Comerica Incorporated (CMA) Earnings Call Transcript & Summary

Continuing this morning's session, very pleased to have Comerica with us from the company, we have Curt Farmer, Chairman and CEO, Jim Herzog, Chief Financial Officer; and Peter Sefzik, who is the Chief Banking Officer. Curt is going to kick us off with a quick presentation, and then we're going to open up to questions. As Curt gets going, if we could put up the first ARS question. You could just go ahead.

All right. Thank you, Jason, and good morning, everyone. 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 factors that could cause actual results to differ materially from expectations. Forward-looking statements speak only as of the date of the presentation and we undertake no obligation to update any forward-looking statements. Also today's presentation will reference non-GAAP measures regarding Comerica. In that regard, I direct you to a reconciliation of these measures in the presentation slides, which will be posted on our website, comerica.com. As shown on Slide 3, we believe our size is a competitive advantage. Our products and credit capacity rivaled those of much larger banks. Our agility allows us to tailor solutions to meet the unique needs of our customers. Tendered colleagues with deep industry expertise, deliver insights and consistent service, both of which we believe are key to maintaining our long-term customer relationships. With an uncertain economic backdrop, our proven discipline has prepared to navigate -- has us prepared to navigate expected credit normalization. Resource Optimization is designed to prioritize capital and funding to meet the needs of our customers while enhancing returns over time. In all, we believe we are the right fit for our customers and our strategic initiatives further enhance our strong franchise. Diversification across our business lines and markets on Slide 4 has been an intentional strategy. Although our commercial bank is the largest division, our strong retail and wealth management capabilities not only deliver comprehensive solutions, but also contribute funding and fee income to generate a balanced financial profile. Industry diversification within our commercial bank mitigates emerging risks specific to any one sector. Our selective MSA focused geographic strategy prioritized growth markets with a concentration of our targeted customers, while minimizing exposure to any one region. This diversification strategy has served to deliver stability over time. Moving to Slide 5. Execution of our balance sheet strategy, coupled with softening demand for credit caused loan growth to moderate as average quarter-to-date loan balances declined to $54.3 billion through August 31. Growth in commercial real estate continued. We managed pipeline and origination volumes down significantly. Our strategic exit of Mortgage Banker Finance continued as expected and also contributed to a large portion of the reduction in average loan balances. Middle-market borrowers demonstrated a cautious macroeconomic sentiment as we observed reduced utilization and declines in equity fund services were largely concentrated in nonrelationship customers. Increased selectivity across our portfolio is expected to enhance liquidity and returns as we are observing capital and funding relationships misaligned within our target profile. Considering demand trends and optimization efforts, we anticipate Third Quarter average loan balances to be modestly below our prior guidance. We believe pivoting seamlessly from strong growth trends into optimization efforts highlights our nimble and effective balance sheet management. On Slide 6, quarter-to-date average deposits increased to $65.4 billion. Deliberate and successful efforts to win back customer deposits that diversified earlier this year drove growth in interest-bearing balances. Consistent with comments made on our last earnings call, we have not added any new broker deposits this quarter. As expected, noninterest-bearing deposits declined modestly due to the impact of Fed monetary policy and customer utilization of cash to repay debt in preparation for economic uncertainty. Average Third Quarter noninterest deposits made up 45% of our total deposit base through August 31, which remained favorable relative to our peers. We believe the trend line for further mix shift may be most impacted by our level of ongoing growth in interest-bearing deposits. Overall, the market remained competitive, and our success in attracting interest-bearing deposits drove betas into the mid-50s. Based on quarter-to-date trends, Third Quarter average deposit balances are on pace to exceed prior guidance. Although deposit betas will likely continue higher, Third Quarter net interest income expectations remain in line with our outlook. In all, we feel the interest-bearing balance trends affirm our customers' confidence in Comerica as a long-term banking partner. While these higher balances impact costs and our mix of deposits, there is still a net benefit through enhanced profitability and connectivity with the overall customer relationship. Credit quality on Slide 7 remained excellent. With the third consecutive quarter of net recoveries, we once again performed at the top of our peer group in the Second Quarter. Further despite expected migration, our Second Quarter percentage of criticized commercial loans at 3.8%, outperformed the peer average and remained well below our historical average. We maintained diligent portfolio despite diving deeper where we see potential for more relative migration. Payoffs and refinancing of leverage loans have helped to offset relatively elevated risk in that portfolio. More generally, we continue to see customers facing inflationary pressures but we are also seeing them take actions to improve their risk position. With a proven track record of out-performance and a reputation for prudent underwriting, we continue to feel well positioned to navigate credit risk in the evolving economic environment. Given the growth in industry focus, Slide 8 goes into more detail on our commercial real estate