Core Labs 4Q15 Earnings Call Notes

Core Laboratories NV (CLB) David M. Demshur on Q4 2015 Results

Crude should balance in 2H16

“I’d like to talk about some of our current macro views, and then touch on the three financial tenets. Our Core believes that the worldwide crude oil supply and demand markets will balance in the second half of 2016.”

Decline in unconventional production has been offset by surprise addition of deepwater projects

“On the crude oil supply side, U.S. unconventional production peaked at approximately 5.5 million barrels of oil per day in March of 2015, has since fallen by over 600,000 barrels a day owing to high decline curve rates associated with tight oil reservoirs. Offsetting these sharp production declines have been surprising and unsustainable additions of over 250,000 barrels a day from deepwater Gulf of Mexico projects that were commissioned several year ago and that beared fruit in late 2015. The sharp declines from U.S. land production will continue into 2016 and Core believes these decreases could reach 900,000 barrels a day by the year-end 2016.”

The crude oil production decline curve always wins

“Remember, the immutable laws of physics and thermodynamics mean that the crude oil production decline curve always wins and that it never sleeps.”

IEA is still calling for demand growth despite China

“On the demand side, on the crude oil market, the IEA is still calling for increased demand in 2016 of approximately 1.2 million barrels per day, notwithstanding daily news out of China regarding their economic activity. Supply and demand will balance as they all have in all past market disruptions.”

Spare capacity in the Middle East is near zero

“on the Middle East, we see spare capacity there across the Middle East at a very low amount. Actually long-term spare capacity, we see near zero. You could probably generate another million barrels or 1.5 million barrels on a short-term basis. But on a long-term basis, we would put spare capacity nearing zero.”

Richard L. Bergmark – CFO, Member-Supervisory Board & EVP

Better valuations don’t make bad companies into good ones

“Rob, one thing about down cycles is better valuations do not make bad companies into good companies. So, our perspective is we haven’t seen good companies to acquire that fit our three segments. So, this recent change in valuation really hasn’t changed that. So, we don’t see acquisitions really adding to this at this moment.

McCormicks 4Q15 Earnings Call Notes

McCormick’s (MKC) CEO Alan Wilson on Q4 2015 Results

New CEO taking over

“I am pleased to be transitioning from my role as CEO at this time. One of my conditions in stepping down was to have the company in great shape with strong financial performance and forward momentum”

We’re still robust on China going forward

“on a go-forward basis, we’re still robust on China. We know there’s a lot of discussion around China. We’re obviously very aware of the economic discussion going on there but our own business we’re anticipating that continues to do well.”

Lawrence Kurzius

Reduce sodium w/spices

“In mid-2015, the USDA first recommended spices and herbs as a way to reduce sodium in the diet in recommendations to school nutritionists and to adults over 65. And in early January, this recommendation made its way into the new 2015-2020 Dietary Guidelines for Americans.”

Much of our business is direct toward smaller cities in China, which have experienced more robust growth

“We’re aware of the macroeconomic pressure around the China market, which does make us cautious, but we’re also quite optimistic about our business in China. A great deal of the carnage that’s happened around us has been more in the modern trade portion of the business. That part of our business is slow as well but it only accounts for about 20% of our consumer business in China. Much more of our business in particular, thanks to the acquisition that we did a couple of years ago is more directed to the interior, to the smaller cities and through a more traditional trade outlet. So, we have continued to experience quite robust growth of our consumer business in China.”

The consumer side of the business in China has really been quite strong to start the year

“I don’t want to comment too much on 2016 but the opening of our year in China on the consumer side of our business has been really quite strong. And I focus my remarks on the consumer side because for us China has really become predominantly a consumer business. Years ago, China was more of an industrial business for us, and that’s how we got our foothold there. But with the continued growth of our consumer business and with the addition of the acquisition we did a couple of years ago, that business is now more [indiscernible] about two-thirds consumer.”

