Comerica Q1 2025 Earnings Report

Comerica EPS Results

• Actual EPS: $1.25
• Consensus EPS: $1.14
• Beat/Miss: Beat by +$0.11
• One Year Ago EPS: $1.29

Comerica Revenue Results

• Actual Revenue: $829.00 million
• Expected Revenue: $839.31 million
• Beat/Miss: Missed by -$10.31 million
• YoY Revenue Growth: N/A

Comerica Announcement Details

• Quarter: Q1 2025
• Date: 4/21/2025
• Time: Before Market Opens
• Conference Call Date: Monday, April 21, 2025
• Conference Call Time: 8:00AM ET

Comerica (NYSE:CMA), through its subsidiaries, provides various financial products and services. The company operates through Commercial Bank, Retail Bank, Wealth Management, and Finance segments. The Commercial Bank segment offers various products and services, including commercial loans and lines of credit, deposits, cash management, payment solutions, card services, capital market products, international trade finance, letters of credit, foreign exchange management services, and loan syndication services for small and middle market businesses, multinational corporations, and governmental entities. The Retail Bank segment provides personal financial services, such as consumer lending, consumer deposit gathering, and mortgage loan origination; and various consumer products that include deposit accounts, installment loans, credit cards, student loans, home equity lines of credit, and residential mortgage loans. The Wealth Management segment offers products and services comprising financial planning, trust and fiduciary services, investment management and advisory, brokerage, private banking, and business transition planning services for affluents, high-net worth and ultra-high-net-worth individuals and families, business owners, and executives, and institutional clients. The Finance segment comprises securities portfolio, and asset and liability management activities. It operates in Texas, California, Michigan, Arizona, and Florida, the United States; and Canada and Mexico. The company was formerly known as DETROITBANK Corporation and changed its name to Comerica Incorporated in July 1982. Comerica Incorporated was founded in 1849 and is headquartered in Dallas, Texas.

Comerica Q1 2025 Earnings Call Transcript

Presentation

[Operator]

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kelly Gates, Director of Investor Relations.

[Operator]

Thank you. Please go ahead.

[Kelly Gage, Senior VP & Director of Investor Relations at Comerica]

Thanks, Donna. Good morning, and welcome to Comerica's first quarter twenty twenty five 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 Chauci and Chief Banking Officer, Peter Cepcich. 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.com.

[Kelly Gage, Senior VP & Director of Investor Relations at Comerica]

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 statements. 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.

[Kelly Gage, Senior VP & Director of Investor Relations at Comerica]

In that regard, I direct you to the reconciliation of these measures in the earnings materials that are available on our website, comerica.com. Now, I'll turn the call over to Kurt, who will begin on slide three.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Well, good morning, everyone, and thank you for joining our call. This was a strong quarter for Comerica. We exceeded expectations across a number of categories resulting in higher profitability over the prior quarter. Although we saw seasonal deposit outflows, non interest bearing balances performed well and contributed to net interest income outperforming guidance. Movement in the rate curve benefited our tangible common equity ratio and drove an increase in our book value at quarter end.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Conservative capital management remained a priority and we grew our estimated CET1 ratio while returning $143,000,000 to common shareholders through share repurchases and dividends. Beyond our financial results, customer sentiment took a step back as the market saw an increase in macroeconomic uncertainty. As our customers await further clarity, we plan to continue confidently executing on our relationship model striving to provide customers with the consistency and support they need to adapt and succeed. TRUE America's legacy is built on successfully managing through cycles and we feel our unique model positions us well to navigate a dynamic environment. Credit is a competitive differentiator with net charge offs that have historically outperformed peers.

[Curtis Farmer, Chairman, CEO & President at Comerica]

We are regarded for our underwriting discipline. It's in our DNA and it's

[Curtis Farmer, Chairman, CEO & President at Comerica]

a crucial part of our culture.

[Curtis Farmer, Chairman, CEO & President at Comerica]

We benefit from a diversified commercially oriented business mix and have limited consumer exposure. We enjoy long tenured customer relationships with seasoned leadership teams who in many cases have successfully weathered downturns before. Our capital position provides us flexibility with an estimated CET1 ratio well above our strategic target. We have robust liquidity with a strong loan to deposit ratio and have demonstrated our ability to quickly access additional liquidity as needed. We took deliberate steps to minimize our exposure to rate volatility.

[Curtis Farmer, Chairman, CEO & President at Comerica]

In fact, if rates decline, we expect to benefit and in the last down rate cycle, we saw outsized deposit growth relative to our peers. There are still a number of unknowns and we along with the market will continue to monitor developments closely. Regardless of the direction of the economy, we feel confident in our playbook and track record to perform competitively. Moving back to a summary of the first quarter on slide four, we reported earnings of $172,000,000 or $1.25 per share. Muted loan demand coupled with declines in national dealer services and commercial real estate drove a modest reduction in average loan balances in the quarter.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Good deposit trends, the impact of Bisbee cessation and the structural benefit of our swap and securities portfolios offset the negative impact of lower loans, keeping net interest income flat. These factors also drove a 12 basis point expansion of our net interest margin. Our credit portfolio remained resilient and despite inflationary pressures continuing to impact customers, our credit metrics remain historically low. Although net charge offs increased over the very low level seen post COVID, they remained at the low end of the normal 20 to 40 basis point range. Non interest income grew, but we saw CBA, non customer related and seasonal pressures across several line items.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Non interest expenses declined as we prioritize efficiency, but also saw some slowdown in business activity. Capital remains a strength with an estimated CET1 ratio of 12.05%, comfortably above our strategic target, again providing us flexibility to navigate the economic environment. In all, we felt great about the quarter and feel we are positioned to support our customers while delivering results. Now I'd like to turn the call over to Jim for further details.

[James Herzog, CFO & Senior EVP at Comerica]

Thanks, Kurt, and good morning, everyone. Turning to loans on slide five. Average loans declined less than 1% with lower floor plan balances and national dealer services and pay downs in commercial real estate offsetting modest increases across several businesses. Dealers inventory levels came down from a year end peak and at the end of the quarter they saw an uptick in car sales. Total commitments declined largely due to commercial real estate trends.

[James Herzog, CFO & Senior EVP at Comerica]

Although commitment utilization increased slightly, this was partially due to dealer and the nature of floor plan facilities. Excluding dealer, utilization would have been relatively flat quarter to quarter. Average loan yields came down 12 basis points as lower rates and non accrual interest more than offset the benefit of the swap portfolio and BISV cessation. On Slide six, average deposits outperformed guidance in the first quarter. Lower brokered time deposits and seasonal outflows contributed to the $1,400,000,000 decrease in average balances from the fourth quarter.

