Comerica Incorporated (CMA) Earnings Call Transcript & Summary

All right. Up next, we're excited to have Comerica once again at the conference. Comerica has taken advantage of the current environment by accelerating loan growth, benefiting from rising wage rates, both of which positioned it to have best revenue growth across our coverage this year. Here to tell us more about the strategy and how they will continue the momentum, Chairman and CEO, Curt Farmer. Also joining him are CFO, Jim Herzog; and Executive Director of the Commercial Bank, Pete Sefzik. Comerica is going to do a short presentation as they always do, before we get into Q&A. So with that, I'm going to turn it over to Curt.

Right. Thank you, Ryan, and good afternoon, everyone. Before we get started, I'd like to remind you that today's presentation contains forward-looking statements. I refer you to Slide 2 for our safe harbor statement, which are 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 of the date of this presentation, and we undertake no obligation to update any forward-looking statements. Also, this presentation will reference non-GAAP measures. In that 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. Our unique geographic footprint provides significant growth opportunities with locations in 7 of the top 10 fastest-growing metropolitan areas. We believe that our continued loan growth, balance sheet management, fee-generating capability and operating efficiency should result in record returns for the fourth quarter. These strengths enable us to deliver shareholder value by maintaining a sustainable, competitive advantage and has driven our success for over 170 years. Taking a look at our overall geographic approach on Slide 4. We invest physically in growth markets, which have a concentration of our target customer base. Based on the needs and preferences of our customers, we develop and maintain full relationships nationally, leveraging offices, travel and technology. Last year, we launched an expansion in the Southeast, bringing our middle market and wealth management expertise to North Carolina. We recently announced the next phase of that strategy in South Carolina, and we're making similar investments to the Mountain West, successfully attracting key talent paired with internal colleagues familiar with our process and culture at providing the right strategy to export our renowned middle market business model. Striking a balance between local presence and national coverage, we feel we have an efficient and effective model. Slide 5 is our mid-quarter update on loans, which is based on preliminary results through the end of November. So far this quarter, average loans were up over $900 million or 1.9% compared to the third quarter. Growth is exceeding expectations from the outlook we provided on our third quarter earnings call and positive momentum across -- with positive momentum across a number of businesses. Corporate Banking continues on an upward trend, increasing about $200 million or $5.8 billion in average loans. As the syndicated market slowed, we saw opportunities to take on more meaningful roles with existing customers as well as financing customers' on-shoring investments. Utilization rates in our Commercial Real Estate business have increased from near historical lows as rising rates created some normalization in the pace of payoffs and refinance at project completion. We remain conservative in our approach, with over 90% of new business coming from existing customers. We largely financed the construction of Class A multifamily and industrial buildings with large, well-capitalized developers with long successful track records. Credit metrics continue to be excellent, and we see no meaningful sign of negative migration. M&A activity in our National Dealer Services business continues to drive term debt and commercial mortgages. Also improved supply of inventory and higher vehicle prices increased floorplan loans to over 50% from third quarter 2021 to third quarter 2022. However, inventory units are up -- however, inventory units are approximately 1/3 of pre-pandemic levels. Given the interest rate environment, Mortgage Banker continues to decline, with average balances down over $300 million from the third quarter. Pipeline across our businesses remain strong, supporting momentum through the end of the year and positioning us well for growth into 2023. As shown on Slide 6, we continue to strategically manage our relationship deposits. Quarter-to-date deposits averaged $71.3 billion as of November 30. Consistent with our increased borrowing needs, we have seen customers continue to draw down on deposits. Throughout this cycle, we prioritized retaining customer relationships while balancing our liquidity position and funding cost. This softer strategy resulted in the lowest cost of interest-bearing deposits relative to our peers in the third quarter. As the rate environment evolves, we remain committed to meeting the needs of our customers, and we expect further upward migration of deposit costs. In recent weeks, we've seen interest-bearing deposit balances react favorably to this pricing strategy. We have a very favorable mix of noninterest-bearing deposits as the majority of our commercial customers use our treasury management services, demonstrating the consistency and relationship nature of our deposit base. Our liquidity position is strong, and we have capacity available to support our growth as shown on Slide 7. Our loan-to-deposit ratio remains low at 71%, well positioned relative to our peers and well below our 87% average over the past 15 years. We expect to maintain a cash buffer at the Fed of at least $2 billion to $3 billion. And with a third-quarter average of $5 billion, we are right in line with our pre-pandemic position. Low wholesale funding at only 4% of total liabilities provides us flexibility, and upcoming maturities remain very manageable. As we look to fund loan growth, we intend to redeploy the liquidity generated by securities repayments. Beyond securities, deposit pricing is a lever we believe we can further adjust to bring back incremental deposits as necessary. In addition, we have strong and cost-efficient borrowing channels such as broker deposits and approximately $10 billion in FHLB lines as of last quarter end, both of which we have minimally used. We are confident that we have highly effective tools to support our growth. Our Securities portfolio on Slide 8 played a key role in executing our strategy to reduce earnings volatility that resulted from interest rate changes. Due to fair value accounting, higher rates affected the market value of our securities, resulting in a significant reduction in our tangible common equity. Our investments are primarily high-quality MBS, and we view this negative impact as temporary since the value will be recouped over time as securities are repaid or when rates fall with no impact to income. Utilizing the forward curve and considering expected repayments, our sensitivity analysis models recapture of $400 million to $500 million in AOCI within the next 12 months. Slide 9 provides an update on interest