Q2 2024 Comerica Inc Earnings Call

Hello and welcome to the Comerica Second Quarter 2024 Earnings Conference Call. If anyone should require operator assistance, please press star zero on your telephone keypad.

Operator: If anyone could require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation.

Operator: If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing star one on your telephone keypad.

Operator: He may be placed into question-cute anytime by pressing star one on your telephone keypad. As a reminder, this conference is being recorded.

A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Kelly Gage, Director of Investor Relations. Please go ahead, Kelly.

Operator: As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Kelly Gage, Director of Investor Relations. Please go ahead, Kelly.

Kelly Gage: It's now my pleasure to turn the call over to Kelly Gage's director and their investor relations. Please go ahead, Kelly.

Kelly Gage: Thanks, Kevin. Good morning, and welcome to Comerica's second 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 provide additional details. The presentation slides and our press release are available on the SEC's website as well as on the Investor Relations section of our website, Comerica.com. The presentation and this conference call contain 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.

Kurt Farmer: Thanks, Kevin. Good morning and welcome to Comerica's second quarter of 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.

Kelly Gage: Thanks, Kevin. Good morning and welcome to Comerica's second quarter 2024 earnings conference call.

Speaker Change: Participating on this call will be our President, Chairman, and CEO , Curt Farmer, Chief Financial Officer, Jim Herzog, Chief Credit Officer, Melinda Chausse, and Chief Banking Officer, Peter Sefzik.

Unknown Executive: During this presentation, we will be referring to slides which provide additional details. The presentation slides and our press release are available on the SEC's website, as well as on the Investor Relations section of our website, Comerica.com.

Kelly Gage: During this presentation, we will be referring to slides which provide additional details. The presentation slides and our press release are available on the SEC's website as well as on the Investor Relations section of our website, Comerica.com.

Unknown Executive: The presentation and this conference call contain four-looking statements. In that regard, you should be mindful of the risks and uncertainties that can cause actual results to vary materially from expectations. Four-looking statements speak only as of the date of this presentation, and we undertake no obligation to update any four-looking statement.

Kelly Gage: The presentation and this conference call contain 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: Forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update any forward-looking statements. Please refer to the Safe Harbor Statement in today's earnings presentation on slide two.

Unknown Executive: Please refer to the Safe Harbor statement in today's earnings presentation on slide two.

Unknown Executive: Also, the presentation and this conference call will reference non-GAAP measures. In that regard, I direct you to the reconciliation of these measures and the earnings materials that are available on our website, Comerica.com.

Kelly Gage: Also, the presentation in this conference call will reference non-GAAP measures. 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.

Kurt Farmer: Now I'll turn the call over to Kurt, who will begin on slide three. Good morning to everyone, and thank you for joining our call. Today, we reported second quarter earnings of 206 million, or $1.49 cents per share, outperforming the first quarter on both the reported and the adjusted basis. Although average loans decline, our targeted focus on responsible growth drove an inflection in balances throughout the quarter. In an uncertain economic and political environment, customer sentiment appeared slightly less optimistic than last quarter. However, a number of businesses solve positive momentum, and we believe our pipeline supports our growth outlook.

Kelly Gage: Forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update any forward-looking statement. Please refer to the Safe Harbor Statement in today's earnings presentation on slide 2. Also, the presentation in this conference call will reference non-GAAP measures. 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.

Curtis Chatman Farmer: Good morning, everyone, and thank you for joining our call. Today, we reported second quarter earnings of $206 million, or $1.49 per share, outperforming the first quarter on both a reported and an adjusted basis. Although average loans declined, our targeted focus on responsible growth drove an inflection in balances throughout the quarter. In an uncertain economic and political environment, customer sentiment appeared slightly less optimistic than last quarter.

Curtis Chatman Farmer: Good morning, everyone, and thank you for joining our call.

Curtis Chatman Farmer: Today, we reported second quarter earnings of $206 million, or $1.49 per share, outperforming the first quarter on both a reported and an adjusted basis.

Curtis Chatman Farmer: Although average loans declined, our targeted focus on responsible growth drove an inflection in balances throughout the quarter.

Curtis Chatman Farmer: In an uncertain economic and political environment, customer sentiment appeared slightly less optimistic than last quarter. However, a number of our businesses saw positive momentum, and we believe our pipeline supports our growth outlook.

Curtis Chatman Farmer: However, a number of our businesses saw positive momentum, and we believe our pipeline supports our growth outlook. As expected, net interest margins started to rebound, and both non-interest income and non-interest expenses improved. Credit Quality Remains Strong, Reflecting Our Prevalent Underwriting Discipline Being a responsible company is deeply embedded in our culture, and in June, we published our 16th Annual Corporate Responsibility Report detailing our commitments to this important topic. We remain proud of our efforts to prioritize our employees and community. Once again, U.S. News recognizes us as one of the best companies to work for, and we are named one of the 50 most community-minded organizations.

Kurt Farmer: As expected, net interest margins started to rebound, and both non-interest income and non-interest expenses improved. Credit quality remains strong, reflecting our proven underwriting discipline. Being a responsible company is deeply embedded in our culture, and in June, we published our 16th Annual Corporate Responsibility Report, detailing our commitments to this important topic. We remain proud of our efforts to prioritize our employees and communities. Once again, US News recognized us as one of the best companies to work for, and we're named one of the 50 most community-minded organizations. We feel responsible business is a good business, and we take pride in the unique role we play in supporting our markets.

Curtis Chatman Farmer: As expected, net interest margins started to rebound and both non-interest income and non-interest expenses improved.

Curtis Chatman Farmer: Credit quality remains strong, reflecting our preeminent underwriting discipline.

Curtis Chatman Farmer: Being a responsible company is deeply embedded in our culture, and in June we published our 16th Annual Corporate Responsibility Report detailing our commitments to this important topic.

Curtis Chatman Farmer: We remain proud of our efforts to prioritize our employees and communities. Once again, U.S. News recognizes us as one of the best companies to work for, and we are named one of the 50 most community-minded organizations. We feel responsible business is good business, and we take pride in the unique role we play in supporting our markets.

Curtis Chatman Farmer: We feel responsible business is good business, and we are proud of the unique role we play in supporting our market. Second quarter financial highlights are on slide four. Average loans were impacted by muted first quarter demand, but balances have increased consistently throughout the quarter. Our deliberate first quarter reduction in broker time deposits drove a majority of the decline in average deposits. However, we also continue to see pressure on non-interest-bearing balances as we near what we believe may be the peak of the rate cycle.

Jim Herzog: Second quarter financial highlights are on slide four. Average loans were impacted by muted first quarter demand, but balances increased consistently throughout the quarter. Our deliberate first quarter reduction in broker time deposits drove a majority of the decline in average deposits. However, we also continue to see pressure on non-intersparing balances that we near what we believe may be the peak of the rate cycle. The decline in net interest income reflected by its lower Fed deposits and average loans.

Speaker Change: Second quarter financial highlights are on slide 4. Average loans were impacted by muted first quarter demand, but balances increased consistently throughout the quarter. Our deliberate first quarter reduction in broker time deposits drove a majority of the decline in average deposits.

Speaker Change: However, we also continue to see pressure on non-interest bearing balances as we near what we believe may be the peak of the rate cycle.

Curtis Chatman Farmer: The decline in net interest income is reflected by lower Fed deposits and average loans. Charged also remains below historical averages at nine basis points, and our long-lost reserve, Declined Modesty, even excluding the net benefit from lower notable items. Both non-interest income and non-interest expenses saw favorable trends. Taxes increased due to higher income and less of a benefit from discrete items, and our estimated CET1 of 11.55% remained above our 10% strategic target. While we remain in an elevated rate environment, we think the favorable customer-related trends coupled with the expected structural benefit to net interest income in the coming quarters positions us well. Now I'll turn the call over to Jim to review our second quarter financial results in more detail. Jim?

Jim Herzog: Lawrence. Charge also remained below historical averages at nine basis points, and are long lost reserves to climb modestly. Even excluding the net benefit from lower notable items, both non-interest income and non-issue expenses that solve favorable trends. Taxes increased due to higher income and less of a benefit from discrete items and are estimated to E.T. 1 of 11.55% remained above our 10% strategic target. While we remain in an elevated rate environment, we think the favorable customer-related trends, coupled with the expected structural benefit to net interest income in the coming quarters, positions us well.

Speaker Change: The decline in net interest income reflected by lower Fed deposits and average loans.

Speaker Change: Charge-offs remain below historical averages at nine basis points.

Speaker Change: and our long-lost reserves declined modestly.

Speaker Change: Even excluding the net benefit from lower notable items, both non-interest income and non-interest expenses saw favorable trends.

Speaker Change: Taxes increased due to higher income and less of a benefit from discrete items, and our estimated CET1 of 11.55% remained above our 10% strategic target.

Speaker Change: While we remain in an elevated rate environment, we think the favorable customer-related trends coupled with the expected structural benefit to net interest income in coming quarters positions us well.

Jim Herzog: Now, from the call to Jim, review our second quarter of financial results in more detail.

Jim Herzog: Jim, thanks, Kerr, and good morning everyone. Turning to slide five, trailing effects of rationalization efforts coupled with soft demand to the start of the year impacted average loan balances in the second quarter. Low utilization trends persisted in equity fund services, although balances rebounded in June and elevated rates continued to impact wealth management loans. Commercial real estate utilization trended higher; however, period and balances remained flat to the first quarter. We haven't purposefully managing commitments and originations in this space for several quarters, and we expect to begin to see growth subside in this business. Total loan balances grew consistently throughout the quarter, which drew it on loans up over $1 billion.

James J. Herzog: Now I'll turn the call over to Jim to review our second quarter financial results in more detail. Jim? Thanks, Curt. And good morning, everyone. Turning to slide five, trailing effects of rationalization efforts coupled with soft demand at the start of the year impacted average loan balances in the second quarter.

James J. Herzog: Thanks, Curt, and good morning, everyone. Turning to slide 5, the trailing effects of rationalization efforts coupled with soft demand at the start of the year impacted average loan balances in the second quarter. Low utilization trends persisted in equity fund services, although balances rebounded in June, and elevated rates continue to impact wealth management loans. Commercial real estate utilization trended higher; however, period imbalances remained flat to the first quarter. We have been purposefully managing commitments and originations in this space for several quarters, and we expect to begin to see growth subside in this business. Total loan balances grew consistently throughout the quarter, with Trurian loans up over $1 billion.

Speaker Change: Low utilization trends persisted in equity fund services, although balances rebounded in June , and elevated rates continue to impact wealth management loans.

Speaker Change: Commercial real estate utilization trended higher, however, period imbalances remained flat to the first quarter.

Speaker Change: We have been purposefully managing commitments and originations in this space for several quarters, and we expect to begin to see growth subside in this business.

Speaker Change: Total loan balances grew consistently throughout the quarter, with maturity on loans up over $1 billion.

Jim Herzog: National Deore Services contributed to quarter and growth with elevated balances due in part to the cyber attack that impacted dealerships nationwide in June, but we also saw increases across most business lines. Our pipeline remains strong and supports our expectation for continued growth. Moving to slide six, average deposit balances declined $2.3 billion, but almost 70% of the decrease was attributed to lower broker time deposits. Pressure on non-interests bearing balances increased relative to trends we observed in the latter half of the first quarter as customers utilized funds to support ongoing business activity or reduce borrowings. Tax-related seasonality impacted select businesses such as municipalities.

James J. Herzog: National dealer services contributed to the quarter and growth with elevated balances due in part to the cyber attack that impacted dealerships nationwide in June. But we also saw increases across most business lines. Our pipeline remains strong and supports our expectation for continued growth. Moving to slide six, the average deposit balance has declined $2.3 billion, but almost 70% of the decrease was attributed to lower broker time deposits. Pressure on non-interest-bearing balances increased relative to trends we observed in the latter half of the first quarter as customers utilized funds to support ongoing business activity or reduce borrowing. Tax-related seasonality impacted select businesses, such as municipalities.

Speaker Change: National dealer services contributed to quarter-end growth with elevated balances due in part to the cyber attack that impacted dealerships nationwide in June , but we also saw increases across most business lines.

Speaker Change: Our pipeline remains strong and supports our expectation for continued growth.

Speaker Change: Moving to slide six, average deposit balances declined $2.3 billion, but almost 70% of the decrease was attributed to lower broker time deposits.

Speaker Change: Pressure on non-interest bearing balances increased relative to trends we observed in the latter half of the first quarter as customers utilize funds to support ongoing business activity or reduce borrowings.

Speaker Change: Tax-related seasonality impacted select businesses such as municipalities.

