Comerica Incorporated (CMA) Earnings Call Transcript & Summary

Great. Next up, very pleased to have Comerica with us. From the company, have Curt Farmer, Chairman, President and CEO; Jim Herzog, Chief Financial Officer; and Peter Sefzik, Executive Director of the Commercial Bank. To kick it off, Curtis is going to take us through some slides, and then we're going to open up to a chat.

Well, thank you, Jason, and good afternoon, everyone. Before we get started, I'd like to remind you that today's presentation contains forward-looking statements. I'll refer you to Slide 2 for our safe harbor statement, which I incorporated into this presentation as well as our filings with the SEC for factors that could cause actual results to differ materially from expectations. Forward-looking statements speak only as the date of this presentation, and we undertake no obligation to update any forward-looking statements. Also, this presentation will reference non-GAAP measures. And in this regard, I direct you to the reconciliation of these measures on our website, comerica.com. 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 very 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, 4 of which are located in Texas. 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 that had driven our success for over 170 years. On Slide 4, we dive deeper into our geographic strategy. As a leading bank for business, we focus our resources where there are abundant commercial opportunities, which led to our expansion outside of Michigan into Texas and California over 30 years ago. Beyond those 3 states, we support our specialized and national businesses such as auto dealer and technology and life sciences and locations across the U.S. While the map shows our office locations, our customer base in certain segments is more national in scope. Following that strategy, we are leveraging our industry expertise and customer relationships to formally expand into the Southeast and more recently, the Mountain West region. Both areas demonstrate strong GDP and population growth trends and have a concentration of businesses, which are aligned with our target customer base. We have attracted key talent with proven track records in those markets and complemented them with internal colleagues familiar with our process and culture. This strategy has provided a solid foundation to expand our middle market businesses, and we are off to a great start in these markets. Slide 5 is our mid-quarter update on loans, which is based on preliminary results through the end of August. So far this quarter, average loans were up over $900 million or nearly 2% compared to the second quarter. This is at the upper end of the outlook we provided in July. Growth continues to be very broad based with increases in nearly every business line. This is further supported by a $2 billion increase in commitments since the end of the second quarter. General Middle Market ex PPP and large corporate continue to grow albeit at a slower pace as working capital needs have started to stabilize following the extraordinary rebuilding of inventory levels in the second quarter. Steady growth in Environmental Services has continued, and we were excited to see strong initial momentum in our new dedicated Renewables Energy Solutions Group. We announced this team in May, capitalizing on a strong foundation and expertise within Environmental Services. We see promising growth opportunities to support our customers and our overall ESG strategy. Of note, National Dealer Services loans have been increasing slowly, mostly driven by new customer acquisition and M&A activity. Average balances were up about $1 billion from below a year ago, with $160 million increase quarter-to-date. This included $105 million increase in average floor plan loans, which remain depressed at $944 million relative to the typical historical average of about $4 billion. Our auto production has increased. With some improvement in supply issues, we still expect it will take some time for inventory levels to rebuild due to pent-up demand. In summary, we demonstrated superior growth relative to our peers in the second quarter. With good momentum in many businesses, we believe the positive trend should continue as the year progresses, putting us at the upper end of our loan guidance for the full year. Our customers remain relatively optimistic, which is reflected in our continued strong pipeline and growing loan commitments. As shown on Slide 6, we continue to strategically manage our relationship deposits. Third quarter average deposits come down to $74.7 billion through August 31 from an unprecedented peak of $84.5 billion in the fourth quarter of last year. Note that our deposit growth through COVID is up 33%, which is in line with the industry. Over half of our deposits are noninterest-bearing, the highest among our peers; and for our commercial customers, these are mainly operating accounts. As far as commercial interest-bearing deposits, we take a customer-by-customer approach, looking at the full relationship, understanding their needs and objectives as we consider the most appropriate pricing strategy. Balances have declined for customers that are more rate sensitive and who have multiple banking providers as we have not yet seen it necessary to match the highest bidder. With that strategy, our interest-bearing deposit costs in the second quarter were at an all-time low of 5 basis points, the lowest of our peers and have increased modestly to an average 14 basis points quarter-to-date. With the loan-to-deposit ratio for us and our peers at low levels, deposit rates have been slow to rise. However, with the extraordinary pace the Fed has been increasing rates, we expect rates to begin to increase more meaningfully. Consistent with customers' increased borrowing needs, we expect customers to continue to draw down on deposits resulting in our balances trending lower. Rest assured, as customers continue to put their excess deposits to work, we have significant sources of liquidity to support loan growth as shown on Slide 7. In conjunction with our commercial banking model, we expect to maintain a cash buffer at the Fed of at least $2 billion to $3 billion, and we've been running well above that for a number of years. As we approach that level, we can slow or stop reinvesting repayments in the securities portfolio. In addition, we have very strong and efficient borrowing channels such as broker deposits or FHLB lines, which we are not yet utilizing. We opportunistically took advantage of market conditions and issued $500 million in sub debt last month to shore up Tier 2 capital in light of loan growth. In total, we have a small amount of wholesale funding and maturities are very manageable. Also noteworthy, our loan-to-deposit ratio remains low and is well below the 87% average over the past 15 years. In summary, we