Q2 2025 Comerica Inc Earnings Call

Operator: At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded.

Good morning and welcome to Comerica Banks. Second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

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

Kelly Gage: I will now turn the conference over to your host, Kelly Gage, Director of Investor Relations. Thank you. You may begin.

Please note that this conference is being recorded.

I will now turn the conference over to your host, Kelly Gage, director of investor relations. Thank you. You may begin.

Unknown Executive: Thanks, Jesse.

Kurt Farmer: Good morning and welcome to Comerica's second quarter 2025 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.

Kelly Gage: Thanks Jesse, good morning and welcome to K. America's second quarter 2025 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 chossy and chief banking officer, Peter seik,

Unknown Executive: The presentation slides and our press release are available on the SEC's website, as well as in the investor relations section of our website, Comerica.com. The presentation and this conference call contain forward-looking statements. In that regard, you should be mindful of the risks and uncertainties that can cause actual results to differ materially from expectations. Forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update any forward-looking statement.

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 fcc's website as well as in the investor relations section of our website comerica.com

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 differ materially from expectations.

Unknown Executive: Please refer to the Safe Harbor Statement in today's presentation on slide two. Also, the presentation and this conference call will reference non-GAP measures. In that regard, I direct you to the reconciliations of these measures in the earnings materials available on our website, Comerica.com.

For looking statements speak only as of the date of this presentation and we undertake no obligation to update any forward-looking statements.

Kurt Farmer: Now, I'll turn the call over to Kurt, who will begin on slide three. Thank you, Kelly. Good morning, everyone. And thank you for joining our call.

Please refer to the safe harbor statement. In today's presentation on slide 2. Also the presentation and this conference call Will reference non-gaap measures in that regard. I direct you to the reconciliation of these measures in the earnings materials available on our website comerica.com

Kelly Gage: Now, I'll turn the call over to Kurt. Who will begin on slide 3?

Kurt Farmer: We are incredibly proud of this quarter's results. We saw an inflection in loans, as balances grew consistently throughout the quarter across most of our business. While deposits came down modestly, favorable loan, fee income, and expense trends drove a sizable increase in both net income and PPNR. Capitalization remained a strength with an estimated CET1 of 11.94%, well above our 10% strategic target, even after a compelling dividend and higher share repurchase. Sentiment improved as we saw signs of customers beginning to make measured investments in their business. While economic and geopolitical uncertainty persists, customers appear more confident in their ability to navigate the environment and make adjustments where necessary.

Kurt: Thank you, Kelly. Good morning, everyone. And thank you for joining our call. We are incredibly proud of the this quarter's results which saw an inflection in loans as balances grew consistently throughout the quarter across most of our businesses.

Our deposits came down modestly. Favorable loan fee, income, and expense Trends. Drove a sizeable increase. In both net income and ppnr.

Kurt: Capitalization remained a strength with an estimated cet1 of 11.94%. Well above our 10%, strategic Target, even after a compelling dividend and higher, share repurchases.

Kurt: Sentiment improved as we saw signs of customers, beginning to make measured investments in their businesses.

Kurt Farmer: Beyond our financial results, this was an exciting quarter for payments and deposits as we announce new capabilities and product enhancements for our customers. We believe the milestones we achieved demonstrate the successful execution of our strategy and we feel ongoing efforts in this space position us well for future growth.

Kurt: While economic and geopolitical uncertainty, persists. Customers appear more confident in their ability to navigate the environment and make adjustments where necessary.

Beyond our financial results. This was an exciting quarter for payments and deposits as we announced new capabilities and product enhancements for our customers.

Kurt: We believe in milestones, we achieved demonstrate the successful execution of our strategy and we felt ongoing efforts in this space position as well for future growth.

Kurt Farmer: Moving to a summary of the second quarter on slide four, we reported earnings per share of $1.42, representing an almost 14% increase over the prior quarter. Loans grew throughout the quarter and offset deposit pressures as net interest income remained flat. Credit quality continued to perform well, and both non-interest income and non-interest expense improved, resulting in a lower efficiency ratio.

Moving to a summary of the second quarter on slide 4.

Kurt: We reported earnings per share of $1.42, representing an almost 14% increase over the prior quarter.

Kurt: Loans, throughout the throughout, the quarter, grew throughout the quarter and all set deposit pressures as that interest income remains flat.

Kurt Farmer: Despite higher profitability, tax expense came down with the benefit of discrete items. In all, we saw an impressive increase in profitability, and we turned $193 million to common shareholders who share repurchases and dividends, while keeping capitalization strong. We continue to feel well positioned to support our customers and drive growth in our business.

Kurt: Credit quality continued to perform well, and both non-interest income and non interested expense improved, resulting in a lower efficiency ratio.

Despite higher profitability tax expense came down with the benefit of discrete items.

Kurt: and all we thought impressive increase in profitability and we turned 193 million should come in shareholders through, share repurchases and dividends while keeping capitalization strong

Jim Herzog: Now I'll turn the call over to Jim to go into more detail. Thanks, Kurt. Good morning, everyone. Beginning with loans on slide five, we saw strong growth in the quarter with average loans up almost 1% and period end loans up approximately 3%. Importantly, loans in both businesses increased, driven by new loan production for new and existing customers. Although average loans and equity fund services declined, period-end trends were up, with an improved outlook for private equity and venture capital in both deal activity as well as fundraising. Total commitments increased by $400 million with increases in environmental services and commercial real estate, offsetting decreases in equity fund services, and total utilization remained relatively unchanged.

Kurt: We continue to feel well positioned to support our customers and drive growth in our business.

Speaker Change: Now, I'll turn the call over to Jim to go into some more details.

Thanks, Kurt. Good morning, everyone.

Speaker Change: Beginning with loans on slide 5. We saw strong growth in the quarter, with average loans up, almost 1% in Period. End loans up, approximately 3%.

Speaker Change: Importantly, loans in most businesses, increased driven by new Loan Production for new and existing customers.

Although average loans in Equity Fund services to climb period, end, Trends were up with an improved outlook for private equity and Venture Capitals in both deal activity as well as fundraising.

Speaker Change: Total commitments increased by 400 million with increases in environmental services and Commercial. Real Estate offsetting decreases in Equity Fund services and total utilization remained relatively unchanged.

Jim Herzog: Pipeline activity was strong, even after closing new opportunities, reflecting continued positive momentum. Average loan yields came down three basis points as the smaller benefit from Visby cessation more than offset the tailwind of a maturing swap portfolio. On slide six, average deposits declined just over 1% with the largest decreases in retail, corporate banking, and technology and life sciences. In select businesses, we continue to see seasonality related to the timing of tax payments, and in others, we saw customers use their funds for working capital or project-related purposes. Non-interest bearing deposits as a percentage of total deposits remain flat at 38% for the fourth consecutive quarter, demonstrating stability in our compelling funding mix.

Speaker Change: Pipeline activity was strong even after closing New Opportunities, reflecting continued positive momentum.

Points as the smaller benefit from Bisbee sensation more than offset the Tailwind that we're maturing swap portfolio.

On slide 6 average deposits decline just over 1% with the largest decreases in retail corporate Banking and technology and life sciences.

And select businesses, we can continue to see seasonality related to the timing of tax payments and in others we saw customers use their funds for working capital or project related purposes.

Speaker Change: Non-interest bearing deposits as a percentage of total deposits remain flat at 38% for the fourth. Consecutive quarter demonstrating stability in our compelling funding mix.

Jim Herzog: Deposit pricing increased four basis points, but as we signaled previously, we expected to see some give back in pricing, and this was in line with our expectations. In fact, with a cumulative beta of 67% since the third quarter of last year, we've still outperformed the betas that we saw on the way up. We intend to remain diligent and agile with our pricing strategy as we monitor the competitive environment and balance our customers' objectives with our funding needs. Our deposit portfolio has long been a key strength of our franchise, and we are continuing to make strategic investments to further enhance this competitive funding source.

Deposit pricing increased 4 basis points that as we signaled previously, we expected to see some give back in pricing, and this was in line with our expectations.

Speaker Change: In fact, with a cumulative beta of 67 since the third quarter of last year, we've still outperformed the betas that we saw on the way up.

Speaker Change: we intend to remain diligent and agile with our pricing strategy as we monitor the competitive environment and balance our customers objectives with our funding needs,

Jim Herzog: Just this quarter, we delivered two new real-time payment solutions, providing additional flexibility for our customers. We feel these success stories are strong proof points of the effectiveness of our strategy and we look forward to sharing more in the future. Our securities portfolio on slide seven defined with paydowns and maturities offsetting lower unrealized losses. We continue to expect AOCI improvement over time with the benefit of ongoing pay downs and maturity.

Speaker Change: our deposit portfolio has long been a key strength of our franchise, and we are continuing to make strategic Investments to further enhance this competitive funding source.