rate sensitivity and our strong net interest income potential. We continue to forecast net interest income growth of 4% to 5% in the fourth quarter relative to the third quarter. And full year 2022 is expected to exceed 2021 by more than 33%. This level of net interest income would be significantly higher than any annual amount of net interest income we have had in our long history. Importantly, the hedges we have put in place should assist us in maintaining a high level of net interest income due to the rate cycle as demonstrated by our asset sensitivity modeling. Of course, there are many dynamics which may cause model results to differ from actual outcomes. We believe improved predictability of earnings provides us the ability to more consistently invest in our business, thereby growing customers and revenue and providing a more compelling investment thesis for our shareholders. An area of increased focus over the last year, noninterest income, is on Slide 10, and it continues to be a source of strength, providing a growing revenue stream. These noncapital-consuming, fee-generating products support new customer acquisition and expansion of existing relationships. We are strategically investing in products to address customers' evolving needs. Treasury management solutions are at the center of our customers' operations, enabling them to manage and protect their cash and working capital. Our payment strategy enhances our strong core set of products while providing customers new ways to manage real-time money movement and better access to products and services based on their own priorities. Investing in our wealth management platform leverages the strength of our commercial franchise and strategic partnerships to service the needs of business owners and executives. Realignment and the expansion of our capital markets business is providing greater ability to facilitate our customers' growth and risk management objectives. We have a reputation of providing distinguished value through our relationship approach, and these investments support our ability to meet the wide-ranging and dynamic needs of our customers. Our disciplined credit culture, diverse portfolio as well as deep expertise continued to produce excellent results as shown on Slide 11. Third quarter net charge-offs relative to loans remained below our peer group average. We are well reserved with the highest -- we're the second highest loan loss reserve to net charge-offs amongst our peers. Throughout the last 2 years, our customers have addressed supply chain issues, labor shortages and margin compression. While our customers remain concerned about inflation and risk of recession, they are generally optimistic about their ability to navigate this environment. We've begun to see some signs of credit normalization, particularly in our leverage book and our Technology and Life Sciences, which have a higher risk profile. Because of this, portfolios total about $4 billion. Credit is not currently an area of concern. And with our consistent approach, we believe we are well-positioned to manage through a recessionary environment. Turning to Slide 12. We continue to maintain our proven expense discipline while we drive revenue growth and efficiency. Over the last 10 years, we have prudently managed staffing levels lower without sacrificing customer relationships or revenue. Although we have seen upward pressure on expenses from inflation and our modernization investments, we have balanced those expenditures relative to our revenue, producing a strong efficiency ratio of 51% compared to our peers at 56%. By carefully managing our resources, we have the wherewithal to invest in our future, which is key to developing deep, loyal customer relationships and driving prudent growth. Moving to Slide 13. Earlier this year, we introduced certain strategic initiatives designed to advance our business and support our long-term ability to compete given the dynamic environment. Our investments are focused on technology and digital capabilities, optimizing our corporate facilities and reimagining our retail delivery. Transformational leadership and technology is evolving, not only how we work internally but enriching the customer experience and enhancing our ability to win business. New operations and innovation hubs are designed to retain and attract talent. Finally, through resource optimization and technology, we aim to better meet the needs of our retail customers. Our larger modernization expenses are nonrecurring as we renegotiate and exit leases, migrate hardware and upgrade our networks. The business case of each of these investments is vetted through our governance process, and efficiencies gained through these efforts are being reinvested to support growth. Given the pace of change, we view these investments as critical, and we remain committed to managing these expenditures while prioritizing operating efficiency. Slide 14 provides details on capital management. As always, our priority is to use our capital to support our customers and drive growth while providing an attractive return to our shareholders. We continue to focus on a CET1 target of approximately 10%. Retention of record earnings outpaced strong loan growth in the third quarter, putting us on target -- in our target range of -- with a ratio of 9.93%. Excluding AOCI, we compare very favorably to our peers with a tangible common equity ratio of 9.12%. We feel well-positioned to meet the growing needs of our business and navigate the uncertain economic environment. We are incredibly proud of our financial results. Not only did we post record revenues, net interest income and earnings in the third quarter, the Slide 15 highlights our superior performance relative to our peers. Our efficiency ratio demonstrates our expense discipline as we support increasing revenues. Execution of our balance sheet management strategy drove 26% growth and net interest income, significantly outperforming our peers. Furthermore, we have shown 2023 consensus estimates for these key performance metrics. While we have not provided guidance, and this is not an endorsement of consensus, we appreciate the outside recognition of our ability to drive strong future performance relative to our peers. We are optimizing our resources and managing expenses while growing our business and positioning ourselves for sustainable success. In closing, Slide 16 demonstrates how we are well-positioned for the future. We are poised to deliver a sustained high level of earnings through the rate cycle, well above our historical results. Our relationship focus is a competitive advantage, supporting customers with our industry expertise and tenured team. Striking the right balance between investing in the future and our strong culture of expense discipline, we are driving efficiency. Strategic management of our business, operations and balance sheets have resulted in a more agile company, built on the foundation of prudent risk management. In summary, we continue to lean into our resilient legacy while working to ensure our long-term success. Thank you, Ryan. We now would be glad to take some questions.

