By Niket Nishant
(Reuters) -Comerica's stock was the biggest winner in a key banking industry index on Thursday after the lender reported a better-than-expected profit for the first quarter, thanks to its strong asset quality and debt paydowns.
Banks have been repositioning their balance sheet to limit the hit to their profitability from sagging loan demand, as hotter-than-expected inflation raises fears of borrowing costs staying higher for longer.
Dallas, Texas-based Comerica (NYSE:CMA) reduced its short-term borrowings by 53% from last year and 36% from the prior quarter, which helped soften the hit to its net interest income (NII) - the difference between what banks earn on loans and assets and pay on deposits and other debt.
Its NII fell nearly 23% from last year to $548 million but was above analysts' expectations of $528.30 million, according to LSEG.
"We see 1Q24 as a bit of a mixed bag for Comerica," J.P. Morgan analyst Steven Alexopoulos said, noting that the company's credit quality remains a bright spot.
Provision for credit losses halved from last year to $14 million as well as came in below analyst estimate of $19.75 million. Excluding one-time costs, the bank earned $1.29 per share compared with the estimate of $1.12.
The bank also reiterated its forecast of an 11% drop in 2024 NII from last year, despite higher chances of the Federal Reserve keeping rates elevated, which could temper loan demand.
"We believe the stock is likely to outperform peers today based on the reiteration of 2024 NII guidance – which uses a much more realistic forward curve," Citigroup analyst Benjamin Gerlinger wrote.
Shares rose 3.7% to $51.65 and were leading gains in the S&P 500 banks index.
NII WEAKNESS
Other lenders that reported earnings on Thursday - KeyCorp (NYSE:KEY), Texas Capital Bancshares (NASDAQ:TCBI) and Home BancShares - also flagged a hit to NII, echoing results at bigger U.S. banks.
But a rebound in the investment banking environment helped ease pain at KeyCorp, which reported adjusted profit of 22 cents per share in line with analysts' expectations.
The investment banking business posted its best first quarter in the company's history, KeyCorp CEO Chris Gorman said.
Shares of the company climbed 2.4%. They had inched up 0.2%this year, as of their last close.
KeyCorp also reaffirmed its forecast of a 2% to 5% drop in NII for 2024.