Comerica's (CMA) CEO Ralph Babb on Q4 2015 Results - Earnings Call Transcript

| About: Comerica Inc. (CMA)

Comerica Inc. (NYSE:CMA)

Q4 2015 Earnings Conference Call

January 19, 2016 08:00 AM ET

Executives

Ralph W. Babb Jr. - Chairman and CEO

Curtis C. Farmer - President

Karen L. Parkhill - Vice Chairman and CFO

Peter W. Guilfoile - EVP and Chief Credit Officer

J. Patrick Faubion - EVP, Business Bank

Darlene Persons - Director, Investor Relations

Analysts

Scott Siefers - Sandler O’Neil

Ken Zerbe - Morgan Stanley

Geoffrey Elliot - Autonomous Research

Erika Najarian - Bank of America Merrill Lynch

Steven Alexopoulos - JPMorgan

John Pancari - Evercore ISI

Terry McEvoy - Stephens Inc.

David Eads - UBS

Bob Ramsey - FBR & Co.

Brett Rabatin - Piper Jaffray & Co.

David Darst - Guggenheim Securities

Mark Holland - CLSA

Peter Winter - Sterne, Agee & Leach

Laurie Hunsicker - Compass Point Research & Trading

John Moran - Macquarie

Operator

Good morning. My name is Brent and I will be your conference operator today. At this time, I’d like to welcome everyone to the Comerica Fourth Quarter 2015 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

I’d now like to turn the call over to Darlene Persons, Director of Investor Relations. Please go ahead.

Darlene Persons

Thank you, Brent. Good morning. And welcome to Comerica’s fourth quarter 2015 earnings conference call. Participating on this call will be our Chairman, Ralph Babb; President, Curt Farmer; Vice Chairman and Chief Financial Officer, Karen Parkhill; Chief Credit Officer, Pete Guilfoile; and Executive Vice President of the Business Bank, Pat Faubion.

A copy of our press release and presentation slides are available on the SEC’s Web site, as well as in the Investor Relations section of our Web site, 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’d like to remind you that this conference call contains forward-looking statements. And in that regard, you should be mindful of the risks and uncertainties that can cause actual results to vary materially from expectations. Forward-looking statements speak only as of the date of this presentation and we undertake no obligation to update any forward-looking statements. I refer you to the Safe Harbor statement contained in the release issued today, as well as Slide 2 of this presentation, which I incorporate into this call, as well as our filings with the SEC for factors that could cause actual results to differ. Also this conference call will reference non-GAAP measures and in that regard, I’d direct you to the reconciliation of these measures within this presentation.

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

Ralph W. Babb Jr.

Good morning. Today, we reported fourth quarter 2015 net income of $130 million or $0.71 per share and full-year 2015 net income of $535 million or $2.92 per share. We remain focused on the long-term and executing on our relationship banking strategy as we navigate our way through a modestly growing U.S economy and increasing regulatory and technology demands.

Turning to Slide 4 and highlights from fiscal year 2015, we had good broad based loan and deposit growth in 2015, average loans increased $2 billion or 4% to $48.6 billion, most notable were increases in technology and life sciences, mortgage banker finance, national dealer services and commercial real estate.

Our average total deposits grew $3.5 billion or 6% to a record $58.3 billion. This included a $3.1 billion or 12% increase in non-interest bearing deposits as well as a $474 million increase in interest bearing deposits. We saw growth in all business lines and all three of our major markets as our customers have a lot of liquidity and choose to hold it at Comerica.

We generated close to $1.7 billion of net interest income in 2015, an increase of $34 million or 2%, primarily the result of our solid loan growth. Overall, credit quality continued to be strong with net charge-offs of $75 million or 15 basis points of average loans for the full-year which remains well below normal historical levels.

The allowance for loan losses increased $40 million compared to 2014 primarily due to increases in reserves related to energy and technology and life sciences, partially offset by improvements in credit quality and the remainder of the portfolio. This resulted in the provision for credit losses increasing from the 2014 cyclical low of $27 million to $122 million for 2015.

Year-over-year non-interest income was stable, excluding the change to the accounting presentation for a card program. We had increases in card fees, deposit service charges and fiduciary income. This was offset by lower investment banking income primarily due to less activity in the energy market as well as decreases in certain categories impacted by regulatory changes such as letters of credit.

Excluding the impact of a change to the accounting presentation for a card program, non-interest expenses increase $38 million, primarily due to increases in technology, regulatory and pension expenses as well as outside processing fees tied to revenue generating activities. This was partially offset by the release of litigation reserves and cost savings realized in 2015 from certain actions taken in the second half of 2014.

We repurchased 5.1 million shares and 500,000 warrants in 2015 under our equity repurchase program. Through the buyback and dividends we returned $389 million or 73% of 2015 net income to shareholders. This reflects our strong capital position and solid financial performance. Our tangible book value per share increased 4% over the past year to $39.41 as we continue to focus on creating long-term shareholder value.

Turning to Slide 5 and an overview of the fourth quarter, average loans were relatively stable at $48.5 billion compared to the third quarter. And average deposits increased $596 million driven by a $1 billion increase in non-interest bearing deposits.

Revenue increased more than 2% compared to the third quarter. This was a result of growth in net interest income which benefited from higher non-accrual interest recoveries and the rise in rates late in the quarter, as well as an increase in fee generation particularly commercial lending and card fees. Technology and regulatory costs drove non-interest expenses higher as anticipated.

Negative credit migration in our energy exposure continued as expected, while overall our customers have been acting prudently as evidenced by declining loan balances. The remainder of the loan book continues to perform well. Finally, we benefited from lower taxes as a result of the early termination of certain leverage lease transactions.

Turning to Slide 6, most U.S economic data at year-end showed ongoing momentum, which we expect to continue through 2016. Looking at economic conditions within our primary footprint of Texas, California, and Michigan, we continue to see the advantages of our geographic diversity. While Texas is facing headwinds from the energy cycle, California and Michigan provide an important counterbalance.

Average loans in California were up 8% compared to 2014, while deposits were up 10%. California continues to be a leader in bringing new technology to market. Housing market should remain strong. Low regional unemployment rates will contribute to wage growth, supporting the states large consumer sector. We expect the California economy to grow at a moderate pace in 2016.

Average loans in Michigan were relatively stable compared to 2014, while deposits were up 4%. Michigan’s economy has benefited from the recovery of the U.S auto industry. We expect ongoing job growth to keep labor markets tight and wages improving.

