Earnings call transcript: Comerica Q2 2025 results show steady growth

Comerica Inc. reported a solid second quarter of 2025, showcasing a 14% increase in earnings per share (EPS) compared to the previous quarter, reaching $1.42. The company maintained stable net interest income at $575 million and saw an increase in average and period-end loans. With a market capitalization of $10.17 billion and a healthy dividend yield of 3.67%, Comerica has demonstrated remarkable strength, achieving a 51.6% return over the past six months. Despite competitive pressures in the deposit market, Comerica’s stock price rose by 2.27% to $77.37, reflecting investor confidence in its strategic direction. InvestingPro analysis suggests the stock is currently trading near its Fair Value.

Key Takeaways

• EPS increased by 14% quarter-over-quarter to $1.42.
• Net interest income remained stable at $575 million.
• Stock price increased by 2.27% following the earnings announcement.
• The company launched new real-time payment solutions.
• Comerica anticipates modest deposit growth in upcoming quarters.

Company Performance

Comerica demonstrated robust performance in Q2 2025, with significant growth in earnings per share and loan volumes. The company’s strategic focus on payments and wealth management, along with its strong geographic presence, contributed to its competitive edge. Despite a challenging deposit environment, Comerica’s diverse deposit mix and competitive pricing strategies helped it outperform industry averages.

Financial Highlights

• Revenue: Not specified in the earnings call summary.
• Earnings per share: $1.42, up 14% from the previous quarter.
• Net interest income: $575 million, stable compared to previous periods.
• Average loans: Increased by almost 1%, with period-end loans up approximately 3%.
• Return to shareholders: $193 million through dividends and share repurchases.

Outlook & Guidance

Comerica’s guidance for the remainder of 2025 includes expectations for flat to slightly down average loan growth. The company projects a 5-7% increase in net interest income and a 2% growth in noninterest income for the full year. Modest deposit growth is anticipated in the third and fourth quarters, while noninterest expenses are expected to rise by 2% year-over-year.

Executive Commentary

CEO Curt Farmer expressed pride in the quarter’s results, highlighting the successful execution of the company’s strategy. He emphasized Comerica’s focus on generating positive operating leverage and achieving key milestones.

Risks and Challenges

• Competitive deposit market: The ongoing competitive environment may impact Comerica’s ability to attract low-cost deposits.
• Economic uncertainty: Fluctuations in economic conditions could affect customer confidence and business investments.
• Regulatory changes: Potential changes in asset thresholds could influence Comerica’s merger and acquisition strategy.
• Interest rate environment: Variability in interest rates may impact net interest income and loan demand.
• Technological advancements: Rapid changes in financial technology require continuous investment and adaptation.

Q&A

During the earnings call, analysts inquired about Comerica’s approach to deposit pricing and its impact on competitive positioning. Questions also focused on the potential effects of asset threshold changes on the company’s merger and acquisition strategy, as well as the long-term performance of Comerica’s stock. Executives addressed concerns about credit quality and criticized loans, providing reassurance about the company’s strategic direction.

Full transcript - Comerica Inc (CMA) Q2 2025:

Jessie, Conference Operator: Good morning and welcome to Comerica Incorporated’s second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press 0 on your telephone keypad. 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 of Investor Relations, Comerica: Thanks, Jessie. Good morning and welcome to Comerica’s second quarter 2025 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 Chausse, and Chief Banking Officer Peter Sefzik. During this presentation, we will be referring to slides which provide additional details. The presentation slides and our press release are available on the SEC’s website as well as in the Investor Relations section of our website comerica.com. 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 2.

Also, the presentation and this conference call will reference non-GAAP measures. 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 Curt, who will begin on Slide 3.

Curt Farmer, President, Chairman and CEO, Comerica: Thank you, Kelly. Good morning, everyone, 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. 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 persist, 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.

Jim Herzog, Chief Financial Officer, Comerica: Moving to a summary of the second quarter on slide 4, we reported earnings.

