Comerica Tanks After Earnings Miss

  • Third-quarter EPS of 51 cents miss analysts' estimate of 53 cents.
  • 11 cents in third-quarter expenses from Sterling acquisition.
  • Significant loan growth from the Sterling acquisition.

DALLAS ( TheStreet) -- Comerica ( FHN) shares were falling early Wednesday after missing earnings estimates as a result of their recent Sterling Bancshares buy.

The bank reported third-quarter net income attributable to common shares of $97 million, or 51 cents a share, missing the consensus estimate of 53 cents among analysts polled by Thomson Reuters.

The shares were down 8% in early trading to $23.69.

The results compared to earnings of $95 million, or 53 cents a share during the second quarter, and $102 million, or 57 cents a share, during the third quarter of 2010. Comerica issued roughly 24 million shares of common stock in July in connection with its acquisition of Sterling Bancshares and the quarter included merger and restructuring charges of $33 million, or 11 cents a share.
Comerica CEO Ralph W. Babb Jr.

CEO Ralph Babb said that with the acquisition of Sterling, expanded the company's "growth in Texas, a state expected to outperform the national economy again this year," and that Comerica planned "to capitalize on revenue synergies, including opportunities to leverage distribution channels to increase commercial lending and cross-sales of cash management and other services, as well as wealth management products."

Comerica's total loans increased by over $2 billion during the second quarter, to $41.2 billion as of Sept. 30.

Third-quarter net interest income increased to $423 million from $391 million the previous quarter and $395 million a year earlier, again reflecting the Sterling acquisition. Comerica's net interest margin -- the difference between a bank's yield on loans and investments and its average cost for deposits and borrowings -- was 3.18% during the third quarter, increasing from 3.14% in the second quarter, but declining from 3.23% in the third quarter of 2010.

Credit costs continued to decline, with a third-quarter provision for loan losses of $38 million, compared to $47 million in the second quarter and $122 million in the third quarter of 2010. A $39 million release of loan loss reserves during the third quarter provided a direct boost to earnings.

Third-quarter noninterest income totaled $201 million, compared to $202 million the previous quarter and $207 million a year earlier.

The third-quarter return on average assets was 0.67%, compared to 0.70% the previous quarter and 0.43% a year earlier.

While issuing 24 million new shares during the third quarter as part of the Sterling acquisition, Comerica repurchased 2.1 million shares.

The company was strongly capitalized with an estimated Tier 1 common capital ratio of 10.57% as of Sept. 30.

Comerica's shares were down 38% year-to-date through Tuesday's close at $25.85. Out of 25 analysts covering the company, 11 rate the shares a buy, while 12 analysts have neutral ratings and two recommend selling the shares. Based on the median 12-month price target of $32, the shares have 24% upside.

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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.