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Comerica Incorporated (NYSE:CMA)

Q4 2012 Earnings Call

January 16, 2013 8:00 am ET

Executives

Darlene P. Persons - Senior Vice President and Director of Investor Relations

Ralph W. Babb - Chairman, Chief Executive Officer, President, Chairman of Capital Committee, Chairman of Special Preferred Stock Committee and Member of Management Policy Committee

Karen L. Parkhill - Chief Financial Officer, Vice Chairman and Member of Management Policy Committee

Lars C. Anderson - Member of Management Policy Committee and Executive Vice President of The Business Bank

John M. Killian - Chief Credit Officer, Executive Vice President and Member of Management Policy Committee

Analysts

John G. Pancari - Evercore Partners Inc., Research Division

Ken A. Zerbe - Morgan Stanley, Research Division

Craig Siegenthaler - Crédit Suisse AG, Research Division

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Kevin J. St. Pierre - Sanford C. Bernstein & Co., LLC., Research Division

Bryan Batory - Jefferies & Company, Inc., Research Division

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division

Arjun Sharma

Ryan M. Nash - Goldman Sachs Group Inc., Research Division

Stephen Scinicariello - UBS Investment Bank, Research Division

Jon G. Arfstrom - RBC Capital Markets, LLC, Research Division

Adam G. Hurwich - Ulysses Management LLC

Gary P. Tenner - D.A. Davidson & Co., Research Division

Michael Turner - Compass Point Research & Trading, LLC, Research Division

Operator

Good morning. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Comerica Fourth Quarter 2012 Earnings Call. [Operator Instructions] I'd now like to turn the call over to our host, Ms. Darlene Persons, Director of Investor Relations. Please go ahead, ma'am.

Darlene P. Persons

Thank you, Brent. Good morning, everyone, and welcome to Comerica's Fourth Quarter 2012 Earnings Conference Call. Participating on this call will be our Chairman, Ralph Babb; Vice Chairman and Chief Financial Officer, Karen Parkhill; Vice Chairman of Business Bank, Lars Anderson; and Chief Credit Officer, John Killian.

A copy of our press release and presentation slides are available on the SEC's website, as well as in the Investor Relations section of our website, comerica.com. As we review our fourth quarter results, we will be referring to the slides, which provide additional details on our earnings.

Before we get started, I would like to remind you that this conference call contains forward-looking statements. And in that regard, you should be mindful of the risks and uncertainties that can cause future results to vary from expectations. Forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update any forward-looking statements. I refer you to the Safe Harbor statement contained in the release issued today, as well as Slide 2 of this presentation, which I incorporate into the call, as well as our filings with the SEC. Also, this conference call will reference non-GAAP measures, and in that regard, I would direct you to the reconciliation of these measures within the presentation.

Now I'll turn the call over to Ralph, who will begin on Slide 3.

Ralph W. Babb

Good morning. Today, we reported fourth quarter 2012 earnings per share of $0.68 or $130 million compared to $0.61 or $117 million for the third quarter. Loan and fee income growth, combined with expense control, contributed to our 11% increase in fourth quarter 2012 net income when compared to the third quarter. Full year 2012 net income was $521 million, an increase of $128 million or 33% compared to 2011.

Turning to Slide #4 and further highlights. In this slow-growing national economy, we continue to benefit from our position in growth markets and our industry expertise, which helped drive an increase in average total loans of $522 million. The increase in average total loans primarily reflected an increase of $762 million or 3% in commercial loans, partially offset by a decrease of $241 million or 2% in Commercial Real Estate loans. The increase in commercial loans was primarily driven by increases in National Dealer Services, Energy, general Middle Market and Mortgage Banker Finance. We continue to capitalize on opportunities by reallocating resources to faster-growing markets and segments.

Average total deposits increased $1.4 billion in the fourth quarter to a record $51.3 billion, primarily reflecting an increase of $1.3 billion or 6% in non-interest-bearing deposits. Excluding accretion, net interest income was stable in the fourth quarter and reflected an increase in loan volumes and lower funding costs, offset by the continued shift in the mix of the loan portfolio, a decline in LIBOR and lower yields on mortgage-backed investment securities. Accretion of the purchase discount in the acquired Sterling loan portfolio declined $2 million. Non-interest income increased $7 million to $204 million in the fourth quarter, primarily due to increases in customer-driven fee income.

We maintained our tight control of expenses in the fourth quarter. Non-interest expenses decreased $22 million to $427 million, primarily reflecting a decrease in restructuring expenses related to the Sterling acquisition. Credit quality continued to be strong in the fourth quarter with lower non-accrual and watch list loans and a lower provision for credit losses. With net charge-offs of 34 basis points, we are well within our historical normal range. We have demonstrated throughout the cycle that we can effectively manage credit.

Our capital position remains a source of strength to support our growth. We repurchased 3.1 million shares in the fourth quarter and 10.1 million shares for the full year 2012 under our share repurchase program. Combined with dividends, we returned 93% and 79% of fourth quarter and 2012 net income to shareholders, respectively.

Turning to Slide #5. We continue to be pleased with the substantial growth opportunities in our markets, particularly Texas, where we continue to leverage our standing as the largest U.S. commercial bank headquartered in the state. The Texas economy continues to be a growth leader, consistently outperforming the national economy. We are allocating more resources in Texas to Technology and Life Sciences, Environmental Services, and Mortgage Banker Finance to complement our already-strong energy lending capabilities and our focus on a broad spectrum of middle market companies. Average loans in Texas were up in the fourth quarter and were up 10% from a year ago. While average deposits, which were relatively stable quarter-over-quarter, were down from a year earlier as expected, as we adjusted pricing on the former Sterling portfolio.

We are also well positioned to capitalize on the considerable opportunities in California, a state whose economy is gaining momentum, particularly in Northern California, where technology companies in Silicon Valley continued to drive growth. Our Technology and Life Sciences business has strong relationships with key venture capital firms in all of the major tech hubs. In our National Dealer Services business, we have relationships with auto dealerships in more than 30 states, California being the largest. And our Southern California-based entertainment group is active in financing film and television productions, as well as providing wealth management services to members of the entertainment community. Average loans and deposits in California were up in the fourth quarter and were up 13% and 15%, respectively, from the fourth quarter of 2011.

