Q1 2024 Comerica Inc Earnings Call

Greetings and welcome to the Comerica first quarter 2024 earnings conference call.

Operator: Greetings and welcome to the Comerica First Quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If you would like to submit a question, please press star one on your telephone keypad. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kelly Gage, Director of Investor Relations. Thank you. Please go ahead.

At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

If you'd like to register a question. Please press star one on your telephone keypad.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded it is now my pleasure to introduce your host Kelly gauge director of Investor Relations. Thank you. Please go ahead.

Kelly Gage: Thanks, Donna. Good morning, and welcome to Comerica's first quarter 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 Sefzik. During this presentation, we will be referring to slides which will 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.

Kelly Gage: Thanks, Dana good morning, and welcome to America's first quarter 2024 earnings Conference call.

Participating on this call will be our president chairman and CEO, Curt Farmer, Chief Financial Officer, Jim Herzog, Chief Credit Officer, Melinda chassis, and Chief Banking Officer, Peter Septic during.

Kelly Gage: During this presentation, we will be referring to slides, which will provide additional detail 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 America Dot com.

Kelly Gage: This conference call contains forward-looking statements. In that regard, you should be mindful of the risks and uncertainties that can cause actual results to vary 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 2, which is incorporated into this call, as well as our SEC filings for factors that can cause actual results to differ.

Kelly Gage: This conference call contains forward looking statements in that regard you should be mindful of the risks and uncertainties that can cause actual results to vary materially from expectations.

Kelly Gage: Looking statements speak only as of the date of this presentation and we undertake no obligation to update any forward looking statements.

Kelly Gage: Please refer to the Safe Harbor statement in today's earnings presentation on slide two which is incorporated into this call as well as our SEC filings for factors that can cause actual results to differ.

Kelly Gage: Also, this conference call will reference non-GAAP measures, and in that regard, I direct you to the reconciliation 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 3.

Kelly Gage: Also this conference call will reference non-GAAP measures and in that regard I direct you to the reconciliation of these measures in the earnings materials that are available on our website Comerica Dot com.

Kelly Gage: Now I'll turn the call over to Curt who will begin on slide three.

Curt: Thank you Kelly and good morning, everyone. Thank you for joining our call.

Curtis Chatman Farmer: Thank you, Kelly. Good morning, everyone.

Curtis Chatman Farmer: Thank you for joining our call. Today, we reported first quarter earnings of $138 million, or $0.98 per share. Although loan demand remained muted, we continue to see improvement in customer sentiment, translating into increased pipelines and signaling opportunities for growth. Our historically strong deposit franchise demonstrates resilience as deposits outperform expectations and normal seasonal patterns. These favorable trends enabled continued normalization of our liquidity position as we reduced wholesale funding by over $5 billion throughout the quarter.

Curt: Today, we reported first quarter earnings of $138 million for 98 per share.

Curt: Although loan demand remained muted.

Curt: To see improvement in customer sentiment.

Curt: Translating into increased pipelines and signaling opportunities for growth.

Curt: Our historically strong deposit franchise demonstrated resilience as deposits outperform expectations and normal seasonal patterns.

Curt: These favorable trends enabled continued normalization of our liquidity position.

Curt: To reduce wholesale funding by over 5 billion throughout the quarter.

Curtis Chatman Farmer: In fact, over the last four quarters, we repaid almost $12 billion in wholesale funding while preserving significant available capacity. Beyond our financial results, we were incredibly proud of the recognition we received for our efforts to prioritize our employees and community. Greenwich awards showcase our successful focus on small business, and we see great potential for continued growth in this area. Earlier this month, we hosted an event at our new collaborative workspace in North Texas, and our second large office transformation is underway in Michigan.

In fact over the last four quarters, we repaid almost 12 billion in wholesale funding, while preserving significant available capacity.

Curt: Beyond our financial results, we were incredibly proud of the recognition received for our efforts to prioritize for our employees and communities.

Curt: Greenwich Awards showcase our successful focus on small business and we say great potential for continued growth in this space.

Curt: Earlier this month, we hosted an event at our new collaborative workspace in North, Texas, and our second large office transformation is underway in Michigan.

Curtis Chatman Farmer: As a product of our modernization efforts, these business and innovation hubs leverage advanced technology designed to meet the evolving needs of our colleagues and customers through dedicated business centers. Immediate feedback has been overwhelmingly positive, and we feel this workplace strategy will be key to attracting and retaining talent while offering unique benefits to small businesses and local communities.

Curt: As a product of our modernization efforts these business and innovation hubs leverage advanced technology designed to meet the evolving needs of our colleagues and customers do dedicated business centers.

Curt: Feedback has been overwhelmingly positive and we feel this workplace strategy will be key to attracting and retaining top talent by offering unique benefits to small businesses and local communities.

Curt: First quarter financial highlights are on slide four average loans were impacted by rationalization efforts in 2023, including the exited mortgage banker finance, which is now substantially complete.

Curtis Chatman Farmer: First quarter financial highlights are on slide four. Average loans were impacted by rationalization efforts in 2023, including the exit of mortgage banker finance, which is now substantially complete. Deposits outperformed expectations and, in fact, would have been relatively flat, excluding the deliberate reduction in brokered time deposits. Net interest income was impacted by lower loans, slightly higher deposit costs, and one less day in the quarter, but it performed better than projected. Credit remains strong, as net charge also moved even lower this quarter.

Curt: Deposits outperformed expectations and in fact would have been relatively flat, excluding the deliberate reduction in brokered time deposits.

Curt: Net interest income was impacted by lower loans slightly higher deposit costs and one less day in the quarter, but overall performed better than projected.

Curt: Credit remains strong as net charge offs moved even lower this quarter, both noninterest income and noninterest expenses were impacted by notable items, we saw a discrete benefit to taxes.

Curtis Chatman Farmer: Both non-interest income and non-interest expenses were impacted by notable items, and we saw a discrete benefit to taxes. Prudent capital management and lower loans drove an increase in our estimated CET1 to 11.47%, even higher above our 10% strategic target. Stepping back, strong liquidity, credit, and capital support our solid foundation and positions us to prioritize responsible growth in the second half of the year. Now I'll turn the call over to Jim, who will review our financial results in some more detail. Jim?

Curt: Capital management, and lower loans drove an increase in our estimated CET one to 11, four 7% even higher above our 10% strategic target.

Curt: Stepping back strong liquidity credit and capital supports our solid foundation and <unk>.

Curt: Positions us to prioritize responsible growth in the second half of the year.

Curt: Now I'll turn the call over to Jim who will review our financial results in some more detail Jim.

James J. Herzog: Well, thanks, Kurt, and good morning, everyone. Turning to slide five, impacts from intentional balance sheet management efforts in 2023 carried over into the first quarter, and when coupled with soft demand, drove downward pressure on the average loan balance. Lower utilization was a trend in both the middle market, where customers use deposits to repay debt and invest in their business, and equity fund services, where we observed continued softness and private equity activity. Conversely, commercial real estate utilization continued to trend higher as we funded multifamily and industrial construction projects while managing commitments lower.

Well, thanks, Curt and good morning, everyone turning to slide five impacts from intentional balance sheet management efforts in 2023 carried over into the first quarter and when coupled with soft demand drove downward pressure on average loan balances.

Jim: Lower utilization was a trend in both middle market, where customers use deposits to repay debt and invest in their business and equity fund services, where we observed continued softness in private equity activity.

Jim: Conversely, commercial real estate utilization continued to trend higher as we funded multifamily and industrial construction projects, while managing commitments slower.

Jim: As we look month to month throughout the quarter, we saw balances decreased only modestly and steadily increasing pipeline, which together support our expectation for growth.

James J. Herzog: As we look month to month throughout the quarter, we saw balances decrease only modestly and a steadily increasing pipeline, which together support our expectation for growth. Slide six highlights the stability of our deposit base. Average deposit balances declined $700 million, but almost $600 million was attributed to lowering broker time deposits. Otherwise, declines in technology and life sciences, equity fund services, and commercial real estate were largely offset by increases in general middle market, entertainment, and retail.

Jim: Slide six highlights the stability of our deposit base average deposit balances declined $700 million, but almost 600 million was attributed to lower and broker time deposits.

Jim: Otherwise declines in technology and life Sciences equity fund services and commercial real estate were largely offset by increases in general middle market Entertainment and retail.

Jim: In fact retail balances are nearing pre March 2023 levels with growth in both small business and consumer.

James J. Herzog: In fact, retail balances are nearing pre-March 2023 levels with growth in both small business and consumers. Our mix of non-interest-bearing balances remained a competitive advantage, averaging 40% for the quarter, as both interest-bearing and non-interest-bearing deposits exceeded expectations. As anticipated, elevated rates continue to drive deposit pricing higher to 328 basis points and a cumulative beta of 62 percent. However, the pace of increase continued to flatten as it has for the past four quarters.

Jim: Our mix of noninterest bearing balances remains a competitive advantage, averaging 40% for the quarter as both interest bearing and noninterest bearing deposits exceeded expectations.

Jim: As anticipated elevated rates continue to drive deposit pricing higher to 328 basis points in a cumulative beta of 62%.

Jim: However, the pace of increase continued to flatten as it has for the past four quarters.

Jim: Our deposit profile remains a competitive strength and we were encouraged by this quarter's results.

James J. Herzog: Our deposit profile remains a competitive strength, and we were encouraged by this quarter's results. As shown on slide 7, we normalized our liquidity position, and in this quarter alone, we were able to repay over $5 billion in wholesale funding while retaining significant capacity. Over the last year, our liquidity strategy proved effective as we added liquidity to navigate volatility and then methodically normalized our position as the market stabilized. We were incredibly proud of our $1 billion debt issuance in late January, a record issuance for Comerica.

Jim: As shown on slide seven we normalized our liquidity position and in this quarter alone were able to repay over $5 billion in wholesale funding, while retaining significant capacity.

Jim: Over the last year or liquidity strategy proved effective as we added liquidity to navigate volatility and then methodically normalized our position as the market stabilized.

Jim: We were incredibly proud of our $1 billion debt issuance in late January a record issuance for comerica.

James J. Herzog: Investor interest was high, and the execution was effective, which, to us, signaled progress towards more normal market activity and interest in our value proposition. At 80 percent, our loan-to-deposit ratio remained below our 85 percent medium-term target, positioning us to prioritize high-return loan growth going forward, period unbalances in our securities portfolio, and slide eight decline with continued pay downs and maturities in addition to a $268 million negative mark to market adjustment from a higher forward curve.

Jim: Investor interest was high and the execution was affected which to us signaled progress towards more normal market activity and interest in our value proposition.

