comerica (cma) earnings report: q3 2015 conference call ... · the following comerica conference...

CompanyName:ComericaIncCompanyTicker:CMASector:FinancialIndustry:Banking

EventDescription:Q32015EarningsCallMarketCapasofEventDate:7.39BPriceasofEventDate:42.035

Comerica(CMA)EarningsReport:Q32015ConferenceCallTranscriptThefollowingComericaconferencecalltookplaceonOctober16,2015,08:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

DarlenePersons;Comerica;DirectorofInvestorRelationsRalphBabb;Comerica;ChairmanKarenParkhill;Comerica;ViceChairmanandChiefFinancialOfficerPeteGuilfoile;Comerica;ChiefCreditOfficerPatFaubion;Comerica;ExecutiveVicePresidentoftheBusinessBankCurtFarmer;Comerica;President

OtherPart icipants

ScottSiefers;SandlerO 'Neill;AnalystErikaNajarian;BankofAmerica;AnalystKenZerbe;MorganStanley;AnalystJohnPancari;EvercoreISI;AnalystKenUsdin;Jefferies;AnalystDaveRochester;DeutscheBank;AnalystTerryMcEvoy;Stephens;AnalystBobRamsey;FBR;AnalystBrettRabatin;PiperJaffray;AnalystBrianClark;Keefe,Bruyette&Woods;AnalystDavidDarst;Guggenheim;AnalystDavidEads;UBS;AnalystJohnMoran;MacquarieCapital;AnalystStevenAlexopoulos;JPMorgan;AnalystGaryTenner;DADavidson;AnalystJeffreyElliott;AutonomousResearch;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Goodmorning.Mynameis[Brent]andIwillbeyourconferenceoperatortoday.Atthistime,IwouldliketowelcomeeveryonetotheComericathirdquarter2015earningsconferencecall.

(OperatorInstructions).

I'dnowliketoturnthecallovertoDarlenePersons,DirectorofInvestorRelations.Pleasegoahead.

DarlenePersons (DirectorofInvestorRelations):

Thankyou,[Brent].GoodmorningandelcometoComerica'sthirdquarter2015earningsconferencecall.

ParticipatingonthiscallwillbeourChairman,RalphBabb;President,CurtFarmer;ViceChairmanand

ChiefFinancialOfficer,KarenParkhill;ChiefCreditOfficer,PeteGuilfoile;andExecutiveVicePresidentoftheBusinessBank,PatFaubion.

AcopyofourpressreleaseandpresentationslidesareavailableontheSEC'sWebsite,aswellasintheInvestorRelationssectionofourWebsite,Comerica.com.Aswereviewourthirdquarterresults,wewillbereferringtotheslides,whichprovideadditionaldetailsonourearnings.Beforewegetstarted,Iwouldliketoremindyouthatthisconferencecallcontainsforward-lookingstatementsandinthatregard,youshouldbemindfuloftherisksanduncertaintiesthatcouldcauseactualresultstovarymateriallyfromexpectations.Forward-lookingstatementsspeakonlyasofthedateofthispresentationandweundertakenoobligationtoupdateanyforward-lookingstatements.IreferyoutotheSafeHarborstatementcontainedinthereleaseissuedtoday,aswellasslide2ofthispresentation,whichIincorporateintothiscall,aswellasthefilingswiththeSECforfactorsthatmaycauseactualresultstodiffer.

Also,thisconferencecallwillreferencenon-GAAPmeasuresandinthatregard,Iwoulddirectyoutothereconciliationofthesemeasureswithinthispresentation.

NowI'llturnthecallovertoRalphwhowillbeginonslide3.

RalphBabb(Chairman):

Goodmorning.

Ourthirdquarterresultsdemonstratethebenefitsofourgeographicandbusinesslinediversity.Ourtrustedadvisorapproachtorelationshipbankingcontinuestomakeapositivedifference.

Today,wereportedthirdquarter2015netincomeof$136millioncomparedto$135millionforthesecondquarterand$154millionforthethirdquarterof2014.Earningsperdilutedsharewere$0.74forthethirdquarterof2015comparedto$0.73forthesecondquarterand$0.82forthethirdquarter2014.Turningtoslide4andhighlightsfromourthirdquarterresults,averageloanswereup$1.8billion,or4%comparedtoayearago.

Averageloansincreased$139millionto$49billioncomparedtothesecondquarterwithincreasesintechnologyandlifesciencesandcommercialrealestateoffsetbydecreasesincorporatebankingduetoourcontinuedpricingandstructurediscipline,aswellasseasonalityingeneralmiddlemarketandtheexpectedrun-offinenergy.Averagedepositsgrew$4billionor7%comparedtoayearago.Relativetothesecondquarter,averageddepositsincreased$1.7billionor3%to$59.1billiondrivenbyincreasesinnearlyeverybusinesslineledbygeneralmiddlemarket,technologyandlifesciencesandcorporatebanking.Infurthercomparingourthirdquarterresultstothesecondquarter,netinterestincomeremainedstable,increasing$1millionto$422million,whilethenetinterestmargindeclinedmainlyasaresultofhavinghigherbalancesattheFed.

Creditqualityoverallcontinuedtobestrong.At19basispoints,netcharge-offsremainwellbelowthehistoricalnormallevelandgrosscharge-offsdeclinedinthequarter.Theprovisionforcreditlossesdecreasedto$26million.Thismarksthefourthconsecutivequarterthatwehaveprudentlyincreasedourreservesforenergy,aresultofincreasingcriticizedloansandsustainedlowenergyprices.Netcharge-offstiedtoourenergy-relatedexposurecontinuedtobelowandwehadnocharge-offsintheenergybusinessline.

Whilenegativecreditmigrationisanticipated,anylossesareexpectedtobemanageable.Wecontinuetofeelcomfortablewithourenergyportfolio.Non-interestincomewasup$3millionto$264million,includingincreasedcardfees,anareawearefocusedoncontinuingtogrow,aswellasgrowthinseveralothercategories.Thiswaspartiallyoffsetbydecreasesininvestmentbankingfeesandfiduciaryincome

duetodepressedmarketconditions.Non-interestexpensesincreased$25millionto$461million,primarilyreflectinga$3millionnetreleaseoflitigationreservesinthethirdquartercomparedtoanetreleaseof$30millioninthesecondquarter.

Wecontinuedtotightlymanageexpenseswhilefacedwithrisingtechnologyandregulatorycosts.Ourcapitalpositionissolid.Stockrepurchasesunderourequityrepurchaseprogram,combinedwithdividends,returned$96million,or71%ofearningstoshareholdersinthethirdquarter.Turningtoslide5andalookatourprimarymarkets,ourmostrecenteconomicindexeshavetrackeddatathroughJulyineachofourprimarymarkets.OurTexasindexcontinuestoseelighterdeclines.Drillingrigcountdecreasedandunemploymentinsuranceclaimsincreased.Weexpectthedragfromlowoilpricestocontinueinto2016.However,itisimportanttonotethattheTexaseconomyisverydiverse.

AverageloansanddepositsinTexaswereeachdownabout2%comparedtothesecondquarter,bothimpactedbydeclinesingeneralmiddlemarketandenergy.OurCaliforniaindexshowedasmalldecline,thefirstsinceMarch.Stateexportsweakened;however,thelabormarketcomponentsoftheindexareshowingstrengthandweexpectthattocontinuethroughtheremainderoftheyear.Wesawbroad-basedaverageloananddepositgrowthinCalifornia.Loanswereup$360millionormorethan2%anddepositswereupover$1billion,or6%,withgrowthinalmosteverybusinessline.OurMichiganindexincreasedagainfueledbytheautoindustryasautoproductioncontinuedtoclimb.

Infact,autosalesonanannualizedbasisrosetoa10-yearhighof$18.2millioninSeptember.LowgasolinepricescontinuetobeaplusforMichigan'seconomy.AverageloansinMichiganweredownslightlywhileaveragedepositswereup1%duetoseasonalityingeneralmiddlemarket.Inclosing,webelieveourgeographicfootprintiswell-situatedandourrelationshipbankingstrategycandrivegrowthinloans,depositsandfeeincome.Weremainfocusedonthelongterm.Ourconservativeconsistentapproachtobanking,includingcreditmanagement,investmentstrategyandcapitallevels,haspositioneduswellforthefuture.NowIwillturnthecallovertoKaren.