The economic recovery in Michigan is broadening and continues to improve, primarily driven by the recovery of the auto sector. We have strengthened our #2 deposit market share position in the state based on the latest FDIC deposit market share survey. We have long-standing relationships with businesses and consumers in the state where we have had a continuous presence for more than 163 years now. Michigan remains an important market to us, and we are proud to be among the largest employers in Metropolitan Detroit. Average loans in Michigan were relatively stable in the fourth quarter and down 2% from the fourth quarter of 2011, as customers continued to have significant liquidity and have deleveraged through the cycle. Average deposits in Michigan grew in the fourth quarter and were up 5% from a year ago.

Looking ahead, regardless of how our nation's fiscal issues are resolved, we still expect to operate in a low-rate environment for quite some time and are prepared to do so. We believe our focus on relationships, growth markets, industry expertise and expense management should assist us in increasing returns to shareholders and provide us the momentum that will not only carry us through an extended low-rate environment but enable us to succeed in it, too. We believe our company has a tremendous upside when the economy ratchets up and interest rates rise.

Looking at the impact from a 200 basis point increase in rates over a 12-month period, equivalent to 100 basis points on average, we should expect to see an almost $180 million or 11% increase in net interest income based on our analysis at December 31, 2012. This includes the value of our already-strong deposit base, which we anticipate would increase substantially when rates rise, providing a tremendous source of low-cost funding with continued loan growth.

In addition, as economic activity improves and investments ramp up, particularly among small and middle market companies, we expect fee income generation to continue to increase along with loan volumes.

We believe we are ready for the road ahead and have the right strategy in place to make a positive difference for our shareholders, customers and employees. And now I will turn the call over to Karen.

Karen L. Parkhill

Thank you, Ralph, and good morning, everyone. Turning to Slide 6. As Ralph mentioned, total average loan growth was $522 million or 1% quarter-over-quarter. The pace of decline of average commercial mortgage and real estate construction loans slowed in the fourth quarter, with a decrease of $241 million compared to the $344 million decrease we had in the third quarter. While properties are still being refinanced in the end market faster than new commitments are drawn, our Commercial Real Estate pipeline continues to grow and demand is improving.

As shown in the blue diamonds, loan yields declined 6 basis points in the quarter, reflecting declines in LIBOR and purchase loan accretion, as well as the continued mix shift in our portfolio. On the right-hand side, you can see commercial loans, which were up 3% or $762 million, were the main driver of our loan growth. As you can see on the green part of the bar, Mortgage Banker average loans grew again this past quarter, driven by market share gains and continued positive trends in the refinance markets. As we have said in the past, Mortgage Banker outstandings can be volatile and should eventually decline as refinance volumes slow.

As we have seen historically, we had strong seasonal growth at the end of the year with period-end loans increasing $1.9 billion or 4% to $46.1 billion. This primarily reflected an increase of $2.1 billion or 7% in commercial loans, with increases noted in almost all lines of business.

In addition, total commitments increased $817 million in the fourth quarter, with commitments increasing in almost every business line, led by Mortgage Banker, Energy, and Technology and Life Sciences. Line utilization increased to 49.4% from 48.2% in the third quarter. Also, our loan pipeline remains solid even with the high level of closing activity at year end, and almost 2/3 of the pipeline at year end can be attributed to new business.

As shown on Slide 7, our total average deposits grew 3%, ending the year at an all-time high. Our average non-interest-bearing deposits also reached a new record, increasing $1.3 billion or 6% over the third quarter. The growth was broad based with contributions from almost every business line. We were able to lower deposit pricing by 2 basis points, as shown by the yellow diamonds on the slide. As I have said before, we continue to carefully scrutinize deposit pricing. However, at this level, it's becoming more difficult to continue to lower the overall cost in the future.

Our period-end deposits increased to a record $52.2 billion. We are closely monitoring activity, but we have not seen an impact on the expiration of the transaction account guarantee program on December 31.

Finally, our loan-to-deposit ratio stood at 88% at year end.

Slide 8 provides details on our securities portfolio, which primarily consists of highly liquid, highly rated mortgage-backed securities. The portfolio averaged about $10 billion in the fourth quarter. This slightly larger size helped offset the decline in yields, shown in blue diamonds, resulting from purchases of securities with rates in the 1.5% range.

Similar to last quarter, there was only a small amount of accelerated premium amortization recognized in the quarter. At December 31, the remaining net unamortized premium was about $95 million or just under 1% of the portfolio balance. The average duration on the portfolio remains low at 3 years. Prepayments were about $900 million in the fourth quarter. We expect prepayments will continue at this pace in the first quarter, assuming rates remain at current levels. Lastly, we continue to manage the size of the portfolio in conjunction with our excess liquidity.

Turning to Slide 9. Our net interest income was relatively stable in the fourth quarter. Loan growth helped offset the impact of accretion and the continued low-rate environment. We've summarized in the table on the right the major moving pieces in the quarter. Growth in average loans added $4 million to net interest income but does not impact the rate margin. While we remain focused on holding spreads for new and renewed credit facilities, there are many mix shift dynamics that are impacting the loan portfolio, such as higher yield in Commercial Real Estate loans being replaced by lower yield in commercial loans; older fixed rates loans maturing, some of which are refinanced at current yields; as well as positive credit migration. All these factors combined had a $4 million or 4 basis point impact on the net interest margin. Approximately 85% of our loans are floating rate, of which 75% are LIBOR based, predominantly 30-day LIBOR. LIBOR declined in the fourth quarter, with average 30-day LIBOR declining 3 basis points. The decline in LIBOR had a $2 million or 2 basis point impact.

In addition, you may recall in the third quarter, we had $2 million in residual value lease adjustments in our portfolio, which reduced the margin last quarter by 2 basis points and was not repeated.

Accretion of the purchase discount on the acquired Sterling portfolio contributed $13 million, which is a decline of $2 million in the quarter or 1 basis point on the margin. The accretion realized was greater than we had forecast, as the performance of the acquired portfolio exceeded our expectations due to improved credit quality and faster repayment or refinance activity. We have about $55 million of total accretion remaining to be realized on the acquired portfolio. Accretion will continue to trend downward each quarter, and we expect to recognize about $20 million to $30 million in 2013.

