) reported third quarter 2012 adjusted earnings of 69 cents per
share, beating the Zacks Consensus Estimate of 65 cents. However,
results were below the earnings per share of 75 cents reported in
the prior quarter.
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Comerica's results reflected growth in its average loans, aided by
higher average commercial loans. Average deposits also advanced in
the quarter. Further, a stable credit quality continued to be a
positive. However, a decline in the top line and increasing
expenses were the negatives.
Considering restructuring costs related to the acquisition of
Sterling Bancshares Inc., the company reported net income of $117.0
million or 61 cents per share in the quarter under review. Also,
taking into account the impact of the comparable items, earnings
came in at $144.0 million or 73 cents per share in the prior
Comerica's total revenue of $657 million in the reported quarter
declined 3.5% sequentially. However, it surpassed the Zacks
Consensus Estimate of $632 million.
Quarter in Detail
Comerica's net interest income inched down 1.8% sequentially to
$427 million. The decline was mainly due to a fall in
non-accrual interest received and a leasing residual value
adjustment along with the anticipated continued shift in the mix of
the loan portfolio, a decrease in the accretion of the purchase
discount on the acquired Sterling loan portfolio and lower
reinvestment yields on mortgage-backed investment securities. These
negatives were partially mitigated by lower funding costs, a hike
in loan volumes and an additional day in the third quarter.
Net interest margin fell 14 basis points (bps) sequentially to
2.96%. The sequential decline was mainly due to lower non-accrual
interest, the negative leasing residual value adjustment in the
reported quarter, lower accretion on the acquired Sterling loan
portfolio, continued shift in mix in the loan portfolio, lower
reinvestment yields on mortgage-backed securities, and an increase
in excess liquidity. These negatives were, however, partially
offset by lower funding costs.
Average total loans marginally grew 1.0% sequentially as a result
of an increase of 3% in commercial loans, partially offset by a
decrease of 3.0% in commercial real estate loans. Average deposits
increased 2.0% from the prior quarter, largely attributable to an
increase of 7.0% in non-interest bearing deposits.
Comerica's non-interest income came in at $197 million, down 6.6%
sequentially. The sequential decline was mainly due to decreases in
certain non-customer driven income segments.
Non-interest expenses totaled $449 million, up 3.7% sequentially.
The increase was mainly due to the hike in restructuring costs
associated with the Sterling acquisition and salaries expense,
partially offset by a decline in legal expenses.
Credit quality continued to be stable at Comerica. Net
credit-related charge-offs declined 4.4% sequentially and 44.2%
year over year to $43 million.
Nonperforming assets to total loans and foreclosed property equaled
1.71% in the reported quarter, down from 1.85% in the prior quarter
and 2.53% in the year-ago quarter.
Provision for credit losses increased 15.8% sequentially, but
declined 37.1% year over year to $22 million. The allowance for
loan losses to total loans ratio was 1.46% as of September 30,
2012, down from 1.52% as of June 30, 2012, and 1.86% as of
September 30, 2011.
For the rest of the year, the company expects provision and net
charge-offs to decline.
During the reported quarter, Comerica's capital levels remained
strong. As of September 30, 2012, total assets and common
shareholders' equity were $63.3 billion and $7.1 billion,
respectively, up from $62.7 billion and $7.0 billion, respectively,
as of June 30, 2012.
As of June 30, 2012, Comerica's tangible common equity ratio was
10.25%, down 2 bps sequentially. Moreover, the estimated Tier 1
common capital ratio moved down 6 bps sequentially to 10.32% as of
September 30, 2012.
Capital Deployment Update
Comerica's capital deployment initiatives, through dividend payment
and share buybacks, exhibit its capital strength. During the
reported quarter, Comerica had bought back 2.9 million shares for
$90 million under its current share repurchase authorization. This,
combined with dividend, resulted in a total payout of 89% of net
income (excluding the restructuring charge in the third quarter) to
shareholders in the third quarter. We expect such activities to
further boost to investors' confidence in the stock.
Comerica has provided a detailed outlook for 2012. Given the
continuation of the current economic environment, the company's
outlook for full year 2012 is a modest one. Compared to the full
year 2011 level, management expects a 4%-5% increase in net
interest income, supported by 7%-8% growth in average loans.
Non-interest income is projected to expand 1%-2% while non-interest
expenses are anticipated to rise or fall 1%. Net credit-related
charge-offs and provision for credit losses are likely to exhibit a
In addition to Comerica, a number of major Wall Street Banks such
JPMorgan Chase & Company
Wells Fargo & Company
) have reported better-than-expected results in this quarter. We
believe this would help to maintain a positive atmosphere in the
Going forward, we believe Comerica's continuous geographic
diversification beyond its traditional and slower-growing Midwest
markets could drive growth over the next cycle. Revenue synergies
from the Sterling acquisition should augment its top-line growth.
Further, the company's capital deployment activities augur well for
Yet, the company's significant exposure to commercial real estate
markets, the unsettled economic environment, low interest rate and
stringent regulatory issues are our matters of concern.
Comerica currently retains a Zacks #2 Rank, which translates into a
short-term Buy rating. However, considering the fundamentals we
have a Neutral recommendation on the stock.