Darlene Persons - Director, IR Ralph Babb - Chairman Karen Parkhill - Vice Chairman and CFO Lars Anderson - Vice Chairman, The Business Bank Pete Guilfoile - Chief Credit Officer

Scott Siefers - Sandler O’Neill & Partners Steven Alexopoulos - JP Morgan Michael Rose - Raymond James Ken Zerbe - Morgan Stanley Matt Burnell - Wells Fargo Securities Ken Usdin - Jefferies Jennifer Demba - SunTrust Robinson Humphrey John Pancari - Evercore ISI Erika Najarian - Bank of America Andrew Karp - FBR Sameer Gokhale - Janney Montgomery Scott Geoffrey Elliot - Autonomous Research Mike Mayo - CLSA Gary Tenner - D.A. Davidson Dave Rochester - Deutsche Bank Jack Micenko - SIG

Good morning. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Comerica First Quarter 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the conference over to Darlene Persons, Director of Investor Relations. Ma’am, you may begin.

Thank you, Regina. Good morning. And welcome to Comerica’s first quarter 2015 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, Pete Guilfoile. A copy of our press release and presentation slides are available on the SEC’s website, as well as in the Investor Relations section of our website, comerica.com. As we review our first quarter results, we will be referring to the slides which provide additional details on our earnings. Before we get started, I would like to remind you that this conference call contains forward-looking statements. And in that regard, you should be mindful of the risks and uncertainties that can cause actual results to vary materially 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 statements contained in this release issued today, as well as slide two of this presentation, which I incorporate into this call, as well as our filings with the SEC for factors that can cause actual results to differ. Also, the conference call will reference non-GAAP measures and in that regard, I would direct you to the reconciliation of these measures within this presentation. Now, I’ll turn the call over to Ralph who will begin on slide three.

Good morning. Today we reported first quarter 2014 net income of $134 million or $0.73 per share, compared to $149 million or $0.80 per share in the fourth quarter and $139 million or $0.73 per share in the first quarter of 2014. Turning to slide four and highlights from our first quarter results, average loans were up $3.1 billion or 7% compared to a year ago. Relative to the fourth quarter, average loans grew $790 million or 2% with growth across all of our markets. Average loans in our Energy line of business increased about $200 million compared to the fourth quarter peaking in February and then began declining as customers adjusted their cash flow needs and were able to tap the capital markets. Average loan growth was also driven by increases in Technology and Life Sciences, National Dealer Services, general Middle Market and Small Business. Our bankers are focused on developing long lasting relationships with customers in a very competitor market as we maintain our pricing and credit discipline. Average deposits were $57 billion, up $4.2 billion or 8% relative to a year ago. Compared to the fourth quarter, deposits declined $770 million or 1% following the robust deposit growth we saw in the fourth quarter. Period end deposits of $57.6 billion were up slightly from year-end. In further comparing our first quarter results to the fourth quarter, net interest income was relatively stable at $413 million and credit quality continued to be strong. Net charge-offs remained low at $8 million or 7 basis points in the first quarter. At this point in the cycle, our energy portfolio continues to perform well with only modest negative credit migration. However, in light of the fact that oil and gas prices remain depressed, we expect that our criticized loans may increase from current very low levels as the year progresses. In fact, our robust allowance methodology resulted in an increase to our reserve for energy exposure, including the qualitative component, in the first quarter. Overall, we had a modest increase of $5 million in our total allowance for credit losses and an increase in the related provision to $14 million. Our energy customers are generally decreasing their expenditures and tapping the capital markets, among other actions, to help mitigate the impact of lower oil and gas prices on their businesses. We are actively engaged with our customers, assisting them as they navigate the cycle. Our deep understanding of the sector and our customers is a key component of how we have managed this business successfully for more than 30 years. Turning to non-interest income and expense, contractual changes to a card program resulted in a change to the accounting presentation of the related revenue and expense, causing a $44 million increase to both. Excluding this impact, non-interest income decreased $13 million, primarily due to lower derivative activity and the typical decline in first quarter commercial lending fees. Excluding the change in accounting presentation for a card program, non-interest expenses decreased $3 million, primarily reflecting lower occupancy and consulting expenses which were partially offset by a seasonal increase in compensation expense. Our capital position continues to be solid. Share repurchases under our equity repurchase program combined with dividends, returned $95 million to shareholders in the first quarter. Last month, we announced the results of our company run stress test and the Federal Reserve did not object to our capital plan and contemplated capital distributions. Our 2015 capital plan includes up to $393 million in equity repurchases for the five-quarter period that ends in the second quarter of 2016. The plan further contemplates a 1% increase in Comerica’s quarterly dividend to $0.21 per common share, a 5% increase over the current dividend rate. The dividend proposal will be considered by our board later this month. Turning to slide five and a look at our primarily markets, Texas payroll job growth has slowed in February and the weekly oil and natural gas rig count numbers continue to decline into March. We expect to see more of evidence of a downshift in the Texas economy in the months ahead as a result of the drop in oil prices. That being said, the Texas economy is diverse and our business is concentrated in the major metropolitan areas. We believe our extensive knowledge of the energy industry together with the geographic diversity of our footprint and the strength of the U.S. economy, provide important counter balances. Texas average loans and deposits were both up 2% relative to the fourth quarter. Our most recent California economic index has shown 10 straight months of growth. Jobs in California increased by 3.2% for the 12 months ending in January, outpacing the U.S. as a whole. The steady and strong performance of California has been a major benefit to the U.S. economy. Average loans in California grew 3% in the quarter and average deposits declined following very robust activity in the fourth quarter while period end deposits were up 5% from year end. Our most recent Michigan economic index has shown two straight months of gains. We expect labor market conditions to continue to improve in 2015, providing a broadening base of support for the Michigan economy. Average loans and deposits in Michigan each increased 1% in the first quarter. Finally, we believe we continue to be well-positioned to benefit from a raising rate environment. We remain focused on the long-term and carrying out our relationship banking strategy which has served us well over many cycles. And now, I will turn the call over to Karen.

