Comerica Incorporated (CMA) Earnings Call Transcript & Summary

Pleased to have Comerica with us again. From the company on stage with me, we have Curt Farmer, Chairman and CEO; Jim Herzog, Chief Financial Officer. So without ado, Curt is just going to give 3, 4 minutes or so of kind of opening remarks to kind of kick us off, and then we'll kind of dive into more Q&A.

Great. Thank you, Jason, so much, and thank you all for your interest in our company. And we'll make just a couple of comments. As Jason mentioned before I do that, I really remind you that we have a safe harbor statement in the deck that hopefully you received a copy of and that would cover any forward-looking statements or non-GAAP financial measures that we will discuss today that are covered in the deck. There's a slot early in the deck, and I'll be speaking to that maybe up on the screen, we could advance one more, maybe not. But in any event, you don't need to have in front of you for me just to make a couple of comments. First, I just would say that following the last 12 or 18 months, we really do feel like we are heading into an inflection point as a company. It probably does much of the industry and continue to feel like we've got a very compelling value proposition for our customers, our employees and for our investors as well. Starting to see some of the cyclical pressures that we've all been dealing with debating. And so that this really is an inflection point, as I said earlier, for us in a couple of ways, including some tailwinds, we see coming starting later this year and into 2025 with rate cuts, et cetera, that I'll talk a little bit more about. Maybe just remind you a couple of things around our company that we think position us well. One is just our unique business model. Unlike many of our regional peers, we have a strong commercial orientation as a bank. About 80% of what we do is commercial banking and lots of different venues, whether it's middle market, business banking, small business, a lot of different industry verticals, commercial real estate, energy, et cetera. We also got great retail wealth management capabilities, we really complement our commercial banking customers and believe that differentiates ourselves. And a lot of really long-tenured bankers and a lot of really long-tenured customer relationships. I like to say we're the right size for our customers that we can bring capabilities or really a much larger bank, but deliver it in much more of a community bank feel, much more relationship-based still. And I believe that we've got sort of the right product set and capabilities to meet the needs of those customers. Second, I just would say, we continue to feel like we've got a very strong foundation as a company. We've always had a conservative history, a history that spans 175 years as about 3 weeks ago. We celebrate our 175th anniversary. I haven't been here that long, but it's a long time. We've been in a very strong capital position as a company, 11.55% CET1 which at the end of the second quarter, put us really at the top of the peer group. I think you know we've got a history of very strong credit performance, it has really managed well through lots of different cycles, credit cycles, they have a lot of history there and believe that we're well positioned with charge-offs that were at really the top performance of lowest level versus our peer group at the end of the second quarter. And continue to feel like credit is pretty well behaved through the cycle and like the mix of businesses that we're in, which I think protects us. We've learned a lot of lessons over time to what businesses we want to be in, what businesses we don't want to be in, what geographies we want to be in, et cetera, and that has proven well. And then we feel like coming out of 12, 18 months ago, that we're in a good position from the liquidity and funding perspective. And then third, I would just say we have continued to make even during the last 12 or 18 months even that we slowed a little bit, strategic investments in our business position ourselves better to better meet our customers' needs longer term but also to generate more top line revenue for our company, especially in areas of fee income. That's included in the payments area. We hired a great leader for that space a couple of years ago, Allysun Fleming. He has done some really great transformational work for us in terms of core treasury management capabilities, payments capabilities, deposit gathering capabilities, et cetera. We continue to invest in our wealth management business, especially our Comerica Financial Advisers platform, which is very linked to our commercial bank, as you can imagine, wealth gets created of our commercial bank clients, business owners, CEOs and then as they transition that well to a really natural tie into our wealth management business, we continue to invest heavily there. We've always had a strong capital markets capabilities in terms of traditional syndications, hedging, FX, et cetera, but added M&A advisory group about 18 months ago or so, and we're starting to see some nice deal flow there and have been investing heavily in the small business segment. Previously, we really sort of began at more of the business banking level to think about sort of $25 million, $50 million sales companies, and we've been focusing heavier on that micro segment really tied to our retail bank. We've hired about 100 colleagues in that space and are seeing a lot of granular deposit development. It's a unique product capability sets that we've developed for those customers. And then lastly, I just would say, I think we're well positioned, as I said earlier, for this change in the cycle here. We're all anticipating the rate decline next week, although we've had some head takes before. But hopefully, that comes to fruition. And we're in a good position in terms of some swaps and securities that are rolling off starting next year. Again, we're one of the few banks that are slightly liability sensitive. So we should see a benefit as rates start to decline in terms of deposit repricing, although we've -- none of us have live through a cycle like this before, so we wait to see to how that plays out. And we think we're also well positioned even though loan growth has slowed some across the industry. We still feel really good about our pipeline and our ability to grow the balance sheet sort of longer term. So maybe just in summary, we continue to feel like we've got a very resilient strategy that has proven itself out over the last period of time here in the last 12, 18 months and the turbulence in the whole industry experienced. Very strong foundation, feel good about our capital, our credit position, liquidity, et cetera. We're continuing to make meaningful investments in the business that we think will help drive revenue growth for us longer term. We operate some of the greatest markets in the United States in terms of major metro markets where a lot of growth is occurring. And we've got a lot of tailwinds that we believe are coming our way and we do sort of view this as an inflection point for the company on a go-forward basis with hopefully a lower rate environment and some of the things that I mentioned earlier that will benefit us in 2025 and beyond. So Jason, with that, with traditional questions.

