Darlene P. Persons - Director, IR Ralph W. Babb, Jr. - Chairman and CEO Elizabeth S. Acton - EVP and CFO Dale E. Greene - EVP and Chief Credit Officer

Terry McEvoy - Oppenheimer & Co. Gary Townsend - Hill-Townsend Capital Jeff Davis - FTN Midwest Research Matthew O'Connor - UBS Heather Wolf - Merrill Lynch Manuel Ramirez - Keefe, Bruyette & Woods Casey Imbreck - Millennium Partners

Good morning. My name is [Jamie] and I will be your conference operator today. At this time, I would like to welcome everyone to the Comerica fourth quarter and 2007 earnings conference call. (Operator Instructions) Ms. Persons, you may begin your conference. Darlene P. Persons - Director, IR: Thank you, Jamie. Good morning and welcome to Comerica's fourth quarter and full year 2007 earnings conference call. This is Darlene Persons, Director of Investor Relations. I am here with Ralph Babb, Chairman, Beth Acton, Chief Financial Officer, and Dale Greene, Chief Credit Officer. A copy of our earnings release, financial statements and supplemental information is available in the Edgar section of the SEC's web site as well as on our own web site. 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. I refer you to the Safe Harbor statement contained in the earnings release issued today, which I incorporate into this call, as well as our filings with the SEC. Now I'll turn the call over to Ralph. Ralph W. Babb, Jr. - Chairman and CEO: Good morning. 2007 was a challenging year for the banking industry, including Comerica. While we continued to execute our strategy, reflected by strong loan growth - particularly in our high-growth markets - challenges in the residential real estate development portfolio affected our performance. In a moment, I will discuss some of the action steps we are taking to help offset the industry wide pressures we are seeing as well as our outlook for the coming year, but first I would like to provide an overview of our fourth quarter results and review some of our 2007 achievements. Our fourth quarter earnings per share of $.77 from continuing operations were down from $1.17 in the third quarter and $1.16 in the fourth quarter of 2006. Our fourth quarter earnings were largely impacted by an increase in the provision for loan losses and a decline in the net interest margin. Net loan charge-offs increased $23 million from the third quarter 2007 to $63 million or 50 basis points of average total loans, which is well within our historical cyclical norms. We increased the provision for loan losses by $63 million from the third quarter to $108 million due to the continued residential real estate development challenges in Michigan and California. The net interest margin of 3.43% declined 23 basis points from the third quarter, primarily reflecting growth in our securities portfolio and a competitive deposit pricing environment that has not reacted to recent Federal Reserve rate cuts as the case historically. The provision increase and margin decline did not diminish the progress we made in advancing our growth strategy. On an annualized basis and excluding the Financial Services Division, average loans increased 9% compared to the third quarter, led by 28% in the Texas market, 8% in the Western market, 6% in the Florida market, and 2% in the Midwest market. We had good fee income growth in the fourth quarter and our expenses were controlled, even as we continued our banking center expansion program. In fact, our expenses year-over-year were virtually flat excluding the charge related to Comerica's membership in Visa. We also had good deposit growth in the fourth quarter. Excluding the Financial Services Division, deposits were up 5% in the fourth quarter and full year 2007, driven in part by our banking center expansion program. We have not been distracted by many of the issues that have affected the banking industry, such as those associated with collateralized debt obligations, structured investment vehicles, or subprime mortgages since our business model is different. As a result, we were able to focus our attention in 2007 on building positive momentum with our strategy. Among our achievements in 2007, we opened 30 new banking centers during the year, including 17 in the fourth quarter. Twenty eight of these new banking centers were in our high-growth markets of Texas, California and Arizona. We have generated nearly $1.8 billion in new deposits in the banking centers that have opened since late 2004. In the Business Bank, our efforts to provide outstanding cash management services were recognized in the Phoenix-Hecht 2007 middle market survey in which we received 16 A-plus grades, more than any other bank measured. As you may have seen in the Wall Street Journal and other media reports, Comerica was recently selected to serve as the financial agent for the U.S. Department of the Treasury program that will provide debit card services to Social Security recipients. Comerica was selected in part because of our experience as a pre-paid card issuer for a number of state government programs. This contract is expected to provide significant deposit growth and fee income over time. In the Retail Bank, we completed refurbishments to 27 banking centers in 2007: 22 in Michigan, three in Texas and two in California. We also streamlined and enhanced Comerica's personal checking account product line into five packages designed to fulfil specific customer needs, and we introduced enhanced web bill pay features which made it easier for individuals and small businesses to manage their online bill payments. In Wealth & Institutional Management, we launched Wealth Station, an open architecture investment platform fully integrated with financial planning. We also rolled out our insurance, 401(k) and financial planning in Texas, Florida and California. In addition, we successfully converted to a state-of-the-art capital markets platform. These were among our notable achievements in 2007 as we continued to navigate the swift currents in the banking industry. The subprime meltdown, while not directly affecting us, clearly had an impact on our residential real estate development portfolio in 2007. We believe we are taking the appropriate actions to manage these risks and provide appropriate reserves. We have increased our workout staff in the Western and Michigan markets. We've accessed the secondary debt sale market whenever appropriate and will continue to do so. We continue to make sure our business lending is supported by one of the most sophisticated suites of credit management tools in the industry. We closely monitor the residential real estate development portfolio in particular. We are proactively managing through the compression of the net interest margin with an enhanced governance process for loan and deposit pricing. We also continue to opportunistically increase our investment securities portfolio, which contributes to net interest income but has a negative impact on the margin. It also assists us in managing interest rate risk. As we are within our targeted capital range, we have completed our share repurchases for the foreseeable future. Our capital position is solid and provides us with a cushion to weather a challenging economic environment and the flexibility to continue to invest in our growth markets. Looking ahead to 2008, we expect the banking industry to continue to be challenged. Our outlook reflects further margin compression and provisions for our real estate development portfolio. We expect good loan growth, particularly in our high-growth markets, as well as controlled expenses. With regard to expense controls, we have recently entered into a procurement services contract with an outsource provider to reduce our operating expenses base, enhance our current procurement capabilities and further enable efficient growth. We have just begun implementing the