Comerica in Dallas increased lending at a solid pace in the second quarter, with progress across its lines of business, and executives expect the momentum to continue despite the looming specter of an economic slowdown.
“Overall a strong quarter, and we’re positive about the path we’re on as we move forward through the remainder of the year,” Chairman and CEO Curtis Farmer told analysts on Wednesday after the company published its results.
The generally optimistic outlook contrasts with some other banks, from JPMorgan Chase at Citizens Financial Groupwho have recently said they are focusing more on recession risks imposed by inflation and rising interest rates.
Comerica, an $87 billion asset, is watching its lending books and markets closely for signs of strain. But so far, executives said customer sentiment remained positive and loan demand was driven by ongoing plans to invest in growing markets that are proving economically buoyant. The regional bank’s footprint extends from California to Texas in the Southeast – covering many metropolitan areas with growing populations.
Comerica’s corporate clients “are doing very 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 immediate concerns.”
While of course aware of inflationary pressures and the dampening effect higher rates can have on credit demand, “we are encouraged by what we are seeing,” Sefzik said. “Overall, we think our customer sentiment is still pretty good right now.”
Average loans rose 4% in the second quarter to $50 billion, with the growth spanning the business and personal lines of business. Supported by the combination of loan growth and rising rates, net interest income climbed 23% in the quarter to $561 million.
Some business sectors are expected to weaken as rates rise — notably residential mortgages — but demand remains generally strong in the third quarter, executives said.
Unlike the early days of the pandemic in 2020, Sefzik does not anticipate commercial clients seeking new loans as defensive measures to build cushions in the face of a recession.
The loan application is based on “legitimate business needs”. And at the moment it doesn’t seem to be, or we don’t see any indications that it’s recession preparedness,” Sefzik said.
Credit quality shows no cracks so far either, the company said. Comerica reported no net charge.
Although deposit costs have yet to rise noticeably following several Federal Reserve rate hikes this year, Comerica expects commercial clients in particular to push for higher yields before the end of 2022. , and this trend will likely continue into early 2023.
The bank is full of deposits and can afford to see some of that funding drain. But Comerica has “the ability to adjust prices if we need to” in order to keep valuable customers, Farmer said. “We kind of observe,” he said, and “we’re going to do the right things from our customers’ perspective.”
Comerica reported net income of $261 million, or $1.92 per share, in the second quarter, compared with $328 million, or $2.32, a year earlier. The release of a large loan loss reserve linked to the pandemic led to the outsized result of the previous year.
Analysts polled by FactSet Research Systems had expected EPS of $1.78.