Comerica Incorporated (CMA) Earnings Call Transcript & Summary

Good afternoon. I'm Manan Gosalia from Morgan Stanley Research. Before we start off today, we have Comerica. Before we start off, I'll just read out that for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative. All right. With that out of the way, joining us today from Comerica, we have Jim Herzog, CFO; and Megan Crespi, Chief Enterprise, Technology and Operations Services Officer. As a brief introduction, Jim has been CFO since 2019, and before that, he served as the bank's treasurer. He joined Comerica 38 years ago and has led various functions within the bank. Megan joined Comerica in March of 2020. And in her role, Megan oversees the bank's enterprise payments, lending and trade services, real estate and security, technology and cybersecurity units. So with that, Jim and Megan will provide some prepared remarks, and then we can dive into Q&A. Jim, over to you.

All right. Thank you, Manan, and I have my own preliminary remarks here. Before we get started, I'd like to remind you that today's presentation may contain forward-looking statements. I refer you to Slide 2 for our safe harbor statement, which I incorporate into this presentation as well as our filings with the SEC for the factors that could 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. And with that out of the way, good afternoon, again, everyone. We have provided a brief overview of Comerica on Slide 3. We are a leading bank for business, with over 90% of our loans to commercial entities, complemented by strong retail bank and wealth management capabilities. As you can see on the right, our unique geographic footprint provides significant growth opportunities with locations in 7 of the top 10 fastest-growing metropolitan areas. Also, we believe that our interest rate sensitivity, strong fee-generating capability and expense discipline should drive significant operating leverage as the year progresses. These strengths enable us to deliver shareholder value by maintaining a sustainable competitive advantage and have driven our success for over 170 years. On Slide 4 is our big quarter update on loans, which is based on preliminary results through the end of May. So far this quarter, average loans were up $1.4 billion or 3% relative to the first quarter, exceeding our expectations. Growth continues to be very broad-based, led once again by General Middle Market ex PPP, which is up over 3%, and large corporate, which is up nearly 6%. In general, customers are rebuilding inventory levels, which has resulted in increasing working capital needs while CapEx spending remains relatively slow. As far as our Equity Fund Services business, where we provide capital call and subscription lines to venture capital and private equity firms, we continue to see good opportunities, resulting in record loan balances. Of note, National Dealer Services loans increased $344 million with seasonality as well as new customer acquisitions. This included a $150 million increase in floorplan loans, which remain depressed at $785 million relative to the typical historical run rate of about $4 billion. We expect it will take some time for inventory levels to rebuild as supply issues are resolved and pent-up demand is satisfied. We also have seen a small seasonal increase in mortgage banker volumes. We expect activity will continue to be impacted by higher rates in home prices as well as low inventory. We believe we should feel better than others in this space as housing supply increases. In summary, with good momentum in many businesses, we believe the positive trends should continue as the year progresses. Our customers are cautiously optimistic, which is reflected in our strong pipeline and growing loan commitment levels. A key component of our relationship banking strategy is our long-tenured colleagues. They provide value to our customers by utilizing their deep expertise in the industries they serve. The diversity of our business mix, combined with our geographic footprint, should help us achieve consistent, sustainable growth. As shown on Slide 5, due to record deposit growth last year, our first quarter balance was 11% above the same quarter last year, which beat the peer average. The fourth quarter increase and the first quarter decline were mostly a result of seasonality. And so far this quarter, average deposits have decreased at a much slower pace, which was in line with our outlook. We have a loyal sticky deposit base. Over half of our deposits are noninterest-bearing, the highest amongst your peers. And for our commercial customers, these are mainly operating accounts. We believe total deposits will remain elevated but slowly decline as the Fed increases interest rates and significantly shrinks its balance sheet. The average cost of interest-bearing deposits has remained at an all-time low of 5 basis points through the end of May. With the loan-to-deposit ratio for us and our peers at low levels, we expect deposit rates to adjust slowly as rates rise. Turning to Slide 6 and our asset sensitivity. Due to the commercial nature of our business, the bulk of our loans are floating rate and reprice quickly. Also, the majority of our deposits are noninterest-bearing. Therefore, our income stream reacts very quickly and favorably to changes in interest rates. This was demonstrated in the last rising rate cycle when we had the highest loan yield beta and one of the lowest deposit rate betas amongst our peers. In order to provide a more consistent earnings trajectory through the rate cycles, we have been adding hedges to lock in part of the upward sloping forward curve. This is accretive to income as we are pulling forward market expectations while reducing risk in case short-term rates do not reach the expected levels. The goal is to moderate our asset sensitivity so an average 50 basis point change in rates over a 12-month period would have a low single-digit percent impact on net interest income. As of May 31, we estimate that an additional $10 billion to $15 billion in hedges are necessary to meet this goal. Slide 7 shows that in April and May, we purchased $3 billion in securities at an average yield of 346 basis points as well as $5.3 billion in swaps at an average receive rate of 272 basis points. Of note, security repayments are expected to be $650 million to $700 million this quarter. To provide an outlook for net interest income, we used the forward rate curve as of May 31 as well as expectations for loan and deposit activity for the remainder of the year. A slightly steeper curve and additional hedges have provided incremental revenue relative to the previous outlook. We now expect 2022 net interest income to increase by more than 25% relative to 2021 and increase about 20% in the second quarter relative to the first quarter. Of course, there are many dynamics that may cause results to differ, specifically the pace of movements in short-term rates and the pace of continued hedging and loan activity. We remain optimistic on all fronts. In summary, our goal is to lock in the market's expectations for future rates in order to provide both a sustainable and strong earnings stream over time. Reducing earnings volatility makes it easier to manage the business and can result in a higher stock valuation. Now I'll turn the presentation over to Megan.

