Darlene Persons - Director, IR Ralph Babb - Chairman and CEO David Duprey - CFO Curtis Farmer - President, Comerica Incorporated and Comerica Bank Pete Guilfoile - Chief Credit Officer

Steven Alexopoulos - JPMorgan Michael Rose - Raymond James John Pancari - Evercore ISI Stephen Moss - FBR Brett Rabatin - Piper Jaffray Brian Klock - Keefe, Bruyette & Woods Scott Siefers - Sandler O’Neill Erika Najarian - Bank of America Merrill Lynch Geoffrey Elliott - Autonomous Research Scott Valentin - Compass Point Peter Winter - Wedbush Securities Ken Zerbe - Morgan Stanley Dave Rochester - Deutsche Bank Terry McEvoy - Stephens

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 Second Quarter 2017 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 second quarter 2017 earnings conference call. Participating in this call will be our Chairman, Ralph Babb; President, Curtis Farmer; Chief Financial Officer, Dave Duprey; and Chief Credit Officer, Pete Guilfoile. During this presentation we will be referring to slides which provide additional detail. The presentation slides and our press release are available on the SEC’s website as well as in the Investor Relations section of our website, comerica.com. 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 statement in today’s release on slide two, which I incorporate into this call as well as our SEC filings for factors that could cause actual results to differ. Also in this conference call we reference non-GAAP measures in that regard I would like to direct you to the reconciliation of these measures within this presentation. Now I will turn the call over to Ralph who will begin on slide three.

Good morning and thank you for joining our call. Today, we reported second quarter 2017 earnings per share of $1.13 compared to $1.11 for the first quarter. Excluding restructuring charges and tax benefits from employee stock transactions, adjusted earnings per share was $1.15 compared to $1.02 for the first quarter, a 13% increase. Our results helped drive a double-digit ROE and efficiency ratio below of 59% and a 1.14% ROA for the quarter. Relative to the second quarter of last year, our earnings per share increased 95% and on an adjusted basis excluding restricting charges and tax benefits from employee stock transactions, our EPS increased nearly 50%. This was due to higher interest rates and improved product quality in our energy portfolio, as well as lower expenses and increased fee income resulting from the success of our GEAR Up initiative. Turing to slide four and an overview of our second quarter results, average loans for the second quarter were up $823 million or a 2% compared to the first quarter. Seasonality, help drive increases in Mortgage Banker and National Dealer Services. Also middle market average loans were up 2% with growth in all three of our markets particularly California. This was partly offset by decrease in energy loans however the pace of decline has slowed. As far as deposits average balances declined about 1% partly due to seasonality allowing very strong deposit growth in the back half of last year. In fact the average deposits are up over $600 million relative to the second quarter last year. We are carefully monitoring our deposit base and so far have made no changes to our standard deposit pricing. Net interest income increased $30 million or 6% to $500 million, primarily driven by the benefit from increased interest rates and loan growth. Overall credit quality continue to be strong with declines in criticized and non-accrual loans and net charge-offs of only 15 basis points. This combined with our second quarter loan growth drove a 4 basis point decline in the allowance for loan losses to 1.43% of the total loans. The total reserve remained stable resulting in a provision of $17 million. Non-interest income grew 2% with increases in card and commercial lending fees, as well as customer derivative, fiduciary and brokerage. This largely reflects the traction we are gaining in several of our revenue focus GEAR Up initiatives. Excluding a $3 million increase in restructuring charges, non-interest expenses decreased 1%, salaries and benefits expense decreased $14 million following elevated annual comp expenses in the first quarter. This was partially offset by increases in advertising and operational losses, as well as higher litigation relates expenses due to a favorable settlement in the first quarter of 2017. Of note expenses decreased significantly relative to the second quarter last year, even excluding restructuring charges, as we continue to closely manage our expenses and reap the benefits from our GEAR Up initiatives. We increased our payout to our shareholders as we repurchased $139 million or 2 million shares and increased our dividend by 13%. In addition, we recently announced our 2017 capital plan, which includes a further increase in our quarterly dividend of $0.30 per share which will be considered by the Board at the end of this month. The plan also calls for share repurchases up to $605 million, which is about a 40% increase over the 2016 plan. We expect to continue to gradually increase our total payout to shareholders as we progress through the year. And now I will turn the call over to Dave, who will go over the quarter in more detail.