strategy. Within a dedicated line of business, we focus largely on construction of Class A, urban infill, multifamily, industrial or storage properties. Outside the line of business, most of our commercial real estate exposure is owner occupied with a small remainder of investor-owned. Most of the investor-owned real estate is in private banking, where we usually underwrite to a wealthy guarantor. Office is not a primary strategy with total assets of less than 2% of our loans as of the Second Quarter. Although we expect increased commercial real estate migration, our highly selective client and asset class strategy coupled with significant tenure support our assumption that anticipated migration should remain manageable. Continued growth in noninterest income on Slide 9 remains a priority. Second Quarter noninterest income grew over 20% compared to the same period pre-COVID and quarter-over-quarter growth outperformed our package. While we saw growth in customer categories, larger increases were in noncustomer income, including risk management, BOLI and dividends related to our FHLB advances. Our objective is to increase the mix of capital-efficient fee income as a percentage of total revenue in order to enhance consistent profitability and overall returns. Investments underway in payments, capital markets and wealth management should help us achieve that outcome. These products also increased the connection points with our customers, supporting satisfaction and retention. Moving to Slide 10. We have more detail on these and other critical investments designed to advance our strong competitive position. Comerica has long had an attractive low-cost deposit profile but elevated products, targeted marketing and process efficiencies are already generating incremental results. As a leading bank for business, we feel we can be a leading bank for small business and business owners. Strategic hiring and small business is critical to making efficient and new and improved products releases making efficient progress and new and improved product release this year are already exceeding expectations. Within Wealth Management, we have been executing a comprehensive plan, including new and enhanced products, key partnerships and opportunistic talent edition. Our transformational approach to that technology played a key role across each initiative as we deliver products and process improvements aligned with our corporate priorities and the needs of our customers at a rapid but effective pace. Further foundational investments in our platform, data management, cybersecurity and risk better position our infrastructure for agile future development. Our track record of discipline and efficiency on Slide 11 demonstrates our ability to balance necessary investments while considering expenses and revenue over time. Over the past 5 years, we have shown strong performance in managing expenses relative to our peers. Over the past 10 years, we reduced head count by 15% despite growing revenue considerably. [indiscernible] our proven model demonstrates an ability to earn more revenue per employee than the peer average. Although our Second Quarter efficiency ratio increased to 57.7%, remain below our 15-year average. I share these proof points to reinforce that expense management and efficiency remain top of mind for organization. Throughout 2023, expenses have been elevated by inflation, market dynamics and select investments. We do expect these pressures to continue and may see Third Quarter expenses slightly over our previous outlook. For the full year, we are in the process of reevaluating where we see expenses going and what leverage we may have to offset some of these headwinds by balancing the need to strategically invest for the future. Considering the impact of funding and profitability, we believe we are in a brief period of calibration, which may create challenges in achieving positive operating leverage. However, we remain committed to efficiency in managing the organization for the long term. Our capital position remained a source of strength, as shown on Slide 12, as our CET1 increased further above our 10% market in the Second Quarter. Tangible common equity decline as moving in the long end of the curve increase our unrealized losses within AOCI. Adjusted to exclude AOCI, our Second Quarter tangible common equity ratio was in the top quartile of our peer group. Despite a healthy cushion above our strategic capital targets, and regulatory minimums, share repurchases remain paused as we await further clarity on final rules that may impact capital. Although we remain below the $100 billion threshold, we believe it is prudent to assess the rules once finalized and understand expectations for our ability to demonstrate compliance. In the meantime, we expect to continue to accrete capital above our target and we're confident in our capacity to support our customers' needs. Slide 13 highlights our differentiated value proposition as a leading bank business with compelling wealth management and retail capabilities. We have a unique business mix. Tenure bankers maintain long-term, long-standing customer relationships with our consistent service and underwriting, providing stability to our customers to then navigate business cycles. We often hear from our customers that we were there for them when it mattered. We believe that creates more primacy and less price sensitivity. We invest in products to meet our target customers and see strong penetration as a result. Our deposit profile has long been a strength with a focus on commercial operating deposits in a stable retail base. We anticipate the investments in small business and payments will further enhance the core funding source. Finally, we remain committed to running an efficient organization and continue to leverage strategic investments to increase productivity and maximize resources. Since we are taking to optimize our balance sheet and invest for the future only enrich our well-regarded foundation and position us for an even more successful future. Thank you, Jason. We're happy to take some questions.

