Q3 2024 Comerica Inc Earnings Call
Operator: Greetings and welcome to the Comerica Bank, 3rd quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Greetings and welcome to the Comerica Bank third quarter 2024 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded I would now like to turn the conference over to your host Halligan Kelly gauge director of Investor Relations. Thank you you may begin.
Kelly Gage: I would now turn the conference over to your host, Kelly Gage, Director of Investor Relations. Thank you. You may begin.
Kelly Gage: Thanks, Melissa.
Kelly Gage: Thanks, Melissa good morning, and welcome to America's third quarter 2024 earnings conference call participating on this call will be our president Chairman and CEO, Curt Farmer, Chief Financial Officer, Jim Herzog, Chief Credit Officer, Melinda chassis, and Chief Banking Officer, Peter Septic.
Kelly Gage: Good morning and welcome to Comerica's 3rd quarter 2024 earnings conference call. Participating on this call will be our President, Chairman, and CEO, Kurt Farmer. She financial officer Jim Herzog. She 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 in the Investor Relations section of our website, Comerica.com.
Kelly Gage: During this presentation, we will be referring to slides, which provide additional detail the presentation slides and our press release are available on the Sec's website as well as in the Investor Relations section of our website Comerica Dot com.
Kelly Gage: 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 expectation. For looking statements, speak only as of the date of this presentation, and we undertake no obligation to update any four looking statement.
The presentation in 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 expectation.
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.
Kelly Gage: Please refer to the Safe Harbor statement in today's earnings presentation on slide two. Also, the presentation and this conference call will reference non-GAAP measures. In that regard, I direct you to the reconciliation of these measures and the earnings materials that are available on our website. comerica.com.
Speaker Change: Please refer to the Safe Harbor statement in today's earnings presentation on slide two 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 are available on our website Comerica Dot com now I will turn the call over to Curt who will begin on slide three.
Kurt Farmer: Now I'll turn the call over to Kurt, who will begin on slide three.
Kurt Farmer: Well, thank you, Kelly.
Curt Farmer: Thank you Kelly and good morning, everyone.
Kurt Farmer: Good morning, everyone. Today, we reported third quarter earnings of 184 million or $1.33 per share, exceeding expectations across most line items. Strong customer activity drove higher average deposits, which offset the impact of lower loans and helped interest income outperform Goddard's for the quarter. The downward shift in the rate curve resulted in a meaningful improvement in AOCR, contributing to 23% growth and tangible book value. Credit quality remains solid, reflecting our proven underwriting discipline, as net charge also remains historically low. While customer sentiment remains culturally optimistic, the initial decline in rates was well received as select businesses showed early signs of an uptick in activity nearing quarter in.
Curt Farmer: Today, we reported third quarter earnings of 184 million or $1.33 per share.
Curt Farmer: Seating expectations across most line items.
Curt Farmer: Strong customer activity drove higher average deposits, which offset the impact of lower loans and help net interest income outperformed guidance for the quarter.
Curt Farmer: The downward shift in the rate curve resulted in a meaningful improvement in S. E T.
Curt Farmer: Contributing to 23% growth in tangible book value.
Curt Farmer: Credit quality remains solid, reflecting our proven underwriting discipline as net charge offs remained historically life.
Curt Farmer: While customer sentiment remains cautiously optimistic the initial decline in rates was well received.
Curt Farmer: Businesses showed early signs of an uptick in activity nearing quarter in.
Kurt Farmer: However, to see a more significant shift in behavior and reinvestment, we believe customers are looking for further rate reductions, confirmation of a soft landing, and getting past the impending election.
Curt Farmer: However to see a more significant shift in behavior and reinvestment. We believe customers are looking for further rate reductions confirmation of a soft landing and getting past the impending elections.
Kurt Farmer: Before we get into more detail on our strong quarter, I want to take a moment to touch on the historical milestone we celebrate on August 17th, America's 175th anniversary. My leadership team and I spent a lot of time this past quarter visiting our markets, meeting with customers, colleagues, and community leaders. We have a great story and a value proposition that resonates with our target market. Our customers trust us with our business, and we take that responsibility seriously. As a bank, we have successfully navigated industry changes, global conflicts, and economic cycles over many years. We filled this impressive history, underscores the strength of our unique model, and we believe our consistent execution, along with our strategic investments, positioned us to successfully support our customers now and into the future.
Curt Farmer: Before getting into more detail on our strong quarter I wanted to take a moment to touch on the historical milestone we celebrated on August 17th <unk>.
Curt Farmer: America's 175th anniversary.
Curt Farmer: My leadership team and I spent a lot of time this past quarter visiting our markets meeting with customers colleagues and community leaders, we have a great story and a value proposition that resonates with our target market.
Curt Farmer: Our customers Trust us with their business and we take that responsibility seriously.
Curt Farmer: As a bank, we have successfully navigated industry changes global conflicts and economic cycles over many years.
Speaker Change: Where do you feel this impressive history underscores the strength of our unique model.
Speaker Change: We believe our consistent execution, along with our strategic investments position us to successfully support our customers now and into the future.
Speaker Change: Moving back to results third quarter financial highlights are on slide four.
Speaker Change: High inflation and elevated rates continued to pressure loan demand, but we saw positive momentum in deposits as average balances grew in most of our businesses.
Speaker Change: Excluding the impact of Disney sensation net interest income increased one 3% over the second quarter trough.
Speaker Change: Charge offs of eight basis points remain below historical averages and even declined slightly from last quarter's already strong results.
Speaker Change: Lower non customer income offset favorable trends in customer related fees and noninterest expenses were well managed.
Speaker Change: We continue to favor our conservative approach to capital where their estimated CET, one increasing further to 11.97% well above our 10% strategic target.
Speaker Change: Jim will discuss our capital management strategy later in this presentation.
Speaker Change: It was a great quarter with positive momentum moving into the end of the year I will now turn the call over to Jim to review, our third quarter financial results in more detail.
Jim Herzog: Thanks, Curt and good morning, everyone.
Jim Herzog: Turning to loans on slide five we saw some reversal over the growth signals from the second quarter with loans coming down in August, but we're encouraged to see balances relatively flat in September.
Jim Herzog: Most of the decline in average loans was a national dealer services and corporate banking dealer.
Jim Herzog: <unk> saw elevated balances in the second quarter related to the cyber attack that impacted the industry.
Jim Herzog: As we look at deal or trends month to month balances for most pressure early in the quarter and September saw more positive activity.
Jim Herzog: Corporate banking, specifically U S banking saw more relative pressure than other businesses as we focus on maintaining our pricing discipline and return targets.
Jim Herzog: Additionally, soft loan demand across the industry caused some bank group consolidation.
Jim Herzog: U S banking saw an improvement late in the quarter and period end loans were relatively flat to June 30th.
Jim Herzog: Moving to businesses that grew commercial real estate utilization increased which is a continuation of the trend we've seen in this elevated rate environment.
Jim Herzog: However, as rates come down we expect to see an uptick in the pace of pay offs as projects sell or refinanced into the permanent market as intended.
Jim Herzog: Growth in environmental services was attributed to our renewables focus in 2022, we formed a new renewables team and we have seen strong results.