Speaker Change: Just this quarter. We delivered 2. New real-time Payment Solutions. Providing additional flexibility for our customers.

Speaker Change: We filled these success stories or strong proof points of the effectiveness of our strategy and we look forward to sharing more in the future.

Our Securities portfolio on slide, 7 decline with pay downs and maturities offsetting lower unrealized losses.

Jim Herzog: Beyond periodic purchases to replace attrition, we are not currently expecting more meaningful securities reinvestments until late this year. Turning to slide 8, non-interest income remains stable at $575 million for the third consecutive quarter as higher loans offset the impact of deposits. The lower benefit from BISB cessation was effectively offset by one more day in the quarter. Robust loan growth was supported by a seasonally more expensive liability mix, which contributed to a modest two basis point reduction in net interest margin. We continue to see promising trends for net interest income over time, given the structural tailwinds associated with our swap and securities portfolios, coupled with the objective of balance sheet growth.

Speaker Change: We continue to expect aoci improvement over time with the benefit of ongoing pay downs and maturity.

Speaker Change: Beyond periodic purchases to replace attrition. We are not currently expecting more meaningful, Securities reinvestments, until late this year.

Speaker Change: Turning to slide 8 then interest income remains stable at 575 million for the third consecutive quarter as higher loans offset, the impact of deposits.

The lower benefit from Bisbee sensation was effectively offset by 1 more day in the quarter.

Speaker Change: Robust loan growth was supported by a seasonally more expensive, liability mix, which contributed to a modest 2 basis point reduction in net interest margin

We continue to see promising trends for net interest income over time. Given the structural Tailwinds associated, with our Swap and securities portfolios, coupled with the objective of balance sheet growth.

Jim Herzog: Credit quality, shown in slide 9, remained relatively stable. Net charge-offs of 22 basis points were at the low end of our normal range and effectively flat compared to last quarter.

Speaker Change: Credit quality as shown in slide, 9 remain relatively stable.

Melinda Chausse: Persistent inflation and elevated rates continue to pressure customer profitability in certain businesses, driving expected normalization and criticized loans, largely concentrated in middle market this quarter. Non-performing loans declined to the lowest level that we've seen in the last four quarters and remain well below our long-term average.

That charge off of 22 basis points were at the low end of our normal range, and effectively flat compared to last quarter.

Speaker Change: Persistent inflation and elevated rates, continue to pressure, customer profitability in certain businesses drive, an expected, normalization, and criticized loans. Largely concentrated in Middle Market this quarter,

Speaker Change: Non-performing loans declined to the lowest level that we've seen in the last 4, quarters and remain. Well, below our long term average.

Melinda Chausse: Trade policy developments impacted the economic forecasts, but our coverage ratio remained unchanged at 1.44 percent since we accounted for a similar level of risk and uncertainty in our qualitative reserves set last quarter. We believe our proven credit discipline coupled with our relationship model positions as well to support our customers.

Speaker Change: Trade policy developments impacted the economic forecasts. But our coverage ratio remained unchanged at 1.44% since we accounted for a similar level of risk and uncertainty and our qualitative reserves set last quarter.

Speaker Change: We believe our proven credit discipline coupled with our relationship model positions as well to support our customers.

Jim Herzog: On slide 10, second quarter non-interest income increased $20 billion with growth across most customer line items as we saw higher loan volumes, less economic uncertainty, and some seasonal benefits. Capital markets income improved $11 million with higher syndication fees and derivative income, which included increased interest rate hedging and foreign exchange activity, in addition to the quarter over quarter benefit and CBA.

Speaker Change: On slide 10 second quarter non-interest income increased 20 billion dollars with growth across most customer line items. As we saw higher loan volumes, less economic uncertainty and some seasonal benefits.

Speaker Change: Capital markets income, improved 11, million with higher syndication fees, and derivative income, which included increased interest rate hedging, and foreign exchange activity. In addition to the quarter over quarter benefit in CVA

Jim Herzog: Income related to deferred compensation increased but was offset in higher expenses. and fiduciary income did increase seasonally. Overall, we were pleased with the improvement in customer-related fee income and look to sustain this momentum in the future quarters.

Speaker Change: Income related to deferred compensation increased, but was offset in higher expenses.

Speaker Change: in fiduciary income did increase seasonally

overall we were pleased with the Improvement in customer related fee income and looked to sustain this momentum in the future quarters.

Jim Herzog: Expenses on slide 11 decreased $23 million over the prior quarter, largely due to lower litigation-related expenses and salaries and benefits.

Expenses on slide 11, decrease 23 million over the prior quarter, largely due to lower litigation related expenses and salaries and benefits.

Jim Herzog: Seasonal declines related to incentive compensation more than offset higher deferred compensation in merit and credit. We saw a $3 million reduction in expenses from changes in the FDIC special assessment and conversely saw $3 million increases in both outside processing and advertising expenses.

Speaker Change: seasonal, declines related to incentive compensation, more than offset, higher, deferred compensation in Merit increases,

Speaker Change: We saw a $3 million reduction in expenses from changes in the FDIC special assessment, and conversely solve 3. Million dollar increases in both outside processing and advertising expenses.

Jim Herzog: Notable items favorably impacted expenses in the quarter, including net litigation benefits, gain on sale of assets, and an interest recovery for estate tax matters. Recognizing that we may not see the same benefit from notable items in future quarters, we remain disciplined and are focused to drive improved efficiency over time.

Speaker Change: Quarter, including net litigation benefits gain on sale of assets and an interest recovery for estate tax matter.

Speaker Change: recognizing that we may not see the same benefit from notable items in future quarters, we remain disciplined that are focused to drive improved efficiency over time

Jim Herzog: As shown on slide 12, we continue to favor a conservative approach to capital, producing an estimated CET1 of 11.94%, well above our strategic target, even after returning capital to shareholders.

As shown on slide 12, we continue to favor, a conservative approach to Capital producing an estimated E1 of 11.94%. While above our strategic Target, even after returning Capital to shareholders.

Jim Herzog: Our strong capital position afforded us the opportunity to redeem preferred stock, avoiding a more punitive coupon reset, but also resulting in a slight negative drag to EPS this quarter from costs related to the preferred stock redemption. Movement in the forward curve reduced unrealized losses in AOCI, contributing to a 22 basis point improvement in our tangible common equity ratio. Even with a dynamic market, robust loan growth, and the redemption of our preferred stock, we increased our share repurchases to $100 million in the second quarter.

Speaker Change: Our strong Capital position afforded us the opportunity to redeem preferred stock, avoiding a more punitive coupon reset. But also resulting, in a slight negative, drag the EPS this quarter from cost related to the preferred stock Redemption.

Movement in the forward, curve reduced unrealized losses and aoci contributing to a 22 basis, point Improvement and are tangible. Common equity ratio

Speaker Change: Even with the dynamic Market robust loan, growth and the Redemption of our preferred stock, we increase our share of purchases to 100 million dollars in the second quarter.

Jim Herzog: Our outlook for 2025 is on slide 13. We now project full year 2025 average loans to be flat to down 1%, representing an improvement from prior guidance. Although economic uncertainty persists, customers appear to be navigating the environment and beginning to invest in their business. Second quarter results exceeded expectations and pipelines and activity levels remain strong, supporting our outlook for consistent growth in the third and fourth quarters. We expect to see the second half growth across most of our businesses, excluding commercial real estate. Our deposit forecast remains unchanged as we expect four-year average deposits down 2% to 3% in 2025 with relatively flat customer deposits and a deliberate reduction in brokered CDs.

Speaker Change: Our outlook for 2025 is on slide 13.

Speaker Change: We now project 4 year 2025 average loans to be flat to down. 1% representing an improvement from prior guidance.

Although economic uncertainty, persists, customers appear to be navigating the environment and beginning to invest in their businesses.

Speaker Change: Second quarter results, exceeded expectations and pipelines and activity levels remain. Strong, supporting our outlook for consistent. Growth in the third, and fourth quarters.

We expect to see the second half growth of most of our businesses, excluding commercial real estate.

Jim Herzog: We see positive momentum driving a moderate increase in the third quarter balances with a bigger uptick in the fourth quarter, benefiting from core deposit growth and seasonality. Although we anticipate continued success in winning interest-bearing balances, we believe our non-interest-bearing deposit index will remain in the upper 30% range. Based on our current understanding of the transition strategy, we still do not assume direct express deposit attrition within our 2025 outlook. We still project net interest income growth of 5% to 7% in 2025. Loan trends have outperformed expectations, and we expect that to contribute favorably to our outlook.

Speaker Change: Our deposit forecast remains unchanged as we expect fully your average deposits Down 2 to 3%, in 2025, with relatively flat customer deposits. And a deliberate reduction in brokerage CDs.