In aggregate, total loan-related items had a $2 million or 5 basis point negative impact on the margin. Dynamics in the securities portfolio, including prepayments being reinvested at lower rates, partially offset by a slightly larger portfolio, had a $2 million or 3 basis point negative impact. Lower deposit costs added $1 million and provided a 1 basis point increase to the margin. And finally, average excess liquidity increased $478 million, reducing the net interest margin by 2 basis points. As Ralph mentioned, our asset-sensitive balance sheet remains well positioned for rising rates. We believe a 200 basis point annual increase in rates, equivalent to 100 basis points on average, would result in almost $180 million increase in net interest income.

Turning to the credit picture on Slide 10. Credit quality continued to be strong in the fourth quarter. Net charge-offs decreased to $37 million or 34 basis points of average loans. While gross charge-offs were at a similar level as the third quarter, we had a higher level of recoveries in the fourth quarter. Our provision for credit losses was $16 million, down from $22 million in the third quarter. This decrease reflects the substantial decrease in nonperforming and watch list loans, as shown on the right side of the slide. Our watch list loans decreased $565 million to $3.1 billion or 6.7% of total loans. Nonperforming loans decreased $151 million. With the decline in nonperforming loans, the allowance to NPLs increased to 116%. In addition, the average carrying value of our nonaccrual loans is about 55%, and the $629 million allowance is over 4x the annualized fourth quarter net charge-off.

Slide 11 outlines the non-interest income, which increased $7 million or 4% in the fourth quarter and reflects increases in customer-driven categories, including increases in commercial lending fees, derivative income and fiduciary income, partially offset by a decrease in letter of credit fees. We believe that the cross-sell initiatives we have been implementing over the past year are resulting in increased collaboration across business lines. Noncustomer-related categories were relatively stable at $14 million. Securities gains related to auction rate securities redemption were $1 million. This was offset by a $2 million decrease in deferred compensation asset returns, which was completely offset in deferred compensation plan expense.

Turning to Slide 12. We continue to maintain good expense control. Expenses decreased $22 million. Excluding the $23 million decrease in restructuring expense, the $4 million increase in severance expense and a $6 million benefit in the third quarter from gains on sales of assets, expenses declined $9 million compared to the third quarter. We incurred $2 million in restructuring costs related to the acquisition of Sterling, which closed in July 2011. This compares to $25 million in restructuring expenses recorded in the third quarter. Restructuring charges related to Sterling are now complete. While salaries increased $4 million, the increase was primarily due to a $4 million decrease in severance -- excuse me, a $4 million increase in severance and a $2 million increase in employee incentives, which were offset by a decline in deferred compensation, which, as I mentioned, is completely offset in non-interest income. We continue to carefully manage our workforce, which has decreased 5% over the past year as shown on the bottom chart on the slide. Non-interest expense in the third quarter benefited from $6 million in gain on sale of certain assets not repeated in the fourth quarter. Also, in other non-interest expenses, legal expenses declined by $4 million in the fourth quarter.

Moving to Slide 13 and capital. As Ralph mentioned, we repurchased 3.1 million shares under our share repurchase program in the fourth quarter. In 2012, we repurchased a total of 10.1 million shares for $304 million. We expect to complete the execution of the previously announced $375 million share repurchase plan through the first quarter.

Combined with dividends paid, we returned 79% of net income to shareholders in 2012. We have submitted our 2013 capital plan to our regulators and expect the response in mid-March. As stated before, we believe that we approached the CapPR process from a position of capital strength, as measured by both the current regulatory capital standards, as well as the proposed Basel III capital ratios.

On Slide 14, I am pleased to report that we have met and exceeded the financial hurdles we had set for the Sterling acquisition, including revenue and expense synergies, as well as integration costs. As I mentioned earlier, the integration of Sterling is complete. There will be no further restructuring expenses related to the acquisition. In fact, total restructuring expenses came in $15 million lower than we originally anticipated, with final total cost of $110 million. The former Sterling footprint, which was predominantly Houston, San Antonio and Kerrville, delivered loan growth of 10% and fee growth of 15% since the deal closed. Overall, we remain very pleased with the acquisition and the momentum we are building in the Texas market.

Finally, turning to Slide 15 and our outlook for the full year 2013 compared to 2012. We expect loan growth to continue but at a slower pace. Our 2012 loan growth was strong and broad based, and we benefited from our expertise in Mortgage Banker, National Dealer Services and Energy. Going forward, we expect Mortgage Banker outstandings to eventually normalize in line with refinance activity. We also expect the rate of decline of our Commercial Real Estate loans to continue to slow and eventually turn, but it's difficult to predict the exact timing by quarter or year. We plan to continue to -- our emphasis on middle markets, particularly where we benefit from our industry expertise. However, the current uncertain economic environment does bear on demand and competition for new loans, and we intend to maintain discipline with credit structure and relationship pricing.

We expect net interest income to decrease, primarily reflecting the continued reduction in the accretion of the loan discount on the Sterling acquisition from $71 million in 2012 to an expected $20 million to $30 million in 2013. In addition to accretion, we expect that the continued low-rate environment will have an impact on loan and securities yields, as older fixed-rate loans mature and higher-yielding securities prepay. While we believe it will wane eventually, we do expect a continued impact in portfolio mix shifts from Commercial Real Estate loan decline and positive credit migration.

On the positive side, we expect to benefit from continued loan growth and slightly lower funding costs.

With respect to credit, we expect our total provision expense will be stable, reflecting loan growth offset by a continued decline in problem loans and net charge-offs. We expect customer-driven non-interest income to increase, as we continue to benefit from the full year run rate of the revenue synergies implemented in 2012, including a renewed focus on cross-sell opportunities, selective pricing adjustments and product investments. Note that this does not include an outlook for noncustomer income.

Finally, we expect non-interest expenses to decline, as we have no further restructuring charges related to Sterling, and we expect to realize salary savings from our reduced head -- workforce. Also, tight expense management should result in reductions in several categories such as legal, advertising and other real estate expenses. This will be partially offset by slight increases in pension expense and payroll taxes. As far as pension expense, we made a contribution to the plan at the end of the year. The returns on the investment of this contribution will help substantially offset increased pension expense. Therefore, we estimate our retirement benefits increased -- expense to increase only about $5 million. We estimate our tax rate will be approximately 36.5% of pretax income, less approximately $66 million in tax benefits.

