Comerica Incorporated

I'm very pleased to have it kicking off this morning with Comerica from the company chairman and CEO, Kirk Farmer, Jim Herzog, Chief Financial Officer. What we thought we'd do is they put out a slide deck last night. Kirk's not going to go through all of it, don't worry, but maybe just spend five minutes touching on some topical things, and then we're going to do a fireside chat. So, Kirk, let me turn it over to you.

And we can just put up the first ARS question while he's speaking. Well, good morning.

I know many of you have been focused on Comerica over the past few weeks, and I'm pleased to have this opportunity to provide some detail on our strategy. Hopefully you all had a chance to take a look at the slides that were posted last night, and those materials we provided are forward-looking statements and non-GAAP financial measure notices, which also apply to this entire webcast. The number one priority of both management and our board is to protect and grow shareholder value. That's our duty to our shareholders, and we and the board take it very seriously. The core of our franchise is strong and differentiated. We're concentrated in desirable high-growth markets, including 13 of the 15 largest and 7 of the 10 fastest-growing MSAs. Our competitive funding profile is built on a solid foundation a peer-leading mix of non-interest-bearing deposits. Our strong capital position provides flexibility for both organic growth and capital return. And we're well positioned for the future between the structural tailwind supporting our net interest income and targeted revenue strategies. We're focused on a number of initiatives to drive shareholder value, some of which we'll delve into later in this presentation, including responsible loan growth, strategic investments aligned with our core relationship banking model to drive sustainable revenue growth across middle market and business banking, payments, national and security specialty businesses, capital markets, and wealth management. We're working to reduce our efficiency ratio by successfully executing on these initiatives, while also taking a hard look at expenses. And we're continuing to optimize our capital position. Our main focus remains on levering this robust franchise to enhance profitability and drive value, and we believe our strategic positioning and strong balance sheet give us the engine and flexibility to meet the demands ahead of us. We spent time this year providing investors more visibility into our revenue roadmap, but I'd like to touch on a few slides that continue to demonstrate the investments we're making and growth potential we see in our business. In the first quarter, we discussed middle market and business banking. And in June, we spoke about our payments business and deposits. Today, we'll round out the rest of our commercial portfolio by talking about our national and specialty businesses. We'll also highlight our capital markets business, which is a natural complement to our commercial customer base and a strong contributor to capital efficient fee income. Our national and specialty businesses are actually a combination of 11 distinct business lines. On this slide, you can see our primary office locations, but as the name implies, our coverage and customer base are national in scope. While the industries represented are varied, what they have in common is a highly discerning approach to customer selection, a thoughtful and proven credit process, and a targeted go-to-market strategy. These combine to create a diverse set of businesses driving growth. With tenured colleagues and deep industry knowledge in these sectors, we deliver tailored solutions, consistency, and thought leadership that supports our ability to retain existing and win new customer relationships. In fact, in a number of these verticals, such as entertainment and environmental services, we feel we have market-leading positions. Although we have made deliberate decisions over time to manage select exposures, our national and specialty businesses have demonstrated the ability to grow. And we believe this supports our expectation of future growth, which could approach the mid-single-digit range even after potential pressure from commercial real estate. Beyond being a loan engine, our relationship approach in these businesses drove over 25% of Code America's overall non-interest income, at over 75% of our capital markets income in 2024. This is a good segue to capital markets on slide six. When we talk about larger bank capabilities, our capital markets focus is a great example. For the commercial customer base, we often say we punch above our weight with a tailored set of products that meet the unique needs of our customers. This could include managing rate, currency, or commodity risk, accessing the debt or equity markets, or expanding our customers' access to senior credit. In the last several years, we've invested to drive even more growth. We expanded and realigned our syndications team, created a development program to build a pipeline of future talent, and built an M&A advisory practice. And we've seen results from these investments driving higher capital markets income and supporting expectations for ongoing growth. Capital markets have been a good news story for us, and we see promising future potential. In closing, we think about the accumulated benefit of all of our revenue initiatives in conjunction with the structural tailwinds built into our portfolios, and we feel we have a compelling story to drive growth. Further, I do want to reinforce that our management team and board are always focused first and foremost on enhancing value for our shareholders. Everything we discussed about our strategy and initiatives today and everything our board reviews now and in the future is guided by that principle. Jason, thank you for the time. We have to take some questions.