Thanks, Jim, and good afternoon, everyone. I'm honored and excited to be with you today to share Comerica's technology journey. For 173 years, serving our customers has been at the center of everything we do. And this has resulted in deep enduring relationships. To maintain these relationships, we must continue to evolve. Led by business innovation and enabled by technology, we are making digital a source of our competitive advantage. As mentioned, I joined Comerica in 2020, and since then, we have added some top-notch talent to drive our efforts. This new leadership includes the Chief Information Officer, the Head of Technology for our Commercial Bank and Chief Information Security Officer. They all bring vast experience along with fresh perspectives and ideas to our teams. Together, we are building a scalable cloud-first platform that allows us to deliver products to our customers' and colleagues' desire much faster than ever before. For example, we are transforming how we serve our customers, which includes providing compelling treasury management offerings, modern wealth management platforms and competitive solutions for retail, and we are evolving the way we work, including modernizing our core platforms such as commercial loan servicing and financial accounting systems. Our digital enhancements are delivering the technology and tools our customers and colleagues want to be more effective and efficient, resulting in greater satisfaction and loyalty. Turning to Slide 9. As you know, COVID massively accelerated digital adoption. What would have taken 10 years transpired over just 10 months. Customer and colleague expectations are forever changed and rising. Our cloud-first strategy is a key for us to stay abreast of the rapid technology transformation. Over the past 5 years, we have migrated about 70% of our business applications to a public cloud or SaaS model. This strategy provides greater agility and drives faster rollout of products and services. As far as our technology spend, we need to be intentional, decisive and focused on the areas that really matter to our customers and colleagues. To better understand the desires of our customers and colleagues and how we are measuring up, we conduct focus groups. We also closely monitor the competitive landscape. In addition, our size is an advantage as we can be nimble and often execute quickly, minimizing expense. Our continuous investment over the years has provided greater efficiencies. These savings have been reinvested and we have been able to allocate more of our spend to product and tool development versus daily operations. Finally, we leverage third parties to keep pace with evolving and emerging technologies. As an example, we recently invested in Canopy, a venture capital firm that specializes in early to growth stage fintechs. They are able to facilitate connections, which provide early access to new technologies. By truly managing our resources, we have the wherewithal to invest in our digital future to enhance the customer and colleague experience. Slide 10 provides examples of how we are modernizing platforms to drive greater operational excellence and empower our colleagues to serve our customers better. In April, we completed the first phase of our financial ecosystem transformation. We migrated some key financial applications to an industry-leading cloud-based Workday solution that we call DigiFi. DigiFi has an intuitive workflow, a user-friendly interface as well as numerous out-of-the-box dashboards and reports. We also have new capabilities that benefit the entire enterprise. Next up, we plan to install a new adaptive financial planning tool. The second example is called TM24, which is part of the Treasury Management digital journey. In early April, we launched the first capabilities, including an onboarding portal, which provides product enrollment in as little as 24 hours for some of our most popular products. It will be a fully digitized process from end to end and greatly enhances the customer experience. As this rolls out, we are developing a new mobile application. How we achieved these milestones by embracing the digital transformation is outlined on Slide 11. In order for our digital transformation to be successful, we need to instill a digital culture, one where all of our colleagues embrace change. We are working hard to teach, train and prepare our entire team to be digital leaders. Also key to our success is our technology team. Attracting, retaining and ensuring our technology team stays current on the evolving landscape is the utmost importance. We recently launched our digital factory to accelerate our efforts and serve as the hub of our transformation. The digital factory is both a physical space and a way of working. It is a proven way to transform and get the entire organization focused on a common goal. Imagine 10 in a room, each representing a different part of Comerica and bringing complementary expertise. Digital is the ultimate team sport. In this way, we are building solutions that serve many needs across business units. In the digital factory, we built our first enterprise digital platform to support the Direct Express mobile app. Reviews of the app have been great, receiving 4.7 stars in the Apple App Store. This app is now being reused to refresh the Treasury Management mobile app that I mentioned a moment ago. As I said, at the core of our transformation is our dedication to meeting the unique needs of our customers and colleagues and providing the best experience possible. The bottom line is we are investing to ensure we have the tools, skills and knowledge to achieve our digital aspirations. Turning to Slide 12. As our CEO discussed on our last earnings call, in light of the evolving post-COVID environment, we are taking a fresh look at our Retail Banking approach and corporate facilities. For the most part, these efforts are along the same lines that we were already proceeding. But now with the pace of change accelerating, we are acting with even more urgency. For example, within our retail bank, we continue to focus on transforming the delivery of our services, aligning resources to best serve our customers and enhancing our small business focus. Also, we are developing additional initiatives around optimizing our facilities. The goal is to better accommodate flexible work arrangements, reduce our footprint while maximizing locations that best serve our customers. In addition, as we progress on the cloud journey and decommission data centers, our technology facilities are being consolidated. At the same time, we are focused on enhancing our community presence and increasing our brand awareness. We are very excited about the progress we've made and the path we are laying for our digital future. Our continued transformation will drive our success in building deep, enduring relationships with our customers and colleagues. In closing, Slide 13 outlines Comerica's key strengths. Our expertise, experience and strong product offerings help us build and solidify long-term relationships. We are committed to maintaining our credit discipline as well as expense management while we continue to invest to provide a high-caliber customer and colleague experience. Finally, our unique geographic footprint and diverse customer base offers significant growth opportunities. Thank you. And now, Jim and I are happy to take questions.