In closing, we are pleased with our continued loan and deposit growth, customer fee income generation, tight expense management and strong credit performance. We look forward to the year ahead, and we remain keenly focused on delivering a growing bottom line. Now we are happy to answer your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of John Pancari with Evercore Partners.

John G. Pancari - Evercore Partners Inc., Research Division

Can you talk about the change in the end-of-period balances for the mortgage warehouse, how that trended in the quarter and then separately, your outlook for that in the near term? I know you expect that it could slow with refis, but can you talk a little bit about the -- for next quarter, where you think that could go?

Ralph W. Babb

Okay. Lars, you want to?

Lars C. Anderson

Yes, I'd be glad to. John, we did see a bit of a spike at the end of the year, and frankly, you may recall in prior quarters, we typically do see kind of a run-up in those balances. The average increase for the quarter was up nearly $100 million, and of course, the end of the period was up around $373 million, but that frankly is not that unusual at the end of the quarter. So that's the kind of the first part of your question. Second part, kind of on a go-forward basis, the mortgage banking industry expects a 19% decline in mortgage loan apps in 2013. So as Karen made a couple of her comments, as we look at next year, it would not be unlikely to see some of those balances in the overall mortgage banking finance portfolio moderate. Assuming that occurs, potentially offsetting that could be purchase volumes if the residential real estate market continues to strengthen nationally. So it's a great business, and we got a great stable of customers. We have clearly added market share this year, have very high cross-sells into that portfolio. So we're committed to it on whole, John.

John G. Pancari - Evercore Partners Inc., Research Division

Okay. All right. And then can you talk a little bit about the growth you're seeing in Middle Market. It was encouraging to see that, that book grew in the quarter, and I know you're talking about the strong increase you saw in line utilization and commitments. So I'm assuming that bodes well, but can you give us a little bit more color about what you're seeing changing there that's starting to drive some good growth?

Lars C. Anderson

Okay, very good. So assuming that you are speaking about Middle Market general and some of the pickup there, obviously, our total Middle Market businesses, we're seeing some nice lift. But in the Middle Market general category, again, kind of similar to Mortgage Banking Finance, we saw a nice peak at the end of the year at over $300 million, but the overall portfolio, up $100 million, which was really encouraging to see, we saw really increases in that largely across our portfolio. I think there was a lot of good activity that was -- that we saw in the fourth quarter. Some of it, John, that would have been -- I would characterize as tax-driven, year-end activity levels, maybe some transactions that accelerated into the fourth quarter. But in particular, this is an area that we're giving specific focus to. I think it's an area that we can continue to grow at a nice steady rate as we head into '13. We've made additional investments into our general Middle Market business, and we would expect, again, as Karen pointed out, assuming the economy gives us a little bit of growth, that, that's an area that we can certainly continue to gain in a number of our markets. I'd point out that Texas has been a bit of a standout there in terms of growth, but we're also seeing pickups in general Middle Market, not just in Northern California, but Southern California, we've seen pipelines grow and actually begun to see a little bit of growth there, too. So that's very, very encouraging. One last note I'd mention and this is just in total commercial, you may have noticed that the Michigan market actually was up 1% in the linked quarters, so again, general Middle Market contributed to that.

Operator

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

Ken A. Zerbe - Morgan Stanley, Research Division

First question, just on the securities portfolio. I noticed in the slide you had, basically Slide 8, saying the duration is 3 years. If you go back a -- just a quarter, your duration was 2.7 years. Can you just explain why the duration of your securities portfolio is increasing? I guess I would have thought it would be coming down given the excess liquidity you mentioned.

Karen L. Parkhill

Yes, sure, Ken. The average duration in our year, in every quarter, it ranged between 2.7 and 3. So if you look further back in the year, you'll see it was around 3 in other quarters. What I can say is that we managed that portfolio and the reinvestments in our prepays, trying to maximize all of our different parameters, including getting the highest yield at the lowest premium and maintaining this highly liquid, highly rated portfolio. And as we reinvest those prepays and try to get the highest yield possible, the duration can inch out a little bit. But again, the entire year it's been between 2.7 and 3 years.

Ken A. Zerbe - Morgan Stanley, Research Division

Okay. No, that's helpful. And then just the other question I had on expenses, obviously, your guidance was lower because you don't have the restructuring cost. If you were to back out restructuring costs from 2012 and let's call that core expenses, what would the guidance be for core expenses year-over-year?

Karen L. Parkhill

So for 2013 or actually, for 2012, we had total restructuring expenses of $35 million. For 2013, we would expect you to take out that $35 million and then reduce expenses further based on the fact that we are maintaining continued tight expense control across lots of areas.

Operator

Your next question comes from the line of Craig Siegenthaler with Credit Suisse.

Craig Siegenthaler - Crédit Suisse AG, Research Division

First, just maybe we can touch on C&I loan yields. I'm wondering what is the average new money yield, say, on loans being put on the book relative to the 3.33% yield in the fourth quarter?

Ralph W. Babb

Lars?

Lars C. Anderson

Well, what we are focused on and continue to remain focused on, Craig, is our relationship banking strategy, and we deliver a, I think a differentiated value proposition in the market. To support that, we take a very disciplined pricing approach to our Middle Market and frankly, all of our businesses. And while you have -- I think we saw -- heard a pretty good breakdown from Karen of the breakdown in some of the decline in the yields overall, one key component of that has been the migration of our portfolio, not just in asset quality but also in concentration in commercial and industrial. And as you know, in C&I, they're -- typically that's a little bit tighter spread, lower risk profile, and that's where we're continuing to see a lot of good growth, good Middle Market growth. So relative to our loan spreads, which I think is a pretty good proxy, as we look forward, for 2012, we really have focused very sharply on this disciplined pricing relationship, pricing and cross-selling. And for 2012, we've seen loan spreads hold essentially for the whole year in what has clearly been a difficult economic environment and obviously a very, very competitive environment. So I think it really underscores our business model and the fact that the market really is looking for what we're delivering in this relationship banking proposition. So all that really figures into, obviously, the overall yield dynamics for the company.

Craig Siegenthaler - Crédit Suisse AG, Research Division

And Lars, as you said, loan spreads haven't really changed throughout 2012, which probably means your new money yield hasn't changed that much. So I'm wondering if 3.33% really had the accretion in there in the fourth quarter, which is a little bit higher than we all thought. Can you help us think about how much downside is left in C&I loan yields if the accretion goes away and if yield curve and rates remain flat?