Jim Herzog: Environmental services overall is a great business for us and we feel our distinguished talent and unique expertise have allowed us to carve out a leading position in this niche industry.
Speaker Change: Touching briefly on loan yields lower non accrual interest was the main driver of the eight bps decline and we saw only a minor drag from lower short term rates in the quarter.
Speaker Change: On slide six we were encouraged by customer deposit activity.
Deposits increased one 3% with growth across most business lines.
Speaker Change: Average third quarter brokered time deposits were higher due to activity late in the second quarter. However.
Speaker Change: However, a favorable customer deposit trends allowed us to repay almost $900 million in brokerage Cds by the end of the third quarter.
Speaker Change: Despite that deliberate reduction in brokerage Cds with group, we grew total period end deposits by over $600 million.
Speaker Change: Yeah.
Speaker Change: As we win new and expand existing relationships, we continue to see the elevated rate environment drive customers to bring those deposits into interest bearing accounts.
Speaker Change: Despite continued modest cyclical pressure on noninterest bearing balances they performed in line with our expectations and remain favorable at 38% of total deposits.
Speaker Change: We took steps to adjust pricing as the fed began to cut rates. We plan to continue monitoring the competitive environment as we manage ongoing deposit pricing alongside additional rate cuts in the future.
Speaker Change: With our strong relationship model, we feel well positioned to strike the right balance between our customers objectives with their own funding needs and profitability.
Speaker Change: Our securities portfolio on slide seven benefited from the shift in the rate curve as we saw a 24% improvement in our valuation adjustment in the quarter.
Speaker Change: This favorable mark to market impact more than offset repayments and maturities and drove a net $130 million increase in the portfolio.
Speaker Change: We continue to believe the expected repayments and maturities of this portfolio will enhance earnings in the coming quarters, even if we resume investment at some point in 2025.
Speaker Change: Turning to slide eight net interest income increased $1 billion to $534 million.
Speaker Change: Excluding the impact of the bids be cessation net interest income would have grown 7 billion quarter over quarter.
Speaker Change: The shift in the rate curve allowed us to reallocate cash collateral from the CME to the fed benefiting net interest income.
Speaker Change: That coupled with strong customer deposits, which allowed us to pay down wholesale funding and the benefit of insurance swaps and securities offset pressures from businesses station lower loans and noninterest bearing deposit balances.
Speaker Change: As shown on slide nine successful execution of our interest rate strategy in the composition of our balance sheet has made us slightly liability sensitive and allows us to better protect our profitability from a declining rate environment.
Speaker Change: By strategically managing our swap and securities portfolio, while considering balance sheet dynamics, we intend to maintain our insulated position over time.
Speaker Change: We feel credit quality remains a competitive strength as our overall trends in the third quarter remained solid and relatively unchanged from the second quarter as shown on slide 10.
Speaker Change: Net charge offs remained low at eight bps criticized loans were essentially flat and nonperforming assets remained well below historical averages.
Speaker Change: The overall economic outlook was also relatively unchanged, but lower average loans, especially in lower risk portfolios drove an increase in the allowance for credit losses to 143% of total loans.
Speaker Change: Even though our portfolio remains strong we have potential for even further improvement if lower rates materialize and inflationary pressures abate.
Speaker Change: Regardless, we feel our proven conservative credit discipline and continues to position us well to outperform peers through the cycle.
Speaker Change: On slide 11 third quarter noninterest income of $277 million decreased $14 million from the second quarter, primarily due to non customer related income.
Speaker Change: Changes in the value related to our visa b derivative drove a negative $11 million variance as we recognized a $5 million loss in the third quarter compared to a $6 million gain in the second quarter.
Speaker Change: Risk management hedging income declined $10 million as the lower rate curve reduce the amount of required collateral held at the CME.
Speaker Change: While this resulted in a decline in noninterest income part of this benefited net interest income.
Speaker Change: We saw encouraging trends in several customer related categories with increased syndication fees derivative income commercial lending fees and a small increase in commercial service charges.
Speaker Change: Fiduciary income was down, but excluding the $3 million seasonal tax related benefit in the second quarter. It would've been up consistent with improved market performance.
We continue to be encouraged by the progress in targeted initiatives designed to further enhance noninterest income.
Expenses on slide 12 increased $7 million over the prior quarter.
Speaker Change: Salaries and benefits were up $12 million, which included a $4 million increase in deferred compensation, which was mostly offset within noninterest income and.
Speaker Change: And various other smaller increases.
FDIC expenses declined by $8 million, partially due to a $4 million favorable accrual adjustment in the third quarter compared to a $3 million expense in the second quarter, both related to the special assessment.
In all we feel expenses for well control and we continue to prioritize opportunities to drive positive operating leverage and improved efficiency.
Speaker Change: As shown on slide 13, our already strong capital position improved further in the third quarter.
Speaker Change: Solid profitability lower loans and Conservative capital management drove our estimated CET, 1% to 11, 97%.
Speaker Change: Adjusting for the Aoc I opt out our estimated CET, one would have been nine 1%, 2%, which is well above required regulatory minimums and buffers.
Speaker Change: Movements in the forward curve, coupled with ongoing repayments and maturities in our securities portfolio resulted in a 32% improvement in the OCI, increasing our tangible common equity ratio by over 150 basis points.
Speaker Change: Considering our compelling estimated CET, one well in excess of our strategic target and a favorable movement in the rate curve, we plan to utilize a portion of our excess capital to repurchase $100 million of our common stock shares starting in the fourth quarter.
Speaker Change: Allocating capital to support our customers slow needs always remains our first priority. So we intend to be measured in our approach and calibrate the size and frequency of future repurchases with expected loan trends.
Speaker Change: We will also continue to closely watch the forward curve, our profitability the broader economic environment and any regulatory updates as they may also influence our strategy.
Speaker Change: Moving to slide 14, we do not yet have any meaningful update regarding the timing or specifics of the transition of the direct express program.
As a reminder, our current contract allows physical service to utilize up to a three year extension under our current terms.
Speaker Change: Physical service would need to notify us of their intention to extend no later than early December so we expect to hear more before the end of the year.
Speaker Change: However, our expectation of the timing of deposit transition has not changed.
Speaker Change: Based on the size complexity and critical nature of this program our experience leads us to believe this transition may be longer rather than shorter.
Speaker Change: We do not anticipate an impact to 2020 for deposit balances noninterest income or expenses.
Speaker Change: In fact, it is possible we may not see a significant impact average deposit balances in 2025, although we need more information on the proposed transition plan to confirm.
Speaker Change: In the meantime, we plan to continue prioritizing targeted deposit strategies align with our core relationship operating model to further enhance our funding position and prepare for an eventual transition.
Speaker Change: Our outlook for 2024 is on slide 15.
Speaker Change: We project 2024 average loans to be 5% lower than 2023.
Muted demand, which we feel has been consistent across the industry and our deliberate optimization efforts in the latter half of 2023 are the major drivers for this decline.
Speaker Change: With some customer optimism following the third quarter rate cuts and normal seasonal patterns, we anticipate modest broad based growth in the fourth quarter.
Speaker Change: One of the bigger variables will be our commercial real estate business as we believe loan balances in this business may have peaked.
