Kelly Gage, Director of Investor Relations, introduces the Comerica Second Quarter 2024 Earnings Conference Call, where President, Chairman and CEO Curt Farmer, Chief Financial Officer Jim Herzog, Chief Credit Officer Melinda Chausse, and Chief Banking Officer Peter Sefzik will discuss the company's second quarter earnings. The presentation slides and press release are available on the SEC's website and the company's website. The presentation and call contain forward-looking statements and will reference non-GAAP measures. Curt Farmer reports second quarter earnings of $206 million, or $1.49 per share, which outperformed the first quarter. The company's targeted focus on responsible growth drove an increase in balances throughout the quarter.

The company saw some positive momentum in their businesses despite a slightly less optimistic customer sentiment in an uncertain economic and political environment. Net interest margin, noninterest income, and noninterest expenses improved as expected. Credit quality remained strong and the company prioritizes responsible business practices. They were recognized as one of the best companies to work for and one of the most community-minded organizations. Financial highlights for the second quarter include an increase in average loans and a decline in net interest income. Charge-offs remain below historical averages and the company's estimated CET1 remained above their strategic target.

In the second quarter, the company experienced a decline in average loan balances due to rationalization efforts and soft demand, but saw growth in period-end loans. Deposit balances also decreased, mainly due to lower brokered time deposits. Noninterest-bearing balances were under pressure and there was some deposit remixing, but it did not significantly impact the company's overall performance.

The bank's noninterest-bearing mix remains strong and they have had success in growing interest-bearing deposits. Their securities portfolio declined due to paydowns and maturities. Net interest income decreased, but the bank has successfully managed their interest rate strategy to position themselves favorably for a decline in interest rates. Credit quality remains strong, with net charge-offs declining for the second consecutive quarter.

In the fifth paragraph, the company discusses an improvement in criticized loans and a slight increase in non-accrual loans. They also mention that they did not observe any new emerging pressures and that their allowance for credit losses remains manageable. The company saw an increase in noninterest income, driven by growth in capital markets, fiduciary, and brokerage income. Expenses decreased due to lower salaries and benefits and FDIC expenses. The company remains focused on expense management and driving positive operating leverage. Overall, their profitability and conservative capital management have led to increases in key capital ratios.

Comerica Bank's estimated Common Equity Tier 1 (CET1) grew to 11.55%, remaining above required regulatory minimums and buffers even after adjusting for the AOCI opt-out. The bank will continue to monitor AOCI movement, loan outlook, and evolving regulations for ongoing capital management. The bank recently received preliminary notification that it will not be selected to continue serving as the financial agent for the Direct Express prepaid debit card program, which will result in a transition of deposit balances. However, the bank does not anticipate any impact on deposit balances, noninterest income, or expenses in the near term. The bank sees this as an opportunity to refocus and prioritize resources towards targeted deposit strategies aligned with its core relationship operating model.

The company has implemented several initiatives to drive core deposit growth and consistent funding, including focusing on small business, talent acquisition, business optimization, treasury management and payments, and online enhancements. They also plan to leverage their existing delivery model and industry knowledge to target deposit-rich customers. Despite some challenges, the company remains optimistic about their deposit growth outlook for 2024, expecting a decline in average loans and deposits but still anticipating overall growth in the second half of the year.

The article discusses the expectations for average brokered time deposits and net interest income for the years 2023 and 2024. It is expected that there will be a decline in net interest income due to cyclical pressure on noninterest-bearing balances and lower average loans. However, credit quality remains strong and successful recoveries have helped to lower net charge-offs. Noninterest income is expected to grow slightly, but will decline when adjusting for BSBY and the impact of the Ameriprise transition. Third quarter noninterest income is expected to decline due to lower projected non-customer income.

The company projects a decline in FHLB dividends and risk management income, but remains optimistic about customer-related momentum and investments to grow fee income. Noninterest expenses are expected to decline, but may increase in the third quarter due to reinvestments and seasonal expenses. Despite these pressures, the company expects to maintain a strong CET1 ratio and is taking a conservative approach to share repurchases. Overall, the company is confident in its earnings trajectory and its strong foundation of credit, capital, and liquidity.

The company has a strong foundation and a diversified strategy to mitigate risk and deliver returns. They expect growth in net interest income and have seen positive results from strategic investments. They are well positioned for responsible profitable growth and are not concerned about the rate environment. The Direct Express program may be delayed, but the timing is still uncertain. The company is waiting for more information from the Fiscal Service and will provide updates. If the program does not start, the average deposits of $3.3 billion will gradually decrease over time.

