Comerica 1Q16 Earnings Call Notes

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Comerica’s (CMA) CEO Ralph Babb on Q1 2016 Results

Clearly must have heard some contentious things from shareholders

“Before getting into our quarterly results, I’d like to directly address the recent discussions of our fundamental performance. I’ve talked to many of our shareholders over the past several months and have listened closely their feedback and suggestions. I want to make sure everyone recognizes that, I, along with the rest of the Comerica board, hear and understand the desire for improved returns. Rest assured, we share the same goals as all of our shareholders for enhancing value. I know that we must earn our right to remain independent every day, and our management team and board are committed to doing what is in the best interest of our shareholders. We are a business bank at our core, dedicated to providing high quality financial services and building lasting client relationships.”

Have not seen deterioration in Texas outside of energy

“While the current oil and gas cycle presents a challenge, we believe we are adequately reserved. Keep in mind, those reserves may not turn into ultimate losses. We also look beyond direct energy risk and we remain comfortable with our Texas commercial real estate exposure. We have not seen any noteworthy deterioration in our Texas portfolio outside of our energy book.”

Peter Guilfoile

The sharpness of oil’s drop in the first quarter caused a little more damage than people expected

Yes, I think, given the fact that we have a heavily weighted portfolio toward E&P credits and the guidance was around the E&P portion of energy, combined with the fact that that does drops, the drop in energy prices in the first quarter was pretty severe, and it wasn’t just the levels that went to, it was the speed at which prices dropped. I think that caused a little more damage than most people would have thought was going to.”

Customers are selling assets at a significant premium to where they’re valued in the borrowing base

“Since really last summer, our borrowers have sold about $1.7 billion of assets. And actually it goes back a little further than that. But on average the premium has been 93% above what we have those assets valued at in the borrowing base and in 2016 that premium is even higher. It’s about a 120%. So not only is there a lot of opportunity for our borrowers to sell assets to raise liquidity, but it’s a very accretive process when they’re doing it.”

Losses in energy services should be much higher than in E&P

“I think disproportionately we’re going to see more charge-offs in energy services. But energy services are very small portfolio for us, so I can’t say that we’re going to have the majority of our charge-offs in energy services, but the vast majority of our E&P book are well secured credits. Some of them are having financial difficulty and some of them are going to go through bankruptcy, but we feel that given how well secured so many of them are, we don’t expect to take charge-offs on a lot of those credits. The energy services side, as you know, is different. The loss given the default, if you will, is higher. Those assets are less reliable in a liquidation scenario.”

Patrick Faubion

Didn’t see as many “defensive draws” on lines of credit from energy companies as we were concerned about

“Yes. About two months ago, we had a list of credits that we thought we would be concerned about, defensive draws, if you will. And I can tell you that list today is much smaller than it was a month or two ago. First, a lot of those credits, their borrowing bases had been reduced as a result of redeterminations. Others have agreed not to draw, which is a good thing. And the vast majority of our borrowers are doing the opposite. They’re selling assets. They’re raising capital to make sure that they are staying within the confines of what they expect the new borrowing base to be. So we’re really pleased to see that. ”

Focused more on credit quality in technology and life sciences book

“This has been a very strong growth business for us. Today, we’re probably focusing more on credit quality, more on granularity. You can see that our charge-offs declined this quarter in TLS. The key to this business is our long-term team, as well the solid long-term relationships with key venture capital providers. We’re in 14 cities”