Comerica Earnings Call Insights: Net Interest Income and Loan Growth Trends
Comerica (NYSE:CMA) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Net Interest Income
Steven Alexopoulos – JPMorgan: I wanted to start with net interest income now down $28 million or so year-over-year, I guess the guidance for lower spread revenue is really a function just with the starting point. My question is with the Sterling accretion and premium amortization, both looking like they’re going to be a less of a headwind in coming quarters. Do you see yourself in a position to grow net interest income through the year from this first quarter level?
Karen L. Parkhill – VC and CFO: Yeah, Steve, our net interest, we are not changing our overall guidance for the year, which is that we expect our net interest income to be lower year-over-year due in part to the fact that we had $71 million of accretion last year and we are expecting $20 million to $30 million of accretion this year. We do see a continued impact of the low rate environment and we are focused on having loan growth offset that impact. We are seeing some positive trends this quarter, but too early to call the rest of the year.
Steven Alexopoulos – JPMorgan: Okay. But Karen, if the Sterling accretion should decline right in the coming quarters, given where we were, relative to the full year outlook, I think you’re saying that the prepayments on the MBS book will be lower too. So, would you at least agree that the headwind should lessen over the next couple of quarters?
Karen L. Parkhill – VC and CFO: Yes, that is true that the Sterling accretion will decline each quarter. Very difficult to talk about the premium amortization on the securities portfolio because that’s dependent on things outside of our control, but yes, we are seeing a general slowing of the headwind.
Steven Alexopoulos – JPMorgan: Then on the expenses, the headcount continues to grind lower. How much lower can you push that? Can you give us some color on which areas you are still finding opportunity to reduce headcount?
Karen L. Parkhill – VC and CFO: We are very focused on managing expenses as you know. Our outlook for the year was lower based on the impact of no restructuring cost this year as well as taking those expenses down further. Some of what you are seeing on the expenses though are – the focus on efficiencies that we had last year that will impact us from a full year run rate this year and you are starting to see that in the first quarter.
Steven Alexopoulos – JPMorgan: So, should we continue to expect headcount to decline this year, is that what you are budgeting?
Karen L. Parkhill – VC and CFO: We are focused on managing our headcount appropriately and continuing to find efficiencies. I won’t discuss what our headcount budget is going forward, but we are continuing to find efficiencies. That said, we did have a strong quarter this year on expenses and there were some expense like two less days in the quarter that impacted us positively this quarter.
Loan Growth Trends
Stephen Scinicariello – UBS: Just a couple of quick ones on some of the loan growth trends, I know you had a little bit of dip in the period-end balance. This quarter I’m just kind wondering maybe what were some of those kind of puts and takes and those drivers, and then as you look forward, you still expect to see good growth going forward. How much of the new pipeline is still coming from new customers, firstly? Then, secondly, do you feel that you’ll be able to reverse the slowing pace of decline in CRE and actually grow that by year-end?
Ralph W. Babb Jr. – Chairman and CEO, Comerica Incorporated and Comerica Bank: Lars?
Lars C. Anderson – VC, The Business Bank: Yeah, I’ll be glad to take that. I think that’s actually really good story, as I think Karen covered with you, we had very diverse growth for the first quarter. There was no kind of home rum in there. It is general Middle Market. It was Dealer or Technology and Life Sciences. We did overcome some of that mortgage banking finance back up there of just over $350 million, but we also saw growth Steven in health and at environmental services. Our small business portfolio actually stabilized, which was I think a real positive, up very moderately, and our Wealth Management business, it grew on record referrals between the commercial bank and to Wealth Management. So I think all of those businesses, if you think about it on a go forward basis, I think, are all positioned to grow in the future quarters, and that’s where we’ve been reallocating some resources. Specifically to your point about commercial real estate, it was a big quarter for us. While we did see the averages on a linked-quarter decline, you did see the end-of-period balances rise. That was very positive and that was on the back of residential single-family construction and multifamily construction in our portfolio as well as many perm grows in our multifamily and that again is very consistent in our big growth markets, urban markets in Texas and California. So, I can’t put my finger on one particular thing, and I think that’s one of the strengths we’re getting the growth across all of our core markets and across a number of our businesses.
Stephen Scinicariello – UBS: That sounds great. Then is about two-thirds of that pipeline still coming from new customers overall?
Lars C. Anderson – VC, The Business Bank: Yes, it’s about two-thirds. One thing I’d point out is, when you look at a pipeline of new versus – new to new versus new to existing, kind of the pull-through in that pipeline tends to be very much higher on your new to existing. So I wouldn’t exactly use that as a proxy of how we’re going to get all of our growth, but it looks very healthy.