KarenParkhill(ViceChairmanandChiefFinancialOfficer):

Thankyou,Ralph.Goodmorning.Turningtoslide6,thirdquarteraverageloansincreased$139millionoverthesecondquarter.Technologyandlifescienceswasthelargestcontributortoloangrowthwitha$367millionincrease,drivenalmostentirelybyequityfundserviceswhereweprovidecapitalcallorsubscriptionlinestoventurecapitalandprivateequityfirms.Loansinourcommercialrealestatebusinesslineincreased$124million,primarilyrelatedtomulti-family.

Mortgagebankerloanswereup$47million,reflectingourcontinuedmarketsharegains,aswellasrefinancevolumesandapickupinhomesales.Becausemortgagebankeroutstandingstendtomoveupanddownwiththehomebuyingseason,weexpectadeclineinfallandwinterandinfact,wesawthattrendinperiod-endbalances.Inaddition,wehadmodestaverageloangrowthinseveralotherbusinesslinessuchasentertainment,privatebanking,retailbankingandsmallbusiness.Partiallyoffsettingthisgrowth,corporatebankingloansdeclined$231millioninthequarterasweremaindisciplineinthishighlycompetitiveenvironment.

Asexpected,loansingeneralmiddlemarketdeclined$214millioninconjunctionwiththetypicalsummerslowdown.Andloansinourenergylineofbusinessdeclined$86millionfromcontinuedpaydowns.Averagedealerloansdecreased$26million.Infact,eachsuccessivemonthinthequarterdeclinedasourcustomersworkeddowntheirinventorypriortoreceivingnewmodels.Thedeclinewassomewhatlessthanexpectedasmanufacturershavecontinuedtomeetthestrongdemand,alongwiththefactthatwe'vebeenexpandingrelationships.Period-endloansdeclined$799millionto$48.9billion.Thisdeclineincludedadecreaseinmortgagebankerfinance,reflectingthedeclineoffthesummerpeak.

Inaddition,wesawdecreasesingeneralmiddlemarket,corporatebanking,nationaldealerservicesandenergyforthesamereasonsIjustdescribed.Increasesintechnologyandlifesciencesandcommercialrealestatepartiallyoffsetthedecline.Totalloancommitmentsdecreased$464millionwithdeclinesingeneralmiddlemarketandcorporatebankingasweremaindisciplinedonpricingandstructure,aswellasmortgagebankerduetotheexpirationoftemporaryincreasesinconjunctionwithseasonality.Energycommitmentsalsodeclined.Technologyandlifesciences,nationaldealerandcommercialrealestatecommitmentsgrew.Utilizationdecreasedto50%attheendofthethirdquarterfrom51%attheendofthesecondquarter.

Importantly,ourpipelineincreased.Ourloanyieldsdecreased3basispointsinthethirdquarterasshownintheyellowdiamond.Thebenefitfroma1basispointincreasein30-dayLIBORandthefavorableimpactfromhigheryieldsonloansrelatedtoenergywasmorethanoffsetbylowerloanfeesduetodecreasedloanactivitywiththesummerslowdownandadeclineinportfoliospreadsasaresultofgrowthinhigh-quality,loweryieldingloans.Turningtoslide--todepositsonslide7.Averagedepositsincreased$1.7billioninthethirdquarter,drivenbya$1.3billionincreaseinnon-interest-bearingdeposits.Virtuallyeverybusinesslinepostedgrowthledbygeneralmiddlemarket,technologyandlifesciencesandcorporatebanking.Period-enddepositsincreased$508millionto$58.8billion.Wecontinuetoprudentlymanagedepositpricingwhileremainingat14basispoints.Slide8showsoursecuritiesportfolioincreasedaswecontinuetopositionourselvesforcompliancewiththenewliquiditycoverageratio,orLCR.WetappedthemarketinJulyissuing$350millioninsubordinateddebtandanadditional$175millioninseniorbankdebt.Bothofwhichweswappedtofloating.

Weinvestedaportionoftheproceeds,$350million,inacombinationoffive-yeartreasuriesandGinnieMaeCMOs.Thisstrategyallowedustominimizeanyimpacttobothearningsandourasset-sensitiveposition.Asyouknow,wearerequiredtohaveanLCRof90%byJanuary1,2016and100%byJanuary1,2017.Asofquarter-end,ourestimatedLCRratiomeetsthatfullyphased-in2017requirement,reflectingourloananddepositmovementinadditiontothedebtissuance.AnyfuturefundingneedsforLCRpurposeswilldependonourbalancesheetmovementandstrategiesovertime.ShouldweneedtoaddHQLA,wecontinuetohaveseveralfundingoptions,includingourfederalhomeloanbanklineofcredit,brokereddepositsandthepublicdebtmarkets.Wecontinuetocarefullymanagethesecuritiesportfolio,maintaininganestimateddurationunderfouryears.

Inthecurrentrateenvironment,weexpectcontinuedminorpressureontheaveragesecuritiesyield,asyoucanseeintheyellowdiamondsontheslide.Turningtoslide9,netinterestincomeincreased$1millioninthethirdquarter.Oneadditionaldayinthequarterandloangrowthwerepartlyoffsetbylowerloanyields,whichIdiscussedearlier.IncreasedexpensefromthedebtissuancewasmostlyoffsetbyhighersecuritiesanddepositsattheFed.Ournetinterestmargindecreased11basispointswithmorethanhalfofthatdeclineduetohigherbalancesattheFed.Comparedtothirdquarterof2014,netinterestincomeincreased$8millionlargelyduetoloangrowth.

Wecontinuetobewell-positionedtobenefitwhenratesrise.Ourstandardassetliabilitycaseshowsthata200basispointincreaseinratesoveraone-yearperiodequivalentto100basispointsonaveragewouldresultinanincreasetonetinterestincomeofabout$220million.Wealsoshareintheappendixseveralalternativeassumptionstoourstandardcasewithchangestothepaceofdepositdecline,loangrowthandraterises.Andinallcases,weremainwell-positionedforrisingrates.Turningtoslide10,ouroverallcreditpictureremainssolid.Netcharge-offswere19basispoints,or$23million,derivedmainlyfromtechnologyandlifesciencesandenergy-relatedloans.

Overall,netcharge-offsremainwellbelowwhatishistoricallynormalforus.Grosscharge-offdeclinedslightlywhilerecoveriesweredownprimarilyduetotiming.Ourcriticizedloansgrew$537millionto$2.9billion,orabout6%oftotalloans,whichiswellbelowourhistoricalaverage.Theincreasewasdrivenby

a$480millionincreaseincriticizedloansrelatedtoenergy.Inflowstonon-accrualdeclinedfromthesecondquarterandwere$69million,ofwhich$25millionwereenergy-related.Totalnon-accrualloanswerestableatonly73basispointstototalloans.Specifictoenergy,thefallredeterminationprocesshasjustbegunforourE&Pcustomers,whichcomprise69%ofourenergybusinessline.Withcontinuedlowenergypricesandreductioninrigcount,weexpectsomepressureonaborrowingbasis.However,wedonotexpectwidespreadissuestoariseasourborrowersoverallcontinuetoactprudentlyinthislowpriceenvironment.

Infact,utilizationinourenergylineofbusinessremainedflatat48%atquarter-end.Asanticipated,wecontinuetoseenegativemigrationintheenergybook,whichhasresultedinanincreaseincriticizedloans.However,non-accrualloansandcharge-offshaveremainedlow.Asofquarter-end,approximately27%,or$1.1billionoftheloansrelatedtoenergywereconsideredcriticized.However,thisincludesonly$126millionofnon-accrualsequivalentto3%ofenergyloansandisuponly$7millionfromthesecondquarter.Wehadnocharge-offsinourenergybusinesslinesandmodestcharge-offsinenergy-relatedloans.

Andasexpected,loanscontinuetodeclinewithourenergybusinesslinedown$66millionandenergy-relateddownover$100milliontoabout$615millionatquarter-end.The$26millionprovisionforourtotalportfolioreflectedcharge-offs,aswellasslightlyhigherreserves.Reservesfortechnologyandlifesciencesloansincreasedduetomodestlyhighercharge-offsandwenotonlyaddedtoourenergyreserveduetoanincreaseincriticizedloans,butwealsocontinuetomaintainahealthyqualitativereserve.

