Comerica Inc (CMA) 2014 Q1 法說會逐字稿

Good morning, my name is Carmen and I will be your conference operator today.

At this time I would like to welcome everyone to the Comerica first-quarter 2014 earnings call.

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

(Operator Instructions).

I will now turn the call over to Darlene Persons, Director of Investor Relations.

Ms. Persons, you may go ahead.

Thank you, Carmen.

Good morning and welcome to Comerica's first-quarter 2014 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; Vice-Chairman of the Retail Bank and Wealth Management, Curt Farmer; and Chief Credit Officer, John Killian.

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

As we review our first-quarter results we will be referring to the slides which provide additional detail 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 this 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 the presentation.

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

Good morning.

Today we reported first-quarter 2014 net income of $139 million or $0.73 per share compared to $117 million or $0.62 per share in the fourth quarter and $134 million or $0.70 per share in the first quarter of 2013.

Broad-based loan growth together with solid credit quality and tight expense controls contributed to the 4% year-over-year increase in net income in the first quarter.

Turning to slide 4 and first-quarter highlights, average total loans increased $458 million compared to a year ago, including a $1 billion total increase in National Dealer Services, technology and life sciences and general Middle Market, offset by an $852 million decrease in mortgage banker finance.

Compared to the fourth quarter, average and period-end loans were both up over $1 billion with good loan growth across our footprint and nearly all of our business lines including increases in general market, commercial real estate, energy, technology and life sciences and Corporate Banking.

Seasonal decline in loans we anticipated following the year-end run up did occur in January.

Then starting in February the positive loan growth trend returned.

We attribute the quick turnaround to the improving economy and our continued focus on relationships.

Average deposits increased $2.1 billion or 4% compared to a year ago, including a $1.7 billion increase in non-interest-bearing deposits.

Compared to the fourth quarter average deposits were stable while period-end deposits were up $458 million or 1%.

In further comparing our first-quarter 2014 results to the fourth quarter of 2013 -- let me repeat that.

In further comparing our first-quarter 2014 results to the fourth quarter of 2013, net interest income decreased $20 million to $410 million primarily due to a decline in accretion, lower nonaccrual interest collected and too fewer days in the quarter while the increase in loan balances and decrease in deposit costs offset the continued decline in loan yields.

Credit quality remained strong with the provision for credit losses and net charge-offs at low levels consistent with the last few quarters.

Noninterest income decreased $11 million to $208 million due to decreases of $6 million in customer driven fee income primarily due to lower syndication fees and $5 million in non-customer driven fee income.

Noninterest expenses decreased $67 million reflecting a $49 million decrease in litigation-related expenses following an unfavorable jury verdict that impacted the fourth quarter.

Also, salaries and benefits expense decreased $11 million primarily due to reduced pension expenses.

In addition, we were able to drive small decreases in a number of other expense categories.

Our capital position remains a source of strength to support our growth while continuing to provide us the ability to return excess capital to shareholders.

We completed the 2013 capital plan in the first quarter with the repurchase of 1.5 million shares under our share repurchase program.

Together with dividends we returned 77% of first-quarter 2014 net income to shareholders.

Last month we announced the results of our Company run stress test and that the Federal Reserve did not object to our 2014 capital plan.

Our capital plan includes up to $236 million in share repurchases for the four quarter period that ends in the first quarter of 2015.

The plan, which was approved by our Board of Directors, further contemplates a $0.01 increase in Comerica's quarterly dividend to $0.20 per common share, a 5% increase over the current dividend rate.

The dividend proposal will be considered by our Board at its regularly scheduled meeting next week.

Turning to slide 5 and a look at our primary markets, Dallas morning news reported last month that Texas leads the nation in job growth adding more than 322,000 jobs in the 12 month period that ended this past January according to the US Bureau of Labor Statistics.

Also middle-market companies in Texas are growing faster than anywhere else in the country according to the National Center for the Middle Market.

And we are growing right along with the Lone Star State.

In March we announced that we were adding a new Middle Market banking team here in North Texas.

In addition we are adding other bankers in all of our Texas markets.

Texas posted the largest increase in average loans of our three primary markets with average loans up almost $600 million or 6% over the fourth quarter.

All business lines posted increases and were led by energy, general Middle Market, Corporate Banking, technology and life sciences and commercial real estate.

Also Texas deposits in the first quarter were up $339 million or 3%.

We continue to capitalize on opportunities in California.

Similar to Texas, we recently increased staffing in our Northern California Middle Market banking team to help meet the increasing demand.

In addition, we have expertise in growing sectors in the state such as technology and life sciences, National Dealer Services and entertainment.

Average loans in California in the first quarter were up almost $400 million or 3% with growth in technology and life sciences, commercial real estate and general Middle Market.

Average deposits in California declined 3% while period-end deposits grew 5% from the prior quarter.

The primary reason for the variability between period-end and average deposits was due to customer balances in US banking as well as the financial services division which serves title and escrow businesses.

We are a leading bank in Michigan where we have strong relationships with businesses and families, many spanning decades.

We strengthened our number two deposit market share in the state based on the most recent FDIC data and, as a result, continue to be well-positioned with great brand recognition.

Average loans in Michigan increased $149 million relative to the fourth quarter with growth in national dealer, general Middle Market and private banking.

Average deposits also increased with Corporate Banking being the largest contributor.

Our relationship banking strategy is serving us well as we continue to focus on growing the bottom line in this low rate environment.

We are allocating resources to our faster growing markets in industries where we have expertise which should contribute to our long-term growth.

Recent recognition validates that we are making a positive difference.

In February we received 16 Greenwich excellence awards for Middle Market banking as well as seven Greenwich awards for small business banking.

Comerica received more awards than any other bank.

In addition, we were recently named best regional bank in the Southwest by Global Finance magazine.

Details can be found in the earnings deck appendix.

Our balance sheet continues to be well-positioned for when rates begin to rise.

In the meantime, we continue to demonstrate that we can carefully manage expenses and maintain strong credit quality and a conservative approach to capital.

And now I will turn the call over to Karen.

Thank you, Ralph, and good morning, everyone.

Turning to slide 6, we saw broad-based loan growth in the first quarter.

Total average loans quarter over quarter increased $1 billion or 2%.

And on a period-end basis loans also increased $1 billion or 2% to $46.5 billion.

We had growth in almost every loan type as average commercial loans increased $679 million and construction loans increased $175 million.

Also average commercial mortgages increased $56 million, the first increase we have seen since the acquisition of Sterling, as mortgages to developers post construction increase and owner occupied real estate, which makes up about 80% of our commercial mortgages, declined at a slower pace with normal amortization.

In total average outstandings increased in nearly every business line, led by increases in general Middle Market of $283 million, commercial real estate of $246 million and energy of $230 million.

Partly offset by a $223 million decline in mortgage banker, in line with current trends in the mortgage industry.

Our average loan growth of 2% outpaced the industry which grew 1% based on the feds H8 data for US commercial banks from January 1 to April 2. Also our commitments grew $416 million to $53.2 billion driven by increases in commercial real estate, energy and technology and life sciences.