Jim Herzog: While we saw some deposit remixing at the customer level, it did not appear to be the biggest driver. Even with non-interests bearing balanced trends and ongoing success in winning new interest bearing deposit relationships, we believe our non-interests bearing mix remained pure, leading averaging 40% for the quarter. Interests bearing deposit costs improved by basis points driven by lower broker time deposits and increases in customer deposit pricing continued to flatten. As rates decline, we expect to see an inflection point in deposit balances, mix, and cost. In the meantime, we remain encouraged by our success in growing interest-bearing deposits and continued pricing discipline.

James J. Herzog: While we saw some deposit mixing at the customer level, it did not appear to be the biggest driver. Even with the non-interest-bearing balance trends and ongoing success in winning new interest-bearing deposit relationships, we believe our non-interest-bearing mix remained peer-leading, averaging 40% for the quarter. Interest-bearing deposit costs improved five basis points driven by lower broker time deposits, and increases in customer deposit pricing continued to flatten. As rates decline, we expect to see an inflection point in deposit balances, mix, and cost.

Speaker Change: While we saw some deposit remixing at the customer level, it did not appear to be the biggest driver.

Speaker Change: Even with non-interest-bearing balance trends and ongoing success in winning new interest-bearing deposit relationships, we believe our non-interest-bearing mix remained peer-leading, averaging 40% for the quarter.

Speaker Change: Interest bearing deposit costs improved five basis points driven by lower broker time deposits and increases in customer deposit pricing continued to flatten.

Speaker Change: As rates decline, we expect to see an inflection point in deposit balances, mix, and costs.

James J. Herzog: In the meantime, we remain encouraged by our success in growing interest-bearing deposits and continued pricing discipline. Period imbalances in our securities portfolio on slide 7 declined with continued paydowns and maturities as the mark-to-market adjustment remained relatively flat. We expect continued decline in balances through at least the end of the year. Turning to slide eight, net interest income decreased $15 million to $533 million, driven by lower Fed deposits and loan balances, partially offset by a decline in wholesale funding.

Speaker Change: In the meantime, we remain encouraged by our success in growing interest-bearing deposits and continued pricing discipline.

Jim Herzog: Period and balances in our securities portfolio on slide seven decline with continued pay-downs and maturities as the market adjustment remained relatively flat. We expect continued decline in balances through at least the end of the year. Turn to slide eight, then interest income decreased $15 million to $533 million driven by lower Fed deposits and loan balances, partially offset by the client and wholesale funds. Editing. Impacts from the BISB cessation drove $6 million to the decline, as we recognize a $3 million non-cash loss in the second quarter, compared to a $3 million increase in the first quarter.

Speaker Change: Period end balances in our securities portfolio on slide 7 decline with continuing paydowns and maturities as the mark-to-market adjustment remained relatively flat.

Speaker Change: We expect continued decline in balances through at least the end of the year.

Speaker Change: Turning to slide eight, net interest income decreased $15 million to $533 million, driven by lower Fed deposits and loan balances, partially offset by decline in wholesale funding.

James J. Herzog: Impacts from the Bisbee cessation drove $6 million to the decline as we recognized a $3 million non-cash loss in the second quarter compared to a $3 million increase in the first quarter. As a reminder, you can find the expected future Bisbee impacts in the appendix to this slide.

Speaker Change: Impacts from the Bisbee cessation drove $6 million of the decline, as we recognized a $3 million non-cash loss in the second quarter, compared to a $3 million increase in the first quarter.

Jim Herzog: As a reminder, you can find the expected future BISB impacts and appendix to the slides. Normalization of our cash position drove an increase in net interest margin for the quarter. As shown on slide 9, successful execution of our interest rate strategy and 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. By strategically managing our swap and securities portfolios, while considering balance sheet dynamics, we intend to maintain our insulated position over time. Credit quality remained strong as highlighted on slide 10.

Speaker Change: As a reminder, you can find the expected future Bisbee impacts in the appendix to the slides.

James J. Herzog: Normalization of our cash position drove an increase in net interest margin for the quarter. As shown in slide 9, the successful execution of our interest rate strategy and 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. By strategically managing our swap and securities portfolios while considering balance sheet dynamics, we intend to maintain our insulated position over time. Credit quality remains strong, as highlighted on slide 10. Net charge-offs of nine bips declined for the second consecutive quarter and remain well below our normal range.

Speaker Change: Normalization of our cash position drove an increase in net interest margin for the quarter.

Speaker Change: As shown in slide 9, successful execution of our interest rate strategy and 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.

Speaker Change: By strategically managing our swap and securities portfolios while considering balance sheet dynamics, we intend to maintain our insulated position over time.

Jim Herzog: Net charge-offs of 9 dips declined for the second consecutive quarter and remain well below our normal range. Although customers continue to navigate high borrowing costs and inflation, we saw an improvement in criticized loans concentrated in our core of middle market businesses. Non-acrual loans ticked up slightly, but still remained below historic or averages. We did not observe any new emerging pressures and metrics within our incrementally monitored portfolios remained relatively consistent. With a reduction in the allowance for credit losses to 1.38 percent of total loans, we continued to believe ongoing migration will remain manageable. On slide 11, second quarter, 9 percent of 291 million increased 55 million dollars.

Speaker Change: Credit quality remains strong as highlighted on slide 10. Net charge-offs of nine BIPs declined for the second consecutive quarter and remain well below our normal range.

James J. Herzog: Although customers continue to navigate high borrowing costs and inflation, we saw an improvement in criticized loans concentrated in our core middle market business. Non-accrual loans ticked up slightly, but still remained below historical averages. We did not observe any new emerging pressures, and metrics within our incrementally monitored portfolios remain relatively consistent.

Speaker Change: Although customers continued to navigate high borrowing costs and inflation, we saw an improvement in criticized loans concentrated in our core middle market businesses.

Speaker Change: Non-accrual loans ticked up slightly, but still remained below historical averages.

Speaker Change: We did not observe any new emerging pressures, and metrics within our incrementally monitored portfolios remain relatively consistent.

James J. Herzog: With a reduction in the allowance for credit losses to 1.38% of total loans, we continue to believe ongoing migration will remain manageable. On slide 11, second quarter non-interest income of $291 million increased $55 million. Although a majority of the increase was related to the impact of Bisbee's cessation in the first quarter, we were encouraged to see growth across most customer-related categories. Capital markets income grew in each product, including M&A advisory services, as a result of the new team we put in place last year.

Speaker Change: With a reduction in the allowance for credit losses to 1.38% of total loans, we continue to believe ongoing migration will remain manageable.

Speaker Change: On slide 11, second quarter non-interest income of $291 million, increased $55 million.

Jim Herzog: Although a majority of the increase was related to the impact of this besicization in the first quarter, we were encouraged to see growth across most customer-related categories. Capital markets income grew in each product, including M&A advisory services. As a result to the new team, we put in place last year. Producer income saw seasonal tax-related increases, and brokerage income benefited from investments in our new platform for America financial advisors. We were pleased to see successful revenue growth associated with our strategic focus on non-assurance income and continue to prioritize these key investments. Expenses on slide 12 improve 48 million dollars over the prior quarter.

Speaker Change: Although a majority of the increase was related to the impact of Bisbee cessation in the first quarter, we were encouraged to see growth across most customer-related categories.

Speaker Change: Capital markets income grew in each product including M&A advisory services as a result of the new team we put in place last year.

James J. Herzog: Fiduciary income saw seasonal tax-related increases, and brokerage income benefited from investments in our new platform for Comerica Financial Advisors. We were pleased to see successful revenue growth associated with our strategic focus on non-interest income and continue to prioritize these key investments. Expenses on slide 12 improved $48 million over the prior quarter. Salaries and benefits declined $25 billion, with seasonally lower stock-based compensation as the biggest driver.

Speaker Change: Fiduciary income saw seasonal tax-related increases, and brokerage income benefited from investments in our new platform for Comerica Financial Advisors.

Speaker Change: We were pleased to see successful revenue growth associated with our strategic focus on non-interest income and continue to prioritize these key investments.

Speaker Change: Expenses on slide 12 improved $48 million over the prior quarter.

Jim Herzog: Salaries and benefits declined 25 billion dollars, with seasonally lower stock-based compensation as the biggest driver. FDIC expense came down due to the large special assessment in the first quarter. Other expenses decline, including consulting, operational losses, and asset impairment costs associated with real estate rationalization, partially offset by seasonally higher advertising. Overall, expense management remains a high priority as we continue to seek opportunities to drive positive operating leverage and efficiency. As shown on slide 13, higher profitability coupled with conservative capital management drove increases across all of our key capital ratios. Our estimated CET-1 grew to 11.55 percent, and adjusting for the AOCI opt-out, are estimated CET-1 remained above required regulatory minimums and buffers.

Speaker Change: Salaries and benefits declined $25 billion with seasonally lower stock-based compensation as the biggest driver.

James J. Herzog: FDIC expense came down due to the large special assessment in the first quarter. Other expenses declined, including consulting, operational losses, and asset impairment costs associated with real estate rationalization, partially offset by seasonally higher advertising. Overall, expense management remains a high priority as we continue to seek opportunities to drive positive operating leverage and efficiency. As shown on slide 13, higher profitability coupled with conservative capital management drove increases across all of our key capital ratios. Our estimated CET1 grew to 11.55%, and adjusting for the AOCI opt-out, our estimated CET1 remained above required regulatory minimums and buffers. Despite volatility throughout the quarter, at quarter end, AOCI remained relatively flat.

Speaker Change: FDIC expense came down due to the large special assessment in the first quarter.

Speaker Change: Other expenses declined, including consulting, operational losses, and asset impairment costs associated with real estate rationalization, partially offset by seasonally higher advertising.

Speaker Change: Overall, expense management remains a high priority as we continue to seek opportunities to drive positive operating leverage and efficiency.

Speaker Change: As shown on slide 13, higher profitability coupled with conservative capital management drove increases across all of our key capital ratios.

Speaker Change: Our estimated CET1 grew to 11.55%, and adjusting for the AOCI opt-out, our estimated CET1 remained above required regulatory minimums and buffers.

Jim Herzog: Despite volatility throughout the quarter, at quarter-end AOCI remained relatively flat. As we think about ongoing capital management, we need to continue to monitor AOCI movement, our own outlook, and regulations as they evolve.

Speaker Change: Despite volatility throughout the quarter, at quarter end, AOCI remained relatively flat.

James J. Herzog: As we think about ongoing capital management, we need to continue to monitor AOCI movement, our loan outlook, and regulations as they evolve. Before moving to the outlook, as indicated on slide 14, we recently received preliminary notification from the Fiscal Service that Comerica Bank was not selected to continue serving as the financial agent for the Direct Express prepaid debit card program following the expiration of our contract early next year. This process remains fluid as contract negotiations are not yet finalized, but at this time, we do not expect that Comerica Bank will retain the business long term.

Speaker Change: As we think about ongoing capital management, we need to continue to monitor AOCI movement, our loan outlook, and regulations as they evolve.

Jim Herzog: Before moving to the outlook, as indicated on slide 14, we recently received plumbinary notification from the fiscal service that Comerica Bank was not selected to continue serving as the financial agent for the Direct Express Prepaid Debit Card Program following the expiration of our contract early next year. This process remains fluid as contract negotiations are not yet final, but at this time, we do not expect that Comerica Bank will retain the business long-term. As detailed on the slide, we recognize non-interest income and card fees, but that is generally offset by expenses associated with managing the program.

Speaker Change: Before moving to the outlook, as indicated on slide 14, we recently received preliminary notification from the Fiscal Service that Comerica Bank was not selected to continue serving as the financial agent for the Direct Express prepaid debit card program following the expiration of our contract early next year.

Speaker Change: This process remains fluid as contract negotiations are not yet final, but at this time, we do not expect that Comerica Bank will retain the business long term.

James J. Herzog: As detailed on the slide, we recognize non-interest income and card fees, but that is generally offset by expenses associated with managing the program. The financial value has been in the non-transparent deposit balances related to monthly benefits funded on the cards, which have grown over time and averaged $3.3 billion in the second quarter.

Speaker Change: As detailed on the slide, we recognize non-interest income and card fees, but that is generally offset by expenses associated with managing the program.

Jim Herzog: The financial value has been in the non-interest bearing deposit balances related to monthly benefits funded on the cards, which have grown over time and averaged $3.3 billion in the second quarter. As we have discussed in the past, there are various potential scenarios with regards to the timing and mechanics of the deposit transition, and we expect more detail in the coming quarters as terms become final. However, our experience for this program leads us to believe this transition may be longer than shorter, and we do not currently anticipate an impact in 2024 deposit balances, non-interest income, or expenses.

Speaker Change: The financial value has been in the non-trust bearing deposit balances related to monthly benefits funded on the cards, which have grown over time and averaged $3.3 billion in the second quarter.

James J. Herzog: As we have discussed in the past, there are various potential scenarios with regard to the timing and mechanics of the deposit transition, and we expect more detail in the coming quarters as terms become final. However, our experience with this program leads us to believe this transition may be longer than shorter, and we do not currently anticipate an impact on 2024 deposit balances, non-interest income, or expenses. While we have been honored to manage this important program, we see this as an opportunity to refocus and reprioritize resources towards targeted deposit strategies more aligned with our core relationship operating model.

