Comerica Inc (CMA) 2011 Q4 法說會逐字稿

Good morning.

My name is Regina, and I will be your conference operator today.

At this time I would like to welcome everyone to the Comerica fourth-quarter 2011 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer session.

(Operator Instructions) Thank you.

I would now like to turn the conference over to Ms.

Darlene Persons, Director of Investor Relations.

Ma'am, you may begin your conference.

Good morning, and welcome to Comerica's fourth-quarter 2011 earnings conference call.

Participating on this call will be our Chairman Ralph Babb; Vice Chairman and Chief Financial Officer Karen Parkhill; Vice Chairman of the Business Bank Lars Anderson; and Chief Credit Officer John Killian.

A copy of our press release and presentation slides are available on the SEC's website, as well as in the Investor Relations section of our website, www.Comerica.com.

As we review our fourth quarter results, we will be referring to the slides, which provide additional details on our earnings.

Before we get started, I would like to remind you that this conference call contains forward-looking statements.

And in that regard, you should be mindful of the risks and uncertainties that can cause future results to vary 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.

I refer you to the Safe Harbor Statement contained in the release issued today, as well as slide 2 of this presentation, which I incorporate into this call, as well as our filings with the SEC.

Also this conference call will reference non-GAAP measures.

And in that regard, I would direct you to the reconciliation of these measures within this presentation.

Now, I'll turn the call over to Ralph, who will begin on slide 3.

Good morning.

Today we reported forth quarter net income of $96 million or $0.48 per share.

Impacting the quarter were merger and restructuring charges of $37 million or $0.12 per share, related to our acquisition of Sterling Bancshares, which we completed on July 28, 2011.

Turning to slide 4, you will see highlights from the fourth quarter.

We are pleased to see total loan growth of $1.5 billion or 4% on a period-end basis, which was driven by a $1.9 billion or 8% increase in commercial loans, particularly in national dealer services, mortgage banker finance, energy lending, technology and life sciences, and global corporate banking.

We had record deposits of $47.8 billion at year-end 2011, with an increase in period-end deposits of $303 million or 1% compared to the third quarter.

Net interest income of $444 million increased $21 million or 5% compared to the third quarter, primarily resulting from an increase in average earning assets of $2.4 billion.

Non-interest income of $182 million decreased $19 million compared to the third quarter, primarily due to a $16 million decrease in net securities gains.

Non-interest expenses increased $18 million to $478 million compared to the third quarter, primarily due to severance and related expenses, merger and restructuring charges, as well as one additional month of Sterling.

We continued to see steady improvement in credit trends in the fourth quarter.

This was the 10th consecutive quarter of a decline in net charge-offs with a $17 million decrease.

The decline was larger than expected, primarily the result of higher recoveries in the quarter.

Other credit metrics were in line with expectations.

Non-performing assets were under $1 billion for the first time since the fourth quarter of 2008.

The former Sterling loan portfolio has performed as expected.

As a result of the overall improvement in credit quality, the provision for loan losses declined to $19 million.

Our capital remains strong, as evidenced by our Tier 1 common capital ratio of 10.31% at December 31, 2011.

Under the share repurchase program, we repurchased 1.6 million shares in the fourth quarter, and a total of 4.1 million shares in 2011.

Combined with dividends, this resulted in a total return to shareholders of 47% of net income.

We continue to be an active capital manager, and believe we approach capital management from a position of strength.

As required, we submitted our capital plan to the Federal Reserve on January 9, 2012.

We expect a response in mid March.

As previously announced, we are targeting a first-quarter 2012 total payout ratio of up to 50% of net income through the share repurchase program and dividends.

With respect to our Sterling acquisition, we announced the successful completion of systems integrations and the opening of former Sterling branches as Comerica Banking Centers on November 14, 2011.

All former Sterling customers can now bank at any Comerica Banking Center with complete access to our full line of extended product and service offerings.

This acquisition continues to be a great fit, as the former Sterling's size, geographic footprint, and customer focus uniquely fits our strategy, and expands our presence in Texas.

We continue to be focused on delivering revenue and expense synergies from the acquisition.

Karen will go into more detail shortly.

The Sterling acquisition provides us an enhanced growth opportunity in one of the most attractive markets in the US.

Turning to the economic outlook for each of our key regions, our Texas economic activity index indicates the state economy is growing, even as the pace of growth eased a bit toward year-end.

Our chief economist expects the gains in employment and manufacturing activity toward the end of last year will lift the index going forward.

Texas is expected to outperform the national economy in 2012, as we believe it did in 2011.

Strong auto sales at the end of 2011 helped charge the Michigan economy.

The rate of job growth for the state is about on par with the national average.

And the unemployment rate is set to resume trending downward.

More stability in labor markets will, in turn, help to stabilize the state's housing markets.

We're certainly pleased by these positive developments in a state where we have a long history of service to our customers through many economic cycles.

California's economy is showing signs of growth, but key components of economic activity remain soft.