Thank you. I guess maybe just start off by talking about Just customer sentiment, you kind of, on the July earnings call, talked about sentiment showing some signs of customers beginning to make more investments. I know the summer is seasonally slow. Just update us on kind of what you're hearing or seeing.

Yeah, I think the sentiment has pretty much remained the same. We're continuing to see customers borrow for both working capital and starting to make some investments in their business as well. And I'll probably talk more as you ask some more questions about loans. In general, we feel really good about the pipeline overall and believe that bodes well for growth in the second half of the year. We are seeing a little bit of seasonal slowdown in the third quarter, primarily in our dealer business, but I can talk a little bit more about that as we go along. But I think despite some of the macro and micro issues that are out there and some uncertainty still around trade policy as well as interest rate movements, I think in general sentiment remains pretty positive.

You talk about seasonal slowdown in dealer. I guess is that the auto tariffs impacting the auto industry? I know Comerica has exposure there. How does that play through it?

We have a long history of exposure and interface with the auto industry, given our history in the Michigan market and Detroit. And I would say that, in general, the impact is a bit greater on the auto suppliers as it relates to tariffs. It is a manageable part of our portfolio. It's about $700 or $800 million of overall exposure. And what we're seeing there, especially with a few of the auto stampers, is a little bit of migration in the portfolio. But I think they're doing a good job overall in managing sort of their expenses, managing liquidity, et cetera. And so many of these auto suppliers have lived through so many cycles over time, including the last five years and including COVID. And I think that that space has gotten a lot more efficient. There's been a lot of M&A and consolidation. They're better capitalized than they were previously, but we are seeing a little bit of weakness there. And then in terms of auto dealers, which we provide for-plan financing, and for-plan financing is down some as inventories are lower, especially with select OEMs, select nameplates. But most of the dealers we work with have 10, 15, 20 different a variety of nameplates in their portfolio and distribution points, really in major metro areas. And so they're holding up pretty well overall. And I think that as cars continue to age, they're making a lot of money off of servicing as well. So I think there is some near-term pressure and there's a little bit of downturn in borrowing that we're seeing from dealers in general. But some of that is just sort of third quarter seasonality waiting for the fourth quarter inventory to come forth. But overall, I think we continue to feel good. about the space. And I would say in general that it relates to tariffs. That's probably where we're seeing the greatest impact is in the auto sector.

Got it. And maybe before we kind of just delve into the key earnings drivers, in your July deck, you kind of lay out on slide 13 a pretty good outlook for the third quarter and full year. You know, Jim, make any updates to that slide as we sit here today and, you know, how does the Fed potentially cutting next week impact that?

well good morning Jason and good morning everyone you know as I look at the first two months of the quarter and what I see in the remaining month of the third quarter we feel pretty good about the outlook that we provided in July we really don't have any material changes to that there could end up being some small puts and takes between line items nothing too material but on the whole I think it nets to be consistent with what we had provided back in July terms of the rate cut we'll see what happens next week you know we contemplated a partial cut using the July 31st curve and we may get the full 25 if not more it sounds like next week and we had mentioned that you know we do expect a lower than maybe standard beta for that first rate cut so as a result we will have to keep an eye on the competitive landscape and just see how the market responds but overall I would refer you back to my comments on the rate cut an impact that I gave in July Big picture, I feel like where we stand today is pretty consistent with the overall outlook that we provided back in the July earnings call. Got it.

And maybe just kind of delve into more some of the key drivers. But, you know, on loan growth, you know, last quarter we talked about an inflection and kind of thinking about steady progress throughout the back half of the year. You know, you talked about dealer. But maybe just talk to kind of some other areas of strength or weakness. It looks like quarterly average loans. are relatively stable, maybe running a bit below what we initially thought occurred.

Yeah, I just would say in general that we believe that the greatest opportunity and the greatest sort of pipeline opportunity for us continues to be in general middle market, which is pretty dispersed across our geographies with core manufacturing and service companies as well. We talked about dealer being a little bit soft, but we still feel good about the outlook for that overall into the second half of the year. And then I would say that we've continued to have a little bit of a headwind with commercial real estate as we have seen balances continue to trail off in that portfolio. It's mostly construction, multifamily, industrial, et cetera, and a lot of that has been rolling over to the permanent market with less new originations occurring in that space, although we remain very bullish on commercial real estate longer term. And then the rest of our businesses are all relatively healthy from a pipeline perspective. We mentioned the entertainment business earlier, equity fund services, tech and life sciences, et cetera. So kind of across environmental services, across the rest of the portfolio, we feel like the opportunities are pretty robust. But probably the greatest opportunity for us is in the middle market lending space.