Perfect. Well, I guess you only put up the first slide of your deck. There is a very long informative appendix. I guess a few things that jumped out to maybe we could start going through. One of them was certainly on loan growth. And loan growth -- loans were kind of tracking modestly lower, I think 0.2% quarter-to-date. But from July and August, we saw a more pronounced kind of drop. I'm not sure if that's how much seasonality plays a role in that. We don't get great monthly data from the banks at least. Can you maybe just talk to kind of what you're seeing with respect to loan demand, what you're hearing from clients? And how you just maybe thinking about the guidance third quarter, you're talking about up 1% at one point, full year kind of down 4% on an average basis? Just kind of what you're hearing things?

Yes. I mean I've heard a few comments and see some of the write-ups from some of the other institutions. I think we're fairly aligned with probably what you're hearing from other banks. Loan growth has slowed some in the third quarter for us. Third quarter has often got some seasonality to it, in general, tends to be a little bit slower quarter given sort of the customers that we serve, manufacturing bases, et cetera. We do have a little bit of spike up in borrowing demand at the end of the second quarter. A lot of it related to the dealer finance -- auto finance space with a CDK outage that the dealerships had. And so a lot of them had a need to borrow up excess inventory on the lots for a little while until they sort of work through that systems issue. But when you look at sort of the month of August, July and August slower for us. But if you look at sort of more recent trends, we feel like the quarter is picking up a little bit. But no question, it is a little softer than what we saw in Q2. We still feel really good about the pipeline overall. What we're seeing is that we're still getting a lot of requests and a lot of activity. Commitments are still relatively flat but customers are waiting to actually book facilities and draw down on facilities. So we feel like we've got sort of good momentum, assuming that we get past some of the uncertainty that we're all experiencing right now. A lot of what we're hearing is uncertainty about the election. We're hearing a lot of uncertainty about interest rates that's starting to abate some. So some of that clears up, we actually feel pretty optimistic about -- sort of fourth quarter heading into 2025 in the pipeline overall.

One thing I know is that commitment after trending down for several quarters to kind of be flattening out in the last couple of months. Any particular kind of segments or kind of maybe where you're relatively more optimistic?

We're always optimistic in core middle market. We have probably seen more flat activity in tech and life sciences and equity fund services, but we believe that will pick up some as we get into the latter half of the year and into 2025. We are still active in real estate in terms of some new opportunities in the multifamily space, major geographies areas that we like, developers that we like. But there also are some headwinds there. We had a lot of business that has been waiting to move to the permanent market, construction financing as rates are coming down, some of that will start to peel off. But in general, I would say sort of middle market business banking, small business is where we're the most optimistic across a lot of different sort of industry components there.

Got it. Maybe, Jim, maybe you kind of you involved and shifted deposits. But look, overall deposit balance is up according to the slides, 1% quarter-to-date. Still some of that kind of mix shift noninterest bearing up interest-bearing -- noninterest bearing down, interest-bearing higher with interest-bearing -- noninterest-bearing now, I guess, 38% of the mix. Maybe you just talk to kind of what's driving that mix kind of where do you see that settling out? And I know this kind of broker deposits looks like they were higher, the thought around that...