Great. Thanks so much, Megan. Thanks, Jim. Maybe we can delve into some Q&A here. Jim, on the loan growth front, it looks like loan growth is still pretty solid quarter-to-date, about $1.4 billion you mentioned. I guess, what do you view as potential sources of upside to this loan growth as we go through the rest of the year?

We certainly are happy with the loan growth, that was really encouraging to see, not all that surprising. The pipeline has been really good. At this point in time, we're not going to change the guidance for loan growth. We're still sticking to the kind of mid percentage -- mid-single-digit percentage growth on a year-to-year basis and still expecting about 2% growth per quarter going forward. If I were to look for maybe the areas of upside surprise, to me, it would be the economy continuing to perhaps be stronger than expected. And I think something that might be getting discounted perhaps more than it should be is just the overall impact of higher nominal asset values. With inflation, it's obviously taking more lending activity to replenish inventories. Rigids for any given customer cost more. And so I think that's where the potential for upside surprise in the industry and certainly at Comerica with our commercial base could come from.

And I guess when you move to the dealer floorplan loans, which you mentioned have remained weak for some time, are you baking in any increase in those floorplan loans as we move through the rest of the year?

Yes. We are expecting floorplan to slowly come back, so that is part of that overall mid-single-digit percent growth guidance that we gave. It will come back in a big way yet. We're still working through some supply chain challenges. And I think once you work through those, there's still the pent-up demand that has to be satisfied because right now our consumers are buying these cars almost as fast as they can be produced still. But the outlook does assume that we have some modest growth throughout the year. There'll be some typical seasonality in Q3 like we often see. But overall, we do see a little bit of traction with the dealer floorplan, and it should stop being a headwind and hopefully become a tailwind as the year goes on.