Thank you, Ralph and good morning everyone. Turning to slide six, quarter-over-quarter, total average loans increased $790 million or 2%. Commercial loans were the major driver, increasing $699 million or 2%. Based on the Fed’s H8 data, our average total loan growth outpaced the large U.S. commercial bank, which grew 1% from January 1st to April 1st. We had average loan growth in each of our markets and most of our business lines including Technology and Life Sciences, National Dealer Services, general Middle Market, and Small Business. In addition, as anticipated, we saw a $208 million increase in average loans in our Energy line of business, which peaked mid-quarter and has since been declining. In fact, at quarter end, balances in that line of business were essentially flat from year-end. Commitments for the portfolio, as a whole were stable as of quarter end and utilization increased slightly to 50% from 49% at the end of the fourth quarter. Importantly, our pipeline increased. Our loan yield shown in the yellow diamond, declined 3 basis points in the quarter. Negatively impacting loan yield was lower accretion, as well as the decrease in prepayment fees and interest collective on non-accrual loans. This was partly offset by the negative residual value adjustment to assets in our leasing portfolio that was recorded in the fourth quarter and not repeated in the first. Otherwise, loan yields were relatively stable with the benefit of a slightly higher LIBOR offset by nominal spread compression and a mix change in customer usage. Turning to deposit on slide seven, following a very robust and seasonally high average deposit growth of $2.6 billion in the fourth quarter, average deposits declined $770 million in the first quarter. Much of the decline came from our U.S. banking business, though we had small decreases in a number of other business lines. Deposits declined in January, which is typical at the beginning of the year, and have since been growing steadily. Period end total deposits increased $84 million to $57.6 billion and deposit pricing has remained consistently low at 15 basis points, as shown by the yellow diamonds on the slide. Slide eight provides detail on our securities portfolio, which primarily consists of mortgage backed securities that averaged $9.1 billion for the quarter. The estimated duration of our portfolio sits at 3.6 years and the expected duration under 200 basis-point rate shock extends it modestly to 4.5 years. In the current environment, we expect to continue to see prepays in the $300 million to $500 million range and minor pressure on the average yield, as you can see in the yellow diamonds on the slide. As far as the liquidity coverage ratio or LCR, we are making progress as we clarify the details of the new rule and analyze our customer data. We estimate as of quarter end, our LCR ratio was approximately 80%. We continue to feel comfortable that we will meet the phase-in threshold within the required time frame, by adding high quality liquid assets or HQLA, over the year to meet the 90% requirement also buffer to withstand normal volatility. Exactly how much in liquid assets we add will depend on our loan and deposit growth over the remainder of the year. We believe that adding securities should not have a significant impact to our earnings. And as we said before, we will remain mindful of the current rate environment, as we make funding and investment decisions with the focus on not materially or prematurely altering our assets sensitivity upside, if rates remain low. Turning to slide nine, net interest income was relatively stable, declining just $2 million. The loan portfolio was impacted by two fewer days in the quarter, causing a $7 million decline along with the $6 million increase in accretion and $4 million in lower prepayment fees and interest drawn on non-accrual loans in the quarter. This was partially offset by the $7 million fourth quarter negative leasing residual adjustment that I mentioned earlier, as well as the benefit from higher loan volume adding $6 million. Other than these effects from the loan portfolio, interest earned on investment securities increased $2 million from higher balances albeit with a slightly lower yield. Recall that we purchased $500 million in treasuries toward the end of the fourth quarter. We also had a $1 million decrease in interest paid on deposits and we earned $1 million less from lower average deposit balances at the fed. The net interest margin increased seven basis points, which as you can see was primarily driven by the decrease in average balances at the fed; the other impact mostly offset each other. As you know, our balance sheet is asset sensitive. Our standard asset liability case shows that a 200 basis-point increase in rates over a one year period equivalent to a 100 basis points on average would result in a benefit to net interest income of about $220 million. We also share in the appendix several alternative assumptions to our standard case, which changes to the pace of deposit decline, loan growth and rate rises. And in all cases, we remain well positioned for rising rates. Turning to slide 10, our overall credit picture remains strong. Our net charge-offs increased from an extremely low level in the fourth quarter and remained very low compared to history. Our criticized loans increased slightly to $2.1 billion or 4.2% of total loan and also remained well below the historical average. Non-performing assets declined to $288 million or only 59 basis points of loan. Because oil and gas prices continue to be depressed, we remain focused on identifying any emerging issues in our portfolio. We are in regular contact with our customers and have been conducting comprehensive deep dive reviews, identifying relationships that are potentially higher risk in a low price environment. These reviews have included not only loans in our energy line of business but also approximately a 165 relationships, amounting to about 750 million outstanding to companies in corporate banking, middle market or small business that have a sizeable portion of their revenue related to the energy business. For the E&P customers, we have begun to receive the engineering report and the semi-annual redeterminations are underway. As of today, we have completed approximately 45% of the redeterminations which is typical at this stage in the process. And we expect to be complete by the end of May, early June. Of the portion that has been reviewed, commitments declined about 10% and virtually none of our customers have had a deficiency or said in other way, have outstandings that exceed our approved borrowing base. In fact, on average, loan to values and advanced rates remain stable from the prior redetermination. Overall, our energy customers are taking the necessary actions to adjust their cash flow and reduce their bank debt, such as reducing their expenses; disposing of assets; and tapping the capital market. As of quarter end, approximately 6% of the energy and energy related portfolio is classified as criticized, including non-accruals of 22 million. And there were only 2 million or 21 basis points in charge-offs. As far as our commercial real estate exposure in Texas, it too is holding up well, including our portfolio in Houston which is primarily multifamily with little office exposure. While we continue to see very few problems, if oil and gas prices remain depressed, we expect our criticized loans may increase from the current very low level. For that reason and as Ralph mentioned, we continue to increase our qualitative reserve allocation against energy and energy related loans in the quarter. It is important to note that while we have increased reserves, it is not clear that these will translate to losses. We remain engaged with our customers, assisting them as they focus on managing well in this low price environment. In summary, our robust allowance methodology appropriately includes a consistent approach for quantitative and qualitative considerations. The deep dive in the energy portfolio as well as continued positive credit trends in the remainder of the portfolio are reflected in our loan loss allowance which increased 7 million to 601 million while coverage of our non-performing loans remained very strong increasing slightly to 2.2 times. Slide 11 outlines non-interest income which was 256 million for the quarter. However contractual changes to our card program impacted the way we present both revenues and expenses, resulting in a $44 million increase to both the non-interest income and non-interest expense line item. Effective January 1st and going forward, we will present this on a growth accounting basis. The change in presentation does not impact the bottom line. Excluding this change, we had a $13 million decrease in non-interest income. This reflected as expected, a $7 million decline in customer derivative income, following a few large transactions in the fourth quarter and a $4 million decrease in commercial lending fee due to less activity in the first quarter following a robust fourth quarter. Important to note however that first quarter commercial lending fees were 5 million greater than the first quarter 2014 as we focus on increasing fee income where we can. We also had increases in service charges on deposits, reflecting a seasonal increase from annual charges collected as well as fiduciary fees while non customer driven income such as warrant income and securities gains and losses declined. Turning to slide 12, non-interest expenses decreased $3 million excluding the $44 million change in accounting presentation. Net occupancy expense declined $8 million, largely due to the fourth quarter real estate optimization charge which was not repeated as well as minor other one-time benefits. Consulting fees declined $3 million with the conclusion of 2015 CCAR. Salaries and benefits expense were higher by $8 million with the seasonal effect of annual stock compensation expense and higher payroll taxes, partially offset by lower healthcare costs and two fewer days in the first quarter. We had small decreases in several other categories, reflecting our continued focus on managing expenses. The technology and regulatory headwinds we outlined last quarter are expected to ramp up from the current level. Salaries and benefits, occupancy expense and consulting fees are expected to rise throughout the year. Moving to slide 13 and capital management, as Ralph mentioned, we completed our 2014 capital plan which included the repurchase of 5 million shares under our share repurchase program. Combining the 1.4 million shares repurchased in the first quarter with the dividend pay, we’ve returned 71% of first quarter net income to our shareholders. Our 2015 capital plan includes share repurchases up to 393 million. The plan further contemplates a $0.01 or 5% increase in Comerica’s quarterly dividend to be considered by the Board at the end of this month as we continue to steadily increase our dividend pay. Our tangible book value per share increased to $38.47 and has been steadily increasing over the past several years as we continue to focus on creating long-term shareholder value. Turning to slide 14, our outlook for full year 2015 is unchanged from what we provided in January and assumes the continuation of the current economic and rate environment. We expect our average loans to grow about the same pace as 2014. As I mentioned earlier, if oil and gas prices remain at current levels, energy loans may decline over the course of the year as companies adjust their cash flow needs. However, we expect that decline to be more than offset by growth in other areas. As said before, we expect our net interest income to be relatively stable, assuming no rise in interest rates. And as far as the provision, given the very low level we had in 2014, we expect 2015 to be higher, consistent with modest net charge-offs and in conjunction with loan growth. The impact from the decline in oil and gas prices on our energy book is difficult to predict but remember we remain focused on the emerging trends and have increased our reserve allocations the last two quarters as a result. Overall, we expect non-interest income to be relatively stable, excluding the impact of the accounting presentation of a card program already discussed and which is offset in non-interest expenses. We continue to expect lower letters of credit, derivatives and warrant income which should mostly offset by growth in fiduciary and car fee. Aside from the change in accounting presentation, non-interest expenses are expected to be higher, primarily due to increases in technology, regulatory and pension expenses in 2015 which we outlined on the January earnings call. In closing, our extensive knowledge of the energy sector together with our geographic diversity and the strength of the U.S. economy will assist us in weathering the energy cycle as we have done before. We will continue to closely monitor our energy related exposure as well as any residual impact to our business. We remain focused on the long-term and building profitable enduring relationships with our customers as we have for over a 165 years. We believe that as rates rise, our revenue picture looks brighter. In the meantime, we believe our relationship banking strategy combined with our diverse geographic footprint will continue to assist us in building long-term shareholder value. Now, we would like to open up the call for questions.