Karen L. Parkhill

Yes, Craig, loan accretion was built into that loan yield number, and for accretion going forward, we had $71 million in accretion in 2012. We expect $20 million to $30 million in 2013, but you can think about it as declining every quarter in 2013. Did that help?

Craig Siegenthaler - Crédit Suisse AG, Research Division

That's helpful.

Operator

Your next question comes from the line of Steven Alexopoulos with JPMorgan.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Karen, can I start, in terms of the drags on net interest income from loans remixing and then securities repricing lower, as you look through 2013, is there any reason to expect the amount of these drags to lessen through the year?

Karen L. Parkhill

Yes. So if I think about 2013 -- you didn't ask this, but do keep in mind the accretion drag, which we just talked about. On securities and loans specifically, we do expect the impact from securities yields to continue as long as rates stay where they are. Currently, we're reinvesting our prepays on our portfolio in the 1.5% area, but obviously, we'll be reinvesting those at current yields. So that could be an impact depending on the rate environment. On the portfolio dynamics or the mix shifts that we've talked about, we do expect that to continue. However, it should eventually slow. Hard to tell exactly when it will slow. We do have the Commercial Real Estate decline in the portfolio slowing. As we've said, that will eventually turn, although very difficult to predict the exact period. The older fixed-rate loans, even though it's a small amount that we've got on our overall portfolio, we have seen some impact, and that should continue but again, eventually turn. And the credit quality impact on the portfolio is continuing to improve but at a slowing pace. So hopefully, that's helpful.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Okay. So in aggregate, maybe about this pace the next several quarters but in aggregate, lessening, say, as we go through the year.

Karen L. Parkhill

Yes. Hard to tell.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

And on the loan side. Okay.

Karen L. Parkhill

Right. Yes. Hard to tell exactly when, but that's reasonable.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Right. Just a follow-up on John Pancari's earlier question on C&I, as you look out over the next quarter or 2 and you're talking to your customers, do you expect any slowdown and maybe draws on some of these lines that you're seeing that are building given that taxes have gone up and we still have a couple of these mini cliffs still to play out?

Ralph W. Babb

Lars, do you want to take that?

Lars C. Anderson

Yes, I'd be glad to. Steven, couple of things there. Let me just first touch on the point and I had -- I think John had referenced this, too, and that is utilization rates. The utilization rates that we share are at the end of the period, and obviously, we saw a nice increase, around 120 basis point increase, in utilization rates. Actually, about nearly 100% of that was driven by our National Dealer finance, and the activities we saw at the end of the year, if you net that, the average utilization rates were very stable as we look into next year. But our pipelines continue to remain very strong. They compare very favorably with the fourth quarter of 2011, and frankly, I think our commercial businesses are very well positioned. If you look at the growth that we had in the fourth quarter, we noted several standouts, but frankly, we had growth in almost every commercial line of business that we have here at Comerica. And we had increase in commercial in every one of our core markets. So given the backdrop of uncertain economic environment that our customers are feeling and really a dampened appetite for investment, I think that we are well positioned with the right model to go out and offer it in the marketplace. So we'll have to see how '13 plays out, but I think Karen gave good outlook on that.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Okay. And just one last one on the guidance. Last year, the initial guidance for 2012 was relatively vague, became more specific as the year progressed. Karen, is that the plan for 2013?

Karen L. Parkhill

Yes, our plan is to update the outlook as necessary every quarter as we have done in the past.

Operator

Your next question comes from the line of Kevin St. Pierre with Bernstein.

Kevin J. St. Pierre - Sanford C. Bernstein & Co., LLC., Research Division

Question on the provision outlook. So your provision for 2012 was $80 million. Your fourth quarter net charge-offs running at about $148 million annualized. Do you expect your charge-offs to get down closer to that provision for it to be stable? Or do you anticipate significant reserve release to continue into 2013?

Ralph W. Babb

John?

John M. Killian

Sure. I would say, first of all, that we do not target a specific reserve level. We follow the methodology that we have had in place for over 10 years, and it's worked well in good times and bad. If you look at our current reserve levels, they represent, though, about 1.37% of total loans at December 31, down a little bit from 1.46% at September 30. If you look at it on an average basis, however, our reserves to average loans at the end of the fourth quarter was 1.43%. Our reserves to nonperforming loans increased substantially in the fourth quarter, rising to 116% from 94% because of the decline in nonperforming loans. At 12/31, our total reserve is $661 million. It's about 4.4x our annualized fourth quarter charge-offs, so we feel we're pretty well reserved. As we go forward, reserve levels are going to naturally vary, as net charge-offs and problem loans decline somewhat, which we do expect, and that'll be offset to some extent by loan growth. Eventually, at some point, provision levels will approximate net charge-off levels, resulting in reserve release moderating.

Kevin J. St. Pierre - Sanford C. Bernstein & Co., LLC., Research Division

Okay, great. And just on that front -- and I understand it's more than 4x coverage of charge-offs, clearly well reserved. Is there any impact or potential impact of the recent FASB proposal for life of loss -- life-of-loan loss reserves maybe driving some incentive to soft adopt over time and keep reserve-to-loan ratios higher?

John M. Killian

That just came out, as you know, and we continue to study it. We believe, frankly, that it is an improvement over prior versions of the rules, but it's really still too early to tell and too early to be precise. It should result in higher reserve levels, not only for Comerica but for the industry as a whole. And frankly, implementation is probably still a couple of years away. There's certainly nothing in our reserves at this point that would reflect that.

Kevin J. St. Pierre - Sanford C. Bernstein & Co., LLC., Research Division

And one final quick one, unrelated. Any -- have you seen any change in depositor behavior once the calendar turned and we saw the expiration of the TAG program?

Karen L. Parkhill

Yes. As we've said before and you may recall, we did opt out of the TAG program back in the summer of 2010. We saw no impact at that time. We've been monitoring it. We've seen no impact today, and we expect that our customers look to us as a pillar of strength and stability regardless of the TAG expiration program. So we will continue to monitor it but have seen no impact.

Operator

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

Bryan Batory - Jefferies & Company, Inc., Research Division

This is actually Bryan from Ken's team. So core pre-provision earnings has been in the $200 million range over the past couple of quarters, and when we bring together the guidance from today for lower net interest income, higher core fees and lower expenses, even x the merger charges, what would your outlook be for PPNR? Do you think you can grow it from this $200 million level it's been at over the past couple of quarters?

