Comerica Q2 2025 Earnings Report

Comerica EPS Results

• Actual EPS: $1.42
• Consensus EPS: $1.23
• Beat/Miss: Beat by +$0.19
• One Year Ago EPS: $1.49

Comerica Revenue Results

• Actual Revenue: $849.00 million
• Expected Revenue: $844.39 million
• Beat/Miss: Beat by +$4.61 million
• YoY Revenue Growth: N/A

Comerica Announcement Details

• Quarter: Q2 2025
• Date: 7/18/2025
• Time: Before Market Opens
• Conference Call Date: Friday, July 18, 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 Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong Q2 results with EPS of $1.42, up nearly 14% quarter-over-quarter, flat net interest income, and a lower efficiency ratio driving sizable net income and PPNR growth.
• Positive Sentiment: Loan balances grew across most segments—average loans +1% and period-end loans +3%—supported by new production for both new and existing customers and a solid pipeline.
• Negative Sentiment: Average deposits declined just over 1%, and deposit pricing pressure—reflected in a 67% beta—will likely weigh on net interest income in Q3.
• Positive Sentiment: Capital remains a strength with an estimated CET1 ratio of 11.94% (well above the 10% target), $100 million in share buybacks, $193 million returned to shareholders, and preferred stock redemption completed.
• Neutral Sentiment: 2025 outlook calls for full-year average loans flat to down 1%, 5–7% net interest income growth, ~2% growth in both noninterest income and expenses, and net charge-offs of 20–40 bps.

Presentation

[Operator]

Good morning, and welcome to Comerica Bank's Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. 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.

[Kelly Gage, Director - IR at Comerica]

Thanks, Jesse. Good morning, and welcome to Comerica's second 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 Suszik. During this presentation, we will be referring to slides which provide additional details. The presentation slides and our press release are available on the SEC's website as well as in the Investor Relations section of our website, comerica.com.

[Kelly Gage, Director - IR 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 presentation on slide two. Also, the presentation and this conference call will reference non GAAP measures.

[Kelly Gage, Director - IR at Comerica]

In that regard, I direct you to the reconciliations of these measures in the earnings materials 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]

Thank you, Kelly. Good morning, and thank you for joining our call. 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 businesses. While deposits came down modestly, favorable loan fee income and expense trends drove a sizable increase in both net income and PPNR.

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

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

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

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 interest income and non interest expense improved resulting in a lower efficiency ratio. Despite higher profitability, tax expense came down with the benefit of discrete items.

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

In all, we saw an impressive increase in profitability and we turned $193,000,000 to common shareholders through share repurchases and dividends, while keeping capitalization strong. We continue to feel well positioned to support our customers and drive growth in our business. Now, I'll turn the call over to Jim to go into some more details.

[James Herzog, CFO & Senior EVP at Comerica]

Thanks Kurt and 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 most 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 $400,000,000 with increases in environmental services and commercial real estate offsetting decreases in equity fund services and total utilization remained relatively unchanged.

[James Herzog, CFO & Senior EVP at Comerica]

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 BISB cessation more than offset the tailwind of our 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 remained flat at 38% for the fourth consecutive quarter demonstrating stability in our compelling funding mix.

[James Herzog, CFO & Senior EVP at Comerica]

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. Just this quarter, we delivered two new real time payment solutions providing additional flexibility for our customers.

[James Herzog, CFO & Senior EVP at Comerica]

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 declined with paydowns and maturities offsetting lower unrealized losses. We continue to expect AOCI improvement over time with the benefit of ongoing pay downs and maturities. Beyond periodic purchases to replace attrition, we are not currently expecting more meaningful securities reinvestments until late this year. Turning to Slide eight, net interest income remained stable at $575,000,000 for the third consecutive quarter as higher loans offset the impact of deposits.

[James Herzog, CFO & Senior EVP at Comerica]

The lower benefit from Bisbee 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. Credit quality as shown on slide nine 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.

[James Herzog, CFO & Senior EVP at Comerica]

Persistent inflation and elevated rates continue to pressure customer profitability in certain businesses driving expected normalization in 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. Trade policy developments impacted the economic forecast, but our coverage ratio remained unchanged at 1.44% 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 us well to support our customers. On slide ten, second quarter non interest income increased $20,000,000 with growth across most customer line items as we saw higher loan volumes, less economic uncertainty and some seasonal benefits.

[James Herzog, CFO & Senior EVP at Comerica]

Capital markets income improved $11,000,000 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. Income related to deferred compensation increased but was offset in higher expenses. And fiduciary income did increase seasonally. Overall, we are pleased with the improvement in customer related fee income and look to sustain this momentum in the future quarters. Expenses on slide 11 decreased $23,000,000 over the prior quarter largely due to lower litigation related expenses and salaries and benefits.