believe we have the means to fund growth in a sound and economical way. Slide 8 provides an update on our asset sensitivity and hedging activity. In order to provide a more sustainable earnings stream through the rate cycles, we have been adding hedges to lock in market expectations for future short-term rates. Importantly, this also reduces the downside impact to potential decline in short-term rates over time. The goal is to moderate our asset sensitivity on an average 50 basis points, so an average 50 basis points change in rates over 12-month period would have a low single-digit percentage impact on net interest income. Reducing earnings volatility makes it easier to manage the business and should benefit our shareholders. In July and August, we purchased $5.6 billion in swaps at a weighted average yield of 2.84%. As we have built the book, we have purchased mostly spot swaps and have now begun to layer in forward dated swaps up to 1 year out. The bar chart includes this activity. As far as securities, we have recently slowed purchases and with expected repayments of about $550 million this quarter, the portfolio is anticipated to be slightly smaller at quarter end. We plan to acquire swaps to make up for any impact on asset sensitivity from a reduction in the securities portfolio. To provide an outlook for net interest income, we used the forward rate curve as of August 31 as well as our expectations for loan and deposit activity for the remainder of the year. There are many variables such as changes in short-term rates, deposit betas, continued hedging, loan activity and a slightly higher yield curve. So some of these moving pieces resulted in incremental revenue relative to the previous outlook. We now expect 2022 net interest income to increase by more than 32% relative to 2021, an increase over 25% in the third quarter relative to the second quarter. Of course, this depends on a number of variables that are difficult to predict. Therefore, actual results may differ. Slide 9 highlights our strong credit quality. Our conservative credit culture, diverse portfolio as well as deep expertise has produced superior results. Through the cycles, our net charge-offs have typically been at or below peer group average. With just 1 basis point of net charge-offs over the past 12 months, we had the best performance among our peers. Criticized loans decreased to a record low level in the second quarter, and nonaccrual loans also declined. While the economic environment is uncertain, our customers are generally optimistic about the future. And while they may be seeing some pressure on their margins, they remain in good shape. As always, we are closely monitoring the portfolio for signs of stress and currently have no significant concerns. Nevertheless, with our consistent disciplined approach to credit, we believe we are well positioned to manage through a recessionary environment. Turning to Slide 10. Payments are at the core of our customers' operations and to be a leading bank for business, we must provide distinguished solutions to meet this critical need. The payments industry is growing and changing at an increasing pace with customers making the shift towards more digital solutions. We have strong payments products that contribute significantly to our noninterest income. Also to meet the evolving needs of our customers, we have been enhancing the high-demand, high-volume products listed on this slide, and we have brought in transformational leadership and optimized our organizational structure. For example, we have begun enhancing our digital customer experience with an initial focus on onboarding our treasury management products in as little as 24 hours. Once we consult with our customers and prospects to find the right products to meet their needs, we want to make sure they can see the benefits quickly and seamlessly. This is another step in an exciting journey to support our customers digitally. Turning to Slide 11. We continue to maintain our strong expense management as revenue generation accelerates and we position for future growth. Better-than-projected financial performance may result in modestly higher-than-expected incentive compensation in the third quarter. In addition, we continue to see inflationary pressures. However, we believe our efficiency ratio should continue to improve. And in fact, our efficiency ratio improved 9 percentage points in the second quarter to 58%, which compares well to our peers. Our culture drives continuous efficiency improvement. As illustrated by the metrics on this slide, we've increased our productivity and effectiveness over time. We have continued to work on other initiatives around optimizing our facilities. The goal is to better accommodate flexible work arrangements that reduce our footprint while maximizing locations that best serve our customers. In addition, as we progress on our cloud journey and decommission data centers, our technology facilities are being consolidated. Also, as I described earlier, we are focused on product and market development. By carefully managing resources, we have the wherewithal to invest in our future, which is key to developing deep loyal customer relationships and driving prudent growth. Slide 12 provides detail on capital management. As always, our priority is to use capital to support our customers and drive growth while providing an attractive return to shareholders. We continue to focus on a CET1 target of approximately 10%. We are closely monitoring loan trends and expect to move closer to that targeted ratio over the near term through capital generated from strong earnings retention. Our common equity declined in the second quarter as a result of the impact of OCI losses from our securities and swap portfolios. Excluding the OCI losses, our common equity per share increased to $61.13, up 7% over the past year. In closing, Slide 13 demonstrates how we are well positioned for the future. This is really an exciting time for Comerica not only because of the rate environment but also thanks to the investments we are making in products, markets, processes and managing our overall business. This is reflected in positive trends in almost every category in every business. The realignment of our payment solutions and the addition of other capabilities have provided us the tools we need to remain competitive in this evolving environment. And of course, our relationship focus remains really at the core and continue to provide a significant advantage in the marketplace. Strategic management of our business, operations and balance sheet have resulted in a more agile company. Finally, our proven approach to credit has continued to minimize risk. In summary, we continue to build on our strong legacy while investing in the future to position ourselves for long-term success. Thank you, and now we'd be happy to take some questions.