Karen L. Parkhill

Yes, we would view PPNR similar to how we would view net income, that our focus is to continue to grow it as best we can despite the headwind.

Bryan Batory - Jefferies & Company, Inc., Research Division

Okay. And my next question is on capital. So on Basel III, you're at 9.1%, quite a bit above the 7% Tier 1 Common threshold. But with no preferreds in the capital structure, you're closer to that 8.5% Tier 1 threshold. So is there an appetite either in the near term or longer term to add some preferreds to the capital structure, so you could potentially bring down common levels a little bit low -- a little bit more?

Ralph W. Babb

I think what we will continue to do there is monitor how the final rules develop and make that decision based on that. That's not a negative. It means we're just going to watch.

Operator

Your next question comes from the line of Brett Rabatin with Sterne Agee.

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

Wanted to get maybe a little more color around the guidance on the expenses down net of the restructuring costs that happened in 2012. I was hoping maybe for some magnitude discussion and then some -- maybe some color around the programs you have, if you might reduce branch count or what kind of thing you're going to do to further lower the expense base.

Karen L. Parkhill

Yes, sure. If you think about expenses year-over-year, I've mentioned no restructuring charges. On top of that, we do expect, as I mentioned, reductions in legal, advertising, other real estate, as well as a run rate expense reduction from our reduced workforce. We also will have a significant tight control of expenses, similar to what we called our profit improvement plan last year, where we will be monitoring expense reduction at a very high level to make sure that we are achieving what we expect to achieve. Something I didn't mention, we do have our wholesale debt funding cost, which should come down as well. We have $1 billion in federal home loan bank debt maturing in the second quarter, as well as $50 million in sub debt maturing in the second quarter, which should take our debt wholesale funding cost down about $2 million towards the end of the year. So there are several things that we're doing to make sure that we keep a tight control on expenses.

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

Okay. And then secondly, just wanted to hear -- if you gave it, I missed it -- but any kind of estimate for what you thought maybe loan pull-forward was from maybe this year into the fourth quarter with the strong year-end growth in the loan portfolio, whether it was related to the fiscal cliff or what have you?

Ralph W. Babb

Yes. Lars, do you want to take that?

Lars C. Anderson

Yes, I'd be glad to. It's a good question. I think that there were -- there was -- clearly, we saw in good volume in the fourth quarter, a number of dividend recaps, some M&A transactions that were, I would say, accelerated to take advantage of a more favorable tax environment in the fourth quarter. Actually, nailing that exactly would be a little difficult in what that represented in our overall loan growth. In addition to that, our committed facilities, there were clearly some draws on committed facilities. I think the dealer finance book of business would be a good example where dividends were paid out before the calendar year end. That would have impacted and maybe created a little bit of window dressing. I can't nail it exactly for you, but it would not have been the majority of our activity for sure.

Operator

Your next question comes from the line of Jennifer Demba with SunTrust Robinson.

Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division

Could you give us what you're seeing in terms of trends on your -- in your specialty lending areas, where you're seeing relatively more loan pricing stability or relatively more pressure, whether it'd be Energy or Entertainment or tech or NDS?

Ralph W. Babb

Lars?

Lars C. Anderson

Sure. Obviously, we have a very broad array of Middle Market industry groups, so without going through each and every one of them, I'm just hitting maybe some of the big ones. We clearly have a great value proposition that we deliver. We've been in these specialized areas for a very long time, have developed strong reputations and I think do receive a premium from a relationship perspective. Energy has been a very good business to us. That's obviously becoming more competitive as we see more people in there. The dealer finance business is very competitive, as we see more national players entering that business. General Middle Market is generally stable, but it's competitive. Our Wealth Management business, frankly, grew, and I wanted to point that out, in linked quarters, great to see some activity there. Our Small Business stabilized. I think pricing there is competitive but hanging in there. Technology and Life Sciences, we continue to get paid a premium. But we've got a number of other businesses, Environmental Services, our Entertainment, our health and ed. I'd like to be able to say that any of them are protected from the competitive pricing storm but none are. So in this environment, you got to execute and execute very well your business model, and I think that we're doing that. And that's one of the reasons that we had 17% commercial loan growth this year, about $4 billion overall. I think it's being well received in the market.

Operator

Your next question comes from the line of Josh Levin with Citigroup.

Arjun Sharma

This is actually Arjun Sharma, on for Josh. I just had a question on your deposits. The deposit inflows in 2012 were stronger, probably much stronger than most people expected, but when rates eventually do rise, how do you think about those deposits maybe leaving the balance sheet? Or how do you really model how deposit elasticity would work?

Ralph W. Babb

I would add a comment there that I think we have seen, even with good loan growth during this period, deposits continued to grow. And I think it's a change in approach by a lot of our customers, who, while are borrowing and moving lines up, they are also being very careful to make sure that they have more liquidity than they had in the prior days, if you will. So it's hard to estimate how much you think they will run down. Some will certainly get used, but I don't think it'll go to the levels that it has in the past anytime in the short-term future. People are going to be more cautious from a liquidity standpoint.

Arjun Sharma

And then just a quick follow-up. When you think about your new loan origination and that yields have kind of stayed relatively stable over the last couple of quarters, when you think about the returns on those loans, would you say that ROEs have stayed relatively stable over the last few quarters? I guess I'm just trying to get a sense of how you would think about your incremental ROE for new loan originations?

Ralph W. Babb

Lars?

Lars C. Anderson

Yes. As we look at loans, that's an important component of it, but we really look at the overall relationship. And as we've shared before, we have a very robust relationship pricing kind of approach and models. And I would tell you that we are staying very consistent with the expectations for attractive returns for our shareholders with the new business that we're bringing in. Our position on that hasn't changed at all, and I believe that we're going to continue to stay committed to that discipline in '13 and going forward.

Operator

Your next question comes from the line of Ryan Nash with Goldman Sachs.

Ryan M. Nash - Goldman Sachs Group Inc., Research Division

Just as a follow-up on some of the comments on Commercial Real Estate. It seems like your outlook is a bit more cautious than what we've seen in some of the industry data. Can you maybe expand on the comments of demand improving and maybe what geographies you are seeing the most improvement and maybe give some details on which products are actually showing strength?