[James Herzog, CFO & Senior EVP at Comerica]

While seasonality can be challenging to predict and other macroeconomic factors may influence balances, our strong deposit focus and offerings have helped us to mitigate some of the seasonality we've seen thus far. Non interest bearing deposits as a percentage of total remained flat at 38% continuing to reflect the compelling funding mix. Period end deposits decreased $2,300,000,000 Adjusting for the timing related impact from Direct Express disbursements, the period end decline would have been $1,200,000,000 concentrated almost entirely in interest bearing balances. The proactive execution of our pricing strategy drove a 26 basis points decline in deposit pricing in the first quarter. Our deposit portfolio has long been a key strength of our franchise and we are continuing to make investments in products, processes and talent to further enhance this competitive funding source.

[James Herzog, CFO & Senior EVP at Comerica]

We have already seen results from this strategic focus including efficient pricing, new products and deposit acquisition and we are encouraged by what we see as the potential for future success. Our securities portfolio on Slide seven increased slightly as the benefit of lower unrealized losses at quarter end more than offset pay downs and maturities. We expect future repayments and maturities to continue to benefit AOCI over time. Beyond periodic purchases to replace treasury maturities, we are not currently expecting more meaningful securities reinvestments to begin until late this year. Turning to Slide eight, net interest income remained stable quarter over quarter at $575,000,000 Stronger than expected non interest bearing deposits and successful deposit pricing strategies helped offset the negative impact of muted loans.

[James Herzog, CFO & Senior EVP at Comerica]

We also saw the benefit of our modest fourth quarter securities repositioning. With the structural tailwinds associated with our swap and securities portfolios as shown on Slide nine, we continue to see promising trends for continued net interest income growth. Moving to Slide 10, we continue to believe the successful execution of our interest rate strategy allows us to better protect our profitability from rate volatility. If we do see a reduction in rates as the forward curve predicts, our modeling shows a slight benefit to income. That said, we generally consider ourselves to be asset neutral and by strategically managing our swap and securities portfolios while considering the balance sheet dynamics, we intend to maintain our insulated position over time.

[James Herzog, CFO & Senior EVP at Comerica]

Our credit portfolio shown on Slide 11 performed as expected. Net charge offs increased to 21 basis points, but we're at the low end of our normal range. Consistent with prior quarters, persistent inflation and elevated rates pressured customer profitability driving continued but expected normalization in criticized loans and notably they remain well below historical levels. Non performing loans remained well controlled and below our long term average. The allowance for credit losses was down slightly due to lower loan balances, stable credit metrics and a relatively benign economic forecast at quarter end.

[James Herzog, CFO & Senior EVP at Comerica]

Given the elevated risks and uncertainty at the time, we increased our qualitative reserves, which resulted in maintaining our 1.44% coverage ratio. With the benefit of our relationship model, we plan to stay close to our customers as they better understand potential supply chain implications on their businesses and formulate their action plans. We feel confident in our highly regarded approach to credit and have a proven track record of navigating cycles over many years. On Slide twelve, first quarter non interest income increased $4,000,000 largely due to the $19,000,000 fourth quarter loss for securities repositioning, which did not repeat in the first quarter. Setting aside that benefit, the largest decline was in the CBA, which reduced $5,000,000 due to rate and commodity price movement.

[James Herzog, CFO & Senior EVP at Comerica]

We also saw non customer and seasonal declines across several other line items. Despite pressures observed in the quarter, we continue to prioritize non interest income and expect to drive positive momentum in customer related fees. Expenses on Slide 13 decreased 3,000,000 over the prior quarter. Seasonally higher salaries and benefits and an increase in the FDIC special assessment were more than offset by the benefit of lower litigation related expenses, charitable contributions and consulting fees. We also incurred lower outside processing expenses correlated with lower business activity and products like card.

[James Herzog, CFO & Senior EVP at Comerica]

While we did not see the level of gains related to real estate that we saw in the fourth quarter, we did recognize a sizable gain on the sale of a leasing asset. Expense discipline remains a key priority as we continue to focus on driving efficiency. As shown on Slide 14, we continue to favor a conservative approach to capital and value the flexibility our position provides us. With an estimated CET1 at 12.05%, we are above our strategic target even after returning capital to shareholders through repurchases and dividends in the quarter. Movement in the forward curve reduced unrealized losses in AOCI contributing to an 82 basis point improvement in our tangible common equity ratio and growing book value.

[James Herzog, CFO & Senior EVP at Comerica]

Our outlook for 2025 is on Slide 15. Given increased economic uncertainty, we see potential for a wide range of outcomes if market trends differ from our economic assumptions. By way of context, our outlook assumes uncertainty begins to abate and while we are not assuming a recession, we do assume slower GDP growth in 2025 than in 2024. We project full year 2025 average loans to be down 1% to 2%. Although pipelines and activity levels remain strong, we expect customers to await better visibility before seeing a stronger uptick in loan demand.

[James Herzog, CFO & Senior EVP at Comerica]

Recognizing that may not be immediate, we think the second quarter average loans will continue to move down slightly relative to the first quarter. From there, we expect to see loan growth resume in the second half of the year. Our deposit forecast remains unchanged as we expect lower brokered CDs to drive full year average deposits down 2% to 3% in 2025. We believe the second quarter average deposits will be relatively flat to the first quarter as core deposit growth is offset by a small decline in average brokered time deposits. Although we anticipate continued success in winning interest bearing balances, we believe our non interest bearing deposit mix will remain relatively consistent in the upper 30% range.

[James Herzog, CFO & Senior EVP at Comerica]

Based on our current understanding of the transition strategy, we are still not assuming direct express deposit attrition within our 2025 outlook. We expect full year 2025 net interest income to increase 5% to 7% with the benefit of business cessation, maturing and replace securities and swaps and a more efficient funding mix all more than offsetting lower average non interest bearing balances and loans year to year. We expect the second quarter to be relatively unchanged from the first quarter as the lower benefit of Bisbee cessation is offset by the impact of day count. You can find details on the BISB cessation in the appendix and excluding BISB we expect to see growth in net interest income quarter to quarter throughout 2025. We expect full year 2025 non interest income to increase approximately 2% considering the negative pressure we saw in the first quarter including the credit valuation adjustment and deferred compensation.

[James Herzog, CFO & Senior EVP at Comerica]

We expect the second quarter to be stronger than the first and project growth in customer related fee income through the balance of the year. Full year 2025 non interest expenses are expected to grow 2% to 3% with the objective of managing within this range subject to the revenue trajectory as we progress through the year. We expect second quarter expenses to tick up slightly from the first quarter as we continue to balance strategic and risk management investments with the drive towards efficiency. Considering our strong credit metrics, proving underwriting approach and consistent portfolio monitoring, we expect full year net charge offs to be in the lower end of our normal 20 to 40 basis point range. Moving to capital, we continue to appreciate the importance of a strong capital position and we intend to maintain a CET1 ratio well above our 10% strategic target throughout 2025.