We believe the broadest measure of economic activity for the state, payroll job creation, is heading in the right direction, and helping to bring California's unemployment rate down gradually.

Ongoing job growth through the end of 2011 should help support the state's economy, and firm up tax revenues.

Silicon Valley continues to hire.

And this is more good news for our technology and life sciences customers, and the state.

We are anticipating a slow growing national economy in 2012.

So, as you know, we have heightened our focus on profit improvement.

We are tracking our revenue-enhancing initiatives, as well as our continued expense management, and are on course to deliver the expected results.

Karen will provide our 2012 outlook, which incorporates our profit improvement plan.

I believe we are appropriately positioned for growth in this economic environment.

The Sterling acquisition accelerates our growth in Texas, and provides us considerable momentum going into 2012.

We have the right people, products, and services in place to make a positive difference for our customers, employees, and shareholders.

And now I'll turn the call over to Karen.

Thank you, Ralph, and good morning, everyone.

Turning to slide 5, you will see that we ended the year with total loans at $42.7 billion, an increase of 4% or $1.5 billion quarter-over-quarter, with increases noted in almost every line of business, as well as across our growth markets of Texas and California.

Commercial loans drove the increase up $1.9 billion or 8% quarter-over-quarter, driven in large part by national dealer services, mortgage banker finance, energy lending, technology/life sciences, and global corporate banking.

In our national dealer services business, the auto industry began to return to more normal industry levels, as expected, which helped drive outsized quarter-over-quarter growth.

However, even if you strip away the growth in our national dealer business, you can see on the right-hand chart that the rest of our commercial loan portfolio still grew about 6%.

Again, driven by broad-based increases across our businesses.

While not depicted on this slide, I would like to comment on our mortgage banker business.

We had over $500 million quarter-over-quarter growth in our period-end loans in that business, driven by the continuation of low mortgage rates, industry-wide volume constraints, and recent market share gains.

We believe our balances in that business could be variable in the future, as mortgage rates stabilize and refinancing becomes a smaller component of the overall volume.

As you know, we track our loan growth against the industry.

And as you can see on slide 6, our loan growth has been roughly in line with the industry over most of the last five quarters.

In the third quarter, we obviously benefited from the Sterling acquisition.

But if you remove the impact of Sterling, as we have done with the dotted line on this chart, you can see our loans grew less than the industry in the third quarter, mainly due to the Japanese supply chain disruption in our auto dealer lending business.

In the fourth quarter, however, loan growth outpaced the industry.

We believe that our concentration in C&I lending helped this growth, as you can see in the chart on the right.

Turning to slide 7.

Perhaps a good sign for the overall economy, our line utilization was up over 2 percentage points from 45.5% to 47.6%, the largest increase we've had in the last two years.

That utilization rate increased even as our commitments, the denominator in the equation, increased 4% to $46.9 billion, a level we have not seen since the third quarter of 2009.

In line with the growth in outstandings, increased commitments were noted in almost every line of business.

And our loan pipeline remains strong, which is encouraging given the volume of closings we had in the fourth quarter.

As shown on slide 8, our deposits continued to grow in the fourth quarter across all major markets and most lines of business.

In fact, at $47.8 billion, we reached a record level.

Our average deposits increased $2.7 billion quarter-over-quarter due in large part to one additional month of Sterling.

Of the increase, $1.7 billion came from non-interest-bearing deposits, and $1 billion from interest bearing deposits.

Just as a reminder, at 40%, we have the highest percentage of non-interest bearing to total deposits among our peers, based on last quarter's data.

We believe this reflects our strong relationship banking focus.

On a period-end basis, our deposits increased $303 million or 1%, with non-interest-bearing deposits increasing 3%.

Interest-bearing deposits declined on a period-end basis, which is mainly a reflection of our prudent approach to deposit pricing.

Turning to net interest income on slide 9, we had a 5% or $21 million quarter-over-quarter increase, primarily driven by a $2.4 billion increase in our average earning assets.

To give you a sense of the breakdown, loan growth contributed about $13 million to net interest income.

Our larger securities portfolio added about $12 million.

And a decrease in our deposit costs added about $3 million.

These increases were partially offset by a decrease in the accretion of the purchase discount on the Sterling portfolio, and the impact of reinvesting the prepayments in our mortgage-backed portfolio at slightly lower yields.

Just as a reminder, our strategy with the MBS portfolio is to maintain a shorter duration, highly liquid, lower risk portfolio.

Currently, the average yield on the portfolio is 2.74%, with a duration of 2.7 years.

Loan yields were modestly lower quarter-over-quarter, reflecting lower prepayment fees and a slightly lower contribution from accretion on the Sterling portfolio.

We have not seen any material loan spread compression over the last several quarters.

However, we are seeing increased competition for customers, as liquidity in the banking system continues to increase.

As mentioned before, our balance sheet remains well positioned for rising rates.