Great. Before we start with questions, maybe just put up the first ARS question. Just what's your current position in Comerica? I guess as we wait for the audience to respond, maybe I'll jump in. Curt, maybe just talk a bit about your kind of recent market expansions. You talked about the Southeast to Mountain West. Talk a bit kind of what investments you're making. Do acquisitions help those markets? And just maybe talk about your primary markets as well and what investments you're making there.

Great. Thank you, Jason. So we -- as I referenced earlier, and you saw on the slides, we have expanded into the Southeast and have strengthened our presence in the Mountain West region, really the Denver, Colorado market. As we look at the last few years that sort of opportunities to continue to grow the franchise, we're always focused on getting deeper and stronger in the markets that we're in today, which are some of the great -- we're in 7 of the 10 largest MSAs with lots of growth potential in the markets we already serve. But increasingly, the Southeast became more attractive for us. We found that we had over $5 billion of loan commitments already in the Southeast, strong presence there in CRE, in our dealer business and a few of our other business lines. So our expansion there really is in the middle market area. So we've added offices in Charlotte, Raleigh and Winston-Salem. We've also added some wealth management colleagues in the market, and we will continue to use sort of North Carolina's opportunity to expand more broadly into the Southeast. And I would say it's going very, very well for us. We believe that we can grow there as well as grow in Denver, where we already had a presence, but we've now added middle market as well; that we can grow organically without that acquisition. Certainly, if something came along that made sense for us, it might accelerate that. We would take a look at it. But it had to be pretty special, would have to fit very strategically, culturally with the company. Sort of day 1 focus continues to be organic growth in those markets.