Curt Farmer, President, Chairman and CEO, Comerica: Per share of $1.42, representing an almost 14% increase over the prior quarter.

Jim Herzog, Chief Financial Officer, Comerica: Loans.

Curt Farmer, President, Chairman and CEO, Comerica: Grew throughout the quarter and offset deposit pressures as net interest income remained flat, credit quality continued to perform well, and both noninterest income and noninterest expense improved, resulting in a lower efficiency ratio. Despite higher profitability, tax expense came down with the benefit of discrete items. In all, we saw an impressive increase in profitability and returned $193 million to common shareholders through share repurchases and dividends. While keeping capitalization strong, we continue to.

Jim Herzog, Chief Financial Officer, Comerica: Feel well positioned to support our customers.

Curt Farmer, President, Chairman and CEO, Comerica: We drive growth in our business. I will turn the call over to Jim to go into some more details.

Jim Herzog, Chief Financial Officer, Comerica: Thanks Curt and good morning everyone. Beginning with loans on slide 5, 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 in equity fund services declined, period end trends were up with an improved outlook for private equity and venture capital in both deal activity as well as fundraising. Total commitments increased by $400 million with increases in environmental services and commercial real estate offsetting decreases in equity fund services, and total utilization remained relatively unchanged. Pipeline activity was strong even after closing new opportunities, reflecting continued positive momentum. Average loan yields came down 3 basis points as the smaller benefit from BS vision more than offset the tailwind of our maturing swap portfolio.

On slide 6, 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. Noninterest bearing deposits as a percentage of total deposits remained flat at 38% for the fourth consecutive quarter, demonstrating stability in our compelling funding mix. Deposit pricing increased 4 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. 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 7 declined with pay downs and maturities offsetting lower unrealized losses. We continue to expect AOCI improvement over time with the benefit of ongoing paydowns and maturities beyond periodic purchases to replace attrition. We are not currently expecting more meaningful securities reinvestments until late this year.

Turning to Slide 8, net interest income remained stable at $575 million for the third consecutive quarter as higher loans offset the impact of deposits. 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 2 basis point reduction in net interest margin. We continue to see promising trends for net interest income over time given the structural tailwinds associated with our swap and securities portfolios, coupled with the objective of balance sheet growth. Credit quality, as shown in Slide 9, remained relatively stable. Net charge-offs of 22 basis points were at the low end of our normal range and effectively flat compared to last quarter.

Persistent inflation and elevated rates continue to pressure customer profitability in certain businesses, driving expected normalization and criticized loans largely concentrated in middle market.

Curt Farmer, President, Chairman and CEO, Comerica: This quarter.

Jim Herzog, Chief Financial Officer, Comerica: Nonperforming 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 forecasts, 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 10, second quarter noninterest income increased $20 million with growth across most customer line items as we saw higher loan volumes, less economic uncertainty, and some seasonal benefits. Capital markets income improved $11 million with higher syndication fees and derivative income, which included increased interest rate hedging and foreign exchange activity.

In addition to the quarter-over-quarter benefit in CBA, income related to deferred compensation increased but was offset in higher expenses, and fiduciary income did increase seasonally. Overall, we were pleased with the improvement in customer-related fee income and look to sustain this momentum into future quarters. Expenses on Slide 11 decreased $23 million over the prior quarter largely due to lower litigation-related expenses and salaries and benefits. Seasonal declines related to incentive compensation more than offset higher deferred compensation and merit increases. We saw a $3 million reduction in expenses from changes in the FDIC Special Assessment and conversely saw $3 million increases in both outside processing and advertising expenses. 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 Common Equity Tier 1 (CET1) ratio of 11.94%, well above our strategic target even after returning capital to shareholders. Our strong capital position afforded us the opportunity to redeem preferred stock, avoiding a more punitive coupon reset but also resulting in a slight negative drag to EPS this quarter from costs related to the preferred stock redemption. Movement in the forward curve reduced unrealized losses in AOCIAT, 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 million 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. 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 strong, supporting our outlook for consistent growth in the third and fourth quarters. We expect to see the second half growth across most of our businesses excluding commercial real estate. Our deposit forecast remains unchanged as we expect 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. Although we anticipate continued success in winning interest bearing balances, we believe our noninterest 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 that benefit as we have seen slightly lower noninterest bearing balances with a continued high rate environment. Further, we expect upward pressure on deposit pricing as we fund robust loan growth and successfully execute on our strategic deposit growth initiatives.