And maybe moving to the commercial side, how would you gauge sentiment amongst those clients because just given the elevated tail risks out there in the environment, but at the same time, they're building inventory, maybe CapEx is not as high right now. How would you gauge sentiment as it stands today?

We've been saying for some time that we see our customers as being cautiously optimistic. And we're not quite ready to remove the cautious preface word there, but we do see them being perhaps a little bit more upbeat even than cautiously optimistic. So the trend is in the right direction in terms of customer sentiment. When I look at the pipeline, as I mentioned, it's very strong. In fact, it's the strongest we've ever seen it. We talk to the customers and they do have some concerns as always. At this point in time, it's supply chain challenges, it's the cost of labor, it's managing through inflation, interest rates. But there's always something there. They're working through Omicron earlier in the year. And overall, they feel like they can navigate these challenges. Their balance sheets are in really good shape. Credit is in really strong shape. And overall, we feel like customer sentiment is positive at this point in time.

And what about on the mortgage banker side? I think you alluded to it in your prepared remarks, but higher rates are negative, but at the same time, there's -- as more home availability comes through, that should help the mortgage banker segment. What are sort of the puts and takes and how you're thinking about that going through this year?

Yes. Well, clearly, higher interest rates will be a challenge for the industry in this line of business, perhaps not quite as much for Comerica since we have a higher percentage of purchase. But that will certainly continue to be a headwind. Up to this point in time, even for purchases, supply of houses has been a challenge because the same thing that hit the dealer floorplan space hit the housing industry. If you try to renovate a house recently, you realize there are some supply chain and labor issues there also. But we do see those getting worked out. And so I see that as a growing tailwind as the year goes on, as the supply of houses continues to increase. And then the 1 thing that we're really proud of is we actually did pick up some customers through the COVID crisis and continue to do so. It may not have manifested itself yet in terms of loan balances to the outside world just because of the overall challenges that part of the industry is facing. But we think that will come to light also as the industry bounces back in the mortgage banker space.

Great. And then maybe moving on to deposit growth. I think that's been on everyone's minds. 2Q is tracking in line with your guidance, but you have deposit balances moving a little bit lower through the year. How much in terms of excess deposits do you think you currently have? And how are you thinking about loan growth as excess liquidity starts to roll off on the deposit side?

Yes. Well, no doubt, there are still some surge deposits in the system. The Fed has really just started to raise rates. They really haven't started to shrink the balance sheet yet, so a lot of those surge deposits are on the balance sheets of Comerica and many other banks. So we do have a meaningful amount of those deposits that we think will start to dissipate as the Fed continues to go through its actions. However, we're not convinced and we don't think it necessarily means that all of those surge deposits will retrench. You think about the mitigating factors. Number one, we still have a lot of surge deposits with us from the pandemic itself. PPP deposits did not totally go away. And then going back even further in time, the surge deposits from the original QE did not fully go away once the Fed started to reverse the balance sheet. The Fed may not reverse the balance sheet to the full extent back to where it started. And then when we talk to corporate treasurers, we think corporate treasurers will carry a higher safety net balances, at least for the next 2 or 3 years, just having gone through this traumatic period with the economy. And then finally, the nominal growth of the economy with inflation is at a pretty strong pace. So I think the overall deposits in the system may grow into the overall money supply the Fed needs to support that nominal growth in the system. So that's all a long way of saying, I do think the deposits will modestly decline as time goes on as the Fed takes its actions, but I don't think it necessarily means some of the surge deposits that banks are talking about will fully disappear. I just think there's a lot of mitigating factors that might partly offset that.

And how would that affect deposit rates? I think you said you expect them to adjust slowly as rates rise. But where do you see the puts and takes on deposit betas?

Well, so far, it's tracking a lot like we thought. We've mentioned that in the last cycle that each of the first 5 hikes had less than a 10% beta. We thought we could equal or outperform that and we seem to be on track to do that. Now having said that, when the Fed meets this week and they essentially, with a 50 or 75 bp hike, move us past what you think of as five 25 bp hikes. We are moving past what I call the easy-to-manage part of the cycle. It will become a little bit more challenging. And I do see us moving towards our modeled 30% beta by the end of the year. But I do think the huge amount of liquidity in the system will be a mitigating factor. I think the loan-to-deposit ratio will be a factor. And so I think deposit pricing will be very manageable. But having said that, no doubt, the betas will start moving northward as we get into the July hike and into the second half of the year.

