Comerica Bank to ‘organically exit’ warehouse lending

The process, which increases its loan-to-deposit ratio, is expected to be largely complete by year-end 2023

Dallas-based Comerica Bank has decided to “organically exit” the mortgage banker finance business following the tumult in the banking industry that threatened the nation’s top warehouse lenders.  

The process of exiting the space, which is expected to be largely complete by year-end, is a “strategic action” to enhance Comerica’s core business focus, according to a bank’s presentation during a Morgan Stanley conference on Tuesday. 

However, the recent banking crisis that resulted in the failure of Silicon Valley Bank, Signature Bank and others also added some risk to warehouse lenders, mainly those with a higher share of uninsured deposits and relatively lower level of capitalization. 

Representatives at Comerica referred to the presentation when asked about the bank’s decision and its implications. Inside Mortgage Finance (IMF) first reported on the topic. 

Per the presentation, exiting the mortgage banker finance business smooths seasonality and cyclicality in the loan portfolio, improves capital efficiency and enhances the stability of the bank’s liquidity. 

The bank expects to improve its loan-to-deposit ratio by 150 basis points by the end of 2023. It forecasts the ratio to be in the “mid 80s” by the end of this year. 

Warehouse lending, one of the sources of liquidity to independent mortgage bankers (IMBs), usually has good yields and short term, according to industry experts. These loans are also highly secured and collateralized.

But they are not immune to systemic industry shocks. 

In March, Moody’s Investor Service listed Comerica among the nation’s top warehouse lenders for potential rating downgrades. In April, the agency downgraded the bank’s rating to Baa1 from A3.  

According to Moody’s Investor Service, Comerica’s share of deposits above the Federal Deposit Insurance Corporation (FDIC) ‘s threshold was material, which made the “bank’s funding profile more sensitive to rapid and large withdrawals from depositors.” 

“In addition, if it were to face higher-than-anticipated deposit outflows, the bank could need to sell assets, thus crystalizing unrealized losses on its AFS securities, which as of 31 December 2022 represented a sizeable 38.5% of its common equity tier 1 capital [or CET1, a key regulatory capital measure].” 

A spokesperson for Comerica told HousingWire that any correlation between Comerica and the impacted banks regarding deposits was an “apples-to-oranges comparison.” 

“Comerica has a more diverse, stable and ‘sticky’ deposit base and we remain well capitalized and highly liquid,” the spokesperson said. 

According to IMF, Comerica was the 14th largest warehouse lender nationally based on market share in the first quarter of 2023. The bank had $1.7 billion in commitments, 35% down year over year. 

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