Average growth slowed in Texas with loans up 2% and deposits relatively stable compared to 2014. The overall Texas economy should feel the weight of reduced oil and natural gas drilling activity through 2016. However, the states economic diversity and business friendly environment aided by a healthy U.S economy should support economic growth through 2016 albeit at a slower pace.

As we look forward to the year ahead, we remain keenly focused on growing loans and deposits along with managing expenses as we make necessary investments. With the Federal Reserve increasing its benchmark rate, 25 basis points in December, our revenue picture looks better as our balance sheet remains well positioned to benefit from potential rising rates.

With oil prices at a cyclical low, we’ve been closely monitoring our energy customers and have increased our reserves in each quarter of 2015. Well into the cycle we continue to feel comfortable with our energy portfolio and believe charge-offs will remain manageable.

In summary, we’re committed to providing high quality financial services and building lasting customer relationships which combine with our diverse geographic footprint will continue to assist us in building long-term shareholder value.

And now I’ll turn the call over to Karen.

Karen L. Parkhill

Thank you, Ralph. Good morning, everyone. Turning to Slide 7, fourth quarter average loans were relatively stable at $48.5 billion compared to the third quarter. We had strong loan growth in our commercial real estate business as well as our national dealer business which typically rebounds in the fourth quarter. This was more than offset by a seasonal decline in mortgage banker loans along with declines in general middle market and corporate banking, as we remain disciplined in this highly competitive environment. In addition, energy continued to decline as expected.

Positive growth trends through November and December resulted in period end loans above the average for the quarter. As you can see the quarter ended with loans at $49.1 billion. Total loan commitments were relatively stable and utilization was unchanged at 50%. Importantly, our pipeline remains strong.

Our fourth quarter loan yield increased 7 basis points as shown in the diamonds. We had higher interest collected on non-accrual loans and benefited from a 25 basis point increase in short-term interest rate late in the quarter as the Fed raised its benchmark rate on December 16.

Turning to deposits on Slide 8, average deposits increased $596 million in the fourth quarter, from a $1 billion increase in non-interest bearing deposits. The primary driver as a large increase in corporate banking which was partly offset by declines in technology and life sciences along with general middle market, as we adjust pricing on municipal deposits to reflect the impact of the liquidity coverage ratio.

Period end deposits also increased $1.1 billion to $59.9 billion. We continue to prudently manage deposit pricing and have not instituted any standard pricing adjustments in response to the increase in short-term rates. We are closely monitoring our deposit base as well as the market and we believe we’re well positioned with predominantly operational relationship oriented deposits.

As we discussed at a recent investor conference during the fourth quarter, we deployed a portion of our excess reserves into securities as shown on Slide 9. Given our continued deposit growth and the likelihood of rate increases occurring in small increments over a longer period of time, in the fourth quarter we added almost $2 billion primarily in treasury security. This strategy generates an additional income while maintaining our asset sensitive position.

At this time we expect to potentially and modestly add to our securities portfolio based on the movement of our balance sheet and interest rate along with market opportunities. By carefully managing the overall portfolio, we’ve maintained an estimated duration of under four years.

As you can see in the diamonds on the slide, our portfolio yield was stable, resulting from a small decrease in the MBS premium amortization, offsetting the mix impact from adding lower yield in treasury securities.

Going forward, assuming no change in the rate environment, we expect continued minor pressure on the average securities yield primarily due to the mix shift. As of quarter end, our estimated LCR ratio continues to meet the phased-in 2017 requirements plus a buffer.

Turning to Slide 10, net interest income grew $11 million or 3% in the fourth quarter. The biggest driver came from the loan portfolio which contributed $5 million. Higher interests received on non-accrual loans and an interest in loan yields due to the rise in rates was only partially offset by the decline in lower loans and lower accretion.

Our largest security portfolio, lower funding costs and higher interest earned on short-term investments including higher Federal Reserve deposit balances, each added $2 million. The decline in our wholesale funding cost was driven by debt maturity late in the third quarter along with lower interest paid due to the decline in interest bearing deposits.

Our net interest margin increased 4 basis points with higher loan yields offset by higher balances at the Fed.

Turning to Slide 11, our overall credit picture remains solid. Net charge-offs were 21 basis points or $26 million derived mainly from loans related to energy and to a lesser extend technology and life sciences with strong recoveries in a number of our business lines.

Our criticized loans grew $295 million to $3.2 billion which is less than 7% of total loans and continues to be below our average historical levels. The increase was driven by a $372 million increase in criticized loans related to energy. Total non-accrual loans were relatively stable at $367 million or 75 basis points of total loans.

With energy comprising a $161 million, up from a $126 million in the third quarter. The fall re-determination process is essentially complete for our E&P customers, which comprise 69% of our energy business line. Borrowing bases have come down about 10% on average as a result of lower energy prices. About 45% of our customers have improved or stable loan to value ratio and there have been few new collateral deficiency since the prior re-determination.

Overall, our borrowers continue to act prudently in this environment. They’re aggressively reducing costs, cutting back on capital expenditures, reworking their hedging contracts to provide more runway and preserving liquidity. In addition, they’re paying down bank debt through the sale of assets. As a result, our loans and our energy line of business declined by $173 million this quarter and are down approximately $700 million from the peak at the end of February. And utilization remained essentially unchanged at 49% as of the end of the third quarter.

Importantly, we have virtually no second lien exposure and our energy services portfolio is a relatively small amount of our total loans. However, given persistently low oil and gas prices, we continue to see negative migration in the energy book, which has resulted in an increase in criticized loans, non-accrual loans and charge-offs.

As of quarter end, 38% of the loans related to energy were considered criticized, including 4% on non-accrual. We have $27 million in charge-offs and our energy business line and $6 million in energy related loans.

The $35 million provision for our total portfolio reflected charge-offs as well as an increase in our energy reserves in conjunction with the negative migration and preserving a healthy qualitative reserve.

As of quarter end, our reserve allocation for energy loans increased and is now greater than 4% of our total energy and energy related loan. Overall, our allowance for credit losses increased $9 million to total $679 million and our allowance to loan ratio increased to 1.29%.

Slide 12, outlines non-interest income which increased $6 million or 2%. The biggest driver was an $8 million increase in commercial lending fees due to robust year-end closing activity, particularly in our syndication area. We also had increases in card fees due to higher revenue from merchant processing, along with letter of credit and foreign exchange income as we continue to focus on cross-sell opportunity.