Thanks Ralph, good morning everyone. Turning to slide five, as Ralph mentioned second quarter average loan increased $823 million compared to the first quarter, including a $123 million decline in energy loans. Mortgage Banker loans were over $300 million, with a notable pickup in spring home sales, partly offset by modestly shorter time that mortgages are sitting in a warehouse, known as dwell time. Our portfolio continues to be heavily weighted to home purchases with approximately 85% purchase versus refi compared to the industry average of 68%. Our auto Dealer Floor Plan portfolio also increased over $300 million, as a result of seasonal build up in auto inventory, as well as the addition of several new or expanded relationships. We had an increase of nearly $200 million or 2% in general middle market with good activity in all three of our markets particularly in California. In addition we saw growth across a number of key specialty national business lines, including technology and life sciences, U.S. banking, international, environmental services and wealth management. Partly offsetting this growth was a decreased of energy loans. However as anticipated the pace of decrease in energy loans is slow, the decline in the second quarter was less than half what we saw in the first quarter. This is partly due to reduced assets sales and capital markets activity, which is a result of recent decline in commodity prices. Total period end loans increased $1.1 billion with the largest attributions from Mortgage Banker and Dealers. Our loan yield increased 17 basis points, higher rates including a 23 basis point increase in average 30 day LIBOR added 19 basis points to our yield. This was partly offset by a lease residual valuation adjustment. Our loan pipeline increased in the second quarter with the majority from new customer opportunities. Overall the sum is [ph] positive reflective of the improving economy and anticipated changes coming out of Washington yet customers continue to be cautious. Average deposits decline modestly over the first quarter as shown on slide six. Middle market declined nearly $500 million due to the seasonality and customers utilizing their cash in their businesses to meet the increasing working capital needs. And we expect this may continue also municipal deposits declined as they typically do following tax correction in the first quarter. Energy balances were down due to slowdown in capital markets' activity. On the positive side, commercial real estate balances grew as certain larger customers have been accumulating cash as they access the market to take advantage of overheads. Also, as you can see by the increase in retail banking and wealth management, we had seasonal growth in consumer deposits, which comprised one third of our deposit mix. Period end deposits declined $2.1 billion to $56.8 billion with middle market and municipalities being large drivers as well as corporate. Of note, our loan deposit ratio remained relatively low at 87%. We continue to prudently manage deposit pricing. We are closely monitoring our deposits as well as the markets. Our securities book remains at above $12 billion as shown on slide seven. The total yield on the portfolio increased 4 basis points as we have been able to make purchases at slightly higher rates than the pay-downs. For example, we have seen MBS yields around 2.50 with only modestly longer duration than the portfolio average. The estimated duration of our portfolio is above 3.3 years and the expected duration under a 200 basis rate shock extends it modestly to 3.9 years. Finally, the portfolio is in a relatively small unrealized net loss position to $21 million. Turning to slide eight, net interest income increased $30 million, while the net interest margin increased 17 basis points to 303. Our loan portfolio added $32 million and 13 basis points to the market. Increased interest rates provide the largest benefit, along with higher loan balances one additional day in the quarter, and other portfolio dynamics. This was partly offset by lease residual adjustment of $4 million. As far as our deposits at the Fed, the increase in the fed funds rate added $4 million and was offset by a $1.2 billion decrease in average balances. This resulted in a net benefit of 6 basis points to the margin. Wholesale funding cost increased due to higher rates and this had a 2 basis point negative impact on the margin. In total, the increased rates contributed $23 million to net interest income. Our overall credit picture remained strong as outlined in the slide nine. Total criticized loans declined over $140 million and are now above 5% of total loans at quarter end. This includes a $28 million decrease in non-accrual loans, which now represents 1% of our total loans. Net charge-offs were 15 basis points or $18 million. This included $39 million in gross charge-offs, which is a $5 million decrease in last quarter combined with strong recoveries of $21 million. Reflecting continued strong product quality, improving energy credit metrics, and second quarter loan growth, the allowance to loan ratio declined 4 basis points to 1.43%. Energy loans at quarter end were above $2 billion or 4% of our total loans. We expect balances will remain at approximately this level. E&P loans make up above 70% of our energy portfolio. Spring redeterminations are nearly complete and borrowing basis are up of above 10%. On average with increases in oil and gas reserves due to drilling activity and acquisitions, the recent decline in energy prices is not expected to have a significant impact on our portfolio. As overall our customers have lowered operating cost, reduce leverage and are appropriately hedged. Criticized and nonaccrual loans as well as net charge-offs all decreased again in the second quarter, resulting in a decline in the reserve allocated for energy loss to above 6% of energy outstandings. Credits metrics is our commercial real-estate portfolio are very strong with criticized loans representing less than 2%, including only $8 million in nonaccrual loans. We are closely monitoring the portfolio and it continues to perform well under the stress test we have conducted. Slide 10 outlines non-interest income, which increased $5 million or 2%. Overall, we are starting to see early success of our GEAR Up revenue initiatives. We have strong card fees as well as increases in customer derivative, fiduciary and brokerage income. In addition, commercial lending fees increased primarily due to higher syndication activity. And we had over $3 million in warrant gains, which are included in other income. Finally, investment banking fee declined from a robust first quarter activity. Relative to a year ago, excluding a $3 million decrease in deferred compensation asset returns, non-interest income increased $11 million with growth in nearly every line item. As a reminder, changes in deferred comp were offset the non-interest expense. Excluding the $3 million increase in restructuring charges, non-interest expenses declined $3 million as shown on slide 11. Salaries and benefits decrease $14 million following annual share based comp and higher payroll taxes in the first quarter. This was partly offset by annual merit raises and one additional day. Advertising expenses, which were seasonally low in the first quarter combined with some strategic marketing opportunities in the second quarter increased $3 million. We had virtually no litigation-related expenses in the second quarter. However in the first quarter we had a favorable settlement, which provided a litigation-related growth. Software cost increased we continue to invest in product development, cyber-security, as well as efficiency opportunities. Finally, operational losses were somewhat elevated, these are difficult to predict and are not expected to continue at this level. Overall, expenses remained well controlled and the realization of our GEAR Up initiative continue to be evident. Moving to slide 12, as Ralph mentioned, we announced last month that the Federal Reserve did not object to our 2017 capital plan, which includes equity repurchases up to $605 million. In addition, later this month our Board will consider increasing the quarterly dividend to $0.30 per share. We fully executed our 2016 capital plan, which included equity repurchases of $440 million. In the second quarter we again increased our stock buyback with $139 million of repurchases under our equity repurchase program. Together with a 13% increase in our dividend, we returned $185 million or 91% of net income to shareholders. During the second quarter, employee option exercises added above 424,000 shares. This activity resulted in a credit to our income tax provision of $5 million or about $0.03 per share. Now I’ll turn the call back to Ralph.