Got it. And maybe just -- maybe, Peter, talk just a bit about more loan growth. Loan growth continues into the third quarter, albeit at a slower pace. You talked about customers kind of have already rebuilt inventory levels. But you're kind of lending into high inflationary environment and particularly economic slowdown. Any kind of changes in terms of how you're approaching lending, changes in standards terms? Anything you're pulling back on?

Yes, Jason, we try to be really consistent through the cycle. So I think it's important from a customer, how you go to market, they know what to expect from us from a credit standpoint. And so whether things are -- probably when things are more robust, we're considered too conservative. Maybe when things are a little more challenged, we're considered aggressive, but we try to be really consistent through that process, and I think that bodes really well for us. So if we're going to turn the dial on anything, it's probably going to be pricing a little bit. It's not going to be stretching on credit. We're going to make really important decisions about credit and figure out what we can do to pick up market share through earning the relationship and so forth. If there's anything that I'm worried about or watching or concerned about, it continues to be leverage lending. I think the banks have been very responsible around leverage lending, but I think there's a lot of other players in the space these days that we compete with, but we don't try to stretch to do what they're putting out. And then I think the other space that we're watching closely is TLS, our technology business. We haven't had charge-offs there. That's a business that you would expect to see some charge-offs. And so you'll probably see a little bit of creep with everything that's going on in technology in that space in the coming year. But those are really the only 2 areas that we have any sort of concern about or observations on credit.

I guess maybe just touch on a couple of aspects of the portfolio. I mean, Curt, talked about the others. We could skip that. But equity fund services has been strong, but markets have obviously pulled back. Fundraising has been slowed. Any thoughts around that business?

It continues to be a great business. There have been a lot of new entrants to it. We feel like we've got the right approach. We've got really good portfolio management. We have invested in it. We've added sales folks. We've added portfolio managers. We have a very robust database. We know our portfolio really, really well. I think we're going to continue to see opportunities. Our approach is, I think, really kind of a trifecta. We've got the ability to bank the funds. We have the ability to bank a lot of the companies that they invest in. And we've got great wealth management abilities to take care of the partners at the funds. So all that together, I think, gives us a competitive advantage and helps us win business, and we like to do fund 4, 5, 6 of people who we bank for a long, long time. And so that's how we're able to grow. I think year-over-year, you're going to see some ups and downs on a quarterly basis, but that chart being up and to the right, that's in your decks, I think we'll be able to pull that off.

Got it. And then mortgage banker volumes have obviously been depressed because of the higher rate, lack of inventory, short dwell times. I guess any thoughts in terms of that business?

I'm not expecting much out of them next year. The forecast to MBA is down about 4%. We continue to be a really important player in that space. The universe of customers we want to bank is kind of finite. And I think that, for us, we just continue to add customers carefully. Those folks don't add a lot of customers every year, sort of a few at a time. But yes, certainly, where you see it now. All of our businesses in 2023, that's sort of the only one that we're not expecting a whole lot of growth from.

Got it. And then just lastly, maybe just commercial real estate, I guess some benefits to the banks, given some of the disruptions in the capital markets just, but on the other side, some concerns about certain pockets of CRE in terms of what you're seeing there.

Yes. We don't really have any concerns when it comes to CRE. Our portfolio is mostly multifamily. There's some industrial in there, but we don't have a lot of retail. We don't have a lot of office. And again, we're doing deal 25 with somebody that we've banked for 20 years that has a lot of abilities to take care of situations. The credit metrics in CRE for us are about as good as they've ever been. I'm not going to say the space isn't due for some pullback on values, but I think that we're going to perform really well through that.

Got it. Jim, maybe bringing you kind of into the conversation as we shift gears to deposits, but they declined in the second quarter. Your slides indicated a decline in the third quarter. I think you talked to down 2% for the year on the earnings call. Just maybe how you're thinking about that? And just how long do you expect kind of deposit decline to continue?