Lastly, while the redemption of a 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 to 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 noninterest income to grow 2%. We saw favorable trends this quarter and we anticipate continued momentum in customer related fees in the second half of the year. Given the second quarter benefits of deferred compensation and CBA within capital markets, we expect third quarter to be relatively flat, but that still assumes customer related growth quarter over quarter.

Our outlook for full year 2025 noninterest expenses improved as we now project only 2% growth year over year with the benefit of strong expense performance year to date. As we look at the second half of 2025, we expect to see an increase in the third quarter driven largely by the impact of second quarter notable items, seasonality, inflationary pressures, and our ongoing strategic focus to drive revenue. 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.

Looking at taxes, we saw an improvement in our anticipated 2025 tax rate, now down to approximately 22% excluding discrete items. Moving to capital, we appreciate the flexibility that our conservative capital position affords us and we intend to maintain a Common Equity Tier 1 (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 million of common stock in the third quarter. As we consider future capital decisions, we intend to continue our measured approach calibrating the size and frequency of future repurchases with expected loan trends. We also plan to monitor the economic environment, our profitability, and the regulatory landscape as these factors may also influence our strategy.

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.

Curt Farmer, President, Chairman and CEO, 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.

Jim Herzog, Chief Financial Officer, Comerica: Further, with our orientation towards growth markets.

Curt Farmer, President, Chairman and CEO, Comerica: Proven commercial model and long-tenured customer relationships, we felt well positioned to grow alongside the economy as customer demand continues to increase. We saw evidence of that this quarter. We expect to benefit from the maturities of our swaps and securities portfolios, which.

Jim Herzog, Chief Financial Officer, Comerica: Create a structural tailwind to net interest income.

Curt Farmer, President, Chairman and CEO, Comerica: 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. 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. 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.

Jessie, Conference Operator: Thank you. Ladies and gentlemen, we will now be conducting our question and answer session. We ask that you please unmute yourself. Just one question and one follow-up, and then requeue for any additional questions. If you would like to ask a question, please press Star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press Star two if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that is Star one to ask a question at this time. Our first question is coming from the line of Manon Gosalia with Morgan Stanley. Please proceed with your question.

Jim Herzog, Chief Financial Officer, Comerica: Morning.

Curt Farmer, President, Chairman and CEO, Comerica: Good morning.

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. I was wondering if you could give us some more color on that.

Jim Herzog, Chief Financial Officer, 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. 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. 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. That’s important because that will help fund our loan growth.

The third is just the continued maturity of our swaps and securities and that will continue for many quarters to come. Those are positives that we’ll see both in the third quarter and will continue. We do have some headwinds in the third quarter and we think they may more than offset the tailwinds. Importantly, we think these are just for the third quarter and then we think the tailwinds take back over in the fourth quarter. The first of these is the redemption of our preferred stock. 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. 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. We do expect pay rates to take a larger step up in the third quarter compared to the second. I’ll maybe break that into two components. About half of that pay rate increase is an increase in selected consumer pay rates that we made towards the end of the second quarter, which is really just us staying dialed into the market and calibrating our strategy with the rate curve, which has been pushed out, as well as considering our loan growth that we expect and other factors. 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. 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. 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 4 bps that you saw in Q2. 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 beta for the first FOMC reduction. Just a reminder, we do use the forward curve as of quarter end. I might just refer you back to my opening comments for maybe some smaller drivers.