I guess on middle market lending, we've been hearing a bit more about just private credit getting more active in that space. How does that kind of impact the competitive environment and what you're doing?

Yeah, it's been a growing theme, and we certainly are seeing private credit in select areas. I would say there's a lot of our portfolio where we do not see private credit. But in middle market, it tends to be more leveraged transactions, typically deals that we would be a little bit less interested in doing, but where you know, someone's looking for a little bit more of a credit extension, a little bit higher leverage, a little bit more availability, and maybe more favorability in terms of elongated terms, then you might see private credit come in. Typically, we're looking for more cash equity and less leverage in the transaction. And we'll participate in some of those and others will take a pass on them. But we are starting to see a little bit more there. But I think we feel like we're able to compete and kind of stay in our swim lane. And the other area would be in our environmental services. That's the waste haulers, so waste management business. We are seeing private credit there, but we've seen it there for a bit. Those tend to be more leveraged just by nature. And in some cases, we're able to partner with private credit. In other cases, we are able to compete well against private credit. In some cases, there are deals that we need to pass on. But I would say it's primarily in those two areas. I wouldn't say it's necessarily getting... significantly more, but it's just been sort of a steady stream, just like we saw the advent of private equity a few years ago.

Got it. And then I guess maybe turning to deposits in your slide deck last night, it actually showed a little bit better than expected deposit growth after decline last quarter. Maybe just kind of flesh out what you're seeing. I do some crude math on the mix. It looks like non-interest bearing was down a little bit. Interest bearing was up actually a decent amount. Maybe just kind of elaborate in terms of just growth trajectory and mix you're seeing.

Yeah, Jason, we're really pleased with deposit performance so far this quarter. We did have some seasonality that extended a little bit later into the second quarter than we'd expected. But that did pivot in June. And I would say since the month of June, it's really been on a continuous sub-work trajectory since then. It does look like we're going to exceed both the outlook that we offer on not just the third quarter, but it feels like the full year also if this continues. I think we're set up for a strong second half of the year. And really nice to see some of the focus that we've had on deposits pay off. We've focused on a number of areas. Tactically, we've focused on things like performance measurement, incentives, the way we have conversations with customers. We've done a lot of product development over the last couple years, so great to see that pay off. And then thirdly, we have had a strategic focus on bringing in new types of deposit customers and relationships. And Allison Fleming talked about some of these opportunities at the June investor conference that we had. It's really great to see those pay off. I will say that beyond just the good organic growth that we've had of customer acquisition, we have had larger just transaction activity with our existing customers. That's not surprising. We do see that quite often. be in a larger commercial bank you do see some larger transactions come through that can help augment those balances and. That's something that can come and go but certainly not unusual to see. You know in terms of the overall mix. You know we do expect the broker deposits to trail down through the third quarter. Probably close to zero by the end of the year given the strong core deposit growth that we have. So great to see there. In terms of non interest bearing deposits. You know overall continuing to perform actually better than expected. Yes the percentage of total deposits you know sparing the total deposits did drop slightly but that was really more of a function of the great success we've had with interest bearing deposits. They have had a significant increase this quarter and we welcome that. I'll take a little bit higher pay rate and a little higher you know mix of interest bearing deposits anytime to help relieve the pressures on any wholesale funding that might come with the great loan growth that we have. Overall, even though the percentage dropped a little bit and we are slightly lower in the absolute sense in the third quarter compared to the second, we're actually coming in higher than I'd outlooked back in July. So overall, I'm really pleased to see how non-interest bearing deposits have leveled off. Actually slightly outperforming and makes me feel good about the setup for the rest of the year. And then finally, I'll just comment that great to see that it was somewhat broad-based in terms of where the deposits are coming from. Particular strength in middle market are bread and butter, private banking, EFS. But for the most part, pretty broad-based across. So just great to see our deposits, deposit initiatives continue to pay off. And we just think it's a great setup for the last half of the year.

Maybe just follow up on just deposit pricing. Your interest-bearing deposit costs went up in the second quarter. A lot of banks kind of saw declines. I guess have been some pressure last quarter pricing in the commercial space. Just talk to kind of what you're seeing so far in the third quarter and your expectations on cost.