Thank you, David. On slide 13, we’ve highlighted two major drivers of our financial performance. As demonstrated again this quarter, our asset-sensitive balance sheet is well positioned to benefit from increases in rates. Over 90% of our loans are floating rate. Therefore, as rates rise our loan portfolio re-prices quickly. Also over 50% of our funding comes from non-interest bearing customers' deposits, which results in one of the lowest cost of funding among our peers. We expect the December rate rise to contribute about $85 million to 2017 net interest income. Given that we were able to judiciously mange our deposit pricing we have updated our outlook for the March rate increase to now have $65 million. And our model indicates that the June rate increase assuming a 25% beta could add another $30 million to $40 million to our 2017 net interest income. Of course the outcome depends on a variety of factors such as the pace at which LIBOR moves, deposit betas and balance sheet movements. We continue to be on track to meet our GEAR Up expense and revenue goals that we announced last July. With no consideration, given to the benefit from increased rates we remain committed to achieving our targets for an additional $180 million in pre-tax income in 2017 and $270 million in 2018 relative to when we kicked-off the initiative in the spring of 2016. Recent rate increases have helped us reach our targets faster for an efficiency ratio of below 60% and an ROE in the double-digits. Many of our larger initiatives including a reduction in workforce and a redesign retirement program have been completed. We have now successfully completed our goal consolidating 38 banking centers with the final 19 closed in the second quarter. Two of the areas we are currently focused on are technology and our credit process. On the technology front, we are rationalizing applications and designing ways to enhance efficiency. As far as our end-to-end credit design project implementation has begun and we are seeing increases in our relationship managers’ capacity and enhanced customer satisfaction. This includes simplifying the governance process, introducing new technology to support a digital approach and pooling of back-office resources across all of our markets. Finally on slide 14, we provide our outlook for the full year 2017, assuming continuation of the current economic environment, we now expect total average loans to increase about 1%. Included in this is a significant decrease in our energy loans, which are down about $900 million or 30% relative to the same period last year. We are adjusting our total loan growth guidance to the lower end of the range that we have previously provided. While we had always anticipated a decline in Mortgage Banker due to falling refi volumes, the reduction in dwell times due to high investor demand has had a further impact. Also we remain focused on maintaining our pricing and an underwriting discipline in a highly competitive market and continue to be highly selective in certain segments, like commercial real estate and technology and life sciences. As a reminder, we typically see seasonal declines in Dealer and Mortgage Banker in the second half of the year. In addition our customers continue to be cautious, given the uncertainty, regarding Washington based initiatives. Aside from Mortgage Banker and Energy we expect the remainder of the portfolio to grow about 3%. As I mentioned a moment ago, the recent rate increases alone could drive of more than $180 million or 10% increase in our 2017 net interest income. In addition, we expect the benefit from loan growth and lower funding cost primary due to repayment of sub-debt late last year. Credit quality in the first half of the year has been very strong, therefore we are reducing the upper end of our guidance and now expect the provision for full year to be between 20 and 25 basis points and net charge-offs to remain low. Our outlook for non-interest income growth of 4% to 6% has not changed. As far as our outlook for non-interest expense, we are narrowing the range for expected restructuring expenses to be $40 million to $50 million. We expect the remaining expenses to decline about 1% as we continue to be on track to meet our GEAR Up savings. We are now guiding to the low end of the range we previously provided. As a result of increased revenue, expenses tied to revenue are expected to increase such as marketing expense, incentive compensation, as well as outside processing expense which is mostly tied to card fees. Note that expenses in the second half of the year relative to the first half are impacted by three additional days, as well as seasonally higher occupancy and benefits expenses. Also technology expenditures are forecast to rise as expected as we invest in product innovation, cyber security and our infrastructure in order to drive efficiencies. In summary, our revenue increased 5% quarter-over-quarter, and 9% year-over-year. We have benefited meaningfully from increased interest rates, as well as our relationship banking strategy, which is driving loan and fee growth. In addition, credit quality continue to be strong, we remained focused on carefully managing expenses and are committed to delivering on the GEAR Up efficiency and revenue opportunities. Excluding restructuring charges and tax benefits from employee stock transactions, adjusted earnings per share increased 13% over the first quarter and nearly 50% from the second quarter of last year. We believe we are well positioned for the future to further increase shareholder value. And now, we will be happy to take your questions.

[Operator Instructions] Our first question will come from the line of Steven Alexopoulos with JPMorgan. Please go ahead. Steven Alexopoulos : Hey, good morning everybody. Ralph, looking at the sharp reduction in mid-market deposits that we saw in the quarter, historically we would have considered that a very bullish leading indicator for loan growth. Is this the case or something else going on?

We believe that a lot of that reduction is an indicator that the middle market customers are using their excess deposits to invest in their business. Curt, do you want to add anything to that?

I think you said it well, Ralph. I think Steve that we are seeing and hearing anecdotally from clients that they are starting to pull down on deposits in their market, but across many of our other business lines as well really for investment in their business. Steven Alexopoulos : Okay, that’s helpful. In terms of businesses being more confident, which we saw from just about every bank post the election, given the gridlock that we are seeing in Washington on the flip side of them, investing in their businesses are you starting to see business confidence fade at all here?

I think what happens is our customers continue to be very cautious and especially in the way they invest and for the time that they invest in other words they may invest what they need per year to meet demand, but they are not going out as far as they used to go. Curt?

Yes Ralph, I think that’s correct and I would say we are not seeing a lot of CapEx spend that more spending to meet current demand, working capital, et cetera in for example core middle markets, small business, et cetera. Steven Alexopoulos : Okay, thank you. And then if I could just ask on the deposit side, you guys continue to assume a 25% beta now following the June hike. Do you just remain very conservative or you actually starting to see upward pressure on deposit costs?

At this point we’ve made -- as I said in my remarks, we did not moved our standard pricing, we have not seen that deploying at this point, but we did plan for it at some point I guess is the right way to say it here. Curt, have you got anything different?

No, we really are not seeing a lot of demand for any pricing exceptions and are not hearing anything from our competitors, but we stand ready to be competitive as needed and make sure our clients are taken care of. Steven Alexopoulos : Okay. I mean is it the expectation that as the Fed unwinds its balance sheet and liquidity dream that you will actually start to see betas move, is that part of it?