Itisimportanttonotethatwhilewehavecontinuedtoincreasethereservesforenergy,webelievethatthecharge-offswillremainmanageable.Insummary,ourconsistent,robustmethodologyresultedina$2millionincreasetotheallowanceforcreditlossesto$670million.Andthecoverageofournon-performingloansremainsverystrongat1.7times.Slide11outlinesnon-interestincome,whichincreased$3millionto$264million.Cardfeesincreased$3millionduetohigherrevenuefrommerchantprocessingservicesandinterchange.Wealsohadgrowthinforeignexchangeandbrokeragefees.

Thiswaspartiallyoffsetbydeclinesininvestmentbankingfeesandfiduciaryincome,whichwereimpactedbythepoormarketenvironment.Wealsohadseveralitemsthataredifficulttopredict.Specifically,a$4millionbenefitfromhedgesonrecentlyissueddebt,a$3millionincreaseincustomerwarrant-relatedincomeanda$5milliondecreaseindeferredcompensation,whichisoffsetinnon-interestexpense.Asareminder,theyear-over-yearviewofbothnon-interestincomeandnon-interestexpenseisnotdirectlycomparable.Eachquarterthisyearreflectsanaccountingpresentationthatreportsgrossrevenuesandexpensesratherthannetrevenueforourcardprogram.

Turningtoslide12,non-interestexpensesincreased$25million.Thisincludeda$3millionlegalreservereleaseinthethirdquartercomparedtothe$30millionreleasewerecordedinthesecondquarter,resultingina$27millionswing.Absentthechangeinlegalreserves,expensesdeclined$2million,mainlyduetoitemsthataretoughtoforecast,includingadecreaseindeferredcomp,aforfeitureofexecutivestockawardsandlowerstaffinsurance.Asexpected,occupancyexpenseswereseasonallyhigherandsoftwareandtechnology-relatedcontractlaborincreased.

Movingtoslide13andcapitalmanagement.Asthechartindicates,wecontinuetoreturnexcesscapitaltoourshareholdersinameaningfulwaywithapayoutof71%ofthirdquarterearnings.Inthethirdquarter,werepurchased1.2millionsharesfor$59millionundertheequityrepurchaseprogram.Asyoumightrecall,theFederalReservescenarioandthestresstestsincorporatedagradualincreaseininterestratesovertheforecastperiodstartinginthesecondquarterof2015.Whilearaterisehasyettooccur,youcanexpectthatanymaterialincreaseinthepaceofourequityrepurchaseswillbelinkedtoournetincomeperformance,whichshouldimprovewithrisinginterestratesovertime.

Turningtoslide14,ouroutlookforfull-year2015comparedtofull-year2014hasnotchangedfromwhatweoutlinedatthebeginningoftheyearandreiteratedonourcallinJuly.Ourexpectationsforthefourthquarterrelativetothethirdquartershownonthisslidearebasedonacontinuationofthecurrenteconomicandinterestrateenvironment.Startingwithloans,weexpectaveragebalancestoberelativelystablewithaseasonaldecreaseinmortgagebankerandcontinueddeclineinenergyoffsetbygrowthinotherbusinesses.

Weexpectournetinterestincometoalsoberelativelystable.Thepositiveeffectsfromassetgrowthandathirdquarterdebtmaturityshouldapproximatelyoffsetthecontinuedpressurefromthelowrateenvironmentonloanandsecurityyields.Withcontinuedstrongoverallcreditquality,weexpecttheprovisiontoremainlow,similartowhatwesawinthethirdquarter.Asfarastheenergyportfolio,weexpectcontinuednegativecreditmigration,continuedrun-offinbalancesandaverymanageablelevelofnon-accrualandcharge-offs.Overall,weexpectnon-interestincometoincreaseslightly.

Weexpectcontinuedgrowthincardfeesandshouldmarketsimprove,returnofgrowthinfiduciaryandinvestmentbankingfees.Thirdquarterlevelsofwarrantincome,hedgingeffectivenessanddeferredcomp,allofwhicharedifficulttopredict,arenotexpectedtoberepeated.Non-interestexpensesareexpectedtobemoderatelyhigherduetoseasonallyhigherstaffbenefits,outsideprocessing,marketing,occupancy,technology-relatedandconsultingexpenses.Alsolitigationreserverelease,deferredcompandstockforfeiturelevelsbenefitedthethirdquarterandaredifficulttopredict;thereforearenotexpectedtoberepeated.Wecontinuetoremainfocusedoncontrollingexpenseswhereverpossible.

Inclosing,wearepleasedwiththecontinuedloanandrobustdepositgrowth,aswellasincreasedrevenue.Overall,ourcreditqualityremainsstrong.Weremainfocusedonthelongtermandweexpectthatasratesriseourrevenuepicturelooksevenbrighter.Asalways,webelieveourrelationshipbankingstrategy,combinedwithadiversegeographicfootprint,willcontinuetoassistusinbuildinglong-termshareholdervalue.Now,operator,wewouldliketoopenupthecallforquestions.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions).ScottSiefers,SandlerO 'Neill.

Scott Siefers (Analyst-SandlerO 'Neill):

Firstquestionmaybeonenergy.Expecttohearabunchofthem,Iguess.Sothemigrationintonon-accrualandcertainlywithnocharge-offshasallbeenvery,verygood.Ijustwonder,nowthatenergypriceshaveatleastkindofstabilized,doesthatgiveyouguysanyconfidencethatthisverylowmigrationlevelfromcriticizedintononaccrualcancontinuetostayverylow,orisitstilljustthedurationofsoftnessinenergypricesthatwilldrivetheultimatemigrationperformance?

Pete,whydon'tyoutakethat.Pat,youcanchimeinaswell.

PeteGuilf oile (ChiefCreditOfficer):

Sure.Ithinkthesamepatternthatwehaveseenoverthepastquarterwillcontinue.Weareseeingsomemigrationintheportfoliostill,butwearenotseeingalotofmigrationtonon-accrualandwehaven'tseenalotofcharge-offs.That'sbeenconsistentwithwhatourexpectationhasbeenrightfromthebeginninganditisexactlywhatweareseeing.Weareseeingalotofthesecreditsgetresolvedbeforetheygotonon-accrual.Infact,wecontinuetogetlargepayoffsofsubstandardcreditsandwejustgotoneIthinkaweekortwoago,soweareencouragedbythat.Wethinkthat'sgoingtocontinueandI

don'tseeanyreasonwhyitwouldchangewithenergypriceswheretheyaretoday.

Pat,anythingyouwouldadd?

PatFaubion (ExecutiveVicePresidentoftheBusinessBank):

TheonlythingIwouldaddtothat,Scott,somethingthat'sreallyhelpedusisthat97%ofourportfolioissecuredandwehaveusedthesameengineersforyearsandyearsandthatisholdingupverywell.Soourborrowersarereallybehavingresponsiblyatthistimeinthemarket.

That'sperfectcolor.Thankyouverymuch.AndthenifIcanswitchgearsreallyquickly,Karen,alotofmovementwithinthebalancesheetbetweensomeofyourguys'issuancesandthenjustthestrongdepositgrowthandeverything.CanyoumaybejustsortofencapsulatehowmuchofthemovementandIguesstheresultingpressureonthemarginwasmaybetransitoryasfundswerejustsortofwaitingtobefullydeployedortimingwithinthequarter?Whatwasthenatureofsomeofthosemoves?Inotherwords,couldweexpectmaybesomereliefonthemargineventhoughtherewillstillbenetdownwardpressure?Howdoyouseethosethingsplayingoffoneanother?

Sure,Scott.Ifyouaretalkingaboutthenetinterestratemargin,ouractualrateNIM,obviously,thebiggestimpactonthatwastheincreasedbalancesattheFed,which,onaperiod-endbasis,weredrivenbyincreaseddepositsanddecreasedloans.Andsothatcanmove,sothebalancesthatwehavewiththeFedcanclearlymoveonaperiod-endbasis.TheimpactontheNIMfromasecuritiesyieldandaloanyieldperspective;securitiesyieldscontinuetobeimpactedbytheloweryieldingonourpre-payreinvestmentandthefactthatwehaveaddedtreasuriestoourportfolio.Theloanyieldhasbouncedaroundalittlebitoverthelastseveralquartersupanddownandreallydoesdependonthemovementthatwehaveinourportfoliosdependingontherelativeloanyieldandtheareathatisgrowingordeclining.SotheoverallimpactonNIMismostimpactedbybalancesattheFed,whichyoupointedoutandlittleimpactfromsecuritiesyieldandthenhopefullycontinuedsomewhatstableimpactfromloanyield.