Good. Well, thanks for the question. Good morning, everyone. We're actually very encouraged in terms of how deposits are trending so far this quarter. You mentioned they're up 1%, Jason. That's a portion of broker deposits on average being up. But core deposits were up over $200 million, also on average from the second quarter to the third quarter. I think that masks a little bit of the good news story that we're seeing here. Please keep in mind, we had core deposits trending a little bit down throughout the second quarter. So for them to be up so far this quarter, it means they've done a pretty good turnaround at this point. And perhaps the more telling statistic is that if you look at our June 30 balances -- and by the way, broker -- the higher broker were already reflected in the June 30 balance, they're pretty steady from June 30 through the third quarter average so far. We're actually up $1.2 billion from that June 30 number. So we do feel like there's been a real inflection point here in terms of deposits, really pleased with what we're seeing. In terms of breaking it down, noninterest-bearing deposits, up through the July earnings call, we've been seeing some slippage, as we mentioned, and that drove some of the net interest income guidance change. We've actually hung very close, almost right on top of that June 30 number in terms of where noninterest-bearing deposits are today. So it sure feels like a real inflection point in terms of where noninterest-bearing deposits are. So pleased to see that. And through today, they continue to hang in there largely. So noninterest-bearing does feel like it's turning the corner, and we're really pleased to see that. Interest-bearing, also great performance there. We're about $1 billion ahead of where we thought we would be on average on interest-bearing deposits, and I'm talking core customer deposits here to continue to perform very well on the interest-bearing also. In terms of overall mix of noninterest-bearing, I do think the 38%, the upper 30s is kind of where we're going to heading. The fact that we've grown interest-bearing as much as we have, we continue to maintain that upper 30s, we're really pleased with. And I'll just say noninterest-bearing deposits, we actually guided a little bit lower than where we are today in terms of the net interest income outlook. So both noninterest-bearing and interest-bearing performing better than what we had in the outlook when we talked about deposits in July. We did have some customer deposits that were a little bit inflated during the month of August. You'll notice a big step-up in terms of the August balance relative to July. We do think those balances will gravitate a little bit more towards the July level. So we're not going to maintain all that balance that you saw in August. But overall, just really great performance. The outlook that we had provided in July assumed that we would have about $1 billion more in broker deposits than what we're going to end up with on average for both the third quarter and the rest of the year. So with that said, even though the outlook, we may fall a little bit short of total deposits relative to the outlook we gave in July on a core deposit basis, it looks like we're going to be ahead of that number. So overall, just really pleased with how deposits are trending. It feels like we hit an inflection point, very comfortably ahead of where we expected to be on core customer deposits, and I feel like we have a really nice trend right now.

Got it. And maybe we could bring up the next -- let's put the ARS question. I think I forgot to do that. But Jim, I guess, we talked -- that was a good kind of overview of deposit balances, maybe we kind of talked to deposit costs within that. That's largely expected to cut rates next week, just maybe assume your thoughts in terms of kind of how you're thinking about what you do the next day and just how you're thinking about deposit betas in this current landscape?