Speaker Change: Depending on the pace and size of further rate cuts, we could see a more rapid reduction in balances Dan projected in that business.
Speaker Change: Full year average deposits are projected to be down 3% to 4% from 2023.
Speaker Change: This slight reduction relative to last quarter's guidance is driven by the expectation of an approximate $1 billion decline in year over year of brokered time deposits not customer related trends.
Speaker Change: Further reductions in broker time deposits are also driving the projected 2% decline in average deposits in the fourth quarter.
Speaker Change: Fourth quarter customer deposits are projected to remain relatively flat.
Speaker Change: Although we are projecting some level of modest fourth quarter seasonality third quarter averages were elevated by large temporary customer deposits, which were distributed by quarter and as expected.
Speaker Change: Based on the high interest rate environment, We project deposit growth continued to be concentrated in interest bearing accounts, but we still expect to maintain a favorable deposit mix in the upper 30% range.
Speaker Change: We expect full year 2024, net interest income to decline, 13% to 14% compared to 2023.
Speaker Change: The slight improvement relative to prior guidance as a result of our strong third quarter results.
Speaker Change: Fourth quarter noninterest income is expected to grow 6% over the third quarter or 1% to 2% adjusting for the impact of this be cessation.
Speaker Change: We expect noninterest bearing deposit pressures to be more than offset by benefits from swaps securities and the forward curve.
Speaker Change: However, we continued to watch noninterest bearing balances and overall pricing dynamics as they could impact results.
Speaker Change: Credit quality remained strong as we produced another quarter of low net charge offs.
Speaker Change: Interest rates remain elevated and as customers continue to navigate high borrowing costs and inflationary pressures, we believe modest manageable migration welcome.
Speaker Change: However, given our strong results to date, we forecast full year net charge offs to remain well below our normal 20 to 40 basis point range.
Speaker Change: We expect noninterest income to be flat year over year or down 2% to 3% when adjusting for <unk> and the impact of the Ameriprise transition.
Speaker Change: This reflects a modest reduction in prior guidance due to trends in risk management hedging income.
Speaker Change: Although the lower forward curve benefited OCI and net interest income it does pressure this line item.
Speaker Change: Fourth quarter noninterest income is projected to decline, 1% to 2% relative to the third quarter also driven by lower risk management hedging income.
Speaker Change: Despite this and other non customer related pressures, we continue to be encouraged by customer related fee income trends.
Speaker Change: Full year noninterest expenses are expected to decline, 2% to 3% on a reported basis and grow 4% after adjusting for special FDIC assessments expense recalibration modernization and the impact from the Ameriprise transition.
Fourth quarter expenses are projected to increase 3% over a strong third quarter results, our 4% on an adjusted basis as detailed on the slide.
Speaker Change: Expense discipline remains a priority as we work towards our objective of positive operating leverage.
Speaker Change: Even with modest projected loan growth in the fourth quarter and the resumption of share repurchases, we expect our CET one ratio to remain well above our 10% strategic target through year end.
Speaker Change: In all we expect a solid fourth quarter, which would set us up nicely for a strong start to 2025.
Speaker Change: Now I'll turn the call back to Kurt.
Thank you Jim.
Kurt: This was an important quarter.
Kurt: As an industry, we saw the fed take their first steps away from our higher for longer rate environment.
Kurt: For Comerica the actions, we took to deliberately minimized our natural asset sensitivity position allow us to better protect our net interest income from lower rates. Additionally.
Additionally rate declines should be a net positive for credit quality and loans as customer profitability improves and they resume investing in their businesses.
Kurt: Coupling those tailwind with our disciplined approach to credit and expenses along with the resumption of share repurchases creates what we believe to be positive momentum for.
Kurt: We're generating compelling returns over time.
Kurt: We appreciate your time this morning, and now we'd be happy to take your questions.
Speaker Change: Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
Speaker Change: You May press star two 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 the star keys.
Speaker Change: Our first question comes from the line of Manav.
Speaker Change: With Morgan Stanley. Please proceed with your question.
Speaker Change: Good morning, Hey, good morning.
Speaker Change: Good morning.
Manav: I wanted to dig in on deposits you know the average deposit rates went up a little bit this quarter.
Speaker Change: I think in the prepared remarks, you noted that.
There was some brokered.
Speaker Change: Time deposits that have a high earlier in the quarter that you paid down so maybe if you can expand on what drove those.
Speaker Change: Average interest bearing deposit rates higher.
If you have it now what.
Speaker Change: The spot deposit costs are already in as of September 30th October 15th whatever you have.
Speaker Change: Good morning, Manav, it's Jim Thanks for the question, we were really encouraged by the success, we had in interest bearing deposits in the third quarter on average they were up one 5 billion.
Speaker Change: Notably on an ending basis. They were up $2 2 billion now we know $300 million that was broker, but overall just really great success in gathering interest bearing deposits. So I will say in the higher for longer environment that we experienced through mid to late September I'm, an increasing pay rates has been somewhat of a common trend.
Speaker Change: The industry, including Comerica decouple onto that the fact that we had such great success in bringing in these deposits, which by the way we're very intentional we've been really successful in paying down wholesale funding in the last few quarters and that trend continues with broker deposits being reduced both this quarter and next quarter and we're very happy to have those.
Speaker Change: Core interest bearing deposits, even if we have to pay up just a little bit. So I feel like the APE increase we had on a quarter to quarter basis, which really in line not just with the industry but.
Speaker Change: Well in line with our intentions in our goal of just raising strong core customer deposit. So it's something we just felt really good about it and think it's a great value proposition.
Speaker Change: Got it and any indication on how deposit costs have projected.
Speaker Change: Projected since the fed rate cut.
Speaker Change: Yes.
Speaker Change: We're really projecting very closely to what we've been planning all along.
Speaker Change: I will say the spot rate at the ended the quarter was.
Speaker Change: Maybe slightly lower than the month before as we started to see success with our pricing strategy and overall rates trended up a little bit as the quarter went on and I'm always hesitant to give a very spot rate on a given day because it does move around a little bit, but I will say that we are having success with our repricing a lot of work went into this.
Speaker Change: A lot of strategy I'm really proud of our product managers for what they've put together not just in terms of what we're repricing, but just some of the product.
Speaker Change: Designs they have done to make sure that we have mix shifts that are mutually beneficial to both us and our customers.
Speaker Change: But there won't be a lot of moving parts and maybe just looking forward to the fourth quarter. So I know that's really what you're interested in.
Speaker Change: The success, we had in repricing deposits I think really approached on a product basis, something approaching our accumulative beta just north of 60%. So really happy about that but of course, a number of other things were going on we are bringing in core deposits and being very successful in that and that puts a little pressure on the overall data is.
Speaker Change: As we look to from third quarter to fourth quarter.
Speaker Change: We do have a little bit of mix shift going on we do continue to survey, both our customer reaction as well as the competition and what they're doing and as I mentioned, just a little higher jumping off point, maybe it ended the quarter than perhaps on average prior to therefore see cut so if you put all that together and there is a lot going on there.
Speaker Change: A lot of variables I do think when we get to the fourth quarter.