Approximately 80% of our loans are floating rate, and 70% of that is LIBOR based, predominantly 30-day LIBOR.

We believe a 200 basis point annual increase in rates, equivalent to 100 basis points on average, would result in approximately $150 million increase in net interest income.

Turning to the credit picture on slide 10, our metrics continue to improve.

Net charge-offs decreased $17 million to $60 million in the quarter.

While our gross charge-offs modestly improved in the fourth quarter, our recoveries were significantly better.

Over the last eight quarters, recoveries have averaged about $20 million per quarter, substantially higher than the $7 million average per quarter over the two years prior to that.

These results support our prudent approach to charge-offs.

That being said, the timing and size of recoveries is the most difficult credit metric to forecast.

Our watch list and non-performing loans also continued to trend downward after a slight uptick in the third quarter, reflecting the addition of the Sterling portfolio.

Watch list loans decreased over $500 million to $4.5 billion at December 31.

Non-performing loans decreased $71 million.

As a result of the overall continued improvement in credit quality, our provision for loan losses declined to $19 million.

We ended the quarter with a reserve ratio of 1.7%.

On slide 11 -- our expenses remain well controlled, and on a normal run rate basis, were essentially stable.

Over the last five quarters, you can see our expenses, without restructuring charges, increasing 1%, even as we increased our workforce by just over 4% due to the Sterling acquisition.

It's important to note that our workforce, excluding legacy Sterling employees, decreased 1%.

Our non-interest expenses totaled $478 million in the fourth quarter, an increase of $18 million, reflecting increases from one additional month of Sterling, severance costs and restructuring costs, as shown on the slide.

Turning to capital on slide 12.

As you know, our capital position remains strong with 10.35% Tier 1 capital.

Importantly, the quality of our capital ranks among the best in our peer group, with common stock comprising over 99% of our Tier 1.

When we began our share repurchase program last year, we announced a target total payout ratio of up to 50%.

We were pleased to end the year close to that target at 47% through dividend payments, and over 4 million in shares repurchased.

Throughout the fourth quarter, we repurchased 1.6 million shares.

As Ralph mentioned, we submitted our stress test and capital plan to our regulators earlier this month, and expect to receive a response in mid March.

While it is too early to comment on the plan, we continue to believe we are approaching the plan from a position of strength.

Finally, as announced in December, we have approval to continue our current capital distribution program, targeting a total payout ratio of up to 50% through the first quarter of this year.

Turning to slide 13.

We are proud to say we completed the systems integration of Sterling in mid November.

With the conversion of over 200 systems and 49 banking centers, our legacy Sterling customers can now transact business across the Comerica network.

Although the integration is behind us, we remain focused on delivering synergies we told you about at the time of the acquisition.

To reiterate, on the revenue side, we are expecting approximately $200 million in loan growth, and $4 million in non-interest income growth from Sterling in 2012.

On the expense side, I am proud to say we have now reached the full 35% synergies that we originally expected to achieve in 2012, mainly due to lower-than-anticipated FDIC expense, and our well-executed integration, enabling a reduction in staffing ahead of schedule.

Finally, as you will recall, we announced merger and restructuring charges of $125 million at the time of the acquisition.

We spent $75 million of this amount in 2011.

And now expect to spend approximately $40 million of this in 2012, reflecting an improvement of approximately $10 million from our original forecast.

The bulk of the remaining charge should be incurred in the second half of 2012 when we expect to complete the acquisition of our real estate integration plan.

The benefit of those additional savings are built into our expense outlook that I will share on the next slide.

The transaction is still expected to break even to Comerica's earnings in 2012, excluding merger and integration costs, and be increasingly accretive thereafter.

Finally, our outlook.

As you can see, we are modifying the format of the guidance we provide.

We have spent the last few months speaking with analysts and investors, basically gathering your feedback on the type of guidance that is most helpful.

We greatly appreciate that feedback, and based on it have decided that we will provide directional indicators each year, along with good color behind it and quarterly updates, as needed, for key income statement and balance sheet line items that drive our performance.

Hopefully, you will recall our profit improvement initiative that began this past Fall.

In order to offset the effects of a continued low rate environment, impact from new regulation, and increases in certain expenses, we identified over 250 initiatives to help ensure we continue to deliver a growing bottom line.

We shared with you some of those examples, as well as the fact that we were driving for over $100 million in some revenue enhancements, and mostly expense efficiencies, to more than offset the headwinds coming our way.

That profit improvement is built into our year-over-year outlook on this slide.

We expect average loans to increase moderately, which we would define as 2% to 5%.

Our pipeline remains strong, and we are monitoring, tracking, and incenting our teams around loan growth.

As we grow our C&I book, we expect our commercial real estate balances to continue to decrease, but at a slower pace.

Obviously, our average balances are aided by the impact of our Sterling acquisition.

But we still expect to see good legacy growth against the backdrop of a slow economy.