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. We would expect deposit pay rates to settle down and betas to return back to normal once we get in the fourth quarter. 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, Chief Banking Officer, Comerica: I might just add, Marlon, that we’re having really good success growing deposits. 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. We have, I 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 noninterest bearing. That’s a little bit of where the timing is right now. We view it as a positive outlook about how things are growing for the company.

Jim Herzog, Chief Financial Officer, Comerica: 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.

Got it. Okay. That’s very thorough. I appreciate that. Maybe if I can ask the same question on the expense side, the guidance implies, I think if I’m calculating correctly, a $600 million expense number roughly for 3Q and 4Q, and that’s a meaningful step up versus 2Q, even if you adjust for some of those one-timers in there. I was wondering if you could help us with how you’re thinking about the expense side as well.

Yeah, it’s Jim again. Yeah, your math is essentially correct. Let’s keep in mind that we did have an incredible second quarter on expenses, beating our outlook and consensus significantly. Some of that, as you say, and I mentioned earlier, was due to the notable items that we outlined on the expense slide. I would say there was some project expense that was deferred from the second quarter to the second half of the year. As I look at the increase in the second quarter to the third, notable items assumed not to repeat is the largest component of that, as we outlined in the slide. We also do have some seasonalities, which we typically do in the third quarter, and some inflation. 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.

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, but we still want to continue with the same projects and investment that we’d always originally anticipated.

That’s great. Thanks so much.

Thank you.

Jessie, Conference Operator: Thank you. Our next question is coming from the line of John Armstrong with RBC Capital Markets. Please proceed with your question.

Curt Farmer, President, Chairman and CEO, Comerica: Morning, John.

Peter Sefzik, Chief Banking Officer, Comerica: Hey, good morning.

Jim Herzog, Chief Financial Officer, Comerica: Jim or Peter, you referenced it, but can you give.

Peter Sefzik, Chief Banking Officer, Comerica: us a little bit more on the loan pipelines and activity? It sounds like things are a lot better, but is there a way to quantify it, and you know, how should we think about that?

Jim Herzog, Chief Financial Officer, Comerica: We think about longer term loan growth.

Peter Sefzik, Chief Banking Officer, Comerica: Potential beyond maybe a quarter or two? Yeah, John, it’s Peter. Quantifying it probably.

Jim Herzog, Chief Financial Officer, Comerica: A little harder to do.

Peter Sefzik, Chief Banking Officer, Comerica: I would say that from the last quarter, it definitely seems like we’ve seen improvement. Our manager surveys came in more positive, which we thought they would, and I articulated at the conference earlier this quarter. Pretty much across the board, we saw some really good uptick in loan growth, our pipelines grew, and we’re feeling pretty good about the second half of the year. Despite a lot of the things that you feel like you’re hearing across the country, there certainly seems to be noise. I think our 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, but I would say that it feels like momentum is picking up.

Jim Herzog, Chief Financial Officer, Comerica: Across the board for us.

Peter Sefzik, Chief Banking Officer, Comerica: I think that we’ll continue to see good loan growth throughout the year. 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. I don’t know that that’s been a terribly strong headwind for us. 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. I would say it probably feels better than it has in a while as far as the activity level since the SVB situation. Hopefully that continues absent some sort of major event in the economy that we don’t see at the moment.

Curt Farmer, President, Chairman and CEO, Comerica: Okay, good, that’s helpful. Jim, back on net interest.

Peter Sefzik, Chief Banking Officer, Comerica: Income with some of your comments, your prepared comments, and the preferred redemption, you pointed us to the lower end.

Jim Herzog, Chief Financial Officer, Comerica: 5% to 7% range.

Peter Sefzik, Chief Banking Officer, Comerica: How do you get off that 5%? What needs to happen to generate NII growth that’s maybe midpoint or higher in the range. Thank you.