Ralph W. Babb

Lars?

Lars C. Anderson

Sure, Ralph. Yes, Nash, I think the comments that we've made is that we have seen a slowing in the runoff of that portfolio, which, I think, as Karen had mentioned, is a positive message. We've actually seen volumes of new business closed increase in the fourth quarter included in that. We're continuing to stay and I'd remind you, as very much of an in-footprint core market Commercial Real Estate strategy. It's very urban market oriented. It's where we're very active. You'd see the majority of the projects in the big markets in Texas and in California. Now multifamily has really been the dominant asset class that we've been active in, and the majority of these projects are with developers that we worked with through this past fiscal crisis. And frankly, we trust them. They trust us. We were reliable. They did what they said they were going to do, so we feel very good about our customer base. They are in very strong position. They're putting in strong equity levels into projects, and frankly, we continue to see multifamily as a good growth opportunity for us. But we do watch it carefully and in particular, the submarkets for any saturation. We are seeing a pickup in office activity in Northern California. The industrial asset class in Southern Cal has certainly strengthened. And in Texas, frankly, across a number of different asset classes. Again, though being dominated by multifamily, we're seeing good activity. So I feel optimistic about our Commercial Real Estate operation. I think we've got some very talented bankers who are well positioned in growth markets. But it's a business that you got to watch very closely, and we're going to do that, and we're going to do it consistent with our relationship banking model.

Ryan M. Nash - Goldman Sachs Group Inc., Research Division

Just, Karen, on the margin, it sounds like asset yields are down 11 basis points this quarter. It sounds like the rate of change could improve over the next couple of quarters. In terms of the liability cost, I mean, you took them down 2 basis points again this quarter, but do you feel there's still further levers for you to take down, whether it's on the deposit side or on -- or further actions you could take on the funding side? And just as a -- on in terms of asset yields, you did mention you're maintaining discipline. Are you seeing significant weakening in structure from others in the marketplace?

Karen L. Parkhill

Yes, I'll take the first part of your question, and then on the structure in the marketplace, I'll let Lars talk about it. On our margin and the liability cost funding, we are the lowest cost deposit provider amongst our peers. We monitor that on a very granular basis every month, and we continue to find opportunities every month that we look at it. But because it is so low right now on the deposit cost side, I'm not sure that, that will -- those opportunities will add up to be something meaningful enough for you to see. On the wholesale funding cost side, I did mention that we do have some debt maturing in the fourth quarter, both from federal home loan bank debt and some sub debt. That should take our cost of wholesale funding down around $2 million towards the end of the year. I'll let Lars answer the other question.

Lars C. Anderson

Would you -- could you restate the second part of the question? I want to make sure I answer accurately for you.

Ryan M. Nash - Goldman Sachs Group Inc., Research Division

Just that, yes, Karen had noted earlier about maintaining discipline in pricing. Can you just give us a sense if you are seeing weakening of structure from others in the marketplace?

Lars C. Anderson

From a credit perspective, not us?

Ryan M. Nash - Goldman Sachs Group Inc., Research Division

Yes, credit perspective.

Lars C. Anderson

Yes, okay. So yes, we're continuing to see some, I'd say, some weakening of structure in the market in particular areas. You do see it in Commercial Real Estate, frankly in Small Business a little bit, Middle Market. So that is, I'd say, creeping in a little bit, but overall, I'd say that structures are largely holding. We have not changed at all our strategy, how we approach our -- from a credit risk and structuring perspective at all. And then obviously, that has not had an impact on our growth rates.

Operator

Your next question comes from the line of Steve Scinicariello with UBS.

Stephen Scinicariello - UBS Investment Bank, Research Division

Just a couple of quick ones for you. Karen, I was just curious as we kind of look at that mortgage-backed securities portfolio and the amount of prepayments that we've had out there, I was just curious if prepayment speeds slow down maybe like 20%, 25%, what would that do to the potential margin headwind that is being created currently?

Karen L. Parkhill

If prepayment speeds slow down and we're -- don't need to reinvest at lower yields, obviously it will help that picture.

Stephen Scinicariello - UBS Investment Bank, Research Division

But it would be -- maybe it's got like a 3 basis points per quarter headwind today. Would that go down to maybe 1 or something less than that? Or what's kind of the ballpark that we could think about for potential if these prepayment speeds ever do slow down?

Karen L. Parkhill

Yes, I -- it's hard to tell exactly to give you good direction, but I would say that your general direction that you described is valid.

Stephen Scinicariello - UBS Investment Bank, Research Division

Got it. Great. And then just lastly, in terms of capital deployment going forward, obviously, entering the stress test from a very strong position once again, just in terms of priorities as you think about the year, given the outlook and other opportunities that you have in terms of loan growth and whatever, any reason why we shouldn't expect the same type of level of capital deployment going forward? Or are priorities any different in 2013 versus what they were in 2012?

Ralph W. Babb

I think at this point in time in filing, as Karen just talked, it's too early to talk about from that standpoint, but I would say, if you look at our history, we've been very focused on either reinvesting the capital or returning it to the shareholders.

Operator

Your next question comes from the line of Jon Arfstrom with RBC Capital Markets.

Jon G. Arfstrom - RBC Capital Markets, LLC, Research Division

Just a quick follow-up on my friend Steve's question on capital allocation. Just acquisitions as a topic, Ralph, and it seems like Sterling's largely done and it's met your targets. And I think we all know it was a little painful on the way in from a stock price perspective, but it seems like you're pretty satisfied coming out of it. And just wondering if you could give us updated thoughts on what might or might not make sense for Comerica and if acquisitions are on the radar screen at all.

Ralph W. Babb

Well, I think as we talked back at the time that we did that, that was a very unique strategic acquisition for us because it got us into Houston in a way that increased our presence and gives us the kind of recognition that we need in our footprint and also got us into San Antonio and Kerrville. And when you look at the footprint today in Texas, I'm very satisfied with that. We have a very good footprint. We have a very good group of colleagues in the markets, and we can grow that internally, much like we did with California when we bought the Imperial Bank, which was about 10 years before that. In Southern California, we needed that to have the presence, and likewise, we picked up a number of ideal businesses. So from the standpoint of having to do an acquisition, I would say that's not the case. We're very comfortable with our footprint. So it would have to be something that had the kind of return and fill-in that was an investment alternative if you will.