[Operator Instructions]. Our first question will come from the line of Scott Siefers with Sandler O’Neill & Partners. Please go ahead.

The first question was just on energy. I wonder Karen or Pete, if you can just sort of discuss more specifically the relationship between what you are doing now with the qualitative reserves you’ve taken, both in the fourth quarter and then more specifically the 5 million from this quarter and how exactly that fits into what you’ve done with the redetermination? In other words, you’re roughly half done with the redetermination; you had a $5 million incremental reserve. Are those two, do they kind of go hand-in-hand or are they mutually exclusive?

Scott, at the time of the end of the quarter, we were about 30% done with the redeterminations but the picture has not changed from us being now that half way done. And so we did reflect any risk changes, credit rating changes in a quantitative portion of our reserves. And then in the qualitative portion, we had another quarter to look at the trends and to make some judgments around mostly increasing that qualitative component. All of that is built into the $5 million increase in our reserves. We did have credit quality improvement in the rest of the portfolio which somewhat offset the increase that we took in the energy portion.

Could you spend just another second discussing; it looks like you added roughly $750 million to the overall energy related bucket. Maybe just a quick thought or two on exactly what drove that and I guess why weren’t they in there before, just any thoughts or commentary you might have?

So Scott, we are continually focused on potential or emerging issues in our portfolio. And we’ve been monitoring this energy portfolio since the cycle started to turn. So, we have been paying close attention all along to both those loans in our energy line of business and to the loans, the small amount of loans that happen to be outside of our energy line of business which we mentioned. Because of investor interest and because of our desire to be transparent, we’re just providing that additional detail this quarter.

Your next question comes from the line of Steven Alexopoulos with JP Morgan. Please go ahead.

Karen, regarding the spring borrowing base reset, you cited 10% reduction which is about in line with the industry media that we’re seeing so far. With that said, we’re seeing a couple of outliers that are tripping covenants and your comments indicate that’s the not the case. I’m curious these outliers just not in your portfolio or is that the case that because the capital markets are wide open, they are just able to pay down lines that’s why they’re not tripping covenants?

Pete, why don’t you take that?

Steve, I think it’s a combination of several things. First of all, most of our borrowers had a fair amount of room underneath their borrowing bases. So, as borrowing bases get adjusted downward, we haven’t seen a big impact there. Capital markets have been very available to our borrowers, so that’s been helpful as well. We’ve only had two instances where we’ve had borrowers with collateral deficiencies; and one of those was quickly rectified with the borrower going out to the bond market. And we expect that the other one is going to be rectified fairly quickly as well.