I was just over there and the China team is optimistic

“I was just there with the China team last week and met with the management over there. Actually, Alan and I went over as part of our internal transition communication. And so, it gave us an opportunity to meet firsthand with the China team and they continue to be quite optimistic.”

Trend towards more natural is an important driver for us

“improving the product mix and moving towards flavors and more value-added technically differentiated product is part of the margin equation, and the overall trend in our industry towards more natural, less artificial is an important driver of volume for us because this is an area where we think that we got particular expertise. I think in our remarks, we indicated that about 40% of the briefs that we get from our customers include some wellness aspect “

Texas Instruments 4Q15 Earnings Call Notes

Texas Instruments, Incorporated. (TXN) Q4 2015 Results

David Pahl – Vice President and Head of Investor Relations

Saw weakness in mobile phones

“The sector where we saw the weaknesses you were guessing is mobile phones and we did see that sector weaken late in the quarter, in the back half of the month of December. If I just take and look at for the year how our end markets did, I’ll put that into perspective. I’ll start with an area of strength in automotive. That grew in the mid teens. Most of the sectors inside of that growing, growing double-digits…Communications equipment was down 20%. And that was primarily driven by wireless infrastructure and that was down around 30% for the year. ”

We haven’t seen any sign posts that this is a traditional cycle

“We’ve had some people ask us if we think a semiconductor cycle is underlying what we’re seeing and we just haven’t seen those signs of a traditional cycle. So there are things like our lead times continue to remain short. Our cancellations remain very low. Our distribution inventory continues to hold around 4 weeks. And we continue to deliver our products on time to our customers when they’re asking at very, very high service levels. So those are some of the bigger ones that come to mind, that you would see some movement if you were moving through a bottom or a top of the cycle, and we just haven’t seen that in quite some time.”

Our industrial exposure is very different than most might expect

” just want to remind those that may not be as familiar with us, when we talk about our industrial market, it’s something that’s very broad and different than what a typical investor would look from an industrial screen. So we’ve got 14 sectors that makes up industrial and they’ll include things like factory automation, medical and healthcare, building automation, grid infrastructure, test measurement, motor drives, electronic point of sale, space and avionics, display power delivery, appliances, lighting, industrial transportation and then a bucket of everything else that goes into it. So slightly or very different than what most people would think of in industrials.”

We think there’s more semiconductor content going into the industrial market and we’re being buoyed by that

“typically a lot of people ask us, hey, we hear the rumors in China. We see the stocks that they follow maybe in the industrial segment are seeing very, very, very weak demand. But we turned in revenue that was consistent with what we saw after a very strong year. And fundamentally what we think’s going on inside of that is that there’s more semiconductor content going into the industrial market and we think we’re in the very early stages of that.”

Kevin P. March – Senior Vice President, Chief Financial Officer, Finance & Operations

Weak macro economy, but aside from personal electronics, the balance is pretty flat

“I think that at the highest level, we think we’re continuing to operate in a relatively weak macro economy as we have been for the last couple of years. So nothing terribly exciting in the economy as a whole. If we kind of look at the comparison we’re talking about, recall that a year ago, we were seeing sharp declines occurring in communications infrastructure and we’re also seeing some pretty stiff headwinds in the form of foreign exchange where if the rate of exchange moving against us from the US dollar strength standpoint. So despite that, when you take a look at all that, we actually see aside from this one sector of personal electronics, the balance of it’s going to be about even on a year-over-year basis.”

McKesson FY 3Q16 Earnings Call Notes

McKesson’s (MCK) CEO John Hammergren on Q3 2016 Results

Generic price inflation is modest

“I would emphasize our view around a generic price inflation was normal, so not zero, but certainly modest – certainly significantly down from when we came into this fiscal year with much higher expectations.’

Fluctuation in valuations does make some opportunities more attractive

“I would say that, the fluctuation in valuations does make some opportunities more attractive than others and clearly even some of the private companies have might have dreamed of IPOs et cetera may be more available to a conversation with us than they might have been otherwise.”

