Comerica 2Q15 Earnings Call Notes

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Net charge offs related to energy exposure were nominal

“Net charge-offs related to our energy exposure were nominal. The provision for credit losses increased from a very low level due to an increase in criticized loans related to energy as well as uncertainty due to continued volatility and the sustained low oil and gas prices.”

Our Texas index shows that Texas economy eased

“Our Texas Economic Index issued earlier this month and tracking data through April, shows that the Texas economy continued to ease from lower oil prices.”

Criticized loans increased mostly due to energy

“Our criticized loans grew $294 million to $2.4 billion or less than 5% of total loans which is well below our historical experience. The increase was driven by $329 million increase in criticized loans related to energy. Inflows to non-accruals were $145 million of which $100 million were energy related.”

14% of our energy portfolio is classified as criticized

“As of quarter end approximately 14% or $578 million of energy and energy related portfolio is classified as criticized, including non-accruals of $119 million and there were only $2 million of charge-offs.”

Credit quality for the bulk of our portfolio remains strong

“Credit quality for the bulk of our portfolio remains very strong and we continue to believe that energy charge-offs will be manageable. We remain focused on the long-term and we expect that as rates rise, our revenue picture look even brighter.”

Our borrowers have a lot of their revenues hedged and keep layering them in

“I can tell you that 60% of our borrowers have more than 50% of their revenues hedged for a year or more and about third of them have 50% or more of their revenues hedged out two years or more. So, I don’t think it’s going to change a great deal between now and the fall but it’s difficult to model that. We have been encouraged by the fact that the amount of hedging really is not changed over the past couple quarters. And our borrowers continue to look for opportunities to layer in hedging when our opportunity is to do that.”

We’re not seeing credit migration in non energy Texas portfolio except for some venture backed companies

“we’re really not seeing a lot of migration in the Texas portfolio outside of energy with one exception, we have a small TLS book out of Houston. This book is largely pre-revenue venture back companies that are developing new technologies in the oil patch. And you can imagine that the business model for them has changed a great deal as oil has gone from 90 to 50. The good news in that portfolio is it’s quite small; it’s only about 85 million and 2% of our total energy and energy related. Other than that, we’re seeing good experience in terms of the Texas portfolio including commercial real estate.”

THe price of oil at the next redetermination will probably be pretty similar to where it was in January

“the price deck, if we go back all the way to January, our price decks which are very conservative are reflective at or below current prices. So, we’re very comfortable that we have reflected current energy prices in the 97% of the portfolio that we have re-risk rated.”

E&P and oil service portfolios are each ~15% criticized

“Of the 300 million E&P, let me put to you this way. Right now our E&P portfolio is — 15% of that portfolio is criticized; energy services is about 16%, is criticized. The two combined are about 440 million.”

In the last cycle, reached about 37% criticized

“I don’t have the number off-hand but I’m quite sure, it was not. At the peak, I know our energy services book which was the worst part of it last downturn, I think we reached about 37% criticized there.”

Regulators are watching this very closely

“There is increased scrutiny around this portfolio in the current environment.”

Capital markets have been very open to energy credits

“The capital markets have been very open to energy credits. And as you suggest our borrowers have been very adaptive tapping those capital markets. And today that we remain opened. My comment was if capital markets tightened, that could reduce the run-off that we see in our portfolio. I don’t have a way to predict what the capital markets might do with regard to energy companies.”

90% of our energy book are SNCs

“over 90% of our energy book — line of business book are shared national credits. And another way of looking at it is 30% of our shared national credit book is energy, which is the largest segment.”

We’re not usually the agent on them

“we’re not the agent on the vast majority of them. And it goes along with our energy strategy. We want to deal with a certain segment of the energy industry and it’s the segment that we feel — it has the least risk. And we can’t use our own balance sheet in the vast majority of cases to agent those kinds of deals. So that’s why we are more often than not, a participant and not the agent.”