Comerica 3Q15 Earnings Call Notes

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Comerica’s (CMA) CEO Ralph Babb on Q3 2015 Results

Continue to feel comfortable about credit portfolio

“Net charge-offs tied to our energy related exposure continue to be low and we had no charge-offs in the energy business line. While negative credit migration is anticipated any losses are expected to be manageable. We continue to feel comfortable with our energy portfolio.”

27% of energy portfolio is criticized, but only 3% is non-accrual

“As of quarter end, approximately 27% or $1.1 billion of the loans related to energy were considered criticized. However, this includes only $126 million of non-accruals equivalent to 3% of energy loan and is up only $7 million from the second quarter.”

Seeing most credits get resolved before hitting non-accrual status

“we’re not seeing a lot of migration to non-accrual and we haven’t seen a lot of charge-offs. That’s been consistent with what our expectation has been right from the beginning and it’s exactly what we’re seeing. We’re seeing a lot of these credits get resolved before they go to non-accrual. In fact, we continue to get large pay-offs of substandard credits and we just got one I think a week or two ago. So we’re encouraged by that. We think that’s going to continue”

Energy services business has been more impacted than E&Ps

“I think the energy services segment of the business has been the most impacted. But bear in mind the energy services segment is much smaller than the E&P.”

Texas is feeling energy more broadly, but California and Michigan doing well

“while we’re seeing some impact from energy more broadly in Texas that Pat can speak to. We continue to benefit from a diverse geographic footprint and as Ralph mentioned in his opening comments, the California market continues to perform well for us really across a variety of our core businesses as well as our specialized businesses on both the loan and deposit side of the equation and we’re starting to see some nice improvement in the overall Michigan economy tied to the auto industry, the lower gas prices.”

The hangover in Texas is affecting more than just oil and gas

“The Texas economy has a direct impact of about 15% from oil and gas but the hangover so to speak is affecting quite a bit of our businesses.”

Migration into criticized loans doesn’t necessarily mean more reserves needed

” our E&P credits are much better secured than some of our other C&I loans, and so we might not have the same amount of reserves assigned to those E&P credits, as we would say our energy services credits that are migrating. So it’s difficult to exactly equate migration to the amount of reserves that we have.”

Provide capital call and subscription lines to VC and PE

“The majority of the growth that we saw in our technology and life sciences business was in our equity fund services group where we provide capital call and subscription lines to venture capital and private equity and typically those are the less risky part of the technology and life science portfolio.”

Charge-offs have been up in Technology and life sciences. We don’t think theres a systemic issue, but increasing reserves

” its unusual for us to see all bigger charge-offs in TLS, they have been up for the last couple of quarters, they’re above where we’d like to see them frankly. But we’re not seeing any systemic issues there, we’re not seeing any patterns to the charge-offs. I really don’t think we’re going to see further deterioration in the portfolio. But we felt it made sense to increase our reserves and we’re watching it carefully. But we don’t expect that deterioration to continue in subsequent quarters.”

We understand how VCs react in downturns

“We’ve been in the business a long time, so experience is probably the most important thing. We have relationships with a number of venture capital firms that we’ve been through ups and downs in the cycles many times before, so we understand how they react in downturns.”

Within Texas different geographies reacting differently

“while there is a general impact from the energy slowdown state wide. It definitely is being felt more in the Houston market sort of primary probably San Antonio is secondary, but if you look at the North Texas market, Dallas/Fort Worth it is a more diverse economy less energy dependant. We are not seeing what I’d call sort of broad impact as of yet in that part of the sector.”