Speaker Change: Youre going to see an overall data relative to average <unk> rate changes, probably hovering somewhere between our standard data of 47% and that cumulative beta that we had just north of 60. So.
Speaker Change: That's something we're really pleased about but I will say a lot of moving parts a lot of mix shift again by design on our part as well as our customers. So it's something we're just going to have to continue to monitor but so far are pretty successful outcome.
Speaker Change: Got it and do you think.
Beta is from there as we think as we look out into 2025.
Speaker Change: Whats your best guess on whether deposit betas accelerate from there because we get through more rate cuts or do they roughly stay the same because I guess C&I loan growth could be improving next year, maybe help us with.
Speaker Change: How are you thinking through that.
Speaker Change: Oh.
Speaker Change: Well first of all I would say the rate cuts always depends on what kind of lending we have I've been very consistent in saying that.
Speaker Change: Doesn't look like we're going to have a soft landing, which I think puts a little pressure on the pace of betas, because its always easier to change rates. When there is perhaps a little more fear on the economy, which typically does a company a rate reduction.
Speaker Change: But the way I would look at it is we're starting from a strong position there are probably some mid tier rates that were hesitant to move down at this point. So I think the betas will pick up a little pace as we start to move through mid 2025 late 2025.
Speaker Change: I think they will accelerate a little bit and then they'll probably back off of some of those rates start to approach a four <unk>.
Speaker Change: To pull back a little bit so it'll be a little bit of a U shaped curve I suspect for the industry, but again a lot of it's going to depend on just what happens in the overall economy and what type of landing the economy has.
Speaker Change: That's very helpful. Thanks, so much for the color.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of John <unk> with Evercore ISI. Please proceed with your question.
Speaker Change: Good morning, John Good morning, good morning.
John: On net interest income, it's good to see the upside guide.
Speaker Change: Right.
Speaker Change: Lower deposit growth expectation and your lowered loan growth expectation and I know you've mentioned a lot of that is partly given the third quarter.
Speaker Change: Performance in <unk>.
Speaker Change: Fourth quarter expectation on NII the.
Speaker Change: 6% for the 1% to 2% up ex BSB.
Speaker Change: As noted given that curious if loan demand remains relatively modest and you still see some.
Speaker Change: <unk>.
Speaker Change: <unk> pressures around deposit pricing, how do you see NII trajectory beyond the fourth quarter.
Speaker Change: No.
Speaker Change: Looking out there it looks like expectations could be in the mid to high single digit.
Speaker Change: Growth for net interest income as we look into 2025 do you think that is reasonable.
Speaker Change: <unk> got some slower rebound in loan growth as we move into next year.
Jim Herzog: Good morning, John It's Jim I'm happy to take that question.
Jim Herzog: Overall, we're pretty bullish about net interest income in 2025. It does look like we hit an inflection point in the second quarter of this year and Thats, even with a little bit of bids be drag in the third quarter. So really pleased with how thats <unk>.
Jim Herzog: Trending.
I'd say as I've been saying I think the overall trend quarter to quarter to quarter beyond where we're at now it's going to be up there could always be some anomalous quarter.
Jim Herzog: Weather has to do with the timing of <unk> reductions or day count or whatever you can always have a quarter, where maybe it starts to plateau, a little bit, but I think the general trend is going to be just continuously increasing net interest income as we move beyond 2024. So that's something we're really looking forward to.
Jim Herzog: We do expect.
Jim Herzog: Loan growth on a somewhat continuous basis in 2025, so that will be helpful. Also.
Jim Herzog: I will say, we're not ready to give guidance for 2025, so I'm hesitant to quote any specific loan growth numbers or noninterest income numbers, but I would say overall I'd say, it's a pretty nice picture in terms of just ever increasing net interest income as we move through the.
Jim Herzog: Next not just few quarters, but a few years.
Speaker Change: Great. Thank you very very helpful and then.
Separately on if I could skip over to capital.
Sure.
Speaker Change: Q1.
Speaker Change: <unk> of 12% versus your 10% target is certainly noted and I know you expected resumption of buybacks of about $100 million in the fourth.
Speaker Change: Fourth quarter maybe.
Speaker Change: Maybe could you give us at least a trajectory on how we feel about the possible acceleration of buybacks as you go through 2025, just given that type of.
Speaker Change: Margin, where youre running right now above your target.
Speaker Change: I don't think we're prepared yet to talk about 2025, we do acknowledge that we're carrying very strong levels of capital.
Speaker Change: Now, we do want to stay materially above our 10% target CET, one and frankly, I think we want to stay above.
Speaker Change: And 11% well above an 11% CET one target because we want to make sure we're ready for Basel III on game as it approaches even though those rules are not quite final yet, but that still does give us a little bit of flexibility. We expect earnings to continue to be very strong going forward, but we do have to as always continue to make sure we prioritize capital.
Speaker Change: For loan growth and our customers, we have to keep an eye on rates and the overall economic environment.
Speaker Change: We no longer term rates and the curve shifted up a little bit since the end of the quarter and again, we are sensitive to what's going on with the OCI and making sure that we don't get a surprise there continue to monitor this profitability in the regulatory environment.
Speaker Change: So it's just something we're going to have to monitor on a quarter by quarter basis as we move through 2025, but we do feel very comfortable with our capital position and really proud of the fact that we're starting to share repurchase this quarter.
Speaker Change: Great Alright, thanks, Jim appreciate it.
Thank you.
Speaker Change: Thank you. Our next question comes from the line.
Speaker Change: Jim with RBC capital markets. Please proceed with your question.
Speaker Change: Thank you Jonathan good morning.
Speaker Change: Okay.
Jim Herzog: Jim maybe bigger picture for you can you just.
Talk a little bit about your philosophy.
Jim Herzog: On hedging right now in your approach to rate management.
Jim Herzog: It feels like there is a better outcome.
Jim Herzog: NII and the margin if rates fall further.
Jim Herzog: But just talk a little bit about what you're trying to accomplish and how we should think about.
Jim Herzog: NII trajectory and margin trajectory if the fed continues cutting.
Speaker Change: Good morning, John Yes, you see sensitivity slide in the deck. We are just very slightly liability sensitive actually little less liability sensitive in the last quarter, but still.
Speaker Change: Lightly liability sensitive I have been saying that I really think of us as largely interest neutral.
As always a somewhat of a fixed component of that sensitivity equation that ties back to balances and the assumption that noninterest bearing balances will grow if rates continue to go down and we may not get the full effect of that until we see a few more rate cuts.
Speaker Change: We had some type of inflection point in terms of how customers manage their money and so I don't necessarily expect to get the full benefit of that balance until we get a few more cuts down the road. So as a result from a pure rate standpoint, I really think of us as being closer to interest neutral.
Speaker Change: And eventually we will get a balanced benefit of that liability sensitivity also and so I don't see the rate picture really changing things materially for us on a quarter to quarter basis, because we are so close to neutral.
And I think the real wildcard really for us, it's going to be deposit pay rates how competition on the customers react I think thats, probably got a wider range of outcome than what you might argue in terms of asset and liability sensitivity assumptions so much.
Speaker Change: Much closer to interest neutral the good news is I feel like we are insulated from any drop in rates and should be protected from that.