Line utilization was 48.3%, up from 47.1% at the end of the fourth quarter.

Importantly, our loan pipeline increased with growth in nearly all business lines.

Finally, loan yields, shown in the yellow diamonds, increased 19 basis points in the quarter, of which 12 basis points can be attributed to the higher accretion and higher interest collected on nonaccrual loans in the fourth quarter.

Much of the remaining decrease is due to amortization and payoffs of older higher-yielding loans, a mix change in customer usage, credit improvements and a decline in LIBOR.

Turning to deposits on slide 7, our total average deposits were stable at $52.8 billion reflecting a $296 million decline in non-interest-bearing deposits while interest bearing deposits increased $297 million.

As shown by the yellow diamonds on the slide, deposit pricing declined to 15 basis points due to higher rate CDs maturing and selected deposit rate adjustments.

Period-end deposits increased $458 million to $53.8 billion, primarily reflecting an increase of $378 million in interest-bearing deposits.

Slide 8 provides details on our securities portfolio, which primarily consists of mortgage backed securities.

The MBS portfolio averaged $8.9 billion for the quarter.

The fair value of this portfolio increased $87 million pretax in the first quarter resulting in a net unrealized loss position for the portfolio of $10 million.

The estimated duration of our portfolio declined slightly to four years at the end of the first quarter.

Slower prepayment fees, including a retrospective adjustment to the premium amortization, similar to the third and fourth quarters, added $3 million or 12 basis points to the yield.

The expected duration under a 200 basis point rate shock declined slightly to about 4.6 years as a result of the composition of our portfolio.

Based on current rate expectations we believe that the pace of pre-pays will be about $350 million to $450 million in the second quarter, similar to the first and fourth quarters.

In light of the fact that Fannie and Freddie backed securities are subject to a haircut and a cap under the proposed liquidity coverage ratio we have continued to reinvest the prepaids in Ginny Mae securities.

As far as liquidity coverage ratio, based on our preliminary analysis of the proposed rule, we expect to meet the proposed phase in threshold for 2015.

Turning to slide 9, we've summarized in the table on the right the moving pieces of our net interest income and net interest margin.

The biggest driver to the $20 million decrease in net interest income was an $11 million decline in accretion from an elevated fourth-quarter level of $23 million.

This reduced the net interest margin by 8 basis points.

Just to note, the remaining accretion on the portfolio is about $28 million and we expect to realize this accretion at a declining pace over the next few years.

Accordingly, for 2014, we expect to recognize accretion of about $20 million to $30 million, which is slightly higher than the $10 million to $20 million range we provided last quarter as we continue to have better than anticipated performance on a credit impaired portfolio in the first quarter.

Two fewer days reduced net interest income by $7 million and lower interest collected on non-accrual loans had a $2 million or 1 basis point impact.

The benefit from the $1 billion in loan growth contributed $8 million and combined with lower funding costs, which increased net interest income by $1 million, completely offset the impact from lower loan yields.

Lower loan yields resulted from a decline in 30 day LIBOR as well as the continued amortization and payoff of higher yielding loans, particularly commercial mortgages, a mix change in customer usage and competitive pressures.

On the declining LIBOR you may recall that approximately 85% of our loans are floating rate of which 75% are LIBOR-based, predominantly 30 day LIBOR.

Finally, the decrease in excess liquidity, which resulted from the loan growth, had a 4 basis point positive impact on the margin.

As you have heard before, we believe we remain well-positioned for a rise in short-term rates.

Based on our asset liability model using a dynamic balance sheet and assumptions based on historical experience, we believe a 200 basis point increase in rates over a one-year period equivalent to 100 basis points on average would result in approximately $200 million or a 12% increase in net interest income.

Turning to the credit picture on slide 10, credit quality continued to be strong in the first quarter.

Net charge-offs decreased to $12 million or 10 basis points of average loans and included $18 million in recovery.

Our criticized loans declined $121 million and our nonperforming loans declined $36 million.

With the decline in nonperforming loans allow its coverage of NPL's increased to 1.8 times, and coverage of our trailing 12-month net charge-offs reached 10 times.

The continued positive trends in our credit metrics combined with loan growth resulted in a stable provision for credit losses and a small reserve release.

Slide 11 outlines non-interest income, which included a $6 million decrease in customer fees and a $5 million decrease in non-customer related income.

The decrease in customer fees was primarily a result of a $7 million decrease in syndication agencies which is a component of commercial lending fees, due to low activity in the first quarter following a robust fourth quarter.

We had smaller changes in several categories such as a decrease in customer derivative fees and increases in deposit service charges, fiduciary and brokerage.

The decrease in non-customer driven income was primarily due to a $4 million decrease in deferred compensation plan asset return which was completely offset in non-interest expense.

I wanted to bring to your attention that we early adopted this quarter an amendment to GAAP related to the accounting for affordable housing projects that qualify to low income housing tax credit.

Amortization of the initial investment cost, which was previously recorded as a reduction to noninterest income, is now recorded in income taxes.

All prior periods have been adjusted to reflect this change.

Turning to slide 12, we continue to drive efficiency with tight expense control.

Non-interest expenses decreased $67 million, this included a $49 million decrease in litigation-related expenses due to an unfavorable jury verdict in a lender liability case that impacted the fourth quarter and is now under appeal.

Salaries and benefits expense decreased $11 million primarily reflecting a $13 million decrease in pension expense as well as lower deferred compensation expense.

This was partially offset by annual stock compensation expense, two fewer days in the quarter and higher payroll taxes.

Taking into account all of the moving pieces, our first-quarter salaries and benefits expense is expected to approximate the run rate for the remainder of the year.

We also had small decreases in several other categories reflecting our continued focus on managing expenses.

Moving to slide 13 and shareholder payout.

As Ralph mentioned, we completed our 2013 capital plan which included the repurchase of 6.9 million shares under our share repurchase program.

Combined with the 1.5 million shares repurchased in the first quarter with the dividends paid, we returned 77% of first-quarter net income to our shareholders.

Our 2014 capital plan includes share repurchases up to $236 million as well as the authority to fully redeem $150 million subordinated notes at par later this year.

These notes have a carrying value of $183 million at quarter end.

Due to the lack of certainty about the possible execution and timing of the call the impact of the call is not reflected in the outlook for 2014.

The average diluted share count increased in the first quarter mainly due to the impact of a higher share price on our warrants an employee options.

Vesting of annual employee stock grants also impacted the share count slightly.

Our capital position remains strong with a tangible common equity ratio of 10.2% and an estimated Basel III Tier 1 common capital ratio of 10.3% at March 31 on a fully phased-in basis excluding the impact of AOCI.

Finally turning to slide 14 and our expectations for full-year 2014 compared to full-year 2013.

Our outlook for loan growth, net interest income and provisions remain unchanged from what we provided in January.

We are revising slightly our outlook for noninterest income and taxes.

As a reminder, we expect our overall loan growth to continue at a pace similar to 2013.

Average loans in 2013 were $44.4 billion and grew about 3% over 2012.