Thank you, Curt. A lot in there that I'm going to want to follow up on. I guess maybe we could just start with deposits. I guess what stuck out to me is deposit growth, I think original talking down 1% to 2% for the quarter, and we're talking up 2%. Just maybe talk to in terms of what's driving that? You said not the addition of -- you weren't adding brokered deposits anymore. Just more color with both, I guess, deposit level outlook. And then within that, we're obviously seeing the shift from noninterest-bearing into interest-bearing. But kind of where are we in that cycle?

Yes. Thanks, Jason, and good morning, everyone. We think deposits are a very positive story. We're quite happy with the trends that we're seeing there. Just as backdrop, you might recall that during the earnings call in July, we talked about the fact that deposits leveled off in the last half of the Second Quarter. Not only has that continued, but we've seen a nice uptick in deposit levels. Noninterest bearing, I would say, are progressing very close to how we expected. Interest-bearing, we're actually having a lot of success in bringing on new customers and maybe bringing back deposits related to existing customers that we maintain, but those customers that are diversified, we're bringing some of those deposits back to the balance sheet also. So overall, we do seem to be running $1.5 billion to $2 billion ahead of where we expected to be on the deposit picture, most of that being in interest-bearing deposits. Quite pleased to see those come back. From a mix standpoint, you might recall that we had a previous earnings calls in that especially just a little bit below a 45% level on interest-bearing deposit mix to total deposits. Because of the success in bringing back total deposits, interest-bearing deposits specifically, I would expect that mix percentage to drop yet another 1% or 2% below previous guidance. I actually think that's a positive story because we are being successful in bringing back interest-bearing deposits. And as you know, there's a numerator and a denominator to that equation. We are paying for those deposits at competitive rates. So we are seeing betas move a little bit. And I do expect us at some point to get into the 60s, which is above the mid-50s that we have been projecting. Again, that's actually something we are happy to pay because we are having such success of bringing back deposits and overall feel really good about the trends.

Okay. Maybe we put up the next ARS question. I probably should have put this up before. But you kind of -- Jim mentioned kind of that mix shift, I guess as you kind of look beyond the third quarter into next year, do you expect kind of deposit growth to continue? And where do you see kind of the contribution of growing deposits bottoming out?

Some of that's going to depend on how high rates stay. We do see noninterest-bearing continuing to level out. I mean overall, it's tracking very close to what we expected at this point. And so the rate of decrease is really starting to flatten out at this point. I do think that if we go into next year and the Fed does not lower rates throughout next year, you'll probably see a bit more movement in terms of migration of that mix. I think that's natural as Corporate Treasurer starting the needle a little bit tighter. But certainly, the trend is that it's starting to really flatten out. So we could over the next year, see a little bit more movement in that ratio, but I don't expect a lot just based on the trend of how it's leveling out.

Buy-side consensus is doesn't go below 40%. We'll see. I guess, Peter, maybe bring you into the conversation. Curt, you talk about loan growth. It sounds like, I guess, the quarter-to-date trend is tracking down 2% or so, I think originally you guys were thinking flattish. Can you maybe just talk to kind of maybe more context of that, supply-driven demand-driven? I heard Curt mentioned the word optimization. Mortgage bankers want faster you talked about, but is there anything else that you're looking at on the balance?

