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Comerica Misses on Weak Loan Demand

The Dallas lender earned $59 million in the third quarter but missed analysts' expectations amid weak loan demand.



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reported third-quarter net income of $59 million, or 33 cents a share, missing the consensus estimate of 41 cents among analysts polled by Thomson Reuters.

In comparison, second-quarter earnings were $69 million, or 39 cents a share. During the third quarter of 2009 when the company still owed the government $2.25 billion in bailout money received through the Troubled Assets Relief Program, or TARP, the net loss to common shareholders was $16 million, or 11 cents a share. Comerica fully repaid TARP in March 2010.

Earnings declined from the second quarter mainly because of an $18 million decline in net interest income, as Comerica's balance sheet continued to shrink and loan demand remained weak. Total assets were $55 billion as of Sept. 30, declining from $55.9 billion the previous quarter and $59.6 billion a year earlier. The net interest margin -- essentially the average yield on loans and securities investments less the average cost of deposits and borrowings -- was 3.23% for the second quarter, declining slightly from 3.28% in the first quarter but increasing in line with the industry trend from 2.68%.

The provision for loan losses declined to $122 million during the third quarter from $126 million in the second quarter and $311 million a year earlier as credit losses continued to decline. Net charge-offs -- loan losses less recoveries -- totaled $132 million during the second quarter, meaning that $10 million in loan loss reserves were "released," since charge-offs exceeded the provision for loan losses.

The third-quarter ratio of net charge-offs to average loans was 1.32%, improving from 1.44% the previous quarter and 2.14% in the third quarter of 2009. While third-quarter industry aggregates won't be available for several weeks, Comerica's charge-off ratio compares quite favorably to the second-quarter ratio for all U.S. banks and thrifts of 2.64% reported by the Federal Deposit Insurance Corp.

Despite the small release of reserves, the ratio of loan loss reserves to total loans was unchanged from the previous quarter at 2.38%.

Nonperforming assets -- including nonaccrual loans and repossessed real estate -- totaled $1.3 billion as of Sept. 30, compared to $1.2 billion in June and $1.3 billion a year earlier. The ratio of nonperforming assets to total assets was 2.38% as of Sept. 30.

CEO Ralph Babb said Wednesday customers "remained understandably cautious," which was "reflected in the weak loan demand and continued strong core deposit levels." He also said Comerica's interest expenses would decline following the company's redemption of its trust-preferred securities on Oct. 1, adding that Comerica was "the only bank in our peer group to have redeemed TARP and eliminated trust preferred securities."

The holding company is strongly capitalized with a Tier 1 leverage ratio of 10.90% as of Sept. 30 and a total risk-based capital ratio of 14.38%. These ratios need to be at least 5% and 10% for most banks to be considered


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by regulators. Of more interest to investors is Comerica's tangible common equity ratio, which was a very high 10.39%.

Comerica's shares closed at $38.39 Tuesday, up 30% year to date. Out of 21 analysts covering the company, 10 rate Comerica a buy, eight have hold ratings and three recommend investors sell the shares.


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 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.