[James Herzog, CFO & Senior EVP at Comerica]

With an estimated CET1 at over 12%, we feel we have ample capacity and are positioned to continue repurchases in the second quarter, perhaps even as much as we repurchased in the fourth quarter of twenty twenty four. Given the volatility in the market and the movement in the forward curve, we are not committing to a targeted amount today. Instead, we intend to closely monitor market conditions and execute opportunistically with consideration to economic developments throughout the quarter. Stepping back, as we end the market await more clarity, we will continue to stay close to our customers, prioritize responsible loan growth where it makes sense and focus on our deposit gathering efforts while conservatively managing capital, expenses and credit. Now I'll turn the call back to Curt.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Thank you, Jim. In times of uncertainty, we understand what is important to our customers. They seek stability. They prioritize consistent access to capital and a value added partner who is patient and understands how to help them overcome obstacles. We have a proven track record of doing just that for over one hundred and seventy five years.

[Curtis Farmer, Chairman, CEO & President at Comerica]

With the foundation of conservative capital, credit and liquidity management, we have demonstrated resiliency. We understand there is uncertainty in the marketplace and we see this as an opportunity to stay close with our customers. History would tell us that these are the times where Clear America's relationship model and strategy tends to shine. We have a geographically diverse model, tenured colleagues and experienced leadership team, a conservative approach to underwriting and a blue chip customer base, which altogether positioned us well to outperform through cycles. We had a great quarter and we plan to continue investing in responsible growth for the long term, while benefiting from the structural tailwinds embedded in our swap and securities portfolios.

[Curtis Farmer, Chairman, CEO & President at Comerica]

And so with that, I'd be happy we'd be happy to take your questions.

[Operator]

Thank you. The floor is now open for questions. Our first question is coming from Jon Arfstrom of RBC Capital Markets. Please go ahead.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Thanks. Good morning.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Good morning, Jon. Thank you.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Yes. Maybe for you, Peter, I guess, on the loan growth outlook, I think we all understand that you guys are really the proxy for commercial lending. But can you talk a little bit about what you're hearing right now from your lenders and borrowers, maybe some of the very near term conversations? And then maybe talk a little bit more about the longer term outlook. It sounds like you're still thinking the pipelines are there and the growth outlook could get better as the year progresses, but maybe very near term stuff and then confidence in the longer term.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

Yes, John. So I think I would say near term, if I had to describe the whole portfolio, I would say that what you're hearing from customers is that they're not putting the brakes on, but they're taking their foot off the accelerator. And you're seeing that around the country and around our businesses maybe different speeds if you will to that approach. I think in markets like Michigan, we've probably seen more concern there than we have per se in Texas just quite candidly is when you talk about middle market. We've seen a little bit more of a pullback in our equity fund services businesses versus our environmental services business that is still pretty robust.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

So it really kind of depends on the business. It depends on the type of services they do geographically where they are. But I think in the near term and I think that's sort of where we're going with our outlook for the second quarter is that there's a lot of folks that are pulling their foot off the accelerator, but they're not necessarily putting the brakes on. Now all that said, we continue to hear really good long term outlook and we do continue to see our pipeline creep up. It's a little bit interesting to see the pipeline go up, but not necessarily feel like we're going to see outstandings in the next quarter per se.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

But throughout the year as it goes on, we feel like it's going to, I guess you might say get better with loan demand. And again, we're not projecting a recession. We don't feel that way. We feel like the economy is going to grow this year. And we feel like we're in the right markets and lines of business to benefit from that growth even if it's not what we've seen over the last year or two.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Okay. Okay. Got it. And can we talked about this maybe in past quarters. Can you talk a little bit more about commercial real estate and what you're seeing there?

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

It seems like there's still some headwinds, and I'm curious if there's any hope for stabilizing that category?

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

Candidly, think there is some hope for stabilizing it. Part of our outlook actually includes commercial real estate not coming down as much

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

as we thought it would

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

ninety days ago. We still foresee it being a headwind, but I don't think it's maybe blowing as hard as it was sixty, ninety days ago. We've seen deal flow pick up in commercial real estate. I was really glad last year we weren't one of the first banks to kind of get back to doing deals second quarter of last year and I think that's benefited us. So we're seeing some opportunities and to the extent that our borrowers need us we're putting out commitments in commercial real estate.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

So I do think as we go into next year, we'll probably continue again to see it level off. We'll see what interest rates do to that business. But as of right now, it's a headwind, but maybe not as strong actually as it was sixty days ago.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Okay. All right.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Thank you very much.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Thanks, John.

[Operator]

Thank you. The next question is coming from Scott Syphers of Piper Sandler. Please go ahead.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Good morning, Scott.

[Scott Siefers, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Good morning, everybody. Thanks for taking the question.

[Scott Siefers, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Let's see. Jim, could

[Scott Siefers, Managing Director & Senior Research Analyst at Piper Sandler Companies]

you maybe walk through the sort of the progression on both the fee and the expense guide? I know in the past you've discussed the full year puts and takes on the fee side, but I guess just looking at it, I think you'd need to average much higher quarterly base to get to the updated guide. So maybe sort of how do you do so? And then by contrast, on the expense side, looks like the guidance would suggest that the second half expense base will be lower than what you experienced in first half. So maybe just sort of some color on how the flow works to your thinking?

[James Herzog, CFO & Senior EVP at Comerica]

Yes. Good morning, Scott. Looking at non interest income, we did have some non customer trends that appeared in the first quarter, probably put 6,000,000 to $7,000,000 of pressure on the overall guidance that we provided back in January. And some of those will probably continue to some extent, maybe not to the same pace that we had in the first quarter, but we do expect a little more pressure from noninterest income. Relative to expenses, I really think that we're going to have to monitor that as the year goes on and see how PPNR progresses.

[James Herzog, CFO & Senior EVP at Comerica]

Certainly, there's a piece of that that's in the bag. Certainly, the sale of equipment and the gain we have there will be pocketed and won't be going away. But we had some other expenses related to maybe timing, maybe challenging of projects and expenses that we'll have to make decisions on as we move through the year and try to calibrate to how revenue progresses through the year also. So we do have a little bit more control obviously on the expenses than we do in the non interest income. We do see non interest income for the customer categories getting largely back to plan or back to consensus and outlook that we had back in January.

[James Herzog, CFO & Senior EVP at Comerica]

And so we do think we're going get some bounce back there. But we did have a weaker customer quarter in the first quarter. We did a weaker non customer quarter. And some of those non customer trends may continue to a very small degree. So we'll let the overall revenue pace inform both our expense control and as we continue to monitor the non interest income flows.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Chip, might add. Scott, this is obviously an environment which is somewhat difficult to accurately forecast go forward trends. But depending upon how things play out, depending upon if we do or do not see loan demand return and stabilization from the economy depending on whether or not we have recession. Again, we are seeing that probability a little bit lower. We really calibrate how we think about expenses going forward.