Jim: At 80% our loan to deposit ratio remained below our 85% medium term target positioning us to prior to prioritize high return loan growth going forward.

Jim: Period end balances in our securities portfolio on slide eight decline with continued Paydowns and maturities. In addition to a $268 million negative mark to market adjustment from a higher forward curve.

Jim: We expect continued decline in this portfolio over the coming quarters.

James J. Herzog: We expect continued decline in this portfolio over the coming quarter. Turning to slide nine, net interest income decreased $36 million to $548 million, driven by lower loan balances and higher deposit pricing, partially offset by Fed deposits and lower wholesale funds. While lower non-transparent balances also contributed to the quarter-over-quarter decrease, deposits overall outperformed expectations.

Jim: Turning to slide nine net interest income decreased $36 million to $548 million, driven by lower loan balances and higher deposit pricing, partially offset by fed deposits and lower wholesale funding.

Jim: While Laurie while lower noninterest bearing balances also contributed to the quarter over quarter decrease deposits overall outperformed expectations with favorable deposit trends lower FHL fee advances are moderating deposit beta and a $3 million noncash as the accretion net interest income exceeded guidance.

James J. Herzog: With favorable deposit trends, lower FHLB advances, a moderating deposit beta, and a $3 million non-cash FISB accretion, net interest income exceeded guidance. As shown in slide 10, successful execution of our interest rate strategy and the composition of our balance sheet position us favorably for a gradual 100 basis points or 50 basis points on average decline in interest rates. By strategically managing our swap and securities portfolio while considering balance sheet dynamics, we intend to maintain our insulated position over time. As a reminder, Bisbee's cessation does not impact the ongoing cash flow associated with the swap notionals listed on the slide.

Jim: <unk>.

Jim: As shown on slide 10 successful execution of our interest rate strategy in the composition of our balance sheet positions us favorably for a gradual 100 basis points or 50 basis points on average decline in interest rates.

Jim: By strategically managing our swap and securities portfolio, while considering balance sheet dynamics, we intend to maintain our insulated position overtime.

Jim: As a reminder, bisbee cessation does not impact the ongoing cash flow associated with the swap notional listed on the slide.

James J. Herzog: While we took non-cash losses in the fourth and first quarters, we will recover them back, with the majority coming back into net interest income in 2025 and 2026. Now that we have fully re-designated the remaining impact swaps, we have included quarterly FISB-related net interest income projections in the appendix for your modeling. Moving to slide 11, we expect the attrition of our swap and securities portfolio to create positive earnings momentum, as scheduled swap maturities outpace the remaining forward starting swaps in 2024.

Jim: While we took noncash losses in the fourth and first quarters, we will treat them back with the majority coming back into net interest income in 2025 and 2026.

Jim: Now that we've fully re designated the remaining impact of swaps. We have included quarterly Bisbee related net interest income projections in the appendix for your modeling.

Jim: Moving to slide 11, we expect the attrition of our swap and securities portfolio to create positive earnings momentum.

Jim: Scheduled swap maturities outpaced the remaining forward starting swaps in 2024.

Jim: By the end of 2025, we expect lower overall notional balances and a 14 basis point increase in swap yields creating a tailwind for net interest income.

James J. Herzog: By the end of 2025, we expect lower overall notional balances and a 14 basis point increase in swap yields, creating a tailwind for net interest income. In our securities portfolio, we expect approximately $4 billion in repayments and maturities by the end of 2025.

Jim: Within our securities portfolio, we expect approximately $4 billion in repayments and maturities by the end of 2025.

Jim: Although some of this may be partially offset by reinvestments in the portfolio, we expect to redeploy that liquidity at substantially higher rates.

Melinda A. Chausse: Although some of this may be partially offset by reinvestments in the portfolio, we expect to redeploy that liquidity at substantially higher rates. All together, we expect these portfolio trends to benefit our earnings trajectory. Credit quality remains strong, as highlighted on slide 12. Net charge-offs of 10 basis points declined from the fourth quarter, which were already below our normal range. Elevated interest rates continue to pressure customer profitability and debt service and debt service ratios, which drive migration and general middle market and senior housing. Our senior housing exposure is limited by design, and with a geographically diverse new construction orientation, recourse, and potential for favorable macroeconomic and demographic tailwinds, we feel the risk is very manageable.

Jim: Together, we expect these portfolio trends to benefit our earnings trajectory.

Jim: Credit quality remained strong as highlighted on slide 12.

Jim: Net charge offs of 10 basis points decline from the fourth quarter, which were already below our normal range.

Jim: Elevated interest rates continued to pressure customer profitability and that ratio of service and debt service ratios, which drove migration in general middle market and senior housing.

Jim: Our senior housing exposure is limited by design and with a geographically diverse new construction orientation recourse and potential for favorable macroeconomic and demographic tailwind we feel the risk is very manageable.

James J. Herzog: Total portfolio normalization trends resulted in an increase in the allowance for credit losses to 1.43% of total loans. Non-performing assets also increased but still remain well below the historical average. Overall, our trends remained in line with expectations, and while we continue to monitor the portfolio very closely, we believe ongoing migration will remain manageable. On slide 13, first quarter non-interest income of $236 million included a $39 million non-cash loss related to the Bisbee loan hedges not yet designated.

Jim: Total portfolio of normalization trends resulted in an increase in the allowance for credit losses to 143% of total loans.

Jim: Nonperforming assets also increased but still remained well below historical averages.

Jim: Overall, our trends remained in line with expectations and while we continue to monitor the portfolio very closely we believe ongoing migration will remain manageable.

Jim: On slide 13 first quarter noninterest income of $236 million included a $39 million noncash loss related to the loan hedges not yet designated.

James J. Herzog: This compared to a $91 million BISB impact in the fourth quarter, and since we have now fully redesignated the remaining impacted swaps, we do not expect additional mark-to-market volatility related to BISB cessation. Fiduciary income was impacted by accrual adjustments in trust and accounting changes associated with our Ameriprise transition. Initial feedback on Ameriprise has been positive, and we continue to think this partnership can drive meaningful revenue growth over time.

Jim: This compared to a $91 million impact in the fourth quarter and since we have now fully re designated the remaining impacted swaps, we do not expect additional mark to market volatility related to bisbee cessation.

Jim: Fiduciary income was impacted by accrual adjustments and trust and accounting changes associated with our Ameriprise transition.

Jim: Initial feedback on Ameriprise has been positive and we continue to think this partnership can drive meaningful revenue growth over time.

Jim: First quarter capital markets income was seasonally light as higher syndication fees were offset by declines in interest rate and energy derivative products.

James J. Herzog: First quarter capital markets income was seasonally light as higher syndication fees were offset by declines in interest rate and energy derivative products. We had a $5 million miscellaneous item in the first quarter related to a vendor contract, but we would not expect that benefit to repeat. Expenses on slide 14 included an estimated $16 million additional special FDIC assessment that was incremental to the $109 million charge taken in the fourth quarter.

Jim: We had a $5 billion miscellaneous item in the first quarter related to a vendor contract, but we would not expect that benefit to repeat.

Jim: Expenses on Slide 14 included an estimated $16 billion additional special FDIC assessment incremental to the $109 million charge taken in the fourth quarter.

Jim: Excluding this assessment and deferred compensation expenses performed in line with expectations for the quarter.

James J. Herzog: Excluding this assessment and deferred compensation, expenses performed in line with expectations for the quarter. Generally, we saw seasonal declines across most expense categories with lower severance and temporary labor, offset partially by stock compensation. In addition, we saw the benefit of lower pension expense, which will be consistent throughout the year. Expense recalibration actions announced last quarter are underway, and we expect a majority of identified colleague separations and banking center closures to occur in the second quarter.

Jim: Generally we saw seasonal declines across most expense categories with lower severance and temporary labor.

Jim: Offset partially by stock compensation.

Jim: Further we saw the benefit of lower pension expense, which will be consistent throughout the year.

Jim: Expense Recalibration actions announced last quarter are underway and we expect the majority of identified colleagues separations and banking center closures to occur in the second quarter.

Jim: We remain keenly focused on ongoing expense management to support investments and enhance overall earnings.

James J. Herzog: We remain keenly focused on ongoing expense management to support investments and enhance overall earnings. Slide 15 highlights our conservative capital position as our estimated CET1 grew to 11.47%. Although we are below $80 billion in assets, our estimated CET1, adjusting for the AOCI opt-out, was already above the required regulatory minimums and buffers.

Jim: Slide 15 highlights our conservative capital position as our estimated CET one crew to 11, 47%.

Jim: Although we are below $80 billion in assets, our estimate of CET, one adjusting for the OCI opt out was already above the required regulatory minimums and buffers.

Jim: Despite higher unrealized OCI losses due to the rate movement tangible common equity increased to $6 36%.

James J. Herzog: Despite higher unrealized AOCI losses due to the rate movement, tangible common equity increased to 6.36%. We expect unrealized losses to burn down over time as securities repay and swaps mature, but the rate curve continued to create near-term volatility. As I mentioned on our last earnings call, we favor a conservative approach to capital management and plan to monitor ongoing AOCI movement and regulations as they evolve. Our outlook for 2024 is on slide six. We project full-year average loans to decline 3%, largely due to optimization efforts in 2023.

Jim: We expect unrealized losses to burn down over time as security's repay in swaps mature.

Jim: The rate curve continued to create near term volatility.

Jim: As I mentioned on our last earnings call, we favor a conservative approach to capital management and planning to monitor ongoing OCI movement in regulations as they evolve.

Our outlook for 2024 is on slide 16.

Jim: We project full year average loans declined 3% largely due to optimization efforts in 2023.

Jim: Despite soft first quarter demand and the higher rate curve, we still see constructive signs in customer sentiment and pipeline supporting our projected 4% to 5% point to point growth.

James J. Herzog: Despite soft first-quarter demand and the higher rate curve, we still see constructive signs in customer sentiment and pipeline supporting our projected 4-5% point-to-point growth. With average loans expected to be flat to down 1% in the second quarter, we still anticipate broad-based growth in the second half of the year. Four-year average deposits are expected to be down 2-3% from 2023 or down 1-2% point-to-point. This assumes our new lower level of broker time deposits remains flat from March 31st and represents an improved average customer deposit outlook for the year.

Jim: With average loans expected to be flat to down 1% in the second quarter, we still anticipate broad based growth in the second half of the year.

Jim: Full year average deposits are expected to be down 2% to 3% from 2023 are down 1% to 2% point to point.

Jim: This assumes our new lower level of broker time deposits remains flat from March 31, and represented an improved average customer deposit outlook for the year.