I wouldn’t forecast that at this point, I think that’s been discussed and we’ve not seeing real impact at this point, let’s see what happens when they actually begin the process and at what level it’s being done. Steven Alexopoulos : Okay, okay, thanks for taking my questions.

Thank you.

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

Good morning, Michael.

Hey, good morning, how are you. Just a question on the margin, it looks like you guys had a residual lease value adjustment that might have a negative impact on the margins, should we think about the margin being about 2 basis points higher than where it was?

That would be exactly right.

Okay. And then just lot of talk and I know you guys aren’t really too exposed, but a lot of talk over the past few months on retail lending, not sure if I missed in the prepared remarks, but any just kind of broader thoughts on -- your thoughts on lending to the retail space? Thanks.

Our retail lending has been very focused and it’s not mass market type of lending and we have no plans to really change that. Pete, do you want to add anything to that?

Yes, I mean we only have about $700 million of C&I exposure in retail space Mike and it’s very granular across a number of different businesses plus across geographies it’s very granular on average about $1 million of borrower and it’s -- so it’s not big exposures to large department store chains or anything like that. And then of course the other area that we touch retail would be on the commercial real estate side. Most of our commercial real estate retail exposure would be in the line of business, it’s about $500 million and 70% of that would be what we call neighborhood shopping center. So I think about Starbucks to Panera Bread, a grocery store, a hair salon that type of thing. The patrons typically are within five miles of the shopping center and while those centers they are not completely immune from internet retailing, they typically do a little bit better and all of our projects are doing just fine. We have no criticized loans in the retail commercial real estate space.

Okay. And then just one more if I can on energy, where we would need to see energy prices fall to start maybe seeing some additional credit issues pop up from here? Thanks.

Right now, the way we look at it is first of all, any new deals that we're looking at, we are very selective and making sure that those borrowers can be successful in a purely prolong low energy prices. So we sensitize their cash flow and their collateral it’s typically a 20% to 25% reduction in right from the script that we're looking at. So on the front end any new deals that we're extending we're being very selective there. With regard to the ones that still have some troubles most of them are really selling their assets right now. And if they cannot be competitive in a lower price environment they are really moving those assets is somebody who feels that they can. And so I know that's not an exact question or exact answer for you, but we feel pretty good about the portfolio, but we're very mindful of the fact that these borrowers are not as well hedged as they were say three years ago. And so we have to be very selective.

No, it's great color. Thanks for taking my questions guys.

Thank you.

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

Good morning, Ken.

Hi good morning. This is actually Josh from Ken’s team.

Good morning, Josh.

So, your outlook for average loan growth of up 1% year-over-year in 2017 implies a better growth for the second half of the year. Could you speak to the moving pieces here?

Curt, do you want to go through that?

Yes I would be glad to. So Josh, we've talked earlier about the lift we saw in the second quarter from our seasonal businesses, Mortgage Banker Finance and Energy, those typically run their course in the spring summer season. And so we’re starting to see sort of a slowdown in those balances and we've reflected that for the growth in those balances, we've reflected that in our outlook comment. But the rest of the portfolio, we are expecting growth. And so core middle market our technology and life sciences business, private banking, we’re seeing some growth in environmental services some of our larger businesses, our corporate banking U.S. banking for example. So really across the majority of our business lines, we are expecting growth toward the balance of the year. And I think you saw that reflected in the second quarter results. We had growth across all three of our middle markets led by California. And as Dave referred to and Ralph as well kind of key leading indicator for us is commitments to commit, as well as pipeline and the commitments to commit area we were up another 11% after having been up about 44% in the first quarter. So we feel like those kind of leading indicators will help us sort of sustain some growth into the second half of the year.

Okay. And you still have a relatively large reserve on your energy portfolio. To what extend do you think you'll be able to continue to release or reallocate these reserves.

Well, we've been releasing energy reserves really last several quarters, and we released some more this past quarter. That results in overall reserve release, because there were other things going on in the portfolio namely loan growth. I think the next thing with that will probably be the exam in the fall. We have a number of credit that we've gone through redeterminations that we feel very comfortable upgrading those credits. But we're going wait until we see the results of the exam. And if we do there will be an opportunity to improve some risk ratings and perhaps review some additional reserves against the energy portfolio. Whether that translates into our release of reserves overall, is really going to be a function of what else is going on in the portfolio including loan book.

And we're about 6% today.

Yes.

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

Good morning.

Good morning, John.

Just two things on the guidance, I am sorry if I missed any clarification here. On the fee guidance, I know you generally came in better than expected this quarter and some of that was card and some of that was fiduciary. But you still maintained the full year guidance of 4% to 6%, why not change that?

Well John, it is a fairly wide range. So we've remained very comfortable, we are going to be within that range.

Okay, alright. So, in terms of carry forward from the trends for the quarter there is no reason to them bump up to high end of that.

We are comfortable making the comment that we expect to be within that range of 4% to 6% overall for the year.

Okay, alright. Okay. And then separately, on the expense side, I know 2Q numbers came in better than expected. The big guide now you're looking for down 1% versus previously down 1% to 2% despite 2Q expenses coming in better. I believe on the call you had indicated that partly reflects revenue coming in better. Is that correct?

That is correct.

I would add largely reflective of revenue coming in better.

Okay. So if that's the case and revenue coming in better is partly tied to gear up. And gear up is on track, why therefore not move the expense guide. If things are on track and revenue is coming better, I'm just not sure why, expenses wouldn’t follow suit as well?