Okay.That'sperfect.Thankyouguysverymuch.

Operator :

ErikaNajarian,BankofAmerica.

ErikaNajarian (Analyst-BankofAmerica):

I'msorrytore-askthequestionagain,butintermsofyouroutlookforflatprovisionforthefourthquarter,willyourfallredeterminationprocessbecompletelydoneandcapturedinthatfourth-quarterresult?

Yes,itwill,Erika.Weexpectthatwewillbethroughtheredeterminationprocessreallybytheendof

November.

Gotit.AndKaren,justasafollow-uptothelastquestion,couldyougiveusalittlebitofasenseintermsofyourdecisiontreewithregardstokeepingthecashattheFedversusextendingdurationtoprotectthemargin?Givenyourcommentsthatyouarealreadycompliantwiththe2017standardforLCR,IamwonderingwhatyourthoughtswereintermsofdeployingthatintoHQLAmoreaggressively,orareyouwaitingtoseehowmuchofthisdepositgrowthstickswithyou?

Anymoremovementintosecuritieswouldobviouslydampentheupsidethatwewouldhaveasratesriseandwecontinuetoremainverymindfulofthefactthat,asratesrise,wewillhaveamarktomarketonoursecuritiesportfolio,whichcanimpactourtangiblecapital.Sowewillcontinuetowatchtheenvironmentandbefluid,butweremainmindfulofthefactthatinvestorsarefocusedonourassetsensitivityupside.

Gotit.Andjustonefinalonefromme,Ralph.Givenyourcommentsthatsomeofthisenergypressureisgoingtopersistintonextyearandthemarketseemstobelessoptimisticaboutthetrajectoryoftheshortendofthecurvenextyear,I'mwonderinghowyouarethinkingaboutsortoftheincaseofemergencybreakglassplanfornextyear.Aretherefurtherexpensestopotentiallyimprovetheefficiencyratioinlightofamoredifficultrevenuebackdrop?Anysortofthoughtsonhowyouarethinkingabout2016astheenvironmentseemstobegettingalittlebitlessfriendly,especiallyforamodellikeyoursthat'ssotetheredtotheshortendofthecurve?

Well,weareconstantlylookingatthat,asyoumayrememberfrompreviouscallsandwehavebeenveryfocusedonexpensesandalsogrowingrelationships.AndIthinkthegrowingrelationships,especiallyinthefootprintthatwehave,isthelargestopportunityforusmovingforward.Wewillcontinuetolookatexpensesaswealwayshave,butthatinitselfisonethatwillnotoffsetbyitselftheexpensesweneedgoingforward,especiallyontheregulatoryandthecomplianceside.Sogrowingthebusinessaswenormallywouldandfocusonisprobablynumberonetoday.

Okay.Thankyou.

Operator :

KenZerbe,MorganStanley.

KenZerbe (Analyst-MorganStanley):

Maybeaquestionontheprovisionexpenseoratleasthowyouarethinkingaboutitasitrelatestoenergy.Tryingtotieyourcommentsthatyouaregoingtoseefurthercreditmigrationintheenergyportfolioandknowingthatyoudohavetomathematicallyholdhigherreservesagainstloansthatseedeteriorationintheriskratings,isitfairtoassumethatweshouldbeexpectingagainfurtherreservebuildintheenergybook,butthentokeepyourprovisionaslowasyouareguidingittobesortofinthatmid-$20millionrange,thatyouareactuallyrelyingonfurthercreditimprovementsinotherareas?

Pete,doyouwanttotakethat?

Yes,Ken,wearestartingoffthequarterwithahealthyqualitativereserveandthatreserveisinplacebecausewearelookingatthefallredeterminationprocessandweareexpectingsomemigrationtocomeoutofthatwithenergypricesbeingalittlebitlowerthanwheretheywereinthespring.Wearealsoexpecting,withrigcountswheretheyare,thatfewerborrowerswillreporthigherenergyreservesandthatcouldputalittlebitofpressureonborrowingbases.Soweareexpectingsomemigration,butwethinkourqualitativereservethatwehavewillbe--willsufficetocoverthatmigration.

Gotit.Soit'salmostjustmovingfromonebuckettothenextratherthanincreasingthetotalbucket?

Wearetryingtostayaheadofit.

Understood.Thattotallymakessense.Andthenjustmoreofagenericquestion,youtalkaboutyourenergycustomers.Obviously,Iknowyouknowthem,youknowthecredits.Helpmereconcile--I'mgoingtosayroughly$3billionofyour--whichisthevastmajorityofyourenergyloans--aresharednationalcredit.Howmanyofthoseenergycompanieslikeareyoutheprimarybankfor,thatyouhavethecorerelationshipforversus,Idon'tknow,someonelikeWellsFargo,orsomeoneelsethathasthecorerelationship?

Wearetheagentforlessthan20%ofourenergyportfolio,butwedohaveadirectrelationshipwitheverysingleclientinthebookandmany,manytimesthatisamulti,multi-yearrelationship.

Okay,great.Allright,thankyouverymuch.

Operator :

JohnPancari,EvercoreISI.

JohnPancari(Analyst-EvercoreISI):

Regardingtheprettysteepincreaseintheenergycriticizedloans,whatwasthemaincomponentofthedriver?WasitE&Poroilservice?

Yes,Ithinktheenergyservicessegmentofthebusinesshasbeenthemostimpacted.Butbearinmind

theenergyservicessegmentismuchsmallerthantheE&P,soIwouldsaytheybothwereafactorthisquarter.Thisquarter,wemovedsomecreditstocriticizedsimplybecauseoftheexpectationthatenergypricesaregoingtoremainlowforanextendedperiodoftime.Andsoiftherewasanyoperationalweaknessatall,wemovedthesecreditstospecialmention.AndthethingthatIwouldsayaboutthatisisthatourfeelingsaboutthesecreditshasn'tchanged.Mostofthesecreditshaveverystrongbalancesheets.Wearewell-secured.Wedon'texpecttheriskoflosstoincreaseasaresultofusmovingthesecredits.Wejustdidn'tfeellikewecouldjustifykeepingthempastcreditsgivenhowlongenergypriceshavebeenwheretheyare.

Okay,allright.AndthenIguesssomeofthequantificationswouldhelpalittlebitmore--forexample,whatwasthesizeoftheadditiontoyourenergyloanlossreserveinthethirdquarter?

Wedon'tgiveoutthatspecificinformation,butwhatIwouldsayisthatwehaveincreasedourreservestoenergyeveryquarterforthepastfourquarterssincethepricestartedtomovedown.Andwehavementionedthatwemaintainahealthyqualitativereserve.Andatthesametime,Ithinkit'simportanttorealize,duringthatsametimeframe,thatourenergybalanceshavealsodeclined.

Okay.Andonthatfront,Karen,canyouhelpuswithhowtothinkabouttheincrementaldeclineinenergyloanbalancesoverthenextseveralquartersevenifoilpricesstaywheretheyare?

That'sdifficulttopredictexactly,but,intheappendixofthedeck,wedogivequarter-by-quartermovementinourenergyportfolioandyoucanseethelastdecline,whatitdidonbalances.

Pat,youcancommentonthat?

Yes,wedoexpectreductionsasaresultoftheupcomingredetermination,butwe'vealsobeenadvisedfromourclientsofabout$215millionincommitmentstoday,whichwouldtranslateto$125millioninoutstandingsthatweexpecttoconfirmpay-offsonbaseduponmergersorsalesthatarehappeningwithintheindustry.

Okay.Andthen,lastly,IknowyouindicatedthatthefallredeterminationsshouldbeoverbyNovember,butwhat'salsohappeninginthewinteristheSNCexam,whichisnowpartlysemiannual,Iguess,forlargebanks.Willyoubepartofthat?

Well,wearealwaysapartofitbecauseweareinvolvedintheSharedNationalCredit,soallthesamecreditsarebeingexamined.OurSNCexamwillnotbeuntilspringofnextyear,butweareinvolvedinthecreditsthatwillbeexaminedinthefallandwedon'texpectanyimpactfromthat.Ourregulatorsarelookingatourenergybookallthetime.Infact,theylookedatitjustrecentlyandIthinkweareallonthesamepageastowheretheriskratingshouldbeontheportfolio.SoIamnotanticipatinganyissues

comingoutoftheSNCexam.

