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Quarterly results from three midsize banks underscored what's promising and what's still dicey about the lending environment in early 2017.

There's loan growth to be had if bullish forecasts like those at Synovus Financial in Columbus, Ga., and Bank of the Ozarks in Little Rock, Ark., prove correct. And increased lending could translate into more revenue over time if the Federal Reserve keeps raising rates.

However, strategies differ, and it is unclear if everyone can be right at the same time. The $30 billion-asset Synovus reported fourth-quarter increases in business and retail lending while cutting back in commercial real estate. Yet the $19 billion-asset Bank of the Ozarks is taking the opposite approach, building up in CRE despite regulators' longstanding concerns about the industry's CRE exposure.

Moreover, some banks are still digging out of the problems of recent years and are offering more cautious outlooks.

For example, the $73 billion-asset Comerica, still overcoming the effects of the energy crisis of recent years, disappointed many investors with its guidance of 2% loan growth this year, FBR Capital Markets analyst Bob Ramsey wrote in a research note. Comerica shares fell 6.5% to $65.37 on a down day for the stock market.

Here is an overview of lending conditions at the three banks, all of which reported fourth-quarter results on Tuesday, and the issues at play:


In 2011, around the time that Synovus returned to profitability after struggling to recover from the financial crisis, Chairman and CEO Kessel Stelling began to remake the company's loan book. That meant reducing Synovus' reliance on commercial real estate and construction lending and shifting assets to commercial and industrial lending, such as health care and equipment financing.

That transformation continued in the fourth quarter, with C&I loans increasing 7% on a yearly basis and CRE loans falling 0.4%. For the full-year 2017, Synovus expects loan growth of between 5% and 7% in 2017.

Synovus isn't completely giving up on CRE loans, but it's trying to limit its CRE lending to its best customers, Stelling said during a conference call Tuesday.

"We've already been very selective to make sure we save dry powder for those relationship-based customers," he said.

The shift to more C&I loans and retail loans has also helped yields, with an overall positive net gain in yields of about 30 basis points during the quarter, Stelling said.

Bank of the Ozarks

Bank of the Ozarks expanded its loan book in the fourth quarter no matter how you slice it.

The company made two acquisitions last year that affected its earnings comparisons, buying C1 Financial in St. Petersburg, Fla., and Community & Southern Bank in Atlanta. Those deals added more than $3 billion in loans. But even taking out those deals, Bank of the Ozarks recorded nonpurchased loan growth of $845 million.

Bank of the Ozarks expects lending expansion to continue this year as the company on Tuesday projected organic growth of between $3.1 billion and $4 billion. The majority of that growth is likely to occur in the second half of 2017.

The majority of Bank of the Ozarks' loan growth - about 57% - will come from commercial real estate, George Gleason, chairman and CEO, said during a Tuesday conference call. Bank of the Ozarks already exceeds regulators' threshold of 300% for CRE loans concentration; as of Sept. 30, its ratio of CRE-to-total risk-based capital was 391%.

The bank's real estate specialties group originates most of its CRE loans and Gleason said "we're comfortable with [that group] representing a bigger and bigger part of our portfolio. We feel we're the lowest-risk CRE lender in the country."

Additional loan growth for Bank of the Ozarks this year could come from boat and recreational-vehicle lending, Small Business Administration loans and lending to the poultry industry, Gleason said.


Comerica's fourth-quarter loan growth was somewhat weaker than other regional banks that have reported thus far. That was partly by design as it has intentionally cut its exposure to the volatile energy sector. Energy loans now make up less than 5% of the total loan portfolio compared with nearly 7% at the end of 2015. Comerica's loan portfolio ended 2016 at $48.9 billion, down nearly 1% from 2015.

That trendline could start pointing upward this year, even if the trajectory is not as steep as investors had hoped for. Ralph Babb, chairman and CEO, said on Tuesday that he expects total loans will increase at roughly the rate of the gross domestic product, which economists project will grow at about 2% this year.

"Our experience has been that if you're outgrowing [GDP] substantially then that, in general, causes an issue, whether from a credit standpoint or business standpoint," Babb said during the call.

That growth will likely come from continued strength in auto dealer financing as well as a rebound in mortgage banking and lending to technology and life-sciences firms. Refinancing activity is expected to slow this year because of rising rates; however, about 67% of Comerica's mortgage loans are new purchases, so it should fare well, President Curt Farmer said.

Moreover, the Dallas company is extremely asset-sensitive, so its loan book should generate positive results this year, if the Fed continues to raise rates beyond the 25-basis-point hike in mid-December.

"Over 90% of our loans are floating-rate," David Duprey, chief financial officer at Comerica, said on a call with analysts. "Therefore, as rates move, our loan portfolio reprices relatively quickly."

That floating-rate effect already kicked in during the fourth quarter, as Comerica's net interest income rose 5% to $455 million. Comerica expects net interest income to increase by about $70 million over the next 12 months.

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Commercial lending Commercial real estate lending Earnings Interest rates Synovus Financial Comerica Bank