[Curtis Farmer, Chairman, CEO & President at Comerica]

We are very committed to the things that we have in flight, the expansion of many of our businesses, product development technology, expansion into new markets that we've talked about previously. But the pace upon which we are doing some of those things could be calibrated if we really do see a more elongated disruption to the market or certainly if we saw a recession.

[Scott Siefers, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Got it. Perfect.

[Scott Siefers, Managing Director & Senior Research Analyst at Piper Sandler Companies]

All right

[Scott Siefers, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Kurt and Jim, thank you very much.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Thanks Scott.

[Operator]

Thank you. The next question is coming from Ken Usdin of Autonomous Research. Please go ahead.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Good morning Ken.

[Ken Usdin, Senior Research Analyst at Autonomous Research]

Thanks. Good morning guys. You're doing a great job reducing deposit costs and you continue to show a really fast data on the downside. I'm just wondering how much more room do you have into either remix deposits further, take down brokered CDs within that? And then I'll ask a follow-up.

[Ken Usdin, Senior Research Analyst at Autonomous Research]

Thanks.

[James Herzog, CFO & Senior EVP at Comerica]

All right, Ken. Good morning. It's Jim. Yes, we have had great success with deposit pricing, a little better than we'd actually expected in the first quarter. So far as I look at our deposit betas, if I go back to when the Fed started cutting rates in the third quarter of last year, we are running about a 71% beta through the first quarter.

[James Herzog, CFO & Senior EVP at Comerica]

So that's obviously higher than the 60% or so that we long term think we'll get back to. We were well above that 71% obviously in the first quarter. So we are having great success. As I mentioned, I think at the January earnings call and certainly at the conference that we attended in March, we do expect to see that slow up a little bit. In fact, we may, given how proactively we moved, we may actually, in some small pockets, have to give a little bit back to customers.

[James Herzog, CFO & Senior EVP at Comerica]

But having said that, as rates continue to move down, we do expect to still achieve on an incremental go forward basis, probably a 40 to 50% beta going forward. So we certainly have room to continue to react as rates continue to go down. But we will have probably some pockets of pressure upward. Now you mentioned broker deposits. Yes, we do expect to run off really that remaining one about $1,000,000,000 of broker deposits by the end of the year.

[James Herzog, CFO & Senior EVP at Comerica]

We are paying in the low to mid 5% range on those. So that will certainly be a big benefit too as those roll off. But we expect to get even a nice beta on the non brokered deposits, the core deposits too as rates continue to move down. So overall, a really good story, probably won't continue at the same pace that we've seen, but certainly can continue to adjust as the FOMC continues to lower rates. So that's one that we also have to monitor overall market trends.

[James Herzog, CFO & Senior EVP at Comerica]

And I have mentioned in the past too, we do plan on being fairly proactive in gathering more interest bearing deposits. In some cases, we may pay up for those. We're happy to do that if we can garner them. We still make money in those. There's still a preferred funding source versus purchase funds.

[James Herzog, CFO & Senior EVP at Comerica]

And so overall, I just feel really good about the deposit story, both the volume as well as the success we've had with pay rates thus far.

[Ken Usdin, Senior Research Analyst at Autonomous Research]

Got it. Great. And the second question just relates to deposits as well. You mentioned very clearly that the Direct Express, there's no changes in the '25 outlook. I believe you had said it really wouldn't be in play until the out years.

[Ken Usdin, Senior Research Analyst at Autonomous Research]

Can you just give us an update on how you're thinking about that? And if deposit growth continues to be strong, do you think about starting to get ahead of some of that mix shifting at some point? Thanks guys.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

Yes, Ken, it's Peter. Yes, there's no real change to our outlook on what we see with Direct Express. We think that balances really aren't going to be impacted at all in 2025 and we haven't provided obviously outlook for next year, but we continue to believe that the transition here is quite long. And so what I would tell you is that as far as running the rest of the company, we're very focused on deposits in all the other businesses that we have, whether that be in small business and what we do in some of our corporate businesses that are deposit gathering and really even what we do on the consumer side. I think there's a tremendous opportunity there for us to increase our deposit base through those channels.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

So we are looking at that pretty regularly. I'd say that's kind of a constant conversation that we have. But at the moment there's no real updates about what the transition plan for Direct Express. I think our messaging is consistent at the current time.

[Ken Usdin, Senior Research Analyst at Autonomous Research]

Okay. Thanks very much.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Yes. Thanks Ken.

[Operator]

Thank you. The next question is coming from Manon Ghosliya of Morgan Stanley. Please go ahead.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Good morning, Manon.

[Manan Gosalia, Equity Analyst at Morgan Stanley]

Hey, good morning. Can you expand on how you're thinking about the trajectory of NII from here and the jumping off point for 2026. As you noted, the Bisbee benefits fade, which might be masking some nice growth in core NII. So can you talk about the factors driving that increase as we go through the year?

[James Herzog, CFO & Senior EVP at Comerica]

Sure. Good morning, Manon. Yes, excluding the BISB impact, which we do have that schedule in the appendix as we always do, we are expecting steady growth in net interest income, both dollars and a little tick up each quarter percentage also most likely. A number of drivers there, we are expecting deposits to continue to grow as we move through the rest of 2025. So deposits will certainly be a key contributor.

[James Herzog, CFO & Senior EVP at Comerica]

Non interest bearing could be just a very small drag in the second quarter because we were higher than we expected in the first quarter. But then in the second half of the year, we do see the potential for some small increases in non interest bearing. But most of those deposit increases will be on the interest bearing side, all contributing to increasing net interest income. Of course, the loan growth that we expect to happen in the second half of the year will be a key contributor also. Then if you look at our maturity schedule for swaps and securities, we do expect to get a few million dollars, ranges anywhere from $2,000,000 to $6,000,000 if you do the math each quarter benefit on maturing swaps and securities.

[James Herzog, CFO & Senior EVP at Comerica]

So that will be a contributor too and that's obviously more of a known factor. I don't expect that to bounce around very much. So a lot of tailwinds contributing to kind of consistent small to moderate increases each quarter. And overall, just feel good about the overall trajectory of net interest income.

[Manan Gosalia, Equity Analyst at Morgan Stanley]

That's helpful. Appreciate it. And maybe just to switch over to credit. Are there any early signs of stress you're seeing among your client base at all, whether it's in C and I or CRE, small business anywhere that you're particularly focused on?

[Melinda Chausse, Senior EVP & Chief Credit Officer at Comerica]

Manav, this is Melinda. I would say overall the credit environment remains strong and stable.