We did see declines in service charges on deposits due to five fewer business days in the quarter, as well as fiduciary and brokerage income which were impacted by poor market environment.

In addition, we had several items that are difficult to predict. Specifically, a $6 million increase in deferred compensation which has offset a non-interest expense, a $4 million decrease in customer related warrant income and a $3 million benefit in the third quarter from hedges on our debt that wasn’t repeated in the fourth quarter.

As a reminder, the year-over-year view of both non-interest income and non-interest expense is not directly comparable. Each quarter this year reflects an accounting presentation that report to both revenues and expenses, rather than net revenue for our card program.

Turning to Slide 13, non-interest expenses increased $28 million. Included in the increase were $6 million in benefits in the third quarter that were not repeated. From legal reserve releases and forfeiture of executive stock awards. In addition, deferred compensation expense increased $6 million and is offset in revenue as mentioned.

Staff insurance and consulting expenses were seasonally higher and salaries expenses increased with higher technology and regulatory related staffing, including contract labor. Also of note, outside processing fees declined with vendor credit an unusually large collection of customer reimbursement.

Moving to Slide 14 and capital management. As the chart indicates, we continue to return excess capital to our shareholders in a meaningful way with a payout of 79% of fourth quarter earnings. In the fourth quarter, we repurchased 1.5 million shares for $65 million under the equity repurchase program, reflecting a moderate increase from the $59 million repurchased in each of the past six quarters.

Turning to Slide 15, as typical we provide our outlook for the full-year based on a continuation of the current economic and interest rate environment. Overall, we expect our average loan growth to be inline with GDP growth. We expect loan growth in most businesses led by commercial real estate, auto dealer, and technology and life sciences.

If oil and gas prices remain at low levels, we believe energy loan should continue to decline. Also keep in mind competition remains stiff, particularly in corporate banking and we fully intend to maintain our loan pricing and credit discipline.

We expect our net interest income to increase. Assuming current rates do not change, our model indicates that the full-year benefit of the recent increase in short-term rates should increase our net interest income by more than $60 million. And while not included in this outlook we’re well positioned to benefit from any further rate increases which I will discuss on the next slide.

We also expect the growth in loans and securities net of funding costs to have a positive effect. We expect continued solid credit quality with net charge-offs remaining below historical norms. As far as provision, we expect an increase in reserves in conjunction with loan growth and potential further deterioration in overall credit quality, including an increase in net charge-offs from cyclically low level.

If energy prices remain at these very low levels, we would expect to see further reserve build and ultimately higher charge-offs. But remember our energy business strategy is underwritten to withstand typical volatility in the sector. So we continue to expect the credit impacts from energy to be manageable.

Overall, we expect non-interest income to grow modestly primarily due to growth in merchant processing services, government card, and commercial card fees, as we continue to focus on cross-sell opportunities. And assuming that the market conditions improve, we expect an increase in wealth management related income, such as brokerage service fees and fiduciary income where we continue to see a strong pipeline from our trust alliance program.

Non-customer category such as warrant income, hedge and effectiveness and deferred comp are difficult to predict, but are expected to have a small negative impact. As far as non-interest expenses, we’ve been and will continue to manage through to near-term expense headwinds.

2015 benefited from a $33 million legal reserve reversal that will be essentially offset by an equal decline in our pension expense, primarily due to a rise in long-term rates. As we’ve indicated, we expect technology projects and regulatory expenses will continue to rise and together increased by about $25 million to $30 million in 2016 as we continue to invest to meet increasing industry compliance and regulatory demand as well as enhancements in our cyber security.

Outside processing expense is expected to increase inline with growing revenue, particularly card fees. Also a recent regulatory proposal for an FDIC surcharge may drive that expense up. And a forfeiture of restricted stock and leverage lease terminations that benefited 2015 are not expected to be repeated.

Finally, we expect to see typical inflationary pressures on several line items, including annual merit, staff insurance and occupancy. Rest assured that as we continue to navigate through this low rate environment, and even as rates rise, we’re focused on maintaining our expense discipline, carefully managing our workforce and driving efficiency for the long-term through continued review of processes, judiciously negotiating contracts, and leveraging technology when possible. We expect these efforts will be apparent in several line items, such as consulting, telecom, travel and entertainment, and legal fees. Lastly, well not on the slide, I’d point out that we estimate our tax rate will be approximately 32% of pre-tax income.

Turning to Slide 16, as I mentioned our outlook assumes the current rate environment and no rise in rates. For illustrative purposes, we run a simulation using the implied forward curve for 30 day LIBOR, the rate to which we are most sensitive. On the left side of the slide we show the forward curve that assumes 30 day LIBOR reaches about 100 basis points at year-end or 90 basis points on average in the fourth quarter. In this case which incorporates a dynamic balance sheet assuming historical relationships, our net interest income could increase a further $55 million to $60 million for the full-year.

The right side of the slide provides our standard asset liability case and shows that a 200 basis point increase in rates over a one-year period equivalent to a 100 basis points on average would result in a benefit to net interest income of about $210 million. There are also several alternative assumptions to our standard case including the pace of deposit, loan and rate changes and in all cases we remain well positioned for rising rates.

In closing, we are pleased with the increase in our revenue and continued deposit growth. And our overall credit quality has remained strong as we’ve been navigating the energy cycle. While remains a challenging environment for us and the industry, given the persistently low rate and energy price environment combined with increased regulatory requirements and technology demand, we will continue to be keenly focused on the long-term and the things we can control. And with the first rate increase behind us, our revenue picture looks better.

Now operator, we would like to open-up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Scott Siefers with Sandler O’Neil. Please go ahead.

Ralph W. Babb Jr.

Good morning, Scott.

Scott Siefers

Good morning, guys. Good morning. I think first question I was hoping you could address the energy reserve in a little more detail. So the 4% reserve could certainly prove sufficient, but just given that others are now disclosing higher reserves than I think the credit markets are suggesting, even higher loss potential just would be curious to hear your expanded thoughts and then I think the second part of that question is just that there is of course now an enormous mismatch between what it might cost to -- cost you guys to beef up the reserve even more materially versus the market cap that that’s been lost on concerns about the reserve. So if you can just sort of address both of those that would be great please.