Speaker Change: We see positive momentum, driving a moderate increase. In the third quarter, balances with a bigger uptick, in the fourth quarter, benefiting from core deposit, growth and seasonality.

Speaker Change: Although we anticipate continued success in winning interest-bearing balances, we believe our non-interest bearing deposit. Mix will remain in the upper 30% range.

Speaker Change: Based on our current understanding of the transition strategy, we still do not assume Direct Express deposit attrition within our 2025 Outlook.

Speaker Change: We still protecting that interest income growth of 5 to 7% in 2025.

Speaker Change: Lung Trends, have outperformed expectations. And we expect that to contribute favorably to our Outlook.

Jim Herzog: However, we believe deposit trends may offset that benefit, as we have seen slightly lower non-interest bearing balances with a continued high rate environment. Further, we expect upward pressure on deposit pricing as we fund robust loan growth and successfully execute on our strategic deposit growth initiatives. Lastly, while the redemption of preferred stock will be accretive to EPS, it does create a slight crag on net interest income as we lose the benefit of the cash used for redemption. Although we expect these factors contribute to a slight decline in third quarter net interest income relative to the second quarter, which may push our four-year results to the lower end of our five to seven percent range.

Speaker Change: However, we believe deposit Trends May offset that benefit as we have seen slightly lower non-interest bearing, balances with the continued High rate environment.

Speaker Change: Further, we expect upward pressure on deposit pricing as we fund robust loan growth and successfully execute on our strategic deposit growth initiative.

Speaker Change: Lastly, while the Redemption of a preferred stock will be accredited to EPS, it does create a slight trade on net interest income as we lose the benefit of the cash used for Redemption.

Speaker Change: Although, we expect these factors contribute to a slight decline in third quarter, net interest income relative to the second quarter, which may push our full year results to the lower end of our 5 to 7% range.

Jim Herzog: We continue to expect four-year 2025 non-express income to grow 2%. We saw favorable trends this quarter, and we anticipate continued momentum in customer-related fees in the second half of the year. Given the second quarter benefits of deferred compensation and CBA within capital markets, we expect third quarter to be relatively flat, but that still assumes customer related growth quarter over quarter. Our outlook for four-year 2025 non-interest expenses improved as we now project only 2% growth year-over-year with the benefit of strong expense performance year-to-date. As we look at the second half of 2025, we expect to see an increase in the third quarter driven largely by the impact of second quarter notable items. Seasonality, Inflationary Pressures, and our ongoing strategic focus to drive revenue.

Speaker Change: We continue to expect 4 year 2025 non-first income to grow 2%.

We saw a favorable Trends this quarter and we anticipate continued momentum in customer related fees in the second half of the year.

Speaker Change: Given the second quarter benefits of deferred compensation. And CVA within Capital markets, we expect the third quarter to be relatively flat but that's still assumes customer related growth quarter over quarter.

Our outlook for full year 2025 9006 expenses improved as we now project only 2% growth year-over-year with a benefit of strong expense performance year to date.

Speaker Change: As we look at the second half of 2025, we expect to see an increase in the third quarter driven largely, by the impact of second quarter notable items.

Speaker Change: Seasonality inflationary pressures and our ongoing strategic Focus to drive Revenue.

Jim Herzog: We believe the fourth quarter will be relatively flat to the third quarter, and we remain committed to driving efficiency as we balance longer-term growth and return objectives with prudent expense control. Considering our strong credit metrics, proven underwriting approach, and consistent portfolio monitoring, we continue to expect four-year net charge-offs to be in the lower end of our normal 20 to 40 basis point range. Looking at taxes, we saw an improvement in our anticipated 2025 tax rate, now down to approximately 22% excluding discrete items. Moving to capital, we appreciate the flexibility that our conservative capital position affords us, and we intend to maintain a CET1 ratio well above our 10% strategic target throughout 2025.

We believe the fourth quarter will be relatively flat to the third quarter. And we remain committed to driving efficiency as we balance longer term growth and return objectives with prudent expense control.

Speaker Change: Considering our strong credit metrics proven underwriting approach and consistent portfolio. Monitoring we continue to expect for your net. Charge offs to be in the lower end of our normal, 20 to 40 basis, point range,

Moving the capital, we appreciate the flexibility. That our conservative Capital position, affords us, and we intend to maintain a cet1 ratio while above our 10%, strategic Target throughout 2025.

Jim Herzog: With an estimated CET1 at just under 12%, we feel we have ample capacity to continue share repurchases, and we intend to repurchase approximately $100 million of common stock in the third quarter. As we consider future capital decisions, we intend to continue our measured approach, calibrating the size and frequency of future repurchases with expected loan trends. We also plan to monitor the economic environment, our profitability in the regulatory landscape as these factors can also influence our strategy.

With an estimated cet1, just under 12%, we feel we've ample capacity to continue share repurchases and we intend to repurchase approximately 100 million dollars of common stock in the third quarter.

Speaker Change: As we consider future Capital decisions, we intend to continue our measured approach calibrating the size and frequency of future repurchases with expected loan trends.

Speaker Change: We also plan to monitor the economic environment or profitability in the regulatory landscape, as these factors may also influence or strategy.

Jim Herzog: Overall, we expect continued momentum to drive balance sheet growth while maintaining strong capital, which together position us to drive favorable returns over time.

Kurt Farmer: Now I'll turn the call back to Kurt. Thank you, Jim.

Overall, we expect continued momentum to drive balance sheet growth while maintaining strong Capital which together position us to drive favorable returns over time.

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

Kurt Farmer: As I mentioned in my opening remarks, we are incredibly proud of this quarter's results. We feel our conservative capital, credit, and equity management provide a solid foundation to consistently support our customers. Further, with our orientation towards great markets, proven commercial model, and long tenured customer relationships, we feel well-positioned to grow alongside the economy as customer demand continues to increase. We saw evidence of that this quarter. We expect to benefit from the maturities of our swaps and securities portfolios, which create a structural tailwind to net interest income over the next several years.

Kurt: Thank you, Jim. As I mentioned, in my opening remarks, we are incredibly proud of this quarter's results.

We fill our conservative, Capital, Credit, and liquidity management provide a solid foundation to consistently support our customers.

Kurt: Further with our orientation towards growth markets, proven commercial model and long tenure customer relationships. We felt well positioned to grow alongside the economy as the customer demand continues to increase.

Kurt: We saw evidence of that, this quarter.

Kurt Farmer: On top of that, we are continuing to invest strategically in our business to drive responsible growth aligned with our strategy. Earlier this year, we shared tangible examples of investments in small business, middle market, business banking, and payment. And we outlined what we see as potential growth opportunities stemming from those investors. We've already driven successful outcomes from our efforts, with a few examples highlighted just this quarter, and we look forward to demonstrating the additional growth potential we see in our business in the coming quarters.

Kurt: We expect to benefit from the maturities of our swaps and securities portfolios which create a structural Tailwind to net interest income over the next several years.

On top of that, we are continuing to invest strategically in our business to drive responsible growth aligned with our strategy.

earlier this year we shared tangible examples of investments in small business, Middle Market, business banking, and payments

And we outlined what we see as potential growth opportunities stemming from those Investments.

We've already driven successful outcomes from our efforts with a few examples, highlighted just this quarter. And we look forward to demonstrating the additional growth potential. We see in our business, in the coming quarters

Kurt Farmer: Before we go to Q&A, I would like to take just a moment to acknowledge the immense loss of life related to the catastrophic flooding that occurred in Central Texas earlier this month. Our thoughts are with the families and communities devastated by this tragic event.

before we go to Q&A, I would like to take just a moment to acknowledge the immense loss of life related to the catastrophic flooding that occurred in Central, Texas earlier this month.

Kurt Farmer: With that, we'd be happy to take your questions. Thank you.

Our thoughts are with the families and Community devastated by this tragic event.

With that. We'd be happy to take your questions.

Operator: Ladies and gentlemen, we will now be conducting our question and answer session. We ask that you please limit yourself to one question and one follow-up, and then re-queue for any additional questions. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Once again, that is star one to ask a question at this time.

Thank you.

Speaker Change: Ladies and gentlemen, we will now be conducting.

Speaker Change: Anyone follow up and then reach you for any additional questions.

Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate that your line is in the question queue.

You may press star 2 if you would like to remove yourself from the queue.

Manan Gosalia: Our first question is coming from the line of Manan Gosalia with Morgan Stanley. Please proceed with your question. Morning, good morning. Hey, good morning all. I wanted to start on the NII trajectory. It seems like you're implying that NII will be down in 3Q and then up in the fourth quarter. So I was wondering if you could give us some more color on that.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keys. Once again, that is star 1 to ask a question at this time.