program. Our cost saves in the first year are reflected in our 2008 non-interest expense outlook. We expect significant cost savings over the seven-year term of the contract. In 2008, our banking center expansion program is expected to keep pace with our 2007 openings and once again be focused on our growth markets of Texas, California, Arizona and Florida. And now I'll turn the call over to Beth and Dale, who will discuss our fourth quarter results in more detail. Elizabeth S. Acton - EVP and CFO: Thanks, Ralph. As I review our fourth quarter and full year results, I will be referring to slides that we have prepared that provide additional detail on our earnings. Turning to slide three, we outline the major components of our fourth quarter and full year results compared to prior periods. Today we reported fourth quarter 2007 earnings per share from continuing operations of $.77 compared to $1.17 in the third quarter. The largest impact on our fourth quarter results was a $63 million increase in the provision for loan losses over the third quarter. Also, the fourth quarter included a $13 million expense related to our membership in Visa. Turning to slide four and an overview of the financial highlights from the quarter, we continue to have strong loan growth in our high-growth markets. On an annualized basis, average loans excluding the Financial Services Division increased 9%, led by a 28% increase in Texas and 8% in the Western market. The net interest margin decreased 23 basis points to 3.43% in the fourth quarter, primarily reflecting a larger securities portfolio, competitive loan pricing, competitive deposit pricing in a declining rate environment, an increase in non accrual loans and an increase in borrowings at higher market-driven costs due to the tenuous situation in the financial markets. Margin compression was greater than we projected, primarily due to higher non accrual loans, higher security purchases, as well as the unprecedented muted response that deposit rates have had to the Fed Funds rate cuts. Credit quality weakened due to issues largely isolated to the residential real estate development portfolio. The rest of the portfolio continued to exhibit sound credit metrics. Both non-performing assets and net credit related charge-offs increased from low levels. The provision for credit losses for the fourth quarter was $111 million compared to $45 million in the third quarter. Dale will provide details on credit quality in a moment. We continued to carefully control expenses. Non-interest expenses increased $27 million, largely reflecting the $13 million estimated liability related to membership in Visa. In addition, salaries expense increased $9 million due to increased severance and deferred compensation plan costs that were offset by an increase in deferred compensation asset returns reflected in non interest income. We slowed our share repurchase program in the fourth quarter as we are within our capital ratio target ranges combined with our desire to maintain our strong capital position in the current challenging economic environment. As you can see on slide five, we had similar trends for the full year 2007 as we saw in the fourth quarter, including continued loan growth and good expense control. Excluding two unusual events that occurred in 2006, non-interest income increased 8% in 2007, and excluding the Visa charge, non interest expenses were virtually flat. An important difference to note in the full year analysis is the increase in the provision for credit losses from $42 million for 2006 compared to $211 million for 2007. Slide six outlines the various factors that impacted net interest income in the fourth quarter. Despite good loan growth, net interest income decreased modestly in the fourth quarter, primarily as a result of a very competitive loan and deposit pricing environment, partially offset by an increase in income from the larger securities portfolio. The decline in the margin from the third quarter reflected the 7 basis point negative impact from securities purchases, the loan and deposit pricing environment, higher non-accrual loans, and an increase in wholesale borrowings. Maturities of interest rate swaps, which carried a negative spread, provided a 4 basis point lift to the net interest margin. Slide seven shows the growth of our securities portfolio over the past several quarters. We have opportunistically increased our investment securities portfolio as spreads have widened. While increase in the portfolio had a 7 basis point negative impact on the net interest margin in the fourth quarter, it contributed positively to net interest income. Also, it assists us in meeting our interest rate risk management objectives. Within our securities portfolio we have invested almost exclusively in AAA rated, mortgage-backed government-sponsored agency securities, specifically Freddie Mac and Fannie Mae. We anticipate continuing to grow the securities portfolio, opportunistically taking advantage of the wider spread while hedging our balance sheet. Slide eight shows non-interest income levels over the past several quarters. Fourth quarter non-interest income reflected positive trends in fee income, with increases in a number of categories as indicated on the slide. In addition, income from principal investing in warrants decreased $5 million. This decrease was partially offset by a $4 million increase in deferred compensation plan asset returns. Moving to the balance sheet and slide nine, compared to the prior year, average loans excluding the Financial Services Division increased $3.1 billion or 7%. We are steadily making progress toward our goal of achieving more geographic balance, with markets outside of the Midwest now comprising 63% of average loans compared to 60% a year ago. I would like to point out that we have refined our Other Markets segment to include not only those markets that fall outside of our major geographic markets listed on this slide, but also our businesses which have a national perspective as these customers operations are located throughout the United States. Previously, these national businesses were primarily accounted for in the Midwest market. Slide 10 provides detail on line of business loan growth excluding Financial Services Division. All commercial business lines experienced growth in the fourth quarter compared to the same period last year, even as we continue to reduce our automotive supplier exposure. Almost all lines of business showed growth in each of our major markets. The fourth quarter increase in Speciality Businesses compared to the prior year includes technology and life science portfolio, which grew $394 million, and the energy portfolio, which grew $415 million. On a linked-quarter basis, average loans excluding Financial Services Division increased $1.1 billion or 9% on an annualized basis due to increases in energy, $245 million, middle market, $192 million, technology and life sciences, $178 million, private banking, $157 million, global corporate banking, $147 million, and small business banking, $94 million. Now Dale Greene, our Chief Credit Officer, will discuss recent credit quality trends starting on slide 11. Dale E. Greene - EVP and Chief Credit Officer: Good morning. Credit quality weakened due to issues largely isolated to the residential real estate development portfolio, which is part of our commercial real estate line of business. The rest of the portfolio continued to exhibit sound credit metrics. Our watch loans were 6.9% of total loans, a 40 basis point increase from the prior quarter. Non-performing assets increased modestly to 83 basis points of total loans and foreclosed property. I will provide greater detail on non-accrual loans in a moment. Net credit-related charge-offs were $64 million or 50 basis points of average total loans in the fourth quarter. Net