Yes. I think there's a number of dynamics. I mean, it is somewhat demand-driven. We started to see pipelines creep down a little bit, really back to the March time period. So we have seen demand come down, but I think you've heard a lot of banks talk about balance sheet optimism and then looking at their portfolios. We did talk about mortgage banking in June that is progressing as we expected nicely. And so that has been some of the headwind on balances. And some of the other larger businesses, I think equity fund services is one we're kind of seeing the balances for leveling off. I think at these interest rates, I mean, demand is your average middle market borrowers probably debating whether or not now is a good time to borrow. So -- but we're still looking for opportunities to lend money. Our expectations on profitability have gone up I think all banks are looking at that closely. So -- and we're expecting a lot on pricing. We're expecting a lot on relationship, we're expecting -- we're looking at our businesses that bring deposits and that being really, really important to us right now as far as where we do lend money. And so all those moving factors together put us kind of where we are here at the Third Quarter and candidly, that may kind of continue into the Fourth Quarter. I think at some point here, we'll be able to start to hopefully start to see loan growth as we get into next year. We had a really good -- growing loans really good for a couple of years there. And with everything that's happened this year, I think it was a good time to kind of maybe take a step back. we don't anticipate other businesses we're going to get out of the decision around mortgage banking was really kind of unique to that business. But the rest of our businesses, we're looking at very, very closely and feel good about so...

Got it. So deposit picture a little bit better than expected, loan growth maybe a touch worse, which is, I think, similar to what we've heard from some others. But net-net, still thinking net interest income down 4% for Q3.

Yes, no change to guidance. Curt kind of implied that in this Third Quarter comment. And at this point, we don't see any need to change the full year guidance either up, I think 1% to 2%. Yes, in terms of net interest income.

And I guess maybe looking beyond maybe when do you expect to see kind of an inflection point in NII? And just what factors would drive NII growth in this environment?

Yes, I do expect an inflection point at some point on a quarter-to-quarter basis in 2024. A lot of variables at play there. A couple of them are probably a little more certain. Certainly, one of the tailwinds is going to be we're going to have lower yielding securities and swaps rolling off the books. So that will be a tailwind. I think a headwind will be deposit betas lagging a little. And if the Fed were to keep rates up a little higher or even at current rates and not bring them down, I think you'll continue to see betas just inch up a little bit more. Now there's other variables that I think are wild cards, and I think we were really going to be what -- where you see that inflection point. Is it in the first half of the year, the second half of the year? Three wildcards I'm looking at are; number one, loan growth. It's a lot easier to get positive traction. When you have loans growing again, we do expect loans to grow at some point in '24. It's a matter of the quarter. Second variable wildcard, I would say, would be deposit betas. We know they're going to inch up a little more, but the pace of that is going to depend on liquidity, the environment, loan growth, competition. Perhaps more importantly, the group is predicting the rates come down at some point in 2024. So the real question I have and it's something we're looking at hard is to what extent do deposit pay rates lag, the crew coming down? Do they lag more than what the models might say? Or conversely, we've seen a ramping up at a pretty quick pace of betas in the industry recently. So do they go down at somewhat of an accelerated pace? I think that's really a wildcard. And then the third wildcard is loan spread pricing. The whole industry has seen an increase in cost of funds. I think it's very fair for banks to ask for increased pricing to reflect a higher cost of funds. Question is, to what extent do you get it? And how long does it last? So those would be the 3 wildcards. And if they play out in a manageable way, I would see that inflection point in the first half of the year on a quarter-to-quarter basis. they don't play out as well as we would hope. I still think you'll see that inflection point, but I think it will be in the second half of the year. Those are the things we're looking at. That's tough to think about.

And then I want to circle back on Curt's comment on expenses. I think the takeaway was kind of running higher than expected for the Third Quarter. I think originally, you guys talked to up 1% to 2%. And maybe just more color in terms of kind of what you're thinking and kind of what are the drivers of that?