Finally, as mentioned earlier, we could see variability in our mortgage banker business throughout the year, with balances potentially moderating in the future if interest rates stabilize and refinancing volume decreases.

We expect net interest income to also increase moderately.

Because Sterling impacted only five months in 2011, we will realize the full-year benefit in 2012.

We expect continued loan growth while keeping our deposit costs as low as possible.

Finally, as far as the accretion of the loan discount on the Sterling acquisition, we expect it to be stable year-over-year, but realized at an increasingly slower pace over four quarters in 2012, as opposed to two quarters in 2011.

With respect to credit, we expect net charge-offs to decline, albeit at a slower pace, as we approach normal historical levels and our provision to remain relatively stable.

This is in line with our view that we should continue to see positive credit migration offset by moderate loan growth, which, combined, is expected to result in a modest reserve release.

We expect non-interest income to be relatively stable despite regulatory headwinds.

A full year of Sterling, its revenue synergies, and the positive impact of our profit improvement plan are expected to be offset by a full year of lower interchange fees, and our assumption of no further significant securities gains.

Finally, we expect non-interest expenses to also be relatively stable, reflecting inflation, higher pension and healthcare costs, as well as seven additional months of Sterling expenses, offset by lower merger and restructuring charges, and our profit improvement plan.

Our rule of thumb for the tax rate remains unchanged at 36% of pre-tax income, less approximately $65 million in tax benefits.

In closing, we are ready and excited for the year ahead.

While headwinds exist, we feel confident that we can continue to deliver strong bottom line growth to our shareholders.

With that, we are happy to answer your questions.

(Operator Instructions) Ken Zerbe with Morgan Stanley.

Not to try to put you on the spot a little bit, but in terms of your guidance, when you guys use the word moderately, how should we be thinking about that?

Is it low single digit, high single digit?

Any context would be helpful.

Ken, as we said, we define moderate to be between 2% and 5%.

Okay, I probably missed that then, okay.

That's helpful.

And then just the other question I had on margin, obviously this quarter held up reasonably much better than what we had expected.

I think also better than the 3.15% that was guided for.

Where were you surprised?

What was the driver, too, that actually caused margin to be better than expected?

Thank you.

Obviously our margin was aided by our loan growth and our decreased deposit costs.

But we also saw slightly higher accretion benefit than we anticipated in our margin.

Okay, perfect.

Thank you.

Steven Alexopoulos with JPMorgan.

So you had good loan growth in the quarter.

Most of it was dealer finance and mortgage warehouse.

And loans in the largest segment, middle market, were flat again.

Could you give us some color on what you're seeing and hearing from your mid-market customers?

And is this an area that you're expecting to see growth in 2012?

Yes, thanks, Steven.

I guess a couple questions in there.

Maybe I'll answer the second first, what are we hearing from our customers.

I think they're cautiously optimistic.

They've obviously de-levered, built liquidity.

They've built up borrowing capacity.

They're making limited investments, we think.

And they're very well-positioned for a growth cycle hopefully ahead, which they can benefit in.

The first part of your question, talking about middle markets, it's important to understand that our middle market designated group is companies with $2,500 million in revenues.

But that excludes all of the companies that really fall in our industry focus groups, which is very significant.

So, whether it's mortgage banking, finance, technology, life sciences, entertainment; those are dominated by middle market companies also.

So what I'd say, Steven, a good proxy for our overall middle market growth would be to look at our commercial loan growth overall for the quarter, which was 8%.

So it was a good, healthy growth rate and we feel good about that momentum into '12.

Okay, maybe just a follow-up question on the margin.

I know it was tough to get the guidance right in 2012 given the deposit inflows.

But with it stabilizing, is it your view that you could at least hold the margin relatively steady here?

I'm not sure what these comments on the accretion benefit helping, that that implies they're going away next quarter.

Just wonder what you think on margin stability here?

Yes, as you know, Steven, we're going to focus on giving guidance on net interest income as opposed to margin.

Because net interest income is what truly drives earnings and margin is clearly just a calculation of the results.

So as we focus on net interest income, we do expect net interest income to benefit, obviously, from continued loan growth.

On the accretion side, we do expect it to be stable year-over-year, but realized over four quarters in 2012 as opposed to two quarters in 2011.

So it will be realized at a declining pace.

Hopefully that answers your question.

Karen, what was the accretion benefit this quarter?

We had $26 million in accretion benefit this quarter as opposed to $27 million last quarter.

Okay.

Thanks for taking my questions.

Brett Rabatin with Sterne, Agee.

I wanted to ask a question on, basically the past few quarters you've been noting increased competition but no real impact on the loan spreads.

And so I was just curious to hear any color around if that's something that you expect to occur in the next few quarters, is compressing loan spreads on the loan portfolio.

Okay.

Yes, Brett.

First of all, we expect that our loan spreads will materially hold as we head into '12.

The part of your question regarding pricing and spread compression -- we're continuing to see competition most intensive at the larger end of the market.

