Comerica Bank grew its energy loans for the first time in nearly three years during the first quarter, but executives said the business is unlikely to reach the highs seen during the last oil boom.
Banks that specialize in energy lending, including Dallas-based Comerica, are confronting cross-cutting pressures. They are
“It's a business that we've been in for a long, long time, and we plan to stay in it,” Peter Sefzik, executive chairman of Comerica’s commercial bank, said Wednesday during a call with analysts. “But I don't think it'll get to the size that it was … probably five years or six years ago.”
The $89.1 billion-asset bank, based in the heart of oil country, reported more than $1.2 billion in energy loans at the end of March, up nearly 5% from three months earlier.
Still, the energy book made up 2.5% of all of Comerica’s loans, which was down from 2.7% a year ago and about half the percentage in 2016. Back in 2014, Comerica had more than $3 billion in energy loans, equal to roughly 7% of its total loans.
Oil prices have surged 37% since the beginning of the year and remain above $100 per barrel — in large part because of sanctions levied against Russia following its invasion of Ukraine. Pressure to boost domestic oil production has mounted in response to soaring prices at the pump.
During Comerica’s earnings call, an analyst asked if the bank is interested in expanding its energy portfolio at a faster clip given a lack of competition. Banks’ total exposure to the oil and gas sector
One regional competitor, the $36.3 billion-asset Hancock Whitney in Gulfport, Mississippi, reported on Tuesday that it held $251 million in outstanding energy debt, which was down about 6% from the previous quarter.
But Comerica isn’t going to reach for more market share, according to Sefzik. “We feel good about the level that we're at and plan to maintain that,” he said.
Comerica’s increase in energy loans helped to partially offset a decline in the mortgage business, where volumes across the banking industry have been hurt by rising interest rates. At Comerica, average mortgage loans declined about 50% year over year to below $1.6 billion, though the bank is still forecasting “mid single-digit” loan growth for 2022.
Also during the first quarter, Comerica’s auto-dealer lending continued to be constrained by supply-chain problems in the car market. Average loans in the bank’s national dealer business increased slightly from the previous quarter to $4.1 billion. But they were still down 22% from one year prior and 43% below the level seen at the end of 2019.
“That's probably going to continue through the rest of this year, maybe through the rest of next year, quite candidly,” Sefzik said, referring to the supply-chain issues.
Comerica reported $189 million in net income for the first quarter, nearly halved from the $350 million it earned during the same period a year earlier. Earnings per share of $1.37 fell just short of the $1.38 consensus of analysts.