Keep in mind that we expect mortgage bankers to be significantly lower than its 2013 average.

And national dealer and mortgage banker can be variable and typically have seasonality.

Also there is stiff competition for loans across all of our businesses and we fully intend to maintain our loan pricing and credit discipline.

We expect our net interest income to be modestly lower as a result of lower accretion and continued pressure from the low rate environment.

Given that we are in the benign part of the credit cycle we expect the provision to remain stable with last year.

As far as noninterest income, we expect it to be modestly lower with stable customer driven fees and lower noncustomer driven income.

Lower capital market related fees such as syndication and derivatives are expected to offset growth in fiduciary and card fees.

We continue to expect noncustomer income to be lower.

You may recall in the third quarter last year we reported unusually high warrant income from the exercise of warrants related to some technology and life sciences relationships.

Noncustomer driven income is difficult to predict because it includes items like warrant income.

We expect lower noninterest expenses with lower litigation-related expenses and a reduction in pension expense from $86 million to approximately $35 million to $40 million.

In addition, we expect to continue to offset increases from annual merit and regulatory costs with tight expense control.

The outlook for our effective tax rate has been updated to 32% to reflect the change in accounting for projects that qualify for low income housing tax credits, as I previously mentioned.

Finally, our share count should reflect both the execution of our capital plan as well as a dilution impact from our warrant and employee options previously mentioned.

Our rule of thumb is that for every $1 increase in average stock price for the quarter warrant and option dilution is about 250,000 shares.

In closing, the year is off to a good start and we are pleased with the loan growth and expense control we had in the first quarter.

With a persistent economic and low interest rate headwind it is imperative that we continue to focus on the things we can control -- deepening and expanding customer relationships while carefully managing expenses.

We believe our efforts can assist us in delivering growth in both pre-provision net revenue and the bottom line.

Now we would like to open up the call for questions.

(Operator Instructions).

Keith Murray, ISI.

If we could just spend a minute on slide 26 on the shared national credit growth.

It looks like a pretty big pickup first quarter.

What drove the pickup there and could you just give us your philosophy on the SNC portfolio there?

Okay.

Lars?

Sure.

Hey, Keith.

First a couple points I would like to make.

First of all the underwriting of our Shared National Credit portfolio is consistent with our disciplined credit underwriting and credit standards -- relationship pricing standards for the rest of the portfolio.

Secondly, if you were internally to look at that portfolio you would find that the profitability and asset quality metrics of the portfolio would be very similar to our overall portfolio.

But as you pointed out on page 26, you can also see that 65% of the SNC portfolio really is in middle-market businesses which are typically smaller what I would say a large club syndicated credits where we have strong relationships with those customers.

It is consistent with our relationship model.

So of the [693] increase, half of that was energy, which frankly those are large syndicated credits, as you know, and we control our single client exposure certainly leveraging syndicated credit market.

And it is a growth business for us.

Middle-market business also helped drive that which we've seen commitments continue to rise and we've been really focused over the past year.

And really the balance of it would be US banking, which tends to have variability in the usage levels.

I think the key takeaway is that we treat SNCs the same as we do any other relationship in the Bank and hold them to the same relationship banking standards and pricing as any other relationship.

Okay, thank you.

And then just on the loan growth side, and obviously you had very strong loan growth this quarter, it was pretty broad.

When you think about the pipeline at the end of the quarter can you just give us an update on where that stood and why would you stick with the 3% given the strength in the first quarter?

Thanks.

Our pipeline grew at the end of the quarter and remains robust.

When we think about our loan growth outlook keep in mind that it is a full year averaged a full year average outlook.

And our full-year average loans in 2013 were $44.4 billion.

We also had mortgage banker finance which we expect to be down year over year on average.

The full year 2013 average was $1.6 billion and we've said that we expect that to stabilize at the fourth-quarter 2013 level, which was about $1.1 billion.

We also have our dealer portfolio that, while it has increased slightly in the first quarter, we do expect normal seasonality in that portfolio to impact our full year average.

And on owner-occupied mortgage loans, we do expect those to continue to be impacted by amortization.

So beyond those we do expect continued growth in other areas and we also fully expect to maintain our discipline in this competitive environment.

I may just tag on -- maybe do a part of your question and that is kind of the nature of that pipeline growth.

It continues to be very broad; it is across all of our businesses.

And frankly if you look at the individual components, they would be very complimentary of really what our focus is as a Company, the lines of business that we want to grow, the ones that have the highest returns and fit with our relationship banking strategy.

Thank you.

Steven Alexopoulos, JPMorgan.

Lars, I wanted to follow up on your response to the question on the SNCs.

So if you look at the $700 million increase, how much of that was for participations in credits where you guys were not the lead bank?

I can't give you an exact number for the quarter at this point, we don't have that.

But if you go in and look at that chart on again page 26 you would see that 15% are age ended by Comerica today.

But again, if you look at that 65% of the overall SNC portfolio, those really are typically smaller syndicated credits where we have deep relationships with the management teams.

We are not just in they are providing a credit solution; it is really about my trusted advisor kind of approach to the customers.

It is the relationship banking model and it is not just about the credit, it is about really bringing to them all of Comerica and all of our financial solutions.

So hopefully that gives you a little bit more kind of look at it.

But I can't specifically give you the number for that quarter.

So, Lars, should we think about that big jump this quarter as being a function of just increased demand from larger borrowers?

Or do you guys just have more of an appetite for those types of credits here?

Well, just keep in mind that half of -- yes; half of that number was energy.

And energy is by definition almost is a syndicated credit market.

These are very large credit facilities where we want to make sure that we -- make sure that we are controlling from a conservative credits perspective our exposures to single customers.

But I would also just reinforce that these are customers that are in footprint; these are customers that we are the largest commercial bank headquartered in the state of Texas, we've got a leverage position here I think in Texas to be a leader in this industry.

And it is really a footprint strategy.

Okay.

Maybe just one for Karen.

How many employees do have in the BSA/AML compliance group and how much is that effort roughly costing you now per year?

Thanks.

Steve, happy to follow up on that.

I don't have an exact breakdown of the number of employees in dollar costs.

But we have maintained a very robust department in that area for a very long time.

Okay, thanks for the color.

Steve Scinicariello, UBS.

Yes, just a couple of quick ones.

First, I was just kind of curious, Lars, maybe where you see kind of the most attractive risk reward across the loan portfolio as we sit here today?

Yes, we are very fortunate.

But first of all we have got great growth markets that complement the businesses that we are in and that is I think one of the strengths of our franchises that we do have a diversity of businesses.

If you look at the state of California and you look at the diversity of the businesses there that we can grow versus Texas, for example, we are in a very attractive position.

But we are a Middle Market Bank and while we do have some specialty areas, technology and life sciences, energy, commercial real estate, entertainment, mortgage banking finance, these are all businesses that have typically very attractive returns for us.

But it is not just about the credit, it is really about the whole relationship.

And as we look at each customer we are using a very disciplined relationship pricing approach that really encapsulates all of the financial solutions that we bring to our customers.

