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By Nathan Peck | MiBiz
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KALAMAZOO — For all the talk about the fundamentals of lending changing as the financial industry emerges out of the recession, Comerica Bank regional president Kennedy Fillar said it is business as usual.

Coming out of one of the worst recessions in the last 60 years, Comerica is looking to continue its business-centered lending practices. The bank has weathered the storm as many of its customers did, shedding approximately 481 employees in the last year or 10 percent of its workforce, cutting pay increases for executives and shrinking the size of its operations as demand for loans declined.

In 2009, Comerica saw its total assets drop 14 percent to $59.2 billion on $39.6 billion in deposits.

Recently, Comerica’s finances are improving according to its first quarter results. The bank’s credit-related charge-offs decreased $52 million to $173 million, or 1.68 percent of average total loans, for the first quarter 2010, compared to $225 million for the last quarter of 2009.

Fillar, who manages the Comerica banks in Battle Creek, Kalamazoo and Lansing, recently sat down with MiBiz to discuss the recovery, Comerica’s business strategy coming out of the recession, and how access to capital will return slowly as demand for business loans recovers.

MiBiz: How did Comerica fare in 2009, and what’s 2010 looking like?

Fillar: Our customers for the most part weathered 2009 pretty well. Their sales lagged to a certain degree. They had plans for acquiring equipment that were already under way. That went against what many were feeling, but by the time 2010 came around, our customers were seeing their sales disappearing. The demand for loans (in late 2009) didn’t decline; it shut off completely. By May, we are for the first time starting to see a few companies coming to us for loans, looking to replace equipment. Loans are not at (historical levels), but for the first time in some time, something is happening. It is encouraging to see demand growing.

We had to reduce our workforce 10 percent. It is really hard to tell someone who is performing well that we’ve got to let them go to cut costs. We’ve always devoted more of our assets to businesses, and we’ve performed better than the industry averages — we’re much better off than our peers. But we still have bad debts that we’re writing down. Our margins on loans are lower than in the past, and our write offs are up. We didn’t have toxic assets on our books that many of our peers have been dealing with.

MiBiz: Are underwriting standards getting tougher in the wake of the recession?

Fillar: It is really business as usual. It still comes down to the five C’s of lending, but I am most interested in the cash flow, collateral, management and the capacity of the balance sheet. I know it is tough for our customers, in terms of their cash flow and their collateral values falling. Our customers could not control these things. We have had to sit down with customers and have some tough discussions. I’ve been in this business 23 years, (and) we had never had a period like this before.

MiBiz: What opportunities are out there for Comerica?

Fillar: Assuming the current business cycle continues, there is the opportunity for us to take more market share. I think in terms of our market, we are not making a huge mass media campaign of it, but our business is really about relationships. Those relationships are what is getting us in the door with customers.

MiBiz: With relatively few companies coming through the recession on solid financial footing, how are you evaluating companies’ creditworthiness?

Fillar: Where in the past we were looking for a cash flow (to debt service) ratio of 1.2, if a customer came in at 1.05 times, we’d be delighted. We are more interested in how they achieved the performance they did and particularly how they did in the last six months.

Most companies don’t turn on a dime. Many customers were slower to react than they would like to be — they wanted to phase-in their cost containment over a period of time to minimize the impact to their employees and their families. We’re more likely to look at a shorter period of time.
A small business owner might have one-to-one coverage for the first six months of 2009, but 1.25 for the last six months. We look at that and see that they did what it took to get through this — cutting their own salary, cutting 401k contributions, everything they can to survive. This is our opportunity, but it takes time to dig a little deeper into their cash flow than we would have historically.

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• comerica bank
• finance
• kalamazoo
• kennedy fillar