Speaker Change: Our first question is coming from the line of manang, gosalia with Morgan Stanley, please proceed with your question.

manang gosalia: Morning, good morning. Hey. Hey, good morning all. Um, I wanted to uh start on the knee trajectory. Um it seems like you're you're you're implying that knee will be down in 3 q and then up in the fourth quarter. So I was wondering if you could uh give us some more color on that.

Jim Herzog: Yes, good morning, Manan. It's Jim happy to go through some of those primary drivers. You know, as you said, we do expect a slight decrease in Q3 before continuing an upward trajectory in Q4, which, of course, we will continue to see go upward, I think, as we move through 2026.

Yes. Uh, good morning Manan. It's Jim happy to go through some of those primary drivers.

Jim Herzog: But we do have some particular events occurring in the third quarter that maybe I can just cover at a high level. Number one, I think it's important to understand the tailwinds that we continue to have in Q3 and beyond. You know, the first is loan growth, which we expect to be strong in the foreseeable future. And that's not just in the results, but we see that in the pipeline also. You know, the second is we do expect to benefit from stronger deposits, both in the third quarter and beyond. And that's important because that will help fund our loan growth.

manang gosalia: You know, we as you said, we do expect a slight decrease in Q3 before continuing on upward trajectory, in Q4 which, of course, we will continue to see go upward. I think, as we move through 2026,

manang gosalia: Um but we do have some particular events occurring in the third quarter that maybe I can just cover at a high level.

manang gosalia: Um, number 1, I think it's important to understand the Tailwinds that we can continue to have in Q3 and Beyond, you know, the first is loan growth, which we expect to be strong in the foreseeable future. Uh, and that's not just in the results, but we see that in the pipeline also,

Jim Herzog: And the third is just the continued maturity of our swaps and securities. And that will continue for many quarters to come. So those are positives that we'll see both in the third quarter and will continue.

manang gosalia: You know, the second is, we do expect the benefit from stronger, deposits, both in the third quarter and Beyond, and that's important because that will help fund our loan growth.

manang gosalia: And the third is just to continue maturity of our swaps and securities and that will continue for many quarters to come. So those are positives that we'll see both in the third quarter and will continue.

Jim Herzog: But we do have some headwinds in the third quarter. And we think they may more than offset the tailwinds, but importantly, we think these are just for the third quarter. And then we think the tailwinds take back over the fourth quarter. You know, the first of these is the redemption of our preferred stock. And as I mentioned in the comments, we do think this is a prudent move and it does benefit EPS. But that benefit is below the net income line. So net interest income will be missing the cash that we use for that redemption.

manang gosalia: But we do have some headwinds in the third quarter.

Um, and we think they may more than offset the Tailwind. But importantly, we think these are just for the third quarter and then we think the Tailwind take back over the fourth quarter.

manang gosalia: You know, the first of these is the Redemption of our preferred stock. And as I mentioned in the comments, we do think this is a prudent move and it does benefit the eps.

But that benefit is below the net income line. So a net interest income will be missing the cash that we use for that Redemption.

Jim Herzog: The second is pay rates on deposits. You know, we are expecting deposits to fund very strong loan growth, and we want to make sure we're prepared for that. But we do expect pay rates to take a larger step up in the third quarter compared to the second. And I'll maybe break that into two components. About half of that pay rate increase is an increase in selected consumer pay rates that we made towards the end of the second quarter, which is really just us staying dialed into the market and calibrating our strategy with the rate curve, which has been pushed out, as well as considering our loan growth that we expect and other factors.

manang gosalia: The second is pay rates on deposits. You know, we are expecting deposits to fund, very strong loan growth and we want to make sure we're prepared for that.

manang gosalia: Um, but we do expect pay rates to take a larger step up in the third quarter, compared to the second and I'll maybe break that into 2 components.

manang gosalia: About half of that pay rate, increase is an increase in selected consumer, pay rates that we made towards the end of the second quarter.

Jim Herzog: The other half of the increase is we do expect to be very successful in obtaining new customers and deposits in both third and fourth quarters, but in some cases these deposits are likely to look more like an index type rate, and while they are more expensive than our traditional deposits, we do welcome them as a proactive way to fund what we think will be very robust loan growth in the future. But none of all this is that pay rates will likely step up in the third quarter to at least twice the increase of the four BIPs that you saw in Q2, and that's assuming a flat rate environment.

manang gosalia: Um, which is really just us staying down into the market and calibrating our strategy through the rate curve, which has been pushed out, um, as well as considering our loan growth, um, that we expect in other factors.

manang gosalia: Uh, the other half of the increase is we do expect to be very successful in. Obtaining new customers and deposits in both third and fourth quarters. Uh, but in some cases, these deposits are likely to look more like an index type rate. And while they are more expensive than our traditional deposits, we do welcome them as a proactive way to fund what we think will be very robust loan growth in the future.

manang gosalia: The debt of all this is that paid rates will likely step up in the third quarter to at least twice the increase of the 4 bits that you saw in Q2 and that's assuming a flat rate environment.

Jim Herzog: Now, regarding beta, it's totally independent of these increases I just talked about. You know, we do expect to have maybe a little bit less than our standard beta for the first FOMC reduction. And just a reminder, we do use the forward curve as a quarter end.

Jim Herzog: And then I might just refer you back to my opening comments for maybe some smaller drivers. But again, I'd reinforce, once we get past the third quarter, we do expect net interest income to be on an upward trajectory as we continue to grow both loans and deposits. And we would expect deposit pay rates to settle down and betas to return back to normal once we get into the fourth quarter. So that's really some of the mechanics.

manang gosalia: Now, regarding beta is totally independent of these increases. I just talked about, you know, we do expect to have a maybe a little bit less than our standard beta for the first fomc reduction. And just a reminder, we do use the forward curve as of quarter end.

manang gosalia: Um, and then I might just refer you back to my opening comments for maybe some smaller drivers.

manang gosalia: Uh but again I'd reinforced once we get past the third quarter, we do expect that interest income to be on an upward trajectory um as we continue to grow both loans and deposits and we would expect deposit pay rates to settle down and betas to return back to normal once we get in the fourth quarter.

Peter Sefzik: Peter, I don't know if there's any color that you want to add there.

manang gosalia: So that's really some of the mechanics. Um,

Peter Sefzik: Well, I might just add, Manan, that, I mean, we're having really good success growing deposits. And a lot of those, as of late, tend to be interest-bearing opportunities with some of the work that we've been doing in our businesses.

Peter Sefzik: And I think the third quarter is probably a little bit of an inflection point. We feel good about what we look like on the other side of it. And we think it's more important to bring on deposits and fund our loan growth than to be necessarily worrying too much about, you know, whether or not those are interest-bearing or non-interest-bearing. And that's a little bit of where the timing is right now. So, I mean, we view it as a positive outlook about how things are growing for the company.

Speaker Change: The, I don't know if there's any color that you want to add there. Well, I, I might just add them on the, I mean, we're having really good. Good success growing deposits and a lot of those. Um, as of late, tend to be interesting opportunities, um, with some of the work that we've been doing in our businesses and I think the third quarter is probably a little bit of an inflection point. Um, we feel good about what we look like on the other side of it and we think it's more important to bring on deposits and fund our loan growth um, than to be necessarily worrying. Too much about, um, you know whether or not those are interest bearing or not just bearing and that's a little bit of where the timing is right now. So I mean, we view it as a positive outlook about how things are growing for the company.

Manan Gosalia: And really, I'd say getting ready for 2026 and beyond, just having a good granular deposit base. This is really a good long-term move, we think. Got it. Okay, that's very thorough. I appreciate that.

And really, I say getting ready for 2026 and Beyond, just having that good granular deposit base, this is really a good long-term movie think. Yep.

Jim Herzog: Maybe if I can ask the same question on the expense side. The guidance implies, I think, if I'm calculating correctly, a $600 million expense number, roughly, for 3Q and 4Q. And that's a meaningful step up versus 2Q, even if you adjust for some of those one-timers in there.

Jim Herzog: I was wondering if you could help us with how you're thinking about the expense side. Yeah, it's Jim again. Yeah, your math is essentially correct. Let's keep in mind that we did have an incredible second quarter on expenses, you know, beating our outlook and consensus significantly. And some of that, as you say, and I mentioned earlier, was due to the notable items that we outlined on the expense slide. I would say there was some project expense that was deferred from the second quarter to the second half of the year. And so as I look at the increase in the second quarter to the third, you know, notable items, assume not to repeat, is the largest component of that, as we outlined in the slide.

Speaker Change: Got it. Okay. That that's very sorry. I appreciate that. Um, maybe if I can ask the same question, on the expense side, um, it the, the guidance implies, I think, if I'm calculating correctly is 600 million expense number roughly for 3 q and 4 q. Um, and that's a meaningful Step Up versus, uh, 2 Q. Even if you adjust for some of those, um, 1 time was in there. Um, I was wondering if you could help us with, um, uh, how you're thinking about the expense side as well.