That makes sense, make sense.

And then specifically on commercial real estate it looks like that seems to be hitting an inflection point here.

Do you think that is the case and is there an opportunity to maybe help enhance the book going forward in terms of yield and if that continues to grow?

Well, I think I heard you mention the term yield.

Is that correct?

Sure, yes.

In your question.

So I would be honest here that we are getting pressure in the commercial real estate portfolio, there is no question about it.

You have got a lot more banks out there chasing opportunities.

But we are not giving in terms of our commitment to ensuring that we get the right kinds of returns from these long-term developers that we have worked with for a long period of time.

But I will tell you this -- we have been sharing with you over the last two years that we have had a lot of construction lending volume, closures, commitments, and a lot of equity that has gone in first.

And we have expected that at some point we would begin to see draws on those and a number of those move over to mini perms.

And frankly that is the key driver that we're seeing today in our portfolio.

We did see relatively less activity of our larger developers going to the permanent market, which also I think benefited us in the first quarter.

Whether or not it is a permanent turn I really can't tell you, but we were really pleased to see with these long-term customers their continued strength, success and we are proud to work with them as I think the real estate market continues to strengthen.

Sounds good, sounds good.

And then just one quick one for Karen just on the expense side.

Obviously great performance this quarter.

Just kind of curious, maybe some future opportunities whether it is regulatory cost or more vendor consolidation type opportunities maybe going forward on the expense side.

We are always looking for continued efficiency on our whole equation, particularly on the expense side.

And as we look for that continued efficiency some of the things that we have been doing are things that we will continue to do.

Things like consolidating our vendors and renegotiating contracts with our vendors everywhere that we can to get better performance and better terms.

And so we will continue to do that.

Perfect, thank you so much.

Bob Ramsey, FBR.

I wanted to ask the loan growth question a little bit different way.

I know you said the 3% growth is off your base of about $44.4 billion last year and it looks to me as if the end of period balances this quarter are already 4.5% above that.

So does that imply that through the course of the year you actually see a little bit of contraction from where we stand today?

Bob, I mentioned that we do see contraction in certain portfolios like mortgage banker finance where the average of the full year last year was $1.6 billion and we do expect that to be down to about the stable level that we had in the fourth quarter, which is about $1.1 billion.

So we expect full-year average contraction there.

And on our dealer portfolio we do typically see seasonality a little bit in the second quarter, a little bit more in the third quarter and we expect to see that seasonality where inventory supply on lots comes down and therefore our outstanding floor plan financings come down.

And then we do expect some continued contraction in our owner occupied real estate mortgages as amortization from our existing portfolio continues.

Okay.

And I know in your introductory comments you all said January started a little slow and then built, but I'm not sure I caught the full commentary.

Can you just give a little bit of color on how through the course of the first quarter you all saw loan demand progress?

Sure.

We typically see year-end balances -- period-end balances at year end run up for us and then we typically see contractions just following the year-end and that is exactly what we saw in January.

So we saw loan growth pick up starting in February post the contraction in January that we deem typical.

And so, is it just typical seasonality though, nothing more or less this quarter?

Yes, we view it as typical.

Okay, that is helpful.

Thank you very much.

Craig Siegenthaler, Credit Suisse.

First just to start on the C&I portfolio, just watching the yield come down here.

Can you provide a little perspective on how pricing structure and terms today compare to 2007 in your key markets?

Lars?

Sure, Craig.

Was that compared to 2007?

In our markets.

Yes, in our markets.

I just want to make sure that I've got the right timeframe.

Okay, Craig, I'm taking that as a yes.

Yes.

Yes, so, if you go back to the pre-crisis period I think that you would see actually spreads a little bit thinner at that point.

We are in a better position than we were there.

However, over I would say the past year or so we have continued to see a really tightening of spreads and yields as more competitors have gotten active in the marketplace.

And we are obviously staying very focused on our disciplined relationship pricing model.

And I think that that is going to serve us well.

Craig, I would also mention that our C&I yields did decline 9 basis points in the quarter, but half of that was related to greater interest on nonaccrual loans in the fourth quarter.

Thanks, Karen.

And one follow-up though, what was the average C&I yield in the new business generated in the first quarter and also the average spread there too?

Very difficult to give you averages for the whole portfolio because it is so very diverse and so very credit dependent, so very difficult to give averages.

Yes, would I would tell you is that largely our loan spreads have been holding.

I mean we have been very disciplined.

It is not easy -- I mean we are having to have our bankers out in the marketplace more than ever making more calls, really focused on our relationship banking strategy and bringing a different value proposition to our customer.

And credit is moving up.

Yes --.

(Inaudible).

Absolutely.

Positively.

Can we assume it is close to the peer group average in the low 2's?

And if yes, can we expect significant more (technical difficulty) in the C&I portfolio over the next couple years?

We do expect that our loan yields going forward will be impacted by the things that we have been impacted already.

And that would be a decline in higher yielding fixed-rate loans, particularly mortgages, as well as continued mix shift that can impact the portfolio, mix shift in utilization, a decline in LIBOR.

LIBOR declined this past quarter in the first quarter, but yet it is lower today than where it ended in the quarter.

So there are lots of things that we expect to continue to impact our loan yield.

Great.

Thanks for taking the questions.

Ken Zerbe, Morgan Stanley.

I guess first question just about the LCR.

I think Karen mentioned, if I heard right, that you would be compliant with LCR or what you think are the guidelines by 2015.

But can you just be a little clearer on that in terms of when do you expect to be as fully compliant as you need to be and what is the impact that could have on margins from here?

So, on the LCR, as you know, the rules are proposed right now are not yet final.

And we obviously expect to be fully compliant with all of the phase-in requirements and the fully phased in requirement in 2017.

As loans increase and the interest rate environment continues to improve we do expect to see deposits decline and both the loan and the deposit side of the equation can have an impact on our excess liquidity.

Our excess liquidity right now does count as high quality liquid assets.

So in the improving environment we will need to be adding High Quality Liquid Assets to meet the proposed LCR requirements.

The impact that that can have -- that can have an impact on the net interest rate margin, but we believe that it is a relatively neutral to net interest income and that is the key income statement line item that we focus on much more than the net interest (technical difficulty) margin.

No, of course.

I just wasn't sure if there was going to be any meaningful changes.

But it sounds like you are letting sort of the portfolio take its natural course and you'll end up with a better coverage ratio rather than taking any specific more immediate actions, is that fair?

That is fair.

We remain ever mindful of the fact that our securities portfolio in a rising rate environment will be marked to market and that mark-to-market impact is the numerator in the LCR equation.

And so, we keep that in mind as we think about ensuring compliance.

Got it, okay.

And then really quick question on the purchase accounting adjustments, the accretion.

I think you said you had $28 million now, you expect $28 million to $30 million this year, so presumably that implies better credit or some restatement or some additions to the accretion.

When you think about next year in 2015 is this for the most part largely gone or what kind of I guess amounts would you envision in 2015 for this accretion?

Yes, year over year we expect a decline in accretion.