Well expenses are still coming down Josh. What we have always done is again tightening the range. We had said overall ex-restructuring, 1% to 2%. And now we're simply saying if we think it's going to be closer to the 1%, because revenue is tracking better. So we've had higher outside processing cost because a lot of that non-loan revenue is processed by third-parties, it’s very much volume based. And that volume also drives incentives. And we've also taken advantage of some very opportunistic marketing opportunities, which we think will further advance revenue, not only for '17, but beyond. When you add all that up, we have now shifted our view still in that 1% to 2% we feel still it’s going to closer to 1%.

Okay. So it's more about the opportunistic stuff it sounds like then?

Absolutely.

Got it, okay. All right. And then lastly, not sure if you mentioned efficiency ratio sticking to the expense topic, but just want to get your thoughts longer term into how you're thinking about where the efficiency ratio could trend in '18?

We believe we can continue to push that number down. Obviously rate rises we thought that even more. We'll have to wait and see what Fed does.

Right, okay alright. Thank you.

Thank you.

Your next question comes from the line of Jennifer Demba with SunTrust Robison Humphrey. Please go ahead.

Hey guys. It's actually Steve on for Jennifer.

Okay. Good morning, Steve.

Just wanted to see what are you seeing in the Texas economy outside of energy business. What are kind of the opportunities there in terms of loan growth?

When you look at the overall Texas economy right now, and Robert Dye, our Chief Economist he is really looking at the U.S. being a GDP of about 2.4%. And Texas is going to be above that at about 2.5%. And as we've said before the economy in Texas is much more diverse than it has been in history. And energy is only about a 15% GDP. When you look at our Texas economic activity index, it's increased for the last eight months and through April. And so that's a positive sign that things are beginning to pick up and move in the right direction broadly.

Okay, thanks.

Your next question comes from the line of Steve Moss with FBR. Please go ahead.

Hi, good morning. I was wondering on the energy portfolio you could discuss where your customer hedging position these days and where customer leverage is?

We’ve seen a fair amount of hedging activity first half of the year it was very similar in terms of the level as last year. And then we saw a significant drop off in June there was different prices. And now we’re starting to pick that back up again. Overall, our borrowers are about as well hedged as they were a year ago or so. But again, the value of the hedges continues to come down. Because more of a higher value hedges run-off with every quarter that goes by and are re-hedging at a lower level and that's why we mentioned earlier that focused on lifting cost becomes even more important today as we analyze borrowers and making sure that they can be successful not just with their hedging, but be successful because they have got a low cost structure.

Okay. And with regards to customer leverage just kind of wondering if you gave any metrics around that?

Leverage is definitely coming down and that's probably one of the start differences between what we saw in the portfolio three years ago versus what we see today. It’s a good one or two turns lower in leverage. And so that’s the real probably now difference between portfolios today and where it was three years ago.

You may just comment a little bit too Curt if you could answer this, but we’ve seen a lot of our customers selling properties at very high values.

So there continues to be some pretty good asset sales and in most cases when the sales take place it’s fairly accretive to liquidity indicating that our borrowers are not very levered on their assets. And so they can continue to raise equity by selling assets.

Okay. And then I was wondering about National Dealer Services what is your thoughts around the outlook for the business there given the auto market?

That business continues to be one we like a lot and we saw growth in the quarter, while we are seeing the overall slowdown in the SAR rate. I think you have to keep in mind that it still historically very high. We have not seen a lot of impact as far as reduction in our borrowing base with our dealers. We do work with a lot of stronger multi franchise dealerships. Many of those have been in a net acquiring mode as they have been strengthening their position overall. Short-term a decline in the SAR rate actually helps as you see sort of a long rate days of the lot for the inventory obviously longer-term as SAR is continue to gear down you will see some decline in borrowings, but at least for the immediate future we still feel good about sort of the prospects and growth in the portfolio.

Okay, thank you very much.

Thank you.

Your next question comes from the line of Brett Rabatin with Piper Jaffray. Please go ahead.

Good morning, Brett. Brett Rabatin : Hey, good morning. Wanted to go back to the margin and just ask I guess first in the securities portfolio you mentioned MBS at 2.50, can you talk about how much you’re investing, how much in cash flow you are getting off the securities portfolio in the next few quarter? And then just thinking about the margin aside the June rate hike, is it fair to assume that your pricing efforts are at a high yield than your current portfolio i.e. you are not giving us rate compression on new production?

Dave.

I’ll comment on the securities and then Curt can certainly comment on what he is seeing from a comparative perspective on loan pricing. The securities portfolio the pre phase are coming in at $450 million to $475 million a quarter, we expect that to remain relatively constant here over the third and fourth quarter. And yes we have then replacing yield in the 2.20s with securities in the 2.40s we had an acquisition last week which I referenced in the narrative of 2.50. So obviously as long as that continues and we continue to purchase if 2.40 or north there clearly it’s accretive to what sort of currently seeing them.

And Brett on the competitive landscape and pricing we operate in some very attractive markets in some very attractive business lines. And so as you would expect, I mean, competition is always pretty strong and we just have chosen to stick to our discipline, which is really focused on long-term relationships where we can get appropriate returns in the business lines and markets that we like. And really no change in strategy there. Brett Rabatin : Okay. Great, thanks for the color.

Thank you.

Your next question comes from the line of Brian Klock with Keefe, Bruyette & Woods. Please go ahead. Brian Klock : Hey, good morning gentlemen. So to add a kind of follow-up question for Curt on the auto dealer floor plan business and I know the guidance you guys gave was for the typical sort of seasonal sell down that happens as we go through the summer and fall months. I guess considering like you said that there is carry those thing and the lots longer. Should we expect the sell down in the third quarter to be lower than what you've seen historically in the third quarter?