Speaker Change: Okay.
Speaker Change: And it feels like you.
Youre starting to get the early signs of maybe a little bit of.
Speaker Change: Customer acceptance to lower deposit rates.
Speaker Change: Is that a fair assessment.
Speaker Change: Yeah, I think so we felt and Peter may want to comment too, but I've been really pleased with how it's received and our relationship managers are doing a great job.
Speaker Change: Shepherding these through and explaining to the customers and I'll give credit to our customers they understand it and when they ask for rate increases as rates were going up and I think they understand that when rates go down.
Speaker Change: We have to be a little bit symmetrical there and so overall I feel like it's going really well.
Speaker Change: John its Peter I would I would echo that we feel like it's going really well and we're being very selective across each of our businesses. I mean, some of them. We can achieve more success than others, but I think our continuous messages about our relationship strategy and being able to have these conversations before customers make moves has proven to be very successful so I would.
Speaker Change: I would echo what Jim's comments are there.
Speaker Change: Okay. Okay.
Speaker Change: And then just one kind of a follow up on John's question on loan growth, but you talked you guys flagged a couple of times.
Speaker Change: Pay offs, and maybe an uptick in CRE payoffs, but on the flip side, maybe some better.
Speaker Change:
Speaker Change: Potential lending growth if rates do fall, how do you kind of square that.
Speaker Change: Material do you think the CRE payoffs might be in.
Speaker Change: Is this kind of gets to the 25 loan growth question, but is that is that just a real impediment to 2025 growth.
Peter Septic: Yes, John it's Peter.
Peter Septic: It's certainly something we're watching I think it's yet to be determined how much of a headwind it is or isn't I would say, we feel like CRE loans have peaked in the third quarter here and so it probably is sort of a downward slope as we get into next year.
Peter Septic: Now that said I think we feel like the rest of the portfolio.
Peter Septic: We will perform in the opposite direction and hopefully be able to offset that headwind. So we will talk more about 25 outlook. When we talk about our next call, but at least as we sit today I think CRE is probably a downward slope from here on in and our expectation is with rates coming down further sort of where.
Peter Septic: We feel like the rest of the portfolio, maybe the bottom a little bit that.
Peter Septic: And that will hopefully offset the headwind on CRE.
Speaker Change: Okay, Alright, thank you very much.
Speaker Change: Thanks, Sean.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from the line of Bernard <unk> with Deutsche Bank. Please proceed with your question.
Speaker Change: Hey, guys good morning.
Speaker Change: So just a quick question a modeling question on the risk management hedge income given the geography change. So is there a rule of thumb on how much risk management income would decline.
And net increase on a 25 basis points rate cut.
Good morning, Bernard I don't necessarily have a rule of thumb for you, but you can probably look at how.
Speaker Change: Three to five year treasuries move this quarter and draw a little bit of a conclusion relative to the previous quarter because it is tied to our swaps and our swaps do you have a much shorter duration than our bond portfolio.
Speaker Change: But we did we did see a shift of income as we mentioned in the script from noninterest income to net interest income you see that on the noninterest income slide.
Speaker Change: Risk management hedging income was down $10 million net.
Speaker Change: Net interest income probably benefited from $8 million of that in the third quarter and net interest income will continue to benefit from that in the fourth quarter. So we do have some positive inflows in our net interest income and I think on the strength of those we did improve our outlook, reflecting in part the great third quarter success and I do.
As I look to that down 13% to 14% guide I do think we have a really good shot at being closer to the 13% and 14%. So we continue to look to look at really strong in noninterest income and I think that explains some of the weakness in the non customer portion on the noninterest income side.
Speaker Change: Got it.
Speaker Change: And then just separately.
Speaker Change: I appreciate that the forward curve has changed it feels like it's ebbed and flowed.
Speaker Change: Even day by day.
Speaker Change: Slide seven of the deck you estimate the securities OCI unrealized losses and declined by I think about 60% by <unk> 26.
Speaker Change: The footnote I believe its the forward curve at 930.
Speaker Change: And you know given changes in the forward curve. Since then there's like two less rate cuts priced in just wondering any idea of.
Speaker Change: The impact on us.
Speaker Change: A higher forward curve versus the 930 that I believe is assumed in that assessment.
Speaker Change: It's been moving around quite a bit sustain 30 trending up somewhat.
Speaker Change: So I don't really have a number for you as to where it sits today, we do have some sensitivities on the capital slide that point to overlay OCI.
Speaker Change: Large portion of that the vast majority of that relates to bonds. So.
Speaker Change: That's a little bit of a harbinger of that you can look at there, but overall, we will just have to wait and see where rates end up in the fourth quarter.
Speaker Change: Hey, great. Thanks for taking my question.
Speaker Change: Yeah.
Speaker Change: Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your <unk>.
Speaker Change: Our next question comes from the line of Ben <unk> with Citi. Please proceed with your question.
Speaker Change: Good morning, Ben.
Ben: Just kind of high level little more philosophical than anything so are you guys.
Ben: It's stuck your neck out a little bit this year in terms of loan growth expectations cleaning by no means youre picking on you because everyone seem too and everyone's going to walk it back a bit.
Ben: Because you have a little bit more of a national commercial footprint when launched in my coverage I would say on average.
Ben: When you think about it.
Ben: Impediments, Hawaii loan demand really wasn't there.
Speaker Change: Is there anything that stood out is it other than just lack of rate cuts and then kind of as we go into next year I mean, there's political uncertainty actually fix anything or is there kind of an inflection points on rates, where you might see demand just kind of.
Speaker Change: Thoughts on what you're hearing from boots on the ground level.
Peter Septic: Yes, Ben it's Peter it's a really good question.
Peter Septic: I don't know that my story is any more compelling than maybe some of the other things that youre hearing, but I think I would probably say that we all felt like some interest rate relief would really drive loan demand and I think that's kind of proven to be not necessarily the case. So the feedback we're getting from our portfolio was that.
Peter Septic: 50 basis points was was nice, but not inspiring necessarily and that really I think what most of the economies going to need to see another 50 to 100 basis points to really see some stimulation there so.
Peter Septic: We certainly are we're feeling earlier in the year that the second half of 2024, we would we would start to see loan demand pick up and that really hasnt hasnt occurred so.
Peter Septic: What does that mean for going into the future I think that probably it does become a little more of even a second half of 'twenty five conversation about what does what does loan demand looked like in the economy and certainly getting to the other side of the election I think will be helpful. Because I do believe that business owners way to make decisions until they understand.
Peter Septic: What the tax outlook might look like for them.
Speaker Change: To Jim's point, continuing to see the economy kind of kind of level out here, but.
Speaker Change: I don't know that Theres anything more compelling other than to tell you that what we are hearing is that interest rates are going to need to come down probably another 50 to 100 basis points to really start to inspire business owners to make more decisions here on investing capital.
Got it that's helpful. I mean, some clarity on the political front, whether it's <unk> red team Blue definitely help but I get what you're saying, it's kind of more of a lack of animal spirits across the board.
Speaker Change: Yes.
Speaker Change: You can do to kind of have to rank order or certain areas that kind of might be chomping at the bit economically speaking it seem to.