But it's competitive throughout the marketplace.

I'll tell you, though, what we're focused on doing is, we've got our bankers out in the marketplace more than ever spending time with our customers, prospects; building relationships.

And I think if you do that in today's environment, you can get paid for your value.

And we're seeing that in our loan spreads really holding.

Personally, I'm seeing that our customers value our type of relationship more than ever in this industry.

So I think we're well-positioned to hold our loan spreads.

Okay.

And then, secondly, I know you're not going to talk specifically about the margin, but wanted to ask.

The liquidity that you have on the balance sheet, either average or end of period, is that a number that can decline from here?

Or is that essentially how you view those liquidity levels as a necessary run rate?

On liquidity, obviously as we grow loans, we expect our liquidity on the balance sheet to decrease.

So hopefully that will be the case.

Okay.

Thank you.

Bob Ramsey with FBR Capital Markets.

Oh, sorry, this is Kevin Barker for Bob Ramsey.

If you were looking at your forward guidance, if there's one thing where you would see that, you're saying you're relatively stable in non-interest expense, is that something where you could see more merger synergies or you could see more expense saves that maybe increased the margin?

How do you look at that going through the next four quarters?

As we look at non-interest expense, obviously we'll have seven additional months of Sterling, as we talked about, year-over-year.

We also expect higher pension and healthcare costs next year amounting to about $40 million.

We'll offset that by lower restructuring charges of about $35 million.

And we'll have the profit improvement plan.

And that's how we get to relatively stable on the expense side.

Is there anything you could do that would accelerate that or possibly even make that even have more synergies?

I'm just saying, could you beat that or do you see that as very conservative guidance on the expense side?

We are always focused on monitoring our expenses.

We've got lots of headwinds coming our way and we're focused on offsetting those headwinds, as we talked about.

As it relates to the Sterling benefit, we did say that we have received the 35% synergies that we anticipated in 2011.

That said, we will see some benefit as we focus on our final real estate integration towards the end of 2012 but we have built that into our outlook.

Thank you very much.

Erika Penala with Bank of America Merrill Lynch.

My first question is actually on the provision.

We appreciate the 2012 guidance.

But as we're looking out to '13 and '14, could you give us a sense of what guideposts we could look at in terms of how do we measure the bottom in the provision in terms of reserve release?

Do you look at it as a percentage of charge-offs of the loan portfolio?

John?

Yes, the main drivers on both reserves and provision, frankly, would be net charge-offs, the continued improvement in our watch list, and frankly, loan growth.

As you know, it's not as simple as just having a target for the reserve level as a percentage of the portfolio.

We have a very rigorous methodology which we've been using for about 10 years.

That includes reviewing every sizeable problem loan every quarter.

The methodology has served us well in all of our cycles.

Our average carrying value of non-accrual loans is 60%.

And our $726 million reserve on the ALLL is 3 times our annualized fourth quarter net charge off run rate.

So we feel we are well reserved.

Going forward, the reserve level will vary as charge-offs and problem loans decline.

But as our loan growth increases, that will also increase the reserve level that's required.

What are you reserving for new commercial growth?

What are you putting away for new commercial growth?

That's statistically driven by our standard loss factors, which is consistent with our methodology.

So that will vary depending upon the assigned risk rating so it's hard to generalize about that.

Okay.

If I could just have one more question, please.

Karen, I notice that your average securities balances on the AFS portfolio was up $1.6 billion quarter-over-quarter.

Could you give us a sense of what you're adding to the portfolio in terms of type and duration?

And also could you give us a sense of, as you model out 2012, how sticky you believe the deposit growth is going to be?

Sure, I'll tackle the first question first.

Our securities portfolio did increase in the quarter.

And hopefully you'll remember at the end of last quarter, we talked about putting more of our excess liquidity into mortgage-backed securities, with a target portfolio of around $9 billion.

So you see the benefit of that in this quarter.

That's what's happening.

In terms of average yield and duration of that mortgage-backed portfolio, it's about 2.74% in yield and 2.7 in duration.

It is a portfolio that we are continually focused on maintaining high liquidity, strong credit ratings, et cetera, on it.

I'm sorry, Erika, remind me of your second question?

As you look out into 2012, how sticky do you think the deposit inflows that you received in 2011 will be?

Yes, the good news about our deposits is that they're driven by full relationships.

And so, because they're driven by full relationships, and we have all of the banking business with our customers, those deposits are obviously used to help offset the fees around that banking business.

So they are more sticky than many other types of deposits, so we feel good about the stickiness.

I think too, and Lars may want to comment on this, what we're seeing with our customers today is much more liquidity from their standpoint.

And therefore they're maintaining higher deposit levels.

Yes, I think, Ralph, to that point, if you look at the fourth quarter, we obviously had very broad-based growth across a lot of our businesses.

A lot of our growth markets.