Yeah, in terms of how it's tracking in the third quarter, it's actually tracking almost exactly as we'd indicated at that July earnings call. So tracking very closely to that number that I provided. I talked about it being a little bit more than maybe twice the four bips up that we saw in the second quarter. So no surprises there. Just as a reminder, and I think this is really important, if you go back to the first Fed cut back in mid-September of last year, we've had the highest beta on the way down of any period that I know of, certainly amongst the highest, about 67%. So I was pretty consistent in saying that we were moving somewhat assertively to lower deposit rates, but we were also pretty consistent in saying that we thought at some point there would be a little bit of a giveback. And I think that give back was partly precipitated by the fact that the Fed really went on pause for quite a while. So you'll recall the last Fed Cup we had was last December, mid-December. We've had about nine months of just flat rates. And so we did have to recalibrate the strategy a little bit, and that was not surprising to us. And so we did raise our rates on certain consumer products at the end of the quarter. And the give back that we had there really accounted for about half of that guidance that I mentioned back in July. And we'll get the full impact of that rate adjustment in the third quarter. We're not expecting additional rate adjustments going forward beyond the third quarter. So it was kind of a one time reset. The other half of the increase I'd mentioned in the July earnings call and I think is still true to form is the fact that we have been very successful in gathering additional deposits and additional customers. And again that's something we would welcome. We sometimes pay a little bit higher rate for those but still well below wholesale funding costs and allows us to maintain a very healthy loan-to-deposit ratio and support the loan engine that is Comerica. So overall tracking very closely to what we had projected.

Got it. Maybe throughout the next ARS question, and while the audience looks at that, maybe just kind of tie together the loan and deposit commentary with respect to net interest income. I guess your guidance in July pointed to a decline in Q3. Maybe talk to kind of your outlook, you know, kind of Q3 and Q4. I think you were talking kind of low end of 5% to 7% for the year. And just, you know, how should we start to think about, I guess, the back half of this year and, you know, think about net interest income, net interest margin into 2016, 2026?

Yeah, so good setup. You know, as a reminder, yeah, we did guide to be slightly lower in the third quarter relative to the second quarter on net interest income. And as Jason said, lower end of the 5% to 7% range on full year-over-year net interest income growth. I still feel like we're tracking pretty well to that. As a reminder, the driver in the third quarter was the fact that we had that one-time reset of deposit pricing and also the preferred redemption that we did on July 1st that was a little bit delayed and replenishing as we moved through the third quarter. So those were kind of just more one-time events, I would consider, and overall expect to be in an overall trajectory of increasing net interest income quarter to quarter going forward. In fourth quarter, you know, we will have good organic core growth in the balance sheet, so growing loans and deposits will be very accretive to net interest income. We do have a Bisbee drag that will occur quarter to quarter, which is non-core, but that will be more than offset by the maturing swaps and securities and those tailwinds, and that's a phenomenon that won't just be for the fourth quarter. It'll really be practically every quarter in the foreseeable future, as well as future years. The tailwinds from those maturing swaps and securities will more than outpace any Bisbee drag on a consistent basis. We feel pretty good about the overall trajectory going forward on net interest income. When I think about 2026, those comments apply to 26 also. I will say the X factor in my mind for 2026 is what happens with non-interest bearing deposits. That's been our X factor for some time, and that's the case for most banks, but maybe a little more so for Comerica. I am encouraged by what I'm seeing with non-interest bearing deposits, and I'd like to be in a position to say that with nominal economic growth in 2026, as well as the tailwinds of lowering interest rates, we should see finally some growth and trajectory upward in non-interest bearing deposits at some point during 2026. So it feels like we're getting there. I'm starting to feel that much better about non-interest bearing deposits.

But that's something we'll be keeping our eye on. Looks like the room is modest growth for NAI for 2026.

I guess by your comment, though, it feels like that Q3 should mark kind of the inflection point for NAI as we kind of look out over the next several quarters.

Yeah, I certainly think so. It seems you have a seasonal factor early in the year. We're not necessarily projecting that right now. But again, I would say it's kind of anomalous events that you saw in the third quarter, the one-time deposit, reprice, reset, and the preferred redemption. So those aren't things you would expect to continue going forward.

And then I guess there's been a lot of discussion about your hedging strategy and securities portfolio profitability. We have seen some banks take pretty large repositionings of low-yielding securities. I remember you did a little bit last year in the fourth quarter, but you have kind of shied away from that. I guess as you're thinking on this change at all, would you consider doing any more repositioning?

