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The question investors and analysts want banks to address this earnings season is: How much longer will they run in place on loans and revenue?
July 7 - Texas
"The first quarter [pace] was a 33% payout," said Comerica CFO Beth Acton, in reference to dividend payments and stock buybacks. "Our goal is to get to a full-year payout of 50%."
April 19 -
The first two quarterly reports from regionals spoke volumes about the widening gap between healthy banks and those in recovery.
April 18 -
Click on individual bank names in the table below to access American Banker's coverage of each company's earnings report. Links to relevant coverage, filings, releases, and bank benchmark profile data can be found in the Related Links area of each article.
July 28
Comerica Inc. and KeyCorp show that regional banks cannot outrun their revenue problems.
Low interest rates and tepid loan demand tarnished otherwise positive second-quarter results at two of the country's largest and most geographically diverse banks.
Year-over-year profits were up sharply at both companies on lower loan losses. Quarter-to-quarter profits narrowed slightly as lower loan and fee income squeezed margins.
Runoff of unwanted loans at both outpaced growth in a handful business markets such as agriculture and life sciences. But competition and falling interest rates are making new loans incrementally less lucrative.
"We certainly need an increase in short-term rates, as well as on out to probably three to five years on the yield curve, which as we all know has been very much depressed," Jeff Weeden, Key's chief financial officer, said in a conference call Tuesday.
The Cleveland company expects loan yields to keep narrowing throughout the year on increased competition. Comerica, of Dallas, was more upbeat in its spread outlook.
The two trends that hurt its net interest margin in the quarter — growing deposits and falling rates — should ease up in the second half, Elizabeth Acton, Comerica's CFO, said in a conference call.
"We still do expect excess liquidity to dissipate in the second half of the year with loan trends turning positive," she said.
Comerica and Key also have plenty of deposits, but not enough new borrowers.
Comerica said it earned $96 million, 7% less than the prior quarter and 37% more than the year-earlier quarter. Fee income was down more than 2% quarter to quarter and interest income fell 1%.
Average loans decreased about 1% quarter to quarter, to $39.6 billion, because of commercial real estate and auto dealer services loan runoff.
Midsize business and banker finance loans increased while deposits from those customers declined. Acton called that trend a "hopeful sign" that corporate "working capital needs are starting to grow."
Comerica's net interest margin fell 11 basis points, to 3.14%, in part because of $3.4 billion of excess cash it deposited with the Federal Reserve Board. That was $1.1 billion more than it deposited with the Fed in the prior quarter.
Competition is driving down corporate loan prices in Texas, the Midwest and the West, said Lars Anderson, vice chairman of Comerica's business bank.
"We're clearly seeing more pricing pressure" on credit to "highly rated" "national" corporations, Anderson said.
Comerica is primarily a business lender. It has more than 440 branches in Texas, California, Michigan, Florida and Arizona.
KeyCorp reported a profit of $240 million, down 9% compared with the first quarter and up 243% from a year earlier. Falling loan losses and expenses mitigated declining interest and fee income.
The $89 billion-asset company's net interest margin fell 6 basis points from the prior quarter, to 3.19%.
Revenue fell about 3% compared with the first quarter and about 8% from a year earlier, to $1.02 billion.
Average loans were down 1% from the prior quarter, to $48.8 billion, due largely to runoff of unwanted construction, boating and other unwanted loans.
Commercial, financial and agriculture loans rose nearly 4% quarter to quarter. It was the first time that portfolio has grown since 2008.
Agriculture loan commitments and utilization rates were up in the quarter.
That trend, coupled with a slowdown in overall loan shrinkage, indicates the company is "nearing an inflection point" where it will "begin showing growth" in loans, Weeden said.
The bad news is that loan yields are falling and should continue to do so. In the second quarter, yields narrowed on pricing competition, falling interest rates and the expiration of interest rate hedges.
Christopher Gorman, the president of Key's corporate bank, said that the company expects loan prices in the third quarter to decline by "another 5 basis points as people are looking for assets."