Jim Herzog: But we also do have some seasonalities we typically do in the third quarter and some inflation. And then we do continue to step up our investments for revenue, some of which were simply deferred from the second quarter to the second half of the year.

Speaker Change: Yeah. Uh it's Jim again. Yeah your math is essentially correct. Um let's keep in mind that we did have an incredible setting quarter on expenses. You know, beating our Outlook and consensus significantly. And some of that is you say and I mentioned earlier was due to the notable items that we outlined on the expense slide. I would I would say there was some project expense that was deferred from the second quarter to the second half of the year. And so as I look at the increase in the second quarter to the third, you know, notable items assumed not to repeat is the largest component of that um, as we outlined in the slide. Um, but we also do have some seasonals we typically do in the third quarter and some inflation. And then we do continue to step up our investments for Revenue, some of, which were simply deferred from the second quarter to the second half of the year.

Jim Herzog: So hopefully that it gives you a little bit of feel for why we're stepping up and really not out of sync with what we saw for the entire year actually some nice Decreases that we'll pocket for the second quarter, but we still want to continue with the same projects and investment that we'd always originally anticipated. That's great. Thanks so much. Thank you.

Speaker Change: Um, so hopefully that gives you a little bit of feel for why we're stepping up and really not out of sync, with what we saw for the entire year. Actually some nice

Speaker Change: Uh, decreases that will pocket for the second quarter, uh but we still want to continue with the same projects and investment the way to always originally anticipated.

Speaker Change: That that's great. Thanks so much.

John Arfstrom: Our next question is coming from the line of John Arfstrom with RBC Capital Markets. Please proceed with your question. Good morning, John. Hey, good morning.

Speaker Change: Thank you. Our next question.

John Armstrong: Thank you. Our next question is coming from the line of John Armstrong with RBC Capital markets. Please proceed with your questions morning. John. Hey hey, good morning. Um,

Peter Sefzik: I've heard of Jim or Peter. You referenced it, but can you give us a little bit more on the pipelines and activity? It sounds like things are a lot better, but is there a way to quantify it? and, you know, how should we think about longer term? loan growth potential beyond maybe a quarter or two.

Curtis Jim or Peter you referenced it. But can you give us a little bit more on the pipelines and activity? It sounds like things are a lot better, but is there a way to quantify it?

Peter Sefzik: Yeah, John, it's Peter. So, quantifying it, probably a little harder to do, but I would say that from the last quarter, definitely seems like we've seen improvement. So our manager surveys came in more positive, which we thought they would, and I articulated at the conference earlier this quarter. So pretty much across the board, we saw some really good uptick in loan growth. Our pipelines grew, and we're feeling pretty good about the second half of the year. So despite a lot of the things that you feel like you're hearing across the country, there certainly seems to be noise, but I think your average middle market customer base is progressing forward and figuring out how to navigate it.

John Armstrong: And um you know how how should we think about longer Term Loan, growth potential Beyond, maybe a quarter or 2?

um,

John Armstrong: quantifying it, uh, probably a little harder to do, uh, but I would say that from the last quarter, definitely seems like we've seen improvements. So our, our manager surveys came in more positive, which we, we thought they would. Um,

Peter Sefzik: I'm a little hesitant to talk about 2026. We're not putting out any sort of outlooks for 2026, but I would say that it feels like momentum is picking up across the board for us. And so I think that we'll continue to see good loan growth throughout the year. And again, I feel like we benefit from being in some great markets. We've got a great, diverse geographic base. You have seen some of the impacts in Michigan to the economy, to the auto space, but I don't know that that's been a terribly strong headwind for us. So, you know, really across the board, I think we feel pretty good about it.

John Armstrong: I articulated uh at the conference earlier this quarter. So pretty much the board. Um we saw some really good uptick in loan growth, our pipelines grew and we're feeling pretty good about the second half of the year. So you know, despite a lot of the things that uh you feel like you're hearing across uh the country and their certain seems to be noise. But I think our, your average Middle Market. Customer base is progressing forward and figuring out how to navigate it. I'm a little hesitant to talk about 2026. We're not putting out any sort of outlooks for 26, but you know, I would say that it feels um, like momentum is picking up across the board for us.

So I think that we'll continue to see good loan growth um throughout the year and and again I I feel like we're we benefit from being in some great markets. Uh, we've got a great diverse Geographic base.

Peter Sefzik: If I were to try to quantify it, John, I would say, you know, we're still not back to kind of pre-SVB pipeline numbers, but we are going in that direction. And I would say it probably feels better than it has in a while as far as the activity level since the SVB situation. And so hopefully that continues absent, you know, some sort of major event in the economy that we don't see at the moment.

Speaker Change: You have seen some of the uh impacts in Michigan, to the economy to the auto space. But I don't know that that's been a terribly strong headwind for us. So, you know, really across the board. I think we feel pretty good about it. If I were to try to quantify it, John I would say. Um, you know, we're still not back to kind of pre svb pipeline numbers, um, but we are going in that direction

Speaker Change: Direction. And I would say it probably feels better, um, than it has in a while as far as the activity level since, uh, the SBB situation. And, um, so hopefully that continues absent, you know, some sort of major event in the economy that we, we don't see at the moment.

John Arfstrom: Okay, good, that's helpful.

Speaker Change: Okay good. That's helpful.

Jim Herzog: And then Jim, back on net interest income with some of your comments, your prepared comments. and the Preferred Redemption. You pointed us to the lower end, the 5% to 7% range.

Speaker Change: Um and then Jim uh back on that interest income with some of your your comments. Uh your prepared comments.

Jim Herzog: How do you get off that 5%? What needs to happen? generate NII growth that's maybe midpoint or higher in the range.

Speaker Change: And the preferred Redemption you pointed us to the lower end the 5 to 7% range. Um how do you get off that 5%? What needs to happen to generate knee growth? That's maybe midpoint or higher in the range? Thank you.

Jim Herzog: You know, John, if you're talking shorter term, you know, this outlook doesn't necessarily contemplate a preferred issuance. We're being very patient there. Obviously, that would help. But I continue to say in this rate environment, you know, probably in the short term, I think that non-transparent deposits is still very much an X factor. So I would say seeing some stability and an inflection point in non-transparent deposits, which is something we and, from what I kind of waiting for, I think that would be probably the biggest X factor out there.

Um, you know, John, if you're talking shorter term, um, you know, this Outlook doesn't necessarily contemplate, a preferred issuance for being very patient there, obviously, that would help. But I can continue to say in this rate environment, you know, probably in these short, uh, terms. I think that non interest bearing deposits is still very much an X Factor, so, I would say seen some stability in an inflection point in a non-repairable,

John Arfstrom: All right, thank you very much. Thanks, John. Thank you.

Speaker Change: Okay.

Speaker Change: All right. Thank you very much. Thanks John.

David George: The next question is coming from the line of David George with Baird. Please proceed with your question. Morning, David. Hey, guys. Good morning. Hey, question for Kurt. You know, I agree, Kurt, with a lot of things you said about Comerica as it relates to your reputation in the market. You've got experienced bankers. You didn't need to raise capital during the GFC, so a lot of great things about your company. And it's funny, I was going through my file this morning, just looking at your quarter, and I found my initiation report about my last firm. It was October 6th of 2000, obviously a long time ago.

Speaker Change: Thank you. The next question is coming from the line of David George with beard. Please proceed with your question morning. David. Hey guys, hey guys. Good morning. Hey question for Kurt. Um, you know, I agree Kurt with a lot of things. You said about uh, Comerica as it relates to the your reputation in the market, you've got experienced bankers.

David George: The stock hit 60, was $61 that day, and today, 25 years later, we're at 62. And then if I look at kind of where you were in 2018-19, the stock is down 30%, 25-30%. Revenues are down and expenses are up.

David George: So I just want to kind of understand from you what your plan is and what the board's plan is to improve the performance of the company. And obviously, there's a market today, obviously, with Huntington doing a deal in Texas, there's a pretty substantial private market for banks in your backyard. So just kind of how you're thinking about... Longer-term Improvement of Performance and Enhancing Shareholder Value. Thanks. Thanks, David.

Speaker Change: You didn't need to raise Capital during the GFC. So a lot of great things about your company and and it's funny I was going through my file this morning. Just looking at your quarter and I found my initiation report um, that my last firm and it was October 6th of 2000. And obviously a long time ago, stock hit 60 was 61 dollars that day. And today, 25 years later, we're at 62, um, and then, if I look at kind of where you were in 2018, 19, the stock is down, 30% 25, 30%, revenues are down and expenses are up.