Generic inflation has been driven by a small number of molecules

“we talked about generic inflation in the past, we talked about the fact that is driven by a small number of molecules from a small number of manufactures that have inflated to very high degree and I’d say that our current experiences at some of those out layer increases have diminished significantly. But overall if you think about the portfolio overtime it has been in more of a deflationary mode”

We think we’ll retain the Rite Aid business

“I’d remind folks that on early January I’ve made a comment about this business we believe will be retained by McKesson in its current form through late in our fiscal 17 numbers. ‘

People are probably thinking twice about raising prices with the current political discourse

“I would say the political discourse that’s taking place and the congressional inquires relative to pricing practices, I think are obviously going to have people at least pausing perhaps to consider whether now is the right time to take price increase.”

Performance of branded pharma companies probably easier to forecast

“I believe the performance of branded pharmaceutical companies is probably easier to forecast give that it has been less volatile in the last decade than perhaps the generic industry we’ve seen more volatility. And that volatility certainly is partially driven by supply and disruption.”

Facebook 4Q15 Earnings Call Notes

Mark Zuckerberg

Free WhatsApp

“As WhatsApp has grown, we work to keep it fast, simple and reliable. And we’ve seen many communities come to depend on this as their main communication service. To serve these communities well, this month we announced that WhatsApp will now be free to everyone and will no longer charge the subscription fees that many people were charged after their first year. We think this is an important step towards creating and even more ubiquitous product without affecting our plans for building WhatsApp into important business in the coming years. Later this year, we’ll be testing new ways for people to use WhatsApp to communicate with businesses and organizations that they want hear from.”

We continue to make progress with AI

“With our working AI, we continue to make progress towards the new generation of computers that can see and under understand. Over the last year, we published dozens of research papers including some of the leading work on image recognition and language understanding. To drive the entire AI community forward, we’ve also open-sourced software and a lot of new AI hardware platform.”

We’re happy with Oculus preorders. Gaming is going to be the initial market

“I will take the Oculus one first. Yes, I am happy. I don’t show much joy, but I am happy. It’s going to be gaming for the beginning. That’s the initial market. There are about — I think it’s around 250 million people who have Xboxes, Play Station, or Wiis. That’s the initial marketer folks who we think are going to be most interested from the early VR experiences, especially at some of the higher price points.”

If you show me a desktop product, I’m going to kick you out

“What happened is we realized that mobile was growing faster than desktop and that people were shifting their usage and that it was the more important thing for people’s consumer experience. And that’s when we made the shift, not in our business first but in how we develop products. And I told all of our product team and when they come in reviews really just coming with mobile. If you come in and you try to show me a desktop product, then I am going to kick you out; you have to come in and show me a mobile product. And that I think was just as a crude leadership tactic, somewhat effective and helping to motivate the organization to shift its energy towards focusing on mobile.”

Sheryl Sandberg

2.5m active advertisers

“Last quarter we announced that we had over 2.5 million active advertisers and since then our growth has remained strong. This represents small fraction of the over 50 million small businesses now actively using pages.”

Advertisers are still underindexed to mobile

“n terms of monetizing time spent, it’s certainly the case that consumers have shifted to mobile and businesses need to catch up. The exact [ph] percentage we can monetize that we’ll see, but we certainly think that we will continue to benefit from the consumer shift to mobile, because businesses are behind. If you ask even our largest clients, our largest clients, if they drew a pie chart of where their consumer spend their time and money and whether they spend their time, we’re still under-indexed.”

2016 election is a big deal for ad spend but so are a lot of events

“Yes, the 2016 election is a big deal in terms of ad spend but so is the World Cup, so Super Bowl every year, so are events like the Olympics. We are excited about the targeting we’re able to offer for our ad platform. ”

Dave Wehner

Non-GAAP measures exclude stock based compensation

“our non-GAAP measures exclude stock-based compensation and the amortization of intangibles.”