[Melinda Chausse, Senior EVP & Chief Credit Officer at Comerica]

You can see that by

[Melinda Chausse, Senior EVP & Chief Credit Officer at Comerica]

the metrics that are shown on our slide. I mean criticized balances were up ever so slightly. That was really driven by the commercial real estate line of business. So as Peter mentioned, the payoff pace we think is going to be a little bit slower than what we had originally anticipated sort of coming into the year and that's really driven by the fact that rates have remained somewhat elevated. Obviously, there's a lot of uncertainty and some of the leasing times on some of the construction projects are elongated.

[Melinda Chausse, Senior EVP & Chief Credit Officer at Comerica]

And so that's where we're seeing a little bit of migration into the non pass. The absolute levels of non pass in commercial real estate remained very manageable and we're still seeing resolution every single quarter on non pass credit. So we have some migrating in, some migrating out. As it relates to C and I, I would call this quarter very stable. If you bifurcated charge offs this quarter, they were very stable from a C and I perspective.

[Melinda Chausse, Senior EVP & Chief Credit Officer at Comerica]

We did see two charge offs in commercial real estate, which is really what drove the increase between the fourth quarter and the first quarter in terms of the basis points. So not really seeing anything yet, but the reality is there's an enormous amount of uncertainty right now and risk in the economy. Supply chain disruption is bound to happen. We don't know exactly where that's going to land and what that's going to look like. But we have very good visibility into our customers.

[Melinda Chausse, Senior EVP & Chief Credit Officer at Comerica]

We have excellent portfolio management, proven track record of managing through economic cycles. And so I'm really confident that the portfolio as a whole is going to perform. We're just going to have to wait and see some of this uncertainty to sort of abate and folks to have a little bit more clarity on how they're going to manage supply chains going forward.

[Manan Gosalia, Equity Analyst at Morgan Stanley]

That's good color. Thank you so much.

[James Herzog, CFO & Senior EVP at Comerica]

Welcome.

[Operator]

Thank you. The next question is coming from Bernard Fongazyche of Deutsche Bank. Please go ahead.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Good morning, Bernard.

[Bernard Von Gizycki, Equity Research Analyst at Deutsche Bank]

Hey guys, good morning. Just on the first question, just on share repurchases, I know you did the $50,000,000 during the quarter and you noted it's going to depend on market conditions and economic developments. Any thoughts on how you're going to think about 2Q or any expectations you could share?

[James Herzog, CFO & Senior EVP at Comerica]

Yes, good morning Bernard.

[James Herzog, CFO & Senior EVP at Comerica]

Yes, as

[James Herzog, CFO & Senior EVP at Comerica]

I mentioned, we do see the potential and we certainly have the capacity to do additional share repurchases. We've done $100,000,000 in the fourth quarter. We dialed that down to $50,000,000 in the first quarter. Then I mentioned I see the potential to do up to maybe the same $100,000,000 that we did in the fourth quarter. Now we are keeping our eye on a number of factors there.

[James Herzog, CFO & Senior EVP at Comerica]

We've seen the ten year really ping pong around the last few weeks and the last few months. So where long term rates go and what the curve does to AOCI is something we continue to keep our eye on. Credit, while very stable and performing very well as Linda was saying in this environment, it's prudent to keep an eye on that also. And then loan demand of course is a factor also. We want to make sure that we're there should this uncertainty abate.

[James Herzog, CFO & Senior EVP at Comerica]

We see the potential for loan demand and maybe surprise to the higher side if again the uncertainty abates. So we're keeping our eye on a number of factors. But having said that we recognize the 12.05% is a very healthy CET1 ratio. So I think you can expect us to likely be active on the share repurchase side. But we are going to keep our eye on this week to week as we move through the second quarter, which is why we're not committing to a very specific amount of certainty at this point in time.

[Bernard Von Gizycki, Equity Research Analyst at Deutsche Bank]

Okay. And then just one modeling question. Jim, I know you mentioned there was a slight benefit from the 4Q securities repositioning and net interest income. I might have missed it, but could you just size that benefit in the quarter and then just what the remaining benefit could be for the rest of the year?

[James Herzog, CFO & Senior EVP at Comerica]

Yes. If you look at our net interest income slide, see that securities income overall was up $9,000,000 quarter to quarter. I would say just a little over half of that was due to the securities repositioning. The rest of it due to other factors such as just the normal maturities on a quarter to quarter basis. And so we have recognized I think most of that benefit going forward.

[James Herzog, CFO & Senior EVP at Comerica]

You see it in the run rate right now. And we will certainly have some additional securities just naturally mature as we move through the rest of the year here.

[Bernard Von Gizycki, Equity Research Analyst at Deutsche Bank]

Okay, great. Thanks for taking my question.

[Operator]

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

[Curtis Farmer, Chairman, CEO & President at Comerica]

Good morning, John.

[John Pancari, Senior Managing Director & Senior Research Analyst at Evercore ISI]

Good morning. On the expense front, you had a pretty good pretty solid operating expense quarter. Given this uncertain revenue backdrop, can you maybe discuss the degree of expense flexibility you have if revenue pressure persists longer than you had expected? And then also can you maybe give your thoughts on your ability to achieve positive operating leverage in 2025 and the degree of what you think could be reasonable? Thanks.

[James Herzog, CFO & Senior EVP at Comerica]

Yes. Good morning, John. As we indicated, I see the range of expense growth for us for 2025 to be in that 2% to 3% range that we mentioned. We are going to keep our eye on revenue trends and try to calibrate accordingly. But we do have a certain degree of flexibility there.

[James Herzog, CFO & Senior EVP at Comerica]

And I think that in this environment with all the uncertainty where it's very hard to predict where the year is going to go, I think we do it to be prepared to continue to take expense reduction steps if the revenue doesn't come. I will say at the same time, we are pretty committed to a lot of the investments we're making also. So we're certainly not going to turn down or turn off key investments that we're in the middle of making right now on the product side, the risk management side, getting ready for Category four. But as Kurt and I said earlier, we just plan on trying to calibrate as best we can to the overall PPNR stream that we see.

[John Pancari, Senior Managing Director & Senior Research Analyst at Evercore ISI]

Great. Thanks, Jim. And then separately on the M and A front, know you pride yourselves on your independence. And that said, there's clearly a need for scale that's developing and intensifying in the regional bank space and the regulatory backdrop might actually be improving to M and A. Is there anything that you look at that would lead to Comerica considering either being a buyer and pursuing a transaction on the whole bank side more actively than you may have in the past or conversely consider partnering with a larger acquirer?

[John Pancari, Senior Managing Director & Senior Research Analyst at Evercore ISI]

Thanks.