Speaker Change: As we have discussed in the past, there are various potential scenarios with regards to the timing and mechanics of the deposit transition, and we expect more detail in the coming quarters as terms become final.

Speaker Change: However, our experience with this program leads us to believe this transition may be longer than shorter, and we do not currently anticipate an impact to 2024 deposit balances, non-interest income, or expenses.

Jim Herzog: While we have been honored to manage this important program, we see this as an opportunity to refocus and reprioritize resources towards targeted deposit strategies more online with our core relationship operating model. Several of these key initiatives are listed on slide 15 and leverage proven expertise coupled with strategic investments, with the goal of driving core deposit growth and consistent funding over time. As an example, we have been leaning into our competitive position as the leading bank for business to expand our focus within small business. Expected growth in this space should enhance the granularity and consistency of our deposit profile, and we were encouraged to see our investments drive favorable customer trends for the quarter.

Speaker Change: While we have been honored to manage this important program, we see this as an opportunity to refocus and reprioritize resources towards targeted deposit strategies more aligned with our core relationship operating model.

James J. Herzog: Several of these key initiatives are listed on slide 15 and leverage proven expertise coupled with strategic investments with the goal of driving core deposit growth and consistent funding over time. As an example, we have been leaning into our competitive position as the leading bank for business to expand our focus within small business. Expected growth in this space should enhance the granularity and consistency of our deposit profile, and we were encouraged to see our investments drive favorable customer trends for the quarter.

Speaker Change: Several of these key initiatives are listed on slide 15 and leverage proven expertise coupled with strategic investments with the goal of driving core deposit growth and consistent funding over time.

Speaker Change: As an example, we have been leaning into our competitive position as the leading bank for business to expand our focus within small business.

Speaker Change: Expected growth in this space should enhance the granularity and consistency of our deposit profile, and we were encouraged to see our investments drive favorable customer trends for the quarter.

Jim Herzog: Select talent acquisition and business optimization activities, and treasury management and payments have been designed to further capitalize on our strong core product set and should allow us to deliver more comprehensive liquidity solutions to our customers. Through our experience with threats expressed, we have developed competitive card capabilities that we are already leveraging to win new relationships. Online enhancements within retail are intended to further improve the user experience while expanding our customer reach. Finally, we see opportunities to leverage our existing delivery model, strong product set, and industry knowledge to further target deposit-rich customers, which should help drive stable funding opportunities.

James J. Herzog: Select talent acquisition and business optimization activities in treasury management and payments have been designed to further capitalize on our strong core product set and should allow us to deliver more comprehensive liquidity solutions to our customers. Through our experience with DirectXpress, we have developed competitive card capabilities that we are already leveraging to win new relationships. Online enhancements within retail are intended to further improve the user experience while expanding our customer reach.

Speaker Change: Select talent acquisition and business optimization activities and treasury management and payments have been designed to further capitalize on our strong core product set and should allow us to deliver more comprehensive liquidity solutions to our customers.

Speaker Change: Through our experience with DirectXpress, we have developed competitive card capabilities that we are already leveraging to win new relationships.

Speaker Change: Online enhancements within retail are intended to further improve the user experience while expanding our customer reach.

James J. Herzog: Finally, we see opportunities to leverage our existing delivery model, strong product set, and industry knowledge to further target deposit-rich customers, which should help drive stable funding opportunities. In short, we're very excited about the deposit initiatives we are executing on and look forward to continuing to prioritize deposit growth as a key strategic focus. Our outlook for 2024 is on slide 16. We project full-year average loans to decline 4% or grow 2%, point to point, from year end 2023 to 2024.

Speaker Change: Finally, we see opportunities to leverage our existing delivery model, strong product set, and industry knowledge to further target deposit-rich customers, which should help drive stable funding opportunities.

Jim Herzog: In short, we are very excited about the deposit initiatives we are executing on and look forward to continuing to prioritize deposit growth as a key strategic focus.

Speaker Change: In short, we are very excited about the deposit initiatives we are executing on and look forward to continuing to prioritize deposit growth as a key strategic focus.

Jim Herzog: Our outlook for 2024 is on Slide 16. We project four-year average loans to decline 4% or grow 2% point-to-point from year-end 2023 to 2024. Trilling effects from our strategic optimization efforts and muted demand across the industry dampened our outlook slightly. However, our strong pipeline and momentum still supports broad-based growth expectations in the second half of the year. Although we anticipate some level of continued cipherical pressure on non-intersparing balances and ongoing success in winning new interest-bearing deposits, we expect to maintain a favorable deposit mix in the upper 30s. The combination of non-intersparing deposit trends and lower average loans impacts our net interest income outlook, as we now project a 14% decline year over year.

Speaker Change: Our outlook for 2024 is on slide 16.

Speaker Change: We project full-year average loans to decline 4% or grow 2% point-to-point from year-end 2023 to 2024.

James J. Herzog: Trailing effects from our strategic optimization efforts and muted demand across the industry dampened our outlook slightly. However, our strong pipeline and momentum still support fraud-based growth expectations in the second half of the year. For your average deposit, we project it to be down 3% from 2023 or down 2% point to point. We expect average broker time deposits to be relatively consistent from full year 2023 to full year 2024.

Speaker Change: Trailing effects from our strategic optimization efforts and muted demand across the industry dampened our outlook slightly.

Speaker Change: However, our strong pipeline and momentum still supports broad-based growth expectations in the second half of the year.

Speaker Change: Four-year average deposits are projected to be down 3% from 2023 or down 2% point-to-point.

Speaker Change: We expect average broker time deposits to be relatively consistent from full year 2023 to full year 2024.

James J. Herzog: Although we anticipate some level of continued cyclical pressure on non-interest-bearing balances and ongoing success in winning new interest-bearing deposits, we expect to maintain a favorable deposit mix in the upper 30s. The combination of non-interest-bearing deposit trends and lower average loans impacts our net interest income outlook, as we now project a 14% decline year over year. On a quarterly basis, we expect those same deposit and loan pressures and the negative impact from FYSB's cessation to drive a 2 to 3 percent decline in net interest income.

Speaker Change: Although we anticipate some level of continued cyclical pressure on non-interest-bearing balances and ongoing success in winning new interest-bearing deposits, we expect to maintain a favorable deposit mix in the upper 30s.

Speaker Change: The combination of non-trust bearing deposit trends and lower average loans impacts our net interest income outlook as we now project a 14% decline year over year.

Jim Herzog: On a quarterly basis, we expect those same deposit and loan pressures and the negative impact from vis-à-vis cessation to drive a 2-3% decline in net interest income. Adjusting for vis-à-vis, third quarter net interest income is only expected to decline a modest 1% as we believe we are at the cyclical low point. We also believe deposit costs will continue to increase slightly until rates begin to decline. Credit quality remains strong, and successful recoveries help drive lower net charge-offs this quarter. With persistent elevated rates and inflationary pressures, we believe modest migration is possible. However, we expect it to remain manageable.

Speaker Change: On a quarterly basis, we expect those same deposit and loan pressures and the negative impact from FYSB cessation to drive a 2% to 3% decline in net interest income.

James J. Herzog: Adjusting for FYSB third quarter net interest income is only expected to decline a modest 1% as we believe we are at the cyclical low point. We also believe deposit costs will continue to increase slightly until rates begin to decline. Credit quality remains strong, and successful recoveries helped drive lower net charge-offs this quarter. With persistent elevated rates and inflationary pressures, we believe modest migration is possible.

Speaker Change: Adjusting for FYSB third quarter net interest income is only expected to decline a modest 1% as we believe we are at the cyclical low point.

Speaker Change: We also believe deposit costs will continue to increase slightly until rates begin to decline.

Speaker Change: Credit quality remains strong and successful recoveries help drive lower net charge-offs this quarter. With persistent elevated rates and inflationary pressures, we believe modest migration is possible. However, we expect it to remain manageable.

James J. Herzog: However, we expect it to remain manageable. Given our strong results to date, we forecast four-year net charge-offs to approach but remain below the lower end of our normal 20 to 40 basis point range. We expect non-interest income to grow approximately 1% to 2% on a reported basis, which would be down 1% year-to-year when adjusting for BISB and the impact of the Ameriprise transition as detailed in the appendix. Third quarter non-interest income is expected to decline three to four percent, driven largely by lower projected non-customer income. Within the second quarter, we recognized a $6 million gain due to our derivative related to the Visa Class B exchange program and benefited from smaller valuation adjustments that accounted for another income.

Jim Herzog: Given our strong results to date, we forecast for your net charge-offs to approach but remain below the lower end of our normal 20-40 basis point range. We expect non-intersparing income to grow approximately 1-2% on a reported basis, which would be down 1% year-to-year when adjusting for vis-à-vis and the impact of the mayor-price transition has detailed in the appendix. Third quarter net interest income is expected to decline 3-4% driven largely by lower projected non-customer income. Within the second quarter, we recognize a $6 million gain due to our derivative related to the Visa Class B exchange program and benefited from smaller valuation adjustments accounted for another income.

Speaker Change: Given our strong results to date, we forecast four-year net charge-offs to approach, but remain below, the lower end of our normal 20 to 40 basis point range.

Speaker Change: We expect non-interest income to grow approximately 1 to 2% on a reported basis, which would be down 1% year-to-year when adjusting for BISB, and the impact of the AmeriPrize transition as detailed in the appendix.

Speaker Change: Third quarter non-interest income is expected to decline 3-4%, driven largely by lower projected non-customer income.

Speaker Change: Within the second quarter, we recognized a $6 million gain due to our derivative related to the Visa Class B exchange program and benefited from smaller valuation adjustments accounted for another income.

James J. Herzog: We project lower FHLV dividends consistent with lower wholesale funding, and we expect risk management income to decline based on the forward curve and our hedge position. Despite these non-customer trends, we remain very encouraged about our customer-related momentum and investments to grow fee income over time. Full-year non-interest expenses are expected to decline 2% to 3% on a reported basis and to grow 4% after adjusting for special FDIC assessments, expense recalibration, modernization, and the accounting impact from the Ameriprise transition.

Jim Herzog: We project lower FHLB dividends consistent with lower wholesale funding, and we expect risk management income to decline based on the forward curve and our hedge position. Despite these non-customer trends, we remain very encouraged about our customer-related momentum and investments to grow fee income over time. Four-year non-interspenses are expected to decline 2-3% on a reported basis for growth 4% after adjusting for special FDIC assessments, expense for calibration, modernization, and the accounting impact from the mayor-price transition. Third quarter non-interspenses are expected to increase 3-4% over the relatively lower second quarter levels as we intend to reinvest savings from our expense calibration efforts in the head count of line with our risk management and strategic priorities.

Speaker Change: We project lower FHLV dividends consistent with lower wholesale funding, and we expect risk management income to decline based on the forward curve and our hedge position.

Speaker Change: Despite these non-customer trends, we remain very encouraged about our customer-related momentum and investments to grow fee income over time.

Speaker Change: Full year non-interest expenses are expected to decline 2-3% on a reported basis to grow 4% after adjusting for special FDIC assessments, expense recalibration, modernization, and the accounting impact from the Ameriprise transition.

James J. Herzog: Third quarter non-interest expenses are expected to increase 3-4% over the relatively lower second quarter levels as we intend to reinvest savings from our expense calibration efforts in the headcount aligned with our risk management and strategic priorities. We also expect to see elevated occupancy expenses associated with transitioning or corporate facilities and seasonally higher taxes, maintenance, and repair. With an ongoing focus on expense discipline, we continue to seek opportunities to offset or self-fund emerging pressures.

Speaker Change: Third quarter non-interest expenses are expected to increase 3-4% over the relatively lower second quarter levels as we intend to reinvest savings from our expense calibration efforts in the headcount aligned with our risk management and strategic priorities.

Jim Herzog: We also expect to see elevated occupancy expense associated with transitioning our corporate facilities and seasonally higher taxes, maintenance, and repair. With an ongoing focus on expense discipline, we continue to seek opportunities to offset or self-fund emerging pressures. Lewis, even with a strong projected loan growth in the second half of the year, we expect our CET-1 ratio to remain well above our 10% strategic target through year-end. We will continue to monitor AOCI and the regulatory environment as we take a conservative approach to share repurchases in 2024. Despite some near-term statistical pressures, we expect continued momentum in the second half of the year to position as well for 2025.

Speaker Change: We also expect to see elevated occupancy expense associated with transitioning or corporate facilities and seasonally higher taxes, maintenance, and repair. With an ongoing focus on expense discipline, we continue to seek opportunities to offset or self-fund emerging pressures.