Are you seeing any competition from fintechs at all at this stage?

No, I think fintechs will continue to be a factor. The online banks will continue to be a factor for the industry. But not so much for Comerica, A, because of our commercial orientation; and B, just because of our relationship model. So we really don't see that as a material threat at this point in time.

Got it. Megan, maybe moving over to the technology side. You spoke about how you're embracing the digital transformation to enhance the customer experience. Can you talk about your key priorities from the net new dollars that you're investing? Where are those dollars going right now?

Sure. Yes. I think really 3 things. First and foremost, digital factory, I spoke about that a little bit. Core modernization is critical for us and data, really breaking those 3 down. Digital factory continuing to extend, Treasury Management is a leading bank for business, it makes a lot of sense for us to do that. Commercial lending, customer experience as well. Expansion of small business capabilities from a digital perspective. Core modernization, I spoke a little bit about the fact that we've just recently implemented the Workday solution in the cloud to replace our general ledger and some of our financial accounting systems. We're continuing forward on that path as well in discovery on commercial lending, servicing and in our core accounting platform there. And we're working on in the Trust space, the Trust Score platform over the next number of quarters as we move forward. Data, really, the lifeblood of all things digital, if you will, and a critical enabler for us as we move forward.

Are there any systems that you need to replace entirely? I know you spoke about modernizing a lot of the platforms, but anything that you need to replace? Some peers have alluded to that. Anything that you guys need to do?

Yes. I think along the lines of core platform modernization, in some cases, they're replacements. In the case of our financial accounting system ecosystem, we went from a 40-plus-year-old mainframe system that have grown over the course of those decades to really going to a Workday package platform and taking advantage of everything that it had to offer. So we'll continue to look for opportunities like that as we think about commercial lending. Servicing our accounting platform will likely be an upgrade or a replacement in its entirety. At the same time, we also are really judicious about how we spend our money, how we stretch every investment dollar to the extent to which we don't need to completely replace the core platform just because of its legacy or just because its mainframe. We'll look for opportunities to leverage the API ecosystem, our API developer portal that we just rolled out as part of TM24 to try to extend platforms to extend their usable life.

And where do you think you stand from a competitive position here? Do you feel good about where you are?

Yes. I mean, again, it's the leading bank for business. We think about our right to win in the treasury space and where we're really putting a lot of our digital investment and our focus. At least in these initial rounds, I think that we have a really great opportunity to win there on a digital basis. I also think we've got a great position in cloud. If you look at our cloud and SaaS percentage, roughly 70% of our platform runs in those platforms. From what we can glean, that's among the industry leaders. And I think that, that's a great competitive advantage for us also as we move forward into the future. So I think between those things, we certainly are right in there with respect to our peers. And our size gives us an agility benefit, frankly, when we think about competing with some of the bigger banks, where we really have an ability to be nimble and to think about where we can win and place our bets there.

So as you think about that, the cloud strategy, consolidating data centers, the ability to use your scale, where do you see -- what is the right level of investment do you see going forward? Are there offsets to the investment spend that you're making?

There are. So we've been focused on compressing the spend on the run-the-bank side of the house. So run the bank is really kind of our operations expense around daily operations and how we run the business from a technology perspective. We've looked at that area of the budget and looked for ideas to really move dollars across, to stretch every dollar of tech investment spend in the budget toward investment and toward building new tools and capabilities. We'll continue to do that. We have line of sight to getting to a better split yet this year and then, over time, getting to about 50-50. And we think within that realm for the foreseeable future, we're good at our investment levels today.

That's great color. Jim, maybe coming back to you before I go to the audience for questions. The base of what you are adding hedges is fairly impressive. I think you mentioned there's still $10 billion to $15 billion more to add to reach your goal. Will you continue at this pace? Are there any concerns that you're moving too fast and you might be done before rates reach their peak?