Yeah, we've been pretty consistent in saying that in our uses of capital, start with supporting our customers' loan growth. After that, supporting the dividend, share repurchase would be next. Securities repositioning is a use of capital. I would rank it lower than the ones I just mentioned there. And we've been pretty consistent in saying that share repurchase would be a higher priority than really the temporary repositioning. tangible book value benefit of doing a securities repositioning. Having said that, you know, securities repositioning is a temporary use of capital as opposed to the other items I mentioned are a more permanent use. So there could be some tranche of capital available to do a securities repositioning. It wouldn't be outsized. It would be very tactical. We're not committing to that at this point. We've not made a decision to do it, but There might be some amount out there that would be available in terms of capital deployment to do a tactical securities repositioning. That's an option we'll leave on the table, but again, I would summarize it as not the highest priority right now.

Got it. I guess before I move off of NAI, one question we get a lot about is just Direct Express. At some point, it's expected to go away, 15% of non-expiry deposits. I guess first off, you know, does this happen all at once or does it something that happened gradually? And then just how do you kind of replace, you know, this free funding and how you just think about a normalized NIM?

Yeah, Jason, what I would say on Direct Express is that really we do not have any change in sort of the status. We continue to manage the program. To date, there has been no migration of accounts out of the program, even though it was announced that we would move to another provider. And in fact, we actually have seen enrollments continue to grow in the program. So it's been a bit of business as usual for us. We're taking care of the customers and supporting the physical service and the treasury with the program. But at some point, you know, we assume that a transition will occur and it is still believed on our part to be a lengthy process for that transition. We've been saying for some time, kind of longer versus shorter. And so we assume at some point that we would start seeing balances run off of the program. But to date, we have not seen any occur. We're not expecting any in 25 and really don't believe that it will have a meaningful impact in 26. But sort of stay tuned on that. We have been continuing to work on strategies to offset those deposits. And I mentioned in my comments, and Jim's alluded to a little bit in his comments already, Allison Fleming was here who has payments and Treasury management for us back in June or at the conference in June Working on a number of things one contribute to drive more granular deposits. We've been focused heavily on our small business strategy We've hired over a hundred small business bankers have worked on really retooling their products at their Treasury management capabilities their lending capabilities although it's less of a lending business and and more depository business. We have about $5.3 billion in small business deposits already, and that's pretty and very successful for us. Very aligned with our sort of commercial bank focus as an institution in a space that we did not focus on a lot historically. We tended to focus more on business banking, middle market, on up. And then secondly, we've been looking at embedded finance opportunities. We think we're uniquely positioned there given our payments and treasury capabilities. and the rails that we have set up as a wholesale bank. And we've seen a number of nice opportunities there and some wins already and a number that are in the pipeline. And then just continuing to drive deposit prioritization across our entire portfolio as we see growth occurring with customers, both in our commercial bank or all in our commercial bank, wealth management and retail bank. We believe we've got good opportunities for continued growth on the depository side. I feel good about the trends that we're seeing. So we think that at some point, you know, the program does trail off, but we believe that we can continue to work on replacing those deposits over time and believe that it will be manageable from a transition standpoint.

And maybe I'll pick up on the NIM. I think you asked about NIM at the end, too. And, of course, I don't like to give NIM percentage guidance. Again, I always comment that you don't always have a correlation between NIM and net interest income. But I did mention earlier I expect net interest income to have a continuous ascending path over the next several quarters and really years. It's hard to say as Kurt said what the exact timing of the direct express deposit exit will be when it occurs someday. But depending on where we're at with our deposit gathering initiatives that we reference it's possible you could have some very short term interruption in that trajectory upwards transition period wouldn't be totally surprising but. We do think it'd be very manageable, so we'll just have to wait and see how the timing works out. Fair enough.

And maybe just on expenses, I guess the guidance seems to imply that we'll have an uplift in the back half of the year. Is that still the case?