Yes, Jason, as you saw on the slide, we're still up 33% from pre-COVID, very much in line with peers. And one of our observations and we saw this in the last cycle of QE and QT, and it seems to be repeating very closely this time, and that is we get more than our share of deposits on the way up. We tend to be a little symmetrical on the way down. We really haven't been surprised by the pace of deposit decline. The couple of items that might put pressure on that 2%, we still expect something in the area of 2%. What are the reasons it could be slightly higher than that? One is loan growth continues to be very strong, as you heard from Peter and Curt. And we typically see and we have seen customers put cash to work in conjunction with them borrowing and giving us their credit needs. That's one item that's going to put a little pressure on deposits. The other is, since June 30 and that guidance was given, the Fed has shifted up its rate forecast. The forward curve is up about a full hike, a full 25 bp hike. CPI report this morning might indicate that the forward curve has shifted up again. So as the Fed continues to be somewhat aggressive in terms of rationalizing their balance sheet and trying to put a stop on inflation, that will likely put a little pressure on deposits, too. So probably a greater risk of a little, slightly more than 2% runoff and slightly less but we continue to monitor and evaluate that.

I guess one of the things that Curt mentioned, just the highest -- one of the highest shares of noninterest-bearing deposits among the banks. One of the things that other banks have talked to at the conference so far is just maybe a faster-than-expected shift from noninterest bearing into interest bearing. Maybe just talk about kind of expectations around potential mix shift.

Yes. Of course, our mix shift has held up very well. It's actually improved slightly since June 30. We do think, over time, it will gravitate to more of a 50-50 mix. That's our historical average. We do have a very strong base of operational deposits, very strong treasury management services. So we're not expecting it to dip much below that 50%, but we probably will see some rationalization of that over the next 6 months or so.

Got it. And just maybe lastly on this topic. I mean, your cost of deposits, up 14 basis points so far this quarter. We'll see where it ends, but I mean betas continue to be just, I guess, lower than we would have anticipated, I think many would have anticipated. Maybe just talk to -- I guess there's some concern is, is there a big catch-up coming at some point as -- if loans continue to grow, deposits decline, do you have to now play catch up at some point to start fund that loan growth? And just maybe just talk to kind of your -- maybe through-the-cycle expectations for beta.

Yes. It's always been our observation that deposit betas lag. We saw that in the last cycle. In fact, deposit pay rates kind of peaked after the Fed had done its first cut in the summer of 2019. So we expected that this time, and I've been expecting it to actually be a little slower than it has been. I think the reason for that is there's just so much more liquidity in the economy than there was last time. Bank's loan-to-deposit ratios were in healthier shape than they were last time. So I actually think there's going to be a bit more of a lag this time around than there was last time. I've been saying for some time that I don't -- didn't expect the cumulative betas to get back to the standard levels by the fourth quarter. I feel we've been more struggling in that regard now. It's probably going to be in the first half of '23. But I think whether they do get to that level and when they do, it will be dependent upon Fed actions most likely more than anything else. The whole industry has been lagging on betas; Comerica, a little bit more. I have seen some promotional offers that might attract hot money that some of our competitors have offered up. I've seen some of our competitors going to broker deposit area, which we have not done at this point. And so that might be some of the reasons why ours are lagging. But for us, it's very much a relational pricing strategy, and we're not necessarily interested in hot money. Having said that, we're very attentive to what's going on in the rate environment. And as a commercial bank, those are very much one-on-one customer discussions, and we feel like we're being very prudent in that regard.

Got it. And you raised your net interest income guidance for both 3Q and the full year. And if you look at it, it implies like a 4Q annualized NII number in excess of $2.9 billion annualized. As we begin to think about maybe our 2023 models, is that a good jumping off point? And kind of what are the puts and takes as you kind of put together the budget?