And yet, even with $1.9 billion commercial loan growth, we also hit record deposit levels, which tells me that our customers seem to be carrying more liquidity, possibly a more conservative stance, or positioning themselves for growth in the future.

I see.

Thank you for answering my questions.

Ken Usdin with Jefferies.

Hi, this is actually Brian from Ken's team.

I was wondering if you could comment on your loan growth guidance.

The 2% to 5% average growth for the full year seems conservative given that loans are starting much higher on a period-end basis at the end of the fourth quarter.

Could you just comment on some of the moving parts there and specifically, what the delta from mortgage banker finance could be if rates normalize?

Yes, okay.

Let me first just tackle the mortgage banking piece of it and then the guidance piece of it overall.

Mortgage banking is obviously an industry that we've been in a long time.

We're very well positioned.

And we've picked up market share.

But if you look at the fourth quarter volume and growth that we had, 75% of that volume was refis.

So to the extent, I think, that underlying mortgage rates continue to change and move, they hit a 30-year record, I think, low as of yesterday.

That clearly has an impact and, of course, drives variability in that particular business line.

And, of course, we have some other business lines with variability.

To the point about the guidance for 2012, obviously we're coming off of a very healthy fourth quarter growth, very broad-based.

But that's against a slow growth economic environment and the impact of some of our more variable businesses, as well as a continued expected decline in the commercial real estate portfolio, albeit at a slower rate, is all factored in.

Lars, you might want to comment a little bit on the pipelines.

Yes, just speaking of the pipelines, and again, from the sense of optimism that I do have though as we look at 2012, first of all, as we pointed out, our commitment levels are up.

Usage levels are up over 2%, which is pretty significant in this business.

Commitments to commit are stable and strong.

And, in fact, we're seeing very good pipelines.

Over 50% of the pipeline is new business, new customers for Comerica.

Okay, thanks, and one follow-up.

Does the non-interest expense guidance of relatively stable include merger and integration charges?

Or should we be looking at that more on a core basis ex the merger and integration charges?

Yes, it does include merger and integration charges.

Okay, thank you.

Gary Tenner with D.A.

Davidson.

Just a few questions.

In terms of the severance expense in the fourth quarter, what was the actual dollars of severance?

Total severance and related expenses were up $5 million.

Up $7 million was the total.

Okay.

And I know you're not providing specific margin guidance going forward, but just looking back in the fourth quarter could you give us an idea of where the margin was for December?

For the quarter obviously, it was at 3.19%.

We did see it improve a little bit more in December.

We had the benefit of LIBOR increasing a little bit more in December than it had in October and November.

Okay.

And then just one last question, if I can.

Obviously you are continuing, or you've said that you are continuing, your stock buyback plan in the first quarter.

Could you give us just an idea?

I know your target payout is 50%, but maybe just give us an idea of where your bias lies between buyback and dividend as you look out through 2012?

We are obviously focused on total payout to our shareholders.

When we think about the mix between dividends and share repurchase, we like a steady dividend that can grow slowly with us over time.

We are more biased towards share repurchase because it is something that enables flexibility.

And particularly in this environment when we're able to buy back our stock at lower than book value it's very attractive.

Okay, thanks for taking my questions.

I would underline that, as Karen said, we have a balanced approach to the dividend, as well.

Brian Klock with Keefe, Bruyette, Woods.

Just one really quick follow-up question, Karen.

On the accretion coming from the Sterling deal, you said it was $26 million this quarter, $27 million last quarter.

Do you have the breakout of how much of that was accelerated accretable yield from payments coming in faster than expected?

I don't have that, but I would say it was in the mid single digit area.

Okay.

And a question for Lars.

You went into a lot of different details and good granularity.

I was wondering, you mentioned that 50% of the pipeline is new business from new customers.

Did you see anything -- and the fourth quarter was so strong in commercial growth -- was there any activity you saw from your commercial customers trying to take advantage of the Obama stimulus plan of trying to put something into production before the end of the year to take advantage of the tax deduction?

That issue has come up, I've heard it talked about in the industry.

We have not seen that as a material driver.

And I think evidence of that is if you look at really the broad-based growth across a number of business lines, it was not a material event for us.

Okay, great.

Thanks for taking my questions guys.

Kevin Reynolds with Wunderlich Securities.

Actually my questions have all been asked and answered at this point, so great quarter guys.

Adam Hurwich with Ulysses.

Most of my questions have been asked, as well.

But on the Sterling acquisition, if we were to think about the return, given your outlook for the profitability of that franchise, do you have any sense as to what your incremental ROE on their capital base would look like?

We haven't looked at it that way.

We are pleased with the performance of Sterling and pleased with our ability to integrate.

We're happy with where we are but we honestly haven't looked at the Sterling the way you talked about it.

We'll follow-up.

Thanks a lot, Karen.

Michael Rose with Raymond James.

In the past you've mentioned commitments to commit.

And I think they were $1.9 billion at the end of the third quarter.

Obviously this was a strong quarter for bookings.