That's something we're giving a lot of thought to. I know all banks are. I do feel like the industry is well positioned to move on this. I've seen some banks, including Comerica start to experiment with reducing rates to see how the market reacts and I do think, at least for the higher tiered rates, the market is expecting and will accept lower rates as the Fed begins to cut. We've actually started already repricing some of our CDs to a lower rate. We started shortening the duration on our CDs a while back. So 6-month CDs are kind of our sweet spot for promotional CDs. In terms of how fast that beta might move, a number of considerations. First, we are a relationship bank, so we're going to stay in very close contact with our customers and be very surgical and strategic in terms of how we go about doing this. You've heard me say in the past publicly that I think the reason for the rate cut will drive the speed of the beta. So to the extent you had a harder landing that customers really value more safety and soundness and the rate and you have the opportunity to maybe go a little bit faster. To the extent you have a softer landing, you probably have to be a little more prudent in terms of how you cut rates. Customers are still very interested in getting the best rate they can. So at this point, it does look like it's going to be a little softer landing at this point. And as a result, we'll probably see the industry not move quite as fast as it would have otherwise. On the other hand, loan growth is going to be a factor and loan growth is lagging in industry. So that may be a tailwind in the other direction. We may be able to cut rates a little faster in a vacuum just because of the overall loan demand. And then I think for the industry in terms of how fast we go in the first 3 or 4 months, I think the level of broker deposits that most banks have will be a factor. In the case of Comerica, we have a pretty short broker deposit book. On the customer side, we have about $1.8 billion of promotional deposits. About 2/3 of those were repriced by the end of the year. So we won't get the full beta on those on average in the fourth quarter. But I think we will get the full beta on those as we move into the early 2025. And obviously, those CDs have to reflect the number of cuts and what the market allows for that. We'll just have to observe as we go through the fourth quarter. We also have broker deposits hanging around the same levels that you saw in June 30. We expect about 60% of those to mature also by the end of the year. And so those rates as those roll over will reflect the overall curve. So we think that there's an opportunity to really hit the ground running on brokerage as we move into the beginning of the year next year. When you put all this together, we do think that through the cycle with our current mix of customer base that we have, we do expect through the cycle to get the 60-plus percent beta that we had on an accumulated basis on the way up. We do expect to get that through the cycle on the way down. And I do expect to get it at some point next year. But I don't think we're going to get it right off the bat. When I look at the first few cuts, it's probably going to be a little closer to the 48% standard beta that we have in our slide deck. But again, as broker deposits start to get captured early next year as rates continue to come down, and I think the market-sensitive rates that are higher will be the first to come down. I think some of the mid-tier rates might not start coming down to the fourth through the fifth cut. I think we'll start improving ultimately sometime next year on that 48% standard beta, but I think we'll start there for the first few.

You kind of gave the answer, but we'll open up the next ARS question to see what the audience thinks. I guess before we kind of get to NII, just maybe sticking with kind of the deposit theme, Comerica was not selected for Direct Express contract renewal that, I think, $3.3 billion in deposits. Contract expires early next year. Maybe you could just provide any more kind of thoughts around the timing of that, I think, in the 10-Q kind of referenced to a new option for up to 3 years in your existing contract? Just how you kind of expect that to play out? What the impact is? And just maybe provide a little bit more color.

Yes. Well, there's nothing really new to share yet in terms of formal contract negotiations that really is in the purview of the physical service the U.S. treasury but we will certainly cooperate with them through a transition and expect to hear more potentially in the fourth quarter. And as we know more, we will share that as we go along earnings calls, conferences, et cetera. As we've shared previously, we continue to feel like the transition will take some time. It's a complex program, 4.5 million cardholders, you have heavy fundings at the beginning of each month for the first couple of days of month heavy activity as lot of those cardholders activate the card, withdrawal balances, ATM machines, et cetera. And just the infrastructure associated with managing that program between the card vendor, our partner on it conduit, et cetera, and ourselves. And so that has to be replicated at the new institution. So we continue to feel like the transition will occur over time and that we've got plenty of opportunities to work to offset that with growth in core deposits, whether that's the things that we're doing on the treasury management side. I remind you that we've got a lot of activity in state programs. We had today about $1.5 billion of state card programs, and we continue to have growth opportunities there. And while we lost the card program with Direct Express, we just renewed recently a program we have where we're the merchant card provider for the U.S. Treasury, and that generates mostly fee income for us, but some depository balances as well. We talked earlier about things we're doing in payments, treasury management, also in small business driving some granular deposits. So we continue to feel like it's a very manageable transition for us. I probably can't tell you exactly what it looks like. I think it will feel more like a gradual wind down versus an abrupt sort of pulling down of deposits just because of what the transition looks like.

Helpful. Maybe put up the next ARS question. Maybe for Jim, kind of tying together kind of loan deposit stuff we talked about. Your deck, you kind of reiterated it down 14%. NII guide for this year despite the fact that maybe loan growth is a bit softer than expected. I think kind of previous expectation was I think NII down 2% to 3% in Q3. Q3 marks a trough and then we grow from there. I guess is that still achievable? What caused you to do maybe better than that, worse than that? Just how you're thinking about that?