Last year we had $46 million in accretion and this year we expect $20 million to $30 million.

We had $12 million of that in the first quarter.

The remainder accretion that we have available we did say is $28 million and we do expect that to continue to decline each quarter.

It may linger in small amounts into 2015, but we expect a continued decline and ultimately to be immaterial.

Great, thank you.

Michael Rose, Raymond James.

Just wanted to ask about the complexion of CDs on the balance sheet.

Have you guys thought about, with rates being as low as they are and potentially higher rates on the horizon, beginning to lock in some CDs and where would you expect that portfolio to normalize out at as a percentage of the total mix.

So currently our MMDAs and DDAs are more than 80% of our total deposit balances, our savings and CDs are then less than 20%.

On the CDs in particular we recognize that we have an ability to increase deposits when needed with our client base through things like CD and pricing.

This is not something that we deem we need now particularly when you look at our balance sheet and the excess liquidity that we have.

Okay, great.

Thank you.

Scott Siefers, Sandler O'Neill.

I think most of my questions have been answered at this point.

But, Karen, maybe just a quick one from you on the fee guidance.

You gave a lot of good color on what would cause the year-over-year change, i.e.

warrants that were elevated last year.

But was there anything specific that had changed from the outlook that you provided with the fourth quarter that caused it to be lower versus stable previously?

Yes, I would say that the key change in the outlook again is on our customer driven side.

And we saw softness this quarter in our capital markets related fees particularly syndicated loan credits and customer derivatives.

And it is that softness that caused us to slightly change our outlook.

Okay.

All right, I think that actually does it for me.

So I appreciate it.

Dave Rochester, Deutsche Bank.

On your comment on comp expense this quarter being a decent run rate going forward, I was just wondering if that could also possibly apply to total expense levels as well versus that 1Q level just given the consolidation of vendors and other steps you have been talking about.

Or should we expect to see that line grow this year?

So, on total expense, there are expenses that can be variable in the back half of the year, things like occupancy expenses and things like consulting type expenses.

So I wouldn't necessarily completely approximate a run rate but recognize that we are very focused on tight expense control and do intend to work very hard to maintain our expenses at a decent level.

And just on that comp line itself, I know you have got some seasonal expenses and there and you're talking about that being a decent run rate.

But you have also talked about hiring, and so I was just wondering if there are any other areas where you could trim up to sort of offset that hiring this year?

We are very focused, as we talked about before, on every place where we do have expense increases or headcount increases and trying to figure out ways to self fund the dollar amount of that increase.

And that is a discipline that we maintain continually.

So we have had to add headcount in certain areas like compliance and regulatory, we also have added headcount on our frontline to make sure that we were meeting increasing customer needs and demand, but we are very focused on trying to offset that with other expense control.

All right, great.

Thanks.

Jon Arfstrom, RBC Capital Markets.

Just a question back on the syndicated credits.

Obviously people are getting a little bit more concerned about that and you had a few questions early in the call.

But maybe not necessarily what you are putting on your books, Lars or Ralph, are you seeing anything in that market that makes you a bit more nervous, any trends that are worth watching on the negative side?

Lars?

No, really don't.

In fact as I mentioned before, Jon, as we study that portfolio the asset quality, the returns of that portfolio really are very similar to the overall Company's one portfolio.

We're obviously going to watch the level as we do with our concentrations across any lines of business, anything we do.

But we are very comfortable it is relationship based and is very consistent with our strategy.

How about anything --.

John, why don't you comment on credit?

Sure, I would be glad to.

In the SNC portfolio we see it over the long-term mirror our overall credit results, but in the short term it is actually performing much better than our basic credit metrics.

There are things that we're seeing in the marketplace that do kind of make your hair stand up from time to time.

We don't get into those kinds of credits and we are going to maintain that kind of discipline.

If I could just clarify one thing, that we do not have a syndicated credit trading desk.

We are not out there buying and selling syndicated credits, these are all relationship based.

Okay.

That helps because obviously everybody has a concern when they see that kind of growth.

And I think we understand your approach to it as well.

But the here the anecdotal stories about the industry and some of the broader things that are happening, so that helps.

Yes.

We remain very focused on building relationships with those credits.

Okay, great.

Any theme in the construction growth?

You guys have had quite a few quarters in a row of decent growth.

Is there any theme there that is new or different?

No, there really isn't.

We are executing our same strategy; we haven't changed.

It is urban market, it is in footprint oriented, it is in fill, close and suburban, the majority of it is multi-family.

And frankly we are just beginning to see I think some of the benefits of a number of the projects that we financed with some of our very long-term, well healed developers.

So we are hopeful that that will continue to grow.

Okay.

Just, Karen, a couple more things.

Do you know offhand what is left in the non-accretable balance on Sterling?

Non-accretable loan balance?

Yes.

Credit impaired.

Yes, it is not much; I don't have it off the top of my head.

Happy to follow up.

But it is not much.

Okay, okay.

And then just to be clear on the tax change a think it is obvious but same bottom-line impact, it is just geography on the P&L, is that correct?

Yes, that is correct.

The accounting change that we are adopted is bottom-line neutral.

Okay, great.

Thanks for everything.

Ken Usdin, Jefferies.

First I wanted to just ask you about this year on the CCAR test you got a nice approval, but the dollar amount of the buyback was a little lower year-over-year and I think a little lower than the market might have anticipated.

I just wanted to ask you about just any thoughts in retrospect about your CCAR process and generally speaking how you feel about what you put in for and how you are thinking about the eventual -- the future CCARs now that you have been through the first one?

And thanks for the question, Ken.

We are very pleased with the outcome of our stress test and CCAR plans process.

As you know this was our first year as a CCAR bank and also the first year that the Fed ran its own model on us.

And so we like we approach most things approached it from a position of conservatism.

When we think about our total payout to shareholders we like the fact that we are able to pay to shareholders meaningfully and we think that is a result of our very strong capital position and the fact that we have had good continued credit performance through the cycle.

Okay and second question, just bringing all the commentary and questions about balance sheet mix, this quarter the average earning asset number was flat and you talked in your remarks about remixing some of those cash balances, you are moving things for LCR compliance, you still have a low loan to deposit ratio and loans are starting to at least this quarter outgrow deposits.

So I am just wondering are we at the point where we should be looking for more earning asset stability from here.

And if I'm incorrect in saying that how do you think about just the overall progress of earning asset vis-a-vis loan growth as you look ahead?

When we think about earning assets we do recognize under the new LCR requirements again in a better economy rising rate environment where we do expect continued loan growth and deposits to decline that we will need to be adding high-quality liquid assets.

So I wouldn't necessarily say that it is stable at this stage.

I guess then, Karen, how would you think through or help us think through?

Would that mean that you will think about starting to go for a little bit more wholesale whether it is FHLBs or issuing sub debt or rationalizing the capital structure just how should we think about that as deposits come off kind of filling in from that or do you just continue to depend on more of a remixing?

It is likely that we will fund our high-quality liquid asset with wholesale funding.

Okay, of which you really haven't done so far because the securities book really hasn't grown to date, right?