Ralph W. Babb Jr.

Okay. Pete, you want to start?

Peter W. Guilfoile

Sure. So every energy portfolio is unique and I think it would be inaccurate to say that every bank has allocated the same amount of reserves to the energy portfolio. So for instance, Scott, when you take a look at our portfolio, as Karen mentioned, we don’t have any second lien debt in our portfolio. For the most part it’s well secured E&P credits. We don’t have much in the way of energy services and the portfolio continues to contract and is throwing out a fair amount of reserves. The other thing I would mention that’s important is that when we’re calculating that allocation including the denominator is all of our energy related exposure, which includes investment grade credit, it includes middle market credits that may or may not be impacted all by energy prices. And then, I guess the last thing that we look at is we have $680 million of reserves in total and because we don’t have other issues going on in the portfolio, we look at that entire reserve is available to address any issues that come up in energy.

Karen L. Parkhill

And I’d add Scott, that remember our reserve at year-end of over 4% does continue to include a healthy qualitative reserve. And we recognize that prices have dropped a decent amount since year-end. It is really difficult to say with any degree of certainty what that impact could be, because prices are only one component on our reserve. There are lots of other components that impact our customers’ performance. They would include continued reduction in cash costs and ability to sell assets, extension of hedges and access to the capital markets. But know that because prices have dropped precipitously, particularly since year-end, we have done an analysis with oil prices remaining at $30 for the entire year. And based on that analysis and conservatively assuming a static portfolio, we’d estimate that the impact to our energy reserves could be $75 million to a $125 million, which we still believe remains manageable. And I’d also want you to keep in mind that ultimate losses could be much less than that amount. Our energy business line is very granular and we do expect energy loans to continue to decline which does free up reserves. Plus our allowance is also impacted by the performance of the remainder of the portfolio which does continue to improve.

Scott Siefers

Okay. That’s all perfect color. Thank you very much.

Ralph W. Babb Jr.

Thank you.

Operator

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

Ralph W. Babb Jr.

Good morning.

Ken Zerbe

Thank you. Good morning. I want to make sure I heard the number right, did you say that from the December rate hike you expect $60 million of increase in NII in 2016?

Karen L. Parkhill

That is correct. We said, we expect more than $60 million next year.

Ken Zerbe

Okay, perfect.

Karen L. Parkhill

And keep in mind that that’s based on the fact that 85% of our loans are floating rate. And we’re assuming deposit assumptions fairly similar to history, because we’ve seen minimal deposit impact both on the amount and on pricing with the initial part of the rate rise, there could be upside to that number.

Ken Zerbe

Got you. And then the question I have on that was if you look at Slide 16, you went through on the LIBOR, if LIBOR goes up I think it was 90 basis points by the end of the year and I’m going to annualize your fourth quarter ’16 number I think that’s $25 million higher in NII. Just help me understand, so $60 million from 25 basis points, but then a 100 million annualized from 90 basis points in LIBOR. Is that just because you expect deposit [indiscernible] up, or what’s the offset there that would make that disproportionately smaller increase in NII?

Karen L. Parkhill

Yes, so keep in mind that the model is dynamic and some of the key drivers are the deposit assumption. So according to our standard model, we do assume that as rates rise we would see a moderate decrease in our deposit balance or could see a moderate decrease and that deposit pricing goes in line with history. Because of small increments on this rate rise, perhaps the deposit impact may be less than what we’ve assumed. So it is a dynamic model.

Ken Zerbe

Got you. Okay and then just one more question for you. Just in terms of Page 11, when you talk about the energy loans, just want to make sure I think about the energy exposure correctly because you break it out separately. You’ve the $3.1 billion of energy loans, but then a $625 million of other business or other loans that are related to energy that I think you say could be disproportionately negatively impacted. What do you think is structurally different with that $600 million of other energy related loans? I mean from our perspective should we just be lumping the $3.1 billion and the $600 million together in terms of your total exposure?

Ralph W. Babb Jr.

Pete?

Peter W. Guilfoile

Yes, that $650 million is actually performing better than the line of business. It consists of a lot of credits that are really not impacted by energy prices. We include in that number any one of our borrowers that drives 50% more of the revenue from the energy sector, some of which is really not impacted by energy prices, so included in that $650 million are investment grade refineries and really just other middle market companies that are fairly not that impacted by low energy prices. So it’s actually performing better than the energy book.

Ken Zerbe

Okay. Thank you.

Ralph W. Babb Jr.

Thank you.

Operator

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

Ralph W. Babb Jr.

Good morning.

Geoffrey Elliot

Good morning. The Shared National Credit Report talked about banks showing flexibility in working with auditors by relaxing leverage covenants and allowing time to curtail borrowing base over advances. Could you talk about how that process works in practice at Comerica?

Karen L. Parkhill

The SNC process [ph].

Geoffrey Elliot

Yes, it was just out of the SNC report from November, and I wondered if you could talk about how that process works at Comerica?

Peter W. Guilfoile

As far as the Shared National Credit exam?

Geoffrey Elliot

As well as -- no, more in terms of showing flexibility when you are working with oil and gas borrowers who are coming up against covenants and where the borrowing base needs to come down.

Peter W. Guilfoile

Yes. So we work very closely with the rest of the bank group when in going through the re-determination process. We are all reviewing the same information of we’ve our own separate engineers that review the engineering reports, but there is the sharing of information that takes place on that analysis. We each do our own risk ratings and so we all determine independently what we think the appropriate rating should be. But I can tell you that we talk a lot and so I think we’ve a good feel for where the other banks are with regard to their view of those credits and they’ve a good view of where we’re -- what our view is. Does that answer your question?

Geoffrey Elliot

I guess partially. And then the follow-up would be, if you are kind of thinking about how you are sharing flexibility with borrowers this time versus in prior cycles, say in 2008, 2009, do you think there are any differences in how you and the other banks are behaving?

Peter W. Guilfoile

No, I think we’re working together with our borrowers to give them flexibility of course. But at the same time, we’re -- I think we’re acting prudently to make sure that we’re protecting on credit losses. I think what’s been really remarkable throughout this downturn is just how well the borrowers are working with the banks as well. And if you take a look at it, Geoffrey, last spring when prices were dropping the access to capital markets proactively to make sure they were not in violation of borrowing bases. In the fall when the capital markets were largely close, they sold assets to reduce their loans outstanding to make sure they’re in compliance with the borrowing bases. So it’s a two way street. I think the borrowers are working well with the banks to make sure they’re staying in compliance and the banks are working with the borrowers to make sure that there -- they’ve the liquidity they need to operate their businesses.