Yes, just slightly. I mean it wasn't enough for us to give a new number, but I do think there is the risk of being just slightly higher. We have a lot of product development going on, especially in the deposit space right now, given what happened this past spring. That's putting some pressure on. We continue with some team lift outs, that are coming on board that we're really excited about, especially in the wealth management world. So that's a factor there. And just dealing with the normal wage pressures and so on. So those are things that we're keeping an eye on. And it feels like some of those could continue into the Fourth Quarter, as Curt mentioned, we're taking a step back and looking at how we can offset some of these and then we'll offer more color as we get to the earnings call in October.

So I mean, I guess, originally, we're talking about up 9% for the full year, up for October for an updated figure on that?

Yes, still evaluating how we can offset some of these pressures.

And I guess as we look into 2024, I know on the last earnings call, you guys were talking about, I think, 4.5% to 5% through the cycle type expense growth. Was that kind of a guide? Or as you're looking to take actions to offset some of these elevated expenses, it could be less than that? Or how should we think about the '24 picture as you kind of enter your budget season?

Yes. That was not meant to be an outlook by any means and really taking a step back on that question. I just think there is such a wide range of what you can expect from expense growth over the next few years. I think it's going to depend on inflation. I mean obviously, expense growth can be very different in 6% or 7% inflation world that we are living in versus something we were living in pre-COVID. So where inflation ends up is going to be a huge factor, the labor market, economic growth in terms of what's going on there. And to the extent we're willing to invest to take advantage of that economic growth. And just what happens to the regulatory environment, in general, is something that is going to end up impacting expenses and depending on how quickly we want to get ready for the $100 billion regime and how the balance sheet responds to that is something else is going to be a wildcard. So I don't think there is really a simple answer you can give for the out years and expenses because I think there are so many wildcards going on in the economy right now. Suffice to say, though, you want to manage your expenses in such a way that you get positive operating leverage, and that is something that we're committed to ultimately doing, and I think we have to do and expenses are often a little bit of the plug number if you're not getting to where you want to be, you have to manage them in a way that you get that positive operating leverage ultimately.

Yes, I was -- last time, we wrote off kind of our top takeaways from the conference. And I was amazed to back out of it. I forgot asset quality. So it's almost become an afterthought and kind of looking at your charge-off metrics, it's nonexistent.

It's an income driver.

I mean clearly, though, credit is cyclical. I think we've all been doing this long enough. We have seen criticized loans pick up, albeit still low numbers. Maybe just talk to the credit cycle in general. How you see this -- do you see normalization ultimately kind of what's driving it? When you charge-offs return to normal because [indiscernible] if you are not taking enough risk in the loan portfolio? And how we should think about that?

Yes. The question, do you see charge-offs return to normal? The answer is yes, right? At some point, we'll start to see normalization. It's still -- it continues to feel really good. I think you've got some businesses that these interest rates are starting to show some creep. So your leverage lending space. I think it's one where that's hard to become an impact. Our TLS business is one where that's becoming an impact. And I think the real estate space in general, you're starting to see tighter cash flows there. And so I mean on the whole, right, with these rates, we're seeing less profitability at our customers. Some of them, it's a bigger impact than others. But we continue to see, as you mentioned, really pretty good data trends and performance. We're watching it closely. It's something that we've always been really, really good at. Melinda and I watch the loan portfolio very tightly and our company does a great job with this stuff. And we've always done a really good job through tough times. We tend to pick up customers and come on the other side of it. But I think what you're seeing it mostly is kind of these more leveraged businesses where the interest rates are really starting to eating the cash flows a little bit, and that's where we're paying close attention.

And then maybe just a bit more on commercial. I know you touched on it in the slides. But I think what people do is they'll kind of just rank all the banks, CRE exposures kind of CRE loans to total loans and Comerica ranks relatively high. Although I thought the slide you kind of have commercial real estate loans kind of in the line of business and then kind of [indiscernible] the loan outside of which as that carry a much different risk profile. Just kind of -- just talk through why the latter portfolio or just apparently less...