James J. Herzog: Excluding broker time deposits, we expect year-end 2024 deposits to exceed year-end 2023. Our year-over-year non-interest income outlook, down 11%, remains unchanged despite movement in the rate curve. Strong deposit performance as well as moderating deposit betas largely offset the reduction in the number of rate cuts. As a point of clarification, we used the April 10th forward curve to reflect the most recently published CPI number and market consensus reflecting two rate cuts in the second half of the year.

Jim: Excluding brokered time deposits, we expect year end 2020 for deposits to exceed year end 2023.

Our year over year noninterest income outlook down 11% remains unchanged despite movement in the rate curve.

Jim: Strong deposit performance as well as moderating deposit betas, largely offset the reduction in the number of rate cuts.

Jim: As a point of clarity we use the April 10th forward curve to reflect the most recently published CPI number and market consensus reflecting two rate cuts in the second half of the year.

James J. Herzog: As I mentioned at a conference last month, movement in the rate curve since 1231 does push our projected net interest income drop into the second quarter, but as you can see in our guide, we do not expect the quarter-over-quarter decline to be significant. Credit quality remains strong, and we expect continued migration to be manageable.

Jim: As I mentioned at a conference last month movement in the rate curve. Since 12 months 31 does push our projected net interest income trough into the second quarter, but as you can see in our guide we do not expect the quarter over quarter decline to be significant.

Jim: Yes.

Jim: Credit quality remains strong and we expect continued migration to be manageable, we forecast full year net charge offs to move into the lower half of our normal 20% to 40 basis point range.

James J. Herzog: We forecast four-year net charge-offs to move into the lower half of our normal 20 to 40 basis point range. We expect the auditor's income to grow 1-2% on a reported basis, which will be down 1% year-to-year when adjusting for Bisbee and Ameriprise, as detailed on slide 39. With the higher forward curve, risk management income is expected to remain strong, and we project growth in most customer-related fee income categories in the second quarter and throughout the year.

Jim: We expect noninterest income to grow 1% to 2% on a reported basis, which would be down 1% year to year, when adjusting for <unk> and Ameriprise as detailed on slide 39.

Jim: With the higher forward curve risk management income is expected to remain strong and we project growth in most customer related fee income categories in the second quarter and throughout the year.

Jim: Yes.

Full year noninterest expenses are expected to declined 3% on a reported basis, but growth 3% after adjusting for special FDIC assessments expense Recalibration and Ameriprise.

James J. Herzog: Full-year non-interest expenses are expected to decline 3% on a reported basis but grow 3% after adjusting for special FDIC assessments, expense recalibration, and a merit prize. As always, this assumes deferred compensation of $0 for the remaining quarter. Projected second quarter expenses should come down from the first quarter, due in part to seasonal compensation, and we expect to see the benefit of savings related to our recalibration efforts throughout the year. However, continued strategic investment remains a priority, and the bar for regulatory compliance and risk management frameworks continues to rise.

Jim: As always this assumes deferred compensation of zero dollars for the remaining quarters.

Jim: Projected second quarter expenses should come down from the first quarter due in part to seasonal compensation and we expect to see the benefit of savings related to a recalibration efforts throughout the year.

Jim: Continued strategic investment remains a priority and the bar for regulatory compliance and risk management framework continues to rise. So we are working to offset and self fund these increasing pressures.

James J. Herzog: So we are working to offset and self-fund these increasing pressures. We saw a discrete tax benefit in the first quarter. By excluding discrete items, we project a 24% tax rate for the full year. Even with projected loan trends, we expect to maintain capital well in excess of our 10% target. We will continue to monitor AOCI volatility and the evolving regulatory environment as we continue to take a conservative approach to shared recourse. Overall, favorable deposit trends put us on a great path to start the year, and we feel very good about the earnings trajectory of our business. Now, I'll turn the call back to Curtis.

Jim: We saw a discrete tax benefit in the first quarter, but excluding discrete items, we project a 24% tax rate for the full year.

Jim: Even with projected loan trends, we expect to maintain capital well in excess of our 10% target.

Jim: We will continue to monitor LCI volatility and the evolving regulatory environment as we continue to take a conservative approach to share repurchases.

Jim: Overall favorable deposit trends put us on a great path to start the year and we feel very good about the earnings trajectory of our business now I will turn the call back to Kurt.

Kurt: Thank you Jim.

Curtis Chatman Farmer: We understand the heightened industry focus on the timing of rate cuts and what that means for quarterly net interest income, and we think we have a compelling earnings trajectory. However, as we think about the true value in our business, we think it's important to take a step back and reinforce our differentiated value proposition, as shown on slide 17. As a leading bank for business with strong wealth management and retail capabilities, our tenured colleagues deliver value-added expertise to our enviable customer base.

Kurt: We understand the heightened industry focus on the timing of rate cuts and what that means for quarterly net interest income and we think we have a compelling earnings trajectory.

Kurt: However, as we think about the true value of our business. We think it's important to take a step back and reinforce our differentiated differentiated value proposition as shown on slide 17.

Kurt: As a leading bank for business with strong wealth management and retail capabilities are tenured colleagues deliver value added expertise to our enviable customer base.

Curtis Chatman Farmer: Our highly regarded approach to credit, coupled with our commitment to diversification, mitigates risk of loss and is a historically outperformed peer. Customer feedback reinforces our belief that we are the right size to deliver tailored products by adding value to their business and providing a high level of service. Product investment and strategic partnerships, such as Ameriprise, that we entered into last year are designed to further enhance our core set of solutions. The resilience of our operational deposit base was highlighted this quarter as we outperformed normal seasonal patterns and maintained a favorable deposit mix.

Kurt: Our highly regarded approach to credit coupled with our commitment to diversification mitigates mitigates risk of loss and has historically outperformed peers.

Kurt: Customer feedback reinforces our belief that we are the right size to deliver tailored products by adding value to their business and providing a high level of service.

Kurt: Our investment in strategic partnerships, such as Ameriprise that we entered into last year are designed to further enhance our core set of solutions.

Kurt: The resilience of our operational deposit base with Hollywood has highlighted this quarter as we outperform normal seasonal patterns and maintaining a favorable deposit mix.

Curtis Chatman Farmer: We remain committed to managing the company for the long term, which means taking targeted expense actions like those announced last quarter while still prioritizing investments in our future. We have a strong capital base. Through our proven Approach to Credit and Commitment to Risk Management, we see positive momentum for reasonable growth and enhanced profitability. Appreciate your time this morning. Now, we'd be happy to take some questions. Thank you.

Kurt: We remain committed to managing the company for the long term, which means taking targeted targeted expense actions like there is an announced last quarter, while still prioritizing investments in our future.

Kurt: Our capital base proven approach to credit and commitment to risk management, we see positive momentum for reasonable growth and enhanced profitability.

Speaker Change: I appreciate your time this morning, and now we'd be happy to take some questions.

Speaker Change: Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time.

Operator: Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Again, that is Star 1 to register a question. Today's first question is coming from Ken Ustin of Jeffreys, please go ahead.

Speaker Change: Information total indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys again that is star one to register a question.

Speaker Change: Today's first question is coming from Ken <unk> of Jefferies. Please go ahead.

Ken: Good morning, Ken.

Kenneth Michael Usdin: about improving profitability and the implied improvement in NII throughout the year. Just wondering, want to make sure that after this dip in the second quarter, then it seems like we could see quite a sharp increase in second half NII. Just can you help us understand what that cadence looks like? So if it's down a little bit, is it up and even more up to exit? Or because the implied, you know, sequential feels like it could be like 570 ish, you know, kind of getting towards the end of the year. And I just want to make sure we understand how that looks as these deposit pricing and last kind of things move through. Thanks.

Ken: And about improving profitability in the implied improvement in NII throughout the year I'm, just wondering I want to make sure that after this dip in the second quarter. Then it seems like we could see quite a sharp increase in the second half NII.

Ken: Can you help us understand like what that cadence looks like so if it's down a little bit is it up and even more up to exit or because the implied sequential feels like it could be like $5 70 ish kind of getting towards the end of the year and I just want to make sure we understand like how that looks as these deposit pricing and last kind of things move through thanks.

James J. Herzog: All right. Good morning, Ken. It's Jim.

Ken: All right good morning, Ken It's Jim happy to answer that question.

James J. Herzog: I'm happy to answer that question. Number one, we do see an increasing rate of improvement quarter to quarter as we go through the year from second to third and third to fourth. And frankly, I expect that trend to continue beyond the fourth quarter of this year. We do have a lot of momentum behind us. If I look at some of the big drivers that are driving that momentum, probably the top of the list would be maturing swaps and securities.

Jim: Number one we do see an increasing rate of improvement quarter to quarter as we go through the year from second to third and third to fourth and frankly, I expect that trend to continue even beyond the fourth quarter of this year, we do have a lot of momentum behind us.

Jim: If I look at some of the big drivers that are driving that momentum you'll probably the top of the list would be the maturing swaps and securities and we did tried to outline what that benefit could be on slide 11, showing those various maturities and they do pick up momentum as we move through the year and into next year. So it'd probably list that is one of the biggest.

James J. Herzog: And we did try to outline what that benefit could be on slide 11, showing those various maturities, and they do pick up momentum as we move through the year and into next year, so I'd probably list that as one of the biggest drivers. But I would also say loan volume is going to be almost an equally large driver. You know, if you look at the guide that we gave, it implies a pretty significant hockey stick-up in the last couple quarters of the year.

Jim: Rivers, but I would also say loan volume is going to almost be an equally large driver.

Jim: If you look at the guide that we gave it implies a pretty significant hockey stick up in the last couple of quarters of the year and so we're certainly pick up some income there.

James J. Herzog: And so we'll certainly pick up some income there. Probably on a lesser basis, obviously, we'll get some more days in the second half of the year. And then the liability sensitivity, which will not be as large but will be a factor, will start to kick in in the second half of the year, too. So it will be a nice, smooth trajectory upward, and we do feel really good about that momentum.

Jim: On a lesser basis, obviously, we'll get some more days in the second half of the year and then the liability sensitivity, which will not be as large but will be a factor we will start to kick in in the second half of the year or two so it will be a nice smooth trajectory upward and we do feel really good about that momentum.

James J. Herzog: Great. Okay, and as a follow up, just on the deposit side, you know, you mentioned that you think deposits will end higher at the end of the year. I think, you know, the mix is still important. How do you expect that DDA to total deposit mix to go? I mean, granted, it's all good in an absolute range if it's still all moving up. But just can you help us understand the mix? Thanks. Yeah, happy to do that. And just to re-clarify

Speaker Change: Great, Okay, and as a follow up just on the deposit side. You mentioned that you think deposits will end higher at the end of the year.