Yes. The -- we have had some changes because of the rate environment. I will just clarify that the guidance was down 2% to 3% because of the drag of BSBY accretion -- BSBY cessation, but the drag was actually just down 1% once you exclude BSBY. So it was very close to breakeven at the time we gave guidance between the second quarter and the third quarter. And since then, we had some puts and takes that I think are net positive for us. Certainly, one of the headwinds is loan growth. It is a little bit lower than what we had expected. But I do expect that to be modestly more than offset by the fact that our core deposits are outperforming what we had expected. And of course, the fact that we won't have as many broker deposits isn't really a headwind whatsoever. If anything, maybe even a slight tailwind. So we do see slight improvement on the third quarter guide just because of the great deposit performance. Beyond that, we do have a little bit of line item geography change occurring in the third quarter. The swaps that we have that are currently underwater need to be collateralized to the CME. Obviously, as the OCI and the market value of that swap has come down. The cash collateral that we have to provide to the CME is less. Now this is a zero-sum game. We currently recognize that hedge income and noninterest income. It will switch over to net interest income as those cash balances come down to the CME and they move over to the Fed where they would earn IOER. So we do see likely $5 million or $6 million of income shifting from noninterest income over to net interest income. So if you put that together with the fact that we think the deposit performance, which is a real favorable will more than offset any loan shortfall. It does look like, excluding BSBY cessation that we probably did see the trough in the second quarter, net interest income. Again, some of this is accounting with the overall CME hedge income. But we do expect to be a tad higher than we were in the second quarter and the third quarter for net interest income. We don't know that, that's enough to necessarily change the overall full year outlook, which is on a much bigger base, but we'll revisit that during the third quarter earnings call. And the next question might be, what does this do to the noninterest income guide? The fact that we have a little bit of line item geography going on. We're not willing to change that at this point in time. It could be a headwind, but we'll wait and see how the quarter ends up. So overall, I feel really good about the overall net interest income output.

Helpful. And maybe you touched on it before in terms of just the benefit you're seeing on the liability side of the balance sheet and you are kind of relatively more liability sensitive. As I said, cuts and just how should we think about this and not so much this year, but as we start to kind of put together our 2025 models, clearly, the audience sees some NIM expansion, but maybe I don't know when we get kind of your early read?

Yes, not, of course, given any real guidance on 2025 at this point, but there are a number of tailwinds that we're pretty excited about. First off, we do just slight liability sensitivity. As I mentioned before, the betas probably won't reflect the full accumulated beta on the way up right away and the way down. So it really is just a slight liability sensitivity position and I'll educate or remind people as you look at our sensitivity slide that it's not just the way the rates react, but we do expect favorable balances to move also. For instance, we expect noninterest-bearing balances to be favorably impacted as rates go down. I don't know that we're going to see, again, a lot of the balance movement on the first few cuts, just like we won't get the full beta that we may ultimately get in the first few cuts. So I'll kind of reemphasize that I do think it's a very slight liability position. But I do think we will ultimately benefit from rates going lower. It just may not be in the first few cuts in any real material way. But I do feel good about the overall position. And I'll just remind people that we were asset sensitive all the way through the end of last year, we did benefit from that. We had record levels of net interest income in 2023. We've just been liability sensitive since the beginning of this year. And I think that's pretty good timing. I think it's put us in a really good position to benefit going forward. And no doubt because of the actions we've taken, I do think we'll get benefit over the course of the cycle and over the next year, all the way through 2025 because of the position we're in. So we feel like things are really lined up for a great 2025 beyond the fact that we are slightly liability sensitive. Of course, we are going to have a windfall BSBY cessation income next year. That won't be permanent, but they will be significant for 2025. And then I'll remind people, regardless of liability sensitivity, we do have significant maturities on both the securities and the swap side in 2025, which will be a tailwind regardless of how the rate environment plays out. So we feel like we're just extremely well positioned from a net interest income standpoint for 2025 and a lot to look forward to.

And then maybe shifting to credit, which currently in your opening remarks, you acknowledged how pristine it's been well below kind of historical averages. And it sounds like your guidance implies it's expected to stay that way. Maybe just kind of give more color in terms of kind of what you're hearing and seeing, maybe unemployment kind of ticked up higher than people thought. On one hand, the other hand, lower rates may help and maybe just kind of talk to your expectations there?