[James Herzog, CFO & Senior EVP at Comerica]

Seasonal declines related to incentive compensation more than offset higher deferred compensation and merit increases. We saw a $3,000,000 reduction in expenses from changes in the FDIC special assessment and conversely saw $3,000,000 increases in both outside processing and advertising expenses. Notable items favorably impacted expenses in the quarter, including net litigation benefits, gain on sale of assets and an interest recovery for a state tax matter. Recognizing that we may not see the same benefit from notable items in future quarters, we remain disciplined in our focus to drive improved efficiency over time. 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.

[James Herzog, CFO & Senior EVP at Comerica]

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. We went in the forward curve reduced unrealized losses in AOCI contributing to a 22 basis point improvement in our tangible common equity ratio. Even with the dynamic market, robust loan growth and the redemption of our preferred stock, we increased our share repurchases to $100,000,000 in the second quarter. 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.

[James Herzog, CFO & Senior EVP at Comerica]

Although economic uncertainty persists, customers appear to be navigating the environment and beginning to invest in their businesses. Second quarter results exceeded expectations and pipelines and activity levels remain 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 full year average deposits down 2% to 3% in 2025 with relatively flat customer deposits and a deliberate reduction in brokered CDs. 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.

[James Herzog, CFO & Senior EVP at Comerica]

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. 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. However, we believe deposit trends may offset benefit as we have seen slightly lower non interest bearing balances with the continued high rate environment.

[James Herzog, CFO & Senior EVP at Comerica]

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 drag 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 full year results to the lower end of our 5% to 7% range. We continue to expect full year 2025 non interest 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.

[James Herzog, CFO & Senior EVP at Comerica]

Given the second quarter benefits of deferred compensation and CVA within capital markets, We expect third quarter to be relatively flat, but that still assumes customer related growth quarter over quarter. Our outlook for full 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 twenty twenty five, 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. 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 full year net charge offs to be in the lower end of our normal 20 to 40 basis point range.

[James Herzog, CFO & Senior EVP at Comerica]

Looking at taxes, we saw an improvement in our anticipated 2025 tax rate now down to approximately 20 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. With an estimated CET1 at just under 12%, we feel we have ample capacity to continue share repurchases and we intend to repurchase approximately $100,000,000 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 and the regulatory landscape as these factors may also influence our strategy.

[James Herzog, CFO & Senior EVP at Comerica]

Overall, we expect continued momentum to drive balance sheet growth while maintaining strong capital, which together position us to drive favorable returns over time. Now I'll turn the call back to Curt.

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

Thank you, Jim. As I mentioned in my opening remarks, we are incredibly proud of this quarter's results. We feel our conservative capital, credit and liquidity management provide a solid foundation to consistently support our customers. Further, with our orientation towards growth 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.

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

We expect to benefit from 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.

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

And we look forward to demonstrating the additional growth potential we see in our business in the coming quarters. Before we go to Q and 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. With that, we'd be happy to take your questions.

[Operator]

Thank you. Ladies and gentlemen, we will now be conducting our question and answer session. Our first question is coming from the line of Manon Gosalia with Morgan Stanley. Please proceed with your question.

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

Good morning. Good morning.

[Manan Gosalia, Head - U.S. Midcaps Banks Research at Morgan Stanley]

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?

[James Herzog, CFO & Senior EVP at Comerica]

Yes. Good morning, Manon. It's Jim. Happy to go through some of those primary drivers. 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.

[James Herzog, CFO & Senior EVP at Comerica]

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. 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. The second is we do expect to benefit from stronger deposits both in the third quarter and beyond.

[James Herzog, CFO & Senior EVP at Comerica]

And that's important because that will help fund our loan growth. 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. 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. The first of these is the redemption of our preferred stock.

[James Herzog, CFO & Senior EVP at Comerica]

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. The second is pay rates on deposits. 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.

[James Herzog, CFO & Senior EVP at Comerica]

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 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. 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. 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.

[James Herzog, CFO & Senior EVP at Comerica]

The net of all this is that pay rates will likely step up in the third quarter to at least twice the increase of the four bps that you saw in Q2 and that's assuming a flat rate environment. Now regarding betas, totally independent of these increases I just talked about, we do expect to have maybe a little bit less than our standard data for the first FOMC reduction. And just a reminder, we do use the forward curve as of quarter end. 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.