Speaker Change: The mix is still important and how do you expect that DDA to total deposit mix to go I mean granted it's all good.

Speaker Change: Absolute range, if it's still all moving up but just can you help us understand the mix. Thanks.

Speaker Change: Yeah happy to do that and just to re clarify that will be excluding broker deposits time broker deposits.

James J. Herzog: Yeah, happy to do that. And just to re-clarify, that will be excluding broker deposits, time broker deposits, since obviously we don't consider those customer-related. Those are down quite a bit even since the end of 23, so that guy was excluding those. But putting that aside, we do expect the mix to stay somewhat consistent right now. You know, we'll continue to monitor it in this, you know, a little bit higher for a longer environment, but it's been holding up very well to date.

Speaker Change: Since obviously, we don't consider those customer related those are down quite a bit even since the end of 'twenty. Three so that guidance was excluding those but putting that aside we do expect the mix to stay somewhat consistent right now.

Speaker Change: We'll continue to monitor it and this little bit higher for longer environment, but it's been holding up very good to date.

James J. Herzog: And as we look out into the future, we do expect it to continue to hold up to the extent it dips below 40%, which we're not projecting at this time. But it's more likely to be due to success with interest-bearing deposits as opposed to any challenge with non-interest-bearing. So we think our mix will continue to be, you know, peer-leading and a real competitive advantage for us.

Speaker Change: And as we look out into the future. We do expect it to continue to hold up to the extent it dips below 40%, which we're not projecting at this time, it's more likely to be due to the success with interest bearing deposits as opposed to any challenge with noninterest bearing so we think our mix will continue to be peer leading and a real competitive.

Speaker Change: <unk> for us.

Speaker Change: Great. Thank you.

Speaker Change: Ken.

Ken: Thank you. The next question is coming from John <unk> of Evercore ISI. Please go ahead good.

John G. Pancari: Thank you. The next question is coming from John Pancari of Evercore ISI. Please go ahead.

John: Good morning, John.

John: Good morning.

James J. Herzog: Good morning. Also, on the NII expectation, I know you indicated that the curve is essentially pushed the NII trough into the second quarter. You know, but you also mentioned some of the dynamics of an improving trajectory. Can you maybe give us some color if we do not get the forward curve and we do not get cuts at all in 2024? What does that mean for your NII, not only the timing of the trough, but the broader outlook? And then can you just remind us what said cut assumption do you have currently in your expectation? Yeah.

John: Also on the NII expectation I know you indicated that the curve is essentially pushed the NII trough into the second quarter.

John: But you also mentioned some of the dynamics of an improving trajectory.

John: Could you maybe give us some color.

Speaker Change: Do not get.

Speaker Change: Forward curve and we do not get cuts at all in 2024, what does that mean for your NII in not only the timing of the trough, but the broader outlook and then can you just remind us what that assumption do you have currently in your expectation.

Speaker Change: Yes, I mean, right now and expectations, we follow the forward curve that came out right. After the CPR report. So we are sticking pretty closely to that which reflects just under two cuts in the second half of the year.

James J. Herzog: Yeah, I mean, right now in the expectations, we follow the forward curve that came out right after the CPR report, so we're sticking pretty closely to that, which reflects just under two cuts in the second half of the year. You know, if we don't get those cuts, I did mention the liability sensitivity, and that's a very slight sensitivity position. We're very close to interest neutral, so I would not want to overplay that.

Speaker Change: If we don't get those cuts.

Speaker Change: Ed mentioned, the liability sensitivity and Thats, a very slight sensitivity position, we're very close to interest neutral so I would not want to overplay that.

James J. Herzog: I think if we don't get the cuts, because we are so close to interest neutral, it's not so much the sensitivity that causes the challenge, but I think what causes the challenge for the whole industry is that with flat rates, you still have the potential for depositors to ask for higher interest rates. So I do think probably all banks will see slight increases in pay rates over the course of the year and in the next year if rates weren't going to change.

Speaker Change: I think if we don't get the cuts because we are so close to interest neutral it's not so much the sensitivity of that causes the challenge, but I think what causes the challenge for the whole industry is with flat rates you still have the potential for depositors to ask for higher pay rates. So I do think probably all banks will see slight increases in pay rates.

Speaker Change: Over the course of the year and into next year, if rates werent going to change I do expect that to be a slight impact.

James J. Herzog: I do expect that to have a slight impact, but those would be the two factors. We lose a tiny bit of liability sensitivity, which is more of a minor factor for this year, but you also run the risk of continued rising pay rates as we move through the year also.

Speaker Change: But those would be the two factors, we lose a tiny bit of liability sensitivity, which is more of a minor factor for this year, but you also run the risk of continued rising pay rates as we move through the year also.

Speaker Change: Okay great.

James J. Herzog: Okay, great. That helps. Thank you. And then separately on the Loan Growth side, I know you revised your average loan growth guide down to 3% and you cited some muted demand but an improving pipeline and the expectation of a back half pickup and growth. Can you maybe talk about the confidence in that pickup?

Speaker Change: Thank you and then separately on the.

Speaker Change: Loan growth side I know you revised your average loan growth guide down.

Speaker Change: Down 3%.

Speaker Change: You cited some muted demand, but improving pipeline.

Speaker Change: And the expectation of a back half pickup in growth can you maybe talk about the confidence in that kick up where do you see loan generation strengthening what anecdotal data supports that that expectation because clearly we're seeing industry pressure at this point.

Peter L. Sefzik: Where do you see loan generation strengthening? What anecdotal data supports that expectation? Because, clearly, we're seeing industry pressure at this point.

Peter L. Sefzik: Hey, John, this is Peter. So, yeah, when you say 3% down, that's the average year-over-year, and our outlook now is 4% to 5% point-to-point for 2024. And, you know, I would say, as we did in the comments here, it's pretty broad-based. We've got some give-and-takes as we go throughout the year across our portfolio. I think, in general, though, the middle market is kind of where we feel probably the best about that. We did a lot of rationalization in 2023 coming into 2024 that I think sort of affected us for the first quarter and will a little bit in the second.

Speaker Change: Yes, John this is Peter so when you say, 3% down Thats the average year over year and our outlook now is 4% to 5% point to point for 2024.

Speaker Change: I would say as we did in the comments here, it's pretty broad based we've got some gives and takes as we go throughout the year across our portfolio.

Speaker Change: I think in general, though middle market is kind of where we feel probably the best about that.

Speaker Change: We did a lot of rationalization in 'twenty three coming into 'twenty for that I think is sort of affected us for the first quarter and will a little bit in the second but we're pretty much past that rationalization and I think from here on we feel good about being able to project, a 4% to 5% point to point and again I'd say, it's pretty broad based occur.

Peter L. Sefzik: But we're pretty much past that rationalization, and I think from here on, we feel good about being able to project the 4% to 5% point-to-point. And, again, I'd say it's pretty broad-based across really all of our businesses that you see in the deck that we show. You know, there are some that I would say are probably more impacted by the interest rates higher for longer than others, but I would say that that's mostly kind of in our small business, business banking, maybe private banking space.

Speaker Change: Cross really all of our businesses that you see in the deck that we show. There are there are some that I would say are probably more impacted by the.

Speaker Change: The interest rates higher for longer than others, but I would say that that's mostly kind of in our small business business banking.

Speaker Change: Maybe private banking space, but in general middle market and the up I think.

Peter L. Sefzik: But, in general, middle market and up, I think, you know, it seems like we're seeing really, really good opportunities. And, again, the pipeline has grown, and I really feel like that's going to be an opportunity throughout the year.

Speaker Change: It seems like we're seeing really really good opportunities and again the pipeline has grown and really feel like that's going to be an opportunity throughout the year.

Speaker Change: Thanks, and did you comment on your utilization rate for the quarter.

Peter L. Sefzik: Thanks, and did you comment on your utilization rate for the quarter?

Speaker Change: I believe it's in our deck, but its down just a little bit on utilization across the portfolio.

Peter L. Sefzik: I believe it's on our deck, but it's down just a little bit on Oh, okay, great. Thank you.

Speaker Change: Yes.

Speaker Change: Okay, great. Thank you.

Sean: Hey, Sean.

Peter L. Sefzik: Okay, great. Thank you.

Unknown Executive: Thank you. The next question is coming from Scott Seifert of Piper Sandler. Please go ahead.

Thank you. The next question is coming from Scott <unk> of Piper Sandler. Please go ahead good.

Unknown Executive: Morning, Scott. Thank you, guys. Good morning.

Sean: Morning, Scott. Thank you guys. Good morning, Thank you for taking the question.

James J. Herzog: Thank you for taking the question. So, Jim, I was hoping for a lot of good detail on slide 11 regarding the, you know, swaps and the securities that'll become a, you know, pretty meaningful tailwind as we go forward. Are you able to sort of help size things just the way you sort of think about things internally, just, you know, the order of magnitude of how much NII can improve over the course of the next couple years?

Scott: Tim I was hoping a lot of good detail on slide 11 regarding the.

Scott: Slots in the securities that'll be become a pretty.

Pretty meaningful tailwind as we go forward are you able to sort of help size just the way you sort of think about things internally.

Scott: Order of magnitude of how much NII could improve over the course of the next couple of years you know some of your peers have given sort of a.

James J. Herzog: You know, some of your peers have given sort of a, you know, longer-term margin outlook. Just anything you're comfortable giving. I think there's sort of a wide range of expectations for what earnings could look like at Comerica over the next couple of years. So, just anything that helps sort of narrow the cone a little would be great.

Scott: Longer out margin outlook.

Speaker Change: Anything you are.

Speaker Change: Comfortable giving I think I think there's sort of a wide range of expectations for what earnings could look like at Comerica over the next couple of years. So just anything that helps sort of narrow the cone a little would be great.

Speaker Change: Yeah happy to do that Scott.

James J. Herzog: Yeah, happy to do that, Scott. It's going to depend somewhat on how we redeploy that liquidity. So there's going to be a range of outcomes there. But we do pick up increasing momentum to move through this year, and that will continue into the next year. You know, next year, we are going to be, you know, pretty far north of 100 million dollars in net benefit, netting out the maturing securities and swaps versus what we might reinvest it in.

Speaker Change: It's going to depend somewhat on how we've redeployed that liquidity. So there is going to be a range of outcomes there.

Speaker Change: But we do pick up increasing momentum as we move through this year that will continue into next year next year, we are going to be pretty far north of $100 million of net benefit.

Speaker Change: Netting out the maturing securities and swaps versus what we might reinvest it in.

James J. Herzog: And that, that benefit next year will also increase. You know, positive momentum upward as we move through 25. And so the exit rate for 25 going to 26 will also be very substantial. So there is a pretty incredible tailwind coming our way as relates to some of these maturity.