Mix shift driving changes in price and impressions

“in Q4 the average price per ad increased 21% while total ad impressions increased 29% on a year-over-year basis. It’s worth noting that this was the first quarter since Q3 2013 that total ad impressions increased on a year-over-year basis. This was driven by an increase in mobile ad impressions and was partially offset by a decline in ad impressions that were heard on personal computers, consistent with the ongoing declines in PC usage. The reported increase in price is being driven by the continued mix shift towards mobile which contains higher price newsfeed ads rather than the mix we have on PCs of both newsfeed ads and lower price right-hand column ads.”

Do expect tougher comps in 2016

“the overall macro-environment introduces the level of uncertainty around global growth and exchange rates that could impact our business in 2016. And we do expect to face tougher comparables as the year progresses, given the remarkably strong advertising performance in 2015.”

Quality of ads has allowed us to show more without harming hte experience

“ad load is definitely up significantly from where we were a couple of years ago. And as I mentioned, it’s one of the factors driving an increasing inventory. Really one thing to kind of think about here is that improving the quality and the relevance of the ads has enabled us to show more of them and without harming the experience, and our focus really remains on the experience.”

We think we’re benefitting from a strong secular shift to mobile

“We’re obviously benefiting from a strong secular shift to usage of mobile and we feel we’re very well positioned in that. We’re see more and more advertisers move to mobile; they realize that it’s no still longer question of whether they need to be on mobile, but it’s really how they’re going to be on mobile, and we think we’ve got the best solution for that and we’re investing to make it even better”

Fiat Chrysler 4Q15 Earnings Call Notes

Fiat Chrysler Automobiles NV (FCAU) Sergio Marchionne on Q4 2015 Results

We are not of the view that this industry is facing impending demise

“We are not inside FCA of the view that this industry is facing an impending demise and I think that part of this presentation today is designed to provide you with some comfort that we have appropriate or adequate controls over the strategic development of those business that we do feel that we will be able to navigate through these rough waters and that we will come out of this process as better organizations.”

Need to move from auto making to the business of transportation

“But I think that ultimately trying to move the discussion the way from the concept of auto making, trying to re-pitch our future as being involved in the transportation business in the broadest sense of the term we doesn’t do much service to the sort of needs and objectives of the sector that it faces today.”

The Brazil market lost 1m cars

” the 7 million number was a number that was substantiating or supporting a view of markets as we saw them back in May 2014, we have readjusted all of our plans to reflect current market conditions. We have seen the Brazilian market which was expected to perform much, much better, lose over 1 million cars in less than 18 to 24 months which has had pretty significant impacts on our volume ambitions. So we have recast all those. We are going to stay away going forward from enunciating goals that relate to volumes ”

Development portfolio in the US driven by the regulatory environment

“I have always viewed the development of our portfolio in the United States as being already driven by the regulatory environment and this by the need for all of in the market to achieve the 2025 standards and to achieve the greenhouse gas emission targets that we have all signed up to.”

Autonomous technology is probably going to come from an efficient supplier base

“I am absolutely convinced that all the things that have been talked about by other industry participants will effectively materialize over a period of time and I am absolutely convinced that the relevance of the automaker in that process is not going to be as key as it has been historically in terms of the development of the automotive sector. We are going to have to rely by necessity in efficient supplier base and there is one which continues to break barriers and continues to provide solutions which are going to be available to us and to others. ”

We have to ask ourselves what is the value of a brand in the autonomous paradigm

“one of the questions that we all have to ask ourselves is what is the value of a brand in the presence of autonomous driving if effectively at the end of the day, it is not the driver that effectively exercises control and the way in which that reflects itself in margins and positioning and the relevance of the brands in the marketplace is an unknown issue. ”

The industry has historically done a good job of distracting itself from its primary function: making good cars

“And so we need to be very, very careful that we don’t spend – we have done, by the way, this industry has done a tremendous amount, if you look at its – even its recent past, it has always looked for ways to sort of defocus its primary function of making cars and making them relevant in the marketplace by looking for ancillary side solutions and somehow we will change the paradigm. ”

I do agree that we are at top-ish volumes, but 16m would be too bad

“I do subscribe to the notion that we are looking at top-ish volumes today. The rate of adjustment is unknown. I also know that there is a phenomenal amount of allowed amplitude and the isolation of volumes. I mean, if we went to 16 million, it’s not going to be the end of the world in terms of size and I think that we will all adjust to reflect those market conditions.”

