Comerica 4Q15 Earnings Call Notes

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Ralph W. Babb Jr.

Negative credit migration continued in energy but rest of portfolio performed well

“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.”

Texas facing headwinds, but California and Michigan provide an important counterbalance

“While Texas is facing headwinds from the energy cycle, California and Michigan provide an important counterbalance.”

Virtually no second lien exposure and energy services portfolio relatively small

“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.”

Expect to see typical inflationary pressures on several items

“we expect to see typical inflationary pressures on several line items, including annual merit, staff insurance and occupancy.”

Peter W. Guilfoile

Every energy portfolio is unique, every bank will have different reserves allocated

“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.”

Borrowers have been really good about working with the banks

“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.”

Borrowers have continued to hedge

“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.”

Karen L. Parkhill

85% of loans are floating rate. There’s been minimal deposit impact with the rate rise

“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.”

We’re pricing in the $30s, assume slightly worse if oil is in the $20s

“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.”

J. Patrick Faubion

Seen some softness in the VC market but still expect a good year

“Steve, this is Pat. We’ve seen a bit of a softness in the VC 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 but we do expect a good year in 2016 in our technology vertical”

Thoroughly reviewed our other portfolios and we feel good about credit

“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.”

Houston will be the most impacted city in Texas

“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.”

Should see good growth in Commercial Real Estate portfolios as projects draw on debt commitments

“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.”

Curtis C. Farmer

California is still doing well overall

“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.”