Speaker Change: And that that benefit next year, we will also increase.

Speaker Change: Positive momentum upward as we move through 'twenty five and so the exit rate for 25, 1% to 26 will also be very substantial. So there is a pretty incredible tailwind coming our direction as it relates to some of these maturities.

Speaker Change: Okay perfect. Thank you and then maybe.

Unknown Executive: Okay, perfect. Thank you.

James J. Herzog: And then maybe, if you could speak in a bit more detail around your thoughts on capital management, you've been very appropriately conservative, and I think the rate moves in the first quarter, in particular, kind of validated that. But I was just curious if there's a point where you just get more comfortable resuming repurchase in spite of kind of the volatility in the rate backdrop, just given what we know will be coming due and sort of going away over the next couple of years.

Speaker Change: If you could speak in a bit more detail around thoughts on capital management, you've been very appropriately conservative.

Speaker Change: I think the rate moves in the first quarter in particular kind of validated that but just curious if there's a point where you just get more comfortable resuming.

Speaker Change: Resuming repurchased in spite of kind of the volatility in the rate backdrop, just given what we know will be coming due and sort of going away over the next couple of years.

James J. Herzog: Yeah, that is something we continue to monitor very closely. You know, obviously, the first use of capital for us is for our customers. And as you heard from Peter, we are expecting pretty significant loan growth in the second half of the year. So we want to make sure we're there to support our customers.

Speaker Change: Yes that is something we continue to monitor very closely.

Speaker Change: Obviously, the first as we've said many times before the first use of capital for US is for our customers.

Speaker Change: As you heard from Peter we are expecting pretty significant loan growth in the second half of the year. So we want to make sure. We're there to support the customers and certainly we're going to be in very good shape from that standpoint.

James J. Herzog: And certainly, we're going to be in very good shape from that standpoint. In terms of turning on the share repurchase, you know, I think we're going to be in really strong shape from a capital ratio standpoint, even with that loan growth. But we continue to look at the interest rate environment and the ALCI and the new, you know, end game rules whenever they should happen to come out. We want to make sure we're comfortable from that standpoint.

Speaker Change: In terms of turning on the share repurchase.

Speaker Change: We're going to be really strong shape from a capital ratio standpoint, even with that loan growth, but we continue to look at the interest rate environment, and the OCI and the new and game rules whenever they should happen to come out we wanted to make sure were comfortable from that standpoint, and we have seen the interest rate environment kind of shift on us in recent months.

James J. Herzog: And we have seen the interest rate environment kind of shift on us in recent months, and the momentum seems to be a little more upward than backwards, downward. So, you know, that gives us some pause in terms of turning on the share repurchase, and we would like to see some stability in interest rates and the overall curve before we turn the share repurchase back on. So that continues to be the number one factor that we're looking at.

Speaker Change: And the momentum seems to be a little more upward then backwards downward so that gives us some pause in terms of turning on the share repurchase.

Speaker Change: We would like to see some stability in interest rates and the overall curve before we turn the share repurchase back on so that continues to be the number one factor that we're looking at.

Speaker Change: Okay perfect. Thank you very much.

Unknown Executive: Okay, perfect. Thank you very much.

Speaker Change: Thanks Scott.

Steven A. Alexopoulos: Thank you. Our next question is coming from Steve Alexopoulos of JPMorgan Chase. Please go ahead.

Speaker Change: Thank you. Our next question is coming from Steve Alexopoulos of Jpmorgan Chase. Please go ahead.

Steven A. Alexopoulos: Good morning, Steve. Good morning.

Steven A. Alexopoulos: Good morning, everyone.

Steven A. Alexopoulos: Good morning, So last quarter when the forward curve I think at six cuts. It Jim you talked about NIM dipping down a bit in <unk> than a steady climb I think you said by the end of 2024, we can get to a NIM that was above the <unk> 23 level, which was $2 91.

Steven A. Alexopoulos: So last quarter, when the forward curve, I think, had six cuts in it, Jim, you talked about NIM dipping down a bit at one Q, then a steady climb. I think you said by the end of 2024, we could get to a NIM that was above the 4Q23 level, which was 291. It sounds now that NIM will likely bottom, I think you're saying, in 2Q. But I think you could still get up to that 291 level by the end of the year.

Steven A. Alexopoulos: It sounds now that the NIM will likely bottom I think youre seeing in <unk> do you think you could still get up to.

Steven A. Alexopoulos: So that $2 91 level by the end of the year.

James J. Herzog: Hey, good morning, Steve. Yeah, I do. We never give a precise percentage for the reasons I've talked about in the past. But I will clarify, even though we see the dollars of net interest income tropping in the second quarter, I do think no percentage has dropped in the first quarter that we just saw. And that's because the balance sheet will continue to shrink a little bit as we, on average, have repaid debt maturities and are seeing cash come down.

Jim: Hey, good morning, Steve, Yes, I do we never give a precise and a percentage for the reasons I've talked about in the past, but I will clarify even though we see the dollars of net interest income dropping in the second quarter I do think NIM percentage has dropped in the first quarter that we just saw and thats because the balance sheet will.

Jim: <unk> to shrink a little bit is we on average have repaid some debt maturities and seeing cash come down and again thats one of the reasons I never offer a precise percentage of NIM percentage because the two of them have two different answers but.

James J. Herzog: And again, that's one of the reasons I never offer a precise percentage on NIM percentage because the two of them have two different answers. But we do see NIM percentage continuing to rise as we move through the year. I think we'll be closer to that 290, quite frankly, in the second quarter. If you exclude the BISB impact, you'll see that we're going to have a $3 million BISB negative impact in the second quarter compared to the positive $3 million we saw in the first quarter.

Jim: But we do see NIM percentage continuing to rise up as we move through the year.

Jim: I think it will be closer to that 290, <unk> quite frankly in the second quarter.

Jim: Excluding the <unk> impact you'll see that we're going to have a $3 million bisbee negative impact in the second quarter compared to the positive $3 million. We saw in the first quarter Youll see that in the business be amortization slide.

James J. Herzog: You'll see that on the BISB amortization slide. But excluding that, we do expect to be approaching 290 in the second quarter. And at this point, I would expect to be near or slightly above 3% by the end of the year. So we are on a very positive trajectory as it relates to both net interest income dollars and NIM percentage.

Jim: But excluding that we do expect to be approaching that 290 in the second quarter and at this point I would expect to be near or slightly above 3% by the end of the year. So we are on a very positive trajectory as it relates to both net interest income dollars and NIM percentage.

Steven A. Alexopoulos: That's helpful. It's interesting, too. The key to all of this seems to be this hockey stick you're talking about of loan growth coming back in the back half of the year. It's interesting when you look, like, current GDP is fairly strong. Your markets, in particular, are fairly strong. However, your general middle market balance is still declining. And I feel like we've been down this road before, not only with Comerica, but with the industry, where pipelines improve, but then we don't see it translate into actual loan growth. What gives you that confidence? Like, what is going to change with the economic picture right now versus the second half, where you will suddenly see so much more commercial loan growth in the second half?

Jim: Yes.

Jim: Thats helpful. It's interesting the key to all of this seems to be this hockey stick youre talking about loan growth coming back in the back half of the year. It's interesting. When you look like current GDP is fairly strong your markets in particular, it's fairly strong.

Jim: General Middle market balance is still declining and I feel like we've been down this road before not only with comerica with the industry where pipeline improve but then we don't see it translate into actual loan growth. What gives you that confidence like what is going to change with the economic picture right now versus the second half where you will sudden.

Jim: We see so much more commercial loan growth in the second half.

Peter L. Sefzik: Steve, it's Peter. I mean, I guess that I would say, prior to the banking crisis, we weren't seeing pretty good loan growth across all of our portfolio, particularly in the middle market. And you're right, our geographies. I think the diversity of our portfolio continues to show really, really well. And in the middle market, in our geographies, believe it or not, in Michigan, in Texas, California is probably the most challenged, but a lot of our national businesses are not necessarily geographic specific.

Peter: Steve It's Peter.

Steven A. Alexopoulos: Yes, what I would say prior to the banking crisis, we werent seeing pretty good loan growth across all of our portfolio, particularly in middle market and Youre right. Our geographies I mean, I think the diversity of our portfolio continues to show really really well and.

Steven A. Alexopoulos: In middle market and our geographies, we're having really good results believe it or not in Michigan, and Texas, California is probably the most challenged but a lot of our national businesses are not necessarily geographic specific and so I think that that sort of broad based regular growth is what we would expect to see it across.

Peter L. Sefzik: And so I think that that sort of broad-based, regular growth is what we would expect to see across a lot of our businesses. And we've got different levers there that we can pull on how much we want to do in one business at any one time. And I think we feel really good about, you know, the overall trajectory for the second half of the year. So you're right. I mean, the first quarter came in a little lower than we maybe had expected.

Steven A. Alexopoulos: A lot of our businesses and we've got different levers there that we can pull.

Steven A. Alexopoulos: On how much we want to do in one business at any one time and I think we feel really good about the overall.

Steven A. Alexopoulos: Trajectory in the second half of the year. So you are right I mean, the first quarter came in a little lower than we maybe had expected, but I think what we're seeing in the pipeline growth in our customer sentiment continues to.

Peter L. Sefzik: But I think what we're seeing, and the pipeline growth, and our customer sentiment continues to improve quarter over quarter. And so that gives us the confidence that we expect to see more in the second half of the year.

To improve.

Steven A. Alexopoulos: For over quarter, and so thats, what gives us the confidence.

Steven A. Alexopoulos: We expect to see that in the second half of the year.

Speaker Change: Got it.

Peter L. Sefzik: Peter, do we need to see the Fed cutting rates to get this loan growth story moving? Like, if we don't get rate cuts this year, are you guys still confident we'll see that improvement in the second half?

Speaker Change: Do we need to see the fed cutting rates to get this loan growth story moving like if we don't get rate cuts. This year do you guys still confident we'll see that improvement in the second half.

Speaker Change: Yes, that's a really good question I would say that the last 45 days and that's probably a little bit of our factor into going from 5% to 4% to 5% I would say a little bit in <unk>.

Peter L. Sefzik: You know, that's a really good question. I would say that the last 45 days, that's probably a little bit of our factor into going from 5% to 4% to 5%, I would say a little bit. In some markets, that interest rate issue is bigger than others and in some businesses. As I said a little while ago, I think you see that in business banking. I think you see that in small business.

Speaker Change: Some markets that interest rate issue is bigger than others and in some businesses.