More than half our fleet in the US should come from hybrid in the medium term

“In the medium-term I’d say more than half of our fleet in the United States is going to be in some form of hybrid. Calling the right time for the conversion is difficult to tell.”

There’s always something to monetize

“There are things that I can monetize. I mean, including my office chair, the question is do I need to do that. And the plan is calling for a €5 billion cash holding by the end of 2018. I think you guys should be asking for distributions and that point of time is opposed to my – worrying about monetizing assets.”

Cliffs Natural Resources 4Q15 Earnings Call Notes

Lourenco Goncalves

Iron Ore and Steel prices have changed a lot since 2014

“Let’s just start reviewing what changed since August 2014 when I joined Cliffs as Chairman and CEO. Iron ore prices changed a lot. The IODEX pricing for sinter feed fines sold in China went from around $100 per ton when I joined Cliffs to a recent low of $38 per ton. The steel prices changed as well. In the United States, they are above $600 per ton average price for hot-rolled steel in place since 2010; hit a 10-year low of $360 per ton in 2015. The steel production and the massive consumption in China changed too, despite the mistaking assumption by the Australian and Brazilian iron ore majors, insisting on increasing their supply to a never growing demand of their imaginary China.”

Major iron ore producers are now changing their rhetoric

“Last but not least, the elegant statements of the major iron ore producers are gone. Once is staking that the seaborne price in the $30 range was actually a good thing because it would make for the complete elimination of all other mining companies in the entire world. These major players are now realizing that they will bear the consequences of their own bad behavior. At this point in time, we can no longer hear their excitement about becoming low cost per ton producers by means of investing billions of dollars to increase their tons to unnecessary levels. In fact these companies are now realizing that the returns on investments that they promise to their respective boards have not been achieved and will not materialize.”

I laid out our strategy with the assumption that China’s steel demand is shrinking not growing

“16 months ago I laid out our strategy for Cliffs predicated on one fundamental fact, China’s steel demand is actually shrinking not growing. ”

It’s been reported that iron ore is building at Chinese ports again

“Demand for steel in China which account for about half of global steel production is shrinking, as the growth of their economy is lost, prompting the Chinese steel mills to a scale back production. It has been reported that inventory levels of iron ore at the Chinese ports continue to build over the past couple months heading back to above 100 million tons.”

The Chinese are shutting down steel plants

“Earlier this month, China’s biggest steel producing province announced that that the steel output will be cut this year to ease pollution and help curb oversupply. Three days ago, the Chinese Premier, Li Keqiang, released target numbers for steel production cuts to the order of 100 million tons to 150 million tons. The pressure on the pollution issue in China continues to mount.”

The Chinese can only solve their pollution problem with changes to their steel production process

“I have said this before, and I will state it again, China will resolve its pollution problem and it cannot do so without a major impact on its steel production, and a significant reduction of the consumption of sinter feed fines. One of the root causes of pollution in China is environmentally unfriendly characteristics of the production of sinter from iron ore clients. Differently from the United States and Europe, the vast majority of the blast furnaces in China use sinter as feedstock and not pellets. Making matters worse, a good number of Chinese sintering plants utilize lower grade iron ore sinter feed fines purchased from the iron ore majors, as well as from their own domestic mines.”

Pleased with the duties coming in from Washington on foreign steel

“So far I have been generally pleased with the preliminary duties coming from Washington on the steel trade case, especially the extremely punitive percentages placed on China. That has already started to positively affect the order books of our clients.”