[Curtis Farmer, Chairman, CEO & President at Comerica]

John, I would say that we continue to be focused on our independence and we know we have to earn that right every day and certainly a long history as an institution. We've been a very patient acquirer and certainly right now I think the M and A environment is a little bit murky from a go forward standpoint, but we would certainly consider opportunities as they came along that made sense for us that were aligned with our strategic direction or focus as an organization will be complementary to our businesses, our geography, etcetera. That said, the number of institutions that sort of fit that category is fairly small. And so I think what we can focus on what we can control is what we've historically done which is organic growth. We've done a good job of that including expansion into some new markets like the Southeast, but also expansion into our existing markets.

[Curtis Farmer, Chairman, CEO & President at Comerica]

As you know, we operate in some of the largest MSAs in The U. S. And just great opportunities for us in markets like Dallas and LA and Houston and other markets that we operate in. And then maybe from the broader perspective, there's always noise about M and A in the industry. I've been doing this for over forty years and it ebbs and flows.

[Curtis Farmer, Chairman, CEO & President at Comerica]

I don't think personally that you're going to see a lot of M and A in the next twelve to eighteen months in the industry. And I go back to what I said earlier, we are focused really on our independence and believe we've got the right model to be successful going forward with the geographic balance we have, with the product line balance we have, with our commercial orientation, with the strategic investments that we've made and then all the financial underpinnings, strong capital position, strong liquidity and the bank that historically has managed well through credit cycles, especially if we end up facing a credit cycle in the next twelve, eighteen, twenty four months.

[John Pancari, Senior Managing Director & Senior Research Analyst at Evercore ISI]

Got it. Thank you so much. Appreciate it.

[Operator]

Thank you. The next question is coming from Chris McGratty of KBW. Please go ahead.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Great.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Good Good morning.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

On the balance sheet, I think in your prepared remarks, you talked about waiting for the back half of the year to really step up the reinvestment of the securities portfolio. I guess maybe a little bit inside of that view, what's driving that view? And then what could make you change your view of either stepping up the pace or restructuring the securities book like you did a little

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

bit in the fourth quarter?

[James Herzog, CFO & Senior EVP at Comerica]

Chris, in terms of how we size our balance sheet and securities positioning, we do keep an eye on our liquidity metrics and just the overall composition of the balance sheet. We do think we're a little high right now relative to the overall size of the securities portfolio given where the balance sheet is. So we're obviously in the very high teens right now. Historically, we've been kind of in that mid to upper teen range, and I would actually expect this one form to be again more in the upper teens, not just quite as high as we are today. So we do want to see it come down just a little bit more before we start reinvesting in the MBS.

[James Herzog, CFO & Senior EVP at Comerica]

And it's probably going to be in the fourth quarter of this year, but that's always dependent upon just the overall size of the balance sheet, liquidity needs, characteristics of our deposits. We have a pretty robust way of looking at that. In terms of securities repositioning, that is not something that we are a big fan of in terms of doing it in a big way. We did do a little hygiene in the fourth quarter, but we do think a better use of capital is to put it towards share repurchase, both in the second quarter and then hopefully throughout the remainder of the year also. We think that actually returns a higher return to shareholders more so than securities repositioning, where again it's just time geography, you still end up with the same TBB at the end of the day, whereas we think we can increase and improve tangible book value over time with share repurchase.

[James Herzog, CFO & Senior EVP at Comerica]

So that's where our focus is going to be. It's going to be more share repurchase and loan growth and supporting that loan growth as opposed to doing any kind of securities repositioning. Having said that, we may choose to do a little bit here and there. Again, it's just normal hygiene and smoothing out maturity schedules and so on, but it's not anything that we expect to

[James Herzog, CFO & Senior EVP at Comerica]

do in a real big way.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Okay, great. Thank you. And then

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

my follow-up on your slides where you highlight the higher risk portfolios and those portfolios haven't changed. Are there additional portfolios and maybe this was touched upon earlier that are you're looking at more closely given the tariff situation given your C and I book maybe within C and I where could we

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

be surprised if we are going to be surprised?

[Melinda Chausse, Senior EVP & Chief Credit Officer at Comerica]

Yes, Chris. Obviously our leverage portfolio in automotive which are considered higher risk we have great visibility and really good monitoring and tenured teams monitoring those portfolios. The other ones that are on high alert at this point would be anything related to manufacturing whose inputs are steel and aluminum, wholesale and retail trade and consumer discretionary. Watching all of those.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Great. Thank you.

[Melinda Chausse, Senior EVP & Chief Credit Officer at Comerica]

Welcome.

[Operator]

Thank you. The next question is coming from Anthony Ileon of JPMorgan. Please go ahead.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Good morning, Tony.

[Anthony Elian, Equity Research Analyst at JP Morgan]

Hi, everyone.

[Anthony Elian, Equity Research Analyst at JP Morgan]

On your outlook slide and for fee income specifically, does it assume an uptick in capital markets income And more broadly what are you seeing in that business now?

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

Yes. Tony, it's Peter. So in our capital markets business, it does assume a little bit of an uptick throughout the year. And if you think about what our business is made up of, it's our syndications business and what we do in some of our risk products for our customers. So interest rate, FX and energy.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

And then what we also do, we've started an M and A business that is pretty much in its second year of starting to generate positive fee income. So we're very excited about what's happening there. And then we do some work in our capital markets where we participate in bonds and securities offerings, which actually had a really good first quarter. So when we add it all together, we feel like 2025 is going to be an uptick year for our capital markets business. And so I think between activity levels, what we see out in the market opportunity wise that's something that we feel like is going to be a growth business through the year.

[Anthony Elian, Equity Research Analyst at JP Morgan]

Thank you. And then my follow-up. In the national dealer portfolio, you saw a decline in 1Q of about a couple of hundred million dollars. What are you hearing from that segment on potential supply chain impacts and the impacts from tariffs? Thank you.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

Yes. Tony, it's Peter again. I think what we're hearing is a little bit of to be determined. I think that what our customers would say is, they've had a great practice run at supply chain with COVID. And that was a period where the dealers actually performed really, really well.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

So it'll be interesting to see how many cars get sold this year. I mean, think the outlook is still over 15,000,000 cars to be sold. So it'll be interesting to see what that ultimately looks like, how much do prices get pushed on to consumers, what sort of car manufacturing looks like through the year. But as far as our dealer customers go, I think that they are very prepared to weather this, particularly again with what they've been through the last few years. So right now there's still a little bit of wait and see.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

And as I was describing earlier, I think a lot of our customer our dealer customers are probably they've definitely taken their foot off of the accelerator and are just kind of cruising to find out how things are going to play out here.

[Anthony Elian, Equity Research Analyst at JP Morgan]

Thank you.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Yes.

[Operator]

Thank you. The next question is coming from Brian Foran of Truist. Please go ahead.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Good morning, Brian.