Yes. I hope that slide is helpful because we believe that it is a little bit of an action to view as having maybe too much commercial real estate compared to some of the peers. If you look at that slide, a large percentage of it is what we call owner occupied. So if you're talking about middle market customers, small business, business banking customers, where we've got a whole bunch of other business with them and we bank the facilities. So that's a part of the relationship. Usually, those types of advance rates and the coverage there is really, really strong, and it's overall tied to the company's performance. It's not a real estate investment play per se. And we've got a chunk of it we show as investor-owned real estate. So that's going to be to mostly in our private banking portfolio and where we've got fantastic relationships, lots of liquidity behind it, guarantors that are supporting the projects. So those 2 segments to us, although they are commercial real estate, we feel fantastic about it. And we really think when you talk about commercial real estate, that's the main part of the slide on the top part of the chart where we kind of break out our different products that we support, mostly multifamily, a lot of industrial, very small percentage of office. And these are with sponsors who we've done business with for, in some cases, 30, 40 years, long, long-term relationships, lots of projects, multiple projects, the same sponsors and the loan to values here, the equity behind it, we feel fantastic about. So we've been very deliberate about that portfolio. It does show up like you say, Jason, is kind of being higher, I guess, compared to other banks, but it's one that we are very confident in. And that's not to say, and as I mentioned, that you won't see some creep on cash flows on some of these projects. But we don't expect that it's going to be a real roll credit challenge for us.

And then one of the focuses of this conference has been kind of the Basel III endgame proposal, and I know you guys are good not $1 billion below the $100 billion market. But you did kind of mention it a couple of times in your presentation. So while not explicitly impacting Comerica, implicitly is it something you have to start looking at today? Obviously, you answering the goal at some point is to be over $100 billion, but it doesn't seem like a near-term event, just how does that kind of impact your behavior?

It is something we're keeping our eye on just because I think of capital. So a little bit like the Titanic. It takes a while to turn it if you get yourself in a bad position. So we want to be a little cautious there, maybe ocean liner, a better analogy. But we are keeping an eye on the rules. As the rules are written, we do think we will have no challenge in our expectation, at least as well no challenge complying by the overall phase-in dates. We're not required to comply at this point, make center size. We're carrying quite a bit of cash on the balance sheet. So whatever we saw in the Second Quarter, we're probably even a little bit smaller than you can argue. So we go away from $100 billion, but we do want to be ready for it, because, again, you want to manage your capital in such a way that you're being thoughtful, don't get a surprise at the end. So see no concerns with complying. You saw that we were at a 10.1% CET1 against first quarter. Balance sheet growth has been managed as Peter was just talking about, earnings continue to be strong. And so we think we're going to continue to accrete capital. Having said that, as Curt mentioned in his comments, we do expect to keep the share buyback turned off for at least the remainder of this year and be cautious in that regard. But we think we're in a really strong position from a capital standpoint and what optionality at some point in 2024.

I might just jump in and add that we were surprised by the growth in our asset base and how quickly it sort of evolved over the 24-month period heading up to the banking crisis this past spring. And so we were getting at one point, I think we were sort of $94 million, $95 million. So it was a little bit from a wake-up call, Oh my gosh, we could be over $100 billion. So we just wanted to make sure that we're doing everything we can to be ready for that, if that does happen. There could be some other event that could occur or something that could drive sort of a growth in portfolio normalized basis, it would take us for several years to get up to that $100 billion mark. And often at these conferences I get asked last year as that a question about would we deliberately slow growth, and that's not a winning strategy for us as we take care of our customers, long-standing relationships, et cetera, and be there for them. So that means getting over $100 billion, we want to be prepared for that whenever that may occur. If it doesn't occur, then I think it's just good foundational work for us, the things that you do to sort of be ready for that. around data and technology and other things benefit your company overall.

I appreciate that. And obviously, there's the organic growth rate over $100 billion is also the inorganic growth rate over $100 billion. I think given kind of the lines that demarcation changed and there kind of used to be category 1, 2, 3 and 4. Now it just feels like there's category 1 and then to be 4 kind of all much together. So that cost explicitly or implicitly across a $100 billion market has changed. It's a lot more prohibitive than it was. Does that kind of just change your view the regulatory environment aside of desire to maybe really cross that $100 billion marker as opposed to cross by a little bit organically in the few years?

