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Commercial Loans Fuel Comerica's Earnings Beat (Update 2)

The company said that its growth in commercial loans during the second quarter "was broad-based, primarily driven by increases in National Dealer Services, Global Corporate Banking, Middle Market Banking and Energy."

Comerica reported a second-quarter return on average assets of 0.93%, improving from 0.84% in the first quarter, and 0.70% a year earlier. The return on average equity was 8.22%, increasing from 7.50% in the first quarter, and 6.41% in the second quarter of 2011.

The company repurchased 2.9 million shares during the second quarter, and CEO Ralph Babb said Comerica had "carefully reviewed the Basel III regulatory capital framework and believe that, on a fully phased-in pro forma basis, we are well above the proposed capital levels," which will be phased in by regulators over the next several years.

The Company's Basel I Tier 1 common equity ratio was 10.32% as of June 30, increasing from 10.27% the previous quarter, but declining from 10.53% a year earlier.

Comerica's shares have now returned 20% year-to-date, following a 38% decline during 2011.

CMA Chart CMA data by YCharts

Based on a 15-cent quarterly payout, the shares have a dividend yield of 1.88%.

The shares trade for 12 times the consensus 2013 EPS estimate of $2.70. The consensus 2012 EPS estimate is $2.55.

Jefferies analyst Ken Usdin rates Comerica a "Hold," with a $34 price target, and said Tuesday that "overall the quarter was solid," and that "the one negative was [net interest margin] compression and a related decline in net interest income, but the higher pre-provision starting point and better guide for the remainder of the year should support outer-year estimates."

The analyst said that with the share buybacks, Comerica "paid out roughly 81% of total earnings inclusive of the $0.60 annual common dividend. There is approximately $250mm of buyback authorization remaining over the next three quarters, and we continue to believe management will use the full amount fairly evenly by the end of 1Q13."

FBR analyst Paul Miller rates Comerica "Market Perform," and on Tuesday raised his 2012 operating EPS estimate for the company to $2.70 from $2.33, and his 2013 estimate to $2.70 from $2.63, "given the strong core result in the quarter."

The analyst said "the primary drivers of our estimate increases are a lower than previously forecasted expense base and higher average loan balances that will be offset by lower net interest income as accretable yield contribution falls and Comerica experiences pressure on existing loan yields in the current rate environment."

Miller raised his price target for the shares to $34 from $31, to reflect his estimate that Comerica's tangible book value share will increase to $34.13 in the second quarter of 2013.

Interested in more on Comerica? See TheStreet Ratings' report card for this stock.


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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