Yeah, it is still the case. I'll point out that we actually had very well controlled expenses in the first half of the year. They came in below outlook and consensus. You know very low growth rate from previous quarters. So very well controlled We do expect to pick up in the second half of the year really driven by a number of factors You know one would simply be that we had some notable items that we talked about in the first half of the year of 24 You know, we wouldn't expect those types of notable items to repeat in the second half Beginning of 25. I should say we don't expect those to repeat in the second half of 25 and Secondly, we do have typical seasonal challenges in the third and fourth quarter relative to the second quarter. That's fairly normal for us and for most banks. So we do expect a little bit of seasonal pickup in the expense spend rate. And then finally, project investment. We continue to invest in the revenue-oriented projects. We did not see as many of those expenses the way the first two quarters played out in the first half of 25, but... We do expect some of that to transpire and become a little more apparent in 25 second half. So overall kind of a normalization of the expense run rate. We were just a little bit suppressed in the first half of 25 and we expect between seasonal patterns and just normal investment for that to pick up in the second half of the year.

I guess that kind of places your efficiency ratio at the kind of the upper end of peers. Let me talk to you know how you're starting to think about 2026. and any opportunities to kind of, you know, improve that efficiency ratio on the cost side. Yeah, I'll take that one, Jason.

So if we look at sort of our growth rate from a KGAR standpoint on expenses, we've been tracking fairly in line with peers. Having said that, we do have a high efficiency ratio, which we continue to believe is a bit more on the revenue challenge and on the expense challenge. But Having said that, we're looking at every lever that we possibly can to improve that efficiency ratio and ultimately improve ROE. And so that includes a hard look at expenses that I and my management team are going through right now, and that would include all the things that you might think about. Real estate, we've done a good job there. I think you know we've closed close to 50 banking centers and done a fair amount of rationalization of our portfolio in the last couple of years. But there's always more opportunities, and we're looking hard across the portfolio at sort of real estate costs. We're also looking at our tech stack. All banks have had to spend a lot of money on technology, whether it's for customer enablement, whether it's digital, AI, et cetera, but also on the regulatory side. But there's always opportunities to be more efficient with technology. So we're looking a lot at sort of our technology prioritization and where we need to prioritize spend on a go-forward basis. Looking across the portfolio at headcount, I think we've done a good job there and are fairly in line from an efficiency standpoint in terms of headcount. But we are always looking for opportunities to be more efficient on the headcount front. And then just third-party spend, whether it's consultant spend or just other third-party spend. So we've got a whole stream of work we're looking at there. So nothing to announce today, Jason, on the expense front. But I would say as we get into the latter half of the year and normally give guidance for 2026 on the fourth quarter earnings call we're looking for opportunities to to to lean in a little bit heavier on the expense side than we have a year today and then we want to do that though in a way that protects what are the revenue things that we're working on and I mentioned a number of those earlier that we've been heavily invested in whether it's your payments Treasury management wealth management capital markets expansion into new markets etc And so we're trying to figure out that right balance, right, as leading the company of how do we short-term improve performance of the company and recognize that we do have a high efficiency ratio relative to peers, how we balance that against sort of the need to drive revenue longer term, and then understanding that we've got these structural tailwinds coming behind us that we believe will benefit us on the NII side sort of longer term. All those are things we're trying to balance as we think about sort of structurally and strategically how we manage for the next couple years in sort of the cycle that we're in right now. And then lastly, I would say that, you know, the last balancing act for us is just that we feel really good about pipeline and opportunities that we're looking at. And the last thing you want to do in that environment is sort of cut client-facing employees who are the sources of that revenue for us and in many cases who drive sort of long-term relationships for us. Clearly, we understand the need to perform and improve the efficiency ratio for the company overall. And so we continue to look at how we balance those kind of across the portfolio between expenses and revenue.

So expense reduction program possibly announced in July, in June, in January, rather. Stay tuned.

Yeah, I would not use the word expense reduction program. I just would say that we are continuing to look for not a named sort of expense reduction program. But I would say that we continue to look for chances to rationalize expenses across the portfolio. And to the degree that we can find opportunities to do so that sort of balance for us between expenses and revenue, we're going to do just that. And we've done a good job, I think, historically of managing expenses for the company. And I don't believe our expenses are necessarily out of line. But I do understand the near-term pressure we have around efficiency ratio, which, again, I think is a little bit more revenue catching up.

And then I guess July earnings call, you had some challenging questions. In late July, a shareholder put out a deck that said you should engage an investment banker, announce a marketing process, and sell yourself. And I think we could debate some of the ticker selections. We could debate maybe some of the math. But I think we could both agree Comerica is a valuable franchise. This industry is consolidating. You could probably have gone a premium. I guess given the current landscape, how do you think about earning your independence and have any of those recent events and other recent events change your thinking or cause you to take any other actions?

