Comerica Tops on Revenues - Analyst Blog

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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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CMA , JPM , MTB , USB , WFC

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