Regional bank CEOs find reasons to be upbeat about C&I

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Lower interest rates and lackluster commercial loan demand weighed heavily on the quarterly earnings of several prominent regional banks.

Revenue at KeyCorp in Cleveland and Huntington Bancshares in Columbus, Ohio, fell from a year earlier, and rose by a negligible amount at M&T Bank in Buffalo, N.Y. The main headwind for each came from net interest income.

Despite the setbacks, executives at each company assert that they seem to be in better shape now than they were just a few months ago.

Interest rates have stabilized following three cuts by the Federal Reserve, and commercial clients have more certainty when it comes to trade relations. At the same time, lower rates are spurring more consumer activity.

“I’m optimistic we’ll see a bounce-back” in business sentiment after a challenging 2019, Stephen Steinour, the chairman, president and CEO of the $109 billion-asset Huntington, said in an interview Thursday. “And I think consumer buoyancy will spur more business investment.”

Steinour added that he expects continued consumer strength to drive demand for residential mortgages and auto loans, along with products and services from its commercial clients. But he cautioned that increased commercial loan demand is contingent on a change in clients’ outlook.

“I think a lot of the commercial angst is self-inflicted,” he said.

There was “a pivot to a more constructive kind of mindset” from commercial clients over the last two months as anxiety over a potential trade war with China eased, Chris Gorman, KeyCorp’s president and chief operating officer, said during the $145 billion-asset company’s quarterly earnings call.

Increased optimism has not yet translated into more capital investment, Gorman cautioned. Still, Key anticipates to generate mid-single-digit loan growth this year, driven by commercial and consumer demand.

Key’s revenue fell by 1% to $1.6 billion and net income declined by 4.4% to $439 million. Net interest income decreased by a 2.1% despite 5% growth in total loans. The net interest margin contracted by 18 basis points to 2.98%

At Huntington, revenue was off by 1% to $1.15 billion, and net income fell by 5% to $317 million. Its net interest margin decreased by 29 basis points to 3.12%, offsetting a small increase in total loans and cutting into net interest income.

Huntington reported gains in areas such as specialty business lines, asset finance and corporate banking.

M&T was able to generate higher revenue, fueled by an 8% increase in its noninterest income. The company's net interest income fell by 6% after its margin decreased by 28 basis points, to 3.64%. Total loans increased by 3% to $90.9 billion.

M&T reported that customers payoffs on C&I and commercial real estate loans fell in 2019 from a year earlier. Executives were also hopeful that the margin could widen some in the first quarter compared to a quarter earlier.

Longstanding trade tensions with China and other countries had forced a number of M&T’s commercial customers to adjust their prices or find new foreign buyers for their products, Darren King, the $120 billion-asset company’s chief financial officer, said in a Thursday interview.

King, however, expressed optimism that some of M&T's clients will pull the trigger in coming months.

“People may just want to get their business in order before the distraction of the [presidential] election sets in later in the year,” King said.

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Earnings Commercial lending Net interest margin Revenue and expenses
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