charge-offs included $36 million in commercial real estate line of business due to the weakening of the residential real estate development sector, as well as $12 million in small business. By geography, 58% of net charge-offs came from the Midwest market while 35% came from the Western market. For the full year 2007, net credit-related charge-offs were 31 basis points of average total loans. Turning to slide 12, the allowance for loan losses, which I'll discuss further in a moment, was 1.10% of total loans, an increase of 7 basis points from the third quarter. The allowance for loan losses was 138% of non-performing loans. The provision for loan losses is $108 million, a $63 million increase from the third quarter due largely to the ongoing challenges in the residential real estate development, specifically in Michigan and California. In addition, we saw some modest weakening in our small business portfolio across all markets. Credit metrics in the Texas market continue to be strong. Outside of residential real estate development, all of our business lines are generally displaying stable credit quality and we have not seen material deterioration in other sectors. Slide 13 outlines the changes we made to our loan loss reserves in the fourth quarter. As I have discussed before, we have made a lot of enhancements to our credit policies and procedures over the past five years. This includes a more robust loan loss reserve methodology. Comerica's loan loss reserve is based on an in-depth credit quality review which is performed at the end of each quarter. In addition, we are continuously reviewing the components of the reserve, analyzing risk rating migration with industries and geographies, and conducting stress testing of various segments. This quarter we increased the reserves allocated to our California and Michigan residential real estate development portfolio due to negative migration and the results of our stress testing analysis. This was partially offset by a reduction in other industry segments, primarily the automotive industry, where we continue to see good credit quality metrics combined with reduced exposure. On slide 14 we provide information on the makeup of the non-accrual loans. In line with our provisioning for loan losses, commercial real estate, which primarily consists of residential real estate development loans, comprise the largest portion of the non-accrual loans. By geography, 89% of non-accruals are in the Western and Midwest markets. We believe that the issues continue to be manageable, partially due to the high degree of granularity, with only two relationships that aggregate to more than $25 million on non-accrual status. We had $185 million in loans greater than $2 million transferred to non-accrual status in the fourth quarter. This is a $91 million increase in transfers compared to the third quarter. The majority of these transfers to non-accrual were concentrated in the Western and Midwest markets. By industry, real estate accounted for $143 million or 78% of these transfers to non accrual. There were no new non-accrual transfers over $2 million from the automotive supplier segment. There were six new loans over $10 million transferred to non accrual, all in commercial real estate line of business, with three projects in the West, two projects in the Midwest, and one in Florida. On slide 15 we provide a breakdown of our commercial real estate portfolio. A little less than two-thirds of the commercial real estate portfolio are primarily commercial mortgages for owner-occupied properties of our middle market and small business customers. The remainder consists of our commercial real estate line of business. This portfolio includes both local and national real estate developers. At year end, about 59% of this portfolio consisted of loans made to residential developers secured by the underlying real estate. On slide 16 we provide a detailed breakdown by geography and project type of our commercial real estate line of business. There is further detail provided in the appendix to these slides. As I mentioned earlier, in this segment we transferred $143 million in relationships over $2 million to non-accrual in the fourth quarter. Commercial real estate non-accrual loans now total $234 million. Non-accrual relationships greater than $2 million were comprised of 21 relationships, of which 11 are located in the Midwest, eight located in the Western market, one in Florida and one in Texas. The largest exposure we have geographically is in the Western market -- California specifically. Approximately 60% of our California exposure is in Southern California and 40% in Northern California. We saw a rapid deterioration of the housing market in Northern California during the quarter. The Sacramento market in general has been significantly affected by overbuilding and the decline in demand. And like real estate market, there are some markets that appear to be doing relatively fine, but overall it will be sometime before Sacramento is back to full health. The rate of deterioration in Southern California has slowed. In particular, in the San Diego market, which has seen a decline in demand, there are some signs of firming. As far as Michigan, we have been dealing with challenges of declining housing demand and values for the past several years. The velocity of change is stable, and we will continue to work through the problems. Our exposure to Florida and Arizona in particular is relatively small, and we have not seen any significant issues. We believe that the problems have been identified and are manageable. As a result of ongoing softness, we have increased our reserves for this segment. We have very robust credit processes and procedures which assist us in structuring, monitoring and managing our various loan portfolios. Slide 17 provides a brief overview of the major processes followed in our commercial real estate line of business. We are monitoring the performance of our customers very closely, including their liquidity positions, inventory levels, and analyzing trends such as absorption rates and sales prices. In cases where there are issues, we are proactively restructuring the facilities, for example, by reducing exposure, taking additional security and guarantees, and increasing controls. Having a large customer base in this segment assists us in evaluating market conditions and assessing the current performance of a project. In addition, we have extensive experience in this segment, and many of our managers and relationship officers have been through cycles. We have added additional resources to our workout area to assist in working through the issues. Also, as appropriate, we have accessed the secondary loan sale market, where we have seen evidence of increasing liquidity in recent months. Slide 18 provides an overview of our consumer loan portfolio, which includes the consumer and residential mortgage loan categories on the balance sheet. This portfolio is relatively small, representing just 8% of our total loans. These loans are self-originated and are part of a full-service relationship. We are not in the subprime mortgage business, and the performance of our consumer portfolio has been stable. The residential mortgage portfolio continues to perform very well. In fact, we have not had a charge-off in this portfolio in several years. We have seen a slight increase in delinquencies in our home equity portfolio and have increased reserves in the fourth quarter. Turning to slide 19, we have outlined a few characteristics of our home equity portfolio. Roughly three-quarters of the portfolio consists of revolving home equity lines and the remaining one-quarter are amortizing home equity loans. Again, these loans were originated by us as part of a full-service customer relationship. The quality of the portfolio is reflected in the solid