Great. Appreciate all the remarks, Curt. So Curt, maybe just to start off with some top-line initiatives. So the slide shows that you're well positioned for the future and you highlighted several areas of revenue growth. Can you maybe talk about the 2 to 3 key growth initiatives that are driving revenue growth? And how do you see this impacting you in both '23 and '24?

Well, thank you, Ryan. First, let me just say that the first area of growth for us is always our existing customer base. And we've seen nice growth in our loan portfolio, really beginning 2000 -- halfway through 2021 throughout to 2022. And we're anticipating continued growth into 2023, and Peter can talk more about that. By supplementing that, we've recently expanded, as I referenced in my comments, into some new geographies. So we are always looking for opportunities to add talent and depth in our existing markets of Texas, California, Michigan, et cetera. But we've expanded into the Southeast, which we think represents a good opportunity for us, and we're seeing some really good initial positive signs there that we believe will bode well over the course of the next couple of years. We've, in addition, expanded into the Mountain West sort of Denver region. Secondly, I would say we continue to focus on fee income. We believe it's really important for rounding out the holistic nature of delivering relationship management to our customers. And those specifically in areas like treasury management, payments, wealth management, really the intersection between wealth creation and business owners, corporate executives, et cetera, a really important area of focus for us and then really rounding out sort of our capital market's capabilities. And then lastly, I just would say technology continues to be an area of focus, and we believe that it helps us not just improve in terms of efficiency, but helps us drive more colleague enablement, more customer enablement, which we think helps our business overall, whether it's the retail bank, the commercial bank or wealth management.

Peter, maybe diving deeper into Curt's comments on the fee income as well as what was presented on the slide, you've upgraded your treasury management platforms, you've invested in payments and capital markets. How is this further ingraining you for your clients? What does it mean for revenue growth over time? And do you have all the products you need to be successful with getting a larger share of your customers' wallets?

Yes, particularly, I'll talk about what we've been doing on treasury management and sort of break it into 3 functions. I mean, first off, is just as a leading bank for business, we want to be the leading treasury management experience in the market for businesses and make that digital experience very easy, very convenient for customers, so onboarding, enrollment, opening accounts, selecting products. That's where we're putting a lot of our investment and work into. And then not only that, but also the actual products themselves. So helping customers manage working capital, their supply chain, information reporting. So we think we've got real opportunities to invest in that and make it more of a leading product for us. So that would be the biggest piece of this that we're kind of moving away from treasury management being something that we expect our borrowing customers to take on when they join us, but going to market, specifically with treasury management capabilities that customers use, whether they're borrowing money from us or not. And that's a little bit of a shift for Comerica from where we traditionally have been. You mentioned capital markets. We feel like we play above our weight class in that, whether it's interest rate hedging, foreign exchange, energy. We lead a lot of deals. We're a really good loan syndications bank and feel like we have a tremendous opportunity to grow that business as well. So those will be the 2 additional comments I would make.