I was curious, it looks like loan balances were flat in Texas ex the growth in the energy book. Can you talk about what you’re hearing from your Texas customers that are not in the energy sector they’re also cutting spending, trimming headcount et cetera?

Sure. Lars, do you want to take that?

Yes, I’d be glad to. First of all, when you think about the Texas market, we do tend to think about energy but it’s a very diverse market. And whether you look at Dallas, you look at Houston, you look at Austin and frankly you could reach different conclusions. And as I visit those markets, I hear frankly different feedbacks from them. So, we’re obviously going to be cautious in the energy space, commercial real estate space and to take you on Houston and the Houston markets. But on an overall basis, we’re continuing to see pretty good activity. I wouldn’t expect that we may see on a state wide basis the same growth rate in ‘15 that we saw in ‘14. However, we have a number of other lines of business that are very active in the marketplace and we would expect to see those grow. General middle market in the very diverse kind of Dallas markets, Austin markets, Technology and Life Sciences and IT corridor, Austin, Small Business, we’ll continue to grow wealth management, commercial real estate in particular sub-market. So there is a number of paths that we have to continue to achieve growth in the Texas market, albeit at potentially a slower rate.

And I would just add Steve that our pipeline did increase and that includes Texas, outside of energy.

And maybe just one final one; it was nice to see Michigan contribute at least somewhat to quarterly loan growth and we hear about lower energy prices being a positive for energy companies. But is it actually enough to move the needle on your Michigan balances this year which are still down year-over-year? Thanks.

Yes. You’re correct on a year-over-year basis; we’re encouraged with the past quarter. And frankly the feedbacks that we’re getting from the Michigan market, feels different than it has for frankly a long period of time. We did see utilization rates increase. If you look at the pipeline, one of the single biggest drivers of the expansion of our pipeline was middle market Michigan. It is interesting though, you talk to one customer in the market; I was just there recently and they were really encouraged with their gross margins because their feedstock was gas; was petroleum base; was plastics yet the next customer was facing a stronger dollar and the export side creating a little bit of headwinds. I think if you put it altogether though, it’s encouraging. I think that we have a nice opportunity for us to continue to grow in Michigan this year. We saw utilization rates grow also in that state. So, frankly I’m looking forward to hopefully a good solid year in ‘15.

Your next question comes from the line of Michael Rose with Raymond James. Please go ahead.

Just a follow-up on the energy question again; can you talk about the 15% of your portfolio that service in nature and how much of that portfolio been during the borrowing base redetermination?

Michael, did you say energy services though?

Yes. Like how many of those companies have you kind of walked through their plans and how much of the incremental provision might be related to the specifically the service sector?

So, as far as the energy services portfolio goes, we’ve reduced 50% of the energy services portfolio since the beginning of the year and we’ve seen some migration in that portfolio, which is not surprising at all. We’ve downgraded about 50% of the risk ratings we reviewed in the services area; only about 10% of those that are in the criticized category; we had no new non-accruals, no new charge offs. So we have seen some migration, but we feel very good about that portfolio. These companies have big balance sheets; they’ve got a lot of capital, a lot of liquidity, their management teams have been through these downturns before and they are managing their balance sheet to become profitable in this environment, where prices are lower. So, we feel good about the portfolio overall, but we have seen some migration there.

And I guess the follow-up to that is, you mentioned obviously increased capital markets activity; how many of your service companies are or give a sense for what proportion of your service companies are able to access the capital markets here in the past few months? And I assume that would obviously help.

I don’t think that I could answer that question specifically as to how many have accessed the capital market so far. But we would expect that the vast majority of them would have access to buy their equity offerings.

And if maybe I could just add on there, I think Pete is exactly right in his answer. And one other thing to point out is if you look back through the last cycles, our energy services portfolio from an asset quality perspective, actually outperformed the overall energy line of business. So, this is a business that from a strategic perspective we’re very focused on the strongest, most liquid kind of energy services companies that have veteran teams that have worked their way through some of these difficult cycles in the past.

And just one more if I can, just do you have a sense for or can you remind us what percentage of production is hedged through your companies through 2015 and 2016, if you have those numbers and then if it changed quarter-to-quarter? Thanks.

Michael, they’ve actually increased a little bit this quarter. About 60% of our borrowers have at least 50% of their PDP production hedged for one year and about 45% have 50% of their PDP production hedged for two years or more. That’s not too surprising, because we saw some pretty heavy hedging activity in the fourth quarter of last year and that hedging activity is now reflected in the redeterminations that we’re doing this spring.

Great. That’s all very helpful. Thanks for taking my questions.

Thank you.

Your next question comes from the line of Ken Zerbe with Morgan Stanley. Please go ahead.

Just on the energy portfolio to reserves, can you quantify how much did you actually build reserves in the energy portfolio versus, how much offset do you get in other areas?

Ken, we aren’t going to give the details of the reserves and mainly because our total allowance is used for any and all losses. So, we feel like it may be misleading, if we gave too much information on the allocation toward any one industry. But I would tell you that we did as we mentioned how the modest increase in our qualitative effect portion; we also did see an increase in reserves on our quantitative piece. And again that was offset by better performance in the other sectors.

I’m just worried that by not disclosing it, you’re kind of on the risk of potentially leaving it open to investors’ imaginations on what it might be just given that other banks have been pretty clear about what’s their reserve build has been. But I understand the methodology at least.

And we did last quarter give a sense of our qualitative reserve build because it was the beginning of this downturn and we did compare it at the time to the peak net charge-offs in the last cycle, which were highly comparable. And know that we’ve increased modestly since then on a qualitative portion. And we are giving, what we deem to be the more important factors of what’s going on in our portfolio including the criticized loans for both the energy line of business and energy related, which are 6% of the portfolio, as well as the non-accruals at $22 million and the net charge-offs we’ve seen so far of $2 million.

And then just as different question on the net interest income line, I think it’s relatively stable as the guidance but this quarter at least versus our expectations is little bit stronger. And we are thinking more of lower in the first and then higher in second half just given day count, but it seems that to get to stable for the full year, you kind of have to flat line NII on the dollar basis over the course of the year. Is that the better way of thinking about NII?

Yes, there is obvious day count impact in both the first half and the second half of the year on net interest income. And there are so many other factors including portfolio changes that could happen in any one quarter. But we are obviously comfortable with the outlook that we gave on a year-over-year basis that net interest income would be relatively stable.