FICO and loan to value statistics at origination. Slide 20 provides detail on the recent performance of the automotive portfolio. Our dealer business represents about 75% of the automotive outstandings. We have not experienced a significant loss in the dealer portfolio in many years as the majority of the portfolio is of a well-secured floor plan nature. We expect it will continue to perform well. Looking at our non-dealer automotive exposure, we have reduced our exposure $900 million or approximately 33% over the past two years. This portfolio now represents about 3.5% of our loans. Non-accrual loans were down with no inflows to non-accrual for the fourth consecutive quarter, and we again had no credit-related charge-offs in this portfolio in the fourth quarter. The performance of this portfolio is stable. In conclusion, we are clearly focused on the credit issues in the residential real estate development portfolio. We have seen no material deterioration in any other line of business as evidenced by the stable non-accrual loan balances we've continued to show in our commercial loan portfolio over the past year or so. Now I'll turn the call back to Beth. Elizabeth S. Acton - EVP and CFO: Thanks, Dale. Turning to slide 21, average core deposits excluding Financial Services Division of $32.1 billion increased $1 billion or 3% in the fourth quarter from the third quarter. This includes nice growth in average non-interest bearing deposits, excluding Financial Services Division, of $209 million. Non-interest bearing deposits account for about 25% of our average total deposits. The largest increases in average core deposits were in global corporate banking, $258 million, middle market, $274 million, technology and life science, $183 million, and private banking, $174 million. On a geographic basis, excluding Financial Services Division, average deposits in the fourth quarter when compared to the third quarter were up 6% in the West, 3% in the Midwest, and 1% in Texas. As I mentioned earlier, competition for bank deposits remain strong and deposit rates have muted response to the Fed Fund rate cuts. However, we have been able to selectively reduce rates in recent weeks. On slide 22 we provide an update to our Financial Services Division business. In line with the continued cooling of the California housing market combined with the destabilization of the mortgage market, non-interest bearing deposits decreased $515 million in the fourth quarter. Interest-bearing deposits which bear interest at competitive rates decreased $93 million from the third quarter. Related average loan balances decreased $250 million, while customer service expense was down $4 million from the previous quarter. Our outlook for the Financial Services Division in 2008 is that this sector will continue to be challenged, therefore we expect non-interest bearing deposits to average about $1.2 to $1.4 billion. We also expect that average loans will continue to fluctuate with the level of non interest bearing deposits. Slide 23 provides an update on the progress of our banking center expansion. As Ralph mentioned earlier, we opened 30 banking centers in 2007, almost exclusively in our high-growth markets. The new banking center expenses for 2007 were $56 million, up $23 million from 2006. We plan to continue our banking center expansion and are targeting about 32 new locations in 2008, distributed among our various high-growth markets, as you can see on the slide. Expenses related to new banking centers are expected to be $89 million 2008, up $33 million from 2007. As you can see on slide 24, our banking center expansion is producing the desired results. Deposits attributed to our new banking centers totalled nearly $1.8 billion for the month of December, up from $1.5 billion in September. These new deposits are well distributed, with 46% generated by the Retail Bank, 35% by the Business Bank, and 19% by Wealth & Institutional Management. We continue to meet our goal of having our collection of new banking centers accretive within 18 months. Expense management continues to be a focus. On slide 25 we demonstrate our ability to manage headcount. While we staffed 55 new banking centers over the past two years, headcount for the corporation as a whole increased only a little over 1%. We are working hard to leverage technology and maximize productivity to support growth. As Ralph mentioned, we recently announced the execution of our procurement services contract with an outsource provider. We have just begun implementing the program, thus our cost saved in this first year are anticipated to be modest. However, we expect that this seven-year partnership will result in significant cost savings. As you can see on slide 26, during 2007 we brought our tier-1 common capital ratio into our target range. Comerica maintains a solid capital position which we believe provides us ample cushion to weather difficult economic environments, the flexibility to continue to invest in our growth markets while returning excess capital to our investors in the form of dividends and share repurchases. In fact, we repurchased 10 million shares in 2007, and we have a 38-year history of increasing our dividend. Slide 27 updates our expectations for the full year 2008 compared to full year 2007. We anticipate average total loan growth for the year to be in the mid to high single-digit range, excluding Financial Services Division loans. Growth in the Texas market is expected to be low double digits, while we expect to achieve high single-digit growth in the Western market and anticipate the Midwest market remaining flat in light of a continuing challenging economy. The net interest margin for the first quarter as well as the full year is expected to average about 3.20 to 3.25. Our outlook is predicated on our belief that the Federal Reserve will reduce rates 50 basis points in January and 25 basis points in March. We believe the full-year margin will be impacted by the following items: We expect our securities portfolio to grow to approximately $8 billion, which will have about a 15 basis point negative impact on the margin. The value of non-interest bearing deposits in a falling-rate environment will be lower. Loan growth will continue to outpace deposit growth in the context of a challenging funding and deposit environment. In 2007, our interest rate swaps were maturing at a negative spread, providing a 10 basis point lift to the margin. However, in today's declining rate environment, the swap maturities will no longer contribute to the margin. And finally, beginning in 2008, we expect that a change in the application of FAS 91 will result in deferral and amortization over the loan life to net interest income of more fees and costs. We believe the estimated impact on 2008 compared to 2007 will be to lower the net interest margin by 3 to 4 basis points or approximately $20 million, lower non-interest expenses by 3 to 4% or approximately $60 million, resulting in an increase in earnings per share of about $0.04 per quarter. Our outlook for credit quality is for average net credit-related charge-offs of 40 to 50 basis points for the full year as the stress in the residential real estate development market continues into 2008. Our non-interest income expectation is for low single-digit growth for the full year. We expect non-interest expenses to decline at a low single-digit pace excluding the provision for credit losses on lending-related commitments and including the FAS 91 modification. As we are within our targeted capital range, we have completed our share repurchases for the foreseeable future. Our capital position is solid and provides us with a cushion to weather a challenging economic environment and the flexibility to continue to invest in our growth markets. Now, we'd be happy to take any questions that you may have.