Hard to anticipate I mean, normally the third quarter steps out pretty strong, we start to see the slowdown sort of in the second half of the third quarter and then leading into the fall. I mean you would normally start seeing a little bit of build as we get into the latter half of fourth quarter. So we're still anticipating that trend and it's just too early to say if we would see a change there. Brian Klock : Okay. And I guess Pete on the SNC portfolio, can you update us again on I guess the relative size of that quarter-over-quarter? And obviously the asset quality trends are strong, trends you have would have reflected the SNC exam from the spring, correct?

Yes, so about 20% little less than 20% of our portfolio are shared national credit that would include deals that we agent about fifth of those would be deals that we agent. We very much use Shared National Credit as a way of not -- we don't use it as a way to grow the portfolio we use it as a way to diversify the portfolio particularly in businesses like energy, where we don't want to hold the large deal use our balance sheet and have a large exposure, yet still play in that market where we like to be, which is the upper middle market. So in our view, it's a way of getting the diversity that we want without taking the risk at the balance sheet. And so that's really our focus on Shared National Credit. As far as credit quality goes, it's very strong ex-energy. Remember that most of our energy credits are Shared National Credits. So if you just pull those out the rest of the SNC portfolio is in terrific shape.

I mentioned as well Pete that those were underwritten just like we’d underwrite the other credit. And as we focused on it we also look to build the new relationship even if we're not the agent with those customers.

That's right. We have a timeframe internally that if we don't have a full relationship with the borrower then we're typically looking at exit. And we do as Ralph said, we underwrite those credits just like we would any single bank deal. Brian Klock : Great, you're right. On slide nine, the ex-energy the charge-off ratio still pretty low at 13 basis points so that's pretty solid performance in that portfolio.

Yes we felt all along that the charge-offs would be very manageable and so far they have been and we expect them to continue there. Brian Klock : Okay. And last question, just I know that you’ve answered question earlier Ralph on the deposits, and it does seem like the draw down in the commercial money market deposits in that segment are starting to get pull through on the loan side. The end of period loan growth was stronger than the average, and I know you don't do the segment loan disclosures and deposit disclosures on an end of period basis. But it would seem that there could be that pull forward into the third quarter on the stronger loan growth. I guess what I was wondering though is, so we’re using it the deposit to snap back after the seasonal soft second quarter. So would you expect there to be that sort of a headwind to deposit growth, which in the third to fourth quarter because of that activity coming into being drawn into the strong loan growth?

That's part of the total equation, but also we've got the caution it’s still out there too. And seeing what's going on in Washington and in the economy. So it's hard to really predict at this point. Curt, do you want to add anything to that?

Yes, I would echo what Ralph said, it is hard to predict, because we do feel like we're seeing a drawdown in deposits on the commercial side, which is part of the full equation leading to some growth in our loan portfolio as clients are starting to deploy those. But you are right, normally if you look at last year in the second half of the year we would see deposits starting to build some. And so it’s hard to know what that mix might be, yes we’re still too early into the third quarter we will be watching there and it’s likely to be some mix of both. I will say that, when you look outside of the commercial book the business bank deposits, we did see growth in sort of core retail and wealth management. And so those business lines have continued to grow for us. And the last thing I would say is that when we talked about deposit betas, as we just would remind you that the majority about 55% of our portfolio is non-interest bearing. So really not very rate sensitive overall. Brian Klock : Right. And then you guys have a pretty low deposit -- loan to deposit ratio still, so based off the ability to fund. Okay, thanks for your time guys.

Thank you.

Your next question comes from the line of Scott Siefers with Sandler O’Neill. Please go ahead.

Good morning, guys.

Good morning, Scott.

I think my first question is just I am trying to sort of square up the credit costs guidance. So all the numbers are all really good the energy portfolio is in pretty good shape and I think you referred a couple of times the potential upgrades on the SNC portfolio. So I am just trying to square what would cause such pressure on provision in the second half of the year. If I am reading the guidance correctly I think the provision would basically have to double or more in second half of the year relative to the first. So just trying to get your sense for the thinking behind that?

We’re -- that’s a full year guidance, so what we are -- what we put in there was the assumption that there would be a reserve release and that charge-offs will continue to be fairly benign, but in the lower end of what we would consider to be normal. And so assuming there is no reserve release and charge-offs remain at that level, I think that’s really where we come out for the year.

Okay, alright. And then if I can…

Yes just bear in mind that that we gave out a fairly large reserve release in the first quarter and that made the first half provision quite low.

Yes, no that’s a fair point. Okay, thank you. And then if I can switch gears little back to the cost and David I don’t want to make you repeat yourself or anything, I am just trying to get a sense for the any underlying pressures on the expense side. So if I look at the guidance by the fourth quarter of this year, I think the quarterly expense run rate will be about where it was prior to when you started the GEAR Up initiative despite achieving quite a bit of cost savings. So I know a good chunk of the expense ramp seems to be related to revenues related to GEAR Up, I was just trying to get a better sense for sort of the any underlying pressures you are seeing that might be more than you thought are sort of what’s going on there?

I would refer to it as underlying pressure. When we came into the year we knew that we would have a higher level of expense in the back half, that was planned and that was all within that the overall expense reduction range of 1% to 2% that we are now seeing will be closer to 1%. A big part of that back half, well first of all you got three additional bet, but we did plan and we are continuing to plan for a step up in technology spend. We have projects that will drive customer enhanced interaction with the bank and we are spot on to make sure those projects on the lot that’s what’s going to drive a big piece of second half.

And as you mentioned earlier too Dave the volumes are increasing, so on the revenue side the additional revenue with the expenses like in card and other things because of that.

And that’s what’s caused that drifting of the 1% to 2% to be closer to 1%.

Yes. Okay, that’s helpful. Thank you very much.

Thank you.