Your next question comes from the line of Matt Burnell with Wells Fargo Securities. Please go ahead.

Just a couple of quick questions, maybe away from the oil patch for a second; just curious about your outlook for mortgage banker loans over the next couple of quarters. Obviously we’re hitting the prime mortgage season. We’ve had a little bit of a benefit in the first quarter from low rates. Just curious as to how you’re thinking about that portfolio heading into the summer selling season.

Okay, Lars?

So, as you saw on an average basis, our balances were relatively flat but there was a lot of activity actually that went on in there. We do typically have in the fourth quarter run off towards the end of the year, a lot of activity and that continued into the beginning of the first quarter. But you would also expect during that first quarter that particularly that this would not be quite as active a quarter as we would see as we head into the summer months. So, as I look at that business on a just kind of a quarter-over-quarter basis while it was flat, you would see that those balances did continue to run off. And frankly, we would expect as we head into the summer months that we would continue to see more activity levels and that those balances potentially could rise. Now, one of the pluses as you know for Comerica is that we are very much of a purchase oriented organization; we tend to run 10%, 15% higher in terms of purchase volumes versus the industry. And with the mortgage banking association’s projection for 23% higher originations in the second quarter than the first and 10% for 2015 on an overall basis, I think that that bodes well for us in the MBS portfolio. I’d leave you with this one last point. We’ve got some really good bankers, very experienced there. And it’s not just about the mortgage warehouse facility, we’re having a lot of success in cross-sell; we have over 90% of these customers on treasury management; and we’re driving a lot of non-interest income; and we’re building the kind of relationships that Comerica’s known for.

And just a follow-up on the sale of non-accrual loans, that came down quite a bit in the first quarter versus the fourth quarter. Fourth quarter was pretty elevated. How are you thinking about those sales, particularly in the current environment given all your comments about the energy portfolio issue? Should that remain at sort of a high single-digit number or are there possibilities of further sales down the road?

Pete?

Yes, we look at sales as just one avenue that we can use to manage our problem loans. And we don’t have any plans to sell any of our loans that are in the non-accrual category right now but it remains an avenue that we might use in the future again.

And is demand for that increasing or is that come down a bit since the decline in the oil prices?

No actually, there is some, still some strong demand for senior debt right now, because a lot of a senior debt is very well secured. And so even on credits that are classified by the banks, there’s still some strong demand for them.

Next question comes from the line of Ken Usdin with Jefferies. Please go ahead.

I was wondering if you could talk a little bit about some of the other national loan lines, specifically CRE would have thought at this point of the cycle would be seeing a little bit better direction of growth; if you could walk through that potential. And then also on the dealer finance business, just what your general outlook is relative to the industry outlook for growth there?

Okay, Lars?

Yes, absolutely. Maybe I’ll start with our commercial real estate. We’re continuing to see a lot of activity there, particularly on the West Coast, Los Angeles, Orange County, LA, Dallas, here in Texas. Again, it’s primarily mortgage banking finance -- excuse me, it’s multifamily oriented, a lot of volumes there. The linked quarter change that you saw which was pretty moderate in terms of activity was really driven by several large projects that sold both in Texas and in a West Coast and frankly is a sign of health. You want to see these projects stabilize; you do want to see them sale and go to the permanent market. And as you know we have a lot of activity. I would expect that commercial real-estate would grow throughout the balance of the year on a common quarter basis. Of course we’re up about 6%. So, we continue to grow that business and we’re going to be cautious in the markets that we need to be, given the energy cycle. But one of the strengths of our franchise is the diversity of our markets and we’re certainly going to make sure we have the resources there and we continue to grow those balances as best we can. It’s a very competitive space I should point out in pricing we have to very attentive too. So these developers that we’re working to -- working with we are very much focused on having more than just a credit a transaction, it’s about delivering a broad array of solutions including wealth management, treasury management and a number of others. If you look at dealer from a common quarter basis, that’s up 10%; it continues to ride the tide of the increasing annual sales rates which were up over 17 million units, and on a linked quarter basis, we were up about 3%. Frankly, I think that that’s a real plus. Keep in mind it’s a seasonal business and you would expect the balances as you get into the summer months would tend to decline as inventory levels do run down and then they can decline as you get later into the year. Again a very good long-term business for us; we have deep relationship there but we’re having to be very selective in terms of our growth because it’s a very thinly priced segment of the market. But we’ve got broad relationships with some great customers. And it’s a long-term terrific business for us.

And Karen, question for you on just the expense trajectory. We obviously know about the pieces that are going to be increasing through the year and you mentioned the ramp from the first quarter. Is there way you can try to help us understand the magnitude of the increase from here and just the magnitude of year-over-year increase to your point about higher in the guidance? Thanks.

Yes, Ken, we obviously said we do expect expenses to increase from here. We’re going to be adding additional headcount against both our technology project agenda and a regulatory agenda. We will have extra days in the back half of the year. Typically the back half of the year starting in the second quarter really is impacted by merit increases. So, you have several things that move in the salary and benefit line item. On the occupancy line item, we also do expect that to be higher with normal rent increases. It was down lower this quarter, as I said because of the charge that we took in the fourth quarter which was not repeated. And then we had some additional just one-time items in that line item. So hopefully that gives you a little bit of color.

Is there a way you could at least contextualize just the magnitude of year-over-year increase?

We purposely have not given a percent increase in our guidance but we’ll certainly take that into consideration as the quarters move.

Your next question comes from the line of Jennifer Demba with SunTrust Robinson Humphrey. Please go ahead. Jennifer Demba : My question is on the mortgage banker finance line. Could you just talk about the competitive environment you saw in the first quarter? Even with your focus on purchase I might have expected to be maybe a little bit better. Have you seen a lot of price competition there?

Lars?