And then Curt offered a few comments regarding loan growth. So I'll take him up on this offer. You guys gave a loan growth that showed growth coming -- continue to come in stronger than expected. I can't remember Comerica growing loans 7%, 8% in all my years covering the company. So as you look into next year, maybe just talk about high-level expect-- I know what you've guided to January, but high-level expectations through '23. What do you believe some -- will be some of the key drivers of loan growth? What are areas where you're becoming more cautious and you're pulling back on?

Yes, Ryan. So in our fourth quarter update, we talked specifically about our commercial real estate book grew nicely to date. We've continued to see some growth in dealer. I think we'll see that into '23. And our corporate banking business has grown into the fourth quarter, and we expect that to continue as well. So I feel like the majority of the growth that we're kind of seeing right now is in our corporate and specialty businesses that you'll probably see into '23. Middle market, we've had a really good year in middle market. I think the fourth quarter will probably be a little more flat, maybe down a little bit. But I think as we get into the next year with what we're seeing on pipelines and opportunities, we feel like we're going to be able to continue to grow better than the national economy, especially because of the markets that we're in, mostly being in Texas and in California, now with the Southeast in play. So we feel like we'll be able to do better than what you see, I think, on a national level. And we think to our diverse loan book, if you look at it, while 1 business might be pulling back at a different time than another, but the other ones pick up. And so we've been able to be really successful with that for the last couple of years. And I don't ever really like to say that we're pulling back in businesses. We're probably more disciplined at different times. We're really good at going through cycles with a lot of our specialty businesses. And so we don't necessarily want to pull back, but we want to certainly be stable for our customers and make sure that they know that we're there to support them through whatever cycle we're potentially encountering in the next year.

And maybe just to spend a little bit time on the topic. I know you haven't talked too much about in the past deposits. You gave a quarter-to-date update and expectations through quarter end. As you look to next year, where are deposits headed? Are you still confident in them leveling off in early 2023? And maybe just speak to how you see your deposit base evolving, interest-bearing versus noninterest-bearing over time?

Yes, Ryan, certainly a hot topic in the industry. So far this quarter, deposits are tracking very closely, as you may know, to what we had guided on. So no real big surprises there. Having said that, where they go in early 2023, I continue to believe it's highly dependent on FOMC actions. I think that's the #1 variable. When I say that, I mean both the rate levels as well as how long QT continues. I do believe that if the Fed starts to pivot or indicate they're going to pivot early January and start softening their stance, I still believe you can start to see deposits level off in the first quarter of 2023. But we saw the jobs report last week, the curve shifted up a little bit. If the Fed continues to stay aggressive throughout the first quarter of 2023 with additional rate hikes and QT continues for some indefinite amount of time, then I do believe you can see some deposit runoff continuing into the second quarter. So I think the Fed actions are going to be very key there. In terms of mix, we have seen -- in the deck, you saw that noninterest-bearing was taking a step back further than interest-bearing. We had expected that. We had been at a very high percentage of noninterest-bearing deposits with our deposit base at the third quarter earnings call. So that ratio is starting to right itself a little bit. We are seeing interest-bearing deposits really start to level off, especially in the recent weeks. So going forward, I would expect to see most of the deposit pressure on the noninterest-bearing side. I do think corporate treasurers, as rates continue to go up, are being that much more diligent about managing their noninterest-bearing deposits. And I do think to the extent we have some surplus or surge deposits left in our balance sheet it's more on the noninterest-bearing at this point in time.

And so, Jim, on the last earnings call, there was a lot of discussion regarding the path of NII. As we get beyond this quarter. Obviously, you've given color for this quarter. Maybe just help us understand where you think it's headed over the next several quarters. And maybe just talk about some of the moving pieces that are causing the uncertainty in the investor base.