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

Good morning

Yes, good morning. So with an 11.5% CET 1 ratio you have a lot of capital for your risk profile, even if we don’t get reg reform and I am wondering Ralph, as you think about continuing to improve your ROE [ph]. We absolutely understand the clear planning and numerators side, but I am wondering over the next few years especially if CCAR becomes less stressful pardoned upon. How we should think about the payout ranges over the next two years? And also potential other uses of capital other than dividends and buybacks?

We have always through history, I would say been very active with returning capital that we don't have an immediate use for. And that would be one of the things that would be top of mind as things begin to change so that we could actually give more back whether it would be dividends or buyback from that standpoint. And we always look for other opportunities; growth would be the best to use that capital. And I would say and we usually get the question as well on acquisitions, but that’s something that has to be very focused for us and hit very well. I think we've done two acquisitions over the last 20 years from that standpoint. But we certainly view the management of capital as one of our top priorities. Dave you want to add anything to that?

No, I completely agree with those comments Ralph. I mean obviously the regulatory environment will have to monitor that very closely hopefully. We'll see a continued improvement in the tone relative to the whole CCAR process.

And the follow-up question on that the tertiary proposal indicates they'd like to lift the LCR restrictions on bank your size. And as we think about longer term rate sensitivity of your balance sheet. How much liquidity could be released if you don't longer have to be compliant with LCR?

It's an interesting question, quite frankly I look forward to the opportunity to pursue [ph] that. Off the top of my head I would suggest to you that that is a multi-billion dollar number.

Got it. And just one last one Ralph, your chairmanship according to your proxy ends in 2018, what is your message for your long-term shareholders in terms of succession planning from here?

We continually look at succession planning and discuss that at the Board level. And when decisions are made we make the appropriate announcements.

Got it. Thank you, sir.

Thank you.

Your next question comes from the line of Geoffrey Elliott with Autonomous Research. Please go ahead. Geoffrey Elliott : Good morning. Thank you for taking the question. You have had close to 40 basis points of NIM expansion over the last couple of quarters. At what point do you start to think about pairing back the asset sensitivity of the balance sheet and locking in some of the benefits from higher rates?

Dave, that's the one we discuss a lot.

Yes, Geoffrey we talk about at least once a week. And it’s something that we monitor on a regular basis. It is a constant discussion of our asset liability committee meetings. We have watched it very closely quite frankly, one of the things we look at is what the opportunity would be on a four year slot, because that is what we would look to do when we start to do some synthetic of the asset sensitivity. That rate to-date just simply is not all that attractive, a four year slot we could pick up about 50 basis points. And while the direction of the Fed fund rate maybe in question here at the moment in terms of whether or not we'll see another increase in '18. When you look at the dot slot over the course of a four year periods it certainly moves much more than 50 basis points. So while there continues to be some downside risk relative to what rates could do if they were to move down we don't see that today as really a high probability. So as a result we continue to monitor and when we think that it's appropriate we will begin a hedging strategy. Geoffrey Elliott : Thanks. And then just one quick follow-up, the lease residual adjustment, can you give any more color on those leases what you want sort of lease was driving that.

We still have I mean we exited in terms of new transactions years ago, we exited this business. But years ago we did have some transactions where we used leverage leases. So fairly large asset, single asset fairly large we have two of those remaining those assets have I believe six years and eight years yet to run. We annually challenge the expected residual value, we did that this quarter and we made an adjustment on those two respective assets given the expected market condition. Geoffrey Elliott : Thank you.

Thank you.

Your next question comes from the line of Scott Valentin with Compass Point. Please go ahead.

Good morning, thanks for taking my question. Just with regard to the TLS business potential changes in healthcare, are there any concern are you guys monitoring the portfolio for any potential pressure where we’re seeing some banks report I think some hospital issues but just wondering is there any exposure in the TLS portfolio?

We have not seen any negative migration with regard to the life science portion of our technology and life science book so far. The most of the businesses that are in technology and life science that are connected with healthcare are relatively unaffected by changes in the healthcare law. And so the -- we’re cautious about it and careful about that, but it doesn’t really come into play in a big way in that business.

Okay. Thanks for that. And then just getting back to the kind of provision and reserving, it sounds like provision expense, I mean, I guess with the guidance you’ve given overall reserve level should remain about where they are for the portfolio, I am just wonder you guys have a pretty healthy reserve level compared to appear, if there is room for that to come down over time or if that’s just where you guys feel comfortable operating given historical performance of the portfolio?

Yes we look at it quarter-to-quarter and there has been times that it’s been lower than it is today and has been times it’s actually been higher. And so we look at again at the end of this quarter obviously energy is a driver, but there are other factors that we have to look at as well.

Okay, thanks very much.

Thank you.

Your next question comes from the line of Peter Winter with Wedbush Securities. Please go ahead.

Good morning.

Good morning, Peter.

My question is on commercial real estate. If I look at end of period loans, the commercial real estate portfolio has been trending lower. And then secondly criticize loans in commercial real estate have increased the last two quarters. I’m just wondering if you could talk about both of those.

As far as the credit quality within commercial real estate has been pristine. And so we have one relatively large credit that we did downgrade and this past quarter we have absolutely no concerns about the ability to repay. But there is certain things that have happened on it that require us to downgrade it, but we feel very good about the asset, we feel very good about the sponsorship and we do not feel there is any risk or loss there. And as far as the strength of our commercial real estate portfolios, it’s performing extremely well. When you think about our commercial real estate book, first of all we have -- we are overweight with regard to owner occupied real estate which performs more like C&I. And then we’ve got kind of underweight with regard to true commercial real estate most of that has been in line of business and most of our commercial real estate risk in the line of business is Class A multifamily construction. And we didn’t really like of Class A multifamily construction for a number of reasons but one of which is how well it perform in downturn. And Houston is a perfect example of that right now. We are -- multifamily is outperforming office and retail down there and that's why we focus on it. But we feel very good about the commercial real estate portfolio because of its heavy -- we are heavy weighted toward owner occupied and heavy weighting toward multifamily construction we think it’s well positioned in the event of the downturn.