That is correct (multiple speakers) --.

-- the excess funding.

Correct.

Position.

Well, that's what I'm trying to get at.

You still have the excess funding, but then there is the need to add, so that would say to me more remixing.

But I just want to understand the difference between remixing which keeps earning assets flat, versus adding wholesale borrowings which would allow it to still grow.

Okay, so I think it depends on the time frame that we are talking about here.

In the short-term environment where we have a lot of excess liquidity, we would think much more about remixing.

In a longer-term environment, as I talked about, with the economy and interest rate environment changing, we would think more about wholesale funding, obviously.

Okay, great.

That is great.

Thanks very much for that.

Ryan Nash, Goldman Sachs.

Just one big picture question.

You talked about a nice uptick in utilization this quarter; growth was pretty broad-based.

There was an article in the paper this morning about expanding CapEx.

Are you actually starting to see signs of that?

And if so, are we finally starting to see a shift towards expansionary CapEx from borrowers, or is it still efficiency driven?

Lars, do you want to take a shot at that?

Yes, absolutely.

Ryan, let me just make a comment about the kind of sense we are getting from our customers.

And that is they are mildly or modestly more optimistic, but they are still cautious.

I would say it is too early really to call, in terms of have we turned the corner in CapEx and the beginning of expansion there.

We clearly saw it.

I mean we saw it in our general Middle Market, an increase in utilization rates as well as an energy, which was up in utilization, technology and life sciences, environmental services.

So we did see a pretty broad increase in utilization rate.

So, again, a little early to call whether or not we have turned the corner on CapEx, but we are very hopeful.

That would be very good for Comerica, given Middle Market kind of a centered thank, and you've seen commitments grow over a long period of time here at Comerica.

Just as one quick follow up, given the amount of commitment growth you have seen, you've been able to grow line utilization.

If we were to see a big pickup in CapEx, how high do you think utilization rates could go?

Well, if you look back historically, we run around the 50% rate over a long period of time.

We have seen variations, but we have also seen from quarter to quarter -- I mean, you could see a 200 basis point change.

But keep in mind that when we look at utilization rates, that that is a period in time.

That is not the average for the quarter.

We are right now at our historical average for utilization.

And we have reached as high as 53% in the height of the downturn.

But right now, we are at our historical average.

I think one of the things you are seeing, too, is people are keeping more liquidity and more potential with their lines as well than you had in the past.

And I think to add to, Ralph, your point, that is one of the reasons that we haven't seen the drawdown in liquidity that you typically would see, is that a number of customers are being more cautious, protecting the liquidity positions.

And the result of that is that you will see higher commitment levels and lower usage levels in total, and I think that is a trend.

Thanks for taking my questions.

John Pancari, Evercore.

Just to beat the loan growth dead horse a little bit here, excluding the mortgage warehouse and National Dealer Service seasonality that you mentioned, Karen.

Anything about the end of period linked quarter loan growth that would not be sustainable or in terms of those balances where they stand as of the end of March?

Anything about that that would not be sustainable?

Thanks.

I mentioned that on period-end we typically do see a run-up at the year end and we did see a rundown in January.

And we typically, while not as high, do see a little bit of run up at the end of each quarter.

So that is why we focus on average balances instead of period-end balances.

Okay.

And that typical run-up, which type of portfolios would that be in?

It is honestly across most of our portfolios.

Oftentimes you see what I would maybe define a little bit as window dressing as some customers really want to build cash on their balance sheet for the end of the quarter and that gets paid back down.

Those would be Middle Market, US banking and such.

Okay.

All right.

And then separately, I believe you indicated, Karen, that you don't have all the detail around new loan production yields.

But do you happen to have any of that granularity for the SNC portfolio, what the average yield is on that portfolio?

And then more specifically what the average yield is and what you put on in the quarter?

Yes, I don't have the average yield of the SNC portfolio.

In terms of the average yield of what we put on in the quarter, we do know that our decline in loan yield was mainly due to the things that I talked about -- the fact that we did have fixed rate loan runoff, the fact that we did have credit improvement, the fact that we did have a mix change in the utilization of our customer usage.

And so, our new loans coming on board is not necessarily causing the deterioration in our loan yields.

Okay, all right.

Hopefully that is helpful.

Yes, that is.

And then lastly, just -- I'm sorry if I missed it in your commentary, but the decline in the commercial lending fees on a linked quarter basis, can you just give us the detail on what drove that?

Yes, that was -- we saw a decline of $8 million in commercial lending fees linked quarter, $7 million of that was a decline in syndicated loan activity and that was because we had very robust syndication activity in the fourth quarter.

Yes, and that is not unusual, in fact, if you go back to the first quarter of 2013 you would see a similar type change from the fourth to the first.

The activity levels that we did see in the syndicated fee income -- agency fee income that we did get in the fourth quarter, of course we benefited from those balances in the first quarter of this year.

Got it.

Okay, great.

Thank you.

Operator?

(Operator Instructions).

Erika Najarian, Bank of America.

Speaking of dead horses, could you just remind us what your charge-off experience was in your SNC portfolio in each of the last two credit cycles versus the rest of your commercial book?

John?

Yes.

Erika, over the long-term the SNC portfolio performs at the same level as the portfolio overall.

I don't have off the top of my head those numbers through the last two cycles, but I can tell you that over the last five quarters our charge-off levels in the SNC portfolio have been nominal.

Great.

And just one last question.

Karen, you mentioned that if rates went up 200 basis points you would see a 12% increase in NII and that sensitivity is on the dynamic balance sheet.

Could you just tell us what your deposit volume and rate assumptions are in that exercise and maybe where you think your loan to deposit ratio would trend in that scenario?

Sure.

As we talked about in the past, that scenario is dependent on the assumptions that we put in.

And in those assumptions we do expect loans to decline, we do expect deposits to -- we do expect loans to increase, I'm sorry, we do expect deposits to decline, we do expect a continued mix shift out of interest-bearing and -- out of non-interest-bearing into interest-bearing.

We have run sensitivity analyses on that scenario.

And that sensitivity analysis that we have done in the past and shared with you in the past is things like what if deposits decline more?

What if loans grow faster?

What if rates move up higher?

And even with those sensitivity analyses it points to the fact that we are still very well-positioned for a rising rate environment.

So hopefully that is helpful.

On the deposit decline in particular we do have deposit declines and one of our sensitivity analysis did show more deposit decline that we shared last spring with you.

Okay.

And given the liquidity that you mentioned that is embedded within your customer base, is it possible that during this rate cycle we could be surprised to the upside or downside in terms of deposit volume behavior relative to what Comerica has experienced in the past?

Or is it just we are not going to be able to tell at this point?

We are in a very anomalous environment right now.

And we recognize that history may not be the best barometer going forward, particularly from this environment.

So that is why we look at the sensitivity analyses that we do look at.

Okay, thank you for taking my questions.

Matt Burnell, Wells Fargo Securities.

Just a quick question again on the commitments.

I guess in the bigger picture I would like to get a sense of how you all think about the pricing for your commitments perhaps going forward now that you are in the same bucket as the CCAR banks.