But can you provide that number?

And I'm sorry if I missed it.

Okay, Lars?

Yes, I think this is really good news because coming off of, obviously, one of our strongest quarters in a very long time, the commitment to commit has remained stable, absolutely stable.

So at about $1.9 billion?

That's correct.

That's correct, Michael.

Okay, thank you.

Mike Mayo with CLSA.

Just a question on the margin.

In your press release, it shows the margin's down 33 basis points in Texas, down 14 basis points in the West, down 5 basis points in Florida.

But on an aggregate basis it's flat.

What's the simple explanation for that?

Obviously our regions and our businesses are impacted by how we FTP our businesses.

But the simple answer is that we benefited from the increase in our mortgage-backed securities portfolio at the top of the house.

Okay.

And then, separately, the commercial loan growth, it's 32% annualized.

And per your guidance you aren't expecting that sort of pace in 2012.

But I was wondering, how much of that is for Shared National Credits?

If I'm reading slide 19 of your presentation, if you could just turn to that, it looks like most of the growth is specialty businesses.

And I'm just assuming that's more Shared National Credit or national lending?

Lars?

First of all, maybe looking at the fourth quarter to give some indication, 28% of our loan growth in the fourth quarter was Shared National Credits.

80% of that was energy.

And that would be consistent with our strategy for our energy business which is very focused on large, high-quality energy companies.

So, frankly, outside of that, the majority of it was not Shared National Credit.

I'd underscore, also, for us, for our Shared National Credit strategy, we underwrite every single credit like we would any other non-SNC credit.

It's held to the same stable credit underwriting policies.

And it's held to the same relationship pricing model and pricing governance strategy.

And for us, our Shared National Credit relationships, which we continue to make a lot of progress on in terms of cross-sell, continue to improve in profitability for our Company.

The outlook, obviously, is moderate growth for 2012, to the other part of your question.

And, frankly, we're just continuing to stay very focused on our businesses and executing on those strategies.

And to the extent that some, such as energy, may leverage for risk management purposes, the Shared National Credit, our syndicated credit capability, that would just come along with it.

But we're going to stay very focused on our strategy.

And the rest of the increase in specialty businesses is due to what?

Again, slide 19, I'm just trying to understand that one line.

Energy was a big driver of the increase.

Okay, so energy is most of that?

I would say it's energy and other of our industry businesses including technology and life sciences, entertainment, et cetera.

So of the $1.4 billion increase in the business bank loans, how much of that was due to syndicated loans?

Yes, in the fourth quarter, it's 28%.

And remember, 80% of that was energy.

All right.

And the rest of the specialty businesses, the growth there -- I just want to complete my list, if I want to give two other items what would I include?

The others wouldn't be as focused on syndicated credits, if that's what you're trying to get to.

You may have some growth in US banking, which we had -- global corporate would leverage that.

There's a little bit more activity in national commercial real estate, which is REIT-oriented financing.

But energy would be the key driver.

And also why did loan utilization go up?

It's been flat at most of the other big banks, or almost all of them.

Whereas in your case, it seems like demand picked up.

Any reason why you might be a little bit different than some peers?

Yes, we just continue to focus on our customers and they had good activity and growth and we've been growing with them.

As well as the commitments in total were up.

And from a small business and middle market standpoint, Texas saw good growth.

That's right.

In fact, small business saw very nice fundings to new customers in the fourth quarter.

And commitment levels were even up for small business.

And, Mike, if I may add a question from a risk management standpoint on the SNCs.

For the last several years, our SNC portfolio has performed really the same way that our portfolio has overall.

It's basically been a mirror.

But interestingly enough, in the last couple of quarters, it has performed even better than our total portfolio from a credit risk standpoint.

Okay, that's helpful.

I'm sorry, one last question.

If I can just go back to my first question.

I thought you said the yield on the MBS that you purchased -- I might have heard this wrong -- was 2.74%?

That is the yield on the overall portfolio, Mike.

The yields that we are purchasing today are a little bit less than that, as you can imagine, in the market.

So I'm just looking at your yield on assets, your yield on earning assets is close to 3.5%, for the year at least.

I was just wondering.

So how did that provide the boost to the margin?

Was there anything else that helped the margin?

No, the impact to the margin from the securities portfolio was the fact that we increased the amount in our securities portfolio to a target of about $9 billion.

We did that at the end of last quarter and you see the benefit of it this quarter.

The real driver, though, is the fact that we had loan growth and we're maintaining our spreads in our loans.

And we are continuing to focus on our cost of deposits and taking that down where we can.

Great.

Thank you.

Steve Scinicariello with UBS Securities.

Just two quick questions for you.

First up, just given the positive trends that you're seeing in terms of loan utilization rates and commitments to commit and what-not, just looking to get some color as to how much of a turning point maybe we've reached here in terms of demand.

Do you feel some of these situations were more situational or one-offs?

Or do you really feel there's been a shift in terms of customer demand out there?