Clearly, it is a competitive space. There is no question about it. And we have seen pressure in our loan spreads and loan yields and mortgage banking finance despite that, given our approach which is very relationship oriented. I have pointed out before over 90% of our customers have treasury managements, number of other products and services with us. So, we really look at it on a total relationship return basis. And that’s our real focus. And frankly, we’re getting very attractive returns in that space. I should point out that one of the reasons we’re doing that is Comerica continues to carve out a very what I would say premier position in this industry. We are banking some of the blue chip mortgage companies, both in our footprint with the bias there but also nationally. We are pleased that a lot of mortgage companies want to do business because we do deliver a different unique value proposition. We’re reliable; we’re responsive; we were there with them through the cycle but I would expect to continue to receive pressure there. One last closing point, our purchase volume orientation clearly helps us in terms of the returns of this business. And that’s not a mistake; that’s a strategic decision by management.

Your next question comes from the line of John Pancari with Evercore ISI. Please go ahead.

I just want to go back to energy real quick, sorry. Just on a couple quants, again Karen just to confirm I think you had just indicated that that 1.4 to 1.5 reserve ratio you provided last quarter that was all qualitative reserve.

No that was total reserve against all of our energy at that point in time including quantitative. What we had said last quarter was that we had a 60 basis-point increase in our qualitative portion, which amounted to approximately the size of our net charge-off in the peak of the last cycle?

And you’re not able to give us where that 1.4 to 1.5 went to as of March 31?

We’re not giving it but you can know that it obviously has increased because we’ve increased both the quantitative and the qualitative piece.

And then on the criticized loans, I know you said 6% criticized for the total energy book. And again, can you give us the breakout of E&P and service again where they stand in terms of criticized ratio?

Pete, do you want to take that?

Yes. As of March 31st, again that 6% is a combination of E&P, Energy Services, Midstream and energy related. The Energy Services was tracking more toward 10% and the E&P was slightly below that 6%.

And do you have those other two midstream and energy related?

We have no criticized loans in our midstream; and the energy related would look a lot like our energy services.

And do you also have how that 6% criticized has changed from last quarter?

Yes. Overall, it’s up slightly; we were probably around 4.5%, 5% last quarter and now, we’re at 5.5% to 6%.

And then separately, back to expenses, just more of a longer term question. I wanted to get Karen your color on where the efficiency ratio could ultimately go longer term. I mean traditionally you’ve been in the mid 60s, higher in the first quarter obviously. I wanted to see just giving your expense outlook, where you see that trending next year and then also longer term?

Yes. So, our efficiency ratio goal for the long-term as you know is to bring efficiency below 60%. And we have said that we will continue to focus on that path of getting there but we will need a little bit of our rate environment uptick, certainly not what we would deem to be a normal rate environment to ultimately get there. Our overall outlook for the year, absent a rate rise points to stable a relatively stable revenue and higher provision and higher expense. So absent a rate rise, our efficiency ratio could move a little backwards. But again, we are focused on a very long-term around bringing that below 60% and very much believe that we will be able to do that.

Your next question comes from the line of Erika Najarian with Bank of America. Please go ahead.

I just had a couple of clean up questions if I may. Karen, the starting point for the margin in the second quarter, is that lease residual value a permanent adjustment? And so 264, is the starting point or is 259 the better starting point for 2Q?

The lease residual value adjustment affected both the fourth quarter and the first quarter. So, you can think of that as not something that necessarily repeats.

And just another follow-up question on the margin. You mentioned further HQLA purchases. Will you usual excess deposits to fund it and that we shouldn’t expect significant balance sheet growth in 2015?

So, our liquidity coverage ratio estimate today is at 80% and we will need to bring it to 90%. Important to know that HQLA can include just cash or deposits on the fed on your balance sheet. So currently it does include that position in our estimates. We will need to increase that HQLA and whether we do it with simply funding it and leaving it short-term for putting it in securities are decisions that we’ll make depending on the interest rate environment as we execute them.

Your next question comes from the line of Bob Ramsey with FBR. Please go ahead.

This is actually Andrew Karp on the line for Bob. Looking at the utilization ratio on an end of period basis that was only up 1%, can you give us an idea of what that number looks like in February when the balances in the energy business increase?

Ralph?

Yes. We look at utilization rates at the end of the quarter, so I really need to guide you towards that, maybe give you a little bit of color on those utilization rates. General middle market was clearly a key driver there along with mortgage banking, finance, international, technology and life sciences. Those were some of our key drivers for the quarter. I should also note that our overall commitments were stable for the quarter, but what underlies that is the fact that we did see our energy commitments decrease, as you would expect with the redeterminations, as well as U.S. banking where we continue to be very selective in careful and attentive t Basel III in how we manage those relationships in a very low return, thinly priced segment of the market. So, those may exaggerate the numbers just a little bit. But that maybe gives you a flavor for where we did see that utilization movement.

And specifically in the energy book, I think you said that the balances peaked in February, if you can really quantify that number at that point in time?

So, it’d be hard to quantify the exact number, but you are exactly right. We saw a peak in February and then began to decline. And if you want some historical perspective on what our balances did in the last cycle, you can just look at the energy slide that is provided in the deck.

Okay, I will. Thank you. And following up on earlier question, I believe you said that of these services companies that you’ve done your views on 50% receipts, some kind of risk rating downgrade. That obviously seems like a large number. I’m just trying to see how that stacks up. Can you compare that maybe to what in a more stable year, what percentage of services companies would have received some kind of downgrade if any?

Pete?

Yes. It’s not terribly surprising. Most of our energy services book is a well rated portfolio. We only do business with the upper middle markets. So these are companies with very strong balance sheet; they are well capitalized; they’ve got a lot of liquidity. So, most of them are starting out at a very high risk rating. And then we’re downgrading because we see operational weakness. We don’t necessarily see losses, but will see if our losses, credit losses, but if we see operational weakness or poor outlooks, we’ll downgrade them a notch. We are not necessarily -- half of them are not being downgraded to a criticized level, but being downgraded one notch or two notch just from where they were.

Your next question comes from the line of Sameer Gokhale with Janney Montgomery Scott. Please go ahead.

I just need some help in trying to tie in some of these pieces together on the energy side. Specifically what I mean by that is, it seems like energy companies are cutting costs, clearly because of what’s happened to energy prices. But I think if you look at prior cycles, when there are periods of pressure in terms of lower energy prices, it seems like these companies have actually had more of a need to borrow because of top line pressures. So, first, I’d be curious to see if you feel that maybe the cost cutting has been more aggressive this time around to where they don’t need to borrow as much. The other thing that seems to be interesting is it seems like you reduced your commitments to energy clients in this environment. At the same time, these energy companies seem to be able to tap the capital market. So I’m curious -- I mean the two seem to be at odds of each other when banks feel that they need to curtail risk, but then somehow they are able to offload it in the capital markets and seem have find other investors in there. So, I’m just trying to reconcile some of these somewhat conflicting trends and your perspective would be helpful there. Thank you.