Jim Herzog, Chief Financial Officer, Comerica: You know, 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. I continue to say in this rate environment, probably in the short term, I think that noninterest bearing deposits is still very much an X factor. I would say seeing some stability in an inflection point in noninterest bearing deposits, which is something we, and from what I can tell this quarter, the whole industry is still kind of waiting for. I think that would be probably the biggest X factor out there. Okay. All right, thank you very much.

Curt Farmer, President, Chairman and CEO, Comerica: Thanks, John.

Jessie, Conference Operator: Thank you. The next question is coming from the line of David George with Baird. Please proceed with your question.

Curt Farmer, President, Chairman and CEO, Comerica: Morning, David.

Hey, guys.

Jim Herzog, Chief Financial Officer, Comerica: Hey, guys.

Good morning. Hey, question for Curt. I agree, Curt, with a lot of things you said about Comerica as it relates to your reputation in the market. You’ve got experienced bankers. You didn’t need to raise capital during the GFC. A lot of great things about your company. It’s funny, I was going through my file this morning, just looking at your quarter and I found my initiation report. At my last firm, it was October 6, 2000, obviously a long time ago. Stock hit $60, with $61 that day. Today, 25 years later, we’re at $62. If I look at kind of where you were in 2018, 2019, the stock is down 30%, 25%, 30%. 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.

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. Just kind of how you’re thinking about longer term improvement of performance and enhancing shareholder value.

Thanks.

Curt Farmer, President, Chairman and CEO, Comerica: David, that was a lot of information in that question. Let me try to address it for you. First of all, go back to 2018, 2019, those were good years for our company and stock performance. 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 program that were driving deposits, which was really a peak for us. We sort of saw record performance in 2022, heading into 2023. We had the regional bank crisis and we along with others saw some rationalization in assets as deposits came down. We exited a business line, mortgage banker finance, and did some rationalization across the rest of our portfolio.

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. We had a good fee income quarter as well. Feel really good about sort of our deposit position and ability to fund our lending activity going forward. We’re very excited about the structural tailwinds that we’ve got on NII from a forward perspective.

Curt, I’m sorry to interrupt. Your loans have been flat for decades.

David, again, I would go back to what I said earlier, that if you look at the last five years, which I think is what you were pointing out, I can’t speak as much to the 10-year prior period of time. 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. You are seeing nice growth in the portfolio now, and I think that’s what we’re going to lean into. 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 and our investment in payments and treasury management, Wealth Management, some of the other things that we can do on capital markets.

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.

Again, efficiency is going the wrong direction.

Okay.

You’re happy with the performance and so forth and the board.

Jim Herzog, Chief Financial Officer, Comerica: Is as well, David.

Curt Farmer, President, Chairman and CEO, Comerica: I’m always focused on improving performance across the company. We are always focused on how we can make sure that we’re generating positive operating leverage and improving overall all of our performance metrics across the company.

Okay, sounds great.

Jessie, Conference Operator: Thank you. Our next question is coming from the line of Bernard von Gazicki with Deutsche Bank. Please proceed with your question.

Hey, guys.

Melinda Chausse, Chief Credit Officer, Comerica: Good morning.

If the $100 billion asset threshold on Cat 4 is moved based on inflation and gets, say, $130 billion or gets moved to $250 billion, how would either one of these ranges impact your willingness and timeline to pursue a whole bank acquisition if that’s in play?

Curt Farmer, President, Chairman and CEO, Comerica: Thank you, Bernard. I just would say that, and I’ve said this consistently the last couple of years, the $100 billion threshold for us is not a governor as to whether we would look at a transaction or not. We believe that the right thing for our shareholders is to continue to grow the company. 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 would still have to make a lot of strategic sense for us, aligned with one of our primary geographies, be a good cultural fit, et cetera. We are aware of the landscape.

Jim Herzog, Chief Financial Officer, Comerica: We’ll continue to be aware of the.

Curt Farmer, President, Chairman and CEO, Comerica: Landscape, but believe that we’ve got good growth dynamics based on organic as our primary focus.