Speaker Change: As I said, a little while ago I think you see that in business banking I think you see that in small business I would say, California middle market is a little more interest rate sensitive it seems like than our other markets, but when you look at kind of our broader specialty businesses I don't know that the interest rate.

Peter L. Sefzik: I would say the California middle market is a little more interest rate sensitive, it seems like, than our other markets. But when you look at kind of our broader specialty businesses, I don't know that the interest rate outlook is per se a headwind or a tailwind, really, for that space. Again, I think the diversity of the portfolio gives us some good tailwinds into whatever kind of interest rate environment we're going to see. But I guess I would say the smaller and more consumer-oriented businesses; smaller businesses probably have a little bit of an interest rate headwind on them. But that's not a large, large percentage of our book overall.

Speaker Change: Outlook is per se, a headwind or tailwind really for that space. So.

Speaker Change: Again, I think the diversity of the portfolio it gives us some good.

Speaker Change: Tailwind into whatever kind of interest rate environment, we're going to see but I guess I would say the smaller.

Speaker Change: More consumer oriented businesses smaller businesses, probably have a little bit of an interest rate headwind to them, but that's not a large large percentage of our book overall.

Speaker Change: Got it.

Steven A. Alexopoulos: Great. Thanks for taking my questions. Yes.

Speaker Change: Great. Thanks for taking my questions.

Bernard Von Gizycki: Thank you. The next question is coming from Bernhard von Gesicke of Deutsche Bank. Please go ahead.

Speaker Change: Thank you. The next question is coming from Bernard <unk> of Deutsche Bank. Please go ahead.

Bernard: Good morning Bernard.

Bernard Von Gizycki: Hey guys, good morning. So you introduced the expense recalibration last quarter and I just wanted to get an update on the optimization of the real estate footprint and headcount reduction. I think headcount declined about 82 versus last quarter. And you noted the remaining will get done in 2Q. So how do we think about that 45 million cost savings being realized throughout the year?

Bernard: Hey, guys good morning to you.

Bernard: We introduced the expense Recalibration last quarter, and just wanted to get an update on the optimization of our real estate footprint and head count reduction I think head count declined about <unk> 82 versus last quarter.

Bernard: And you noted the remaining will get done.

Bernard: So how do we think about that $45 million cost savings being realized throughout the year.

James J. Herzog: Good morning, Bernard. It's Jim.

James J. Herzog: We still feel very good about that $45 million. We're very much on track with what we had expected. You know, relative to headcount, we did recognize some of that change in headcount in the first quarter. Some colleagues were notified but actually hadn't moved off the payroll yet, so we haven't seen all that headcount reduction yet, but we have seen a piece of it. You know, there is a much smaller portion of that headcount that has been redeployed into other open positions, but we would have expected to fill those positions anyway.

Bernard: Good morning, Bernard it's Jim we still feel very good about that $45 billion. We're very much on track, what we had expected relative to head count.

Jim: Did recognize some of that.

Jim: And head count in the first quarter.

Jim: Some colleagues have been notified but actually hadn't moved off the payroll yet so we haven't seen all of that head count reduction yet, but we have seen a piece of it.

Jim: There is a much smaller portion of that head count that has been redeployed into other open positions, but we would have expected to fill those positions anyway.

James J. Herzog: And so we will continue to see some attrition of staff just as we continue to implement these savings ideas, but virtually all colleagues have been notified at this point, and we're very much on track. I had mentioned in the last call that we do plan on reinvesting, you know, a fair amount of that savings and some of that investment; a fair amount of it will be in the risk management profile and the risk framework, and some of that will entail hiring colleagues in that space.

Jim: So we will continue to see some.

Jim: Krishnan of talent as we.

We continue to implement the savings ideas, but virtually all colleagues have been notified at this point and we're very much on track.

Jim: I had mentioned in the last call that we do plan on reinvesting.

Jim: Many of that savings and some of that investment a fair amount of it will be in risk management profile and the risk framework and some of that will entail hiring colleagues in that space. So you won't necessarily see the same drop on a net basis that we talked about on a gross basis in the last call, but I would just summarize it to say that we are very much on track.

James J. Herzog: So you won't necessarily see the same drop on a net basis that we talked about on a gross basis in the last call, but I would just summarize it to say that we are very much on track with that $45 million that we had talked about.

Jim: With that $45 million that we had talked about.

Speaker Change: Okay, Great and then just you highlighted the nice progress, obviously on reducing I think he'll be advances and broker deposits.

Bernard Von Gizycki: Okay, great. And then just, you know, you've highlighted the nice progress, obviously, on reducing the FHLB advances and broker deposits. You know, how should we think about the opportunity to further reduce wholesale funding throughout the rest of the year?

Speaker Change: How should we think about the opportunity to further reduce wholesale funding throughout the rest of the year.

James J. Herzog: Well, at this point, we've done a large portion of what we planned to do. You know, we don't have any near-term FHLB maturities, we finished a lot of that up this quarter, and so we don't necessarily want to prepay that and incur the penalty. So I think we're where we're going to be in large part with FHLB borrowings for right now. We do have a lot of broker deposits. Most of our broker deposits on the books mature this year, and we will let some of those roll off the books permanently, and some of those we will roll over.

Speaker Change: Well, we at this point, we've done a large portion of what we'd planned to do we don't have any near term FHL fee maturities. We finished a lot of that up this.

Speaker Change: This quarter.

Speaker Change: And so we don't necessarily want to prepay that and incur the penalty. So I think where we're going to be from in large part that vishal borrowings for right. Now we do have a lot of broker deposits most of our broker deposits on our books to mature this year and we will let some of those roll off the books permanently and some of those we will rollover so it depends.

James J. Herzog: So it depends on the shape of the balance sheet at that point. You know, we do have a senior debt issuance that matures later this summer, and depending on the state of the capital markets, we would love to go out and term out more of our funding, but that's going to depend on market receptiveness and overall credit spreads. But you're not going to see as significant of a change in summary in the remaining nine months as you have seen in recent months and what you saw in the first quarter.

On the shape of the balance sheet at that point, we do have a senior debt issuance that matures later this summer and depending on the state of the capital markets. We would love to go out and term out more of our funding. So that's going to depend on market Receptiveness and overall credit spreads, but youre not going to see as significant of a change in summary in the remaining nine months.

Speaker Change: Thats, what <unk> seen in recent months and what you saw in the first quarter.

Speaker Change: Okay got it thanks for taking my questions.

Bernard Von Gizycki: Okay, I got it. Thanks for taking my question.

Speaker Change: Thank you. Thank you.

Manan Gosalia: Thank you. The next question is coming from Manan Gosalia of Morgan Stanley. Please go ahead.

Speaker Change: Thank you. The next question is coming from the Dod.

Speaker Change: <unk> of Morgan Stanley. Please go ahead good.

Peter L. Sefzik: Hey, good morning. So I wanted to ask about deposits. You know, I can see that they're tracking relatively flat across, across the commercial bank. But you know, I think rate expectations moved more meaningfully in the back half of the quarter. And again, more recently after the quarter ended, is there much of a headwind from commercial clients, maybe taking a look, like taking another look at their NIB balances in a higher for longer rate environment?

Dod: Good morning.

Dod: Hey, good morning.

Dod: So I wanted to ask on deposits you can see that they're tracking relatively flat across <unk>.

Dod: Across the commercial bank.

Speaker Change: But I think rate expectations move more meaningfully in the back half of the quarter and again more recently after the quarter ended.

Speaker Change: Is there much of a headwind from commercial clients, maybe taking a look like taking another look at their niv balances in a higher for longer rate environment.

Peter L. Sefzik: You know, maybe if you could talk about, you know, what you're hearing from them? You know, is that something they could do? Or do you think that's pretty much the move from NIB to IB is pretty much done at this stage?

Maybe if you can talk about what are you hearing from them.

Speaker Change: Is that something they could do or do you think thats pretty much that moved from niv to IV is pretty much done at this stage.

Peter L. Sefzik: Manan, that's a good question. This is Peter.

Manav. It's a good question this is Peter.

Peter L. Sefzik: You know, I would say overall that we believe that the move from NIB to IB is over, but I think you probably still have some moving parts. Jim's point, if interest rates stay higher for longer, that conversation probably continues throughout the year, but I don't think it's at the pace we saw the last 18 months. So, you know, what we continue to hear is that our customers are really confident in Comerica.

I would say overall, we believe that that move from Niv to IV is is over but I think you probably still have some moving parts to Jim's point if interest rates.

Stay higher for longer that conversation probably continues throughout the year, but I don't think it's at the pace that we saw the last 18 months. So what we continue to hear is that.

Speaker Change: Our customers are really confident and comerica, they're really happy with what we're providing them products and services for their liquidity and we feel like the rates that we're putting out are very competitive. So overall the feedback that we're getting from our managers and our customers as I would tell you. It feels like the answer to that is yes.

Peter L. Sefzik: They're really happy with what we're providing them, products and services for their liquidity. And we feel like the rates that we're putting out are very competitive. So overall, the feedback that we're getting from our managers and our customers is, I would tell you, it feels like the answer to that is yes, that we think it's over.

Speaker Change: And we think its over but I think particularly in our larger businesses, that's going to be a regular dialogue throughout the year.

Peter L. Sefzik: But I think, particularly in our larger businesses, that's going to be a regular dialogue throughout the year as we kind of see what the interest rate outlook is. I want to remind you, though, when you look at the – you talk about commercial bank deposits, we've got a very healthy retail bank deposit base and a very healthy wealth management deposit base, both of which have really performed really well lately. And so I think that when you look at the balance sheet for us, again, the diversity of our deposit base is terribly powerful on a go-forward basis. So there are a lot of levers that we can move when it comes to interest rates and how we go out and attract deposits.

Speaker Change: As we kind of see what the interest rate outlook is I would remind you, though when you look at the you're talking about the commercial bank deposits. We've got a very healthy retail bank deposit base very healthy wealth management deposit base, both of which have really performed really well lately and so I think that when you look at the balance sheet.

Speaker Change: For US again, the diversity of our deposit base is terribly powerful on a go forward basis. So theres a lot of levers that we can move when it comes to interest rates and how we go out and attract deposits.

Speaker Change: Yes, I appreciate that yeah that that didn't go unnoticed.

Manan Gosalia: I appreciate that. Yeah, that didn't go unnoticed.

Speaker Change: Maybe just just shifting over to credit.

Manan Gosalia: Maybe just shifting over to credit, NPLs and criticized assets both increased, queue on queue. I mean, I know you mentioned that the migration should be manageable, but how much of this is just a normalization in the level of NPLs and criticized assets versus the impact of higher for longer rates on your borrowers? And also, if you can throw any more light on what you're seeing in specific industries.