And I guess I am just curious given some of the capital issues or capital buffers that they have to deal with, some of those banks have said that commitment pricing could go up.

Is that an advantage for you particularly when you are focusing on Middle Market borrowers or has competition basically eroded that advantage?

Lars?

Yes, so, I mean frankly first of all we have really a disciplined process where we review every line of business, every quarter, every product line on a regular basis given the changing regulatory environment.

And we are making the appropriate adjustments to ensure that we get the right kinds of returns out of each one of our lines of business on an overall basis.

So are we reacting?

Absolutely.

Are we think the overall market react at this point?

Not really.

But we are going to do the right things; we are going to make the right adjustments to make sure that we get the right kinds of returns for our shareholders given the Basel III environment.

Okay.

And then just a quick one for Karen.

Karen, I saw that risk-weighted assets were up about 2% quarter over quarter.

Was that driven largely by commitment growth or was there something else driving that?

Yes, that was driven by our loan growth and our commitment growth.

Great, thank you very much.

Kevin St.

Pierre, Sanford Bernstein.

Just following up on the deposits in the higher rate environment in that 12% figure.

One of the things -- as I look at your deposit base versus other banks one thing that jumps out is the large percentage of deposits that are in accounts greater than $250,000.

Significantly higher than a lot of other banks who profess to be a lot less asset sensitive than your disclosures imply.

Just could you talk a bit about specifically those large deposit accounts and how you expect those to attrite when rates rise?

And, Karen, I think it would be great if you would update those sensitivities sometime soon and I appreciate it was a year ago.

And I think we are all looking for a bit more on the rate sensitivity.

Okay, happy to do that, Kevin.

And on your question on the greater than $250,000 in deposits.

Keep in mind that because we are mostly a commercial bank we do have large commercial deposits from some of our customers.

But as we focus on the full relationship with those customers much of those deposits are operating account deposits, which are tied to the other services that we provide those customers.

So they tend to be very sticky and tend to be stable.

Okay, so, if we -- I know, again, it is 10 years ago the last time short rates started to rise.

But if we look at the period during which short rates were rising, your funding costs moved up significantly more quickly than did your asset yields and I recognize there is a higher percentage of loans that are floating now and other factors.

But it is that the main driver of why you think things will be different this time?

Hard for me to speak as much about history.

But I would say going forward we do recognize that we do have a pricing ability on our deposits as needed to make sure that we maintain those deposits and maintain our loan to deposit ratio within more of a self funding guideline that we have got currently.

Okay, thank you very much.

Brett Rabatin, Sterne Agee.

Just wanted to follow up a little more on the sensitivity modeling and just go back to loan spreads.

And just want to make sure I understood what the analysis or what the assumption was.

If rates go up what happens to loan spreads and how do you think about LIBOR versus your loan portfolio yield?

So as rates rise we are very hopeful that short-term 30-day LIBOR rises with it.

As you know, we are most exposed to that metric and that should help us significantly.

In terms of loan spreads, difficult to predict because that is dependent on many factors, the credit environment, the competitive environment, etc.

But we have in the past and intend to maintain our discipline around pricing credit very appropriately.

Specifically what is the assumption in terms of loan spreads as rates move higher?

That is something that we will have to follow up on.

I don't have that on the top of my head.

Okay, great, thanks for the color.

Brian Foran, Autonomous.

I know there have been a lot of questions on the Shared National Credit portfolio.

I was just looking at one of the things we had tracked was in the supplement you give the percent where you're [agent] as well as the balance is.

And it looked like if I've got the history right you went from 18% agent in 3Q to 16% agent in 4Q to 15% in 1Q.

And then if I multiply that through by the balances it looks like over the past six months the agent led balances actually came down a little bit and then the non-agent implied balances would have gone up about $1 billion.

Is that a fair way to think about it or is there anything that has changed in the definition and just kind of any thoughts on why the agent would be going down but the non-agent going up?

Lars?

Yes, I would say the largest driver there would be the energy portfolio.

I mean we don't typically age in the E&P portfolio; those are very large credit facilities.

These energy companies have very large CapEx needs.

So as you see that portfolio continue to grow that would certainly have some dilution on it.

But we haven't changed our strategy around relationships.

And each one of these again if you look at that page 26 whether it is entertainment or energy or technology and life sciences, general Middle Market, this is all about relationships.

So no change in strategy.

But I would say energy would be the biggest kind of dilutor of that lead percentage.

Got it.

And then just on preferreds, I mean you are in a good position have having a ton of capital.

It seems like there are maybe mixed messages on does everyone just need preferreds to be 1.5 of their RWAs regardless of common equity?

Or to the extent you have access common equity does that kind of count against the preferred bucket or the Tier 1 bucket, whichever way you want to think about it.

I mean have you gotten feedback or do you think eventually you will need preferreds as part of the capital structure?

Or do you think as long as you're up here with these kind of monster common equity ratios preferreds just are in a separate world and don't matter?

Yes, the stress test that we have just gone through has shown that we do have adequate levels of capital to withstand various severe stress scenarios.

That said, the Basel III capital rules do fairly well dictate the types of capital that are included in each of the different metrics and stacks.

So at some point it could make sense for us to have preferred in our capital structure.

But clearly we believe we would need a good use of proceeds to be able to introduce it.

That makes sense, thank you.

Mike Mayo, (inaudible).

Hey, good morning.

With CLSA.

Just a follow up, deposits in a higher rate environment.

It seems no question that you guys benefit from higher interest rates.

But I'm just curious, that 200 basis points higher interest rate that improves NII by $200 million, if I heard that correctly.

What change do you expect in CDs?

They go from what percentage today to what percentage in the future under that scenario?

That again is something that we can follow up on with detail like that and some of the other questions that we have had, Mike.

I would say in general we do expect deposits to decline in that scenario and most of that decline we would expect to be in non-interest-bearing.

And so, we do expect interest-bearing to increase.

As far as the amount of CDs increase a little bit but not significantly.

I mean because the CDs are so far below historical for you guys and the industry that you just think behaviors changed or rates going up 200 basis points won't be the trigger for a whole lot more CDs?

Well, we do recognize that we have the ability with our existing customer base to be garnering in a rising rate environment more savings deposits from them.

And we will be doing that as we need to.

And another follow-up.

On the SNCs, if I am calculating this correctly they look to be at 22% of loans, which I have to imagine is one of the highest levels for Comerica.

And when you go back in time, in the 1980s, Comerica pulled back, near '90s and then especially after the Enron and WorldCom era the early part of last decade you guys lowered your SNCs from -- than it was 20% down to 15%, today I think it is 22%.

So is there any constraint for SNCs as a percentage of total loans?

Yes, I mean we do not share what our limitations are within the Company.

But I would tell you that we are very comfortable with where we are.

If you go back to the first quarter of 2010 where you're at 20%, we are at 22% today, we have had nice growth.

The energy portfolio, as I mentioned, I think has a significant impact, Mike, on that percentage.

