends and charge-off rates. Office and retail properties remain a concern, with high vacancy rates affecting landlords’ ability to meet debt obligations.

Loan and Deposit Trends

Comerica has adjusted its loan portfolio in response to economic conditions, prioritizing credit quality while managing growth. Loan originations have slowed, particularly in commercial and industrial (C&I) lending, as businesses borrow less due to high interest rates. Middle-market firms, a key part of Comerica’s client base, have reduced demand for new credit.

The bank has tightened underwriting standards in higher-risk sectors. Commercial real estate loans now have stricter loan-to-value (LTV) requirements and higher debt service coverage ratios (DSCR). While these measures reduce risk, they also limit loan growth, affecting interest income.

Deposit competition has intensified, leading to shifts in Comerica’s deposit base. Customers are favoring high-yield savings accounts and certificates of deposit (CDs), increasing the bank’s funding costs. Non-interest-bearing deposits, a cheaper funding source, have declined as customers seek better returns.

To maintain deposit stability, Comerica has focused on strengthening relationships with commercial clients. Treasury management services and cash flow optimization tools encourage businesses to keep operating balances with the bank. Targeted promotions on deposit products have also been introduced to attract and retain retail customers, though these efforts increase interest expenses.

Stock Movement and Trading Volume

Comerica’s stock has been volatile, reflecting uncertainty around regional banks. Investors have reacted to earnings reports, Federal Reserve policy decisions, and economic conditions, leading to sharp price swings. Trading volume has been higher than historical averages, with institutional investors, hedge funds, and retail traders actively participating.

Short interest in Comerica has also influenced stock performance. A high level of short positions suggests some investors expect further declines, adding downward pressure. However, stronger earnings or economic data could trigger a short squeeze, forcing short sellers to cover their positions and driving the stock higher.

Comerica’s stock tends to move in tandem with other regional banks, particularly in response to macroeconomic events such as interest rate changes or regulatory developments. Financial sector exchange-traded funds (ETFs) also contribute to volatility, as passive investment strategies can lead to broad buying or selling of bank stocks.

Regulatory Examinations

Comerica is overseen by the Office of the Comptroller of the Currency (OCC) and the Federal Reserve, which conduct routine examinations to assess risk management, internal controls, and regulatory compliance. Scrutiny of regional banks has increased, particularly in liquidity stress testing, operational resilience, and compliance with anti-money laundering (AML) and Bank Secrecy Act (BSA) requirements.

Stress testing and contingency planning have been areas of focus. Under the Dodd-Frank Act, banks above a certain asset threshold must conduct periodic stress tests to evaluate their ability to withstand economic downturns. Comerica has passed these assessments, but regulators continue to monitor its capital planning process.

The Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) evaluates whether the bank’s capital distributions, such as dividends and share buybacks, align with its risk profile. Additionally, Comerica’s compliance with fair lending laws and the Community Reinvestment Act (CRA) remains under review. Any deficiencies could lead to regulatory actions, such as restrictions on expansion or increased oversight.

Analysts’ Evaluations

Market analysts have issued mixed assessments of Comerica’s financial performance. Some firms remain cautious due to deposit outflows and commercial loan exposure, while others highlight the bank’s capital position and cost-cutting efforts. Ratings from major investment banks range from “Hold” to “Underperform,” reflecting uncertainty about Comerica’s ability to navigate a high-interest-rate environment.

Earnings forecasts have been revised downward due to margin compression and higher funding costs. Analysts note that Comerica’s net interest income, a key profitability driver, has come under pressure as deposit repricing accelerates. Some also point to potential credit deterioration in office real estate, which could lead to higher loan loss provisions.

On the positive side, Comerica’s efficiency ratio—operating expenses as a percentage of revenue—remains competitive compared to peers, suggesting management is actively working to control costs. The bank’s ability to sustain profitability will depend on balancing loan growth, deposit retention, and expense management in the coming quarters.

Dividends and Share Buybacks

Comerica’s capital return strategy has been a focus for investors. The bank’s most recent quarterly dividend stood at $0.71 per share, translating to a yield above 6% based on recent stock prices. While this high yield appeals to income-focused investors, sustainability remains a concern given earnings pressures. If profitability weakens further, Comerica may need to adjust its payout ratio to preserve capital.

Share repurchases have been scaled back, aligning with broader industry trends as banks prioritize liquidity and regulatory compliance. Analysts expect Comerica to remain conservative with buybacks until financial conditions stabilize. Investors will be watching future earnings reports for any indications of a shift in capital allocation strategy.