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Comerica Incorporated Q3 2010 Earnings Call Transcript

Comerica Incorporated Q3 2010 Earnings Call Transcript

Comerica Incorporated, (

CMA

)

Q3 2010 Earnings Call

October 20, 2010 08:00 a.m. ET

Executives

Darlene Persons - Director of Investor Relations

Ralph Babb - Chairman and Chief Executive Officer

Beth Acton – Chief Financial Officer

John Killian - EVP and Chief Credit Officer

Dale Greene - EVP of Business Bank

Analysts

Ken Zerbe - Morgan Stanley

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Terry McElvoy – Oppenheimer

Gary Tennor – BA Davidson

Presentation

Operator

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Previous Statements by CMA
» Comerica Incorporated Q2 2010 Earnings Call Transcript
» Comerica Incorporated Q1 2010 Earnings Call Transcript
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» Comerica Incorporated Q3 2009 Earnings Call Transcript

Good morning, my name is Alicia and I will be your conference operator today. At this time I would like to welcome everyone to the Comerica’s third quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. (Operator Instructions). Thank you.

I would now like to turn the call over to Miss Darlene Persons, please go ahead, Ma’am.

Darlene Persons

Thank you, Alicia. Good morning, and welcome to Comerica’s third quarter 2010 earnings conference call. Participating on this call will be our Chairman Ralph Babb; our Chief Financial Officer, Beth Acton; our Chief Credit Officer, John Killian; and Dale Greene, Executive Vice President of the Business Bank.

A copy of our press release and presentation slides are available on the SEC’s website, as well as on 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 state 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 into this call as well as our filings with the SEC. Also, this conference call will reference non-GAAP measures, in that regard, I will direct you to the reconciliation of these measures within this presentation. Now, I’ll turn the call over to Ralph.

Ralph Babb

Good morning. Today we reported Q3 net income of $59 million or $0.33 per share. Q3 total revenue was down 4% from the second quarter, primarily driven by a decrease in average loans, and lower fee income from customer activities. In this sluggish and still uncertain economic environment, our customers have remained understandably cautious. This is reflected in the weak loan demand and continued strong core deposit levels. Our solid capital and liquidity position enabled us to fully redeem our trust preferred securities on October 1, which will reduce interest expense.

This uniquely positions us as the only bank in our peer group to have redeemed TARP and eliminated trust-preferred securities. Our Q3 financial results reflected the continued improvement in credit quality and careful control of expenses. Our skill based relationship driven strategy and our prudent conservative approach to banking continued to serve us well. We believe we have a business model that cannot be replicated overnight. It takes years of experience and expertise to understand the credit cycle, small businesses, middle market companies and their owners, managers, and employees, for whom we provide personal financial services.

Relationships mean more than ever in this type of environment. While unemployment remains stubbornly high, there are some signals the economy is improving, albeit slowly. Economic factors which support loan growth, such as business fixed investment and inventories, continue to improve. The Commerce Department recently indicated that investments in computers, communications equipment, and machinery, for example, helped spur capital goods orders in August, which is a good sign.

Here in Texas, which continues to outperform the national economy, we are establishing good, full service relationships with solid companies as long term calling by relationship managers and executive management is paying off. In California, a state whose economy is holding steady, according to our chief economist’s latest economic activity index, we are seeing more opportunities in middle market and small business banking, in addition to technology and life sciences.

In Michigan, a rebound in manufacturing is helping that state, and the national economy emerge from the recession. US light vehicle sales are headed in the right direction this year.

We are seeing more encouraging and hopeful signs throughout our footprint. The pace of decline in loan outstandings continued to slow in Q3. Commercial loans increased modestly in Q3, and total loans increased in the month of September. Our loan pipeline continued its strong growth as evidenced by the commitments issued, but not yet closed, which increased nearly 50% from Q2.

Line utilization increased almost 1% to about 46% at September 30

th

, after remaining at about 45% since the middle of Q1. We had loan growth in Q3 in mortgage banker finance, national dealer services, and energy lending business lines. Commercial real estate accounted for about half of the decline in average loan outstandings in Q3, as expected.

After six straight quarters of growth, the average deposit levels were relatively stable compared to Q2. The continued improvement in credit quality is reflected by the decline in net charge offs for the fifth consecutive quarter, as well as the $10 million decline in the provision for credit losses, compared to Q2. The increase in inflows to non-accrual loans was primarily related to commercial real estate, which we believe will continue to exhibit variability, with a downward trend.

Overall, credit migration has improved, as evidenced by the $480 million decline in the watch list, which is our best early indicator of future credit quality. Our own recognition of credit issues, and our ability to quickly and proactively work through them remains one of our key strengths. In light of the struggle and uncertain economic environment, we expect Q4 net charge-offs to be similar to Q3.

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