The next few months are uncertain as the company transitions its services. They are focused on making the transition smooth for customers and believe it will take a longer period of time. The company will provide more clarity as they learn more. They are also focused on their relationship model and redirecting resources. If they don't keep the service, it could have a significant impact on earnings power and may require strategic adjustments.

The speaker explains that their intention is to replace the deposits over time with core customer deposits that better fit their business model. They believe the transition will be elongated but expect to minimize the impact on profitability. They also mention that their bond portfolio will continue to generate cash and may fund loan growth in the near future.

The speaker is asking about the interest rate sensitivity analysis on Page 9 of the deck and the changes in assumptions since 1Q. They are seeking more information on the underlying assumptions and how it will impact the future. They also ask for updates on the $100 million benefits from less drags and swaps in 2025.

In this paragraph, Jim Herzog discusses the company's liability sensitivity and how it has increased slightly since the last quarter. He also mentions that the rate cuts expected in 2024 will have a larger impact in 2025. The company has assumed the June 30 curve in their outlook, and any changes in rates would not have a significant impact on their overall outlook. Herzog also talks about the $100 million uplift expected from maturing swaps and securities in 2025, but notes that this is a simple calculation and other factors may affect it. Overall, the company has a modest liability sensitivity and is well-positioned for the current market conditions.

The speaker discusses the expected performance of the balance sheet and rates, stating that they may get less than $100 million for maturing swaps and securities but will likely make up for it with their modest liability sensitivity. They also mention the continued pressure on noninterest-bearing deposits due to higher rates, but expect this to turn around as rates decrease in the latter part of the year. They anticipate a slight decrease in average deposits for Q3, but believe it will be the low point and expect an increase in noninterest-bearing deposits due to seasonal factors and lower rates.

The bank has seen a slight increase in noninterest-bearing deposits in the fourth quarter and expects this trend to continue throughout 2025. They believe they are at the peak of the cycle with pressure on these deposits, but anticipate a turnaround later in the year. The bank attributes their industry-leading noninterest-bearing deposit ratio of 40% to their focus on payments and treasury management services over the past decade. They also emphasize these deposits in their lending practices and expect to continue seeing growth in this area. In the past, the bank's ratio has been much lower before their treasury management initiatives were implemented.

The speaker discusses the high loan-to-deposit ratio in the past and the resulting higher interest rates that led to migration. They do not expect to rely on broker deposits as heavily in the future and plan to maintain their loan-to-deposit ratio. The competitive environment for regional banks is tough, but the diversity of their model gives them an advantage. They have a national presence and can raise deposits in different regions. The speaker also mentions the possibility of buying or combining with other banks in the future.

The speaker discusses the diversity of their business model and how it gives them an advantage in competing with other banks. They also mention their patient approach to acquisitions and their focus on organic growth, but state that they would consider a strategic acquisition if it made sense.

Peter Sefzik, responding to a question from Manan Gosalia, discusses the current state of loan demand and its potential drivers. He mentions that lower interest rates and a resolution of the uncertainty surrounding the upcoming elections could potentially lead to an increase in loan demand. However, he also acknowledges that customers are currently in a "wait and see" mode and may be hesitant to make decisions until after the elections. Despite this, he remains optimistic about the bank's outlook for the second half of the year and expects positive loan growth overall.

Melinda Chausse, a spokesperson for the company, is discussing their recent quarter's performance and the credit side of their business. She mentions that they saw improvement in their C&I (commercial and industrial) book, which includes various industries in the middle market. However, she notes that companies with exposure to consumer-based or service-based industries may be slower to show improvement. Chausse also mentions that they have managed the high interest rate environment by closely monitoring cash flow and paying down high-cost debt. She feels confident about the C&I portfolio, but acknowledges that there may be some manageable level of migration and potential impacts from individual events. The commercial real estate portfolio has also performed well.

The company has not experienced any delinquencies or losses in its senior housing portfolio, despite the challenging environment caused by COVID. They are well-reserved for any potential issues that may arise. The company expects loan growth to pick up in the second half of the year, with November being a key catalyst. Interest rates and current pipeline activity are the main factors driving this growth, which is expected to be broad-based across the company's various businesses.

The company had some challenges in 2023 but is now seeing growth in their businesses. They expect this growth to continue in the second half of the year, but believe it will pick up even more once interest rates decrease. In terms of noninterest-bearing deposits, they expect them to start growing again later this year and in 2025 due to a combination of factors including rate cuts, business activity, and overall economic growth.

The speaker, Curt Farmer, believes that the current economic cycle is at its peak, but there are positive factors that will continue to benefit Comerica and other commercial banks until 2025. A question from Samuel Varga is answered before the call ends. Curt thanks the participants for their interest and wishes them a good day.

This summary was generated with AI and may contain some inaccuracies.