Comerica in Dallas grew loans at a steady clip in the second quarter, with progress across its business lines, and executives expect the momentum to continue despite the looming specter of an economic downturn.
“Overall, a strong quarter, and we feel positive about the path we are on as we move through the remainder of the year,” Chairman and CEO Curtis Farmer told analysts Wednesday after the company reported its results.
The generally upbeat outlook contrasts with some other banks, from
The $87 billion-asset Comerica is closely monitoring its loan books and markets for signs of stress. But so far, executives said client sentiment remains positive, and loan demand is being driven by ongoing plans to invest in growth in markets that are proving economically vibrant. The regional bank’s footprint spans California to Texas to the Southeast — covering numerous metropolitan areas where populations are growing.
Comerica’s business clients “are doing really well,” said Peter Sefzik, its executive director of commercial banking.
“Our pipeline is strong. Our activity levels are good,” he added during Comerica’s earnings call. “So it's hard to see any sort of immediate concerns.”
While of course aware of inflationary pressures and the dampening effect higher rates may have on credit demand, “we're encouraged about what we're seeing,” Sefzik said. “Overall, we feel like the sentiment of our customers is still pretty good at this time.”
Average loans increased 4% during the second quarter to $50 billion, with the growth spanning commercial and consumer business lines. Bolstered by the combination of loan growth and rising rates, net interest income climbed 23% during the quarter to $561 million.
Some lines of business are bound to weaken as rates rise — notably residential mortgages — but demand is generally holding strong into the third quarter, executives said.
Unlike in the early days of the pandemic in 2020, Sefzik does not foresee commercial clients pursuing new loans as defensive moves to build up cushions in the face of a recession.
Loan demand is based on “legitimate business needs. And at this time, it doesn't appear to be, or we're not seeing indications of it being, recession preparation,” Sefzik said.
The Dallas bank reported an increase in energy loans for the first time in nearly three years, but executives don’t expect fossil-fuel lending to rebound to its previous highs.
Credit quality shows no cracks to date, either, the company said. Comerica reported no net charge-offs.
While deposit costs have yet to rise notably in the wake of several Federal Reserve rate hikes this year, Comerica does anticipate that commercial customers in particular will make a push for higher yields before 2022 is over, and that trend will likely continue into early 2023.
The bank is flush with deposits and can afford to see some of that funding run off. But Comerica has “the ability to flex up on pricing if we need to” in order to keep prized clients, Farmer said. “We're sort of watching,” he said, and “we're going to do the right things from our customers’ perspective.”
Comerica posted second-quarter net income of $261 million, or $1.92 per share, compared with $328 million, or $2.32, a year earlier. The release of a large loan-loss reserve tied to the pandemic drove the outsized year-earlier result.
Analysts surveyed by FactSet Research Systems had expected EPS of $1.78.