Yes. In terms of net interest income, I continue to believe the big X factors are deposits. And that would be to your previous question, Ryan, both deposit runoff as well as betas. To the extent that deposit balances start to level off in Q1 and the deposit betas hanging around that 25%, maybe a little above that we have in our asset liability model right now on a cumulative basis, I do think that it'll be a little bit above the Q4 run rate of 2022. But to the extent deposit betas go materially beyond 25% or to the extent deposit balances continue to run off, I think you could be right at the Q4 run rate. And I'll go a step further. If either of those variables goes South in a very material way or they both happen at the same time, you could be slightly below the fourth quarter 2022 run rate. So I continue to say that I think the fourth quarter run rate is a very good number to anchor yourself to. Now, I've heard a lot of discussion, a lot of microanalysis about are we going to be a little bit above or a little bit below we are at. And I'd really like to take a step back and think about the fact that we are running at a level of net interest income that is, as Curt said in his remarks, hundreds of millions of dollars higher than we've ever had annually in our history. So I think it's a little bit micro-analyzing if we're going to be a little bit above or below and trying to get too excited or too discouraged over either of those scenarios. The bottom line is we are producing a very strong level of net interest income next year. And what's more, most of that net interest income is locked in for years to come. So I feel really good about it. I think it provides a great foundation for very strong profitability metrics, and we think we're in really good shape there.

Maybe one more question on the topic. So you referenced deposit betas. They have been running about 7% at the end of last quarter. Post the NII update, it does show that they are picking up a bit. I think you had talked about around a 17% cumulative for this quarter. Can you maybe just talk about what you're seeing? Are you still confident that's around 25%? I think you're one of the few that's well below. And Curt referenced some of the strategies you're using. Maybe just talk about how you're using beta to our advantage right now to attract deposits across the deposit betas?

Yes. Very consistent with the hawkish Fed actions. We do continue to see increased pressure on deposit betas and competition for deposits. I'm often asked the question in the context of do we expect deposit betas to get to the cumulative 36% that we had in the last cycle. We're still obviously a little ways from there. I think that's going to depend on a couple of factors and where they net out. On one hand, we still have a lot of liquidity in the system, more so than we did in the last cycle. And to the extent that continues, we may end up falling a little bit short of that 36% cumulative beta. On the other hand, the Fed target rates were about double, 5% on the upper end of the Fed target than they were in the last cycle. And so that really has an impact on corporate treasurers in terms of where they think about placing their deposits and makes them much more attentive. So those are 2 forces kind of netting against each other. Where that plays out, again, it will depend on FOMC actions. For the fourth quarter, we have seen a step-up in pay rates and deposit betas. And at this point in time, we are forecasting that our cumulative deposit beta for the fourth quarter will be 25%, so that is higher than we've previously guided. I will add on to that, that we took some very significant pricing actions at the end of October, both on standard pricing and also becoming more accommodative on exception pricing. I think that step-up that we took in late October at this point in time seems unlikely to repeat. So we really just kind of stepped into this competition for deposits. It does have an impact on the beta, but it is proving to be successful. In recent weeks, we've actually seen an increase in interest-bearing deposits. So we think we're doing the right thing in terms of these one-on-one discussions with customers to bring deposits back onto the balance sheet. And we think in the end, that's the right thing to do from a funding standpoint and a granularity standpoint of deposits.

So Curt, your guidance for NII is a modest 33% growth in NII for the year and 5% expense growth. So I think it's safe to say you were able to generate operating leverage this year. And your -- and even if we don't -- even to Jim's point, NII stays stable, we're going to have double-digit revenue growth next year, at least close to it. Maybe just talk about how you think about the pacing of investments in -- well, NII might stay really high. This might have been the last really good revenue growth year for a period of time. How do you think about the drivers of investment in that environment?

Well, so much has changed the last few years and COVID accelerated lots of trends, a lot of push towards the digital channels and technology, not just for consumers, but for commercial as well. And so for us to continue investing in the business, investing in technology, investing in the right sort of talent on the ground to continue to grow revenue, investing in product capabilities, all remain really high priorities for us because, again, think about this not just in terms of the next 12 months, but for the next 2-, 3-, 4-, 5-year journey of the company. And we're operating in some of the very best markets in the United States that we believe will have a higher growth rate than the U.S. as a whole. And so for us, sort of leveraging off that higher NII and higher revenue for the company, we believe we can balance sort of the revenue versus the expenses and continue to produce very attractive ratios for the company. We had a 51% efficiency ratio at the end of the third quarter. We believe that we can maintain a low 50-percent-ish-point efficiency ratio, low to mid 50% over the foreseeable future. And we also believe that we can continue to produce superior ROE and ROA results, even as we see some pressure on expenses on a go-forward basis. And Ryan, we couldn't have done that without reducing the asset sensitivity for the company. That was not the position we were in 5 years ago. And so the work we've done there really was allowing us to smooth out revenue stream for the company going forward. And we, again, are seeing good growth momentum in the loan portfolio, client acquisition, fee income, et cetera.