James J. Herzog: Even with strong projected loan growth in the second half of the year, we expect our CET1 ratio to remain well above our 10% strategic target through year end. We will continue to monitor AOCI and the regulatory environment as we take a conservative approach to share repurchases in 2024. Despite some near-term cyclical pressures, we expect continued momentum in the second half of the year to position us well for 2025. Now, I'll turn the call back to Kurt.

Speaker Change: Even with the strong projected loan growth in the second half of the year, we expect our CET1 ratio to remain well above our 10% strategic target through year end.

Speaker Change: We will continue to monitor AOCI and the regulatory environment as we take a conservative approach to share repurchases in 2024.

Speaker Change: Despite some near-term cyclical pressures, we expect continued momentum in the second half of the year to position us well for 2025.

Kurt Farmer: Now I'll turn the call back to Kurt.

Curtis Chatman Farmer: Thank you, Jim. We are proud of our second quarter results and find the more recent loan and fee income growth trends, coupled with our overall earnings trajectory, to be compelling. As highlighted on slide 17, we feel we have a unique value proposition, and it starts with our strong foundation of credit, capital, and liquidity. From that foundation, we execute on a diversified strategy across select markets and businesses designed to mitigate risk and deliver enhanced returns over time.

Kurt Farmer: Thank you, Jim. We are proud of our second quarter results and find the more recent loan and fee income growth trends coupled with our overall earning trajectory to be compelling. As highlights on 517, we feel we have a unique value proposition, and it starts with our strong foundation of credit, capital, and liquidity. From that foundation, we execute on a diversified strategy across select markets and businesses designed to mitigate risk and deliver enhanced returns over time. Tying our strong foundation together with our differentiated strategy, we feel we are well positioned for future growth. We expect meaningful structural tailwinds to net interest income due to anticipated maturities and repayments within our swap and securities portfolio.

Speaker Change: Now, I'll turn the call back to Curt.

Curtis Chatman Farmer: Thank you, Jim. We are proud of our second quarter results and find the more recent loan and fee income growth trends coupled with our overall earnings trajectory to be compelling.

Curtis Chatman Farmer: As highlighted on slide 17, we feel we have a unique value proposition and it starts with our strong foundation of credit, capital, and liquidity.

Curtis Chatman Farmer: From that foundation, we execute on a diversified strategy across select markets and businesses designed to mitigate risk and deliver enhanced returns over time.

Curtis Chatman Farmer: Tying our strong foundation together with our differentiated strategy, we feel we are well positioned for future growth. We expect meaningful structural tailwinds to net interest income due to anticipated maturities and repayments within our swap and securities portfolio. Our strategic investments are designed to drive consistent, capital-efficient income, and we saw encouraging results from those investments this quarter. Finally, we believe our balance sheet is well-positioned for responsible, profitable growth as we leverage our demonstrated strength as a commercial lender and prioritize our targeted deposit initiatives.

Curtis Chatman Farmer: Tying our strong foundation together with our differentiated strategy, we feel we are well positioned for future growth.

Curtis Chatman Farmer: We expect meaningful structural tailwinds to net interest income due to anticipated maturities and repayments within our swap and securities portfolio.

Kurt Farmer: Our strategic investments are designed to drive consistent, capital-efficient income, and we saw encouraging results from those investments this quarter. Finally, we believe our balance sheet is well positioned for responsible, profitable growth as we leverage our demonstrated strength as a commercial lender and prioritize our targeted deposit initiatives. While the market remains focused on the timing and magnitude of rate cuts, we feel we have positioned our balance sheet to drive long-term value regardless of the rate environment.

Curtis Chatman Farmer: Our strategic investments are designed to drive consistent, capital-efficient income. We saw encouraging results from those investments this quarter.

Curtis Chatman Farmer: Finally, we believe our balance sheet is well-positioned for responsible, profitable growth as we leverage our demonstrated strength as a commercial lender and prioritize our targeted deposit initiatives. While the market remains focused on the timing and magnitude of rate cuts,

Curtis Chatman Farmer: While the market remains focused on the timing and magnitude of rate cuts, we feel we have positioned our balance sheet to drive long-term value regardless of the rate environment. We appreciate your time this morning. We'd be happy to take your questions.

Curtis Chatman Farmer: We feel we have positioned our balance sheet to drive long-term value regardless of the rate environment.

Kurt Farmer: We appreciate your time this morning. We have to take your questions. Thank you.

Operator: Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment, please, while we poll for questions. Our first question today is coming from Ken Usdin of Jeffrey's Robot is Now Live.

Curtis Chatman Farmer: We appreciate your time this morning and would be happy to take your questions.

Operator: Now, if you are conducting a question-and-answer session, if you would like to be placed in the question queue, please press star one under the telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to move your question from the queue.

Speaker Change: Thank you. We will now be conducting a question and answer session.

Kenneth Michael Usdin: Thanks. Good morning, guys.

Speaker Change: If you'd like to be placed into the question queue, please press star 1 on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment, please.

Speaker Change: You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment please while we poll for questions.

Ken Usdin: What will be coming from Ken used in from Jeffries, your line is our line. Good morning, Ian. Thanks. Good morning, guys.

Speaker Change: Our first question today is coming from Ken Usdin from Jefferies. Your line is now live.

Peter L. Sefzik: Look, I'd like to follow up on the direct express and just ask you. You mentioned that it could be delayed to some point. So I'm just wondering if you can walk us through the steps from here. When do you think you'll know when that start point is? And then I think the most important thing is the 3.3 billion average deposits. What would be the natural trajectory of time for those to kind of go to zero in a scenario where, actually, you don't keep them all even under the transition at the start point? Thanks.

Peter Sefzik: Look, I'd like to follow up on the Direct Express and just ask you. You mentioned that it could be delayed to some point. I'm just wondering if you can walk us through the steps from here. When do you think you'll know when that start point is? And then I think the most important is the 3.3 billion of average deposits. What would be the natural trajectory of time for those to kind of go to zero in the scenario? You actually keep them all, even under the transition at start point. Thanks.

Speaker Change: Morning, Ken.

Kenneth Michael Usdin: Thanks, good morning guys.

Kenneth Michael Usdin: Look, I'd like to follow up on the direct express and just ask you, you mentioned that it could be delayed to some point. So I'm just wondering if you can walk us through the steps from here.

Kenneth Michael Usdin: When do you think you'll know when that start point is? And then I think the most important is the 3.3 billion of average deposits.

Peter J. Winter: What would be the natural trajectory of time for those to kind of go to zero in the scenario you actually, you know, keep them all even under the transition at start point? Thanks. Yeah, Ken, it's Peter. So at this point, you know, all of this indication from the fiscal service is preliminary. So what the next few months looks like will sort of be to be determined. We hope over the next couple of quarters to get a little more clarity on

Peter L. Sefzik: Yeah, Ken, it's Peter. So, at this point, you know, all of this indication from the Fiscal Service is preliminary. So, what the next few months looks like will sort of be to be determined. We hope over the next couple of quarters to get a little more clarity on what the transition does look like. I would tell you our focus is on working really closely with the Fiscal Service to make sure that this is a very smooth transition for the customer base here.

Peter Sefzik: Yeah, Ken, it's Peter. So, at this point, you know, all of this indication from the fiscal services preliminary. So, what the next few months looks like will sort of be to be determined. We hope over the next couple of quarters to get a little more clarity on what the transition does look like. I would tell you our focus is on working really closely with the Fiscal Service to make sure that this is a very smooth transition for the customer base here. That's really important to us. And I know it's important to them as well. And so we want to be sure that we're able to execute on that for them.

Peter J. Winter: What the transition does look like. I would tell you our focus is on

Peter J. Winter: Working really closely with the fiscal service to make sure that this is a very

Peter J. Winter: Smooth transition for the customer base here that's really important to us and I know it's important to them as well and so

Peter L. Sefzik: That's really important to us, and I know it's important to them as well. And so, we want to be sure that we're able to execute on that for them. And as far as the timeline of what the deposits look like and when they leave, as we have said for quite a while now, we believe that to be a longer time period rather than a shorter time period. That's about as much clarity as I can give you on that because we just don't really know.

Peter Sefzik: And as far as the timeline of what the deposits look like and when they leave, as we have said for quite a while now, we believe that to be a longer time period rather than a shorter time period. That's about as much clarity as I can give to you on it because we just don't really know. I would tell you that our experience having managed this program for a very long time now is that this is a significant transition. There's four and a half million card holders. And that this would take a long period of time.

Peter J. Winter: We want to be sure that we're able to execute on that for them. And as far as the timeline of what the deposits look like and when they leave, as we have said for quite a while now, we believe that to be a longer time period rather than a shorter time period. That's about as much clarity as I can give to you on it, because we just don't really know. I would tell you that our experience...

Peter L. Sefzik: I would tell you that our experience, having managed this program for a very long time now, is that this is a significant transition, there are four and a half million cardholders, and that this will take a long period of time. So, that's going to be something that we will learn, hopefully, in the coming quarters. And as we get more clarity on it, our intention would be to provide that clarity to you as well.

Peter J. Winter: Having managed this program for a very long time now, is that this is a significant transition. There's four and a half million cardholders.

Peter Sefzik: So that's going to be something that we will learn, hopefully, in the coming quarters. And as we get more clarity on it, our intention would be to provide that clarity to you as well. And I would tell you also that we continue to be very focused on running our playbook for our relationship model, as Kurt and Jim have said in our comments. We feel like we've got a whole lot of ways to manage this on a go-forward basis for the company and feel like we'll be able to redirect these resources to be more focused on what we really do as a leading bank for business.

Peter J. Winter: and that this would take a long period of time. So that's going to be something that we will learn hopefully in the coming quarters, and as we get more clarity on it, our intention would be to provide that.

Peter L. Sefzik: And I would tell you also that we continue to be very focused on running our playbook for our relationship model, as Kurt and Jim have said in their comments. We feel like we've got a whole lot of ways to manage this on a go-forward basis for the company and feel like we'll be able to redirect these resources to be more focused on what we really do as a leading bank for business.

Peter J. Winter: Clarity to you as well.

Curtis Chatman Farmer: And I would tell you also that, you know, we continue to be very focused on running our playbook for our relationship model, as Kurt and Jim have said in our comments. We feel like we've got...

Curtis Chatman Farmer: A whole lot of ways to manage this on a go-forward basis for the company and feel like we'll be able to redirect these resources to be more focused on what we really do as a leading bank for business.

Jim Herzog: Jones. Okay, got it. And then just a bigger picture question: you know, in the scenario where you don't keep it, and even if there's a long tail, it still could be a decent hit to earnings power. How much does this change just overall, if at all, you know, strategic thinking about where the company's going in terms of adjusting to a different potential, you know, earnings power level.

James J. Herzog: Okay, got it. And then just a bigger picture question, you know, in the scenario where you don't keep it, and even if there's a long tail, it still could be a decent hit to earnings power. How much does this change, if at all, strategic thinking about where the company's going, in terms of adjusting to a different potential earnings power level?

Speaker Change: Okay, got it. And then just bigger picture question, you know, in the scenario where you don't keep it, and even if there's a long tail,

Speaker Change: It still could be a decent hit to earnings power, but how much does this change just overall, if at all, you know, strategic thinking about where the company's going in terms of adjusting to a different potential, you know, earnings power level?

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

Jim Herzog: Good morning, Kenneth's Jim. You know, I would start out by saying that it is absolutely our intention to replace these deposits over time. You know, as I look at it, you know, short term, of course, there'll be no effect. We do think it'll be somewhat of an elongated transition long term. We do expect to replace these deposits and, you know, we expect to replace them with core customer deposits that, as Peter and Kurt said, probably better fit our business model, you know, medium term. We'll wait and see how the transition goes. But over time, it is our expectation to replace these with core deposits and minimize the impact, potentially no impact over the long term.

James J. Herzog: You know, I would start out by saying that it is absolutely our intention to replace these deposits over time. But, as I look at it, in the short term, of course, there'll be no effect. We do think it'll be somewhat of an elongated transition. In the long term, we do expect to replace these deposits, and you know, we expect to replace them with core customer deposits that, as Peter and Kurt said, probably better fit our business model.

Speaker Change: Good morning, Ken. It's Jim. You know, I would start out by saying that it is absolutely our intention to replace these deposits over time. You know, as I look at it, you know, short term, of course, there'll be no effect. We do think it'll be somewhat of an elongated transition.

Speaker Change: Long term, we do expect to replace these deposits, and we expect to replace them with core customer deposits that

James J. Herzog: You know, medium term, we'll wait and see how the transition goes, but over time, it is our expectation to replace these with core deposits and minimize the impact, potentially no impact over the long term. Having said that, to the extent there is a bit of a transition in the medium term, we do start with a great balance sheet, low levels of wholesale funding, and a low loan-to-deposit ratio. We don't think it affects us strategically, and I would just emphasize that it is our intention over time to replace these deposits to remove any impact on long-term profitability.

