Loan Growth Outlook
Q: Can you discuss loan growth expectations?
A: Management expects loan growth to be modest to flat in the fourth quarter and possibly next year, due to muted middle market growth and a downward trend in CRE loans. They believe that with further interest rate cuts of another 50 to 100 basis points, loan demand could pick up, particularly in their national and specialty businesses. They anticipate that beyond 2025, they can grow at or above the industry growth rate, especially given their exposure to Texas and California markets. - - -

Net Interest Income Trajectory
Q: How will NII trend beyond the fourth quarter?
A: Management is bullish about net interest income in 2025, expecting continuous quarter-over-quarter increases. They anticipate that NII will keep growing even if loan demand remains modest, and they see a positive trend in net interest income over the next few quarters and years. -

Capital Management and Buybacks
Q: What's the outlook for capital and share buybacks?
A: With a CET1 ratio just shy of 12% versus a 10% target, management feels comfortable with their strong capital position. They have resumed share repurchases with $100 million in the fourth quarter but are cautious about accelerating buybacks in 2025 due to regulatory considerations, economic environment, and upcoming Basel III endgame rules. They aim to stay well above an 11% CET1 ratio. -

Deposit Costs and Betas
Q: How are deposit costs and betas expected to change?
A: Management projects deposit betas to hover between the standard beta of 47% and a cumulative beta just north of 60% in the fourth quarter. Betas are expected to pick up pace as they move through mid to late 2025 with more rate cuts, potentially accelerating depending on economic conditions. They are having success with their repricing strategies. - -

NIM and NII Guidance for Q4
Q: What's the Q4 guidance for NIM and NII?
A: Net interest income is expected to increase by 6% in the fourth quarter over the third quarter's $534 million, resulting in NII between $560 million to $570 million. The net interest margin is anticipated to improve materially, potentially reaching around 3%, due to a more efficient balance sheet and lower wholesale funding. - -

Philosophy on Hedging and Rate Management
Q: What's your approach to rate management and hedging?
A: Management considers themselves largely interest neutral, being slightly liability sensitive. They have positioned to be protected against rate drops and feel insulated from further rate decreases. The key variable is deposit pay rates and customer reactions, which could have a wider range of outcomes than asset and liability sensitivity assumptions. -

Customer Acceptance of Lower Deposit Rates
Q: Are customers accepting lower deposit rates?
A: Yes, customers are accepting lower deposit rates. Relationship managers are successfully communicating repricing strategies, and customers understand the changes. Management is pleased with the positive reception to lower rates. - -

Expenses and Crossing $100 Billion in Assets
Q: Any updates on costs related to crossing $100B in assets?
A: Management is layering in investments to prepare for crossing $100 billion in assets, focusing on data and reporting requirements. They aim to be ready well ahead of reaching that threshold without a significant step-up in expenses in any one year, mitigating the impact on their expense base. They plan to offset the modestly higher run-rate costs associated with becoming a Category 4 bank. -

Positive Operating Leverage in 2025
Q: Can you achieve positive operating leverage next year?
A: Achieving positive operating leverage is an ongoing goal for management. They aim to accomplish this in 2025 through a combination of revenue efforts and calibrated expenses, despite recent challenges. -

Environmental Services Growth Outlook
Q: What's the outlook for Environmental Services growth?
A: The Environmental Services business is expected to continue its strong performance, with growth rates similar to previous years. Management plans to invest more resources, anticipating consistent positive contributions from this segment. They consider it a fantastic business with great potential. -

Risk Management Hedge Income
Q: How will risk management hedge income change with rate cuts?
A: Risk management hedge income declined by $10 million in the third quarter, with $8 million benefiting net interest income. Management expects net interest income to continue benefiting in the fourth quarter. The impact of rate cuts can be assessed by observing how 3- to 5-year treasuries and swaps move. -

Brokered Deposits and NIM in Q4
Q: How are you managing brokered deposits and liquidity?
A: Management plans to reduce brokered deposits, paying down almost $900 million at the end of the third quarter and a similar amount in the fourth quarter. They expect the balance sheet to become more efficient, improving the net interest margin materially, potentially to around 3% in the fourth quarter. -

Competition for Talent and Hiring
Q: What's your approach to talent acquisition and RMs?
A: Management focuses on internal training programs to develop relationship managers, rather than relying heavily on external hires. They believe this strategy strengthens their culture and brand, and they plan to grow their RM population, particularly in middle market and business banking in Texas and California, while selectively adding external talent. -

Impediments to Loan Growth and Political Uncertainty
Q: What's hindering loan demand, and could politics help?
A: Loan demand remains subdued due to high interest rates and cautious business sentiment. Further rate cuts of another 50 to 100 basis points are necessary to inspire borrowing. Political uncertainty, including the upcoming election, may also cause businesses to delay decisions until tax outlooks are clearer. - -

Early Signs of Loan Demand in Specific Areas
Q: Any areas showing early loan demand?
A: National and specialty businesses are showing some pickup, with pipelines growing in the last quarter. However, middle market C&I remains muted, and CRE loans are expected to decline. Management expects other segments to offset the CRE headwind over time. -

ECRs Impact on Expenses
Q: What about ECRs' effect on expenses ahead?
A: As rates decrease, Earnings Credit Rates (ECRs) provide an opportunity for increased service charges over time, although the impact will be modest compared to deposit pay rates. The benefit will become noticeable with continued rate declines. -

AOCI Impact from Higher Forward Curve
Q: How does a higher forward curve affect AOCI losses?
A: Since the forward curve has shifted upward with fewer rate cuts priced in, the previously estimated decline in AOCI losses may not materialize as expected. The exact impact is uncertain and depends on where rates end up in the fourth quarter. -

Equity Fund Services Deposits Growth
Q: What's driving growth in equity fund services deposits?
A: Growth is driven by adding more bilateral relationships where Comerica is the only bank, leading to more deposits and fee income. Despite a less active private equity space, management sees continued success and expects deposits to keep growing. -