Speaker Change: We want to take a little bit about it.
Speaker Change: Sure.
Speaker Change: That comes to mind that might be kind of a first on the gate increased loan demand.
Speaker Change: Ben when you look at our portfolio I would say, our national and specialty businesses have prop.
Speaker Change: Probably started to see a little bit more pick up across the board our pipeline feels like it actually has grown a little bit more in those businesses in the last quarter I think it's really more general middle market, C&I, where youre just going to have to have that.
Speaker Change: Reduction in interest rates to get the stimulant of borrowing in to your to your comment about animal spirits I think I think your average middle market business in the country right. Now is just waiting for that interest rate relief. So.
Speaker Change: They are not in a situation where they have to do anything if anything they're building a little bit of cash they're making good money.
Speaker Change: Why take any chances when they believe that the outlook on interest rates is really going to be in their favorite next year on the other hand, our national and specialty businesses I think.
Speaker Change: They're going to kind of run their businesses I don't Wanna say, despite interest rates, but we are seeing some pick up there and so that's where I think you put all that together between sort of muted middle market growth CRE coming down in some of our other specialty businesses picking up that's kind of where you're hearing us talk about sort of modest to flat loan growth going into the fourth quarter in <unk>.
Speaker Change: Absolutely next year.
Got it okay. That's helpful. Thank you.
Speaker Change: Thanks Ben.
Speaker Change: Thank you. Our next question comes from the line of Chris Mcgratty with <unk>. Please proceed with your question.
Speaker Change: Good morning, Chris.
Chris: Hey, good morning.
Chris Mcgratty: Jim just wanted to.
Chris Mcgratty: Get a better.
Chris Mcgratty: Understanding of the guide for Q4 for NII.
Chris Mcgratty: The plus 6% or the plus 1% to 2%.
The gap was $5 34 in the third quarter as the math, 6% off of that.
Chris Mcgratty: I'm just trying to make sure I got the right NII for the fourth quarter.
Chris Mcgratty: It is yes.
Chris Mcgratty: Printed number 6% above that bears b, obviously, there's about a $25 million swing. If you look at the business we schedule that we have.
Speaker Change: From the third quarter to the fourth quarter and again that schedules in the deck, but yes. It is 6% on the printed number.
Speaker Change: Okay, so that would to get to that closer to 13% down to EBIT.
Speaker Change: North of 560 kind of ballpark for Q4, yeah.
Speaker Change: It's pretty closer to 5% mid $5 $60 to $5 70.
Speaker Change: Okay Awesome and then second on <unk> is a commercial bank, it's kind of a hidden deposit beta can.
Speaker Change: Can you maybe opine about what lever that might be in the expense line over the next few quarters.
Speaker Change: I think there is a little bit of opportunity with Ecr's as rates continue to come down our ECR has actually had a much lower beta than our deposits. So I do expect service charges to benefit over time as rates continue to come down and I think it will be noticeable but I don't think it will be huge.
Speaker Change: It'll be really just a fraction of what youre going to get on the pure deposit pay rates side.
Kurt Farmer: Thanks.
Unknown Executive: Thank you, Chris.
Speaker Change: Great. Thank you.
Chris Mcgratty: Thank you Chris.
Samuel Barger: Thank you. Our next question comes from the line of Samuel Barger with UBS. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Samuel Bergman with UBS. Please proceed with your question.
Samuel Barger: Good morning, Sam. Good morning.
Speaker Change: Good morning, Sam.
Chris Mcgratty: Morning.
Jim Herzog: I just wanted to ask if you can put a maybe a finer point on the margin in the fore here. I understand that you're looking to pay that for me to broker deposit. I just wanted to get a sense for, I guess a finer point on how you're managing that actual liquidity and what your level of doing this is to move cash lower and move broker lower and sort of protect the margin a bit more.
Samuel Bergman: I just wanted to I wanted to ask if you can put them into a finer points on the margin in <unk> I understand that you're looking to pay down some of the broker deposits, but just wanted to get a sense for.
Chris Mcgratty: I guess, a finer point on how you're managing that extra liquidity.
Samuel Bergman: What your willingness is to to move cash flow remove brokered lower and sort of protect the margin a bit more.
Jim Herzog: Good morning, Samuel. You know, we do expect the balance you need to become a little bit more efficient as we move into the fourth quarter. You know, we, on a quarter-to-quarter basis, will see a little bit lower wholesale funding on average. Brover deposit is where we're going to see the biggest change as we pay down quite a few, almost 900 million, of end to the third quarter. And so much so more amount as we move through the fourth quarter. So we didn't buy the balance sheet a little bit with excess cash supported by those higher level of broker deposits because, frankly, the low growth that we might have expected a one time.
Speaker Change: Hey, good morning, Samuel we do expect the balance sheet to become a little bit more efficient as we move into the fourth quarter.
Speaker Change: We on a quarter to quarter basis.
Speaker Change: We will see a little bit lower wholesale funding on average.
Speaker Change: Broker deposits.
Speaker Change: Youre going to see the biggest change as we paid down quite a few almost $900 million at the end of the third quarter.
Speaker Change: In a somewhat similar amount as we move through the fourth quarter. So we didn't find the balance sheet, a little bit with excess cash supported by those higher level of broker deposits because frankly, the loan growth that we might have expected a one time when we took those broker deposits out and fully materialize.
Jim Herzog: When we took those broker deposits out, didn't fully materialize. And so, you know, I will say that we expect improvement in the NIM because we move into the fourth quarter. I think many of you know in the call that I really paid talking about NIM, and I think yet again we have another example where that interest income increased. Even with the business betrayed, yet the NIM went down because of dynamics of the balance sheet. So never really like to talk a lot about NIM percentage. Haven't said that. It is going to move up, you know, materially just because of a more efficient balance sheet and probably end up so we're near a three, three handle.
Speaker Change: And so I will say that we expect improvement in the NIM as.
Speaker Change: As we move into the fourth quarter I think many of you know on the call that I really hate talking about NIM and I think yet again, we have another example, where net interest income increased.
Speaker Change: Even with the <unk> drag yet the NIM went down because of dynamics of the balance sheet. So never really like to talk a lot about NIM percentage, having said that it is going to move up materially just because of a more efficient balance sheet and.
Speaker Change: Ended up somewhere near three three handle 3% as we move through the fourth quarter, but a lot of that will just depend on just the various levers within the balance sheet and how they move.
Jim Herzog: You know, three percent is we move through the fourth quarter. But a lot of that will depend on, you know, just various lovers within the balance sheet and how they move.
Samuel Barger: Understood. Thanks for kind of managing.
Speaker Change: Understood. Thanks for the kind of imaging and then the other question I had is just trying to be environmental services teams that you have obviously are.
Peter Sefzik: And then the other question I had is just trying to be environmental services teams that you have and obviously are. Pretty, pretty bullish just on the opportunity set here. So can you can you can talk a little bit more about the business in terms of the growth ramp. The teams that you have and what your expectations might be over the next couple of years in terms of where that but the business can go.
Speaker Change: Pretty pretty bullish on the opportunity set here. So can you can you can you talk a little bit more about the business in terms of the growth ramp.