Okay.Allright.Thankyou.

Operator :

KenUsdin,Jefferies.

KenUsdin (Analyst-Jefferies):

Aquestionjustonnon-energyandjustregularloangrowth.Canyoujusttalktousalittlebitaboutthestateofaffairsinnon-energyTexas?Andalso,Inoticedthatjustthekindofnon-energymiddlemarketsincorporatebankingalsolookliketheydeclined.Sojustsomeflavorintermsofjustunderlyingborrowerdemandandwhat'sgoingonatthecoreinTexasplease.

Curt,doyouwanttotalkaboutoverallandPat,youcantalkinTexas?

CurtFarmer (President):

Yes,whatIwouldsayfromanoverallperspective,wecontinuetobenefit.WhileweareseeingsomeimpactfromenergymorebroadlyinTexasthatPatcanspeakto,wecontinuetobenefitfromadiversegeographicfootprint.AndasRalphmentionedinhisopeningcomments,theCaliforniamarketcontinuestoperformwellforusreallyacrossavarietyofourcorebusinesses,aswellasourspecializedbusinessesonboththeloananddepositsideoftheequation.AndwearestartingtoseesomeniceimprovementintheoverallMichiganeconomytiedtotheautoindustry,thelowergasprices,butjustingeneralimprovementinunemployment,realestatevalues,etcetera,intheMichiganmarket.Sowefeellikewestillhavegrowthopportunitiesinbothofthosemarkets,whichishelpingtooffsetsomeofwhatwehopeisatleastanear-termimpactinTexas.ButIwouldalsosaythat,fromalonger-termperspective,wecontinuetobeverybullishontheTexaseconomyatlarge.

Pat,doyouhaveanythingtoaddtothat?

IwouldjustaddfurtherthatTexasissurrenderingitsleadgrowthwithinourCompanytoCaliforniaandwearereallypleasedtoseewhatCaliforniahascontributed.ButalsoMichiganhascomeonverystrongandmanygoodthingsaregoingoninMichigan,includinginDetroit.TheTexaseconomyhasadirectimpactofabout15%fromoilandgas,butthehangover,sotospeak,isaffectingquiteabitofourbusinessesandasnoted,ourbalancesaredowninTexasabout2%forthequarterandIthinkthebestindicatorforthatisoureconomicactivityindex,butitshows9straightmonthlydeclines.Soitisjustconfirmedbythegeneraleconomy.

Understood.And,Karen,afollow-up.Canyouhelpusunderstandontheexpensesidewhatwasthemagnitudeofthosenon-repeatablebenefitsthatyouhadinthethirdquarterandcanyoualsohelpusunderstandwhattheseasonalstepupmightlooklikeinthefourthfromallthelinesthatyoumentioned?

Yes,sooutlinedonourexpenseslide,thelevelsofexpensesthatmaynotberepeatedwouldbethehedgeineffectiveness,thewarrant-relatedincomeandthedeferredcomp.Inadditiontothat,asweoutlined,justforthequarter-over-quarteroutlook,thatwedoexpectincreasesinseveralothercategories.Staffinsuranceissomethingthattypicallyrisesinthefourthquarter,occupancyexpenses,marketingspaces,consultingexpenses.Wearecontinuingtoinvestintechnology,sotechnology-relatedexpenses,etcetera

Okay,soisitfairtosaythatkindoflikethehelpersthisquarterwereabout10andthenyougetanother10ontopofthat?

Weexpectourexpensestomoderatelyincreasequarter-over-quarterandinmoderate,youcanassumesortofmid-singledigitlevels.

Okay.Understood.Thanks,Karen.

Operator :

DaveRochester,DeutscheBank.

DaveRochester (Analyst-DeutscheBank):

Justhadabiggerpicturequestiononcredit.Justtryingtofigureouthowcriticizedloansincreasedbyover$500million,butthereserveonlyincreasedbymaybeafewmillion.Canyoujusttalkaboutwhatyourtypicalreserveisonspecialmentionorsubstandardloans?AndIrealizeNPAswerestable;it'sjustthatI'veheardsomeprettylargereservepercentagesouttherethatsomebanksassigntocriticizedassets.

Wedon'tdisclosespecificallyourreservesonparticularcredits,butbearinmindthatourreservescomeintwodifferentforms.Oneisthe[decided]reserves,whichareveryspecifictoournon-accrualloansandthentheotherwouldbeourstandardreserves,whicharewhatweassigngenerallytodifferentcategoriesofspecialmentionandsubstandardcredits.Sowedidhavemigrationintheportfolio,butthemakeupofthatmigrationmakesadifferenceonwhatourreservesaregoingtobe.Forinstance,ourE&PcreditsaremuchbettersecuredthansomeofourotherC&IloansandsowemightnothavethesameamountofreservesassignedtothoseE&Pcreditsaswewouldsayourenergyservicescreditsthataremigrating.Soit'sdifficulttoexactlyequatemigrationtotheamountofreservesthatwehave.

Gotyou.Thanksforthat.Andthenyoumentionedyouarejuststartingtheredeterminationprocess.Justwonderinghowmuchyou'vedoneatthispoint.Andthenwe'veheardotherbankswithenergyexposuretalkaboutpricedeckscomingdownsomewhereinthehighsinglestomid-teenstypeofrangeforthefallredeterminations.Isthatwhatyouguysareseeingaswellintermsofmagnitude?

Yes,Ithinkwewouldbeconsistentwiththat.Weareabout15%to20%ofthewaythroughtheprocessrightnowandsofar,wearenotseeinganythingunusual.Wearenotseeinganywidespreaddeficiencies.Verysimilartowhatwesawinthespring.Wouldn'tbesurprisedifweseemorecollateraldeficienciesthisfallthanwhatwesawinthespringbecause,frankly,wedidn'tseealotinthespring.Butsofar,it'sgoingwell.

Andhowmuchhavelinescomeinjustonaverageforthecreditsyou'veexaminedsofar?

Doyoumeanhowmuchborrowingbaseshaveshrunk?

Yes,exactly.

I'malmosthesitanttogeneralizefromwhatwe'veseensofar,butweactuallyhaveseenafairnumberofcredits--theirborrowingbasesactuallyincreaseandourloantovaluesdecreaseandwe'veseenjustaboutasmanyofthose--seenasmanyloantovaluesdecreaseaswehaveseenincrease.Butit'sstillearlyandI'mnotnecessarilysurethat'sgoingtoholdthroughthewholeprocess.Itwouldbegreatifitdid,butI'mnotsureifitwill.

AndthenIknowlastquarteryousaidyouwerestillkindofgoingthroughthere-riskratingfortheserviceportfolio.Isthatsegmentdoneatthispointandwhendoyoutypically--whenwillyoulookatthatagain?

Yes,wearelookingatitallthetime.It'sacontinuousprocess.We'vebeenthroughtheportfolioprobablytwoorthreetimes.

Okay.Gotyou.Allright,great.Thanks,guys.

Operator :

TerryMcEvoy,Stephens.

T erryMcEvoy(Analyst-Stephens):

Justasmallquestion.Itlookslikerecoveriesinenergyhappenedinthethirdquarter.Netcharge-offsthroughthefirsttwoquarterswere$10millioninenergyandthenitfellyear-to-dateto$3million.Couldyoujusttalkaboutanyrecoveriesandwhatwasbehindthat?

Wedidn'thaveanysubstantialrecoveriesinenergythisquarter.Wejusthadlowercharge-offs.Wedidn't

haveanycharge-offsinthelineofbusinesswhatsoeverandwehadjustahandfulofenergy-relatedcharge-offs,sowewereencouragedbythat.

Okay.AndthenjustonMichiganandmiddle-marketlending,doyouexpecttoseeorareyoustartingtoseeapickupfromthetypicalslowdownyouseeinthatmarketduringthesummermonths?

Yes,youarecorrect,Terry.Wedoseeadipinthesummer,butwealsoseearesurgeinthefourthquarterandwedoexpecttoseethat.

That'sgreat.Thankyou.

Operator :

BobRamsey,FBR.

BobRamsey(Analyst-FBR):

AlotofmyquestionshavebeenansweredandIhatetobelaborenergy,butoutofcuriosity,whydon'tyoualldisclosewhattheenergyreserveis?

Bob,wefirmlybelievethattheallowanceistheretocoveranyandalllosses.Andsowethinkitmightbemisleadingtogivespecificsaroundanyoneportfolioandthat'sthekeyreason.