Geoffrey Elliot

Thank you.

Ralph W. Babb Jr.

Thank you.

Operator

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

Ralph W. Babb Jr.

Good morning.

Erika Najarian

Hi, good morning. My first question is just a clarity on the expense guidance for 2016. Karen, could you take us through what the puts and takes are relative to the $489 million fourth quarter expense base as we think about the quarter ahead? And also, Wells Fargo gave us a pretty significant dollar number for the estimated quarterly FDIC expense base and I was wondering if you could similarly share your projection with us?

Karen L. Parkhill

Sure. So on expenses we talked about the fact that 2015 did benefit from the legal reserve release and we will have lower pension expense that is pretty much equal to that legal reserve release. We talked about the fact that we got increases in technology and regulatory expense about $25 million to $30 million and outside processing aligned with growing revenue along with typical inflationary pressures and the potential for the FDIC increase. Relative to the fourth quarter, I’d say the fourth quarter is a decent guide, but keep in mind there is lots of moving pieces, particularly on a quarterly basis. Number of days impact the quarter, the first half typically has higher stock and incentive comps and higher seasonal payroll taxes. The second half is impacted by merit raises and increasing staff insurance costs, plus the fourth quarter had items that are not expected to repeat like deferred comps and we continue to manage expenses everywhere that we can. On the FDIC expense in particular, as you know that FDIC did put a proposal out there to increase their deposit insurance bond per Dodd-Frank mandated standard by increasing the rates to the larger banks. While that proposal has -- the comment period has just ended on that, so it’s uncertain what the timing or ultimate impact could be. A good rule of thumb would be approximately maybe $10 million to us in the year.

Erika Najarian

Got it. And as I just put your guidance together, there is clearly a little bit more hesitation by the market to think about rising rates given what’s been happening to the economy outside of the United States. And as I think about your guidance for higher revenues and higher expenses for this year, I’m wondering if you’re committed to generating positive operating leverage even if -- even outside of the potential impact of any further increases to the short end of the curve?

Karen L. Parkhill

So we’re always very focused on generating positive operating leverage. We’ve been very focused on managing our expenses as prudently as we can while we need to invest in increased regulation in technology. That said, our ultimate performance, particularly in 2016 will be dependent in part on where rates go. Keep in mind that we have a good benefit from the rate rise that has already occurred and will ultimately depend on the energy sector. But regardless we remain very focused on positive operating leverage, particularly over the long-term.

Erika Najarian

Got it. Thank you.

Operator

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

Ralph W. Babb Jr.

Good morning, Steve.

Steven Alexopoulos

Good morning, everybody. I wanted to start looking at the $1.2 billion of criticized energy loans; could you give us the breakdown of that into E&P, midstream, and services?

Ralph W. Babb Jr.

Pete?

Peter W. Guilfoile

Sure. Steven, its 45% E&P, about 9% midstream, and 48% services. And then there is 30% that’s in the related category.

Steven Alexopoulos

Related, okay, perfect. That’s very helpful. I wanted to talk about hedging for a second. Could you just looking at your customers, talk about what level of production was hedged in 2015 and how that’s going to change in 2016?

Peter W. Guilfoile

Right now we’ve 59% of our borrowers that have 50% or more of the revenue hedged out one year and then drops off to 30% after that. And so those percentages really haven’t changed a lot over the last several quarters. Now the value of those hedges has dropped as borrowers rework their hedges to get extend the runway, but the -- I think the good thing here is that borrowers are actively working to extend the runway and as they extend the runway they’re making good progress on reducing their cost structure.

Steven Alexopoulos

Okay. So you are saying 50% in 2015 and then that falls to 30% in 2016 -- that’s what you are saying?

Peter W. Guilfoile

I’m sorry, say that again please.

Steven Alexopoulos

Did you say 50% was hedged in 2015 and that’s falling down to 30% in 2016?

Peter W. Guilfoile

Yes. So 30% -- no, 30% two years out beyond 2016. Yes beyond 2016 30% have 50% or more of their revenue hedged. So that -- those percentages I just gave you are the -- are only customers that have 50% or more of their revenues hedged. We are not counting in those percentages companies that have less than 50% of their revenue hedged and a lot of them do.

Steven Alexopoulos

Okay. Just one other question. Looking at the technology life sciences business, it looks like balances were down sequentially both loans and deposits. Can you talk about the impact that sector is having on that business? Thanks.

Ralph W. Babb Jr.

Pat?

J. Patrick Faubion

Steve, this is Pat. We’ve seen a bit of a softness in the BC market, that’s because firms are exercising more cautious following several years of really strong investment and high valuations. There had been some challenging verticals like cyber security ad-tech, but -- so we’re watching that carefully that we do expect a good year in 2016 in our technology vertical [ph].

Steven Alexopoulos

Okay. Thanks for all the color.

Ralph W. Babb Jr.

Thank you.

Operator

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

Ralph W. Babb Jr.

Good morning, John.

John Pancari

Good morning. Back to energy; want to get a little bit more detail on the reserve adequacy. Can you give us the breakout of the reserve as it pertains to E&P versus oil service?

Ralph W. Babb Jr.

Pete?

Karen L. Parkhill

Yes, we don’t typically give that kind of detail. We have talked about we got greater than 4% of reserves against those energy and energy related. And that we believe that reserves from here could be manageable.

Peter W. Guilfoile

Maybe I could give a little bit of color depending on John what you would like to understand better, but obviously while we’re doing the re-determinations this fall, energy prices were dropping. And so the price decks that we were using on a regular basis to do that re-determinations ultimately ended up being higher than were prices ended up at the end of the year. And so we made up that difference with a qualitative reserve at the end of the quarter to adjust for the fact that prices had dropped from the time we’re doing the re-determinations to the end of the quarter.

John Pancari

Okay. All right. And do you break out the qualitative versus the specific?

Peter W. Guilfoile

No.

Karen L. Parkhill

No, we don’t give the specifics on that, but again we do maintain qualitative reserve.

John Pancari

Okay. And then another thing, I know you mentioned this in your comments, or you referred to it, but do you’ve what percentage of your energy book is investment grade versus non-investment grade borrowers?

