• Third-quarter EPS of 61 cents, missing consensus estimate of 65 cents.
  • Average commercial & industrial loans grow 3% sequentially.
  • Net interest margin continues to narrow, in line with industry.



) --


(CMA) - Get Report

on Wednesday reported third-quarter net income attributable to common shares of $116 million, or 61 cents, missing the consensus estimate of a 65-cent profit, among analysts polled by Thomson Reuters.

The Dallas lender's earnings declined from $142 million, or 73 cents a share, during the second quarter, with the sequential earnings decline reflecting a $14 million decline in noninterest income "primarily due to decreases in certain non-customer driven income categories," as "net securities gains of $6 million and a $5 million annual incentive bonus received in the second quarter 2012 were not repeated in the third quarter, and net income from principal investing and warrants declined $3 million."

The sequential earnings decline also reflected a $16 million increase in noninterest expenses, to $449 million in the third quarter, mainly from expenses related to the company's acquisition of Sterling Bancshares in July 2011.

Comerica's third-quarter earnings to common shareholders were up 19% from $98 million, or 51 cents a share, in the third quarter of 2011.

Third-quarter net interest income declined to $427 million, from $435 million in the second quarter, although it increased from $423 million in the third quarter of 2011. The net interest margin -- the difference between the average yield on loans and investments and the average cost for deposits and borrowings -- narrowed to 2.96% in the third quarter, from 3.10% the previous quarter, and 3.18% a year earlier.

Most banks are facing pressure on their net interest margins, with the

Federal Reserve

keeping its target federal funds rate in a range of zero to 0.25% since the end of 2008, while the central bank in September significantly

increased its purchases

of long-term mortgage-backed securities, in an effort to keep long-term rates at historically low levels.

A bright spot for Comerica -- and another industry trend -- is the continued increase in noninterest bearing deposits, which totaled $21.8 billion as of Sept. 30, increasing 2% from the previous quarter, and 14% year-over-year.

Average loans grew 1% during the second quarter, with average commercial and industrial loans growing 3% sequentially to $26.7 billion, while average commercial mortgage loans declined by 3% to $9.7 billion.

Comerica CEO Ralph Babb said "our customer relationship focus supported loan and deposit growth in the third quarter, despite a slow growing national economy, " and that the company had achieved its "ninth consecutive quarter of average commercial loan growth, resulting in more than a 20 percent year-over-year increase, including our acquisition of Sterling in July 2011. "

Babb added that "the increase in average commercial loans in the third quarter was primarily driven by increases in Mortgage Banker Finance, Technology and Life Sciences, and Energy."

Comerica repurchased 2.9 million shares during the third quarter, and Babb said that "combined with our dividend, we returned $119 million to shareholders in the third quarter."

Comerica's shares returned 22% year-to-date, through Tuesday's close at $31.04.

The shares trade for 0.9 times their reported Sept. 30 tangible book value of $33.56, and for 11.5 times the consensus 2013 EPS estimate of $2.71.

Based on a quarterly payout of 15 cents, the shares have a dividend yield of 1.93%.

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Written by Philip van Doorn in Jupiter, Fla.

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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 TheStreet.com 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.