So, I just want to kind of understand from you or what your plan is, and what the board's plan is to improve the performance of the company, and obviously there's a market today obviously, but Huntington doing a deal in Texas. There's a pretty substantial private market for banks in your backyard. So just kind of how you're thinking about longer term, improvement of performance and enhancing shareholder value. Thanks,

Kurt Farmer: That was a lot of information in that question, but let me try to address it for you. First of all, if you go back to 2018-19, those were good years for our company and stock performance. And if you look sort of forward from there, I think everyone's aware of the hurdles that the whole world faced and certainly the regional banks faced and we faced as well between COVID and then the significant buildup that we saw in quantitative easing and just the governmental programs that were driving deposits, which was really a peak for us. And we sort of saw record performance in 2022 heading into 2023.

Kurt Farmer: And then we had the regional bank crisis. And we, along with others, saw some rationalization in assets as deposits came down. And then we exited a business line mortgage banker finance and did some rationalization across the rest of our portfolio. So we've been in a bit of a rebuilding phase since that time. And as we pointed out on the call already, we're seeing nice long growth, got a good fee income quarter as well, feel really good about sort of our deposit position and ability to fund our lending activity going forward. We're very excited about the structural tailwinds that we've got on the NII from a forward perspective.

Kurt Farmer: Kurt, I'm sorry to interrupt. Your loans have been flat for decades. David, again, I would go back to what I said earlier, that if you look at the last five years, which I think is what you were pointing out, I can't speak as much to the 10-year prior period of time, but we did do some rationalization in the portfolio, which brought down long growth, and I can't go back and sort of recast that. It was what we needed to do at the moment. But you are seeing nice growth in the portfolio now, and I think that's what we're going to lean into.

Speaker Change: And we sort of saw a record performance in 2022 heading into 2023 and then we had the Regional Bank crisis and uh we along with others, saw some rationalization and assets as deposits came down and then we exited a business line, mortgage Banker, finance and did some rationalization across the rest of our portfolio. So we've been in a bit of a rebuilding, uh, phase, uh, since that time and as we pointed out on the call already, uh we're seeing nice long growth. Got a good fee, income quarter as well. Feel really good about sort of our deposit uh, position and ability to fund our our lending activity going forward. Uh, we're very excited about the structural Tailwinds that we've got on knee from a Ford. I'm sorry, I'm sorry to interrupt. Your loans have been flat for decade.

Kurt Farmer: And some of the expenses that you're seeing for us is really a fact that we are trying to invest in the business for growth longer term, including our expansion into some new markets, our investment in payments and treasury management, wealth management, some of the other things that we've been doing, capital markets. And we believe that if you look at the efficiency ratio, it improved for the quarter. We generated a nice ROE for the quarter, and we're going to Again, efficiency is going the wrong direction. Okay, and you're and you're happy with the performance and so forth.

Speaker Change: David again, I would go back to what I said earlier. Um, that, um, if you look at the last 5 years, which I think is what you were pointing out. I can't speak as much to the the 10 year, prior period of time, but uh, we did do some rationalization in the portfolio, uh, which brought down long growth and, um, I can't go back and sort of recast that it was what we needed to do at the moment. Uh, but we are seeing nice growth in the portfolio now and I think that's what we're going to lean into and some of the expenses that you're seeing for us is really a, a fact that we are trying to invest in the business for growth longer term, including our expansion, into some, new markets, and investment in um our investment in

Speaker Change: Payments and treasury management, wealth management. Some of the other things that we've been doing Capital markets.

Speaker Change: Uh, and we believe that you look at the efficiency ratio. It improved for the quarter. Uh we generated an is Roe for, for the quarter. And uh we're going to lean into those things when we go forward. Go forward basis.

Kurt Farmer: And the board is as well. David, I'm always focused on improving performance across the company, and we are always focused on how we can make sure that we're generating positive operating leverage and improving overall all of our performance metrics across the company. Okay, sounds great.

Speaker Change: Again, efficiency is going the wrong direction. Okay? And you're and you're happy with the performance and so forth on the board is as well.

Speaker Change: David I'm always uh focused on improving and for performance across across the company and we are always focused on how we can make sure that we're generating positive operating leverage and improving over all of our overall, all of our performance metrics across the company.

Speaker Change: Okay, sounds great.

David George: Thank you.

Bernard Von Gizycki: Our next question is coming from the line of Bernard von Gizycki with Deutsche Bank. Please proceed with your question. Hey guys, good morning.

Speaker Change: Thank you. Our next question is coming from the line of Bernhard, Von gazik with Deutsche Bank, please proceed with your questions.

Kurt Farmer: So just on if the $100 billion asset threshold on Cat 4 is moved based on inflation and gets, say, $130 billion, or gets moved to $250 billion, how would either one of these ranges impact your willingness and timeline to pursue a whole bank acquisition if that's in play? Thank you, Bernard. I just would say that, and I've said this consistently the last couple years, the $100 billion threshold for us is not a governor as to whether we would look at a transaction or not. We believe that the right thing for our shareholders is to continue to grow the company.

Speaker Change: Uh, Hey guys, good morning. Uh, so just on uh if if the 100 billion asset threshold on cap 4 is moved, um, based on inflation, it gets say 130 billion or gets moved to 250 billion. How would you either 1 of these ranges impact your willingness and timeline to pursue a whole Bank acquisition? If that's um uh in play?

Thank you, Bernard. Um, I just would say that and I've said this consistently the last couple years. The hundred billion dollar threshold for us is not a governor as to whether we would look at a transaction or not.

Kurt Farmer: And we've been focused on organic growth and feel like we're seeing good organic opportunities across the enterprise. We've been a patient acquirer, something which still has to make a lot of strategic sense for us, be aligned with one of our primary geographies, be a good cultural fit, et cetera. So we're aware of the landscape and will continue to be aware of the landscape, but believe that we've got good growth dynamics based on organic as our primary focus.

Speaker Change: Uh, we believe that the right thing for our shareholders has continued to grow the company and we've been focused on organic growth and feel like we're seeing good organic opportunities across the Enterprise. We've been a patient acquire something, which still have to make a lot of strategic sense for us. Be aligned with 1 of our primary geographies via good cultural fit, Etc. Uh, so we're aware of the landscape and we'll continue to be aware of the the landscape, but believe that we've got good growth Dynamics based on organic as our primary focus.

Kurt Farmer: Okay, and just as a follow-up, you know, you noted some seasonality in deposits during the quarter, and I think you pointed out the customer utilization of funds for funding capital investments. Do you expect to see clients utilize deposit funds of, like, kind of in the second half? Like, what are you hearing or expecting on this front? You know, Bernard, I think you may see a little bit of that still in this higher-rate environment, but when I look at both some of the initiatives we have going on for deposit gathering, as well as seasonality, I do think that some of that use of funds will probably get kind of drowned out in the noise, so I don't expect it to be a significant factor, you know, going forward.

Speaker Change: Okay. And just as a follow up, um, you know, you noted some seasonality in deposits during the quarter and I think you pointed out the customer utilization of funds, uh, for funding Capital Investments, do you expect to see clients utilize the positive funds? Um like kind of in the second half? Like what are you hearing or expecting on this front?

Speaker Change: You know, Bernard I, I think you may see a little bit of that still on this higher rate environment. But when I look at both some of the initiatives we have going on for deposit Gathering, um, as well as seasonality, um, I do think that some of that use of funds will probably get kind of drowned out in the noise.

Kurt Farmer: You know, we'll continue to monitor that, but we did have an inflection point in the second quarter. I will point out that June was higher than May, so the seasonality did, as well as the use of funds netting against with that, you know, did continue maybe a little later than I would have hoped for, but again, we saw an inflection point halfway through the quarter, and it just feels like we have some really good trajectory, and I'll just say, even as I look at the first half of July, that seems to continue, so I think we've kind of moved past a lot of it, and I think some of these positive tailwinds with deposits will probably drown out any use of funds going forward is what I'm kind of seeing.

Mike Mayo: Thank you. Okay, great. Thanks for taking my question. Thank you.

Speaker Change: So I don't expect it to be a, a significant factor, you know, going forward, you know, we'll continue to monitor that but we did have an inflection point in the second quarter. I will point out that June was higher than May. So the seasonality did as well as the use of funds netting against with that, you know, did continue maybe a little later than I would have hoped for. But again, we saw an inflection point halfway through the quarter, and it just feels like we have some really good trajectory, and I'll just say, even as I look at, uh, the first half of July that seems to continue. So I think we've kind of moved past a lot of it. And I think some of these positive Tailwinds, with deposits will probably drowned out any use of funds, uh, going forward is what I'm kind of seeing here.

Speaker Change: Okay. Great. Thanks for taking my questions.

Speaker Change: Thank you.

Mike Mayo: The next question is coming from the line of Mike Mayo with Wells Fargo. Please proceed with your question. Good morning, Mike. The short question is, on the first quarter call, Curt, you repeated, as you've done several times, that Comerica has to earn its right to be independent every day, and that makes sense.