[Brian Foran, Managing Director at Truist Securities]

Good morning. I wanted to ask one follow-up on your M and A and then one on loans. So on the M and A, I mean, I think we can all appreciate things are uncertain and murky, I think was the word you used. But just on this comment that you don't think there will be a lot of deal activity in the industry, I think you said for twelve to eighteen months. Is the murkiness, regulatory rules, the economy, interest rates and the marks, all of the above, maybe just kind of what's underneath the hood that you think is going to hold up deals for the next year or so?

[Curtis Farmer, Chairman, CEO & President at Comerica]

First of all,

[Curtis Farmer, Chairman, CEO & President at Comerica]

this is just my opinion. So no one knows for sure, but I think it's all of the above that you just mentioned.

[Brian Foran, Managing Director at Truist Securities]

Okay. And then on loan growth, what do you think the leading indicators are most likely to be over the next three to four months on whether this is a pause or kind of builds on itself? There is it commitments, utilization, certain sub portfolios you think will move first? Just any thoughts like if we're sitting here three months from now, what will be kind of the two or three metrics that will either be showing activity coming back or the pause building on itself?

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

Gosh, Brian. I mean, think it probably is a little bit of even the factors that we've talked about throughout the call. I mean, I do think what interest rates do and what the outlook there is for the rest of 2025 will be a factor. I we continue to stay out of a recession which we project that we will, I think our outlook we feel really, really good about it. So to the extent that macro economy continues to move in the direction it's moving, I think that's going to be a real positive for us across our geographies.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

And I think too when I look at all of our businesses, I think probably as Melinda discussed a little bit earlier, we're watching Michigan middle market, the auto situation there more than any. And that's probably where we've seen at least in our middle market businesses, the slowdown has occurred mostly in Michigan versus what we've seen in the Southeast Texas and California. So I think if we are sitting here next quarter and a number of the factors that we've got going on the economy continue to level out then I think that the we have we feel really good about. And as Jim said there may be some upside to that if things continue. If things were to go the other direction and you started to see the economy pull back stronger, you started to see unemployment tick up, you started to see interest rates going up instead of down.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

I think all of those are going to be a real headwind to loan demand in the second half of the year and really into 2026. So those are probably the big variables that we're watching.

[Brian Foran, Managing Director at Truist Securities]

Appreciate that. Thank you.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

Thanks, Brian.

[Operator]

Thank you. The next question is coming from Ben Gurlinger of Citi. Please go ahead.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Good morning, Ben.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

Hey, good morning.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

When you think about just kind of commentary, I know you kind of given geographic representation of like Michigan versus Texas, but when you think about the growth itself, some of your competition has grown a little bit. I'm sure some of it is just market share gain. But when you look at pricing and covenants, you seeing anything in the market that would kind of leave an indicator on kind of their growth? I wouldn't say name names or anything, but just kind of trying to think of the competitive market itself, people trying to lead with rate in order to

[Curtis Farmer, Chairman, CEO & President at Comerica]

kind of Ben, a little hard to hear you.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Can you.

[Curtis Farmer, Chairman, CEO & President at Comerica]

But did you hear the

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

I can

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

hear you.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

Yes. Ben, we're having a little trouble hearing you, but I think that you're asking about the competitive environment and whether or not rates or credit are impacting the competition. I think that's your question or at least that's what I'm going to answer based on what we thought you heard you say. And I guess I would say that it is extremely competitive right now. And I think that across all of our geographies we compete and our businesses we compete with lots of different institutions.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

I continue to feel like we want to stay really, really focused on being responsible on credit. I will tell you I think pricing in the industry has probably gotten a little more aggressive than it was ninety days ago. And again, I think each customer and each relationship warrants different decisions that you have to make at any one time. And I feel very confident in our ability to win on pricing. And I think that the value we provide to our customers ends up helping us win the business.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

So I also do think that the banks in general continue to be pretty responsible quite candidly across the board in a lot of these businesses when it comes to credit. So pricing is probably a bigger factor today than per se credit statistics that you see being put out. So that's what we think you asked,

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

Ben.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

Okay.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Thank you, Thank

[Operator]

you. We'll move on to the next question. Our next question is coming from Terry McEvoy of Stephens. Please go ahead.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Good morning, Terry.

[Terry Mcevoy, Managing Director at Stephens Inc]

Hi, good morning. Just one question left on my list. If I look at average loan growth in the other markets, it increased from 8,500,000,000.0 to $8,900,000,000 Could you maybe update us on the progress in the Southeast and the Mountain West region where you've been making investments and maybe I'm assuming that growth was within those two regions?

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

Yes. When we say other markets, it could actually also include some of our businesses we have we have offices in New York, we have offices in Boston, up in Washington, so sort of around the country. But I'll answer your question in general about the Southeast. It's a great story for us. We expect loan growth this year down there to be just fantastic north of 50%.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

We continue to add really, really good relationships. We're continuing to add bankers in the market all the way from Florida to North Carolina. And so that is very exciting for us. When we talk about the Mountain West, we're also very excited there. We've hired some new leadership to lead that whole region.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

We've hired new leadership in our Phoenix market. And we're trying to add bankers in both Denver and Phoenix. And so we're very excited about what those opportunities are as well. But when we say other markets too, it could be a lot of our we are a national bank even though we get described often as a regional bank, but we play around the entire country. We have customers in many, many states and cities.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

And so those could be some of the other markets that are included there as well.

[Terry Mcevoy, Managing Director at Stephens Inc]

Great. Thanks for that.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

Yes. Thanks Terry.

[Operator]

Thank you. The next question is coming from Nick Holico of UBS. Please go ahead.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Good morning, Nick.

[Nicholas Holowko, Director at UBS Group]

Good morning. Thanks for taking my question. Maybe just first one on expenses. I know last quarter in the past you've talked about working towards getting to that high 50s efficiency ratio over time in terms of reaching your ROTCE targets over the next couple of years. Just looking at the expense outlook and pairing that with the revenues, seems like it's still pointing to an upper 60 efficiency ratio type range in the second half.

[Nicholas Holowko, Director at UBS Group]

So how should we think about the timeline improving that efficiency ratio and when you think you can get back to that high 50s type range?

[James Herzog, CFO & Senior EVP at Comerica]

Yes. Good morning, Nick. It's Jim. Yes, we are expecting ourselves to move back into the 50% range at some point. That won't be real near term.

[James Herzog, CFO & Senior EVP at Comerica]

I will say with all this uncertainty, I think it's hard to make any kind of commitment right now until things become a little more clear in terms of where the economy is headed. But we do think that the key to achieving that ratio and moving into the 50s, We think first and foremost, it's going to be driven by revenue. And as you kind of model this out, it's really hard to expense save yourself into the 50s. I mean, can do that for any one year or two and make a little bit of progress. But if you start compounding that backwards, really start starving the bank of the investments it needs to make.

