) reported third-quarter 2013 earnings per share of 78 cents,
beating the Zacks Consensus Estimate of 71 cents and comparing
favorably with 76 cents earned in the prior quarter. Net income
was $147.0 million in the quarter, up 3% from $143.0 million in
the prior quarter.
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Comerica's results reflect increased non-interest income and
lower provisions for credit losses. Additionally, the company's
healthy capital position was a tailwind. However, a marginal
lower net interest income and a slight increase in expenses were
On a fully taxable equivalent basis, Comerica's total revenue
(net of interest expenses) of $626 million in the quarter was up
0.5% sequentially. Further, it surpassed the Zacks Consensus
Estimate of $617 million.
Quarter in Detail
Comerica's net interest income dipped 0.5% sequentially to $412
million. The decline was mainly due to a decrease in interest on
loans, partly offset by higher interest on mortgage-backed
investment securities, rise in interests in short-term
investments and decrease in funding costs.
Net interest margin declined 4 basis points (bps) sequentially to
2.79%. This was mainly due to an increase in excess liquidity and
lower loan yields, partly offset by the impact of yield
improvements on mortgage-backed securities and lower funding
Average loans fell 2% to $44.1 billion sequentially. Average
deposits nudged up 1% from the prior quarter to $51.9 billion.
Comerica's non-interest income came in at $214 million, up 3%
sequentially. The sequential rise was mainly due to increase in
customer-driven as well as non-customer-driven fee income.
Non-interest expenses totaled $417 million, up 0.2% sequentially.
The marginal rise was due to an increase in salaries and employee
benefits expenses, partly offset by decrease in both
litigation-related expenses and write-downs on other foreclosed
Credit quality was mixed at Comerica. Net credit-related
charge-offs rose 12% sequentially but fell 56% year over year to
Nonperforming assets to total loans and foreclosed property was
1.08% in the quarter, compared with 1.10% in the prior quarter
and 1.71% in the year-ago quarter.
Provision for credit losses declined 38% sequentially and 64%
year over year to $8 million. The allowance for loan losses to
total loans ratio was 1.37% as of Sep 30, 2013, down from 1.35%
as of Jun 30, 2013 and from 1.46% as of Sep 30, 2012.
For the final quarter of 2013, Comerica expects provisions for
credit losses to be at a low level, similar to the first three
quarters of 2013.
During the reported quarter, Comerica's capital levels remained
strong. As of Sep 30, 2013, total assets and common shareholders'
equity were $64.7 billion and $7.0 billion respectively, compared
with $62.9 billion and $6.9 billion as of Jun 30, 2013. The
increase in total assets primarily reflected rise in excess
liquidity, partially offset by a decrease in loans.
As of Sep 30, 2013, Comerica's tangible common equity ratio was
9.87%, down 17 bps sequentially. Moreover, as of Sep 30, 2013,
the estimated Tier 1 common capital ratio moved up 31 bps
sequentially to 10.74%. The estimated Tier 1 common ratio under
fully phased-in Basel III capital rules was 10.4% as of Sep 30,
Capital Deployment Update
Comerica's capital deployment initiatives through dividend
payment and share buybacks exhibit its capital strength. During
the reported quarter, the company repurchased 1.7 million shares
worth $72 million.
This, combined with dividend, resulted in a total payout of 70%
of net income to shareholders in the quarter. We expect such
activities to boost investors' confidence in the stock.
Outlook for 2013
Comerica has given an updated outlook for the final quarter of
2013. Given the challenging macroeconomic environment, the
company's outlook for fourth-quarter 2013 is a modest one.
The company expects average loans to be stable in the
fourth-quarter 2013 compared to third-quarter 2013, assuming
auto-dealer floor plan loans to rebound from a seasonal low and
on expectations of a continued decline in mortgage warehouse
lending and economic uncertainty.
Further, Comerica expects lower net interest income in the final
quarter of 2013, due to continued pressure from the low rate
environment and decrease in purchase accounting accretion.
Customer-driven non-interest income is expected to remain
relatively stable, compared to third-quarter 2013, while
noncustomer-driven noninterest income is projected to decrease.
Comerica expects lower non-interest expense in the final quarter
of 2013, compared with the third quarter of 2013, on account of
consistent and tight expense control.
Going forward, we expect Comerica's continuous geographic
diversification beyond its traditional and slower-growing Midwest
markets to drive growth in the next cycle. Revenue synergies from
opportunistic acquisition will also likely augment top-line
However, the company's significant exposure to commercial real
estate markets, the unsettled economic environment, low interest
rate and stringent regulatory issues remain matters of concern.
Currently, Comerica carries a Zacks Rank #3 (Hold). Among other
Fifth Third Bancorp
) will report on Oct 17, while
) will do so on Oct 22.