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Comerica Incorporated Q1 2010 Earnings Call Transcript

Comerica Incorporated Q1 2010 Earnings Call Transcript

Comerica Incorporated (CMA)

Q1 2010 Earnings Call

April 21, 2010 8:00 am ET


Darlene P. Persons – Director of Investor Relations

Ralph W. Babb, Jr. – Chairman of the Board, President & Chief Executive Officer

Elizabeth S. Acton – Chief Financial Officer & Executive Vice President

John M. Killian – Chief Credit Officer

Dale E. Green – Executive Vice President & Chief Credit Policy Officer


Steven Alexopoulos – JP Morgan

Ken Zerbe – Morgan Stanley

David Rochester – Friedman, Billings, Ramsey & Co.

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At this time I would like to welcome everyone to the Comerica first quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer session. (Operator Instructions) Ms. Persons you may begin your conference.

Darlene P. Persons

Welcome to Comerica’s first quarter 2010 earnings conference call. Participating on this call will be our Chairman Ralph Babb, our Chief Financial Officer Beth Action and our Chief Credit Officer John Killian and Dale Green, Executive Vice President of the business bank. A copy of our press release and presentation slides are available on the SEC website as well as in the investor relations section of our website.

Before we get started I would like to remind you that this conference call contains forward-looking statements and in that regard you should be mindful of the risks and uncertainties that can cause future results to vary from expectations. Forward-looking statements speak only as of the date of this presentation and we undertake no obligation to update any forward-looking statements. I refer you to the Safe Harbor statement contained in the release issued today as well as Slide Two of this presentation which I incorporate in to this call as well as our filings with the SEC.

Also, this conference call will reference non-GAAP financial measures and in that regard I would direct you to the reconciliation of these measures within this presentation. Now, I’ll turn the call over to Ralph.

Ralph W. Babb, Jr.

The encouraging signs we saw in the fourth quarter of 2009 continued in to the first quarter of 2010. Our credit quality improved at a faster pace than we expected and reflecting the strong credit underwriting and processes we have in place. Our net interest margin continued to expand. These and other positive developments resulted in our first quarter net income of $52 million, the equivalent of $0.33 per share. This included a $17 million after tax gain equivalent to $0.11 per share related to the cash settlement of a note receivable associated with the 2006 sale of an investment advisory subsidiary.

The negative impact to earnings of the 2.25 billion of preferred stock issued to the US Treasury under its capital purchase program fully redeemed in March was $123 million or $0.79 per share. Our customers continue to convey a more positive and upbeat tone. This is reflected in our loan pipeline which has now grown to its highest level in two years. The small business loan pipeline in our Texas and western markets has increased by double digits in the last three months.

Now that credit is improving, our bankers can devote more time to marketing. In Texas we are seeing more opportunities and plan to add several new middle market and small business bankers to capitalize on them. In California, customers and prospects are seeing gradual increases in sales and are more optimistic about their businesses as backlogs are growing. This has led to more loan proposals particularly for middle market, technology and life sciences companies.

In the western market we have 61% of our national dealer services business. Floor plan loans are slowly picking up as expected with the increase in auto sales. In Michigan we had more new and expanded loans approved in middle markets this March than we’ve had in any month since 2008. As you know, middle market is one of our sweet spots. Our relationship managers are known for their ingenuity, flexibility, responsiveness and attention to detail. We stand out from the competition because of our experience, expertise and long standing commitments to our customers through all economic cycles including the current one. It is not something that is replicated over night.

New and renewed loan commitments for our bank as a whole totals $6 billion in the first quarter. We are ideally positioned to develop new relationships and expand existing ones as the economy continues its recovery. The decline in loan outstandings we saw in the fourth quarter 2009 slowed in the first quarter 2010 and the pace of decline moderated in each successive month of the first quarter. Average loan outstandings increased modestly in national dealer services.

Core deposit growth continued in the first quarter but at a slower pace. In certain business lines deposits have decreased which we believe is a positive sign that customers are starting to use their cash in their businesses. We are pleased with the continued broad based improvements in credit quality including significant declines in net charge offs and provision for loan losses. These positive improvements are the result of our focused efforts to quickly and pro actively identify and work through problem loans.

We saw improvement in credit quality across all business lines. Net credit related charge offs decreased $52 million in the first quarter led by a significant decline in commercial net charge offs. The commercial real estate business line experienced an increase in net charge offs but saw declines in non-accrual and watch list loans. Non-performing assets decreased $41 million and the provision for credit losses decreased $77 million.

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