You might mention how the equity portions are going up?

Yes, this is pretty much true of most of the products in a lot of the business, but in particularly in multifamily we’re getting 35% to 45% equity in those deals. And so you've got lot of rooms for rents to move against you when you have that much equity in the project.

I might just add Ralph that the production levels have remained pretty consistent in that business, but most of it’s moving to the permanent markets fill pretty quickly. And so you will see balances fluctuate a little bit I wouldn't read too much into that overall. So we were down a little bit in the quarter, but a lot of that is less about production and more about just how quickly given that we really do construction financing how quickly is moving to the permanent market.

Okay, great. And just one quick follow-up, just going back to the deposit betas with the impact to net interest income with the June rate hike. If the deposit beta remains at zero, what would be the impact to net interest income?

I think you would be looking for range, which obviously move into the higher end of the range at which I think is about 55-60…

30 to 40…

30 to 40 I'm sorry yes I am thinking of the March revise I apologize.

Okay. So the 25% deposit beta is really the $30 million impact, but zero would bring it to $40 million.

That's directionally correct.

Okay, great. Thanks.

Thank you.

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

Good morning Ken.

Good morning. Just trying GEAR Up, is there any way for us on the outside of the bank to know that you've actually achieved like $180 million of GEAR Up pre-tax this year. Because I'm trying to -- I'm having a hard time separating out sort of the GEAR Up versus the impact on earnings from higher rates and from loan growth. Like how do we know or how do we see that ourselves. Thanks.

Well if you focus on expenses, you can easily back out the effect of the rate rises, in terms of if you just go in and use last year's NIM, versus this year's, then look at the difference in terms of pre-tax earnings there is a dramatic reduction in expense. Albeit relatively modest increase in revenue GEAR Up is much more focused on expense reduction than it is revenues. And remember this year we said $150 million in expense reduction, $30 million in revenue focus on the expenses. We're focused on both, but if you're trying to get the map to line up to support the statements focused on expenses. Look at that efficiency ratio, and compute that efficiency ratio even without the rate rises it's down. That's the best way I think I can articulate that we are achieving what we expected to achieve with GEAR Up. And internally we track it in extreme detail.

Got it. Okay that helps out a lot. And then last question I had, when you do ultimately see customer demand for exception pricing. How willing are you guys going to be to accept that? Like versus just saying no and letting the customer walk away if that's what they choose.

We have a lot of numerous, numerous outstanding customers that have been with us a long time. We are very focused on taking care of our customers. And yes quite frankly, when they approach us about the potential for an adjustment, we look at it and sometimes we’ll have discussions in terms of a little bit of give and take, but we're here to serve our customers.

Got you. And the reason I ask is because some other banks talk about having lot of excess deposits and that's one of the reasons why deposit betas may remain low is because they're willing to let those customers kind of walk away. But if I understood you right, it sounds like you're on the opposite end that if they ask you they will get it.

We are focused on relationships is the total. And that's very important for the long-term benefit of not only the customer, but for us.

Okay, great. Thank you very much.

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

Good morning Dave. Dave Rochester : Hey, good morning guys. Sorry if I missed this earlier, but how do you guys think about changing the earnings credit rate, have seen any competitors do it? And when do you think if you haven't done that we might start seeing you adjust those in terms of additional rate hikes coming up how many more do you think you would need to see before you start doing that?

Well this is -- it's very similar to deposit pricing. We have seen very few request and I do mean very few request on ECA, because quite frankly until the credit fully utilized it doesn’t really matter. And our utilization while it moves up it’s not 100%, but again we will watch that, we will be competitive. I think if we do continue to see rates rise we likely just as we would expect to see continued expectation on deposit betas you can expect some relative adjustment on ECA. We just have not seen it to-date. Dave Rochester : Okay. And then I guess how do you think about the cash balance going forward that declined and help the NIM out a little bit, we are just wondering how much more you think just with LCR in the background there you think you can actually invest in loan growth going forward if the deposit growth doesn’t necessarily materialize?

We continue to have an excess level of cash, it well in excess of what would be required even to maintain LCR with an appropriate cushion. So we are well positioned today. Dave Rochester : Okay, great. Thanks guys.

Thank you.

Your next question comes from the line of Terry McEvoy with Stephens. Please go ahead.

Good morning, Terry

Hi, thanks good morning. I have just one question, earlier in the call you mentioned shorter dwell times in mortgage warehouse, I am wondering if you could just shed some light on this year what you’ve seen maybe versus last year? And then your updated outlook for 2017 loan growth, does that assume shorter dwell times within that business?

Yes, Terry on the dwell time side, I would say it’s down a few days year-over-year. So if you look at sort of first half of 2016 versus where we are on a year-to-date in ‘17, so it is having an impact on the outstanding in the portfolio overall that coupled with slowdown in the refi business. Now positively for us we wage more towards the purchase side and that has remained relatively strong and we are in the season right now of heavy purchase activity and MBA forecast while refi is down MBA still are forecasting for purchase volume to be up for the full year. And then secondly I think helping us there they sort of all set that decline in refi and the dwell time is the fact that we continue to be in a net acquiring position in terms of new customary relationships in fact we brought in two very nicely relationships in the second quarter. And so we are forecasting down year-over-year for the full year for Mortgage Banker Finance. So those two items I think are working in our favor to help us offsets some of that year-over-year decline.

Great, thank you.

Thank you.

I will now turn the conference back over to Ralph Babb, Chairman and Chief Executive Officer, for any further remarks.

I just want to thank everybody for being with you on the call today and your interest and support in Comerica, and I hope you all have a great day.

Ladies and gentlemen, this concludes today's conference. Thank you all for joining, you may now disconnect.