Yes. I mean, it's continued to exceed expectations for us in terms of just credit behavior. Normally when you're this far into a cycle where you start to see some deterioration in credit. We, at the end of the second quarter, had the lowest level of charge-offs kind of across our peer group. We continue to feel like we have very adequate significant reserves across the portfolio. Not really seeing any trends that are different than what we've shared in the last couple of earnings calls and the last couple of investor conferences that we have done. We do believe at some point that charge off will start to approximate in more normalized environment for us, which historically has been somewhere on a quarterly basis between $20 million and $40 million. We think we'll continue, at least for the foreseeable future to perform below that level, especially on a full-year basis. Always watching the appropriate areas, continue to watch commercial real estate. Again, we're mostly multifamily, industrial for the markets that we're in, the developers we're in, we're not seeing a lot of deterioration there. I do think there is some deterioration occurring in that space, but really not with our customer base. In some markets, you're seeing a little bit longer whole time, a little bit in terms of sort of rent concessions and some of those things in certain markets, but really not in the markets that we operate in. I always watch leverage lending, but we feel like that's very well managed for us overall. So nothing that we can point to that we're overly concerned about right now to continue to be diligent on a go-forward basis.

Maybe put up the next slide. I guess, commercial real estate. As a percentage of it seems like a big number for you guys. But there, you have not seen maybe some of the other issues others have had. Leverage lending also is a decent exposure to you. I guess what -- I guess kind of what -- how is kind of -- what you do maybe different from others are seeing and doing even the last several quarters, you seem kind of -- you look syncretic events in C&I, a lot of your peers. I mean, your charge-offs have really been nonexistent.

Yes. Well, you never say never, right, because you'd always have a fraud or something any institution that's in the credit business. We don't eliminate all risk. We manage risk for customers. But across the portfolio, again, it's been very well maintained, and we've got a lot of discipline. I mean that's really sort of the underpinning of who we are is that we are a great credit underwriters and great commercial lenders, and we know how to manage risk well and believe that, again, we have adequate reserves across the portfolio. We do a lot of stress testing across the portfolio. And we do it really sort of 1 credit at a time kind of up through the portfolio. On the commercial lending side, we've talked about this before in terms of commercial real estate. A lot of that for us has been the type of exposure we have, a lot of construction financing, multifamily, industrial, which again, I think is held up well with a few pockets in the U.S., maybe seeing a little bit of stress, really not in areas that we're located in and developers that we're working with. So we feel really good about that portfolio and have really avoided much office exposure. We've got a bit of office exposure, but even that continues to perform well for us. And on the leverage lending side, most of that is with customers. These are not transactions that we're tried chasing, but where they're going through a recapitalization and maybe selling a company. And if you think about leverage lending, if you just sort of think about the maybe on the far left with my hand in reverse for you, being really highly levered, we like to play in the very low leverage side of the equation and partner with sponsors where we might be providing senior debt. We feel like the leverage limit that we have is very modest on a relative basis in terms of risk exposure that we see.

Got it. And then in your remarks, you talked about a CET1 ratio over 11.5%. [ XOCI ], maybe closer to 8%, but AOCI is certainly, as you alluded to in your collateral comment has obviously come down. Just how high can that number get? And just how you're kind of thinking about just capital in this current backdrop?

As I said in my opening comments, we've had historically a conservative approach to capital and we continue to want to be conservative. But we are starting to believe that 11.55% where we were at the end of the second quarter is getting a little high. And we were waiting for some signals to sort of indicate to us that it might be the right time to turn the share buyback on. And we believe we're starting to see some of those. There's been a couple of head fakes with the forward curve. But assuming that we see a rate cut next week and that the forward curve really starts to stabilize. And really sort of based on our loan forecast for next year, which we think will be a decent loan growth and probably a little bit more modest across the industry. We believe we have significant capital to sort of accommodate lending activity with our clients. And then we were certainly like most concerned about AOCI and sort of the fully phased in Basel III end game. And while we're not a Category 4 bank, we're close enough that we believe the regulators want us to be able to be fully phased in over the 5-year period of time and meet those requirements. So you sort of roll that together, we do believe that we probably end up with some excess capital and whether we're able to turn the share buyback on end of the year, sometime into next year, we are anticipating getting back into share buyback scenario, returning capital to our shareholders.