Speaker Change: As Peter and Kurt said, probably better fit our business model. You know, medium term, we'll wait and see how the transition goes. But over time, it is our expectation to replace these with core deposits and minimize the impact, potentially no impact over the long term.

Jim Herzog: Having said that, you know, to the extent there is a bit of a transition in the medium term, we do start with a great balance sheet, you know, low levels of wholesale funding, you know, low loans deposit ratio. So, we don't think it affects us strategically.

Speaker Change: Having said that, to the extent there is a bit of a transition in the medium term, we do start with a great balance sheet.

Speaker Change: You know, low levels of wholesale funding, you know, low loan-to-deposit ratio. We don't think it affects us strategically, and I would just emphasize that it is our intention over time to replace these deposits to remove any impact to long-term profitability.

Jim Herzog: And I would just emphasize that it is our intention over time to replace these deposits to remove any impact on long-term profitability.

Unknown Executive: Okay.

Kenneth Michael Usdin: Okay, thank you.

Unknown Executive: Thank you.

Unknown Executive: Thanks, Jim.

Christopher Edward McGratty: Thank you. The next question today is coming from Chris McGratty from KBW. Your line is now live.

Unknown Executive: Thank you.

Chris Mcgratty: Next question today is coming from Chris McGrattie from KBW. Good morning, Chris. Good morning. Hey, good morning. Just following up on the question, you know, thinking about how the balance sheet you may react with your balance sheet, you've got a bond portfolio that throws off a lot of cash.

Speaker Change: Okay, thank you.

Kenneth Michael Usdin: Thanks, Ken.

Speaker Change: Thank you. The next question today is coming from Chris McGratty from KBW. Your line is now live.

Christopher Edward McGratty: Hey, good morning. Just following up on the question, you know, thinking about how the balance may react with your own balance. You've got a bond portfolio that throws off a lot of cash, and one I'm trying to get a better handle on is the scenario where replace the deposits with interest-bearing over time, which is a hit, or, you know, selling perhaps low yielding bonds, which would perhaps have less of an impact. Any color on that would be great.

Speaker Change: Good morning, Chris.

Christopher Edward McGratty: Hey, good morning.

Speaker Change: You may react with your balance. You've got a bond portfolio that throws off a lot of cash

Jim Herzog: Is one I'm trying to get a better handle on is the scenario replaced the deposits with interest sharing over time, which is ahead or, you know, selling perhaps low yielding bonds, which would perhaps be less of an impact. Any color on that would be great.

Christopher Edward McGratty: I'm trying to get a better handle on, is the scenario replace the deposits with interest bearing over time, which is a hit, or selling perhaps low yielding bonds, which would perhaps be less of an impact? Any color on that would be great.

Jim Herzog: Good morning, Chris. It's Jim. You know, we do think the bond portfolio will continue to run down through the end of the year and generate cash. The way I think of it is, you know, that bond portfolio will essentially fund our loan growth between now and the end of the year, perhaps early next year. I wouldn't necessarily lean on the bond portfolio for anything related to the Direct Express program, which is really, again, a longer term issue and, you know, will certainly be buying securities by the time we have some type of longer transition for Direct Express.

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

Christopher Edward McGratty: Good morning, Chris. It's Jim.

Speaker Change: You know, we do think the bond portfolio will continue to run down through the end of the year and generate cash.

James J. Herzog: You know, we do think the bond portfolio will continue to run down through the end of the year and generate cash. The way I think of it is, that bond portfolio will essentially fund our loan growth between now and the end of the year, perhaps early next year. But I wouldn't necessarily lean on the bond portfolio for anything related to the Direct Express program, which is really, again, a longer-term issue.

Speaker Change: The way I think of it is, you know, that bond portfolio will essentially fund our loan growth.

Speaker Change: Between now and the end of the year, perhaps early next year.

Speaker Change: I wouldn't necessarily lean on the bond portfolio for anything related to the Direct Express program, which is really, again, a longer term.

James J. Herzog: And, you know, we'll certainly be buying securities by the time we have some type of longer transition for Direct Express. So I view the bond portfolio as more of a shorter-term tactic to fund our loan growth at this point.

Speaker Change: We'll certainly be buying securities by the time we have some type of longer transition for Direct Express. So I view the bond portfolio as more of a shorter-term tactic to fund our loan growth at this point.

Jim Herzog: So I view the bond portfolios more of a shorter term tactic to fund our loan growth at this point.

Chris Mcgratty: Okay. And maybe I'm not sure how much you can comment, but was it pricing? What was it that you think, having had this relationship for many years? What do you think it was that drove the decision not to be selected?

Peter L. Sefzik: Okay. And maybe, I'm not sure how much you can comment, but was it pricing? What do you think, having had this relationship for many years, what do you think it was that drove the decision not to be selected?

Speaker Change: Okay, and maybe, I'm not sure how much you can comment, but was it pricing? What was it that you think, having had this relationship for many years, what do you think it was that drove the decision not to be selected?

Peter L. Sefzik: Yeah, Chris, this is Peter. You know, quite candidly, we really can't comment and don't plan to comment on sort of what the decision process was or wasn't that the fiscal service made. What we can tell you is that we did submit what we felt was a very competitive bid with our full understanding of this program, like I said, for a long period of time and the complexities that come with it.

Peter Sefzik: Chris, this is Peter. You know, quite candidly. We really can't comment and don't plan to comment on sort of what the decision process was or wasn't that the Fiscal Service made. What we can tell you is that we did submit what we felt like was a very competitive bid with our full understanding of this program, like I said, for a long period of time and the complexities that come with it. So, you know, we're very proud of how we've managed this all of these years, and we felt very good about what we submitted as being the right thing for both parties and including the consumers.

Peter J. Winter: Yeah, Chris, this is Peter. You know, quite candidly, we really can't comment and don't plan to comment on sort of what the decision process was or wasn't that the fiscal service made. What we can tell you is that we did submit what we felt like was a very competitive bid.

Peter L. Sefzik: So, you know, we're very proud of how we've managed this all of these years, and we felt very good about what we submitted as being the right thing for both parties and, including, the consumers. And at the end of the day, the decision process is sort of left up to the fiscal service and not one that we're going to be able to comment on.

Peter J. Winter: With our full understanding of this program, like I said, for a long period of time and the complexities that come with it.

Peter J. Winter: So, you know, we're very proud of how we've managed this all of these years, and we felt very good about what we submitted as being the right thing for both parties and including the consumers. And at the end of the day, the decision process is sort of left up to the fiscal service and not one that...

Peter Sefzik: And at the end of the day, the decision process is sort of left up to the fiscal service and not one that we're going to be able to comment on.

Christopher Edward McGratty: Okay, thank you.

Speaker Change: We're going to be able to comment on.

Unknown Executive: Thank you.

Bernard Von Gizycki: Thank you. As a reminder, that's star number one to be placed in the question queue. Our next question today is coming from Bernard von Gizycki from Deutsche Bank. Your line is now live.

Speaker Change: Okay, thank you.

Operator: I have a reminder that Star One to be placed in the question key.

Bernard Gizycki: Our next question today is coming from Bernard Wang-Gizycki from Deutsche Bank. Berlin is not live. Morning, Bernard. Hey guys, good morning.

Speaker Change: Thank you. As a reminder, that's Star 1 to be placed into question Q.

Speaker Change: Our next question today is coming from Bernard von Gizycki from Deutsche Bank. Your line is now live.

Bernard Von Gizycki: Hey guys, good morning. Could you talk to your interest rate sensitivity analysis on page nine of the deck? Your liability sensitivity and the forward curve assumptions have changed since 1Q. I want to color in on your underlying assumptions, just how we kind of think about it in the forward. And then just, I know you've kind of outlined about 100 million benefits from less drags and swaps in 2025, and I was wondering if there are any updates there.

Jim Herzog: Could you talk to your interest rate sensitivity analysis on page 9 of the deck? You know, your liability sensitive and the forward cover assumptions have changed since one year. Thank you. I wanted color on your underlying assumptions, just how we kind of think about it in the forward.

Bernard Von Gizycki: Morning, Bernard.

Bernard Von Gizycki: Hey guys, good morning. Could you talk to your interest rate sensitivity analysis on page nine of the DAC? You know, your liability sensitive and the forward curve assumptions have changed.

Speaker Change: I want to color on your underlying assumptions, just how we kind of think about it in the forward. And then just I know you've kind of outlined about 100 million benefits from less drags and swaps in 2025 and wondering if there are any updates there.

Jim Herzog: And then just I know you've kind of outlined about a hundred million benefits from less drags and swaps in 2025 and wondering if there are any updates there. Yeah, good morning, Bernard.

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

Jim Herzog: It's Jim. Yes, we are we are modestly liability sensitive. You know, that liability sensitivity has increased, you know, slightly from the last quarter. I do think of this as largely interest neutral. But the liability sensitivity is growing just a little bit, which I think is a great position to be in at this point of the cycle. Obviously, the rate cuts that occur according to the curve in 2024 will be more back-ended. So, while it is a little bit of a lift for the 2024 projection. It's not a huge lift. It's really going to be more of a 2025 play.

James J. Herzog: Yes, we are. We are modestly liability-sensitive. You know, that liability sensitivity has increased slightly from the last quarter. I do think of this as largely interest neutral, but the liability sensitivity is growing just a little bit, which I think is a great position to be in at this point in the cycle. Obviously, the rate cuts that occur according to the curve in 2024 will be more back-ended. So while it is a little bit of a lift for the 2024 projection, it's not a huge lift.

Speaker Change: Yeah, good morning Bernard, it's Jim. Yes, we are modestly liability sensitive.

James J. Herzog: You know, that liability sensitivity has increased, you know, slightly from the last quarter. I do think of us as largely interest neutral, but the liability sensitivity is growing just a little bit, which I think is a great position to be in at this point of the cycle.

Speaker Change: Obviously, the rate cuts that occur according to the curve in 2024 will be more back-ended. So while it is a little bit of a lift for the 2024 projection, it's not a huge lift. It's really going to be more of a 2025 play.

James J. Herzog: It's really going to be more of a 2025 play. We did assume the June 30th curve in the outlook, though frankly, if we had updated that curve after the CPI report came out, it really wouldn't have moved the overall outlook materially. And again, that's because so many visa cuts are occurring late in the year.

Jim Herzog: We did assume the June 30 curve in the outlook. So, frankly, if we had updated that curve after the CPI report came out, it really wouldn't have moved the overall outlook truly. And again, that's because so many of these cuts are occurring late in the year. You know, regarding, you know, the maturing swaps and securities. And we do have a slide in the appendix on slide 23 that outlines the maturing swaps and securities. I have talked in the past about the fact that we expect to get about a hundred million dollar uplift from those maturities in 2025.

Speaker Change: We did assume the June 30th curve in the outlook. So frankly, if we had updated that curve after the CPI report came out, it really wouldn't have moved the overall outlook materially. Again, that's because so many visa cuts are occurring late in the year.

James J. Herzog: You know, regarding the maturing swaps and securities, and we do have a slide in the appendix on slide 23 that outlines the maturing swaps and securities. I have talked in the past about the fact that we expect to get about a $100 million uplift from those maturities in 2025. Now, that's a very simple calculation, assuming rates were to stay constant. If rates were to move, number one, it depends on when rates move.

Speaker Change: You know, regarding, you know, the maturing swaps and securities, and we do have a slide in the appendix on slide 23.

Speaker Change: that outlines the maturing swaps and securities. I have talked in the past about the fact that we expect to get about $100 million uplift from those maturities in 2025. Now, that's a very simple calculation, assuming rates were to stay constant.

Jim Herzog: Now, that's a very simple calculation, assuming rates were to stay constant. If rates were to move, you know, number one, it depends when rates move. You know, we may take some of that benefit in 2024. So obviously, that reduced the lift in 25, but in an absolute sense, you'd still be getting it. And there are 100 million. Also, assumes these maturities and rate movements occur in a vacuum. And as we know, nothing occurs in a vacuum. You know, if rates do down, other parts of the balance sheet are going to be impacted, including all the swaps and the swaps that are currently on the books that are not maturing; they would certainly benefit.

James J. Herzog: You know, we may take some of that benefit in 2024. So, obviously, that would reduce the lift in 2025, but in an absolute sense, you'd still be getting it. And that $100 million also assumes these maturities and rate movements occur in a vacuum. But, as we know, nothing happens in a vacuum.

Speaker Change: If rates were to move, you know, number one, it depends when rates move, you know, we may take some of that benefit in 2024.

Speaker Change: So obviously that would reduce the lift in 25, but in an absolute sense you'd still be getting it.

Speaker Change: And that $100 million also assumes these maturities and rate movements occur in a vacuum, and as we know, nothing occurs in a vacuum. You know, if rates do move down, other parts of the balance sheet are going to be impacted, including all the swaps that are currently on the books that are not maturing.