Speaker Change: Teams that you have what your what your expectations might be over the next couple of years in terms of where that business can go.
Peter Sefzik: Yeah, Sam, this is Peter. So it is a business that we're very proud of. We've been we've been at this business for a long time now. A couple of years ago, we started a renewables group as well. That shows up in that in that line item, and you know quite candidly. Our environmental services business has been a quarterly positive performer for several years now, and I think that outlook will continue. We've got a great team. I think we're the best in the business. You know, we continue to try to get resources to those folks. So, you know, I'd be surprised to see anything other than the pace that you've seen the last few years continue in that space.
Speaker Change: Yes, Sam this is Peter so it is a business that we're very proud of we've been we've been at this business for a long time now a couple of years ago, We started our renewables group as well that.
Speaker Change: That shows up in that in that line item in <unk>.
Quite candidly, our environmental services business has been a quarterly positive performer for several years now and I think that outlook will continue we've got a great team.
Speaker Change: I think we're the best in the business.
Speaker Change: We continue to try to give resources to those folks.
Speaker Change: So you know I'd I'd be surprised to see anything other than the pace that you've seen in the last few years continue.
Speaker Change: And that space, it's a fantastic, it's really a great middle market business.
Peter Sefzik: It's a fantastic. It's really a great middle market business. It's a specialty business, but the size of the loans, the fee income that it generates. It's just a fantastic business for us. And so it's one that we're going to continue to lean into. And I would expect that on a go forward basis, you know, the growth rates would be similar to what you've seen the last few years. So that's how I would think about it that way if I were you.
The specialty business, but the size of the loans that the fee income that it generates.
Speaker Change: Just a fantastic business for us and so it's one that we're going to continue to lean into.
Speaker Change: And I would expect that on a go forward basis, you know the.
Speaker Change: The growth rates would be similar to what you've seen in the last few years. So that's how I would I would think about it that way if I were you.
Speaker Change: Okay. Thanks for the color I appreciate it.
Speaker Change: Thank you. Our next question comes from the line of Michael Rose with Raymond James. Please proceed with your question.
Speaker Change: Good morning, Michael.
Speaker Change: Hey, good morning, I think all the NIM in.
Michael Rose: Loan growth questions have been asked so maybe I'll ask on just the pace of future investments specifically as it relates to loan hires I think were hearing more commentary.
Michael Rose: Across other banks that.
Michael Rose: Hiring efforts are going to be a little bit more robust as we enter next year wanted to get your thoughts there to maybe drive some incremental loan growth and then maybe any sort of update you have just in terms of.
Michael Rose: Costs related to.
Michael Rose: Eventually crossing a 100 billion in assets. Thanks.
Peter Septic: Michael It's Peter I might take the first one and then I'll, probably let Jim take the second one I think the thing that.
Peter Septic: Youre exactly right. The competition for talent is tremendous right now I think whether you are no matter, which market. We're in no matter what kind of line of business you look at them. There's a lot of competition for talent I continue to believe that something that makes us very special is we have a fantastic training program where.
Peter Septic: A lot of our relationship manager growth over the next few years is because of talent that we have hired and trained and developed and they go to market with.
Peter Septic: That sort of culture, and expectation and I think a better knowledge of credit than our peers and so that that program is one that we're leaning heavily into.
Peter Septic: Trying to get folks into that program and out of it as well trained and are ready to be successful as we possibly can I think hiring from other banks can be successful, but I also think it's expensive and I don't think it's necessarily the best way to grow your culture. Your brands. So I think that distinguishes us when you look at comerica from others.
Peter Septic: As to why we've got a really good outlook, there and so we're intending to grow that that population.
Peter Septic: Especially in our middle market and business banking businesses, where we've got opportunities in Texas, and California, and we will certainly add talent from other banks, we do that all the time, but I think that you put those two things together, it's a very compelling story as to why you would look at comerica compared to others and so Jim I might flip to you on the 100.
Speaker Change: Number specific.
Specific to the $100 billion efforts.
Jim Herzog: Always remind people that wanted to existing veins that have been in that regime in the past. So we've been there we know how to do it we kept some of the practices that we had in place at that point in time of course, the bar has gone up since then but.
Jim Herzog: But we feel like we have really strong capital planning and stress testing practices liquidity stress testing practices.
Jim Herzog: I look at what it takes to get ready for 100 billion beyond just having that general good risk framework, which we're making great progress on the cash that probably takes the most effort is just the data and all of our reporting this required and that is probably the longest tail on it and we've been working on that really for the last year year and a half were made.
Jim Herzog: Great progress, we plan on being done well ahead of.
Jim Herzog: Hitting $100 billion and so our goal overall is to do this in layers. So that in any one year theres not a huge step up in expenses.
Jim Herzog: Will ultimately have a higher run rate modestly higher run rate because of 100 billion in category four readiness, but we're also working to offset those costs and my goal is to put it in context of you'll never actually notice a big step up specifically due to a category for printing. This effort because we are layering them.
Jim Herzog: And as time goes on and I feel like we're on a really good track to be ready well ahead of hitting the 100 billion.
Jim Herzog: Yeah, very helpful, and maybe the natural follow-up question is it relates to next year, and I'm trying to fin you down here, but I think we're here in other banks, at least plan for positive operating levers next year. I heard your comments on kind of NII trajectory. You know, balance that with, you know, maybe some expense growth related to what you just talked about, but it is at least the initial plan or expectation that you can generate positive operating levers next year. Thanks. You know, it's always our goal to positive operating leverage, and obviously 23 with the regional bank crisis, and its traveling effects on 24, made that very challenging. But positive operating levers, as always, are a goal, and I would say 2,025 is no exception to that. You know, that's our own expectation, and that's what we are shooting for, and that will be through a combination of both revenue efforts, as well as making sure that we calibrate expenses appropriately.
Speaker Change: Very helpful. And then maybe the natural follow up question is it.
Speaker Change: It relates to next year and I'm not trying to pin you down here, but I think we're hearing other banks at least plan for positive operating leverage next year I heard your comments on kind of NII trajectory.
Speaker Change: That with maybe some some.
Speaker Change: Some expense growth related to what you just talked about but it is at least the initial plan or expectation that you can generate positive operating leverage next year. Thanks.
Speaker Change: It's always our goal to have positive operating leverage and obviously 'twenty three with the regional bank crisis and it's.
Speaker Change: Trailing effects on 24 made that very challenging but positive operating leverage is always our goal and I would say 2025. There is no exception to that that's our own expectation and Thats. What we are shooting for and that will be through a combination of both revenue efforts as well as making sure that we calibrate expenses appropriately.
Samuel Barger: All right, great.
Speaker Change: Alright, great. Thanks for taking my questions.
Samuel Barger: Thanks for taking my questions.
Unknown Executive: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our final question. This morning comes from the line of Anthony.
Anthony Elian: Our final question this morning comes from the line of Anthony Elan with JP Morgan Chase. Please proceed with your question.
Speaker Change: With Jpmorgan Chase. Please proceed with your question.
Anthony Elian: Hi, good morning. I appreciate the comments you provide on loan growth, and customer sentiment towards quarter end. Just asking the question around loan growth expectations a different way.