Lars?

No, I really can't, I wouldn't identify it as a one-time event.

Because again, if you look at where we got the growth, while it was early, we had a good quarter in mortgage banking finance and dealer and energy.

We had nice growth in technology and life sciences, as well as our global corporate banking driven by international, environmental services, entertainment.

It was very broad-based.

So we feel very good about the momentum as we look forward to 2012.

But we're reminded that the backdrop is, for 2012, a slow economic environment.

And we do have, of course, some businesses with variability in outstandings, as we've talked about.

I think as you said earlier, I would point out that our customers are making good money.

They're well positioned.

They have a very liquid balance sheet compared to several years ago.

And they're beginning, as you mentioned, with that, I'll call it cautious optimism, that you pointed out, to step forward.

Even though there's still a concern about the slow growing economy.

That's correct.

That's right.

That sounds good.

That's great color.

And then just my last question is, just in terms of the upcoming CCAR and process and what-not, when we ran our stress test, you guys come out as one of the best positioned banks in terms of excess capital.

And I know you've guided towards this 50% earnings payout level.

But why not pay out more with your stock at these levels and just the amount of capital strength that you have?

Why is 50% a ceiling?

And could you increase that?

Let me reiterate what Karen said earlier.

The 50% is in the first quarter, that we expect to continue to be at the 50% level.

We expect to hear back on our plan on mid-March and then we'll discuss what our ongoing level will be.

Perfect.

Thank you very much.

John Pancari with Evercore Partners.

This is Raul on behalf of John.

Most of my questions have already been answered.

Just one question, a follow-up question on the buybacks.

Could you give us some color around the timing or the pace of buybacks that you would expect in 2012?

And also other opportunities in terms of capital deployment in 2012?

Until we hear back from the Federal Reserve on our capital plan submission, it will be very difficult for us to talk about any pace of buyback.

That said, we are focused on 50% for the first quarter.

So combined with our dividend, we should be on pace to focus on that payout for the first quarter.

Hopefully that's helpful.

And we would focus quarter by quarter.

Okay, thanks.

Jeff Davis with Guggenheim Partners.

I know the portfolio is small and it's contracted, but could you comment on what you're seeing in commercial real estate values in Florida?

John?

The real estate portfolio in Florida that we have is down to $200 million, Jeff.

And what we're seeing there, basically, is some slight decline still in that portfolio.

I'm not concerned about it, given the fact that we've come through the recession in pretty good shape dealing with that portfolio.

But I still think it's going to be a while before Florida has anything near a normal real estate market.

Would it be fair to say, though, 2012 is a stabilization year for it, then?

To answer that question properly, Jeff, you almost have to look at it product by product.

I'd say on multi-family the answer to your question would be yes.

On retail and office, for example, I don't think stabilization is here yet.

Okay.

And then you may have said it and I just missed it.

In terms of maybe Mike's question on the energy book.

Did much of the energy growth come from European banks pulling out of syndicated deals and someone else stepping up to the plate?

Lars?

We have not seen maybe some of that volume of European banks exiting that some others talk about.

We have seen some opportunities come along in energy and in other, the broader corporate market.

And we have selectively looked at them.

But the reality of it is, they really have to fit within our footprint, within our industry focus.

They need to individually underwrite.

We wouldn't consider just purchasing a position.

And frankly, they've got to really hit our relationship pricing model.

We've got to have an opportunity to add value to the Company and for us to get compensated for it.

Okay, thanks.

And then last question.

I know the portfolio is even much smaller than Florida, but any comment on what you're seeing in commercial real estate values in Arizona and the Phoenix market?

John?

Yes, it would be almost a reiteration of what I just said in Florida, Jeff.

It's a very similar situation.

Single family there is still struggling.

Multi-family in the right location is stabilized.

But everything else is still struggling to some extent.

And probably we'll see a bit of a decline, even in 2012.

Thanks very much.

Chris Mutascio with Stifel Nicolaus.

My question was on the provision expense.

The guidance being relatively stable year-over-year; 2011 was about $153 million.

If I divide that by 4, I get a quarterly run rate of $38 million, which is essentially double what it was in fourth quarter.

So am I to assume that the provision expense is going to double off the level we saw in the fourth quarter going forward?

John?

I think of this in terms of the annual run rate on the provision.

And from $153 million actually leads us to the relatively stable guidance that we offered.

The fourth quarter was a little unusual in that recoveries were abnormally high that quarter, which is good news, but it did result in the provision being a little bit lower.

Okay.

So, again, the $153 million is the run rate for next year, is what you're looking at?

Our guidance is relatively stable off of $153 million actual in 2011.

Fair enough.

Thank you very much.

I'll now turn the call over to Ralph Babb for any closing remarks.

I would just like to thank you all for joining us on the call today and your continued interest in Comerica.

Thank you very much.

Ladies and gentlemen, this does conclude today's conference.

Thank you all for participating and you may now disconnect.