Okay.Iknowyouallsaidthatmostofthenetcharge-offsthisquartercamefromtechnologyandlifesciences,aswellasenergy,butIwasjustwonderingifyoucouldtellmewhatthedollaramountofnetcharge-offswasontheenergybookthisquarter.

Yes,Icould.

Itcamefromtheenergy-related,nottheenergy(multiplespeakers).

Energy-related,okay,yes.Andmaybewhileyoudigthatnumberup,Iwillaskaswell,Iknowyouhighlighted27%oftheenergybookiscriticizedtoday.Canyoujustremindmehowthatcomparestothepeakinthelastcycle?

Idon'tknowifwehavethepeakcriticizedinthelastcycleoffhand.Wecanansweryourquestionforenergy-relatedcharge-offs.

Yes,ourenergy-relatedcharge-offs--sorryforthedelay--wasabout$9millionforthequarter.

Great.Ifyoudon'thavetheexactcriticizenumbered,doyouhaveanysenseoranysortofoutlookastowhetheryouexpectthisenergycycletobesimilarintermsofwherethingspeakorwhetheryouthinkthetrajectorylooksbetterorworse?

Iwouldexpectwearegoingtoseecontinuedmigration,butIthinkit'sgoingtobeataslowerpace.Weareseeingsomewhatofabifurcationintheportfolio.Therearecertaincreditsthatjustarenotmigratingatallprimarilybecausetheyhavejustsuchstrongbalancesheetsand/ortheyaremoregasweightedthanoilweighted.Idon'texpecttoseethosecreditsmigrate.Alotofthehigherlevered,moreoilycreditshavealreadymigrated,soyouarenotgoingtoseeanyofthat.SoIthinkwewillseemoremigration,butIthinkitwillbeataslowerpace.

Great.Andthenlastquestion,shiftinggearstocapital,itlookslikethepaceofsharerepurchasesissortofrunningbelowwhatifIsimplytookyourCCARauthorizationanddivideditby5quarterswouldcomeouttobe.Iknowyouallsaidthepaceofbuybacksislinkedtoperformanceandwillbehigherinahigherrateenvironment.ButIamjustcurious,isitnotstillyourintenttofullyexecuteonthatCCARauthorizationbeforeitexpiresregardlessofwhathappenstoratesandperformance?

SointhestresstestscenariosthatwerelaidoutbytheFed,theydidhaveadecentsizedinterestrateincreaseoverthenine-quarterforecast,whichstartedinthesecondquarterof2015andwentonthrough2016.Obviously,asratesrisemeaningfully,thatcanhaveagoodimpactonourbottomlineandsoyoucanexpectthatoursharerepurchaseprogramgoingforwardwillbetiedtobothourstrongcapitallevelsandtoournetincomeperformanceandsowewillwaitandsee.

Okay.ButoverthehorizonofthisCCARauthorization,ifratesdonotmoveduringthisauthorizationperiod,wouldyoustillcompletetheexistingauthorizationorwouldyouscaleitback?

Honestly,itdependsonearnings,Bob.Earningscanbeimpactedbymanythings,butinterestratesareoneofthebiggestdriversofgrowthinearnings.

Okay.Allright,thankyou.

Operator :

BrettRabatin,PiperJaffray.

Brett Rabatin (Analyst-PiperJaffray):

IwantedtomakesureIunderstoodguidance,justthinkingabouttheoutlookforthefourthquarterintermsofaverageloans.Kindofgiventhemortgagebankerisseasonallylowerandcontinueddeclineinenergyandmaybethinkingaboutthepipelinebeinglower,canyoumaybetalkabouttheaverage

balancebeingflattish,orrelativelystableIguessisthetermyouuse,inthefourthquarterkindofversusintheperiodbeenquiteabitlowerthanaveragein3Q?

Yes,so,Brett,Iwouldsaythatimportanttoknowthatourpipelinedidincreaseattheendofthisquartergoingintothefourthquarter,sothatisgoodsignsforourotherlinesofbusiness.Wedidnotethatweexpectcontinueddeclinesinenergy;we'vetalkedaboutthat.Onmortgagebankerfinance,wealsoexpectseasonaldeclines.Theamountofthosedeclinesaredifficulttopredict.Youcanseeinourappendixthefactthatwe'vegotquarter-over-quartermovementinourmortgagebankerbusinessandinthelastcoupleofyears,wehaveseenseasonaldeclines,sometimesaslargeas$500million,butagainverydifficulttoexactlypredict.

Okay.AndthenjustwantedtomakesureIwasunderstanding--youareobviouslyverymindfulofhigherinterestratesandtheeffectonthesecuritiesportfolio.Karen,whatisyourassumptionforinterestratesnextyearasyouthinkaboutmanagingthebalancesheet?

Thatisanybody'sguess.Whenwethinkaboutmanagingthebalancesheetonsecurities,wecontinuetohavepre-paysonoursecuritiesportfoliothatrangeinthe240to250yieldareaandwearefocusedonreinvestingthosepre-paysasbestwecanatyieldsatoraboveourcurrentportfolioyields.Butverydifficulttosaywherethoseyieldswillbenextyear.

Okay.Great.Thankyouforthecolor.

Operator :

BrianClark,Keefe,Bruyette&Woods.

BrianClark(Analyst-Keefe,Bruyette&Woods):

SoIwanttokindoffollowuponthediscussionaboutthepipelineandIguessyouroutlook.Thinkingabout--it'sbeenawhilesincewe'veseencommitmentsonutilizationratesdropandobviously,there'salotofenergy-relatedissuesthereandmaybeeven,likeyousaid,someoftheseasonalitythatyouseeinmortgagebankerfinance.IguessI'mjustthinkingabouttheguidanceagainaboutperiod-endloansbeingdownalmost$800millioninthethirdquarter,butaveragesexpectedtobeflat.SoIguessmyfirstquestionisisthatpartiallybecauseyouthinkthatthedealerfloorplan,whichusuallyhasagoodfourthquarter,isthatexpectedtocomeinandhelptogrowbalancesinthecoreC&Ibookforthefourthquarter?That'smyfirstquestion.

Yes,theanswertothatisyes.Ourdealerfloorplanobviouslydoeshaveseasonality,didseesomedeclinesinthethirdquarterandwedoexpectittocomebackabitfromthosedeclines.

Imightjustsaythat,acrossthemarket,wedofeelgoodaboutthepipelineinsortofgeneralmiddlemarketandsomeofoursmallerbusinesses,smallbusiness,privatebankingandevenretail,whichwedon'ttalkalotabout,butHELOClending,consumerlendingandsotherearesomeotherareasthat,

beyondthedecline,thatweareexpectinginenergyandmortgagebankerfinancethatIthinkwillbecontributorsinadditiontothenormalseasonalityindealerfinancialservices.

Thanksforthat,Curt.IguessmaybeIcanfollowuponthatwithyou.ItseemedlikeeveninJPMorgan'sbusinessbank,theirmiddle-marketlineofbusinesswasdowninthethirdquarter.Itwasdownforyouguys$364million.Iguesswhatareyouseeingthatmakesyoufeelgoodaboutthefourthquarterandthatlineofbusinesssinceit'sabouta30-yeartotalloanportfolio?

Pat,doyouwanttoaddtothat?

Sure.Ourmiddle-marketbusinessishistoricallydowninthethirdquarter.We'velookedatitforthelast15to18yearsanditisaveryrepeatabletrendanditdoesbouncebackinthefourthquarter.Howwefeelgoodaboutthatisaswelookatthepipelineandwemanagethatineverymarketandwhatwearehearingisthatwewouldexpectnewcredits,newclients,aswellasincreasestosomeexistingrelationships.

Okay,thankyouforthat.Andjustonelastonefromme.Pete,Idon'tthinkyougaveitthisquarteryet.Ithinkyougaveittouslastquarter.Iguesswiththeoilandgasorenergy-related,the$1.1billionincriticized,isthemakeupsimilartotheE&Pandoilfieldservicesintheoutstandings,orcanyougiveusanideaofhowthat$1.1billionisspreadacrossthosecustomers?

Yes,thesegmentthat'sbeenmostaffectedhasbeenenergyservices.Wearealittleover40%criticizedthere.E&Pisabout27%.Midstreamnotbeenverymuchaffectedatall.It'saround10%to12%,somewherearoundthere.