Well you can't force something to happen. But I would say, in general, your comment is accurate, which is it would be nice if you're going to cross it to sort of punch through it versus dribble across the line, so to speak. There are some economies of scale associated with that. So I think we continue to be a patient acquirer on the M&A side. It's been almost 10 years since we did our last transaction. We continue to sort of be aware of what the landscape looks like. But I think right now, really kind of across the industry, we're probably in a little bit of a pause, and we'll get some clarity going forward. And for the reasons that you mentioned, I mean, what is the regulatory environment, even there some positive comments have been made really can deal to get approved, capital and the unrealized losses in this portfolio as AOCI can capital be raised. And it's just economic uncertainty around credit because that plays out, I think it will give some clarity longer term. In the meantime, we're going to focus on what we can control, which is sort of driving our own strategy and we've got a lot of success just for the organic growth and the expansion into the Carolinas and the Southeast that we did over the course of the last couple of years, we recently sort of beefed up our presence what we call the Mountain West, for the Colorado region and wealth team acquisition. So we're having a lot of success just around the organic growth, and that's what we'll continue to focus on. And just kind of have an eye around how does the inorganics for the landscape play out.

Got it. And I'm not sure if Curt or Peter wants to take this. But a few months ago now around your Direct Express program, got a lot of questions. I know on familiar treasury program that provides federal benefits on prepay cards. I guess, is commercial. Can you just maybe just talk to kind of your role with that card sources of concern and just what impact this program has in are?

Yes. It's a program we're very proud of, actually. We've been doing it for 14 years. It's a relationship with fiscal service, treasury department. We provide that you mentioned card programs, commercial security, better and all sorts of benefits across the entire country. I think there's 4 million cardholders there, approximately something. And we work really hard on this program. We feel good about it. We've had 2 bids since we've had in the 14 years, and there will be another one coming up this year. So we'll see what that looks like. It adds to our balance sheet deposits. Were we to not have that relationship than those deposits would probably sort of trickle down over time. I don't know that it's the type of program that would just move to another provider overnight. And so we are preparing for what that does or doesn't look like one way or another. But it is something that we've had a lot of success with. We've got an app that has fantastic ratings. I think we show a slide in the back of the deck, kind of what that looks like for us. So we'll see what happens. The bid will probably be this year. As I mentioned, we've gone through that 2 times and have won. It comes up in 2025, but they renew the contract here shortly. So we'll look at that. But I think the important part and that I don't think those are deposits that move the next day. I think you've got a several year period where that would transition to another provider if they chose not to use Comerica going forward, and we'll manage that for the overall company.

I might just add on to Peter's comment that we do make some fee income off the cards that most of the income offsets through outside processing. So it's really not a decent play. And while we do see some higher average balances at the beginning of the month on these cards, they triple down over time. So the average number is probably more in the $1 billion to $2 billion range throughout the quarter or throughout a month. So we feel like it's a deposit that we can replace obviously the customer growth, if that happened and again, as Peter said, it take probably. We don't know for sure, but it takes a couple of years for the transition to occur. So give us some time to replace it if we were not successful in winning on a rebid situation.

Got it. We're at a 2-minute warning. So we'll see if there's any questions from the audience. I guess when we were kind of running through the income statement, I skipped over fee income. So maybe just talk to some of the trends you're seeing there. I think you were initially thinking down 5% for the quarter given some capital market pressures that we're seeing, although maybe some of those are abating. Can just maybe talk to outlook there?

Yes. We've just really been, I think, ripping it up on noninterest income. If you look at the trends that were up on the slide that Curt was describing, really significant increases. And practically every category of noninterest income over the last year. The only one that has not had some nice growth or commercial service charges, and that's simply a function of the ECA and the higher interest rate environment. But we've had wild success and couldn't be more pleased with how noninterest income has grown. We do think that's going to potentially co-op a little bit and hence the tied for the Third Quarter. And I will say that it is a combination of both customer noninterest income and some noncustomer income. So some of that noncustomer income could slow up at some point. In fact, we're anticipating that over the next couple of years. But overall, just having tremendous growth rates well beyond nominal GDP rates and noninterest income and we just think with capital markets potentially slowing up a little bit, loan growth being curtailed a little bit in the last few months of this year, which sometimes accompanies fee income. We just think it's going to off a little bit, but still running at very healthy levels.

Great. With that, please join me in thanking the Comerica team for their time this morning.