Peter W. Guilfoile

That we would say most of the investment grade borrowers would be in the energy related and many of those borrowers don’t borrow a lot of money. And so in terms of the actual dollars outstanding, I don’t have a figure for you, but its not a huge amount.

John Pancari

Okay, all right. And then lastly, thanks for the sensitivity on oil remaining at $30. However, since we did see oil break into the 20s for a little while there, what if oil drops and remains in the 20s? Can you give us that sensitivity because that’s where you get a big change for a lot of these producers where they really have a problem with the production costs, etcetera? Thanks.

Karen L. Parkhill

Yes, our reserves and our pricing analysis take into account the forward curve which typically upward sloping. So the number that we gave you on the $30 for 12 months have a flat curve, not upward sloping. So keep that in mind. These are rough numbers, so I’m not going to give you one that’s in the 20s, but you can assume slightly worse than the one we gave you if it’s in the 20. So keep in mind this is a very dynamic equation and very typically the price environment forward curve is going to be upward sloping.

John Pancari

Okay, all right. If I can ask one housekeeping, non-energy. On the loan balances at the end of period came in a good amount above the average, which is a better one to work off of?

Karen L. Parkhill

We focus on average more than we focus on end of period mainly because that’s what drive our financial statement. We do see end of period activity in both loans and deposits and that’s one of the reasons why we don’t focus on it. But I do think it’s a good thing that our end of period balances are above our average for the quarter that bodes well for the start of this quarter.

John Pancari

Okay. Thank you.

Operator

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

Ralph W. Babb Jr.

Good morning, Terry.

Terry McEvoy

Good morning. Just to take a step back and a question for Ralph. In the past when there has been some weakness in Comerica’s business, the Company has moved resources and capital to some other markets or other lines of business. So you were in Michigan, you moved to Texas, when commercial loans were a little soft you talked more about wealth management, etcetera. So my question is, strategically if Texas continues to contract, how do you fill in that hole in terms of where or potentially some additional products?

Ralph W. Babb Jr.

I think you described it well. We are always looking at where our resources are and we move those resources and where we invest based on what’s going on partly because of the economy and the short-term, but also on the longer term. And when Karen was talking about expense management earlier, a lot of that’s built into that and we’re looking all the time where we need to be, where we need to add people, at the same time where we don’t need additional people as an example. And we got a very tenured good team and that’s very important and that’s the reason they’re movable as well. Pete, you’ve moved around a couple of times as an example.

Peter W. Guilfoile

Yes, all three markets, yes.

Ralph W. Babb Jr.

Yes. Curt, would you like to add something to that?

Curtis C. Farmer

Just maybe to reinforce what you’re saying there Ralph, the California market is continuing to do well overall. Real estate value is firming in both the north and the south, a diverse economy. Technology is still doing well despite a little bit of softness and so some of our resource reallocation is to California right now. As we continue to round out the large urban markets there, but we also beyond just line of business continue to focus on the fee income businesses within the corporation, so we’ve been a net investor in wealth management adding additional advisors, especially in the trust and brokerage area. We’ve been adding resources in some of the card areas, merchant added a new vendor there. So we’re looking at it all of the time. It is a constant process of reviewing our lines of business. The ROEs that are being generated by the respective businesses and where we think we’ve the greatest growth opportunity, but also where that matches up with where our greatest customer needs are as well.

Terry McEvoy

Thanks. And then just as a follow-up, you did release reserves in the non-energy portfolio and based on your outlook today for ’16, do you foresee additional reserve releasing outside of energy really to help offset that potential $75 million to $125 million incremental reserves in energy that Karen identified earlier on the call?

Peter W. Guilfoile

Yes, we continue to see really great results outside of energy and as you mentioned about one-third of the migration in energy was offset by improvements elsewhere in the portfolio. The far that you go in the cycle, the harder and harder it is to get those [indiscernible] dividends, but the rest of the portfolios is really strong and I do expect to continue to see some improvement there.

Terry McEvoy

Thank you.

Ralph W. Babb Jr.

Thank you.

Operator

Your next question comes from the line of David Eads with UBS. Please go ahead.

Ralph W. Babb Jr.

Good morning, David.

David Eads

Hi. Good morning. Maybe just one kind of question on NII and NIM. Just in thinking about the outlook and a starting point for heading into next year, is the right way to think about it that you kind of back out some of the benefit from the non-accrual interest in 4Q and then you would add in the benefit from the first rate hike, which very little of that was seen in 4Q and then you would have the day count impact in 1Q? Is that kind of the right puts and takes to think about starting off next year?

Karen L. Parkhill

Those are the right high level for puts and takes, yes.

David Eads

Okay. And then for the share buybacks, should we think about the 4Q level as kind of the right run rate for the first two quarters of the year, or could there be a little bit of increase related to the income from rate? And then I guess do you have any flexibility on when you could do the buybacks in the last two quarters of this cycle?

Karen L. Parkhill

Yes, so on share repurchase we have said that we will be monitoring that on a quarterly basis. And that it will follow our financial performance and our balance sheet movement including our capital levels. So it is something that we will be looking at and monitoring every quarter. As you know we’ve $393 million not objected to in the last capital plan. We obviously did increase our share repurchases this quarter and we will be looking at each quarter in isolation, but against our performance.

David Eads

Okay. And then just finally, there was this fall SNC review for the largest banks. Were the results for that included in 4Q results and -- was there anything interesting coming out of that?

Peter W. Guilfoile

Yes, they were included in the fourth quarter and now there was really no major impact on our portfolio at all.

David Eads

Great. Thanks.

Ralph W. Babb Jr.

Thank you.

Operator

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

Ralph W. Babb Jr.

Good morning, Bob.

Bob Ramsey

Hey, good morning. Just a few follow-ups. One, I know you talked about how strong credit has been outside of the energy book of business. I’m just curious, are you seeing any signs of softness or any areas where there might be signs of any sort of concern?

Ralph W. Babb Jr.

Pete, Pat?

Peter W. Guilfoile

Go ahead.

J. Patrick Faubion

Bob, this is Pat. We are always on the look out for hot pockets or deterioration. I can tell you that we have thoroughly reviewed our commercial real estate portfolio, particularly with multifamily. We feel very, very good about that. We reviewed our technology sector. We feel good about that despite a bit of increased credit costs. Middle market is really, really performing quite well, dealer superlative. I can go down the list. We have a really, really strong credit culture here and we work very well between our credit partners and the line.