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

Jim Herzog, Chief Financial Officer, Comerica: You know, Bernard, I think you may see a little bit of that still in this higher rate environment. 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. I don’t expect it to be a significant factor going forward. We’ll continue to monitor that. We did have an inflection point in the second quarter. I will point out that June was higher than May, so the seasonality did as well as the use of funds. Netting against with that did continue maybe a little later than I.

Curt Farmer, President, Chairman and CEO, Comerica: Would have hoped for.

Jim Herzog, Chief Financial Officer, Comerica: We saw an inflection point halfway through the quarter and it just feels like we have some really good trajectory. I’ll just say, even as I look at the first half of July, that seems to continue. I think we’ve kind of moved past a lot of it, and I think some of these positive tailwinds with deposits will probably drown out any use of funds going forward, is what I’m kind of seeing here.

Okay, great.

Thanks for taking my question. Thank you.

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

Morning, Mike. The short question is on the first quarter call, Curt, you repeated, as you’ve done several times, that Comerica has to earn its right to be independent every day. That makes sense. Under what conditions would you say that Comerica has not earned the right to remain independent, independent every day?

Jim Herzog, Chief Financial Officer, Comerica: This is part of the whole.

Industry debate of skill versus scale. I guess you’ve had 135 years at Comerica, and the question is, at what point do you say, you know what, we need to scale this up? The longer version of this question is, as you know, I think you were in the room, Curt, when I came to the annual meeting a decade ago. There were like five to 10 other institutional investors in the room, and I asked the same question. 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. When you just look at the data objectively, you say your efficiency ratio is still worst in class, 68% year to date. That’s where it was when I came to the meeting a decade ago.

The returns are about worst in class, only better than Citigroup, which coincidentally, I recommend still. It’s not always the death knell.

The stock performance, as was brought.

Up earlier, has also underperformed. I always stack rank the. I’ve done this for 25 years. I’ve stack ranked the CEO stock performance versus the BKX. Unfortunately, Curt, you’re at the bottom by a big margin since you arrived. The stock’s down 21%, the BKX up 43%. The S&P is up a lot more. Maybe the market’s really missing a story here. Maybe you’re about to have a hockey stick improvement. If you could just educate me on why a decade later, Comerica has continued to earn the right to remain independent.

Thank you, Mike.

Curt Farmer, President, Chairman and CEO, Comerica: That’s a lot as well in your question there. 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. Certainly the regional bank space as well as the bank space across the board has had some volatility and equity performance this year. We’ve seen a nice rebound in the last 60 days or so, as the KBW and the KRE have 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. Now we are starting to benefit, I think, from some of what we put in place as well.

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, et cetera. The next couple of years we continue to see nice growth across the portfolio on the lending side and we’re going to lean into that in the second half of the year. 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. I think we’re well positioned from that perspective.

You mentioned 135 years; it’s actually 175 years. 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 our fiduciary responsibility related to that. So does our management team and so does our board, and we take the return to our shareholders very, very seriously.

I appreciate that. I think also last quarter you said you did not expect a lot of mergers in the next 12 to 18 months. If there started to be mergers, would that kind of change your thought process and to what degree? Why don’t you expect many mergers in the 12 to 18 months or maybe that’s changed in the last three months.

Yeah, Mike, I may have overstated that when I was asked about the industry overall at the end of or at the first quarter call, and you might recall at that time, certainly recall lots of volatility, whether it’s geopolitical or the trade policy and the uncertainty related to it. It just felt like that might sometimes, when you’re heading into uncertainty or possibly a credit cycle, across the industry that can tend to dampen M&A. Since then we’ve seen a couple of deals happen. It feels like maybe there’s a more favorable regulatory environment around M&A. As the noise settles down some around economic certainty, geopolitical certainty, etc., I think it is likely that you’re probably going to see a bit more M&A than we’ve seen previously.

It just continues to factor into what we think about overall, whether we be an acquirer or continue to pursue our organic growth or whether we’d ever entertain something from a third party.