Speaker Change: The Npls in criticized assets both increased Q on Q.

Speaker Change: You mentioned that the migration should be manageable, but.

Speaker Change: How much of this is just a normalization in the level of NPA is in criticized assets less is.

Speaker Change: The impact of higher for longer rates on your borrowers.

Speaker Change: And also if you can throw any more light on what you are seeing any specific industries.

Melinda A. Chausse: Sure. This is Melinda.

Speaker Change: Sure Melinda. Thank you and I appreciate the question, yes, what I would characterize credit overall is being in really good shape and I know the term normalization has been used a lot over the last couple of quarters, but I would characterize our movement.

Melinda A. Chausse: Thanks, Manan. I appreciate the question. Yeah, I would characterize credit overall as being in really good shape. And I know the term normalization has been used a lot over the last couple of quarters, but I would characterize our movement as definitely being in that normalization phase. All of our metrics still meaningfully below kind of our long-term average, particularly the non-performing assets are less than half of what our normal range would be. So those are very, very well controlled.

Melinda: As definitely in that normalization phase.

Melinda: All of our metrics still are meaningfully below kind of our long term average, particularly the nonperforming assets are less than half of what our normal range would be so those are very very well controlled the increase in the criticized category. This quarter came almost exclusively from a portion of our large corporate portfolio.

Melinda A. Chausse: The increase in the criticized category this quarter came almost exclusively from a portion of our large corporate portfolio that services the senior housing space. And so we've been watching this portfolio for a couple of quarters. As Jim mentioned in his comments, we tend to focus on newer construction-type projects. These are progressive living facilities that are very, very appealing to an aging population, but they have an element that is more real estate-oriented, so they are very sensitive to high interest rates.

Melinda: <unk>.

Melinda: Services, the senior housing space since that we've been watching this portfolio for a couple of quarters.

Melinda: As Jim mentioned in his comments, we tend to focus on newer construction type project.

Melinda: These are progressive living type facilities that are very very appealing to an aging population, but they have a standard element.

Melinda: There's more real estate oriented so very sensitive to high interest rates, but it's also an operating business in the healthcare space. So they've had a lot of labor challenges coming out of Covid. They've also had a lot of challenges in getting back to our occupancy level that would allow them to get to stabilization.

Melinda A. Chausse: But it's also an operating business in the healthcare space, so they've had a lot of labor challenges coming out of COVID. And they've also had a lot of challenges just in getting back to an occupancy level that would allow them to get to stabilization, impacted again by some of the inflationary pressure.

Melinda: Impacted again by some of the inflationary pressures. So we this quarter over the last couple of quarters, we've been diving deep into this portfolio, we get a 100% portfolio review and felt like we did a very appropriately conservative posture around risk Brady.

Melinda A. Chausse: So this quarter, and over the last couple of quarters, we've been diving deep into this portfolio; we did a 100% portfolio review, and felt like we took a very appropriately conservative posture around risk rating. We've been in the business for 30 years, we've got very experienced colleagues on the line credit and our special assets team that is monitoring this portfolio. We have not one non-performing asset. We have very strong customers, and the majority of the portfolio has a positive report. So, you know, I think I feel pretty good about what the outcome here is going to be.

Speaker Change: <unk> been in the business for 30 years, we've got very experienced colleagues on the line credit in our special assets team that is monitoring this portfolio. We have not one nonperforming asset we have very strong customer than the majority of the portfolio has recourse though.

Speaker Change: I think I feel pretty good about what the outcome here is going to be although headwinds, we will continue to be a higher for longer rate environment. There's a lot of tailwind for this space, including an aging population. The demographic that this portfolio serves we intend to be a little bit more affluent because it is all private pay.

Melinda A. Chausse: Although headwinds will continue to be a higher for longer rate environment, there are a lot of tailwinds for this space, including an aging population. The demographic that this portfolio serves would tend to be a little bit more affluent because it is all private pay. So again, the senior housing portfolio was the biggest mover in the quarter; everything else is actually performing quite well. I would call commercial real estate very stable. In fact, if you look at the slides, there are some positive trends in commercial real estate, the leveraged portfolio is very stable, the automotive business is stable, and PLS always has elevated, elevated criticism, and losses there have been very manageable. So I think we'll continue to see some moderate levels of migration. But our reserve levels are very appropriate for where we are in the cycle.

Speaker Change: So again senior housing portfolio with the biggest mover in the quarter everything else is actually performing quite well I would call commercial real estate very stable.

Speaker Change: If you look at the slides there are some positive trends in commercial real estate leveraged portfolio, it's very stable.

Speaker Change: Automotive is stable and Pls always has elevated elevated criticized and losses there have been very manageable. So I think we'll continue to see some moderate level of migration.

Speaker Change: <unk> levels are very appropriate for where we are in the cycle.

Manan Gosalia: Very helpful. Thank you.

Speaker Change: Great very helpful. Thank you.

Melinda A. Chausse: Welcome. Thanks for having me.

Speaker Change: Welcome.

Michael Lawrence Mayo: Thank you. The next question is coming from Mike Mayo of Wells Fargo. Please go ahead.

Thank you. The next question is coming from Mike Mayo of Wells Fargo. Please go ahead.

Michael Lawrence Mayo: Thank you, guys. Good morning. Good morning.

Mike Mayo: Thank you Mike good morning.

Mike Mayo: Morning.

Michael Lawrence Mayo: Um, now I heard your credit is strong or in quote really good shape. You had a lower charge-off quarter of a quarter, criticized loans are below historical loan loss reserves, and you also added on slide 25.

Mike Mayo: I heard your credit is strong are really good shape, we had lower charge offs quarter over quarter criticized loans are below historical loan loss reserves are flat.

Mike Mayo: And you also added on slide 25, <unk> had no big net charge offs in commercial real estate since 2014, so it's been a decade since anything major but I'm just trying to reconcile kind of the good environment today based on your comments with the headwinds from external factors, possibly in the future.

Michael Lawrence Mayo: You've had no big net charge off in commercial real estate since 2014. So it's been a decade since anything major, but I'm just trying to reconcile kind of a good environment today based on your comments with the headwinds from external factors possibly in the future. So specifically, multi-family with about half of your total commercial real estate, 60% in California and Texas. And I think some of the issues out there, correct me if I'm wrong, but falling rental rates, higher interest rates, higher cap rates, and impending loan maturity. So the question is, under what scenarios would Comerica feel the need to build reserves on multifamily or other CREs?

Mike Mayo: So specifically.

Mike Mayo: Multifamily what's that about half of your total commercial real estate, 60% in California and Texas.

Mike Mayo: And I think some of the issues out there and correct me if I'm wrong, but.

Mike Mayo: <unk> rental rates.

Mike Mayo: Higher interest rates higher cap rates and impending loan maturity. So the question is under what scenarios would comerica feel the need to build reserves on multifamily or other CRE.

Michael Lawrence Mayo: Thanks.

Melinda A. Chausse: Mike, this is Melinda. Thanks for the question. So, let's talk just a little bit about our multifamily portfolio. You're right, we do have a large portfolio there. We've been in this business for many, many decades. It is a product category that we specifically leaned into post-Great Recession because of its general resiliency.

Mike Mayo: Mike This is melinda. Thanks for the question. So let's talk just a little bit about our multifamily portfolio you're right. We do have a large portfolio. There we've been in this business for many many decades and is it as a product category that we specifically have leaned into post great recession because of its general resiliency.

Melinda A. Chausse: Our underwriting criteria is very conservative in this space. We are a loan-to-cost lender, so the amount of equity that goes into these projects generally is between 35% and 40%. We are having very successful exits when loans are ready to either mature or properties are sold. Appraisals, although they are down from what we underwrote, are still well within guidelines, in fact, below guidelines because of the amount of equity that we have on the front end.

Our underwriting criteria is very conservative in this space, we are along the cost lenders, though the amount of equity that goes into these projects generally at 35% to 40%.

Speaker Change: We're having very successful.

Speaker Change: Exits when loans are ready to either mature or properties are sold.

Speaker Change: Phrasal, although they are down from what we underwrote are still well within guidelines in fact below guidelines because of the amount of equity equity that we have on the front end. So we are seeing a little bit of softness in rent growth, we underwrite to sensitize rents. So theres a tremendous amount of leeway within that.

Melinda A. Chausse: So, we are seeing a little bit of softness in rent growth. We underwrite to sensitize rent, so there's a tremendous amount of leeway within the project. So, as you said, we have no criticized assets. We've had no charge-offs. We have zero delinquencies. Where it's appropriate for exits where the borrower has decided to either sell the property or move it into long-term financing, there is still that opportunity, and plenty of equity in the project to make that happen.

Speaker Change: Project. So we have now as you said we have.

Speaker Change: Criticized assets, we've had no charge offs.

Speaker Change: Delinquencies.

Speaker Change: Sure it's appropriate for exits that the borrower has decided to either sell the property or moving into long term financing. There is still that opportunity plenty of equity in the project to make that happen. So I feel very very confident the majority of this portfolio. The vast majority is floating rate. So it's already absorbed kind of current rate I mean, if rates were to continue to go up if we hadn't.

Melinda A. Chausse: So, I feel very, very confident. The majority of this portfolio, the vast majority is floating rates, so it's already absorbed a kind of current rates. I mean, if rates were to continue to go up, if we had an upward trajectory, there would be a little bit more downward pressure, but I don't see a scenario, honestly, where we have losses in this portfolio, just given who we do business with, how we underwrite, and where we stand from a collateral perspective.

Speaker Change: Upward trajectory, there would be a little bit more downward pressure.

Speaker Change: But I don't I don't see a scenario honestly, where we had losses in this portfolio just given who we do business with how we underwrite.

And where we stand from a collateral perspective.

Melinda A. Chausse: That's helpful. So when you say the appraisals are down from when you underwrote them, how much are the appraisals down, and what would be kind of a trigger point that would cause some concern?

Speaker Change: That's helpful.

Speaker Change: When you say the appraisals are down.

Speaker Change: From when you underwrite them, how much are the appraisals down and what would be kind of a trigger point that would cause some concern.

Michael Lawrence Mayo: Appraisals, recent appraisals, call it in the last 90 days or so, are down anywhere from 10 to 20 percent, which again, most of our loan devalues are sub-60 percent, so we're still well within reasonable guidelines from a loan devalue perspective. So we're just not seeing, you know, we're not seeing massive deterioration of value in the multifamily space. You know, there are some headwinds for multifamily. Obviously, there's a lot of supply coming online, but there are also tailwinds.

Speaker Change: Appraisals the recent appraisal of call. It in the last 90 days or so are down anywhere from 10% to 20%, which again most of our loan to values are sub 60%. So we're still well within reasonable guideline from.