Peter W. Guilfoile

And if I could just add one of the reasons why we’re very proactively moved our number of credits from other business units into this energy related portion of the book is that we expect that some of those credits might show some deterioration as energy prices decreased and so we lumped those in with our energy exposure. And so everything outside of that ex-energy, if you will, is really not been very impacted.

Bob Ramsey

Okay. No, that’s helpful. On the share repurchase question, I know you guys said you look at it relative to the balance sheet every quarter. Just curious if trading below tangible book, if that in any way affects your appetite to put something in one quarter versus another, or if that is one of the bigger determinants of when you decide to buy?

Karen L. Parkhill

Clearly we like buying our stock back at these very low prices. And that said, our capital plan is done on a quarterly basis and any changes to timing or amounts would require regulatory approval.

Bob Ramsey

Okay, got it. Last question, back to margin, just want to be sure I understood correctly the numbers you guys break out on Slide 16 of the slide deck, that is on top of the $60 million benefit that you already expect to achieve from the one rate increase that’s already taken place, correct?

Karen L. Parkhill

That’s correct.

Bob Ramsey

Okay. And is it fair to take that $60 million and sort of just run rate it at $15 million a quarter and we should see a $15 million lift here in the first quarter?

Karen L. Parkhill

Yes, you could think about the $60 million or more than $60 million that we have from the rate rise that is already occurred to be fairly even in each quarter. Obviously, we would expect the biggest impact quarter-over-quarter to be in the first quarter given that we will have a full quarter impact of the rate rise as opposed to just a few week impact.

Bob Ramsey

Sure. Okay, great. And then I’m just curious how you all are sort of thinking about rates from here. If you could maybe share your interest rate forecast through the end of the year?

Karen L. Parkhill

It’s very difficult to predict rates and we don’t have a crystal ball, just like you don’t. And that’s the reason that we give our outlook assuming rates don’t rise, because its not really something that we can predict.

Peter W. Guilfoile

Right.

Bob Ramsey

Okay, great. And last question around rates, for the next 25 basis points if we get another 25 basis points, I know you’ve given sort of the LIBOR scenario on that Slide 16, but do you see something similar to that $60 million benefit from the first on the second, or does it start to diminish? I get there are moving pieces with deposit assumptions.

Karen L. Parkhill

Yes, there are moving pieces with deposit assumptions and our model that we’ve shown on that Slide 16 does include deposit decline and betas moving inline with history. So who knows how it will actually go, but we do expect less pressure on deposits in the early rate rises, particularly this first rate rise and perhaps maybe the second 25 could be.

Bob Ramsey

Okay, great. Thank you very much for taking the questions.

Ralph W. Babb Jr.

Thank you.

Operator

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

Ralph W. Babb Jr.

Good morning, Brett.

Brett Rabatin

Good morning, Ralph. Wanted just to circle back to Texas and I think last quarter you kind of talked about recession and some of the markets in Texas not doing as well. Can you maybe give us an update on kind of how you feel about the markets in Texas? And then just thinking about the loan growth guidance that you’re giving for this year, obviously energy is a downdraft, would Texas in general also outside of energy be a headwind or can you give us some thoughts on how you see that market?

Ralph W. Babb Jr.

Pat, you want to start that?

J. Patrick Faubion

Sure. Texas has tempered somewhat with respect to the robust growth that we experienced a number of years ago. We were seeing 10% loan growth year-after-year. We saw 2% last year and deposits were stable. But Texas is still experiencing positive population growth, business friendly environment, low cost housing, clinical labor, so don’t count Texas out of the equation. And I would like to say we still have positive loan growth in the fourth quarter from our other businesses, had it not been for energy. Regarding the specific geographies, Houston will be the most impacted. Dallas has a very robust economy as does Fort Worth. Austin is a technology oriented city and government being the capital city. They’re not immune, but other than Houston we’re seeing really relatively less impact compared to Houston.

Ralph W. Babb Jr.

Overall looking at a positive GDP for the state, even though its going to be significantly lower from where its been was the last numbers I saw from our radar …

J. Patrick Faubion

Yes.

Ralph W. Babb Jr.

… our economists.

J. Patrick Faubion

And the direct percentage of energy impact attributed to energy is about 15%. Obviously, the ripple effect is much larger than that.

Brett Rabatin

Okay. And then just wanted to go back to energy for a second. I know you guys don’t have that much exposure on second lien type facilities, but as we’ve seen change here with the Company’s underlying fundamentals in the credits where you are SNC related, has there been efforts to keep those companies from dealing those type of credits, or are you guys letting those facilities increase? And maybe give us some thoughts on how you view leverage at your client base on the energy portfolio.

J. Patrick Faubion

Pete?

Peter W. Guilfoile

So when you go through the re-determination process with the E&P companies, if there is a violation at the borrowing base, the loan agreement typically requires that they get back within that borrowing base within six months. And so far with very few exceptions that has happened. And so we’re not seeing the bank being asked to take on any kind of second lien piece or something like that. Having said that, in addition to the half dozen or so companies that have collateral deficiencies right now, we probably have another ’10 or so that have what we’d call elevated loan to values. And so those we might be fairly comfortable with, because there is other mitigating factors, but I wouldn’t call them second lien pieces at all, they are just higher loan to values for a variety of reasons.

Brett Rabatin

Okay. Thanks for the color.

Ralph W. Babb Jr.

Thank you.

Operator

Your next question comes from the line of David Darst with Guggenheim. Please go ahead.

Ralph W. Babb Jr.

Good morning, David.

David Darst

Good morning. Could you comment on the dealer finance business? Looking at the past year, what percentage of the growth has been market share versus your dealers holding more inventory?

Ralph W. Babb Jr.

Okay. Pat?

J. Patrick Faubion

Well, we clearly benefited in dealer, because of our dealership for growing. I don’t have a breakdown of new credit relationship. With auto sales reaching a record in 2015, that clearly fairly buoyed our loan production.

David Darst

And do you have a perspective from talking to your dealers on what they might hold in inventory the next 12 months and where we’re in the audit cycle?

J. Patrick Faubion

The outlook for the [audit] cycle continues to be very strong. So we’re expecting a good year in ’16. The dealer business overall is a consolidating business and hopefully we will be on the positive end of the consolidation as well.

