Comerica 1Q15 Earnings Call Notes

8% deposit growth

“Average deposits were $57 billion, up $4.2 billion or 8% relative to a year ago.”

Energy customers are cutting back, we’re actively engaged with them

“Our energy customers are generally decreasing their expenditures and tapping the capital markets, among other actions, to help mitigate the impact of lower oil and gas prices on their businesses. We are actively engaged with our customers, assisting them as they navigate the cycle. Our deep understanding of the sector and our customers is a key component of how we have managed this business successfully for more than 30 years.”

Fed loan data showed 1% loan growth from Jan 1 to April 1

“Based on the Fed’s H8 data, our average total loan growth outpaced the large U.S. commercial bank, which grew 1% from January 1st to April 1st.”

Charge offs increased from very low level, as did criticized loans

“our overall credit picture remains strong. Our net charge-offs increased from an extremely low level in the fourth quarter and remained very low compared to history. Our criticized loans increased slightly to $2.1 billion or 4.2% of total loan and also remained well below the historical average.”

staying focused on oil and gas portfolio

“Because oil and gas prices continue to be depressed, we remain focused on identifying any emerging issues in our portfolio. We are in regular contact with our customers and have been conducting comprehensive deep dive reviews, identifying relationships that are potentially higher risk in a low price environment.”

6% of energy portfolio is classified as criticized

“As of quarter end, approximately 6% of the energy and energy related portfolio is classified as criticized, including non-accruals of 22 million. And there were only 2 million or 21 basis points in charge-offs.

Commercial real estate exposure in Texas is holding up
As far as our commercial real estate exposure in Texas, it too is holding up well, including our portfolio in Houston which is primarily multifamily with little office exposure.”

Credit quality improved outside of energy

“We did have credit quality improvement in the rest of the portfolio which somewhat offset the increase that we took in the energy portion.”

Texas is more than energy today, but different conclusions from different markets

“ when you think about the Texas market, we do tend to think about energy but it’s a very diverse market. And whether you look at Dallas, you look at Houston, you look at Austin and frankly you could reach different conclusions. And as I visit those markets, I hear frankly different feedbacks from them. So, we’re obviously going to be cautious in the energy space, commercial real estate space and to take you on Houston and the Houston markets. But on an overall basis, we’re continuing to see pretty good activity. I wouldn’t expect that we may see on a state wide basis the same growth rate in ‘15 that we saw in ‘14. However, we have a number of other lines of business that are very active in the marketplace and we would expect to see those grow.”

A lot of companies have hedged their exposure to lower oil prices

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

Lot of activity in multi-family CRE still

“We’re continuing to see a lot of activity there, particularly on the West Coast, Los Angeles, Orange County, LA, Dallas, here in Texas. Again, it’s primarily mortgage banking finance — excuse me, it’s multifamily oriented, a lot of volumes there.”

Mortgage banking is a very competitive space

“Clearly, it is a competitive space. There is no question about it. And we have seen pressure in our loan spreads and loan yields and mortgage banking finance despite that, given our approach which is very relationship oriented. I have pointed out before over 90% of our customers have treasury managements, number of other products and services with us. So, we really look at it on a total relationship return basis. And that’s our real focus. And frankly, we’re getting very attractive returns in that space.”

Focused on bringing efficiency ratio below 60%

“our efficiency ratio goal for the long-term as you know is to bring efficiency below 60%. And we have said that we will continue to focus on that path of getting there but we will need a little bit of our rate environment uptick, certainly not what we would deem to be a normal rate environment to ultimately get there.”

Energy companies are handling this downturn better for a few reasons

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

Customers are operating under the assumption that oil prices are going to stay low

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

California growth is picking back up

“California, if you look back over the last couple of years, has been in a little bit of a funk. Some of the economics for the state have been slower to recover than the nation but more recently we’ve seen that pick up and frankly that’s reflected even in our own numbers if you look at it from a linked quarter basis whether you look at it from a common quarter basis, California looks very attractive.”