And then just a more general question goes to the trade-off between generating revenues, reserving the revenue generation ability for Comerica, with expenses today.

And so, on the one hand I see loans growing faster, loan utilization -- you still benefit from higher rates.

On the other hand, I look at the expense to revenue ratio, the efficiency ratio and it just looks a lot worse than peer.

And if you go back two decades to the 1992 merger vehicle, the expense to revenue ratio then was 61%, today it is high 60%s.

So I guess the question is, how do you evaluate that trade off and when do you think you could reach your (technical difficulty) 60% (technical difficulty)?

Yes, Mike, we did announce a couple years ago that we had an efficiency ratio target, long-term target to take out efficiency below 60%.

We have made progress toward that target despite the impact of the low rate environment on us.

And we do expect to continue to make progress.

We will need a little bit of a rate environment increase to ultimately get it over the goal line.

If you look at LIBOR, 30 day LIBOR to which we are most exposed, it sits at 15 basis points today.

And that is incredibly low and we would deem a more normal rate environment to be closer to 300 basis points.

We certainly don't need to get anywhere close to 300 to get it over the goal line.

But we will need a little bit of an uptick from here.

That is a big difference in your comparison is the interest rate.

And my last question is a little sensitive (technical difficulty).

I know you are a very young for your age, so I don't mean to imply anything like that in my question.

But what are your plans to retire are there any mandatory retirement ages?

And what would Comerica's consideration be toward a strategic merger, acquisition, something like that?

We don't have a mandatory retirement.

The Board of Directors reviews the succession plan regularly.

And anytime there is a meaningful decision made, appropriate announcements are made at that point.

As you know, we look at acquisitions from time to time and I guess we have done two in the last 10 years.

And they have to fit into the strategy and into the markets where we are and especially in the culture as well.

And I use Sterling as our latest acquisition as a point of where the culture and the combination has turned out to be a real home run for us in our Houston market.

From the addition of the talent and the combination with our people and the growth that we are seeing in that market because of it; they are doing a great job.

Our strategy there has not changed.

And just one follow-up to that.

I think what I hear you say is that you are very confident about your future and Comerica's future.

So that under what circumstance would Comerica consider selling to another bank?

And the only reason I bring that up is investors bring that up to me saying, oh, Comerica is a takeover target.

Just wondering what you would say to that?

We are very happy, as I have said, with our footprint and our strategy and what we have done.

And we are going to continue to focus on that strategy to move forward especially to give the type of returns that our shareholders expect and deserve.

All right, thank you.

Sameer Gokhale, Janney Capital.

I guess maybe I will ask the question another way from being a potential seller to a potential buyer.

I mean would you have any interest and diversifying into companies with adjacencies and say factoring businesses that for example or vendor finance and the like, at least on the Company I cover called CIP which is big in those businesses, has a lot of excess capital and that will be merger equals too.

Is that something that you might consider at some point in time in terms of just helping to diversify your footprint from a lending standpoint?

We like our footprint as we have said especially being in Texas and California and with our longtime home in Michigan.

And that footprint has the two largest economies in the country, the two states of California and Texas.

And we like our overall model.

And we like to refer to ourselves as a Main Street think.

And we have spent a lot of time in making sure that is the kind of bank that we are and moving forward that is our strategy and we don't look to change that strategy.

All right, that is helpful.

And then a question on just your National Dealer Services business.

Clearly that part of the business is benefiting from where we are in kind of the auto sales cycle and new-car sales are just been chugging along at a very strong clip, March was very strong.

But I'm trying to get a sense for what you would look at as an early and Decatur of the cycle potentially turning?

One of the things I look at is used car prices.

I know you predominantly I think finance new-car inventory but if you were trying to find out some data points to see what would indicate a turn in that cycle or where you might turn a little more cautious in terms of that dealer floor plan lending in particular.

But more broadly across your footprint of auto and rental car and leasing loans, what kind of things would you look at?

And how do you think about the cycle and where we're at, do you think we could benefit from another three or four quarters before you dial it back?

Just some perspective on that would be helpful.

Well, I think if you look back at history auto sales peaked at a little over 17 million, we are in the 16 now so that would be an indicator of I think where sales will be at some point in time and maybe when it gets to 17 million or above you will start to see a slowdown in that particular cycle.

The important thing from our strategy is that we look at multiple dealers that are our customers.

In other words generally they have at least five dealerships within their model.

And they are very much the majority of that are in our footprint.

As I remember, Lars, you can comment on this about 60% of it is in California.

Yes.

No, that is exactly right, that is the biggest part of it and it is nationally evolved, that the biggest mega dealers in the country are on the West Coast.

But just to speak to that point, I mean we watch a number of different metrics on a regular basis to ensure that we are tracking the health of the portfolio and inventory days on hand, those kinds of things.

And on individual by individual basis each of these relationships are reviewed on a regular basis.

I would tell you that you were beginning to see the gross margins on it new vehicles begin to narrow.

Last year those have kind of reversed and we are beginning to see an expansion in those margins.

And I think that is a positive for the industry.

As I think Ralph pointed out, we see a healthy kind of 2014 and vehicle sales and going to keep a close eye on the portfolio.

Okay, thanks, Lars.

And just in terms of some other metrics from an underwriting perspective should we think about it in terms of LT's against the value of floor plan inventory.

How have -- I mean I sure it is the strength of the dealers themselves but also if you are lending against that and it is collateralized how should we think about LTV's say in that business have been moved, have they increased, decreased, how should we think about that?

Yes.

No, our strategy hasn't changed.

I mean our LTV is what we can ask our -- really what I would say robust credit policy for underwriting dealers has not shifted at all through the cycle and even to today.

So I think you can have confidence in that.

If I could add -- this is John Killian.

If I could add, we've been in this business for over 65 years, we have been in it in a very major way on a national basis for over 20 years and it is over that period of time from a credit quality standpoint the best performing line of business that we have.

Okay, thank you.

Gary Tenner, D.A. Davidson.

Thanks for extending the call so long.

Just a quick question in terms of the general middle market lending segment.

Just curious where some of the strength there has come from.

I know it was the highest I think it has been in three or four quarters, I assume it is generally California and Texas but I wonder if you could kind of comment on where any specific pockets of strength are?

Lars?

Yes, absolutely.

Yes, general Middle Market would typically be your manufacturers, distributors, people that bend metal and those kinds of companies that you would expect.

Frankly Texas has been the biggest driver, probably no surprise to you as GDP amongst our key primary states, Texas leads the forecast for 2014 is at 3%, California at 2%.

We would expect that our general Middle Market business would continue to grow.

I would tell you it's a very competitive market, we are out there having to deliver the Comerica relationship banking model.

Every single day win those relationships.

But we have been very pleased to see the growth in particular in Texas and in California in the past quarter and even growth in Michigan.

Okay, thank you.

And there are no further questions at this time.

I will now turn the call over back to Mr. Ralph Babb for closing remarks.

I would like to thank everybody being with us this morning and also your interest in Comerica and wish everybody a good day.

Thank you.

Thank you again for participating in today's conference.

You may now disconnect.