In the US steel market there’s a clear difference between the end markets

“in the domestic steel market we have a clear differentiation between the steel mills that are focused on automotive and the high end of the market, more towards the cold-rolled and galvanize the steel and the ones that are more leveraged to help in. Fortunately we serve the ones that are more leveraged to the markets that are performing well like I provide the best example is the automotive market. So I will leave it at that but that’s the way we’re seeing our market developing in 2016.”

The impact of the trade case will be real

“the impact of the trade case will be real and it has already been started to be realized by the order books of the clients, our clients at least, and we expect that only to improve.”

This is the United States of America, we’re not going anywhere

“I would just one additional comment it’s more like a when we bring back production, not if, we will bring back production. This is United States of America, we’re not going anywhere. We’re going to continue to have a resilient economy, domestic steel production, domestic steel consumption, and we’re going to continue to sell pellets.”

Have a nice day Evan Kurtz

“But now that you’re talking here I have a question for you Evan Kurtz, why you’re still calling Cliffs high cost reducer, if you’re saying that we have been cutting cost so much… Yes, cost is my guidance; cost is numbers that we publish every quarter. We did it in Q3 2014, Q4 2014, Q1 2015, Q2 2015, Q3 2015, Q4 2015; you are still calling me high cost producer. So it’s hard to confuse people when they don’t want to be confused. Have a nice day Evan Kurtz.”

The mini mills of today are not the mini mills of the early 90s

“the mini-mills of today are not the mini-mills of the early 90s. The mini-mills of the early 90s were really low cost scrap, easily available driven big reservoir, nobody tapping to produce flat roll. That was when Crawford sued can [ph] corporation in 1989 and then Hickman, then the Steel Dynamics plants, and so on and so forth, you and I saw that happening real time. Fast forward we are in 2016 we have a much more material market a bigger huge presence, majority presence of mini-mills in the marketplace they have done a phenomenal job in improving the quality of their steel and their ability to produce high end materials and to be competitive against the Esperance producers, including some markets that were not the markets that were designed for as high as automotive.”

Boeing 4Q15 Earnings Call Notes

Dennis Muilenburg

Export Import bank helps us complete in global markets

“A noteworthy milestone for our industry and others and for large and small U.S. exporters alike, was the five-year extension of the U.S. Export Import Bank. This reauthorization of the bank restores competitive balance in international trade and enables American exporters to compete on a level playing field in tough global markets. These developments in sum help to further de-risk our business going forward.”

Global passenger traffic increased 7% in 2015

“We continue to see a generally healthy commercial airplane marketplace driven by improving airline profitability, solid passenger traffic growth, and meaningful replacement. Traffic data for 2015 illustrates the strength of the passenger market with global passenger traffic increasing 7% for the year, which was above the 10-year average.”

Air freight traffic stalled though

“In contrast, as we highlighted in our rate reduction announcement last week on the 747-8, the global cargo market recovery stalled during 2015 with the air freight traffic growing a modest 2% during the year. We remain confident in the long-term recovery in the cargo market and the upcoming replacement cycle where we see approximately 240 large freighters that will be over 20 years old by 2019.”

Project passenger traffic to increase another 7% next year

“Additionally, passenger traffic in 2016 is forecast to grow 7%, and cargo is forecast to increase 3%. In addition, global GDP is forecast to increase 2.7% in 2016, a healthy level for our industry.”

Chinese passenger traffic increased 15%

“We also continued to see strong growth in Chinese airline traffic. In 2015, passenger traffic in China increased 15% compared to GDP growth of 7%, a steady trend we have seen for the past five years.”

Airlines buy aircraft for growth in a low oil price environment more than replacement

“notwithstanding a fuel price environment today that is well below the 15-year average, the value proposition for our airplanes remains a compelling one, and we have seen airlines in the past efficiently adjust to similar market conditions. In a period such as today with higher passenger demand and lower oil prices, airlines buy new aircraft more for growth rather than replace older assets.”