Pete?

Yes. I think we’re seeing a couple of things Sameer there, a little bit difference from the last downturn, for one the capital markets are stronger and our borrowers are accessing them. That means that a lot of the senior debt is pretty well positioned in the capital stack and pretty well secured. I think our borrowers are reacting very quickly; they are cutting back on CapEx aggressively; they are cutting back on operating expenses aggressively. And what I see is they are positioning their companies to be profitable in a lower priced environment. And then the last thing I think that’s little bit different this time around is I think the hedging is stronger than it was the last time as well. And hedging gives these companies runway, gives them runway to right-size their companies to make sure that they can be profitable in a lower price environment.

And then the other question I had was is there any reason to think -- I know you’ve completed a review of this 45% of your energy portfolio. But is there any reason to think that the remaining 55% is different in any way, shape or form or on average would you expect the profile of those types of borrowers to be fairly similar, so there won’t be any surprises as you go through the rest of the portfolio?

No, I think that 45% is a pretty good indication of what we expect to see the rest of the way through.

Next question comes from the line of Geoffrey Elliot with Autonomous Research. Please go ahead.

On energy, just thinking about the trajectory of loan balances; you gave us the end of period figure of $3.6 billion on slide 10 and you gave us the average of $3.7 billion on slide 17. So, I guess if I try and do some calculations, that kind of points to about a $200 million decline in balances between a peak of say 3.8 billion in February and a period end of 3.6 billion. So I’m just wondering, does that kind of very rough calculation make sense and if so in that kind of trajectory all balances down a couple of hundred million in a couple of months. Is that something we should expect to see continuing?

Lars?

Yes. So, I think your math holds well. I think you’re thinking about it the right way. The one thing that I would throw out is where are energy prices going to be 30, 60, 90 days from now and what’s the duration of this stress in the portfolio. And I think that that’s going to have a lot to do with the trajectory of loan outstandings as we look at the rest of this year and maybe even into next year because that will clearly have an impact. And if you’ve noticed in just the last day or so, energy prices have moved a lot. So that’s an unknown variable.

And then just quickly, just follow-up on one point, I think you mentioned loan to values were stable despite the lower oil prices, could you just explain how that works? It just seems a bit counter intuitive.

Yes. We said that loan to values were stable on average for our portfolio, but some may have been slightly up, some may have been slightly down but on average for the whole portfolio stable.

It’s actually -- it’s almost exactly 50% of our loan to values increase and 50% of our loan to values decrease as a result of redeterminations we’ve done so far.

One additional factor that I would throw in there is, you’ve got some companies as Pete has pointed out that frankly are in positions of strength; they’re doing all the right things and frankly they’re adding to their borrowing basis currently. Proven reserves, it’s actually expanding the borrowing basis. So that obviously helps the math.

Your next question comes from the line of Mike Mayo with CLSA. Please go ahead.

Just following up on a following question, the difference today versus the past is more hedging and you said therefore the energy companies have a longer runway. How long is that runway; and at what point do you say, now we’re hitting a tipping point, is that three months, nine months, a year, two years, what would you say?

Right now, our borrowers are pretty well hedged. I think I mentioned earlier 60% have over, 50% or more of their PDP production hedged for at least one year. And I think the number’s more like 45% for two years or more. I think what I meant by runway is, is that this just gives them time to right-size their cost structure. And I think what we’re expecting to see over the next year or two is that oil prices will find their equilibrium and borrowers will figure out how to adjust to that new price environment.

Like rig count.

Right.

Rig counts down dramatically, if you get a sense about September last year, it’s down about 50%.

50%.

That’s part of that readjustment.

Okay.

If I could just add one other thing, I think we’re encouraged by the fact that our borrowers are not operating their companies assuming oil prices are going to increase; they’re operating their companies assuming that prices are going to remain low. And that gives us a lot of encouragement.

But still Ralph, you called out a downshift in the Texas economy, what did you mean by that? Do you have kind of like a state GDP where it was and where you think it’s going to be or any color there?

Overall that was a reference to we’ll see GDP come down in Texas if the oil prices stay where they are at the moment and because of the reductions that you’ve heard about here as we’ve been talking. When you look overall though, I would like to point out that today the energy sector is less than 15% of the GDP in Texas and about 2.5% of employment. So while it will have an effect in slowing the overall economy, it’s much different than it was historically.

And then last follow-up, when I look at Comerica today versus the decade ago or two decades ago, Texas is one-fourth today versus one-tenth in the past. And so there is really -- the first quarter is when you say you have experienced in past cycles, I mean Texas a couple of decades ago was just couple of billion dollars. And then the related question is, given the downshift in Texas economy, is one-fourth kind of where you want to be with regard to your Texas composition or are you still looking to get larger? Thanks.

Texas is a very important market to us. And as we’ve discussed in the past, we wanted to diversify our geographies. And being in Texas and California, the two largest economies in the country are very important. And we expect to see very good growth in the future, both here in Texas and California and as we were talking about earlier, Michigan. And the car industry are coming back and we’re seeing things move in the right direction there; it’s getting stronger and GDP is going up in that stage as well. So, it’s working out as a very good diversification from a geographic standpoint.

And if I could just add one additional point is of course California is our biggest franchise today for our company and frankly whether you look at it from a linked quarter or common quarter basis, we’re growing almost every line of business in that state.

And then just the other related question. When you talk about the experience past cycles, Comerica was pretty small in Texas during the last oil cycle. So, maybe the length of experience, the teams that you have hired or can you just give some little more comfort and color on that past experience why it helps today?

It’s the experience of the team as well. I think we point out many times that we’ve got 30 years experience of some of our people. They have been here; they have seen the cycles and that’s very important when you are in the industry and understanding the customer base. Lars, do you want to add anything to that?