[James Herzog, CFO & Senior EVP at Comerica]

And we would expect deposit pay rates to settle down and betas to return back to normal once we get in the fourth quarter. So that's really some of the mechanics. Peter, I don't know if there's any color that you want to add there.

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

Well, I might just add, Madam, 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. 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 whether or not those are interest bearing or non interest bearing.

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

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.

[James Herzog, CFO & Senior EVP at Comerica]

And really, I'd say, getting ready for 2026 and beyond, just having that good granular deposit base. This is really a good long term move, we think.

[Manan Gosalia, Head - U.S. Midcaps Banks Research at Morgan Stanley]

Got it. Okay. That's very thorough. I appreciate that. Maybe if I can ask the same question on the expense side.

[Manan Gosalia, Head - U.S. Midcaps Banks Research at Morgan Stanley]

The guidance implies, I think, if I'm calculating correctly, a $600,000,000 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. I was wondering if you could help us with how you're thinking about the expense side as well?

[James Herzog, CFO & Senior EVP at Comerica]

Yes. It's Jim again. Yes, your math is essentially correct. Let's keep in mind that we did have an incredible second quarter on expenses, beating our outlook at 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.

[James Herzog, CFO & Senior EVP at Comerica]

I would say there were some project expense that was deferred from the second quarter to the second half of the year. So as I look at the increase in the second quarter to the third, notable items assumed not to repeat, it is the largest component of that as we outlined in the slide. 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. 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 decreases that we'll pocket for the second quarter.

[James Herzog, CFO & Senior EVP at Comerica]

But we still want to continue with the same projects and investment that we'd always originally anticipated.

[Manan Gosalia, Head - U.S. Midcaps Banks Research at Morgan Stanley]

That's great. Thanks so much.

[Operator]

You. Our next question is coming from the line of Jon Arfstrom with RBC Capital Markets. Please proceed with your question.

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

Good morning, Jon.

[Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets]

Hey, good morning. I heard 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 how should we think about longer term loan growth potential beyond maybe a quarter or two?

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

Yes, John, it's Peter. 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.

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

Our pipelines grew and we're feeling pretty good about the second half of the year. 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 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 2026.

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

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.

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

So really across the board, I think we feel pretty good about it. If I were to try to quantify it John, I would say, 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 some sort of major event in the economy that we don't see at the moment.

[Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets]

Okay. Good. That's helpful. 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 of 5% to 7% range. How do you get off that 5%?

[Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets]

What needs to happen to generate NII growth that's maybe midpoint or higher in the range? Thank

[James Herzog, CFO & Senior EVP at Comerica]

John, if you're talking shorter term, 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, probably in the short term, I think that non interest bearing deposits is still very much an X factor. So I would say seeing some stability and an inflection point in non interest bearing deposits, which is something we and from what I can tell this quarter, the whole industry is still kind of waiting for.

[James Herzog, CFO & Senior EVP at Comerica]

I think that would be probably the biggest X factor out there.

[Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets]

All right. Thank you very much.

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

Thanks, John.

[Operator]

Thank you. The next question is coming from the line of David George with Baird. Please proceed with your question.

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

Good morning, David.

[David George, Senior Research Analyst at Baird]

Hey, guys.

[David George, Senior Research Analyst at Baird]

Hey, guys. Good morning. Hey, question for Kurt. 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.

[David George, Senior Research Analyst at Baird]

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, and it was October 6, obviously, a long time ago. Stock hit 60 was $61 that day. And today, twenty five years later, we're at $62 And then if I look at kind of where you were in 2018, 2019, the stock is down 3025%, 30%.

[David George, Senior Research Analyst at Baird]

Revenues are down and expenses are up. 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.

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

Hey, David. That was a lot of information in that question, but let me try to address it for you. First of all, the if you go back to 2018, 2019, 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, was really a peak for us and we sort of saw record performance in 2022 heading into 2023. And then we had the regional bank crisis.

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

Then 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 loan 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.

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

We're very excited about the structural tailwinds that we've got on NII from a forward

[David George, Senior Research Analyst at Baird]

Curt, I'm sorry to interrupt. Your loans have been flat for a decade.

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

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 ten year prior period of time, but we did do some rationalization in the portfolio, which brought down loan growth. And I can't go back and sort of recap 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. 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, investment in our investment in payments and treasury management, wealth management, some of the other things that we've been doing in capital markets.

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

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 lean into those things on a go forward basis.

[David George, Senior Research Analyst at Baird]

Again efficiency is going the wrong direction. Okay. And you're happy with the performance and so forth and the Board is as well?

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

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.