James J. Herzog: You know, if rates do move down, other parts of the balance sheet are going to be impacted, including all the swaps that are currently on the books that are not maturing. They would certainly benefit. So, you have this $100 million of maturing swaps and securities in a vacuum, but all these other factors get rolled into what amounts to our modest liability sensitivity. And I would just say that if the balance sheet and rates perform as expected, we would probably get a little less than $100 million for those maturing swaps and securities, but you would likely make that up with our modest liability sensitivity.

Jim Herzog: So you have this hundred billion dollars of maturing swaps and securities in a vacuum. But all these other factors get rolled into what amounts to our modest liability sensitivity. And I would just say that if the balance sheet and rates perform as expected, you know, we would probably get a little less than a hundred million for those maturing swaps and securities. But you would likely make that up with our modest liability sensitivity. So you really get it one way or the other, assuming you know, the balance sheet responds as we model it. But of course, we'll wait and see how things actually play out.

Speaker Change: They would certainly benefit. So you have this $100 million of maturing swaps and securities in a vacuum, but all these other factors get rolled into what amounts to our modest liability sensitivity. And I would just say that if the balance sheet and rates perform as expected.

Speaker Change: You know, we would probably get a little less than $100 million for those insuring swaps and securities.

James J. Herzog: So, you really get it one way or the other, assuming, you know, the balance sheet responds as we model it. But, of course, we'll wait and see how things actually play out. But I think, big picture, we feel pretty good about that number.

Speaker Change: But you would likely make that up with our modest liability sensitivity. So you really get it one way or the other, assuming the balance sheet responds as we model it. But of course, we'll wait and see how things actually play out. But I think big picture, we feel pretty good about that number.

Jim Herzog: But I think big picture we feel pretty good about that number. Okay, great.

Bernard Von Gizycki: Okay, great. And then maybe following up on the non-interest bearing deposits, I think it was mentioned, obviously, you know, this continues to put difficult pressure on us. But, you know, the narrative changed, maybe a bit recently, and just wanted to get your sense on, you know, would you expect outflows to continue, would it be migration? Would it potentially be slowing once, you know, three, four cuts kind of occur? Because, obviously, the rate differential is high.

Bernard Gizycki: And then just maybe falling up on the non interfering deposit. I think it was mentioned; obviously, you know, this continues difficult pressure. But you know, the narrative changed, maybe a bit recently. And just wanted to get your sense on, you know, would you expect like out close to continue would be migration. And would it potentially be slowing once, you know, three, four cuts kind of occur because obviously the rate differential is high. And you know, even if we get three, four cuts, it's still, you know, maybe relatively higher than that has been over the past several years.

Speaker Change: Okay, great. And then just maybe following up on the non-interest-bearing deposit, I think it was mentioned, obviously,

Speaker Change: The narrative changed a bit recently and I just wanted to get your sense on would you expect outflows to continue, would it be migration, would it potentially be slowing once 3-4 cuts kind of occur? Because obviously the rate differential is high and even if we get 3-4 cuts it will remain relatively higher than it has been.

Bernard Von Gizycki: And, you know, even if we get three, four cuts, it'll still, you know, remain relatively high. So we hire more than that has been over the past several years. So just want to get some thoughts on how you think that could affect you.

Jim Herzog: So just want to get some thoughts on how you think that's up in my grade. Sure, Bernard. You know, we have been saying that as long as rates stay higher for longer, you know, we do expect to see some modest pressure on non-interest-bearing deposits. I think that's natural with rates being at this level. You know, reinforce that we are at the apex of the cycle at this point. So this is probably where we're seeing this maximum pressure. And it's a little uncomfortable that we do expect it to turn as rates move downwards in the latter part of the year.

Speaker Change: Over the past several years. So just want to get some thoughts on how you think that stuff could migrate

James J. Herzog: Sure, Bernard. We have been saying that as long as rates stay higher for longer, we do expect to see some modest pressure on non-transparent deposits. I think that's natural with rates being at this level. I'll reinforce that we are at the apex of the cycle at this point, so this is probably where we're seeing this maximum pressure.

Speaker Change: Sure, Bernard. We have been saying that as long as rates stay higher for longer, we do expect to see some modest pressure on non-transparent deposits. I think that's natural with rates being at this level.

James J. Herzog: And it's a little uncomfortable, but we do expect it to turn as rates move downwards in the latter part of the year. In terms of the overall outlook, you see that our average deposits in Q2 were about $25.5 billion. We do think Q3 is likely to be slightly more than $1 billion lower than that, so that's just slightly below where we ended up on June 30th, and we think that's the low point.

Speaker Change: I'll reinforce that we are at the apex of the cycle at this point, so this is probably where we're seeing this maximum pressure, and it's a little uncomfortable, but we do expect it to turn as rates move downwards in the latter part of the year.

Jim Herzog: In terms of the overall outlook, you see that our average deposits in Q2 were about 25 and a half billion. We do think Q3 is likely to be slightly more than a billion dollars lower than that. So that's just slightly below where we ended up on June 30th. And we think that's the low point. We do see non-interest bearing deposits for both seasonal reasons, as well as rates moving down. We actually see a slight increase in Q4. And we would expect to see it continue to increase, you know, as we move through 2025. So we absolutely seem to be at the apex of the cycle maximum pressure on non-interests bearing deposits.

Speaker Change: In terms of the overall outlook, you see that our average deposits in Q2 were about $25.5 billion. We do think Q3 is likely to be slightly more than a billion dollars lower than that. That's just slightly below where we ended up on June 30th.

James J. Herzog: We do see non-interest bearing deposits for both seasonal reasons as well as, you know, rates moving down. We actually see a slight increase then in Q4, and we would expect to see those continue to increase, you know, as we move through 2025. So we absolutely seem to be at the apex of the cycle with maximum pressure on non-interest bearing deposits, but we do see that turning later this year.

Speaker Change: And we think that's the low point.

Speaker Change: We do see non-interest bearing deposits for both seasonal reasons as well as rates moving down. We actually see a slight increase then in Q4.

Speaker Change: And we would expect to see those continue to increase, you know, as we move through 2025. So we absolutely seem to be at the apex of the cycle with maximum, you know, pressure on non-interest bearing deposits. But we do see that turning later this year.

Jim Herzog: But we do see that turning later this year.

Bernard Von Gizycki: Okay, great. Thanks for taking my questions.

Unknown Executive: Okay, great. Thanks for second my question. Thanks, Brian. Thank you.

Bernard Von Gizycki: Thanks, Bernard. Thank you.

Speaker Change: Okay, great. Thanks for taking my question.

Michael Lawrence Mayo: Thank you. The next question today is coming from Mike Mayo from Wells Fargo. Your line is now live.

Mike Mayo: Next question. Today is coming from Mike Mayo from Wells Fargo. Your line is now live.

Bernard Von Gizycki: Thanks, Bernard. Thank you.

Speaker Change: Thank you. Next question today is coming from Mike Mayo from Wells Fargo. Your line is now live.

Michael Lawrence Mayo: Morning, Mike. Hi.

Jim Herzog: Morning, Mike. Hi. So you said you have industry-leading non-interest bearing deposits to total of 40%. I think that's about double peer average, but that might be going lower. Just to remind us, why is that so far ahead of peer? And what's in the rain? What's been the low point of that over the last few decades? And what's in the high point? And where do you think that settles out?

James J. Herzog: So you said you have industry-leading non-interest bearing deposits, a total of 40 percent. I think that's about double the peer average, but that might be going lower. Just remind us why that is so far ahead of peers, and what's been the range, what's been the low point of that over the last few decades, and what's been the high point, and where do you think that settles out?

Speaker Change: Morning, Mike. Hi.

Michael Lawrence Mayo: So you said you have industry-leading, non-industry-faring deposits, a total of 40%?

Michael Lawrence Mayo: I think that's about double peer average, but that might be going lower. Just remind us, why is that so far ahead of peer? And what's been the range, what's been the low point of that over the last few decades, and what's been the high point, and where do you think that settles out?

Jim Herzog: Good morning, Mike. It's Jim. Yeah, we are very proud of that ratio. You know, I would point to the fact that we have been very focused, really, for the last decade plus on payments and treasury management services. And we believe that is a huge driver and something that really differentiates us. I would put that as the largest factor. Certainly, our commercial orientation helps a little bit because we have non-interest bearing deposits, but of course you do offer a bit of an ECA or ECR on that, which is somewhat of a pseudo interest rate. But it's really part of our business model.

James J. Herzog: Good morning, Mike. It's Jim. Yeah, we are very proud of that ratio. You know, I would point to the fact that we have been very focused for the last decade plus on payments and Treasury Management Services. And we believe that is a huge driver and something that really differentiates us. I would put that as the largest factor.

Michael Lawrence Mayo: Good morning, Mike. It's Jim. Yeah, we are very proud of that ratio. You know, I would point to the fact that we have been very focused, really, for the last decade plus.

Speaker Change: on Payments and Treasury Management Services, and we believe that is a huge driver and something that really differentiates us.

James J. Herzog: Certainly, our commercial orientation helps a little bit because we have non-interest-bearing deposits, but of course, you do offer a bit of an ECA or ECR on that, which is somewhat of a pseudo interest rate. But it's really part of our business model. We absolutely emphasize non-transparent deposits when we extend credit. We expect to get the deposit back. We expect to get treasury management services, and those non-transparent deposits tend to accompany those services.

Speaker Change: I would put that as the largest factor. Certainly our commercial orientation helps a little bit because we have non-interest bearing deposits, but of course you do offer a bit of an ECA or ECR on that, which is somewhat of a pseudo interest rate.

Jim Herzog: We absolutely emphasize non-interests-bearing deposits. When we extend credit, we expect to get the deposit; we expect to get the treasury management services, and those non-interest bearing deposits tend to accompany those services. Now, where we've been in the past, we've been much lower than that in the past. You know, before some of the treasury management initiatives had ramped up. I would also say that in the past we had a very high low deposit ratio to go back to pre-financial crisis. As many banks did throughout the industry. And so, as a result, we were offering much higher interest rates, which created a little bit more migration.

Speaker Change: But it's really part of our business model. We absolutely emphasize not for sparing deposits when we extend credit. We expect to get the deposit. We expect to get the Treasury Management Services.

James J. Herzog: Now, where have we been in the past? Yeah, we've been much lower than that in the past, before, you know, some of the treasury management initiatives had ramped up. I would also say that in the past. We had a very high loan-to-deposit ratio if you go back to pre-financial crisis times, as many banks did throughout the industry. And so as a result, you know, we were offering much higher interest rates, which created a little bit more migration.

Speaker Change: And those non-transparent deposits tend to accompany those services. Now, where have we been in the past? We've been much lower than that in the past, you know, before, you know, some of the treasury management initiatives had ramped up. I would also say that in the past...

Speaker Change: We had a very high loan-to-deposit ratio if you go back to pre-financial crisis, as many banks did throughout the industry. And so as a result, you know, we were offering much higher interest rates, which created a little bit more migration.

Jim Herzog: You know, we don't think we're going to lean on Grover deposits anywhere close to that. As we did in the past, we expect our loans to deposit ratio to stay maintained. But I would say, in essence, that's our business model; as well, we emphasize, as we go out and solicit new business.

James J. Herzog: You know, we don't think we're going to lean on broker deposits anywhere close to that. As we did in the past, we expect our loan-to-deposit ratio to stay maintained. But I would say, in essence, it's our business model, and it's what we emphasize as we go out and solicit new business.

Speaker Change: We don't think we're going to lean on broker deposits anywhere close to that as we did in the past. We expect our loan to deposit ratio to stay maintained. But I would say, in essence, it's our business model, and it's what we emphasize as we go out and solicit new business.

Mike Mayo: And just to follow up, the competitive environment seems as tough as it's ever been for regional banks, with a lot more banks expanding nationally. How do you see that competitive environment as it relates to the deposits and your deposit guide and your loan guide? Is this ethical, and how much of this might be structural? And at what point would you consider buying another bank or combining with other banks, given the change in these strategic environments?

Peter L. Sefzik: And just to follow up, the competitive environment seems as tough as it's ever been for regional banks, with a lot more banks expanding nationally. How do you see that competitive environment as it relates to deposits and your deposit guide and your loan guide? Is this cyclical? And how much of this might be structural? And at what point would you consider buying another bank or combining with other banks, given the change in these strategic environments?

Speaker Change: And just to follow up, the competitive environment seems as tough as it's ever been.

Curtis Chatman Farmer: Thank you.

Speaker Change: for regional banks with a lot more banks expanding nationally.

Speaker Change: How do you see that competitive environment as it relates to the deposits and your deposit guide?

Speaker Change: and your loan guide. Is this cyclical and how much of this might be structural and at what point would you consider buying another bank or combining with another bank?

Peter Sefzik: Thank you.

