This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha
Let me talk about energy
“I want to talk briefly about the recent declines in oil prices and its impact on our energy lending portfolio. We’re closely monitoring the price declines for direct and indirect impacts to our overall loan portfolio quality.
We’ve been doing this a long time
Our bank has extensive energy lending expertise dating back multiple decades and through numerous energy cycles. Our core exploration and production loans at present are well secured and provide a collateral cushion to withstand price declines.
We’re keeping a close eye, but not seeing any material weakness
In terms of broader impact, we have been monitoring markets such as Texas and the Gulf Coast for signs of weakness in employment and housing. However, we’re not seeing any material weakness past this point in time.
Continue to expect an increase in short term rates
“As we look ahead, we expect improved growth in the U.S. economy in 2015. Low energy prices should provide a tailwind to consumer spending and the manufacturing sector. However, an uncertain global growth environment does pose some risk. As a result, we continue to expect an increase in short-term rates in the latter part of 2015.
Net interest margin remained pretty stable
“Despite a continuation of low rate environment which exerted pressure on asset yields, both net interest income and net interest margin remained relatively stable with the previous quarter.
Expect mortgage production to be up vs. last year
“Based on what we know today, we expect mortgage production in 2015 to exceed that of 2014.
Expect favorable asset trends to continue but volatility is expected
“based on what we know today, we expect favorable asset quality trends to continue. However at this point of cycle, volatility and certain metrics can be expected.
If the 10 year yield stays here we would expect margin pressure
“with rates at current levels, the net interest margin would experience gradual pressure over the year.
For example, if the ten year treasury yield would remain in the 175% to 2% range throughout 2015, we would expect 10 to 12 basis points of margin pressure.
We still think the Fed is raising rates mid year
“ if you look at where we think the Fed’s going to be towards the middle of the year, we think you’ll start seeing some pressure to increase short term rates, and so we haven’t abandoned that, what we wanted to try to do is put some sensitivities and some extent that that does not happen.
Customers have a desire to borrow online
“all the things we’ve discovered through some of the product innovation we’ve had over the two last two or three years is that the desire for customers to also have the ability to borrow money online and also borrow money at point of sale and so we are introducing a number of new online capabilities as well as some partnership capabilities we have on a sale.
That’s an activity that we’ll be making announcements on as the year progresses and it’s just a way to extend our brand further into market places that we are as dominant today
Third party costs are easy to get rid of
“we think we can get that down and third parties are one of the easiest — third party expenditures are one of the easier ones to deal with because you don’t have to sign a contract.
Loan originations pristine credit quality
“I think what’s going on the books today is some of the most pristine, incredibly we’ve had in a long time
Deep water companies have longer to play out
“marine transportation companies that are serving the deep water, we think that those companies are operating in an environment that has a much longer to play out.
Small number of customers, good experience, good liquidity, good shape
“A lot of it has to do with where the price ultimately bottoms out and then the length of time that it will stay there, but based upon again good liquidity, good experience amongst our management teams, access to different forms of capital and just the credit profile and small number of customers that we have, we say, we feel pretty good about our exposure today.
Lower rates help refianance, but hurt servicing business
“We could see — we could see an opportunity for refinance activity helping our mortgage business, but also that negatively impacts us on the mortgage services rights.
So we have a little bit of a built in economic hedge to some degree there. We need to still see how that plays out over the course of the year.
Energy book is 41% hedged through 2015 and 17% through ‘16
“About 41% through 2015 and an additional 17% I think through 2016.
Having all your key processes in place to make acquisitions is important
“I think ensuring that you have all of your key processes in order to participate in acquisitions is important. BSA/AML has been imported to our country for a long time. It will continue to get the time and attention and it’s incumbent upon us to have all the controls in place.
We invest an awful lot of time and attention in ensuring that and we feel like we have a very robust program relative to BSA/AML and — but that mean we can’t stop here. We have to continue to invest and continue to be diligent in terms of those processes, but we think we have a solid program today.