[David George, Senior Research Analyst at Baird]

Okay. Sounds great.

[Operator]

Thank you. Our next question is coming from the line of Bernard Von Gazzicchi with Deutsche Bank. Please proceed with your question.

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

Hey guys, good morning. So just on if the $100,000,000,000 asset threshold on Cat four is moved based on inflation and gets to say $130,000,000,000 or gets moved to $250,000,000,000 how would either one of these ranges impact your willingness and timeline to pursue a whole bank acquisition if that's in play?

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

Thank you, Bernard. I just would say that and I've said this consistently the last couple of years, the 100,000,000,000 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 continue 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 acquirer, something which still have to make a lot of strategic sense for us, be aligned with one of our primary geographies, a good cultural fit, etcetera.

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

So we're aware of the landscape and we'll continue to be aware of the landscape, but believe that we've got good growth dynamics based on organic as our primary focus.

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

Okay. And just as a follow-up, you noted some seasonality in deposits during the quarter and I think you've pointed out customer utilization of funds for funding capital investments. Do you expect to see clients utilize deposit funds like kind of in the second half, like what you're hearing or expecting on this front?

[James Herzog, CFO & Senior EVP at Comerica]

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 going forward. We'll continue to monitor that. But we did have an inflection point in the second quarter.

[James Herzog, CFO & Senior EVP at Comerica]

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 did continue maybe a little later than I would have hoped for. But again, we saw an inflection point halfway through the quarter and just feels like we have some really good trajectory. And I'll just say even as I look at the July, that seems to continue. So I think we've kind of moved past a lot of it.

[James Herzog, CFO & Senior EVP at Comerica]

And I think some of these positive tailwinds with deposits will probably drowned out any use of funds going forward is what I'm kind of seeing here.

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

Okay, great. Thanks for taking my question.

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

Thank you.

[Operator]

Thank you. The next question is coming from the line of Mike Mayo with Wells Fargo. Please proceed with your question.

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

Good morning, Mike.

[Mike Mayo, MD & Head - US Large-Cap Bank Research at Wells Fargo]

Good morning.

[Mike Mayo, MD & Head - US Large-Cap Bank Research at Wells Fargo]

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. 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 I guess you've had one hundred and thirty five years at Comerica. And the question is at what point do you say, you know what, we need to scale this up.

[Mike Mayo, MD & Head - US Large-Cap Bank Research at Wells Fargo]

The longer version of this question is, as you know, think you were in the room, Curt, when I came to the annual meeting a decade ago and there are like five to 10 other institutional investors in the room and I asked the same question. And I recognize your comments today that you're rebuilding, you have some tailwinds quarter over 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 was came to the meeting a decade ago. The returns are about worst in class only better than Citigroup, which coincidentally I recommend still also 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 I've done this for twenty five years, I stack rank the CEO stock performance versus the BTX and unfortunately for the bottom by a big margin since you arrived the stock's down 21%, the BTX up 43%, the S and P is up a lot more.

[Mike Mayo, MD & Head - US Large-Cap Bank Research at Wells Fargo]

So maybe the market is really missing a story here, maybe you're about to have a hockey stick improvement. So if you could just educate me on why a decade later America has continued to earn the right to remain independent? Thank you.

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

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 sixty days or so as the KBW and the KRE has as well. 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 talked about earlier that we believe will continue to position us well from a performance standpoint NII etcetera the next couple of years.

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

We continue to see nice growth across the portfolio on the lending side and we're going lean into that in the second half of the year. And again, I can't go back and sort of 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, 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 one hundred and thirty five years is actually one hundred and seventy five years.

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

But having said all that, we are aware of the landscape and we are always going to do the right thing by our shareholders. And we understand responsibility related to that. And so does our management team and so does our Board and we take the return to our shareholders very, very seriously.

[Mike Mayo, MD & Head - US Large-Cap Bank Research at Wells Fargo]

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

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

Yes. Mike, I may have overstated that when I asked the question. I was asked about the industry overall at the end of or at the first quarter call. And you might recall at that time when you certainly recall lots of volatility whether it's geopolitical or the trade policy and the uncertainty related to it. And it just felt like that that might sometimes when you're heading into uncertainty or possibly a credit cycle etcetera across the industry that can tend to dampen M and A.

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

But since then we've seen a couple of deals happen. It feels like that maybe there's a more favorable regulatory environment around M and A. And as the noise settles down some around economic certainty, geopolitical certainty, etcetera, I think it is likely that you're probably going to see a bit more M and A than we've seen previously. And it just continues to factor into what we think about overall, whether we'd be an acquirer or continue to pursue our organic growth or whether we'd ever entertain something from a third party.