(Operator instructions) Your first question comes from the line of Terry McEvoy with Oppenheimer. Ralph W. Babb, Jr. - Chairman and CEO: Morning, Terry. Terry McEvoy - Oppenheimer & Co.: Good morning. The jump in the provision in Q4, most of it came from the Western market -- $92 million out of the $108 million. Is that a signal to us that you expect charge-offs in the coming quarters and years to be generated out of that market, and should we read into the jump in the Western market provision? Dale E. Greene - EVP and Chief Credit Officer: Dale Greene speaking, Terry. Yes, I think you can assume that, in the Western market, there'll continue to be softness for us for the next year or so. I mean, I don't know exactly how long that may run. I think you're going to see additional price deterioration there. And whereas in Michigan we've really been dealing with it for a number of years, California is a relatively new phenomenon, and so we think we're being appropriately cautious as we establish those reserves. Terry McEvoy - Oppenheimer & Co.: And then looking at the Texas market, very strong loan growth in the fourth quarter but the margin was under some pressure. In the press release you comment on deposit pricing. Could you talk about how, call it aggressive, Comerica's been in the last couple quarters as you're trying to put your mark on Texas and let everybody know that you're in the state now, and has that hurt the margin as well, just on the loan pricing side? Ralph W. Babb, Jr. - Chairman and CEO: No, I would say we have not done anything different than we would do in approaching a normal market. We've been competitive. It is a very competitive market and as Beth said earlier, what we've seen - and especially on the deposit side, and this is really all markets not just the Texas market - is that as Fed Fund rates have come down, the elasticities historically have not held. In other words, deposit pricing has stayed up and the competition for deposits has actually increased from a price standpoint, and I think you can readily see that just by opening the newspaper and you can see who's doing that. Typically, what we've said in the past is that the most competitive market, quite frankly, is Michigan and Texas would be kind of in the middle from a deposit-gathering point of view, and California would be closely in the third, although it is stepping up in the competitive environment today. On a loan basis, good loans have always been very competitive. We've not seen a real change, especially in the middle of that market, yet that you normally see in this kind of environment or in a recessionary environment where pricing moves quickly to really be more focused on risk than it is today. I think it's moving that way, and I think you'll see more of that. We've certainly seen it on the high end. We've seen it more on the smaller end, but not as much in the middle. But I expect that to be rationalizing in the not-too-distant future because of the other pressures. Terry McEvoy - Oppenheimer & Co.: Thank you, Ralph.

Your next question comes from the line of Gary Townsend with [Hill-Town] Capital. Ralph W. Babb, Jr. - Chairman and CEO: Morning, Gary. Gary Townsend - Hill-Townsend Capital: Good morning. How are you, Ralph, Dale? Ralph W. Babb, Jr. - Chairman and CEO: Good. Dale E. Greene - EVP and Chief Credit Officer: Good morning. Gary Townsend - Hill-Townsend Capital: The construction portfolio appears to have increased during the fourth quarter regardless of the credit weakness, and I'd just like you to comment on the additions that are going on there and how you are prospectively controlling the risk or what's caused the increase. Dale E. Greene - EVP and Chief Credit Officer: Well, by and large, if you look at Michigan, I mean, year-over-year actually that's down; quarter-over-quarter that's flat. Even in the Western market, quarter-over-quarter we've seen really not much growth at all in the Western market. Some of the growth that we've seen has been in Texas. Some of the growth we've seen has been in Florida. With that said, Gary, we, you know, we sill have opportunities, primarily not residential development, in all of those markets, all those growth markets, and I think at the end of the day you see some of that. The other piece of that, of course, is as we have construction commitments that we have put in place for some time, as developers finish out their projects, you know, we're seeing those commitments being used, as they were intended to, to finish the construction of projects. So part of it is growth in Texas and some in Florida, but part of it's also just the fact that developers are drawing down on some of the unfunded commitments to complete projects. The worst thing we could do is have a partially completed development. Elizabeth S. Acton - EVP and CFO: And actually, Gary, loan outstandings were flat from September 30 to December 31, so there's some averaging effect going on. But if you look at from close of third quarter to close of fourth quarter, outstandings were flat. Gary Townsend - Hill-Townsend Capital: Right. When, again, I guess credit is primarily the issue these days. When you say that your other business lines are okay, that's based on your migration analyses, and what happens in the event of recession? Would those trends hold up, do you think? Dale E. Greene - EVP and Chief Credit Officer: The answer to the first question, Gary, is yeah, the migration data, the charge-off experience, the stress testing, the CQR process, all those things that I know you know about are pointing to stability by and large in our various line of business. As it would relate to recession, I think it would be very difficult. I think it'd be a different story. Obviously, there'd be some spill over into a number of the line of business if we actually moved into that type of environment. Gary Townsend - Hill-Townsend Capital: When you talk about the migration trends, is that as of mid-January or are you speaking as of the end of the past quarter? Dale E. Greene - EVP and Chief Credit Officer: Well, I'm talking primarily as of the end of the last quarter. We have not seen anything early -- I'd say there's two or three components to it. The various migration trends we look at, we look at every quarter a 12-month back look, so those migration trends on each of those looks is still, for those other line of business, stable, in some cases, improving. In the fourth quarter, we looked at the same data, saw the same result. Frankly, it's early obviously in January. We haven't seen anything at all come at us so far in the first few weeks of the month, and it's, as you would have expected it to be, it's still residential real estate development. Gary Townsend - Hill-Townsend Capital: I'd like you all to know it'll be snowing here today. Thanks very much. Elizabeth S. Acton - EVP and CFO: Okay. Ralph W. Babb, Jr. - Chairman and CEO: Thank you, Gary. Gary Townsend - Hill-Townsend Capital: Bye, bye.