Speaker Change: Thank you. The next question is coming from the line of Mike Mayo with Wells, Fargo, please proceed with your question.

Kurt Farmer: So under what conditions would you say that Comerica has not earned the right to remain independent every day? And this is part of the whole industry debate of skill versus scale, and, you know, I guess you've had 175 years at Comerica, and the question is, at what point do you say, you know what, we need to scale this up? The longer version of this question is, as you know, I think you were in the room, Curt, when I came to the annual meeting a decade ago, and there were like five to 10 other institutional investors in the room, and I asked the same question, and I recognize your comments today that, you know, you're rebuilding, you have some tailwinds, quarter to quarter EPS is up, loan growth is up, period end loans are up, but when you just look at the data objectively, you say your efficiency ratio is still worst in class, 68% year to date, that's where it was when I came to the meeting a decade ago, the returns are about worst in class, only better than Citigroup, which Unfortunately, I recommend still, so it's not always the death knell, but the stock performance, as was brought up earlier, has also underperformed, and I always stack rank the...

The short question is on the first quarter call, Kurt you repeated as you've done several times, that America has to earn its right to be independent every day. Uh that makes sense. Uh so I wonder what conditions would you say that America has not earned the right to remain independent every day and this is part of the whole industry debate of skill versus scale. And um, you know, I guess you've had 135 years at America

And the question is, at what point do you say, you know what, we need to scale this up the longer version of this question is, as you know, I think you were in the room. Kurt when I came to, the annual meeting a decade ago. And there are like 5 to 10, other institutional investors in the room. And I asked the same question uh and I recognize your comments today that you know, you rebuilding, you have some Tailwinds quarter over quarter EPS is up more growth is up period end loans are up. Uh but when you just look at the data objectively, you say, your efficiency ratio is still

Speaker Change: Worst in class, 68% year to date. That's where it was. When I was came to, the meeting, a, a decade ago, the returns are about worst in class only better than than City Group, which

Kurt Farmer: I've done this for 25 years. I stack rank the CEO stock performance versus the BKX, and unfortunately, Kurt, you're at the bottom by a big margin. Since you arrived, the stock's down 21%, the BKX is up 43%, the S&P is up a lot more. Maybe the market's really missing a story here, maybe you're about to have a hockey stick improvement.

Kurt Farmer: If you could just educate me on why, a decade later, America has continued to earn the right to remain independent. Thank you.

Um, coincidentally, I I recommend to also it's not always the death now but the stock reforms as it was brought up earlier, uh, has also underperformed and I always stack rank. The, I've done this for 25 years, I've stacked ranked the, the CEO stock performance versus the btx, and unfortunately, for your the, the Bottom by a big margin. Um, since you arrived, the stocks down, 21%, the bkx up 43%, the S&P is up a lot more, so maybe the Market's really missing the story here, maybe you're about to have a hockey stick Improvement. Um, so if you could just educate me on, uh why you know, decade? Later America has continued to earn the right to remain independent. Thank you.

Kurt Farmer: Mike, that's a lot as well in your question there, but I'll try to respond to it here. I'd go back to what I said earlier and you echoed, which is that we are always aware of the need to perform at an acceptable level and relative to our peer group and relative to the market overall. And certainly the regional bank space as well as the bank space across the board has had some volatility in equity performance this year, but we've seen a nice rebound in the last 60 days or so as the KBW and the KRE has as well.

Speaker Change: Mike. That's a a lot as well in in your your question there. But I'll try to to um, to respond to it. Here I go back to what I said earlier and you you echoed, which is that we are all are always aware of the need to perform at an acceptable level and relative to our our peer group and relative to the market.

Kurt Farmer: We have done a lot, I think, over the last number of years to take some of the volatility out of our performance relative to interest rate sensitivity. And now we are starting to benefit, I think, from some of what we put in place as well as we've got some of the structural tailwinds that I've talked about earlier that we believe will continue to position us well from a performance standpoint, NII, et cetera, over the next couple of years. We continue to see nice growth across the portfolio on the lending side, and we're going to lean into that in the second half of the year.

Kurt Farmer: And again, I can't go back and sort of, you know, replay past performance, but what I am charged with doing is protecting the company overall, serving our clients, making sure that we have the appropriate risk profile, the right capital, the right credit metrics and credit expertise that we bring sort of day in and day out, protecting our franchise and the markets that we serve, and doing a good job for our customers, our employees, and our shareholders longer term. And I think we're well-positioned from that perspective. And you mentioned 135 years. It's actually 175 years. But, you know, having said all that, you know, we are aware of the landscape, and we are always going to do the right thing by our shareholders, and we understand sort of our fiduciary responsibility related to that.

Overall and certainly the the Regional Bank space as well as the the bank space across the board has had some volatility and Equity performance this year, but we've seen a nice, uh, Rebound in the last 60 days. Or so as the KBW and the kre has has, as well. Uh, we have done a lot, I think over the last number of years, to take some of the volatility out of our performance relative to interest rate sensitivity. And um, now we are starting to benefit I think from some of what we put in place as well as we've got some of the structural Tailwinds that I've talked about earlier that we believe will continue to position us. Well from a performance standpoint, nii Etc, the next couple of years. Uh we continue to see nice growth across the portfolio on the lending side and we're going to lean into that in the in the second half of the year. And again I can't go back and sort of uh, you know, replay past performance. But what I am charged with doing is protecting the company overall serving our clients, uh, making sure that

that we have the appropriate risk profile, the right Capital the right credit metrics and credit expertise that we bring for today in and day out, uh, protecting our franchise and the markets that we serve, and doing a good job for our customers, our employees, and our shareholders longer term. And I think we're well positioned from that, from that perspective. And you mentioned 135 years is actually 100 175 years. Uh, but, you know, having said all that, you know, we are aware of the landscape and we are always going to do the right thing, uh, by our shareholders.

Mike Mayo: And so does our management team, and so does our board. And we take the return to our shareholders very, very seriously. I appreciate that. I think also last quarter, you said you did not expect a lot of mergers in the next 12 to 18 months. If there started to be mergers, would that kind of change your thought process? And to what degree?

Speaker Change: And we understand sort of our fiduciary responsibility related to that. And so so does our management team and so does our board and we take uh, the return to our shareholders very, very seriously.

Mike Mayo: And why don't you expect many mergers in the 12 to 18 months, or maybe that's changed in the last three months? All right. Well, we'll watch that volatility and your rebuilding and the tailwinds. Thank you. Thanks, Mike. Thank you.

Speaker Change: I I appreciate that. Um I think also last quarter. You did, you said you did not expect a lot of mergers in the next 12 to 18 months. If they're starting to be mergers would that kind of change your your thought process and to what degree? And why don't you expect many mergers in the 12, 18 months, or maybe that's changed in the last 3 months.

Speaker Change: Then we've seen a couple of deals happen. Uh, it feels like that, maybe there's a more favorable regulatory environment around m&a. And as the, the the noise settles down some around, economic certainty, geopolitical, certainty, Etc. I think it is likely that you're probably going to see a bit more m&a than we seen previously and it just continues to factor into what we think about. Overall whether we be in a choir or uh continue to pursue our organic growth or whether we'd ever entertain something from a third party.

All right. Well, we'll watch that volatility and your rebuilding and the the Tailwind. Thank you. Thanks. Mike.

Anthony Elian: Our next question is coming from the line of Anthony Elian with J.P. Morgan. Please proceed with your question. Yeah, hi, everyone. On the 4Q NII guide of Up vs. 3Q, Jim, you called out earlier some of the deposit pricing headwinds you expect in the third quarter. Pay rates will likely be twice the level we just saw.

Speaker Change: Thank you. Our next question, is coming from the line of Anthony Elliot with JP Morgan. Please proceed with your question.

Jim Herzog: But I'm curious, why would those headwinds ease in 4Q, particularly if you expect both strong customer deposit growth in 4Q and the momentum in loan growth is expected to persist? Yeah, good morning, Tony. You know, I really look at what we did towards the end of the second quarter with consumer pricing, it's kind of a reset, recognizing that the forward curve has been pushed out. So I kind of think of that as, you know, a one time reset, you know, we would expect to kind of track the market, you know, once we get into any kind of fourth quarter environment, whether that be the FOMC cut, or just the general, you know, higher deposits, which that net would be a benefit for the bank.

Anthony Elliot: Yeah. Hi everyone. On The 4q Andy guide of of versus 3Q Jim, you called out earlier some of the deposit pricing. Headwinds you expect in the third quarter, pay rates will likely be twice. The level we just saw, but I'm curious. Why would those headwinds ease in 4 q? Particularly, if you expect both strong customer deposit growth in 4k you, and the momentum and Loan growth is expected to persist.