Peter Sefzik: Mike, this is Peter, and I'll comment first, and I'll let Kurt maybe comment on the strategic part of it. But I think from a competitive standpoint, we actually feel that's where the diversity of our model is just terribly compelling. You know, a number of regional banks are expanding nationally. We've been national for a long time. We've been in California for a long time in Texas, Michigan. We're expanding in the Southeast, but I think our national presence has been very helpful. When it comes to competitiveness on deposits, so what you're trying to raise deposit-wise in Michigan versus California versus Texas gives us lots of options.

Michael Lawrence Mayo: Mike, this is Peter, and I'll comment first, and I'll let Kurt maybe comment on the strategic part of it. But I think from a competitive standpoint, we actually feel that the diversity of our model is just terribly compelling. You know, a number of regional banks are expanding nationally. We've been national for a long time. We've been in California for a long time, in Texas, and Michigan.

Speaker Change: Given the change in these strategic environments. Thank you

Speaker Change: Mike, this is Peter, and I'll comment first, then I'll let Kurt maybe comment on the strategic part of it. But I think...

Speaker Change: From a competitive standpoint, we actually feel that's where the diversity of our model is just terribly compelling. You know, a number of regional banks are...

Speaker Change: Expanding nationally, we've been national for a long time. We've been in California for a long time, in Texas, Michigan. We're expanding in the southeast, but I think our...

Peter L. Sefzik: We're expanding in the Southeast, but I think our national presence has been very helpful when it comes to competitiveness for deposits. So, you know, what you're trying to raise deposit-wise in Michigan versus California versus Texas gives us lots of options. We also have a number of businesses that really are national businesses, like our TLS business, our financial services division, where we're able to attract customers and deposits in different ways that don't necessarily tie us to, let's say, CD rates in a small part of Texas, for example.

Speaker Change: National Presence has been very helpful when it comes to competitiveness on deposits.

Speaker Change: You know, what you're trying to raise deposit-wise in Michigan versus California versus Texas gives us lots of options.

Peter Sefzik: We also have a number of businesses that really are national businesses, like our TLS business or financial services division, where we're able to attract customers and deposits in different ways that don't necessarily tie us to, let's say, CD rates in a small part of Texas, for example. We've got a lot of handles that we're able to pull, so I totally agree with you. It's about as competitive as we've seen it in a long time, not just on deposits, really on loans and pricing and structure across the country right now. It's picked up a lot in the last quarter, but I think that, again, the diversity of our model is we've tried to continue to communicate is just terribly compelling and gives us a lot of advantages in competing with regional banks, community banks, and the local banks.

Speaker Change: We also have a number of businesses that really are national businesses, like our TLS business, our financial services division, where we're able to attract customers and deposits in different ways that don't necessarily tie us to, let's say, CD rates in a small part of Texas, for example. We've got a lot of handles that we're able to pull.

Peter L. Sefzik: We've got a lot of handles that we're able to pull on. So I totally agree with you. It's about as competitive as we've seen it in a long time, not just on deposits, but on loans and pricing and structure. Across the country right now, it's picked up a lot in the last quarter. But I think that, again, the diversity of our model, as we've continued to communicate, is just terribly compelling and gives us a lot of advantages in competing with regional banks, community banks, and the larger banks. And so, Kerr, I might flip to you for...

Speaker Change: I totally agree with you. It's about as competitive as we've seen it in a long time, not just on deposits, really on loans and pricing and structure across the country right now. It's picked up a lot in the last quarter.

Speaker Change: But I think that, again, the diversity of our model as we've tried to continue to communicate is just terribly compelling and gives us a lot of advantages in competing with regional banks, community banks, and the larger banks. And so, Kerr, I might flip to you.

Kurt Farmer: And so I might flip you for.

Curtis Chatman Farmer: Yeah, Mike, thank you for the question. And on the strategic side, you know, we have been a very patient acquirer. We have done one acquisition in the last 20 years, and we've continued to lean into our organic growth model. And in the last couple years, we've seen nice growth on the asset side from the lending perspective and just an expansion of our customer base. And we think we continue to have really good opportunities to grow in all the markets that we operate in, as well as the markets that we've expanded into more recently. We'll have to wait and see how the environment unfolds. You know, thus far, it's been an environment with not a lot of M&A occurring because of a lot of uncertainty around regulation, the economy, etc.

Kurt Farmer: Yeah, Mike, thank you for the question. And on the strategic side, you know, we have been a very patient acquire. Really, have done one acquisition in the last 20 years and have continued to lean into our organic growth model. And the last couple of years, we've seen nice growth on the asset side from the lending perspective and just expansion of our customer base. And we think we continue to have really good opportunities to grow. And all the markets that we operate in, as well as the markets that we've expanded into more recently. We'll have to wait and see how the environment unfolds, you know. Thus far, it's been an environment with not a lot of M&A occurring because of a lot of uncertainty around regulation and economy, et cetera.

Kerr: Yeah, Mike, thank you for the question. And on the strategic side, you know, we have been a very patient acquirer. We have done one acquisition in the last 20 years.

Kerr: have continued to lean into our organic growth model. And the last couple years, we've seen nice growth on the asset side, from the lending perspective, and just expansion of our customer base. And we think we continue to have

Kerr: Really good opportunities to grow in all the markets that we operate in as well as the markets that we've expanded into more recently.

Speaker Change: We'll have to wait and see how the environment unfolds, you know, thus far it's been an environment with not a lot of M&A occurring because of a lot of uncertainty around regulation, economy, etc.

Michael Lawrence Mayo: But certainly, it's something that makes very strategic, you know, cultural sense for us. And with a good fit, we would take a look at it in one of our primary geographies. But again, that would not be our primary focus. Our primary focus continues to be on organic growth, and we think we have really good opportunities there.

Kurt Farmer: But certainly it's something may strategic, you know, cultural sense for us and was a good fit. We would take a look at it in one of our primary geographies. But again, that would not be our primary focus. Our primary focus continues to be on organic growth. And we think we have really good opportunities there.

Speaker Change: But certainly it's something made strategic, you know, cultural sense for us and was a good fit. We would take a look at it in one of our primary geographies, but again, that would not be our primary focus. Our primary focus continues to be on organic growth and we think we have really good opportunities there.

Unknown Executive: All right.

Michael Lawrence Mayo: All right, thank you. Thanks, Mike. Thanks, Mike.

Unknown Executive: Thank you.

Unknown Executive: Thanks, Mike.

Unknown Executive: Thank you, Mike.

Manan Gosalia: Thank you. The next question today is coming from Manan Gosalia from Morgan Stanley. Your line is now live.

Unknown Executive: Thank you.

Angusolia: Next question today is coming from an Angusolia from Morgan Stanley; your line is now live. Good morning. Apologies if I miss this in your prior marks, but can you comment on your conversations with customers on, you know, when loan demand can really start to come back, right? So I think, you know, pipelines are pretty robust, but across the industry, loan demand has been weak. You know, is it lower rates that are going to bring back that demand? Is it some of the uncertainty with the elections, et cetera, going away? Okay. Just talk about what your conversations with customers have been.

Speaker Change: All right. Thank you. Thanks, Mike.

Speaker Change: Thank you. Next question today is coming from Manan Gosalia from Morgan Stanley . Your line is now live.

Manan Gosalia: Hi, good morning. Apologies if I missed this in your prior remarks, but can you comment on your conversations with customers on, you know, when loan demand can really start to come back, right? So I think, you know, pipelines are pretty robust. But across the industry, loan demand has been weak. You know, is it lower rates that are going to bring back that demand? Is it, you know, some of the uncertainty with the elections, etc., going away? Okay, just talk about what you or your conversations with customers have been. Manan, it's...

Manan Gosalia: Ladan, good morning.

Manan Gosalia: Hi, good morning.

Manan Gosalia: Apologies if I missed this in your prior remarks, but can you comment on your conversations with customers on, you know, when loan demand can really start to come back, right? So I think, you know, pipelines are pretty robust.

Speaker Change: but across the industry, law and demand has been weak, is it lower rates that are going to bring back that demand, is it some of the uncertainty with the elections, etc., going away? Can you just talk about what you're...

Peter Sefzik: It's it's Peter. I guess the answer to your question is probably a little bit of all the above. I think in our surveys with customers, we get the sense that the number one driver of loan demand impact right now is interest rates. And, you know, we believe that the extent that we start to see some reduction in rates, that that would impact loan demand or lead to, hopefully, some more loan demand. And then I would acknowledge, and I believe that, you know, when you talk to customers, there's just sort of a, I call it a wait and see a little bit as to what how the year is going to unfold when it comes to, as Kurt said, the regulatory environment, get through the elections.

Peter L. Sefzik: Manan, it's Peter. I guess the answer to your question is probably a little bit of all the above. I think in our surveys with customers... We get the sense that the number one driver of loan demand right now is interest rates. And, you know, we believe that to the extent that we start to see some reduction in rates, that that would impact loan demand or lead to, hopefully, some more loan demand.

Speaker Change: Conversations with customers have been.

Speaker Change: Manan, it's Peter. I guess the answer to your question is probably a little bit of all the above. I think in our surveys with customers...

Speaker Change: We get the sense that the number one driver of loan of loan demand impact right now is interest rates and You know, we believe that to the extent that we start to see

Speaker Change: some reduction in rates that that would impact loan demand or lead to hopefully some more loan demand. And then I would acknowledge and I believe that, you know, when you talk to customers, there's just sort of a ...

Peter L. Sefzik: And then I would acknowledge and I believe that, you know, when you talk to customers, there's just sort of a, I'd call it a wait and see a little bit as to what, how the year is going to unfold when it comes to, as Kurt said, the regulatory environment, getting through the elections. And I just feel like historically, that's a theme I've heard during presidential election years for a long time, that most of your owner-managed businesses kind of want to wait and see what things are going to look like after November.

Curtis Chatman Farmer: I'd call it a wait and see a little bit as to what, how the year is going to unfold when it comes to, as Kurt said, the regulatory environment, get through the elections. And I just, I feel like historically that's a theme I've heard during presidential election years for a long time.

Peter Sefzik: And I just, I feel like historically that's a theme I've heard during presidential election years for a long time that most of your owner-managed businesses kind of want to wait and see what things are going to look like after November. And then they start to make decisions. So, to your point, and I know a number of banks have been talking about this. We feel like, you know, we've got a good outlook for the second half of the year. We're still showing positive point-to-point loan growth for 2024 overall. But I think probably real demand doesn't pick up until you start to see interest rates come down and we get through the election.

Speaker Change: Most of your owner-managed businesses kind of want to wait and see what things are going to look like after November , and then they start to make decisions. So, to your point, and I know a number of banks have been talking about this, we feel like

Peter L. Sefzik: And then they start to make decisions. So to your point, and I know a number of banks have been talking about this, we feel like, you know, we've got a good outlook for the second half of the year. We're still showing positive point-to-point loan growth for 2024 overall, but I think probably real demand won't pick up until you start to see interest rates come down and we get through the election.

Speaker Change: You know, we've got a good outlook for the second half of the year. We're still showing positive point-to-point loan growth for 2024 overall. But I think probably real demand doesn't pick up until you start to see interest rates come down and we get through the election.

Melinda Chausse: Gordon, and maybe on the credit side, I know nothing notable to call out this quarter. Chris has assets moved lower, but the investor conversation has pivoted to some concerns around credit on the CNI side as opposed to CRE. Anything specific you're seeing there, anything you're hearing from borrowers, and I think as growth starts to slow in the economy, how do you think that impacts the credit of the portfolio overall?

Manan Gosalia: Got it. And maybe on the credit side, I know nothing notable to call out this quarter. However, criticized assets moved lower. But, you know, the investor conversation has pivoted to, you know, some concerns around credit on the CNI side as opposed to CRE. You know, anything specific you're seeing there, anything you're hearing from borrowers? And, you know, I think if growth starts to slow in the economy, how do you think that impacts the credit of the portfolio overall?

Speaker Change: Got it. And maybe on the credit side, I know nothing notable to call out this quarter, criticized assets moved lower, but the investor conversation has pivoted to some concerns around credit on the CNI side as opposed to CRE. Anything specific you're seeing there, anything you're hearing from borrowers, and I think if as growth starts to slow in the economy, how do you think that impacts the credit of the portfolio overall?

Melinda Chausse: Manan, this is Melinda. Obviously, we posted a pretty nice quarter, and honestly, in the CNI book, was really where we saw the improvement. It was pretty broad base across a number of different industries that are embedded in core metal market. So, at this point, I'm not seeing any trends in any one particular segment. Now having said that, customers that are exposed to the consumer, so B2C type companies, service type companies are a little bit more challenged and probably going to be a little bit slower to show some improvement if they're in that non-pass category, but we feel really good about CNI and, quite frankly, they have navigated this high rate environment by, quite frankly, managing cash flow really tightly.

Melinda A. Chausse: Manan, this is Melinda. Yeah, obviously, we posted a pretty nice quarter. And honestly, the CNI book was really where we saw the improvement. It was pretty broad-based across a number of different industries that are sort of embedded in the core middle market. So at this point, I'm not seeing, we're not seeing any trends in any one particular segment.