Well, I think I said it. I know I said it in the beginning and end of my prepared remarks earlier, and I would just reinforce that. that I, my management team, and the board, we fully understand our fiduciary responsibility. That is always the case. And that is always something that we're aware of is to do the right thing for enhancing shareholder value. And I and our management team are very focused on that. How do we enhance shareholder value? How do we execute against the strategic priorities that we have set forth that we believe are the right things for our company today? and sort of drive value longer term. We also are very focused on not doing harm to the company. We have a great franchise. As you said earlier, thank you for acknowledging that, 175-year-plus history as an organization, deep customer relationships, especially in the commercial space, great markets that we operate in today, long-tenured bankers, great credit expertise, and a very strong capital position. I feel very good about sort of pipeline momentum across both the deposit and lending side of the organization. And I think we've got some unique areas of specialization that many others don't bring to the table. And as I said earlier, I think in many cases we punch above our weight sort of in this commercial space. So we want to protect all that while also acknowledging that we need to continue to perform better as an organization. And as I've been out Jim and I and Kelly and others meeting with shareholders the last 45 days or so, and they've met with a fair number of long-term shareholders of the company. I think they acknowledge all that and all the things they like about Comerica, but they also acknowledge that we need to improve our performance metrics. And so the things that we've been talking about are the things that we're focused on, and we know it's all about execution. And I and myself and the board hold ourselves accountable to that high standard. And again, we understand our responsibility to enhance shareholder value.

I guess you talked about the need to, I guess, do better. You know, what, I guess, sort of, is there a time frame you have in mind in terms of maybe more openly consider joining another organization? Or how do you kind of think about that? How does the board think about that?

Yeah, Jason, I'd go back to what I said earlier. I don't know that I have anything additional to say on it. I think we fully appreciate that this is an environment where there's always speculation about M&A across our industry, and it ebbs and flows from time to time. I've been leading or serving in the banking industry for 41 years, and I've seen lots of cycles come and go. And so we're not trying to manage for a certain cycle. We're trying to manage for the long term. And we are very focused on taking care of all the constituents that we serve, whether it's our customers, our employees, our communities, and most importantly, our shareholders, and recognize, again, our responsibility to our shareholders. And those are all things that we take into consideration seriously. And we are going to execute on the plan we've got, but also be aware of the landscape.

I guess one of the things we saw on the deck last night was it brought back 150 million shares, quarter data up from 110. million we expected, CET1 ratio is still high. I know on a mark basis it's lower, but those AOTI losses are all burning off. You know, do you become more kind of active in terms of capital distribution? How do you think about that?

Yeah, we are in a very strong capital position, you know, top quartile in terms of CET1 over peers and well above peers on tangible common equity ratio. So we're in a very strong capital position, you know, proud of the increasing share repurchases that we've had so far this year. So I think we're in a very strong position to continue strong capital return. First and foremost, we want to make sure we have the capital there for our customers. I think that AOCI is probably still the thing I keep the closest eye on. I'm continuing to feel better about that. Having said that, the tenure has still moved in a 50-bit range in the last three months. It's trending downwards, so I do feel better about it, but there was even like a one-day spike up last week where people talked about bond vigilantes coming back again. So it feels like we're never totally out of the woods, but I'll just say I am feeling continuously better. I like the overall trend of rates coming down. It appears the long end is becoming a little more behaved. Maybe the short end cuts will help there. So feeling better about it, I think we're in a good position to continue strong capital return.

Can't believe there's 30 seconds on the clock and we're just getting to asset quality. But, you know, as we wrap up, obviously, charges have been, you know, relatively low at the bottom end of your range. I guess, you know, anything you're mindful of, we should keep an eye on.

You know, WorkAmerica, it won't surprise you to say that credit continues to be stable. We have no change to our 20 to 40 BIP, you know, net charge off ratio for the year. You know, the portfolios that we closely monitor continue to be very stable. You know, Kurt mentioned in his comments earlier that we continue to keep an eye on certain auto suppliers, but that wasn't totally unexpected. So we feel good about credit. And maybe one public service announcement, given that you are a sell-side analyst, Jason, not so much you. But I did want to mention, going back to your expense question, that I have seen some expense consensus numbers that are out of step with the outlook that I gave back in July. So I thought I'd just mention that there seemed to be a little bit of dislocation there, and I'll leave that up to the you know, the investment community how they want to absorb that.

Fair enough.

With that, please join me in thanking Jim and Kurt for their time today.