Speaker Change: From a loan to value perspective.

Speaker Change: We're just not seeing.

Speaker Change: We're not seeing massive deterioration of value in the multifamily space.

Speaker Change: There are some headwinds for multifamily, obviously theres a lot of supply coming online, but there's also a tailwind where our projects are tend to be in areas where employment.

Michael Lawrence Mayo: I mean, where our projects are, they tend to be in areas where employment and population growth is strong. That would be Texas, particularly. And again, because of the conservative underwriting, even with rent growth declining and some amount, a small amount of concessions needed to get these projects to stabilization, we just don't see any credit deterioration.

Speaker Change: And population growth is strong that would be Texas, particularly.

Speaker Change: Because of the conservative underwriting even with rent growth declining.

Speaker Change: And some amount a small amount of concessions needed to get these projects to stabilization.

Speaker Change: Don't see any credit deterioration.

Speaker Change: And one last push back again, you have the track record you've been in the business decades, you had a decade of great performance, but when you say theres no scenarios, where you would have serious losses there.

Melinda A. Chausse: And one last pushback, again, you have the track record, you've been in business for decades, you've had a decade of great performance, but when you say there are no scenarios where you'd have serious losses there, is that a little bit... Do you want to be a little bit more conservative with that statement? Because that seems pretty strong. I mean, that's a high-level conviction for sure. Well, I think if I think about what it is.

Speaker Change: Is that a little bit.

Speaker Change: Do you want to be a little bit more conservative with that statement and thats been pretty strong I mean, that's a high level of conviction for sure.

Speaker Change: I think if I think about what if we go into a massive recession.

Melinda A. Chausse: Well, I think if I think about what would happen if we went into a massive recession, is it possible? Yes.

Speaker Change: Is it possible yes.

Melinda A. Chausse: I think we're pretty confident that the economy is on reasonably good footing and the outlook for a soft landing is certainly what the consensus is. So even if rates went up, call it, you know, 50, 100 basis points, I think this portfolio would still perform. So yeah, I'm pretty confident that we're in really good footing. Now, with all that said, we do have reserves on this portfolio, and we continue to build reserves on our commercial loan, and commercial real estate book, just in case. That's why the reserves are there. And so again, even if we did have some losses, we're still very reserved.

Speaker Change: I think we're pretty confident that the economy is on reasonably good footing in the outlook for a soft landing and certainly.

Speaker Change: The consensus is.

Speaker Change: Even if rates went up call. It 5100 basis points I think this portfolio will still perform.

Speaker Change: So yeah, I'm pretty confident that we're in really good footing now with all that said, we do have reserves on this portfolio and we continue to build that reserve on our.

Speaker Change: So lung commercial real estate book.

Speaker Change: Just in case, that's why the reserves are there.

Speaker Change: So again, even if we did have some losses were well reserved.

Speaker Change: Alright, thank you.

Michael Lawrence Mayo: Thank you. The next question is coming from Chris McGrady at KBW. Please go ahead.

Speaker Change: Thanks, Mike.

Yes.

Speaker Change: Thank you. The next question is coming from Chris Mcgratty with <unk>. Please go ahead good.

Christopher Edward McGratty: Morning, Chris. Good morning. Good morning.

Christopher Edward McGratty: Morning, Chris So good morning, good morning.

Christopher Edward McGratty: Jim, I want to go back to the securities comments, and you have a couple of comments in the deck. When should we think the security book troughs on a dollar basis? I know you're starting to reinvest a little bit, but just conceptually, the mix of the balance sheet over the next couple of years, bonds, cash, loans, loan deposits, how do we think about just the ultimate troughing of the bond book?

Christopher Edward McGratty: Jim I want to go back to the Securities comments and you have a couple comments in the deck when should we think the security book trough on a dollar basis, I know youre, starting to reinvest a little bit, but just conceptually the mix of the balance sheet over the next couple of years bonds cash loans loan to deposit how do we think about this the ultimate trumping the bonds.

James J. Herzog: Good morning, Chris. Yeah, right now, we still are carrying a little higher level of securities than we typically would. We do think we're going to get to the point, somewhat of a trough, probably, let's call it the first quarter of next year, give or take, where we will start to reinvest in our MBS portfolio. As we imply in the slide, we are doing some very minor amounts of treasury reinvestments starting around now, but those are relatively small amounts.

Chris Mcgratty: Okay.

Chris Mcgratty: Good morning, Chris Yeah, right now, we still are carrying a little higher level of securities than we typically would.

Chris Mcgratty: We do think we're going to get to the point.

Chris Mcgratty: Somewhat of a trough, probably let's call. It in the first quarter of next year give or take.

Speaker Change: I'll start to re invest in our MBS portfolio.

As we imply on the slide we are doing some very minor amounts of treasury reinvestments starting around now, but those are relatively small amounts.

James J. Herzog: You know, in the past, if you look at our securities as a percentage of the balance sheet, it's going to vary, and it should vary, based on the composition of the balance sheet and deposit levels and the types of deposits we have. But in the past, we've carried securities on the balance sheet anywhere from mid to high teens of total assets. You know, I would see that probably going up a couple of percentage points going forward, just because we're hearing and putting ourselves relative to higher liquidity runoffs, just to be that much more conservative, given what we saw with the regional bank crisis last year and the higher regulatory bar.

Speaker Change: The past if you look at our securities as a percentage of the balance sheet, it's going to vary and it should vary based on the composition of the balance sheet and the deposit levels and the types of deposits we have but.

But in the past we've carried securities on the balance sheet anywhere from mid to high teens.

Speaker Change: Total assets.

Speaker Change: I would see that probably going up a couple of percentage points going forward, just because we're hearing and putting ourselves.

Speaker Change: Relatively against higher liquidity Runoffs just to be that much more conservative given what we saw with regional bank prices last year and the higher regulatory bar.

James J. Herzog: And so, we probably will carry, relative to history, a little higher percentage than we have in the past, but we're still not there quite yet, but I suspect we will be, you know, by the first quarter or so of next year.

Speaker Change: So we probably would carry relative to history, a little higher percentage than we have in the past, but we're still not there quite yet, but I suspect we will be by the first quarter. So next year.

Christopher Edward McGratty: Great, that's helpful. And then maybe one quick modeling question, you mentioned the discrete tax benefit. What was the dollar amount of that in the quarter? On a net basis of $11 million.

Speaker Change: Great. That's helpful. And then maybe one quick modeling you mentioned that the discrete tax benefit what was the dollar amount of that in the quarter.

Speaker Change: On a net basis it was $11 million.

James J. Herzog: On a net basis, it was $11 million. Great. Thank you. Thank you, Chris. Thank you. The next question is coming from Zach Westerlund of UBS. Please go ahead.

Speaker Change: Great. Thank you thank.

Speaker Change: Thank you Chris.

Speaker Change: Thank you. The next question is coming from Zach Westerlund of UBS. Please go ahead.

Zach Westerlund: Alright. My question. Good morning. My question is just on the on the NII Guide.

Zach Westerlund: Point of fact, my question is...

James J. Herzog: Good morning, Zach. Yeah, we actually are assuming in the guide that we stick pretty close to that sensitivity, the alternate sensitivity that we provide on the asset sensitivity slide, which is 60%. And we're at a cumulative beta, of course, right now at 62%. So we would expect it initially to go down something close to the current cumulative beta of 60%. You know, we would probably expect up to a one month lag, likely relative to Fed cuts.

Zach Westerlund: I think a key piece of that was.

Zach Westerlund: The beta assumptions. So I was wondering if you could provide any color on that.

Zach Westerlund: And kind of like what are your assumptions around.

Zach Westerlund: The down beta compared to the upcycle data. Thanks.

Speaker Change: Hey, good morning, Zach, Yes, we actually are assuming in the guide that we stick pretty close to that sensitivity.

Speaker Change: I'll turn in sensitivity that we provide on the asset sensitivity slide.

Speaker Change: Which is 60% and we're at a cumulative beta of course right now 62%. So we would expect initially to go down something close to the current cumulative beta of 60%, we would expect probably up to a one month lag likely relative to fed cuts.

James J. Herzog: But I will emphasize that every cycle is a little bit different in terms of how quickly the industry is allowed to cut. And I continue to say that it depends on, frankly, the reason for the Fed cuts. You know, if it's a very orderly takedown and it's a very soft landing, you might see a little bit more delay in those cuts. And if it's, you know, due to some, you know, concern in the economy, it makes it a lot easier to enforce some of those cuts.

Speaker Change: But I will emphasize that every cycle is a little bit different in terms of how quickly. The industry is allowed to cut and I continue to say that it depends on frankly, the reason for the fed cuts if it's a very orderly take down and it's a very soft landing you.

Speaker Change: You might see a little bit more delayed.

Speaker Change: Those cuts and if it's due to some concern in the economy makes it a lot easier to enforce some of those cuts. So it's going to really depend on how the overall landscape of the economy.

James J. Herzog: So it's going to really depend on how the overall landscape of the economy lays out and the reason for those cuts. But, you know, we feel pretty confident that we can get some significant reductions from those customers that have most recently pushed the beta up. And I continue to say that we're on a little bit of a LIFO basis, you know, last in, first out. You know, some of the bigger increases that we've seen came in the last few months from a beta standpoint, and those will probably be the easiest ones to push back down since they were closer to that 100% beta level. So, anyway, the short answer to your question is we are assuming a 60% beta on the way down with about a one-month lag.

Speaker Change: Lays out and the reason for those cuts.

But we feel pretty confident that we can get some significant reductions from those customers that most recently pushed the beta app and I continue to say that we're on a little bit of a LIFO basis last in first out some of the bigger increases that we've seen came in the last few months from a beta standpoint, and those will probably be the easiest one.

Speaker Change: To push back down since they were closer to that 100% beta level. So.

Speaker Change: So anyway. The short answer to your question is we are assuming a 60% beta on the way down with about a one month lag.

Curtis Chatman Farmer: Thank you. At this time, I would like to turn the floor back over to Curt Farmer, President, Chairman, and Chief Executive Officer, for closing comments.

Speaker Change: Understood Thanks very much.

Speaker Change: Because of that.

Speaker Change: Thank you at this time I would like to turn the floor back over to Curt Farmer, President Chairman and Chief Executive Officer for closing comments.

Operator: Well, thank you to those of you that participated in our call this morning. As always, thank you for your interest in Comerica, and we hope you have a good day. Thank you.

Curtis Chatman Farmer: Well. Thank you to those of you that participated in our call. This morning as always thank you for your interest in Comerica and we hope you have a good day. Thank you.

Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.

Speaker Change: Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Okay.