Well, I would just say we’ve obviously continued to invest in our core middle market business. And I think we have a nice runway there to continue to grow, particularly given the diversification of the overall economy here. But also I think we’re leveraging some of our national businesses like environmental services, mortgage banking, finance where we have some outstanding customers in our footprint, wealth management and lot more resources here. So, a lot more sources of revenue that we have in Texas than we’ve had in the past.

Your next question comes from the line of Gary Tenner with D.A. Davidson. Please go ahead.

I had a question. You touched earlier regarding thinking of the California market as an ongoing offset to some runoff in Texas and you talked about commercial real-estate potentially picking up over the course of 2015. I would like to hear your take specific to the California market on general middle market as well as small business opportunities.

Lars, do you want to take that?

Sure. So, California, if you look back over the last couple of years, has been in a little bit of a funk. Some of the economics for the state have been slower to recover than the nation but more recently we’ve seen that pick up and frankly that’s reflected even in our own numbers if you look at it from a linked quarter basis whether you look at it from a common quarter basis, California looks very attractive. Back from a common quarter basis, we’re up 9%; our total loan portfolio about 1.4 billion in the state. If you look at our pipeline, we continue to see a strengthening in a number of those businesses. Technology and life sciences is based out of there. We’ve had some outstanding growth in that business. And we expect that that will continue to grow in the future. We are in the right markets I think. We are in the San Francisco, Silicon Valley, the Bay Area there; we are in Los Angeles, Orange County, San Diego and number of others that are very attractive I think in the long haul. And I really believe in talking to customers recently, there is lot more optimism today than there was a year or two ago.

And Lars, do you think that optimism applies to general versus specific line of business like tech and life sciences or entertainment?

I am sorry, could you repeat that?

I was just wondering, I mean your greatest strength has been in some of those specialty lines of businesses, right? If you think tech and life sciences, year-over-year numbers are up quite a bit; general middle market is down, so haven’t moved very much nor have the small business balances. And so, do you sense the same level of opportunity and optimism in the general business lines versus the specialty lines of businesses?

Yes. So, you are exactly right. However, I’d point out, over this last quarter, we had 3% growth kind of in our general middle market in California. That was pretty good, pretty strong numbers. So, I would expect that we will continue see some of specialized lines of business continuing to grow. We saw small business up 2%; we saw entertainment grow. And I would to expect to see our general middle market as well as the economy continues to keep expanding that we’ll continue to gain momentum there.

Your next question comes from the line of Dave Rochester with Deutsche Bank. Please go ahead.

I apologize for beating the energy dead horse here but without qualifying exactly where you are today on that energy reserve ratio. How would you say the ratio relates to the peak ratio in the last energy cycle back in ‘08 and ‘9? Are you still below that level?

So, if we look at our reserves against energy and energy related today versus where we were in the last cycle, we’re about double or a little more than double. But that is not necessarily a great comparison because each cycle is very different. And remember in the last downturn there was a lot of other stuff going on outside of energy back in 2009.

And Karen, do you have any updated thoughts on dead issuance this year and how much you think want to do? It seems like with rates even lower now, this year might be the right time to do something closer to that long term capital structure target you got.

Because we do need to have high quality liquid assets for the liquidity coverage ratio, we will need to be tapping the wholesale funding markets. We do have great access across the variety of markets which would include the debt markets; the broker CD markets; and our line of the Federal Home Loan Bank. So, we have plenty of capacity and we will be tapping that in order to become compliant for LCR.

Any sense for how much you want to do this year in terms of longer term fixed type debt?

Last fall at the conference, we did show that over the long-term, our balance sheet should have about 20% of it against the wholesale funding market and right now, we’re at about 4%. So, we do expect over the next year to get to approximately half of the way toward that longer term target just because of needing to become compliant with the LCR ratio.

And then can you just talk about the treasuries about this quarter; what the rate was overall? And then in terms of the dollar amount of HQLA, if you haven’t had that, I know you said you are at 80% of your target, was just wondering what that dollar amount was.

We don’t give the dollar amount of HQLA but again, we are at about 80%. In terms of -- you asked about the price of the securities portfolio that we’ve been reinvesting in, we’ve been reinvesting in Ginnie Maes and today that would be about 1.8%. So, over the quarter, we’ve been able to tap the market at some various rates. We did add the treasuries at the end of the fourth quarter which we talked about 500 million of treasuries and those were just under 1.7%.

Your next question comes from the line of Jack Micenko with SIG. Please go ahead.

I’m wondering if as you reach out to your energy customers, if you are picking up any under tones of any potential M&A discussions either smaller private sellers or maybe larger private or public potential buyers; are you seeing anything there?

Lars?

Yes. There is some discussion on it. I must admit that the majority of the conversation is focused around their own shops; what they need to do to right-size; manage their balance sheet as Pete had referenced earlier and tapping the debt and equity markets; selling maybe a few assets off which leads to think I think you’re question. And we have had some conversations and we have seen a few transactions out there, in particular where some of your lower cost producers are finding opportunities to pick up lower price assets that frankly they can get suitable returns on today and even more attractive returns in the future. So, I wouldn’t be surprised if we see a little bit more M&A activity pick up as we go through the year.

And then one last question, looking to California, I’m curious if your decline in deposits there on an average basis is tied to your better than average loan growth. Are we seeing better line utilization in California; are people finally drawing on cash balances or are they unrelated?

You may recall on the fourth quarter earnings call, we talked about the fact that we did have a few large customers that built balances temporarily in that fourth quarter. But frankly, if you look at page seven of the deck, you get a sense of the growth of our deposits over a period of time, you will see that the first quarter of 2015, just looks like the continued trajectory with that wire in the fourth of our average balances. Those balances moved in and they moved out and they normalized. But even if you take those out, you will continue to see that we had nice growth including non-interest bearing deposits transaction accounts even the first quarter of the year. I don’t see it a action between an outflow in California and the growth of loan balances in that state.

I think period end deposits were up about 5% and the period end average was down.

That’s exactly right. And frankly some of those what I would call anomalous deposits that we had frankly went out by December 31st and that’s one of the reasons that you did see that period end number look a little bit more normalized.

At this time, there are no further questions. I will turn the conference over to Ralph Bob, Chairman and CEO for any closing remarks.

Thank you for joining us today and your interest in Comerica. We appreciate it very much and hope you have a great day. Thank you.

Ladies and gentlemen, this does conclude today’s conference. Thank you all for joining. You may now disconnect.