Melinda A. Chausse: Manan, this is Melinda.

Speaker Change: Manan, this is Melinda. Yeah, obviously, you know, we posted a pretty nice quarter. And honestly, in the CNI book was really where we saw the improvement. It was pretty broad based across a number of different industries that are sort of embedded in core middle market.

Speaker Change: So at this point, you know, I'm not seeing, we're not seeing any trends in any one particular segment. Now, having said that...

Melinda A. Chausse: Now, having said that, customers that are exposed to the consumer, so B2C type companies, service type companies, are a little bit more challenged and probably going to be a little bit slower to show some improvement if they're in that non-pass category. But we feel really good about CNI. And quite frankly, they have navigated this high-rate environment by, quite frankly, managing cash flow really tightly. Honestly, utilization is low.

Speaker Change: You know, customers that are exposed to the consumer.

Speaker Change: So B2C type companies, service type companies are a little bit more challenged and probably going to be a little bit slower to show some improvement if they're in that non-PASC category.

Speaker Change: But we feel really good about CNI, and quite frankly, they have navigated this high-rate environment by, quite frankly, managing cash flow really tightly. Honestly, utilization is low. That's probably where some of the deposits have gone, quite frankly, because they want to utilize cash in the most efficient way, and that is to pay down high-cost debt.

Melinda Chausse: Honestly, utilization is low, so that's probably where some of the deposits have gone, quite frankly, because they want to utilize cash in the most efficient way, and that is to pay down high-cost debt. So I feel pretty good about the CNI portfolio. That does not mean that we're not going to continue to see some manageable level of migration, and there is a particular customer.

Melinda A. Chausse: That's probably where some of the deposits have gone, quite frankly, because they want to utilize cash in the most efficient way, and that is to pay down high-cost debt. So I feel pretty good about the CNI portfolio. But that does not mean that we're not going to continue to see some manageable level of migration. And there could be some idiosyncratic events that, you know, impact a particular customer.

Speaker Change: I feel pretty good about the CNI portfolio. That does not mean that we're not going to continue to see some manageable level of migration and there could be some idiosyncratic event that impacts a particular customer. Commercial real estate, obviously in a lot of focus, but our portfolio continues to perform quite well. It was very stable this quarter. We continue to experience no delinquencies.

Melinda A. Chausse: Commercial real estate, obviously, is a lot of focus, but our portfolio continues to perform quite well. It was very stable this quarter. We continue to experience no delinquencies and no losses. And our senior housing portfolio, which, you know, was stressed because of rates, but also just the environment for housing coming out of COVID, is very elevated from a non-pass credit perspective but is very stable at this point. So I'm not seeing any major cracks. As long as the economy continues to sort of chug along at that soft landing strategy, you know, I think we'll be okay. And we're well-reserved, you know, if there are any issues that arise.

Melinda Chausse: Commercial real estate, obviously in a lot of focus, but our portfolio continues to perform quite well. It was very stable this quarter. We continue to experience nodal inquencies and no losses, and our senior housing portfolio, which was stressed because a race, but also just the environment for housing coming out of COVID, is very elevated from a non-pass credit perspective, but is very stable at this point. So not seeing any major cracks, as long as the economy continues to sort of chuck along at that soft landing strategy, I think we'll be okay, and we're well reserved if there are any issues that arise.

Speaker Change: and no losses in our senior housing portfolio, which, you know, was was stressed because of rates, but also just the environment for

Speaker Change: housing coming out of out of COVID is very elevated from a non-pass credit perspective, but is very stable at this point. So not seeing any major cracks, feel as long as the economy continues to

Unknown Executive: Great, thank you.

Unknown Executive: Thank you very much, Mom.

Sandy Movarga: Thank you. Our next question today is coming from Sandy Movarga from UBS. Your line is now live.

Unknown Executive: Thank you.

Sandy MoVorga: Our next question today is coming from Sandy, MoVorga from UBS, Revined. There's no lies.

Speaker Change: Great, thank you.

Speaker Change: Thank you a lot.

Speaker Change: Thank you. Our next question today is coming from Sandy Mulvarga from UBS. Your line is now live.

Peter Sefzik: Good morning, Sam. Good morning. I just wanted to go back to the loan demand and loan growth commentary a little bit, so I'm trying to square what you said about how November is sort of the key catalyst here, and at the same time, obviously the guy sort of assumes that the second half there is a ramp up in loan demand. So could you just help us understand, I guess, how much of the expected sort of demand pull through is for you, or is there something in the pipelines that you already see that makes you comfortable that we could see something happen in the third quarter as well?

Sandy Movarga: Good morning. I just wanted to go back to the loan demand and loan growth commentary a little bit. So I'm trying to square what you said about how November is sort of the key catalyst here. And at the same time, obviously, the guy sort of assumes that in the second half, there is a ramp up in loan demand. So So could you just help us understand, I guess, how much of the expected demand pull-through is 4Q, or is there something in the pipelines that you already see that makes you comfortable that we could see something happen in the third quarter as well?

Sandy Mulvarga: Morning, Sam.

Sandy Mulvarga: Good morning. I just wanted to go back to the loan demand and loan growth commentary a little bit. So I'm trying to square what you said about how November is sort of the key catalyst here, and at the same time, obviously, the guy sort of assumes that the second half, there is a ramp up in loan demand. So could you just help us understand, I guess, how much of...

Speaker Change: The expected demand pull-through is 4Q, or is there something in the pipelines that you already see that makes you comfortable that we could see something happen in the third quarter as well?

Peter L. Sefzik: Yeah, Sam. I think I would still say, though, that probably the number one factor is interest rates, and I think that November would be a secondary factor to that.

Peter Sefzik: Yeah, Sam, I think I would still say, though, that probably the number one factor is interest rates, and I think November would be the second area factor to that, and I guess I would just say that as we see our pipelines as we sit right now, that's kind of where we're coming up with this 2% point-to-point loan growth. We had a great quarter of a billion dollars in point-to-point loan growth, and so what we see for the rest of the year is that that should be able to continue, and we're encouraged by what we see. I would tell you, it's pretty broad-based across our businesses.

Speaker Change: Yeah, Sam, I think I would still say, though, that probably the number one factor is interest rates. And I think that November would be the secondary factor to that. And I guess I would just say that as we see our pipelines as we sit right now, that's kind of where we're coming up with this 2% point-to-point loan growth. We had a great quarter.

Peter L. Sefzik: And I guess I would just say that as we see our pipelines as we sit right now, that's kind of where we're coming up with this 2 percent point-to-point loan growth. We had a great quarter of a billion dollars in point-to-point loan growth. And so, you know, what we see for the rest of the year is that this should be able to continue. And we're encouraged by what we see. And I would tell you it's pretty broad-based across our businesses.

Speaker Change: of a billion dollars in point to point loan growth. And so, you know, what we see for the rest of the year is that that should be able to continue. And we're encouraged by what we see. And I would tell you, it's pretty broad based across our businesses.

Peter Sefzik: That growth, last year, we had a number of businesses that we were rationalizing, if you will, getting through everything that occurred in 2023, and much of that is now picking back up. I think that as we get into the second half of the year, the realization of that pipeline growth will start to be there, but I don't think it's going to really, really pick up, as I said, until we do start to see some interest rates come down. As we sit right now, our managers forecast we feel really good about how the second half of the year looks on the outlook that we're showing.

Peter L. Sefzik: That growth, you know, last year, we had a number of businesses that we were sort of rationalizing, if you will, getting through everything that occurred in 2023. And much of that is now picking back up. And I think that as we get into the second half of the year, the realization of that pipeline growth will start to be there. But I don't think it's going to really, really pick up, as I said, until we do start to see some interest rates come down. So as we sit right now, our managers forecast, we feel really good about how the second half of the year looks on the outlook that we're showing.

Speaker Change: That growth, you know, last year we had a number of businesses that we

Speaker Change: We're sort of rationalizing, if you will, getting through everything that occurred in 2023, and much of that is now picking back up. And I think that as we get into the second half of the year, the realization of that pipeline growth will start to be there. But I don't think it's going to really, really pick up, as I said, until...

Speaker Change: We do start to see some interest rates come down so as we sit right now our managers forecast We feel really good about how the second half of the year looks on the outlook that we're showing

Unknown Executive: I got it.

Sandy Movarga: Thanks for that, Colin. My follow-up is around the non-interest-bearing deposits and maybe a bit more looking into 2025. I just wanted to get a better sense for what would need to happen in your mind to actually see meaningful dollar balances move into the bank. I'm trying to get a better sense for whether it is just simply rate cuts,

Unknown Executive: Thanks for that color.

Jim Herzog: And just my follow-up is around the knowledge of sharing deposits and maybe a bit more looking into 2025. I just wanted to get a better sense for what would need to happen in your mind to actually see meaningful dollar balances move into the bank. I'm trying to get a better sense for it. Is it just simply rate cuts, or are there some increased leverage? Components that we would need to see before the dollars throw back into these accounts?

Speaker Change: I got it. Thanks for that, Colin. And just my follow-up is around the non-interesting deposits and maybe a bit more looking into 2025. I just wanted to get a better sense for what would need to happen in your mind to actually see meaningful...

Speaker Change: [inaudible]

Jim Herzog: Good morning, Sam. Jim, of course, we're not offering any specific 2025 guidance at this time. But I would say, let's really a function of three things. One, the rate environment, we typically do see non-fersparing deposits grow, all things equal, as rates start to come down. So that's certainly a factor. Business activity, again, going back to answering Mike Mayo's questions. Non-fersparing deposits are certainly a point of emphasis for us. And then just overall economic growth, GDP grows nominally. And it does look like we're going to have some decent nominal growth in 2025. You typically expect money supply, working capital levels within middle market businesses to grow proportionately with that.

James J. Herzog: Good morning, Sam. It's Jim. Of course, we're not offering any specific 2025 guidance at this time. But I would say, you know, it's really a function of three things. One, the rate environment. We typically do see non-forsparing deposits grow, all things equal, as rates start to come down. So that's certainly a factor. You know, business activity, again, going back to answering Mike Mayo's question, non-transparent deposits are certainly a point of emphasis for us.

Speaker Change: Good morning, Sam. It's Jim. Of course, we're not offering any specific 2025 guidance at this time, but I would say it's really a function of three things. One, the rate environment. We typically do see non-forsparing deposits grow, all things equal, as rates start to come down, so that's certainly a factor.

Speaker Change: You know, business activity, again, going back to answering Mike Mayo's question, you know, non-expiring deposits are certainly a point of emphasis for us.

James J. Herzog: And then just overall, you know, economic growth, as GDP grows nominally, and it does look like we're going to have some decent nominal growth in 2025, you typically expect money supply, and working capital levels within, you know, middle market businesses to grow proportionately with that. So we do think a number of factors are pointing the right direction for non-transparent deposits to start growing again, you know, inflect later this year, then start growing again in 2025. So we feel like, again, right now, we're somewhat in the apex of that cycle. But we see some really strong tailwinds for us and any really commercial bank as we move through 2025.

Speaker Change: And then just overall, you know, economic growth, you know, as GDP grows nominally, and it does look like we're going to have some decent nominal growth in 2025. You typically expect money supply, working capital levels within, you know, middle market businesses to grow proportionately with that.

Jim Herzog: So we do think a number of factors are pointing the right direction for non-fersparing deposits to start growing again. You know, in flight later this year, then start growing in 2025. So we feel like, again, we're going right now, we're somewhat in the apex of that cycle. But we see some real strong tailwinds for us and any really commercial bank as we move through 2025.

Speaker Change: So, we do think a number of factors are pointing the right direction for non-transparent deposits to start growing again, you know, inflect later this year, then start growing in 2025.

Speaker Change: So we feel like again we're going right now we're somewhat in the apex of that cycle but we see some real strong tailwinds for us and any really commercial bank as we move through 2025.

Unknown Executive: And just thanks for taking my question. I appreciate it. Thank you, Sam. Thank you.

Sandy Movarga: Thanks for taking my questions. I appreciate it.

Curtis Chatman Farmer: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Kurt for any further closing comments.

Speaker Change: Thanks for taking my questions. I appreciate it.

Operator: We reach in about question and answer session.

Kurt Farmer: I'd like to turn the floor back over to Kirkpin for their closing comments. Well, as always, thank you for your interest in America. And we hope that you have a good day. Thank you. It does conclude. Please tell a conference. Let me disconnect your line after this time, and have a wonderful day. We thank you for your participation today.

Sam: Thank you, Sam.

Speaker Change: Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over to Kurt for any further closing comments.

Curtis Chatman Farmer: Well, as always, thank you for your interest in Comerica, and we hope that you have a good day.

Curtis Chatman Farmer: Well, as always, thank you for your interest in Comerica, and we hope that you have a good day.

Operator: Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Speaker Change: Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.