Comerica Incorporated
(
CMA
) reported first-quarter 2012 earnings of 66 cents per share,
comfortably beating the Zacks Consensus Estimate of 55 cents.
Results also compared favorably with earnings per share of 48 cents
(60 cents excluding certain items) in the prior quarter and 57
cents in the year-ago quarter.
Comerica's results reflected growth in its top line. The company
experienced growth in its average loans, helped by higher average
commercial loans. Average deposits also advanced in the quarter.
However, lower loan yields partially offset the benefit.
Furthermore, the company experienced a growth in fee income.
Comerica's total revenue of $684 million in the reported
quarter, advanced 3% sequentially and 7% year over year. Total
revenue also surpassed the Zacks Consensus Estimate of $625
million.
Quarter in Detail
Comerica's net interest income was unchanged sequentially and
advanced 12% year over year to $443 million in the reported
quarter. Sequentially, the benefit from an increase in
average earning assets and lower funding costs was offset by lower
loan yields and one less day in the quarter.
Net interest margin remained same sequentially and was down 6
basis points (bps) year over year to 3.19%. Lower loan yields
reflected a shift in the average loan portfolio mix, largely due to
the decrease in average commercial real estate loans and the
increase in average commercial loans.
Average total loans advanced 2% sequentially, primarily
reflecting an increase of 5% in commercial loans, partially offset
by a decrease of 3% in commercial real estate loans. Average
deposits increased 1% from the prior quarter, mainly due to an
increase in non-interest-bearing deposits.
In the reported quarter, Comerica's non-interest income was $206
million, up 13% sequentially and flat year-over-year. The
sequential uptick primarily resulted from increases in
customer-driven fee income categories.
Non-interest expenses during the reported quarter totaled $448
million, down 6% sequentially but up 8% year over year. The
sequential decline was primarily driven by decreases in merger and
restructuring charges related to the Sterling acquisition.
Credit Quality
Credit quality continued to improve at Comerica. Net
credit-related charge-offs decreased $15 million to $45 million in
the reported quarter 2012. The fall was broad-based and spread
across several business lines. It also represented the lowest level
since the third quarter of 2007.
Comerica's nonperforming assets to total loans and foreclosed
property equaled 2.14% in the reported quarter, down from 2.29% in
the prior quarter and 2.81% in the year ago quarter. Though
provision for loan losses moved up 21% sequentially, it fell 53%
year over year to $23 million during the quarter. The sequential
rise reflects increased loan volumes.
Capital Position
During the reported quarter, Comerica's capital ratios were
somewhat mixed. As of March 31, 2012, total assets and common
shareholders' equity were $62.6 billion and $7.0 billion,
respectively, up from $61.0 billion and $6.9 billion, respectively,
as of December 31, 2011.
As of March 31, 2012, Comerica's tangible common equity ratio
was 10.21%, down 6 bps sequentially. The estimated Tier 1 common
capital ratio decreased 4 bps to 10.33% as of March 31, 2012 from
the prior quarter.
Capital Deployment Update
Following the Federal Reserve's consent for its capital plan in
March 2012, Comerica has announced its plans forup to $375 million
in equity repurchases for the period beginning in the first quarter
of 2012 and ending in the first quarter of 2013.
Further, the company contemplates a 50% hike in its quarterly
dividend and the board will consider the dividend proposal at its
April 24, 2012 meeting. In addition, the capital plan includes the
authority to redeem the remaining $25 million of trust preferred
securities outstanding as of March 31, 2012.
Notably, Comerica had bought back 4.1 million shares in 2011 for
a total of $110 million. This combined with dividends, resulted in
a total payout of 47% of 2011 net income to shareholders.
Moreover, during the reported quarter, the company bought back
$33 million in common stock (1.1 million shares) under the share
repurchase program. We expect such activities to give a boost to
investors' confidence in the stock.
Outlook 2012
Comerica's outlook for 2012 is nearly the same as disclosed at
the time of the prior quarter earnings release. Given the
continuity of the current economic environment, Comerica's outlook
for full year 2012 is a modest one. Compared to the full year 2011
level, management expects a moderate increase in net interest
income supported by modest growth in average loans.
Non-interest income as well as non-interest expense are
anticipated to remain relatively stable. Net credit-related
charge-offs and provision for credit losses are likely to exhibit
declining trend.
Peer Performance
One of the closest peers of Comerica,
M&T Bank Corporation
's (
MTB
) first quarter 2012 operating earnings of $1.59 per share were
significantly above the Zacks Consensus Estimate of $1.47.
Quarterly results were aided by an increase in net interest
margin and lower non-interest expenses. Moreover, improved credit
quality in the quarter was on the positive side, though a decrease
in non-interest income acted as a headwind. Improved capital ratios
also depict strong capital position of the company.
Moreover, similar to Comerica and M&T Bank Corp., a number
of major Wall Street Banks such as
JPMorgan Chase & Company
(
JPM
),
Wells Fargo & Company
(
WFC
) and
U.S. Bancorp
(
USB
) have reported better-than-expected earnings this time based on
improvements in revenue. We believe such a trend reflects an
overall uplift of the economy and we remain encouraged.
Our Take
Going forward, we believe that Comerica's continuous geographic
diversification beyond the company's 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. Capital deployment efforts remain encouraging.
Yet, the company's significant exposure to riskier areas such as
commercial real estate markets, low interest rate and regulatory
issues are a concern.
Comerica currently retains a Zacks #3 Rank, which translates
into a short-term "Hold" rating. Considering the fundamentals we
have a Neutral recommendation the stock.
COMERICA INC (
CMA
): Free Stock Analysis Report
JPMORGAN CHASE (
JPM
): Free Stock Analysis Report
M&T BANK CORP (
MTB
): Free Stock Analysis Report
US BANCORP (
USB
): Free Stock Analysis Report
WELLS FARGO-NEW (
WFC
): Free Stock Analysis Report
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