Airplane demand is 60% growth 40% replacement

“we continue to see about 40% of overall aircraft are in the replacement category, so it’s a combination of growth and replacement. About 60% growth, about 40% replacement on balance. It varies a bit year-to-year, region-by-region, but that gives you a sense for it. And the value proposition of our airplanes is compelling whether you’re looking at replacement of old assets or the need to satisfy passenger growth.”

Cullen Frost 4Q15 Earnings Call Notes

Cullen/Frost Bankers’ (CFR) CEO Richard Evans on Q4 2015 Results

Breakdown of the energy portfolio

“Outstanding energy loans as of December 31 totaled $1.76 billion or approximately 15.3% of total loans. Our energy loan segments at the end of 2015, production $1.25 billion or 71% of our energy loans, $106 million as our problems; services $273 million or 15.5% of the energy portfolio, we recognized $46 million as a problem; manufacturing, $65.6 million or 3.7% of our energy loans, we considered $19.8 million of that as a problem. The remaining 10% of the portfolio consist of mid-stream, refining, traders and private client or wealthy individuals. We have zero identified problems with these loans.'”

We know our borrowers

“Our typical borrower is an owner, operator, energy professional who has spent his or her entire career, if not life, in the business. Many are second and third generations in the industry. They have been through cycles before and they will be through cycles again. They know the meaning of commitments and responsibility. They have a stake in the local communities and they make decisions locally. We have not and will not look to equity funds, private investor groups, shared national credits, and other such entities to grow our loans. Shared national credits are approximately 29.5% of our outstanding dollars. We do not seek out shared national credits. They are the result of our borrowers being successful, growing and prospering. Consequently, their credit needs increase. As we have stated before, we do not bank the energy industry, we bank with people who are in the energy business.”

Problem credits are 10% of the energy portfolio

“Problem energy credits at the end of the fourth quarter of 2015 totaled $172 million and represents 9.79% of our total energy portfolio compared to September 30, problem energy credits of $125 million or 6.98% of total energy loans.”

We stay true to our principles and disciplines in all market cycles

“We’re focused on the basics, which have been a hallmark of our company since it was founded. Our credit quality is healthy because we stay true to our principles and lending disciplines and all market cycles.”

IN the 80s we got to about 10% non performings, but the lessons we learned from the 80s have kept us rational today

“I remember that if you got over 10% of non-performing that we knocked on the door of it, but banks that went under were over 10% and I am going by memory here, I can’t check the numbers right here, but it is very different. I would tell you that as I have looked at the lessons learned and I think the lessons learned, let me state it plainly. The lessons we learned in the 80s have kept this portfolio in very rational and management levels. What if I learned that I didn’t know this time? The two credits that we have the biggest challenges were primarily related to the quality of the reserves and the operations of those.”

Quality of reserves makes a big difference

“a lot of it when you think about this business is the quality of the reserves. The reason I say the quality of the reserves when you have got a loan on a property that is expensive to operate and of lower quality it can’t work at these levels. Already when I talked about cash flow, this cash flow squeeze is getting the best of it, when the tide goes out all the boats are lowered.”

I think you’ll see more sales over the next six months

“I think you will continue to see and we’ll see a lot more sales and different companies over the next six months have some challenges, but it’s going to relate to over leverage and quality of the reserves.”

Not all energy loans are created equal

“I know it’s difficult for the analyst community because it’s hard to get into specific analysis of different banks, you have banks that have lots of shared national credits, you have banks that have a higher concentration of service, and you get into service of the closure to the drill bait versus fortunately for us away from the drill bait. So all these variables, I know it’s difficult when you just take price but that’s why I come down and we have done the very specific analysis by customer and why we feel very comfortable with where we sit today.”

Dick Evans last call

“We don’t make leadership changes very often, but when we do they are well considered with the strong focus on continuity. We have an outstanding leadership team led by Phil Green to guide us starting April 1. It has been an enormous privilege and honor to serve this wonderful company for 45 years including almost two decades as Chairman and CEO. This will be as all of you said my final earnings call and I thank our shareholders, our loyal customers and dedicated employees for their support. I am grateful to the financial analysts and reporters on the line who have covered us so fairly.”