Speaker Change: Hi, Good morning, I appreciate the comments you provided on loan growth and customer sentiment towards quarter end, just asking the question around loan growth expectations in different way.
Peter Sefzik: You know, once borrowers get past hurdles of the election, and we see more rate cuts, do you see a loan growth at the company at a level comparable to the rest of the industry, or do you think you can grow faster than the industry just given your footprint and other segments you've mentioned?
Speaker Change: <unk> borrowers get past hurdles of the election, and we see more rate cuts.
Speaker Change: You see a loan growth at the company at a level comparable to the rest of the industry or do you think you can grow faster than the industry just given your footprint in other segments you've mentioned.
Peter Sefzik: Yeah, Anthony, it's Peter. You know, I had to answer that a couple of ways. You know, we had a lot of years where we were growing at the rate of the industry, if not even slightly below for a while. But if you kind of went back 2019, 2022, so call it the non-COVID, the non-2021 years, we were growing at a rate equal to or above the industry. So I think on a go-forward basis, particularly when we get the other side of, as I talked earlier, about CRE, kind of downward slope from here, I think we should be able to grow at the industry growth rate or better when we get, when we get into 25 and 26.
Peter Septic: Yeah, Anthony it's Peter.
Peter Septic: I would answer that a couple of ways, we had a lot of years, where.
Peter Septic: We were growing.
Peter Septic: At the rate of the industry, if not even slightly below for a while but if you kind of went back 2019 2022, so call. It the non COVID-19. The non in 2023 years, we were growing at a rate equal to or above the industry. So I think on a go forward basis, particularly when we get to the other.
Peter Septic: Side of as I talked earlier about CRE.
Peter Septic: Kind of downward slope from here I think we should be able to grow at the industry growth rate or better.
Peter Septic: When we get when we get into 'twenty, five and 26 that would be the expectation and I certainly think when you look at our portfolio all of our specialty businesses being highly exposed in Texas and in California.
Peter Sefzik: That would be the expectation, and I certainly think when you look at our portfolio, all of our specialty businesses, being highly exposed in Texas and in California, we would expect of ourselves to be growing better than the overall industry, and we've proven that we could do that the last couple of years, absence, sort of these major events. So the only part of that, I would just caution again, as the CRE had when that we have, but the rest of the book on a go-forward basis, we would expect to be able to grow better than the industry.
Peter Septic: We would expect of ourselves to be growing better than the overall industry and we've proven that we can do that in the last couple of years absent sort of these major events. So.
Peter Septic: The only the only part of that I would just.
Peter Septic: Caution again as the CRE headwind that we have but the rest of the book on a go forward basis, we would expect to be able to grow better than the industry.
Kurt Farmer: Peter, I might just add, too, that when you look at this as current, that the markets we operate in, really all of our geographies, have grown this year and expect to be growing next year above GDP, so we feel really good about sort of the markets we operate in, the national, especially businesses that Peter referenced earlier.
Curt Farmer: Peter I might just add to that when you look at this is Kurt that the markets. We operate in really all of our geographies have grown this year and expect it to grow next year above GDP.
Curt Farmer: So we feel really good about sort of the markets, we operate in to Nashville, especially business as Peter referenced earlier.
Jim Herzog: Part of our capital management strategy is to reserve capital for long growth, so we are anticipating long growth on a forward basis. We feel really good about our funding position, and credit continues to be very well-behaved. So we're ready, willing, and able, and got a great team on the field, and back to the question earlier about relationship managers. We've got plenty of capacity right now for growth, but again, we are building in additions of capacity through our training programs and selectively in some of our businesses, external hires.
Part of our capital management strategy is to reserve capital for loan growth. So we are anticipating loan growth on a forward basis, we feel really good about our funding position and credit continues to be very well behaved. So we're ready willing and able and we've got a great team on the field and back to the question earlier about our relationship managers, we've got plenty of capacity.
Curt Farmer: City right now for growth, but again, we are building in.
Curt Farmer: Additions of capacity through our training programs and selectively some of our businesses external hires.
Anthony Elian: Thank you.
Speaker Change: Thank you and then my follow up you saw good growth in equity fund services deposits. During the quarter can you talk about what specifically you saw in that segment that drove the growth and the expectation of year end. Thank you.
Anthony Elian: And then my follow-up, you saw a good growth in equity fund services deposits during the quarter. Can you talk about what specifically you saw in that segment that drove the growth and the expectations you're in? Thank you.
Peter Sefzik: Yeah, Anthony. So, I mean, equity fund services has been a really good business for us. In 2023, it was one that we did optimize quite a bit; I think, through last year, we are seeing good success in that business. It's a little bit of a different environment there. There's not maybe as much fund formation as there was for a while. There's not as much activity in the private equity space, as you know. But on a loan outlook standpoint, I feel like it's sort of up from here. We did sort of expect to see a little more growth in Q3.
Speaker Change: Yes, Anthony So I mean equity fund services has been a really good business for us in 2023. It was one that we.
Speaker Change: We did optimize quite a bit I think through through last year.
We are seeing good success in that business.
Speaker Change: It's a little bit of a different environment. There, there's not maybe as much fund formation as there was for a while.
Speaker Change: There's not as much activity in the private equity space as you know but.
Speaker Change: On a loan on our loan outlook standpoint, I feel like it's sort of up from here and we did we did sort of expect to see a little more growth in Q3.
Peter Sefzik: It worked a little bit against us in August, but I think that's starting to flatten out.
Speaker Change: It worked a little bit against us in August, but I think that's starting to flatten out and on the deposit side I mean, I just think we're continuing to add sort of more what I would call bilateral relationships, where we're the only bank, which leads to more deposits, which leads to more treasury and fee income.
Peter Sefzik: And on the deposit side, I mean, I just think we're continuing to add sort of more, what I would call bilateral relationships, where we're the only bank, which leads to more deposits, which leads to more treasury and fee income. You know, we're trying to do less participation, per se, in that business and more bilateral deals. And so, I think we're just capturing relationship, and I think as events occur in the book that our customers have, we've proven as a really good bank for them to place their deposits with. And, as we talked about earlier, that's at appropriate rates across our portfolio.
Speaker Change: We're trying to do less participations per se in that business and more bilateral deals and so I think we're just capturing relationship and I think as events occur in the book that our customers have.
Speaker Change: We've proven as a really good bank for them to place their deposits with them because we talked about earlier, that's an appropriate rates across our portfolio.
Speaker Change: Thank you.
Speaker Change: Thank you, ladies and gentlemen that concludes our question and answer session. I will now turn the call back to Mr. Curt Farmer, President Chairman and Chief Executive Officer for final comments.
Unknown Executive: Ladies and gentlemen, that concludes our question-and-answer session.
Curtis Chatman Farmer: I'll now turn the call back to Mr. Kirk, former President, Chairman and Chief Executive Officer for final comments. Thank you all of you for joining us again today.
Curt Farmer: Well. Thank you all of you for joining US again today as always thank you for your ongoing interest in Comerica and we hope you have a good day.
Kurt Farmer: As always, thank you for your ongoing interest in America, and we hope you have a good day.
Operator: Thank you.
Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.
Operator: This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.