Yes. Well, as you know from our history and our size of the bank, $2.9 billion, a very significant net interest income. A number of puts and takes there. On the plus side, we're obviously going to have some loan growth in 2023 beyond fourth quarter of '22. That will be a positive. We have, obviously, some rate hikes taking place mid-quarter in the fourth quarter. As of this morning, maybe a little more than we thought. So getting the full year's worth of that will be a benefit in 2023. But some things going in the other direction too, most significantly, deposit betas. We may get to half or 2/3 of a standard accumulated beta by the fourth quarter of this year. And so that leaves a pretty significant piece of that beta for the full year of '23. So that will push us a little bit the other direction. We're mostly done with our swap hedging program. We still have a little ways to go. But to the extent we had swaps, those swap receive rates are a little bit lower than where the Fed is likely to end up in the fourth quarter. Obviously, the swap program is a great thing. It locks in very reasonable strong rates for the duration of the cycle. But at the same time, it does put a little pressure on 2023, but we still think it's obviously the prudent thing to do for the out year. So where all that nets out, we don't know. There's a number of possible outcomes. One of those outcomes is it could be a run rate lower than the fourth quarter of '19 -- or of '22, but we just don't know yet. We're going to have to wait and see where deposit betas and some of those other factors end up.

Got it. And maybe, Curt, earlier in the year, you announced several initiatives related to modernization, new brand identity, adding small business bankers, some technology stuff on the web and whatnot. It sounds expensive. But is that being funded kind of by the outsized NII we talked about, like expense savings, branch closures? Or just is it -- I guess, just you -- kind of big benefit from higher rates, just how do you think about that in terms of expenses and falling to the bottom line and the like?

Maybe just to pull back a second there, Jason, I don't think any CEO and any leadership team could have lived through the last 2 years and not come out the other side without thinking about how do we need to continue to evolve and change our business model. And the other things that we're working on are really a continuation of a theme around reducing square footage, really trying to have more flexible work space, accommodating how employees want to work on a go-forward basis, leveraging technology really based on all the accelerating trends that we're seeing from customers wanting to use digital more and less human interaction, especially for transactional business. That's both in the retail bank but also in the commercial bank as well. And then in the banking centers and our branches, an opportunity for us to continue to reduce the number of locations that we have, really, again, based on trends that we're seeing with customers. Customers want to come in to the banking centers for advice but less for transactional work. To answer your question more specifically, we're trying to use as an opportunity to take some expense charges really kind of on a onetime basis but then use that as an opportunity to reinvest back into the business around people, technology, small business focus, many of the things that you outlined there that we believe better position us longer term, not just currently but longer term for revenue growth and to be able to take care of our employees and our customers.

Got it. And then maybe, Pete, charge-offs were 0 in the second quarter. I keep on reading about this recession and slowdown and credit cycle normalizing. And we're hearing that for years now, and it's just obviously not happening. Just talk to any signs of early credit situation across your business. How do you think about this kind of normalization process? You kind of mentioned leverage lending. Are you looking at any other areas of concern? Just help us out here.

Yes. I don't know that I see any other real areas of concern right now. I mean we continue to see really good performance. I do think year-over-year, the customer base is probably not making as much money as they did last year, but they're still performing really well. One of the things that we're getting asked for is dividend recaps where middle market companies are taking money out of companies, and we're helping them do that. So no, they continue to perform really well beyond what I said earlier on TLS and leveraged lending. There's just not a whole lot of spaces that we're concerned about. Curt talked about we have mostly a commercial book. We have some consumer but not much. To the extent that we have middle-market companies that are in consumer-based businesses, we'll continue to watch those and see what that looks like over the next 12 months. But no, it's about as pristine and strong as, really, I can remember.

I guess, Jim, maybe you can step backdrop. Just how do you see normalized reserve levels? And how does that -- think that build process plays out?

Well, as you have heard from Curt and Peter, it's hard to think of credit metrics internally at Comerica being much better than they are right now. So obviously, the 2 things that drive our reserving is, one, our underlying credit metrics. The other is the economic outlook within the CECL models. I think we're probably about as low as we can get. And if you try to think about where we might be on an ongoing normalized basis, the first thing I would say is there's no such things a normalized number on your CECL. I think it's a bit challenging for anyone to pin a number there. But if I go back to our day 1 reserve level in the [ 1 20s ], it feels like you could get something revolving around that number. But again, a lot of volatility of CECL, and I certainly don't expect it to go much or any lower than where we're at right now.

