- change ups
Comerica to increase loans
An encouraging fourth quarter last year, coupled with an even better first quarter this year, has Comerica Inc. Chairman and CEO Ralph Babb banking on continued improvement for the remainder of this year.
“We believe we are on the path to normalized earnings, with great opportunities to develop new relationships and expand existing ones. We have a consistent strategy for success that is based on relationships, with a ‘Main Street’ banking focus,” said Babb in a recent conference call.
“Based on all the positive trends we are seeing, we expect our operating fundamentals will continue to show improvement in 2010,” he added.
Dallas-based Comerica expects to make more loans over the year’s last three quarters, up to a 9 percent increase over the number issued last year. The bank’s average net-interest margin for the remainder of the year is projected to be between 3.25 and 3.5 percent. Both projections are based on the Federal Reserve rate staying where it’s at, and the economy continuing to show a moderate improvement.
Comerica reported its commercial real estate line of business had $4.6 billion in outstanding loans on March 31. A quarter of that total was invested in multi-family housing, with another 22 percent in retail projects. Single-family developments accounted for 11 percent.
Thirteen percent of those loans were made to developments in Michigan, where Comerica was once based, and were worth about $635 million. The bank reported it had $288 million in commercial real estate construction loans in Michigan and $347 million in commercial mortgages in the state as of March 31. Michigan is part of Comerica’s “middle market.”
“In Michigan, we had more new and expanded loans approved in middle market this March than we’ve had in any month since 2008,” said Babb.
“As you know, middle market is one of our sweet spots. Our relationship managers are known for their ingenuity, flexibility, responsiveness and attention to detail. We stand out from the competition because of our experience, expertise and long-standing commitments to our customers through all economic cycles, including the current one. It is not something that is replicated overnight.”
At the same time, Comerica reduced its loan exposure in the nation’s residential real estate market from $1.3 billion in June 2008 to $964 million in March 2010. Home loans in Michigan were lowered by 12 percent, while most of the bank’s residential reductions were made in the western states where the foreclosure rates are higher.
“Net credit-related charge-offs decreased $52 million in the first quarter, led by a significant decline in commercial net charge-offs. The commercial real estate business line experienced an increase in net charge-offs but saw declines in nonaccrual and watch-list loans,” said Babb.
Babb added that nonperforming assets fell by $41 million and the bank’s provision for credit losses fell by $77 million.
“We were pleased with the continued broad-based improvements in credit quality, including significant declines in net charge-offs and provision-for-loan losses. These positive improvements are the result of our focused efforts to quickly and proactively identify and work through loans problems. We saw improvement in credit quality across all business lines,” he said.
Net income for Comerica was $52 million for the first quarter, up from a $29 million net loss for the fourth quarter. Net interest income rose to $415 million for the first quarter, up by $19 million, or 5 percent, from the previous quarter.
Comerica fully redeemed $2.25 billion in preferred stock issued to the U.S. Treasury under its capital purchase program of $123 million, or 79 cents per share. The net loss attributed to common shares was $71 million, or 46 cents per diluted common share. Preferred dividends included $24 million of cash dividends.
“The encouraging signs we saw in the fourth quarter of 2009 continued in the first quarter of 2010. Our credit quality improved at a faster pace than we expected, reflecting the strong credit underwriting and processes we have in place. Our net interest margin continued to expand,” said Babb.
“Our customers continue to convey a more positive and upbeat tone. This is reflected in our loan pipeline, which has now grown to its highest level in two years.”