Thankyouverymuch.

Operator :

DavidDarst,Guggenheim.

DavidDarst (Analyst-Guggenheim):

Ijustwanttoaskaquestiononthetechnologyandlifesciencesbusiness.Thatportfoliohashadthelargestdollarvolumeofgrowthoverthepastyearandisnowaboutthesamesizeasenergy.Wherecouldtherelativesizeofthatportfoliobeandthenisanyofthegrowthyouseealso(inaudible)thehigherlossesyou'veseenthisyear?

Pat,doyouwantto--?

Themajorityofthegrowththatwesawinourtechnologyandlifesciencesbusinesswasinourequityfundservicesgroupwhereweprovidecapitalcallandsubscriptionlinestoventurecapitalandprivateequityandtypicallythosearethelessriskypartofthetechnologyandlifescienceportfolio.

Soisthereanythingyouwouldattributethehigherlossratetothisyear?

Yes,David,thisisPeteGuilfoile.It'snotunusualforustoseeelevatedcharge-offsinTLS.Theyhavebeenupforthelastcoupleofquarters.Theyareabovewherewewouldliketoseethem,frankly,butwe'renotseeinganysystemicissuesthere.Wearenotseeinganypatternstothecharge-offs.Ireallydon'tthinkwearegoingtoseefurtherdeteriorationintheportfoliobutwefeltitmadesensetoincreaseourreservesandwearewatchingitcarefullybutwedon'texpectthatdeteriorationtocontinueinsubsequentquarters.

Okay,great.Andthen,Karen,justonequickquestionontheheadcountincreasethisquarter.Isthatrelatedtosomeofthetechnologyprojectsyou'vegotinplace,orarethosefront-linesales?

Itisrelatedtomostlythetechnologyprojects.Onthefrontlineweareveryfocusedonallocatingourresourcestoourgreatestgrowthopportunitiesbutnotnecessarilyaddingintheheadcount.

Okay,great.Thankyou.

Operator :

DavidEads,UBS.

DavidEads (Analyst-UBS):

Maybefollowinguponthetechquestionyoujustgot,couldyougivealittlebitofcoloronhowyouguysthinkaboutprotectionandwhatmakesyoucomfortablewiththeexposuresinthatportfolio,Iguessparticularlyonthemoreriskyside,ifyouweretohaveamoresustained--troubleshitthetechmarket?

Yes,there'sanumberofthings,David.We'vebeeninthebusinessalongtime,soexperienceisprobablythemostimportantthing.Wehaverelationshipswithanumberofventurecapitalfirmsthatwe'vebeenthroughupsanddownsinthecyclesmanytimesbefore,soweunderstandhowtheyreactindownturns.Wehaveanumberofdifferentbusinesseswithinthetechnologyandlifesciencegroup,soit'smuchmorediversifiedthanyoumightthink.Evenwithinthetechnologysector,wehaveafairamountofdiversification,notjustbyindustry,butbygeographyandbyinvestorgrouptoo.SoIwouldsaythemainthingswewouldpointtoareourexperience,thepartnersthatwedobusinesswith,weareveryselectiveandthenthediversificationofthebook.

Great,thanks.Justquicklyonenergy,aquestion--canyougiveusanycolor--Iknowyouguyshavenotwantedtogiveanykindofnumbersaroundthereserve--buttherelativesizeofthequantitativeandqualitativereservesandanykindoftrend--ifwe'veseenmeaningfulshiftsfromqualitativeintoquantitativeoverthepastcouplequarters?

Sowedon'tgiverelativesizeseither,butwedomaintainahealthyqualitativereserveaswelookforward.

Icanjusttellyou,David,wesizeourqualitativereservebasedoneventsthatwethinkhavealreadyoccurredandourriskratingshavenotadjustedtoyet.Sowethinkthatthemigrationthatwearegoingtoseethisquarterasaresultofredeterminationprocessesareeventsthathavealreadyoccurred.Sowefeelcomfortablesettingupaqualitativereservetocoverthataspectofthemigration.

Allright.Thanks.

Operator :

JohnMoran,MacquarieCapital.

JohnMoran (Analyst-MacquarieCapital):

Justacouplequickfollow-ups.The$125millioninoutstandingsthatareexpectedtopaydownoutoftheenergybook,wouldthatallhitin4Qoristhatkindof4Qandtheninto2016?

Tothebestofmyrecollection,John,thoseshouldhappeninthefourthquarter.Thatnumberisbaseduponinformationthatborrowershaveadviseduson.Sothoseopportunitiesarealreadyinprocess.

Gotit.Okay,thanks.Andthenmaybejustafollow-uponTexasgenerally.Evenex-energy,generalmiddlemarketsortofdown,areyouguysexperiencingthat?AndcertainlyitseemslikedifferentMSAsareexperiencingthisslowdownindifferentways.Soifyoucouldgiveusalittlebitofcolorintermsofkindofwhatyouareseeinggoingonbymarket.AndthenIknowyoufeelgoodaboutthepipelineingeneral,butifyouhadanycommentaryaroundthepipelineasrelatedspecificallytoTexas.

Curt,doyouwanttotakethatone?

Yes,IwillmakeacouplecommentsaboutTexasoverall.Whilethereisageneralimpactfromtheenergyslowdownstatewide,itdefinitelyisbeingfeltmoreintheHoustonmarket,sortofprimary,probablySanAntoniosecondary.ButifyoulookattheNorthTexasmarket,Dallas-FortWorth,itisamorediverseeconomy,lessenergy-dependent.WearenotseeingwhatIwouldcallbroadimpactasofyetinthatpartofthesector.Butmoreimpactisstartingtocreepin.Energy,energy-relatedcertainly(inaudible)justmorebroadly.Probablysomelonger-termimpactonhomevalues,realestatevalues,etcetera,forexample,intheHoustonmarket.Butit'sahugestate,sothere'salotofdiversityfromaneconomicstandpoint.

AndMichigan,asyouweretalkingaboutearlier,withtheautoindustryrebounding,there'sarealstrengthstartinginmomentumthere.

Yes,aswellasthebroadspreadgrowthweareseeinginCaliforniaastheeconomycontinuestochugalong.

Andthevariousspecializedbusinessesthatwehavethatareuniqueaswell.Pat,doyouwanttoaddanythingtothat?

Well,justasitrelatestoTexas,competitionfornon-energyandnon-energyservicesclientsisprettyfierce.Peoplearenottryingtoexpandtheirbookforthatandtheyhaveredirectedtheirmarketingactivitiestowardsnon-energycompanies.Sothat'salsoimpactingourgrowthinTexas.

Okay,that'shelpful.Andthenjustoneotherquickfollow-uponthecriticizedenergy.AndKaren,Idon'tknowifitwas--wearenotsureifwehavethis,orwearenotgoingtodiscloseitatthispoint--butsomebodyhadaskedwheretheypeakedlastcycleandIwaswonderingifyoutrackedthatdown?

Yes,wepeakedatthehigh20%soverallintermsoftheentireenergybook.Bearinmindthatwedidnothaveenergy-relatedinthatnumberbackinthelastcycle.Sowejuststartedreportingenergy-relatedinthiscycle.Also,thedurationofthatcyclewasshorter,soit'snotsurprisingthatourcriticizedlevelsarealittlebithigherthistimearoundforthosetworeasons.

Pat,doyouhaveanythingtoadd?

Ithinkwe'veadjustedthewaythatweexamineourbook.Weexamineitmorecriticallytodaybaseduponcashflowasopposedtoanasset-basedbook.Thecomplexionoftheportfoliohasonlygottenbettersincethelastcycle.Itremainssecured,butwearefocusingmoresuccinctlyondepressedcashflowthistimearound.

Gotit.Thanksverymuchfortakingthequestions,guys.

Operator :

StevenAlexopoulos,JPMorgan.

StevenAlexopoulos (Analyst-JPMorgan):

Justacoupleoffollow-ups,nosurprise,Iguess,onenergy.Ralph,whenIlookattheenergycriticized,youwereup$329millionlastquarter.Thisquarter,youareup$537million.LastquarterwasseeminglyimpactedbytheSNCexam,borrowingbaseresets.I'mtryingtogetmyheadaroundwhatthecatalystwasthisquarterthatwesawabiggerincreaseincriticizedthisquarterversuslastquarter.