Anthony Elliot: Yeah, good morning, uh, Tony. You know, I really look at what we did towards the end of the second quarter with consumer pricing. It's kind of a reset recognizing that the forward curve has been pushed out. So I kind of think of that as, you know, a 1-time reset, you know, we would expect to kind of track the market, you know, once we get into any kind of fourth quarter environment,

Jim Herzog: But again, kind of using what's going on in third quarters, a little bit of a one time reset here.

Jim Herzog: Again, we're not going to be sending out 400 million of preferred cash every quarter either. So there are just some unique events that are occurring as we move from the second quarter to the third quarter.

Anthony Elliot: Whether that be the fomc, cut, or just the general, uh, you know, competitive environment. Um, we probably to the extent, we see any increase in deposit, pay rates in the fourth quarter. I think it would be accompanied by higher deposits, which that net would be a benefit for the bank. Um but again, it kind of viewing what's going on in the third quarter. It's a little bit of a 1 time, uh reset here. And again, we're not going to be uh, sending out 400 million of preferred cash every quarter either. So there are just some unique events that are occurring as we move from the second quarter to the third quarter.

Peter Sefzik: Tony, it's Peter. I think I would probably say it's a little too early to know necessarily. We do feel positioned to be involved in it. You know, we're a member of the Clearinghouse. We do feel like we have the right talent, both in our technology side as well as our product side. And we do think we're making really good investment and payments to be involved. Now, so what this looks like, though, I think it's still a little bit to be determined. And I think that we are monitoring the situation. We're going to stay really close to it.

Speaker Change: Okay, and then if I look at the bottom of slide 3, you're calling out payments products. Such as real time Solutions, embedded Finance, you know, we had the house passed, a sable coin, Bill last night. I'm just thinking about the additional opportunities that could exist with stable coins. Complementing, everything you're doing on payments and they're all that Banks could play. It is this a technology? You guys are considering leveraging down the road or is it still too early? Thank you.

Speaker Change: Tony it's Peter I I think I think I would probably say it's a little too early to know necessarily we do feel positioned to um to be involved in it. You know, we're a member of the Clearing House.

Peter Sefzik: We've got the right products, talent and awareness. And so but I think the answer to your question is, at least from our perspective, it's a little still too early to tell how this is going to play out really for the industry and for us.

Speaker Change: Um we do feel like we have the right Talent um both in our technology side as well as our product side and we do think we're making really good investment and payments to be uh to be involved now. So what this looks like though I think is still a little bit to be determined and I think that we are uh, monitoring the situation. We're going to stay really close to it. We've got the right, uh, products Talent, um, and awareness and so but I I think to answer your question is at least from our perspective it's a little still still too early to tell how this is going to play out uh, really for the industry and for us.

Anthony Elian: Thank you.

Speaker Change: Thank you.

Andrew Leister: The next question is coming from the line of Chris McGratty with KBW. Please proceed with your question. Hey, how's it going?

Speaker Change: Thank you. The next question is coming from the line of Chris McGrady with KBW pleased to see with your questions. Good morning, Chris.

Andrew Leister: This is Andrew Leister on for Chris McGratty. Um, in your prepared remarks, um, I know you mentioned this here, but it looks like as an industry deposit repricing is getting a little more difficult and competition is picking up. I know you've outperformed your beta from the way up, but can you provide an update on what you're seeing here in terms of repricing and expectations for any repricing opportunities going forward? Thanks. I'm not sure I heard that question. It was deposit pricing. Is that correct? Yeah, just just just an update on what you're seeing in terms of, you know, your near term expectations for deposit cost repricing and any opportunities you're seeing going forward.

Angela: Hey, how's it going? This is, uh, Angela for Chris McGrady.

Angela: Um, and you're prepared remarks. Um,

Speaker Change: I know you mentioned this here, but it looks like as an industry depository pricing is getting a little more difficult and competition is picking up. Uh, I know you've outperformed your Betta from the way up, but can you provide an update on, you know what, you're seeing here in terms of repricing and expectations for any requesting opportunities going forward. Thanks.

I'm not sure. I heard that question. I think it's deposit pricing. Is that correct?

Speaker Change: Yeah, just um just what just an update on what you're seeing in terms of, you know, your near-term expectations for deposit cost, rep pricing, and any opportunities you're seeing going forward.

Jim Herzog: You know, I would probably refer you back to my answer previously, where I kind of sized up where I think the third quarter increases are coming from and what the drivers of those are. It does continue to be a very competitive environment for deposits. I think we saw that with some of the banking releases so far this week. But, yeah, I'm not sure I would add a lot onto what I had mentioned a few minutes ago in terms of just where we see deposit pricing going. Yeah. And I guess I might just say, in general, whether it's loan pricing or deposit pricing, it's extremely competitive in all of the markets, and I think that we stay really focused on doing what we can to grow our customer base and make sure we've got the right products and services available to our customers that they need.

Speaker Change: you know, I would probably

Speaker Change: call you back to my answer previously, where I kind of sized up where I think the third quarter uh increases are coming from and what the drivers of those are um it does continue to be a very competitive environment for the deposits. I think we saw that with some of the um banking releases so far this week

Speaker Change: Services of label to our customers. Um,

Jim Herzog: So, you know, managing pricing on either side of the balance sheet is something we pay really close attention to, and I think it is an extremely competitive environment right now on both of them. Okay, great.

Speaker Change: That they need. So

Speaker Change: You know, managing pricing on either side of the balance sheet is something. We pay really close attention to and I think it is a extremely competitive environment right now on both of them.

Jim Herzog: Thank you.

Melinda Chausse: And then just on credit, to provide a little more color on the increase in criticized loans this quarter, I think in the deck it looks like the leveraged loan criticized has moved up a little higher. So, any thoughts there? Thanks.

Melinda Chausse: Chris, this is Melinda. Yeah, the increase in the criticized this quarter, I would call it a moderate increase. As Jim mentioned in his prepared comments, the vast majority of that was in our core middle market book. And honestly, it was concentrated in three credits. And the commonality in those three credits is they all have some kind of a consumer component, that the end customer was a consumer. And so there's been some stress there. One, you know, I would call more luxury goods, and the other in two segments that are under some pressure already. So that would be the liquor industry, and then transportation, freight, and things like that.

Okay, great, thank you. And then um just on credit to provide a little more color on the increase in criticized loans, this quarter um I think in the deck it looks like the leveraged loan crisis percentage. Moved up a little higher. Um so any any thoughts there? Thanks Chris. This is Melinda. Yeah the increase in the criticize this quarter, I would call it.

Melinda Chausse: But that's really the commonality is the consumer is the end customer, and then all of them are pressured by this longer, higher for longer rate environment, which is obviously putting pressure on profitability. So, other than those commonalities, you know, the book has continued to perform quite well. And what you don't really see in the charts is what's cycling in and out of criticized. So, you know, we have credits that migrate from a downward perspective, but we also have a lot of credits that continue to get, you know, better and are able to move back into that past category.

Speaker Change: As Jim mentioned in his prepared comments, the vast majority of that was in our core Middle Market book. And honestly, it was concentrated in 3 credits and the commonality, in those 3 credits is they all have some kind of a consumer component that the End customer, uh, was a consumer. And so there's been some stress there 1. You know, I would call more luxury goods, uh, and the other in 2 segments that, um, are under some pressure. Um, already. So that would be the, the, the liquor industry and then Transportation Freight and things like that. So, it's the, that's the really, the commonality is, um, the consumer is the End customer and then all of them are pressured by this longer higher for longer rate environment, um, which is obviously putting pressure on profitability. So I other than those commonalities, you know, the book has continued to perform quite well. Um, and what you don't really

Melinda Chausse: So I'm not really seeing anything that I would call underlying themes other than what we've been really telegraphing all year, which is the higher for longer interest rates and the inflationary pressures. Okay, great. Thank you for listening and for watching. You're welcome. Thank you.

Speaker Change: See, in the charts is what cycling in and out of criticize. So, you know, we have, uh, credits that migrate, um, from a downward perspective, but we also have a lot of credits that continue to get, um, you know, better, uh, and are able to move back into that task category. So, I'm not really seeing anything that I would call underlying themes other than what we've been really telegraphing all year, which is the higher for longer interest rates and the inflationary pressures

Speaker Change: Okay, great. Thank you for setting up this collection. Welcome.

Kurt Farmer: There are no additional questions at this time, so I'd like to pass the floor back over to Mr. Farmer for closing comments. Thank you very much and thank you again for joining our call today. Ladies and gentlemen, once again we thank you for your participation.

Speaker Change: Thank you. There are no additional questions at this time, so I'd like to pass the floor back over to Mr. Farmer, for closing comments.

Speaker Change: Thank you very much, and thank you again for joining our call today.

Operator: This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.

Speaker Change: Ladies and gentlemen, once again we thank you for your participation. This does conclude today's teleconference, you may disconnect your lines at this time and have a wonderful day.