[James Herzog, CFO & Senior EVP at Comerica]

You get diminishing returns at some point. Conversely, we like what we have going in terms of revenue initiatives. We talked about some of those at the big investor conference in March. We do think that revenue has the potential to compound itself in an upward fashion over time. And so we are very much focused on a number of revenue initiatives, which again we laid out at that investor conference.

[James Herzog, CFO & Senior EVP at Comerica]

We'll be talking more about some of those revenue initiatives as time goes on. Having said that expenses are part of the equation. So we do need to be diligent in terms of how we manage expenses. We want to make sure that where we're spending money it's for investment and revenue oriented activities and making sure that we're managing those as tight as we can especially the discretionary expenses. So we have our eyes on both sides of the equation.

[James Herzog, CFO & Senior EVP at Comerica]

But really revenue over the next two, three, four years that's really what we think is going to start moving our efficiency ratio in the right direction.

[Nicholas Holowko, Director at UBS Group]

Understood. Thank you. And then maybe just one last one on the loan growth outlook. Obviously, backdrop kind of

[Nicholas Holowko, Director at UBS Group]

is what it is, but

[Nicholas Holowko, Director at UBS Group]

you highlighted the Environmental Services as being relatively more robust. Could you just remind us what sort of drives the strength in that business? And how long you think it can continue to sort of outperform here in this softer growth backdrop? Thank you.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

Yes, Nick. In the appendix on Slide 37 is a breakout of that business. And I think, we really talk about two verticals there, our waste management business, which continues to just grow with the economy, with population. I mean, it's a fantastic growth business for us. And then we've also started our renewables energy business that we show on the environmental services slide which is continues to be a real growth opportunity for us as well.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

I think when you look at that on an outlook quarter by quarter basis, I think we're going to continue to see just nice steady growth in really both of those verticals and we are really excited about continuing to add people and customers in that space.

[Nicholas Holowko, Director at UBS Group]

Got it.

[Nicholas Holowko, Director at UBS Group]

Thank you very much.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

Thanks, Nick.

[Operator]

Thank you. The next question is coming from Bill Carcache of Wolfe Research. Please go ahead.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Good morning, Bill.

[Bill Carcache, Equity Research Analyst at Wolfe Research]

Good morning. Just a quick follow-up on your comments around non interest bearing deposit growth potentially accelerating in the second half of the year. I believe you said you'd be willing to pay up for those. Would that be through earnings credits? If you could just unpack that a little bit, it would be helpful.

[James Herzog, CFO & Senior EVP at Comerica]

Yes, Bill, let me clarify that. When I talked about being willing to pay up for deposits, that was interest bearing deposits. So we do expect to see a small tick up in non interest bearing as we move through the latter part of the year. But the greater proportion of our deposit growth that we're projecting will be interest bearing deposits. Now broker deposits will continue to come down.

[James Herzog, CFO & Senior EVP at Comerica]

So we still think that non interest bearing percentage will stay in the upper 30s. But in terms of our core deposits, I believe we'll see more growth on the interest bearing side as we have a number of initiatives in place. And in many cases, we'll actually garner those deposits at pay rates similar to what we have today. But in some cases, we may be willing to pay up for those deposits. And again happy to do so to the extent we can be successful in gathering deposits.

[James Herzog, CFO & Senior EVP at Comerica]

So hopefully that helps clarify it.

[Curtis Farmer, Chairman, CEO & President at Comerica]

Yes. And Bill maybe just to emphasize there that's not a strategy of ours to pay up for interest bearing deposits, but it's more just what we think the market might give us as the year sort of plays out and things sort of settle down. Now if we sort of go through a recession etcetera that may be a different story as we typically have seen deposits grow for us especially in the non risk bearing category.

[Bill Carcache, Equity Research Analyst at Wolfe Research]

Understood. That's very helpful. Thank you for the clarification. If I may, since we're on the topic, could you elaborate a little bit on how you're thinking about the longer term trajectory of your sort of non interest bearing deposit growth sort of under different macro scenarios? Maybe it's been an important part of the Comerica story historically.

[Bill Carcache, Equity Research Analyst at Wolfe Research]

And as we sort of look to sort of a more normalized environment in the years ahead, how do you envision that part of

[James Herzog, CFO & Senior EVP at Comerica]

the business would be helpful? Yes, Bill. Non interest bearing deposits are a very key part of our business model as you point out. It's probably the biggest X factor especially in this rate environment for 2025 that we have. So we are watching those very closely.

[James Herzog, CFO & Senior EVP at Comerica]

We do think in this higher rate environment customers are a little more sensitized their mix of deposits. And so that has put some pressure on non interest bearing deposits. We do think that if and when rates start to lower a little bit we'll actually see that as a positive tailwind to growing non interest bearing deposits as customers become a little less sensitive to how they store their mix of deposits. We also expect to the extent we have some inflation which it looks like we may continue to have some inflationary environment with us. That does result ultimately in overall working capital levels needing to be larger for our customers.

[James Herzog, CFO & Senior EVP at Comerica]

So we would expect as the nominal economy grows that we would see non interest bearing deposits grow proportionately to that. And of course we're doing a lot on the product side with our treasury management services which are key to garnering additional non interest bearing deposits. So very much a focus of ours from a product development standpoint. And we also think just economic trends will also be beneficial to non interest bearing deposits. So it's been a little bit of a tough go on non interest bearing deposits the last couple of years but we do see some tailwinds going forward in the future.

[Bill Carcache, Equity Research Analyst at Wolfe Research]

That's very helpful. Thank you for taking my questions.

[Peter Sefzik, Senior EVP & Chief Banking Officer at Comerica]

Thank you, Bill.

[Operator]

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

[Curtis Farmer, Chairman, CEO & President at Comerica]

Well, as always, thank you for your ongoing interest in Comerica I hope you have a nice day.

[Operator]

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

Participants

Executives

• Kelly Gage, Senior VP & Director of Investor Relations
• Curtis Farmer, Chairman, CEO & President
• James Herzog, CFO & Senior EVP
• Peter Sefzik, Senior EVP & Chief Banking Officer
• Melinda Chausse, Senior EVP & Chief Credit Officer

Analysts

• Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets
• Scott Siefers, Managing Director & Senior Research Analyst at Piper Sandler Companies
• Ken Usdin, Senior Research Analyst at Autonomous Research
• Manan Gosalia, Equity Analyst at Morgan Stanley
• Bernard Von Gizycki, Equity Research Analyst at Deutsche Bank
• John Pancari, Senior Managing Director & Senior Research Analyst at Evercore ISI
• Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)
• Anthony Elian, Equity Research Analyst at JP Morgan
• Brian Foran, Managing Director at Truist Securities
• Ben Gerlinger, Vice President of Equity Research at Citigroup
• Terry Mcevoy, Managing Director at Stephens Inc
• Nicholas Holowko, Director at UBS Group
• Bill Carcache, Equity Research Analyst at Wolfe Research