AsIstatedbefore,wejustdecidedtotaketheapproachthat,giventhatenergypriceshavebeendownforanextendedperiodoftime,thatwehadanumberofcreditsthatwerekindofinthatlowpasscategory.Wejustmovedthemtocriticizedthinkingthatwearenotgoingtoseeaturnaroundinenergypricesandifanyofourcreditsareseeinganykindofoperationalweakness,wedecidedthatwereallycouldn'tjustifycallingthempastcredits.But,again,Idon'tfeelanyworseaboutthosecredits.Idon'tthinkwehaveabigriskofloss.Mostofthosecreditshaveverystrongbalancesheetsandmostofthosecreditsthatwemovedthisquarterstillarevery,verywell-secured.Soweactuallydon'tfeelanydifferentlyabouttheenergybooktodaythanwefeltoneortwoquartersago.

Okay,soyouessentiallychangedyourforecastforoilprices,essentially?

No,it'snotbasedonreallyaforecast,Steve,asmuchasitisthat,ifyouareseeingsomeoperationalweaknessandyoureallydon'texpectthatoperational--there'sanimpetusforthatoperationalweaknesstoturnaroundintheshortterm,whichnowwereallydon't,wejustdecidedthatweshouldmovethemtospecialmention.

Okay.Andintermsofnotneedingtoputincrementalreservesoratleastanysizemagnitude,wereyoualreadyreservingatthenewratinglevel?I'mjusttryingtorectifyalackofprovisioninthequarter.

Yes,sowehavealwayshadaqualitativereserveandwehavetriedtostayaheadofthisthewholeway.Andsoyouarerightthatthatqualitativereservewasavailableforsomeoftheriskratingchangesthatwemade.

Andwedidincreaseourreservesforenergyinthequarter,Steve.

Okay.Justafinalone.Sofromabigpictureview,withroughlyathirdoftheenergybooknowcriticized,seeminglyabovethepriorpeak,whatgivesyouconfidencethatlossesaregoingtoremainmanageable?Andbymanageable,doyoumeanthroughearnings?Whatexactlydoyoumeanbythat?

Well,bearinmindthatthebulkofthemigrationhasbeeninE&PandthevastmajorityofthoseE&Pcreditsremainextremelywell-secured.Eventheonesthatarehighlylevered,mostofthedebtisbelowusandsoourpositioninthosecreditsremainsolideventhoughtheriskofdefaultmightbehigher.Theconcernwouldprobablybemorearoundourenergyservicesbook,butourenergyservicesbookisonly15%oftheportfolio.It'snot50%oftheportfolioandthat'sbydesign.

Partofourstrategyistolimitthesizeofourenergyservicesbook.Andanotherthing,wefeelreallygoodaboutourstrategyaroundenergyservices.Inadditiontolimitingthesizeofit,wehavereallyfocusedoncompanieswithstrongbalancesheets,strongliquidity.Andthenanotherimportantconsiderationthereisjustdiversification.WeliketoseecompaniesthatarenotoverlydependentondrillingactivityandIthinkbecauseofthestrategythatwehaveandthesizeoftheenergyservicesportfolio,wefeelthatourlossesintheenergybookaregoingtobemanageableforthatreason.

Pete,youmightjustreemphasizethatwelendatapercentageofprovenreserves.

Correct.Wehaveaveryconservativeapproach,asdomostbanksinthisspace,onwhatwearelendingagainstintermsofreserves.Wearediscountingthemheavily.Weareriskingthem.We'rereallyfocusedononlytheprovedreservesandthenwearetakingaprettybighaircutbeforeweapplytheadvancerate.Forthatreason,alotofthesecreditsarebeingresolvedbeforetheygotonon-accrualbecausemanyofthecreditsthatneedliquiditycanactuallyselltheirassetsandgenerateliquiditybecauseouradvancerateagainstthemismuchlowerthanwhattheycanrealizeinasale.Andthat'swhyyouareseeingalotofthesecreditsthatarespecialmentionandsubstandardnotmigratingtonon-accrualorcharge-off.

Maybejustonefinalone.Isyourviewthatlossesremainmanageabletiedtoanexpectationthatoilpricesrecoverfromhere?IrememberLarsmaybe18monthsagoorsosayingifoilwasbelow$60,itwasproblematicandnowweare$47.Doyouneedtoseearecoveryfor$4718monthsfromnow?Arelossesmanageableinthatscenario?

Yes,Ithinktheywouldstillbemanageableevenattoday'sprices.What'shappenedoverthelastseveralquartershasbeengreattosee.Weseeourcustomersreducingtheircoststructure.Theyarerightsizingtheirbalancesheets.Theyhavehedgingthathasallowedthemtobridgethemselvestoapointwheretheycanbecomeprofitableatlowerenergyprices.AndIdon'tknowwhatthemagicnumberis,butIfeellikethemajorityofourborrowerswillbeabletoadjusttopriceswheretheyaretoday.

Okay.Thanksfortakingthequestions.

Operator :

GaryTenner,DADavidson.

GaryT enner (Analyst-DADavidson):

Justhadonefollow-upenergyquestion.Iwonderaswestartlookingat2016ifyoucouldgiveusasenseofhowyourE&Pcustomersarehedged,whatpercentageoftheirprojectedproductionishedgedandwhatkindofpricelevels.

Gary,weupdateourhedgingstatisticsbasedontheredeterminationprocessandsoweareonlyabout15%,20%throughthatprocess.SothenumberIamabouttogiveyouisnotterriblydifferentthanthenumberIgaveyoulastquarter.But,rightnow,59%ofourborrowershave50%ormoreoftheirPVPhedgedforayearormoreandabout35%ofourborrowershave50%ormoreoftheirPVPhedgedfortwoyearsormore,whichisverysimilartowherewewerelastquarter;it'sverysimilartowhereweweretwoquartersago.

Okay,butonlyveryearlyintheredeterminationprocess?

Correct.

Allright.Thankyou.

Operator :

JeffreyElliott,AutonomousResearch.

Jef f reyElliott (Analyst-AutonomousResearch):

You'vesaidafewtimesyoukindofseeenergyasmanageable.Couldyougiveabitmorethinkingonwhatyoumeanbymanageable?

Well,Ithinkmanageablemeansthatwearenotgoingtoseeanythingoutoftheordinary,thatwefeellikeourreservesaremorethanadequatetocoveranythingthatcomesup,Iguess.

Pat,youmaywanttoaddtothis--thisisbasedonwehaveateamthathas30yearsofexperience.We'veseentheupsanddownsandwe'vetalkedaboutvariouswaysthatthesecreditsaremanaged,whichisuniquetotheportfolioandtheparticularsegment.Pat,doyouwanttoaddtothat?

Well,justtoreinforcethefactthatwe'vebeeninthebusinessforover--approximately30years.We'vehadthesamemanagerforthat30-yearperiod.Ourengineershavebeenworkingwithusforalong,longperiodoftime.EnergyisaveryimportantbusinesstoComerica.It'sanimportantbusinesstoTexasandanimportantbusinesstotheUnitedStates.Andourcreditpolicieshavebeenadjustedovertimetohelpmanagethroughcyclesandthat'sexactlywhatweareexperiencingtoday.

Andthenjusttofollowup,you'vetalkedaboutratesasbeinganimportantfactorindeterminingearningsandsooninthinkingaboutthebuyback.Wouldyourankcreditequallywithrates,higherthanrates,lowerratesintermsofswingfactorsforearningsandabilitytocompletethefullbuybackthatwasapprovedunderCCAR?

Karen,doyouwanttotakethat?

Sure.Obviously,creditisanimportantpieceofwhatwedo.Intermsofanoutlookfornextyear,wearenotgivingthatyet.Wewillgiveitaswetypicallydoonourfourth-quarterearningscall.Wearestillinourplanningprocess,butforprovisionatleastforthenextquarter,weexpectittobesimilartowhatwehadinthethirdquarter.Sowearefeelingcomfortableontheimpactthatitcouldhaveonearningsthroughtherestofthisyear.

Great.Thankyouverymuch.

Operator :

Ladiesandgentlemen,wehavenofurtherquestionsinqueueatthistime.I'dliketoturnthecallbackovertoMr.RalphBabb,ChairmanandCEO.

ThankyouandthankyouallforbeingwithusthismorningandyourinterestinComerica.Weappreciateitandhopeyouallhaveagreatday.Thankyou.

Operator :

Thankyou.Thisconcludestoday'sconferencecall.Youmaynowdisconnect.

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