[Mike Mayo, MD & Head - US Large-Cap Bank Research at Wells Fargo]

All right. We'll watch that volatility and your rebuilding and the tailwinds. Thank you.

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

Thanks Mike.

[Operator]

Thank you. Our next question is coming from the line of Anthony Elion with JPMorgan. Please proceed with your question.

[Anthony Elian, Equity Research – Banks at J.P. Morgan]

Yes. Hi, everyone. On the 4Q NII guide of up 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 4Q, particularly if you expect both strong customer deposit growth in 4Q and the momentum in loan growth is expected to persist?

[James Herzog, CFO & Senior EVP at Comerica]

Yes. Good morning, Tony. 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 onetime reset.

[James Herzog, CFO & Senior EVP at Comerica]

We would expect to kind of track the market once we get into any kind of fourth quarter environment, whether that be the FOMC cut or just the general competitive environment. We probably to be said, we see any increase in deposit pay rates in the fourth quarter, think it would be accompanied by higher deposits, which net net would be a benefit for the bank. But again, it kind of view what's going on in the third quarter. It's a little bit of a onetime reset here. Again, we're not going to be sending out $400,000,000 of preferred cash every quarter either.

[James Herzog, CFO & Senior EVP at Comerica]

So there are just some unique events that are occurring as we move from the second quarter to the third quarter.

[Anthony Elian, Equity Research – Banks at J.P. Morgan]

Okay. And then if I look at the bottom of Slide three, you're calling out payments products such as real time solutions, embedded finance. We had the house passed the stablecoin bill last night. I'm just thinking about the additional opportunities that could exist with stablecoins complementing everything you're doing on payments and the role that banks could play. Is this a technology you guys are considering leveraging down the road? Or is it still too early? Thank you.

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

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. 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.

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

And we do think we're making really good investment in payments 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 monitoring the situation. We're going to stay really close to it. We've got the right products, talent and awareness.

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

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.

[Anthony Elian, Equity Research – Banks at J.P. Morgan]

Thank you.

[Operator]

Thank you. The next question is coming from the line of Chris McGratty with KBW. Please proceed with your question.

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

Good morning, Chris.

[Andrew Leischner, AVP - Equity Research at Keefe, Bruyette & Woods (KBW)]

Hey, how's it going? This is Angela Eichter on for Chris McGratty. In your prepared remarks, 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.

[James Herzog, CFO & Senior EVP at Comerica]

I'm not sure I heard that question.

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

It was deposit pricing. Is that correct?

[Andrew Leischner, AVP - Equity Research at Keefe, Bruyette & Woods (KBW)]

Yes. Just an update on what you're seeing in terms of your near term expectations for deposit cost repricing and any opportunities you're seeing going forward?

[James Herzog, CFO & Senior EVP at Comerica]

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 yes, I'm not sure I would add a lot on to what I had mentioned a few minutes ago in terms of just where we see deposit pricing going.

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

Yes. 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. So 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.

[Andrew Leischner, AVP - Equity Research at Keefe, Bruyette & Woods (KBW)]

Okay, great. Thank you. And then just on credit, you provide a little more color on the increase in criticized loans this quarter? I think in the deck, it looks like the leverage loan criticized has up a little higher. So any thoughts there? Thanks.

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

Chris, this is Melinda. Yes, the increase in the criticized this quarter, I would call it 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.

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

One, I would call more luxury goods and the other in two segments that are under some pressure already so that we the liquor industry and then transportation, freight and things like that. So that's really the commonality is the consumer is the end customer and then all of them are pressured by this longer higher or longer rate environment, which is obviously putting pressure on profitability. So other than those commonalities, the book has continued to perform quite well. And what you don't really see in the chart 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.

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

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.

[Andrew Leischner, AVP - Equity Research at Keefe, Bruyette & Woods (KBW)]

Okay, great. Thank you for taking the questions.

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

You're welcome.

[Operator]

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.

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

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

[Operator]

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.

Participants

Executives

• Kelly Gage, Director - IR
• 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

• Manan Gosalia, Head - U.S. Midcaps Banks Research at Morgan Stanley
• Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets
• David George, Senior Research Analyst at Baird
• Bernard Von Gizycki, Equity Research Analyst at Deutsche Bank
• Mike Mayo, MD & Head - US Large-Cap Bank Research at Wells Fargo
• Anthony Elian, Equity Research – Banks at J.P. Morgan
• Andrew Leischner, AVP - Equity Research at Keefe, Bruyette & Woods (KBW)