Well, Manan, I'm glad you used the word pace twice there because that's exactly how we think of it. We are pacing ourselves. Frankly, there's still an awful lot of smart people out there that have divergent opinions. There are those that are concerned about a recession as the Fed has to hike rates aggressively to control inflation. And keep in mind, the forward curve will not wait for a recession to occur. As soon as 1 has even modestly shifted out or sniffed out, you'll see the forward curve drop even before the Fed is done with its short-term hike. So there's the possibility that we need to move at a relatively quick pace to make sure we finish the program this year. On the other hand, there are those that are convinced that rates will continue to drift higher just due to the supply-demand dynamics in the world and what inflation is doing and what the Fed's doing. And if that's the case, we'll continue to enjoy that benefit as we continue to purchase these hedges at higher rates. And when we're done hedging, we expect to continue to be asset sensitive, albeit at a much lower rate. And we'll enjoy those higher rates if, in fact, they do continue to manifest. So I think it's a bit of a win-win. We're really comfortable with our pace of hedging. We think it's the responsible thing to do, and we think we're going to end up in a really strong position no matter where rates go.

So maybe a related question is on the AOCI. That -- clearly, the 10-year is almost at -- or it's at 3.3% today. How are you thinking about the AOCI risk? And any thoughts on if rates ended where they are today, what would the hit to your tangible book value be?

Well, we are keeping an eye on it because I do recognize the tangible book value, and its ratio as an optic that a lot of people look at. I'm not overly concerned about it and it's not something that would compel me to move our securities to held to maturity, just because I think, A, that flexibility is very important in terms of what we do with our securities; and B, rates could move either direction, and we're not in the game of trying to predict where rates are going to go. If rates were where they were at on May 31, we would have seen a $600 million decrease to tangible book value. We're about a 10% relative amount for the overall tangible book value of the company. But again, that's a bit of a nuance of how the accounting works. As I said before, we mark the securities. We don't mark the deposits, which have an even greater impact in terms of what they can do for the economic value of the bank. So I'm actually comfortable with it. It's an optic I don't necessarily like, but in terms of real economics, it doesn't matter and it's not enough to compel us to shift our securities book around.

Great. Any questions from the audience? There's 1 upfront.

I'm sort of having trouble squaring what you say about your commercial customers going from cautiously optimistic to maybe even optimistic with what I'm seeing on consumer confidence, housing metrics. It just -- it's very confusing for us, investors, and it's not your fault but that you're saying that your middle market commercial customers across your franchise are increasingly optimistic. And clearly, they're borrowing more but that partly is probably because of inventory finance and stuff and nominal inflation. And yet every -- all the consumer -- leading consumer metrics look worse. Any ideas on why your commercial customers are so optimistic in the face of all these pressures that exist out there?

Well, it's a good question. I mean, no doubt they are. It shows in the pipeline. It shows in the broad-based growth and the broad-based pipeline that we have. I think some of the commercial customers have been holding back for some time now. They've been through a lot with the supply chain challenges. They were having trouble getting inventories up to where they needed to be. And they just see the light at the end of the tunnel at this point. We've kind of moved through the COVID era. We're moving into a more normal economy. They're able to get supplies. At least it's 2 steps forward, 1 back, but they're in better shape now than they were before. And just on a relative basis, I think that has them feeling more upbeat, and I think they're ready to start growing their business. I think they've been through enough of this recession and COVID and they just want to move forward. It's my sense of it. We'll see a lot of different opinions out there. Hopefully, if there is another recession, it's a light one. I think a lot of people do expect it to be a light one if we go through it. But we're certainly, as I always like to say, in very unchartered territory.

Okay. Jim, maybe to wrap up, just last question on the fee side. I think you had extraordinary fee income growth last year. First quarter was a little soft. How are you thinking about it in the second quarter?

Yes, we knew that first quarter was a little bit soft, and we mentioned that during the first quarter earnings call. I think some of the economic data that came out after the earnings call kind of validated the softness that we were seeing. Having said that, we did expect it to bounce back in the last 3 quarters of the year, and that is what we're seeing. We're still potentially going to be challenged in some of the market-related fees. You all see where the markets are going, oil prices are going. So certainly, things like deferred comp, CVA -- the CVA and the derivatives portfolio, warrant valuation. There could be some pass-through challenges there in the second quarter and beyond. But the core customer categories, I think, really picked up as we expected them to. And if you try to get a feel for where the pace they should be on in the last 3 quarters of the year, what I keep telling investors is take our 2021 noninterest income, which was a record by far and away, back off the $70 million of anomalous income related to warrants, the CVA and the derivatives portfolio, stimulus-related card fees and use that as your baseline for going forward, and that gives you a pretty good base for what 2021 was and what you might expect the last 3 quarters of 2022 to be.

All right. Well in fact, with that, we're out of time. Jim, Megan, thanks so much for joining us.

Thank you.

Thank you.