Comerica Bank in Dallas has started to build a process for gauging the dangers climate change poses to its business even as its loans to oil and gas companies continued their steady decline as a percentage of its overall lending last year.
Those developments at the largest bank based in oil-rich Texas comes as banking regulators are expected to put
But outside of Washington, the $96.6 billion-asset Comerica is already tackling the issue.
“We have started our preliminary analysis to develop a framework to measure climate risk in our commercial lending portfolio,” Comerica CEO Curt Farmer said on a call with analysts Wednesday.
The company expects to make additional climate-related disclosures in its 2021 corporate responsibility report due in the middle of this year, a spokesperson said in an email after the call. The company also anticipates providing disclosures about financed emissions by mid-2023, the spokesperson said.
“Comerica has demonstrated a long-term commitment to corporate responsibility and addressing issues like climate change,” the spokesperson added.
Comerica reported $1.2 billion in energy loans at year-end — 5% lower than at Sept. 30 and 24% lower than on Dec. 31, 2020. That $1.2 billion figure is roughly equal to the company’s total amount of only criticized energy loans during the oil market’s 2014 collapse.
Farmer said on the call Wednesday the energy sector has begun to recover from the fall in prices that occurred in 2020 as shelter-in-place orders kept U.S. travelers at home to contain the spread of COVID-19, and that the industry has “reduced leverage.”
Risk was trimmed elsewhere in the company, too, particularly in commercial real estate, which has also been hit hard by the pandemic.
Comerica reported $28 million in criticized CRE loans during the fourth quarter, down about 71% from three months earlier. Roughly half of the company’s CRE portfolio is tied to multifamily housing, which is in strong demand compared to other sectors like office space, which is just 7% of Comerica’s CRE book.
“Commercial real estate was impacted by significant paydowns. However, loan production remained strong, and our pipeline and line commitments increased in the fourth quarter,” Comerica Chief Financial Officer James Herzog said during the call Wednesday.
The company forecasted mid-single-digit growth in overall lending this year and is poised to take advantage of an anticipated rise in interest rates.
Comerica is famously sensitive to movements in interest rates, which forced it to engage in an aggressive hedging program while rates were held historically low in recent years. Yet Herzog said the company will not rush to position itself to take advantage of the coming hikes from the Federal Reserve.
“We want to be measured and methodical in terms of how we do this to the extent you hold off for higher rates and look to hit that home run someday,” Herzog said. “We also know, from the last decade-plus, there’s no guarantee that rates will go perpetually up, and they can turn at any time with the black swan events that we’ve seen and so on over the last several years. “
Comerica reported $228 million in net income for the fourth quarter, up 3% from the same period one year prior. Total income from interest, fees and other sources totaled $750 million in the fourth quarter, up 2% year over year. The company was helped by a $21 million release in reserves held for potential loan losses, part of $618 million in releases in the full-year 2021.