All right, we’ll watch that volatility and your rebuilding and the tailwinds.

Thank you.

Thanks Mike.

Jessie, Conference Operator: Thank you. Our next question is coming from the line of Anthony Ellian with J.P. Morgan. Please proceed with your question.

Jim Herzog, Chief Financial Officer, Comerica: Yeah, 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 that.

Level we just saw.

I’m curious, why would those headwinds ease in 4Q, particularly if you expect both strong customer deposit growth in 4Q and the momentum in loan growth is expected to persist.

Yeah.

Good morning, Tony. I really look at what we did towards the end of the second quarter with consumer pricing as kind of a reset, recognizing that the forward curve has been pushed out. I think of that as a one-time reset. 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 the extent we see any increase in deposit pay rates in the fourth quarter, I think it would be accompanied by higher deposits, which net net would be a benefit for the bank. Again, it is kind of viewed as what’s going on in the third quarter. A little bit of a one-time reset here. We’re not going to be sending out $400 million of preferred cash every quarter either.

There are just some unique events that are occurring as we move from the second quarter to the third quarter. If I look at the bottom of slide three, you’re calling out payments products such as real-time payment solutions, Embedded Finance. We had the House pass.

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?

Peter Sefzik, Chief Banking Officer, Comerica: Thank you, 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. We do think we’re making really good investment in payments to be involved now. 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. 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.

Thank you.

Jessie, Conference Operator: Thank you. The next question is coming from the line of Chris McGrady with KBW. Please proceed with your questions.

Curt Farmer, President, Chairman and CEO, Comerica: Morning, Chris.

Hey, how’s it going? This is Andrew Lysteron for Chris McGrady. 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.

Jim Herzog, Chief Financial Officer, Comerica: I’m not sure I heard that question.

Curt Farmer, President, Chairman and CEO, Comerica: I think it was deposit pricing, is that correct?

Melinda Chausse, Chief Credit Officer, Comerica: Yeah.

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.

Jim Herzog, Chief Financial Officer, Comerica: I would probably refer you back to my answer previously where I 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. 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, Chief Banking Officer, Comerica: I might just say in general, whether it’s loan pricing or deposit pricing, it’s extremely competitive in all of the markets. 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. Managing pricing on either side of the balance sheet is something we pay really close attention to. I think it is an extremely competitive environment right now on both of them.

Okay, great. Thank you. Can you provide a little more color on the increase in criticized loans this quarter? I think in the deck it looks like the leveraged loan credit moved up a little higher. Any thoughts there?

Jim Herzog, Chief Financial Officer, Comerica: Thanks, Chris.

Melinda Chausse, Chief Credit Officer, Comerica: This is Melinda. Yeah, the increase in the criticized this quarter, I would call it a moderate increase. As Jim mentioned in his prepared comments, the vast majority of that was in our core middle market book. Honestly, it was concentrated in three credits. The commonality in those three credits is they all have some kind of a consumer component, that the end customer was a consumer, and there’s been some stress there. One, I would call more luxury goods, and the other in two segments that are under some pressure already. That would be the liquor industry and then transportation, freight, and things like that. That’s really the commonality: the consumer is the end customer. All of them are pressured by this higher for longer rate environment, which is obviously putting pressure on profitability. Other than those commonalities, the book has continued to perform quite well.

What you don’t really see in the charts is what’s cycling in and out of criticized. We have credits that migrate from a downward perspective, but we also have a lot of credits that continue to get better and are able to move back into that pass category. I’m not really seeing anything that I would call underlying themes other than what we’ve been really telegraphing all year, which is the higher for longer interest rates and the inflationary pressures.

Okay, great. Thank you for watching.

Jim Herzog, Chief Financial Officer, Comerica: You’re welcome.

Jessie, Conference 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.

Curt Farmer, President, Chairman and CEO, Comerica: Thank you very much, and thank you again for joining our call today.

Jessie, Conference 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.

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