David Darst

Okay, got it. And then just in your technology investments, is the government card program requiring any larger level of investment than it has in the past for cyber security?

Ralph W. Babb Jr.

Curt, will you take that?

Curtis C. Farmer

Yes, I think it would be the same as we’d see across all of our businesses and our businesses are card related.

David Darst

Okay, got it. Thank you.

Ralph W. Babb Jr.

Thank you.

Operator

Your next question comes from the line of Mark Holland with CLSA. Please go ahead.

Ralph W. Babb Jr.

Good morning, Mark.

Mark Holland

Good morning. Actually, my questions have been covered already so I’m all set. Thank you.

Ralph W. Babb Jr.

Okay. Thank you.

Operator

Your next question comes from the line of Peter Winter with Sterne, Agee CRT.

Peter Winter

Good morning.

Ralph W. Babb Jr.

Good morning, Peter.

Peter Winter

I just had a couple questions on the loan growth. Commercial real estate including residential construction was very strong, first time in a while. And I’m just wondering what’s going on there and if it’s sustainable? And then conversely, general middle market continues to be a little bit weak, but you’ve got nice growth in the California and Michigan economies.

Ralph W. Babb Jr.

Pat?

J. Patrick Faubion

Yes. On commercial real estate, we’re finally seeing some good growth in the portfolio as the projects burn through the front-end equity and get into the drop period and we hope to benefit from that in 2016. What we experienced is a tremendous amount of churn in the portfolio. Our approvals and fundings have remained at a very high level, but previously projects have been paid off just assume as they reach to stabilization point. So our visibility into the CRE line is pretty good and we do expect good fundings for the year. Regarding middle market, you are correct that California really did lead our growth across all the markets. We had great growth in middle market in California as well as in deposits. What we’re seeing across the portfolio is a very competitive environment and we’re holding to our credit standards and our credit pricing.

Peter Winter

Got it. Thank you.

Ralph W. Babb Jr.

Thank you.

Operator

Your next question comes from the line of Laurie Hunsicker with Compass Point. Please go ahead.

Ralph W. Babb Jr.

Good morning.

Laurie Hunsicker

Yes. Hi, good morning. Thanks for taking my question. I wanted to follow-up on where Bob Ramsey was going and I just wondered if you could help us think more broadly, Karen, about potential contagion and maybe if you can just put some numbers around your $3.8 billion of commercial real estate. How much of that is operating in the oil patch areas, and maybe what reserves you see or how you see that going if oil stays at $30? Thanks.

Ralph W. Babb Jr.

Pat, you want to start that? Pete and Karen can …

J. Patrick Faubion

Our commercial real estate portfolio is not in the oil patch, except [technical difficulty] consider Houston in the oil patch. Houston is obviously a large urban market. We do have a number of multifamily projects in the Houston market. We’ve taken a very good look at that. They’re on plan. They’re with proven developers, well located. We have seen some amount of rent concessions, but our projects are really on track. With respect to the rest of the portfolio, it’s in densely populated areas with proven developers with lots of equity in front of us.

Peter W. Guilfoile

And if I could just add a little bit of that more to what Pat said, we did a pretty extensive stress test on the Houston commercial real estate portfolio this quarter and we’re quite pleased with the results. And we stressed it under three different conditions. The worst, the severely adverse case under conditions that we’ve never seen before and even under those conditions we didn’t see any credit losses in the portfolio. So that commercial real estate portfolio in Houston is really been dealt to withstand the ups and downs to the oil and gas cycle. And then, again as we mentioned before, any credits at all that we were concerned about that could be impacted by lower energy prices, we are moved into that energy related book. And so that we count that in our energy exposure, even though a large number of those credits have not been impacted, we were concerned that they could be. So I think that’s why we are not -- you’re not seeing a lot of contagion outside of that energy exposure that we report.

Laurie Hunsicker

Got it. And I guess to that point, so how much of your $3.8 billion in CRE sits in Houston? And then of the $625 million of related loans, how much of that is commercial real estate?

Peter W. Guilfoile

Yes, so our commercial real estate book in total is about $3.8 billion in loans outstanding. About $300 million of it is in Houston and as Pat mentioned the vast majority of it is multifamily. In Houston, we’ve virtually no office in Houston. Its primarily an apartment construction book.

Laurie Hunsicker

Great. Okay. And then of your $625 million in related loans, was there any from that $300 million Houston bucket?

Peter W. Guilfoile

No, we -- our definition of energy related is the borrower has to generate 50% or more of its revenue from the energy sector and by definition commercial real estate really doesn’t fall into that category. That’s why we stress test the commercial real estate both in Houston, because it kind of sell outside of that energy related piece and that’s the one piece outside of energy related that we have our eye on and so we wanted to just satisfy ourselves that there weren’t issues there.

Laurie Hunsicker

Okay, great. And then just one last point of clarity, so your call at $1.1 billion of total Texas commercial real estate exposure, the rest of that is Dallas, Austin -- it’s outside of oil patch?

Peter W. Guilfoile

Correct.

Laurie Hunsicker

Okay.

Peter W. Guilfoile

About third of it is Dallas, 25% is Austin. We don’t have any exposure in West Texas.

Laurie Hunsicker

Perfect. Thank you very much.

Ralph W. Babb Jr.

Thank you.

Operator

Your final question comes from the line of John Moran with Macquarie. Please go ahead.

Ralph W. Babb Jr.

Good morning, John.

John Moran

Hey, good morning. Thanks for taking the question. Just a quick kind of ticky-tack one for Karen on the securities that were added, were all $2 billion [technical difficulty] evenly spread through the quarter?

Karen L. Parkhill

Yes, the vast majority of that was added in the month of December more towards the end of December as opposed to the beginning.

John Moran

Okay. That’s helpful. And then one other one just on the taxes and I understand that the leverage lease termination had an impact. Was there an offset elsewhere in the P&L there, anything on OpEx?

Karen L. Parkhill

No, the leverage lease termination did have an impact of about $5 million on a gain and there are other offsets based on the numbers that we reported.

John Moran

Okay. Thanks very much.

Ralph W. Babb Jr.

Thank you.

Operator

Thank you.

Operator

Thank you. I would like to turn the call back over to Mr. Ralph Babb, Chairman and CEO for any closing remarks.

Ralph W. Babb Jr.

Thanks for joining our call today and your interest in Comerica. We appreciate it and hope you all have a good day. Thanks.

Operator

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

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