Your next question comes from the line of Jeff Davis with FTN Midwest Security. Ralph W. Babb, Jr. - Chairman and CEO: Good morning, Jeff. Jeff Davis - FTN Midwest Research: Good morning. Elizabeth S. Acton - EVP and CFO: Morning. Jeff Davis - FTN Midwest Research: Ralph, I'm not going to ask you Lions versus Cowboys. I know this is a question that's maybe 12 months early given where we are in the cycle and the C&D side needs to play out, but the company's in pretty good shape from a capital position. It doesn't have the CDO issues or an outsized HELOC, et cetera. I know acquisitions are not business line at the company, but can you give us your thoughts on the company as an acquirer maybe a little bit later in the year or into 2009, perhaps, as others are struggling and presumably are going to struggle more, and maybe where your preference would be on Texas versus California or elsewhere in the West? Ralph W. Babb, Jr. - Chairman and CEO: Jeff, as we have said in the past, we're always interested in appropriate acquisitions if they fit our model. And what I mean by that is it needs to be in the markets where we are, and that's primarily in the Texas and the California markets, and to a lesser degree Arizona, and the opportunities there just aren't quite as large. And we'd certainly be interested in looking. It needs to fill where we want to be, and we want to see an acceleration of growth through an acquisition. It's not a consolidation and eliminate expense. So if opportunities were to come up, we would certainly be interested in looking at them. Jeff Davis - FTN Midwest Research: And are you getting more calls today than you were six, nine months ago? Ralph W. Babb, Jr. - Chairman and CEO: I can't say that that's changed to date. Jeff Davis - FTN Midwest Research: Okay. Thank you.

Your next question comes from the line of Matthew O'Connor with UBS. Matthew O'Connor - UBS: Good morning. Ralph W. Babb, Jr. - Chairman and CEO: Morning. Elizabeth S. Acton - EVP and CFO: Good morning, Matt. Matthew O'Connor - UBS: Could you just give us a little more detail in terms of why you're confident credit costs will stay stable or decline versus the fourth quarter level when I think we're seeing, you know, obviously deterioration in a lot of different categories in a lot of different markets, and most banks are pointing to higher credit costs versus the fourth quarter level, not flat to down. Ralph W. Babb, Jr. - Chairman and CEO: Yeah, I would say that it's primarily based on the fact that - and particularly as it relates to single-family housing and residential development - we haven't done much, if anything, in terms of new loans to new projects. As I said earlier, the only thing you'd see there would be the completion, where it makes sense, of existing projects. So we're not really adding to the concern on the residential real estate side today, so we think we've identified - we're very comfortable, in fact, that we've identified - the issues and the problems and the credits, gone through all of them, in some cases many times, and have established the reserves that we think are appropriate and obviously taken charge-offs as we deem it appropriate as well. So we think that - and frankly, we forecast absorption rates that are weak and additional price declines as we've gone through that analysis. And of course we've gotten appraisals on a lot of projects to help us do that work. So as it relates to the residential real estate piece, I think we feel like we've got our arms around it and have identified it. And, you know, if there's a recession, yes, things could be worse. As it relates to our other line of business, today I think you saw what we've done on auto. We'll continue to bring that down to some number. That continues to be a success story for us and hopefully will continue to be that. And our other businesses, primarily middle market - which is our core business we're not seeing anything of any magnitude, and even if you forecast a more significant downturn, I think, there again, we've established the right reserves and the right processes to manage those portfolios. So essentially what we're saying is the 40 to 50 basis point charge-off number is within the realm of what we think is realistic for us based on current market conditions. But if there was a more serious downturn or a recession, then things would be different, I think. Matthew O'Connor - UBS: All right. That's fair. And your past dues were down a little bit, one of the few banks, I think, that's reporting that. Just separately, you talked about reserves or provisions being higher than charge-offs. Any sense of the magnitude? Ralph W. Babb, Jr. - Chairman and CEO: Not really. It's going to depend obviously on a lot of factors. I'm redundant when I say it's a robust process, but it is a very robust and a very disciplined process. I just feel that our reserves will probably continue to be somewhat higher than charge-offs, but I couldn't really put a metric to it at this point. Matthew O'Connor - UBS: All right. Would you think that would be just to provide for loan growth or [inaudible] the loan growth, so if you look at that reserves to loans at year end, should it be higher than we are right now? Ralph W. Babb, Jr. - Chairman and CEO: It's probably, to be frank with you, somewhat higher than just to provide for loan growth because I think, you know, there'll still be softness that we'll have to provide for, and we'll just obviously watch it each quarter as we do now. Matthew O'Connor - UBS: All right. And then just lastly, if I may, on the net interest margin, what have you assumed in terms of how aggressive you can price deposits down for the 75 basis points of Fed cuts that you have in the model? Elizabeth S. Acton - EVP and CFO: Yeah, I think we're - as I mentioned in my earlier comments - we are seeing signs in recent weeks of banks being more willing to bring deposit pricing down, and so we are actively managing that, literally on a daily and weekly basis. So I've become a little more optimistic there than I would have said a couple of months ago. And the other is, if you just look at the relationships of interest rates with where LIBOR has come down significantly versus Fed Funds or Treasuries as a comparison, I think the market dynamics are changing and becoming more positive in that sense. So I think there are a lot of factors going on that will allow a return to more of a normal kind of elasticity assumptions as we move through '08. Matthew O'Connor - UBS: Okay. And at this point in the rate cut cycle, I mean, the historical elasticity would be close to about 50%? Elizabeth S. Acton - EVP and CFO: Well, we haven't really shared that externally because, frankly, it's proprietary to us in terms of our strategy and our history. So it varies by product, certainly. Savings products are different from money market deposits, et cetera. Matthew O'Connor - UBS: Sure. Okay. Thank you very much. Ralph W. Babb, Jr. - Chairman and CEO: Thank you.

Your next question comes from the line of Heather Wolf with Merrill Lynch. Ralph W. Babb, Jr. - Chairman and CEO: Good morning, Heather. Heather Wolf - Merrill Lynch: Good morning. Beth, can you give us a little bit of a feel for what the margin sensitivity would be if the Fed, you know, cut substantially more than the 75 basis points you were talking about, maybe 150 basis points? Elizabeth S. Acton - EVP and CFO: You know, there are a lot of - it's very difficult to just say if rates change what would happen, because the reality is it's not an isolated thing, so there's an impact on loan growth. If the Fed is doing a lot more rate cuts, it probably implies we're in a recession and therefore the outlook on loan growth will look differently and perhaps the deposit gathering environment. So it's very difficult to address that. Obviously, we have, through our securities purchases, reduced our exposure to lowering rates and we'll be continuing to work on that and look at that literally again weekly regularly to ensure that we're taking the right actions in terms of hedging. So I think if the outlook changes from what we had discussed in our slides, then obviously we're continuing to monitor that and taking additional hedging actions as appropriate. But there are a lot of different factors that result from the perspective of having significantly more rate cuts that have an impact on the margin, both plus and minus. Heather Wolf - Merrill Lynch: Okay. And Dale, just a question for you on some of the earlier stage credit indicators. You indicated that you watch list was up, but your 90 days past due looked like they were fairly stable. Can you try to help us reconcile those? Dale E. Greene - EVP and Chief Credit Officer: They're not necessarily correlated very directly, so while your watch loans would be sort of generally viewed as classified loans as you look at them, wouldn't necessarily correlate to the level of past dues. Most of what we deal with every quarter on the past due side is obviously renewals of lines, obviously notes and so forth, and if there's a credit that's non accrual, for example, it's not going to be reflected. It's going to be removed from the past due because it's a non-accrual status and frankly, that would be the only correlation you'd have. So they're not directly correlated at all. Heather Wolf - Merrill Lynch: So it sounds - I guess what I'm getting at is should we maybe not read too much into the fact that 90 day past dues are stable? Does that - we probably shouldn't read into that that, you know, credit's going to hold from here? Dale E. Greene - EVP and Chief Credit Officer: Well, I think you can -- you know, my view is we work the past dues very hard every month, but particularly every quarter. And I would expect that our past dues would remain fairly stable. And from quarter to quarter they may move up or down somewhat, but I wouldn't expect to see large movements. But that won't be a major concern of mine at all. We do a pretty good job of managing our past dues. Heather Wolf - Merrill Lynch: Okay. Okay, thanks very much. Dale E. Greene - EVP and Chief Credit Officer: You're welcome. Ralph W. Babb, Jr. - Chairman and CEO: Thank you.