Makes sense. And just maybe on capital, CET1 was 9.7% in the second quarter. You talked about a 10% target and expectations of continued loan growth. I guess when would you kind of expect to get back to 10%? Do you need to be above 10% to kind of restart share repurchase? And would there be a scenario that you're willing to actually go below that 10%?

Yes. In the near term through the end of the year, I would say our goal is to get back to the 10%. Loan growth got the potential still to surprise to the upside in 2023, but I think we want to be a little cautious with capital and hang right around that 10% level if it's not enough. We also have our eye on the credit environment. We feel good about credit right now. But of course, you read the papers like all of us do, and we want to make sure that we're prepared to handle any type of CECL charge should the economic outlook change. I think share repurchases would be a lower priority than making sure we're there to fund customer loan growth. Having said that, depending on what the outlook is as we turn the year, we expect to be back to 10% by the end of the year, and we can make that call as we get into early 2023.

Got it. And then maybe for you, Curt, we've heard from Bank of America, JPMorgan, PNC, U.S. Bank, all use the term scale multiple times in their presentations. I guess maybe how do you think about scale? Can you scale effectively? Do you need more of it? Does it influence your thought in looking at bank acquisitions, non-bank acquisitions? Comerica has been pretty successful in bank acquisitions, but it seems like you only do 1 like every 10 years or so. So just maybe your thoughts around that.

We're a patient acquirer. Our last deal was 10 years ago. We continue to feel like we've got just really good opportunities to grow organically. I do think that part of what works in our favor there is our commercial orientation. So much of that business is really relationship-based. It's relationship with a manager or a credit professional aligned against a company, middle market or one of our industry verticals. And so to me, the scale game feels a little bit more oriented towards sort of big mass market retail organizations, which is really not the space that we operate in. Having said that, if something came along and made sense for us to acquire, we would take a look at it. But it would have to be pretty special in one of the markets that we operate in today. It would have to make a lot of sense culturally, strategically from an alignment standpoint. There's just not a lot of those opportunities out there. So we're going to continue to focus on organic. We would be willing to do a tuck-in acquisition on the fee income side. We've looked at some things to supplement some of our capabilities. We looked at some things in the wealth management space. Nothing to report right now. But if something comes along, we would take a look at it.

Got it. And maybe where do you think you stand from a competitive position with respect to technology? Are you -- do you feel you're where you need to be? And just maybe talk to kind of the level of investments that are needed to go forward.

Yes. We feel good about where we are. We had Megan Crespi, our Head of Technology, on the road with us at the Morgan Stanley conference back this summer. We've done a fair amount of upgrading of talent across that organization and really have a lot of intellectual capital aligned against technology. We are really leveraging the cloud. We've been a leader there, sort of scalable cloud platform, a lot of -- provides us a lot of flexibility. And we're leveraging third parties where it makes sense for us to do so. And we think we're competing and holding up well against the industry at large, some areas, like treasury management and payments, we think we have a chance to be a leader. Other areas, we want to be a close follower, for example, in our retail bank with some of the mobile applications there. But we feel really good about sort of our ability to sustain our level of spend on technology. And part of the hedging program is allowing us to do that as well and not create a feast-and-famine scenario where we turn projects on, turn them off, et cetera, but we feel good about where we are.

Why don't we pull up the next ARS question. What is your expectations for commercial loans? Long-term sustainable ROE.

You know what, the presenter's right.

I'm going to ask you. I mean if you just put a different answer, we'll have even more questions. And so [ 13 to 15 ], we were 16.7% in the second quarter, albeit with a low normalized provision, but on the flip side, I would say more room upside on NIM. I guess how do you think about managing kind of returns against the current backdrop?

I would look forward to offering some guidance on that as we finish the hedging program, and we've stabilized our net interest income. But if you look at where we were in the last cycle, I think we could be even in better shape this time. Certainly mid-teens is what I would say right now, and then more to follow as we wrap up the hedging program later this year.

Perfect. On that note, please join me in thanking Comerica for their time today. Next up is lunch.