Phillip Green

This is not what we experienced during the 80s

“In summary, what we say is that this is not what we experienced during the 1980s…this time the situation is totally different…the 1980s real-estate was seriously impacted by the tax reform act in 1986, and the actions up and subsequent implosion of the savings and loan industry.”

The rest of the state has not disappeared

“We point all these out not to ignore that the, that an important industry within the state is undergoing a serious downturn, but merely to point out that the rest of the state has not disappeared into the Gulf of Mexico.”

Everybody related to the oil business is getting hurt

“I would tell you that the thing we need to know is that everybody that’s related to the oil business is getting hurt. Even OPAC is what there’s 11 companies. They are hurt and there is lots of economic damage. If you look at what they did from 2015 at an average price of $49.49 versus 2014 at $96.29, they’ve had an economic damage of $400 billion and the decreased revenues. Can they withstand it? Yes.”

Jerry Salinas

Capital One 4Q15 Earnings Call Notes

Richard Fairbank

Expect allowance build driven by loan growth

“Loan growth coupled with our expectations for rising charge-off rates drove an allowance build in the quarter. And we expect allowance additions going forward, primarily driven by growth”

We’ve been flagging underwriting practices in the subprime marketplace for a long time now

“the auto story is the same story we’ve been saying for quite some time. So for at least a year now we have been flagging that in the subprime marketplace we see practices that are inconsistent with where we want to go from an underwriting point of view and we raised the flag about that in our call’

Card industry octane has revved up in recent years

“The other thing about the card industry, I think is worth pointing out is what’s happening with just sort of industry growth. So, industry-revolving debt for most of 2012 and 2013 it held steady at about 1% year-over-year growth and then it maintained sort of little over a 3% growth since July of 2014 and then recent months, it has been over 4%. So that’s certainly getting a little bit more octane there. And bank card outstandings are up 4.6% year-over-year. I think overall if I pull way up about the credit card marketplace, I think it’s a generally rational marketplace”

Have seen a slight uptick in delinquencies in energy affected geographies

“when we look at these geographies, places like Houston, parts of North Dakota, Alberta Province and Canada, we do see slight upticks in card delinquencies. And where appropriate, we’ve taken steps to surgically tighten our underwriting in these geographies, although we want to be careful not to over-react to these very modest effects.”

Most indicators of the real economy continue to look pretty strong

“let me say this about the health of the consumer. First of all, there has obviously been turmoil in the markets recently, including concerns about the global economy, especially China and closer to home concerns about the potentially disruptive consequences of falling oil prices. Having said that, most indicators of the “real economy” at least in the US continue to look pretty strong. We’ve seen sustained improvement in labor markets in recent months and steady home price growth. Consumer confidence remained solid. And as we talked about earlier, falling energy prices, while they will stress certain sectors and certain geographies, they will also directly benefit consumers. And if anything, I feel, it would probably be a net positive for the overall health of the consumer.”

We’re not seeing anything that is cause for concern in our own portfolio

“Of course, our most reliable view, Brian of consumers comes from our own portfolio from direct indicators of consumer behavior like payment rates and purchase volume, and from leading edge credit indicators like delinquency flow rates. These indicators all look consistent with our views of seasonality and growth math, and they are not giving us cause for concern. Obviously, the economy is something of a wildcard, and as the turmoil we’re seeing in financial markets spills over into the real economy, we would expect that to show up in our credit metrics eventually. But we’re not seeing any indications of that now.”

Steve Crawford

CCAR hamstrings banks ability to return capital

“Look, we’re not going to speculate too much about what’s going to happen going forward. I do think it’s worthwhile pointing out, remember that we have a CCAR plan that’s been approved through the second quarter of 2016. So, there is not really a tremendous amount of flexibility outside of what’s already been approved, some, but not a lot.