So -- all right, so low to mid-50s efficiency is achievable over the intermediate term. Okay. Jim, I think you noted that the pension will be a headwind into 2023, given the -- obviously, the extreme movement that we've seen in interest rates. Any sense for how long -- how big of a headwind this would be? And just out of curiosity, do you plan on excluding this from your guidance? Or do you think about this being a one-off in nature or not?

I do think of it as being one-off in nature, and we are getting closer to the end of the year. So I feel like I can get a little bit more specific in terms of that pension headwind. For those who don't understand pension accounting, all the assumptions were set on 12/31, the last day of the year. One of the very significant sets of variables were market levels of assets, which includes both equities and bonds or fixed income within our pension trust. And given the fall in equity levels this year as well as the fall in bond portfolio levels, that's having a very significant impact. At this point in time, we would estimate when we set the rate at 12/31 that we are going to see an increase in 2023 of about $50 million to $60 million. Now, there are a lot of assumptions to get set at the end of the year, including a lot of actuarial assumptions. There could be some variability to that. Having said that, importantly, I do think of this as a bit of a 1-year or a pass-through challenge for 2023. I don't think the markets are expecting both interest rates on the long-term end as well as equity to stay at the level they're at right now. And so while this presents a challenge for 2023, I don't think we're going to see the same level of market performance in '24, '25, and out years. So I think of it as kind of a 1-year problem. We'll see where the markets go after this year. But it is a bit of a pass-through, and I don't view it as a long-term core earnings headwind, but it will cause a headwind for 2023 for that 1 year at least.

Let's have about 2 more questions here. I don't know if this is for Curt or Pete, but credit continues to be strong. I think, Curt, you mentioned in the presentation, Tech Life Sciences and leverage lending are areas that you're monitoring. Maybe just talk a little bit more about how are you monitoring? How are you stressing these portfolios? And maybe I would just add on to, you obviously had fast CRE growth in the quarter. That's an area that the market seems to be very focused on right now. Tell us a little bit about how you're feeling about the credit within these portfolios.

Yes. Within commercial real estate, we feel really good about our portfolio. It's mostly multifamily. Next is industrial. We don't have a whole lot of office. We don't have a whole lot of retail. We feel really good about the structures that are being put out right now on the pricing. So as far as commercial real estate goes, we feel pretty good about it. The leverage portfolio, the TLS portfolio, I mean these are ones that we monitor very closely, monthly financials, borrowing base reporting, were secured most of the time in the leverage book. So we feel like we're on top of it. We don't really see a whole lot of a creep right now, but we're aware that it could be out there, particularly in TLS. I think that's one that you would expect to have seen problems in, and we'll continue to monitor those, so -- and we stress it pretty regularly. We're very careful about the choices that we make on new business in particular.

And just one last one for me. So you continue to manage capital to 10%. It's the high end of the peer group. I know it might have just been due to the earnings volatility. Jim, have you guys done enough such that by the time we got to, hopefully, the other side of the cycle we could begin to manage that down. And Curt, as you think about prioritizing capital, is there anything M&A or bolt-on that you're interested in at this point in time? Is it more just wait and see given the uncertainty in the economy?

I'll take the first part of the question very quickly. Yes, we are really proud of the work we've done on moving out asset sensitivity. I think we are in a position where we could target a lower level of CETI. We would very likely accompany that with optimizing the capital stack, issuing some preferreds. Right now, the markets probably aren't in ideal shape for that. So as you say, coming out of the cycle, I think that's certainly a very strong option for us.

And Ryan, really no change for us on the M&A front. We continue to focus on organic growth, and we want to use our capital to support our customers on the lending side. And then secondarily, we would look at, obviously, returning capital if it makes sense for us to do so and buyback, et cetera. I do think the M&A environment is very challenging for the industry as a whole. We would look at sort of fee income tuck-in opportunities. We looked at some of those in the past to supplement sort of our capabilities. But right now, and I think for the foreseeable future, our focus continues to be on organic growth.

Fantastic. Well, please join me in thanking Comerica again.