So maybe fourth quarter, if not next year. Sounds good. You touched on...

We'll try to give some additional guidance if we can in the third quarter earnings call there.

Fair enough. And you kind of touched on it for a second, but not Category 4 bank, but I suspect part of your objective is to one day do 1. Good and bad. Just maybe any thoughts in terms of kind of when you expect to get there? And what you need to do that? And then just kind of maybe different views on if you're going to cross it, do you really want to cross it through a big acquisition or just kind of go through it organically?

Well, our history has been, as I've said many time on this stage is we've been a very patient acquirer, that do not know us as well. We've really done one deal in the last 20 to 25 years of size. That was Sterling Bank in 2000 -- sorry, Imperial Bank in 2001, and we did a smaller transaction over 10 years ago, Sterling Bank in Houston. So we've been a very patient acquired and mostly have grown our company the last, say, 25 years more organically. And we are prepared to go over that $100 billion mark on an organic basis. We're not trying to rush to that point, but we believe just normal growth will take it there. And we believe it's the wrong thing to do for our shareholders and our customers to not continue to grow as an organization. So in another way, we're not going to shrink our way down lower and try to stay comfortable below the $100 billion mark. So we've been working really for the last 24-plus months on the path to get ready for compliance with enhanced prudential regulatory oversight and stress testing and capital planning and other things that we require will be in a Category 4 bank. I will remind you that we have some memory -- muscle memory there. So before the tailoring rule went into place in 2017, '18, that's truly 155 as it's known, we were in that enhanced oversight category, us and a couple of other banks that were between $50 billion and $100 billion of that mark at that point. We did dismantle some of that capabilities but we kept some of it in place as well. And then we've been working hard to work on technology data, infrastructure to be prepared to comply with whatever that might mean on a go-forward basis. It does increase cost for us. Some of that's onetime cost, but there are some ongoing costs. We believe we can incorporate that into our run rate on a go-forward basis. And we're working closely with our regulators to make sure that we're prepared for that day, I don't want to say if it comes, I believe it will come over the next several years.

Got it. And then maybe Jim, get you back into the fray. You kind of talked about the $5 million to $6 million headwind this quarter in fee income. I guess, any kind of thoughts or trends that you're seeing, you want to think about, I think, originally kind of thinking down 3% to 4% more noncustomer-driven stuff, but what's your expectations there?

We continue to be very focused in noninterest income, a big priority of ours, as you heard Curt mentioned in the opening comments. We did have very strong performance, as you may recall, in the second quarter, which really had some unusual fee income in it. We had obviously the BSBY transaction which was $6 million. We had our annual tax preparation fees involved for $3 million that we always have in the second quarter and a little bit higher level of FHLB for which we got dividends. So we probably had $12 million or $13 million of additional income in the second quarter. That wasn't bound to repeat in the third quarter. And so if you back that out, we actually do continue to see very strong core customer income in the third quarter. We do have the collateral hedge income that I mentioned earlier that will create an additional $5 million to $6 million headwind in the third quarter. Again, just slide item geography, it'll move over the net interest income. But even with that said, we're not necessarily ready to change the guide there for noninterest income, even though it's ambitious when you consider the headwind of the hedge income as well as the onetime income that we got during the second quarter. So feeling really good about core customer noninterest income still going forward.

We're about 1.5 minute remaining and maybe just touch on expenses. You do have, I guess, some spend for the consent order you got on the trust subsidiary earlier this year. Maybe talk to kind of where you run that process and how long those costs kind of stay in there? And as you begin to put together the 2025 budget, how you're just thinking about the overall cost construct?

Yes. So far, the costs incurred for any type of regulatory improvement, whether it be addressing the OCC situation with CB&T or just the overall regulatory framework bar, really right on track. So nothing really new to report there. No change to the expense guidance at this point in time. And feel really good about the progress that we're making on the risk front and no real surprises to speak of at this point.

Great. On that note, please join me in thanking Curt and Jim for their time today.