Operator

Your next question comes from the line of Adam Hurwich with Ulysses Capital.

Adam G. Hurwich - Ulysses Management LLC

You mentioned earlier the -- your approach to lending and the relationship banking mindset that you use. And then you also mentioned that you would see fees rising, and yet, you see some continued pressure on yields on loans. So obviously, there's a balance going on between trying to keep relationships profitable through the fees and then offsetting some of the loan pressure on the yields. Could you explain to us a little bit more how you think about that and maybe how that can sustain returns on equity?

Ralph W. Babb

Lars?

Lars C. Anderson

Yes. So yes, I think, as you pointed out appropriately, we look at the whole relationship. We look at our ability to both provide credit products but also fee-based products. I mean our mission at Comerica is to help our customers be successful, and the way that we do that is by building very deep, long-lasting relationships with them. And to do that, you've got to really understand their business, and it's one of the reasons that we are more focused than ever on having our bankers spend time in the markets, building deep relationships. And as they do that and deepen their relationship of our customers, they're able to provide more products to them. At the end of the day, pricing on a loan or whether you're getting in treasury management, you're providing interest rate risk management solutions, employee benefits at work. We really take a look at the total overall returns for our company, but we do keep a very close eye on credit pricing. No question about it, as that is a big key driver for our net revenue. So at the end of the day, that model and that approach is working. I mean we've shown some very nice growth in our disciplined relationship pricing approach. And frankly, we're really seeing some excellent activity level in terms of cross-sell, which is a good, I think, healthy reflection of the activity. I'd point out the collaboration that we're seeing now today between our commercial customers, and well, we're seeing record levels of referrals where we're banking the principals and executive officers like we've never seen before. And I think that really bodes well for us and really speaks to a successful, kind of overall review of our customers and the kinds of returns that we expect and for the value proposition we can deliver.

Adam G. Hurwich - Ulysses Management LLC

Just as a quick follow-up, a little bit difficult to answer I suspect. Given the balance, is there any way for us to think about a bottoming level for the ROE in this type of environment?

Lars C. Anderson

Yes. Well, Ralph may want to tag on to it, but from an ROE perspective, I mean we've got internal models where we review each and every customer, every product that we do and the overall relationship and it is -- it's hard work. I mean it's day to day, but we're committed to a certain hurdle rate and that's risk adjusted. We're not going to give up from it. I mean, really as you look at 2012, the environment that we came through, I think that's as, as good evidence as there is out there about our model and our commitment to disciplined pricing.

Ralph W. Babb

It's a very focused model. I would like to add one comment on the acquisition question that John put forward and underline what I was talking about: from the standpoint of today, we feel very comfortable with that footprint. I won't say that there wouldn't be a strategic opportunity, but there would not be many today that would expand that in a way like the other acquisitions that I talked about. So we would look at most as can you acquire it and put it in play at the same return as you could build it out over a period of time.

Operator

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

Gary P. Tenner - D.A. Davidson & Co., Research Division

I just had a couple of follow-ups. On the commercial mortgage portfolio, obviously, the owner-occupied piece has stabilized, and you talked a little bit about what seems like a decline, at least in the pace of runoff in the kind of -- in the developer side. But can you talk about on that developer side, what kind of the appetite is relative to the owner-occupied piece? Is that a piece you're actively trying to stabilize and grow? Or are you more focused on the owner occupied?

Ralph W. Babb

Lars?

Lars C. Anderson

Yes, absolutely, and depending upon which pages you're looking in the deck or in the actual earnings release. If you have the FDIC Commercial Real Estate, you have both the line of business breakout, as well as, what I call our relationship, our C&I relationships in there too. And what you'll see in there in that breakout in our earnings is that the -- our line of business construction portfolio grew in linked quarters, okay? So that was a real positive. You'll also see in line of business commercial mortgage that there was a slight decline. That reflects the increasing volumes of construction loans that we're providing that we talked about, but it also reflects the rotation of -- and the activity levels of our developers and accessing the permanent markets. Those construction loans and lines of business roll to typically mini perms, and there has been a lot of activity in rolling those out to the permanent market because it's very, very attractive. The remaining part of Commercial Real Estate in there is really relationship based. These are factories, distribution centers and such, and our approach to that real estate is really just building commercial relationships, C&I relationships, and whether it's adding an additional warehouse, it's a trucking fleet or it's equipment, we're really underwriting the cash flows for the C&I company. So we feel very good about, as I mentioned, our Commercial Real Estate line of business, our opportunity to grow that. And I think as we see out C&I portfolio continue to grow in the future, we're going to see owner occupied continue to grow with that.

Gary P. Tenner - D.A. Davidson & Co., Research Division

And then Karen, on the FHLB debt that's due on second quarter, I think you said $1 billion, you said the positive effect on funding costs should be about $2 million towards the end of the year. I assume you mean $2 million per quarter, and that should impact basically third and fourth quarters. Is that correct?

Karen L. Parkhill

No, I mean $2 million for the rest of the year.

Gary P. Tenner - D.A. Davidson & Co., Research Division

Okay. And the timing of the repayment -- or of that debt due in the second quarter, will it have an impact on the second quarter? Or will it be mostly backed up [ph] ?

Karen L. Parkhill

Very little impact because it matures towards the end of the second quarter.

Operator

Your next question comes from the line of Mike Turner with Compass Point.

Michael Turner - Compass Point Research & Trading, LLC, Research Division

Most of my questions have all been answered. I just want to follow up on the C&I loan yields. From the Fed data, it looks like the average for all large commercial banks, the C&I loan yield's around 270. Is there reason to believe you guys would be in that range, below that range, above it for new C&I originations?

Ralph W. Babb

Lars?

Lars C. Anderson

We're just going to stay focused on pricing, our individual opportunities that get us sufficient returns. So it's very difficult for us to peg that against, I think, the overall industry and to project that. But we're going to stay focused on our disciplined relationship pricing model. And it'll come out where it does, but we're going to ensure that we're getting the right kinds of returns on our relationships.

Operator

Sir, we have no further questions in the queue. I'd like to turn it over to Ralph Babb for any closing remarks.

Ralph W. Babb

Okay. Well, I appreciate your interest, and thanks for being on the call today. Thank you.

Operator

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

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