Your next question comes from the line of Manuel Ramirez with KBW. Dale E. Greene - EVP and Chief Credit Officer: Good morning, Manny. Manuel Ramirez - Keefe, Bruyette & Woods: Good morning. I'll ask a margin question first and then a credit question. On the margin discussion earlier, Beth, you were saying that deposit pricing was easing a little bit, partially related to what's going on LIBOR. Is that what's built into your forecast that you gave of 3.20 to 3.25 margin, or are you using a more conservative assumption on your deposit repricing? Elizabeth S. Acton - EVP and CFO: To reinforce what I mentioned earlier in the earlier question is we believe we'll be returning to more of a normalcy kind of elasticity as we go through '08 and that's inherent in our outlook. Manuel Ramirez - Keefe, Bruyette & Woods: And would that also include recapturing the decline in rates that you would have expected normally in the second half of '07? In other words, is there catch-up plus additional declines in pricing at a normal, you know, elasticity, so to speak? Elizabeth S. Acton - EVP and CFO: No. It would not imply a catch-up. Manuel Ramirez - Keefe, Bruyette & Woods: Okay, great. And then secondly on the construction portfolio, Dale, maybe you can give us a bit of a flavor for how you're managing the credits that you've identified as - they're non-accrual, obviously, but a problem generally due to the market. You know, maybe specifically how frequently are you doing reappraisals given how fluid the market is. And then secondly, how are you determining on a case-by-case basis whether or not you're going to extend the loans, force a pay down or start the foreclosure proceedings? Dale E. Greene - EVP and Chief Credit Officer: Okay. Well, we've been going through and then - we're not, I'm sure, the only institution doing this - we've been going through a number of appraisals so, in fact, we got a number in, obviously, last quarter, particularly in December. We're getting more in now, particularly to help us assess, obviously, values and market comps and all the normal things you'd look at in appraisals. So we're using those as the basis of, obviously, reserves, charge-offs and workout strategy. So clearly, we're doing a lot of that today, and so are most other people, I would guess. The thing we're doing on the workout tactical side, if you will, is number one, as Ralph mentioned earlier, we've added now three people from the real estate line into our workout area. One of them is a senior manager. We've added a couple in Michigan. So we're beefing up our workout staff to assist us in this effort. Also what we're doing, we've done some of it and my guess is we'll do more of it, is there is more liquidity being developed for secondary loan market sales of distressed real estate assets, particularly residential assets. So we're probably going to avail ourselves of that more this year if the conditions are appropriate. Our philosophy, frankly, is to work with these folks as much as we can, that is, the developers, because they're a lot better equipped to work through these problems than we are and foreclosure, for us, is a last resort. And there will be some of that, but primarily we're in the mode of trying to work with the developers. If there are guarantees, obviously we call on guarantees to fund reserves, pay down loans and so forth. But it's a real challenge from that perspective. I'd also mention that our real estate lenders and managers have been in the business a long time for the most part and that helps us. They have great knowledge with their other customers of what's going on in the market and the relationships we've got, by and large, are long-tenured relationships and these folks have obviously just fallen on hard times, so another reason to try to work with them as much as we can. There's just a lot of different things, and that's just a thumbnail sketch of some of what we do. There's just a lot of detail. There's a lot of controls behind the scene, some of which we've tried to reference in one of the slides, that we utilize as well, Manny. Manuel Ramirez - Keefe, Bruyette & Woods: And one last follow up. What's the overall watch list on that portfolio? Obviously, we have the non-accruals here. Dale E. Greene - EVP and Chief Credit Officer: I don't know that we've really gotten into the full disclosure of how much is in the actual watch list, but it's, you know, it has grown somewhat. Probably a good piece of the increase in the overall watch category would be residential real estate development related. There's just been migration through the, you know, down through the watch categories. Manuel Ramirez - Keefe, Bruyette & Woods: Okay. Thank you.

Your next question comes from the line of Casey Imbreck with Millennium. Casey Imbreck - Millennium Partners: Hi. Thanks very much for taking my questions. Ralph W. Babb, Jr. - Chairman and CEO: Good morning. Casey Imbreck - Millennium Partners: I apologize if you've already answered this, Ralph, but when, you know, the credit quality has been relatively stable the last few quarters. I was just wondering if you guys have had any success in selling, you know, NPAs or soon to go NPAs and now you might not be able to sell loans and that's why you're seeing this uptick. Dale E. Greene - EVP and Chief Credit Officer: Well - this is Dale - as I indicated and I think we've also talked about it in some of the slides, we, in the last couple of quarters, have sold some real estate assets, and we will do more of that most likely this year. Again, there is more liquidity coming to the market buying distressed real estate assets. It's an opportunistic tactic for us. If it makes sense, if the pricing is right, and so forth, obviously, we'll try to do that. But I would expect that you'd see that happen. There isn't a shortage of people looking to buy those assets. It's just - the question is, it's kind of a fragmented market and so it's sort of a one-off situation typically. Casey Imbreck - Millennium Partners: Okay. And just continuing on this theme, you know, as you decide whether to sell assets or keep them on the balance sheet and take reserves against them, if you take a reserve against an NPA today and then you sell something similar a quarter later at a bigger discount, do you have to jack the reserves for the existing NPAs? Dale E. Greene - EVP and Chief Credit Officer: We might, depending on the nature of the project, the market and so forth. You know, the fact of the matter is that if we have a project in a particular geographic location and it's a single-family development and price points that are similar, that would probably suggest to us that there may be additional deterioration, price deterioration, which we'd have to take into account in our reserving methodology. But every project's different, so it's a little difficult. You can't, you know, it's just not a blanket thing that you can do, but you do have to look at it. You do have to be aware of it. Casey Imbreck - Millennium Partners: Okay. And then just lastly, just - I apologize if you've answered this, but 4Q, I mean, you had a huge -- not huge - you had a large upswing in these NPAs. Is this kind of a fourth quarter mark or, you know, is the economy really slowing down? I'm just trying to get a sense whether you're truing this up or this is kind of the, you know, the trend line is really starting to - Dale E. Greene - EVP and Chief Credit Officer: Yeah. It's really, as we've indicated, the bulk of the inflow to the NPAs, 80% or so, were in residential real estate development loans in the Midwest and California primarily, and, you know, it's not different than what you would see any other quarter. As we work these loans, there's more loans that have trouble and so forth, and as we downgrade them to non-accrual status, that's just our normal way of doing things. It's not varied. It's very consistent to what we've done for quite awhile. Casey Imbreck - Millennium Partners: Okay. Great. Thanks very much for answering my questions. Ralph W. Babb, Jr. - Chairman and CEO: Thank you. I think that is all of the questions, as I understand it. I would like to thank you all for joining us on the call today. Thanks very much.

This concludes today's conference call. You may now disconnect.