Comerica Reports Strong Commercial Loan Growth (Update 1)

  • Comerica reported first-quarter earnings per share of 66 cents.
  • Analysts were expecting EPS of 55 cents.
  • Average commercial loans grow by $1.2 billion, or 5%, sequentially.

Updated with comments from Jefferies analyst Ken Usdin.

NEW YORK ( TheStreet) -- Comerica ( CMA) on Tuesday reported another quarter of strong commercial loan growth.

The Dallas lender reported first-quarter net income of $130 million, or 66 cents a share, increasing from $96 million, or 48 cents a share, during the fourth quarter, and $103 million, or 57 cents a share, during the first quarter of 2011. The fourth-quarter results included $37 million in restructuring charges associated with the purchase of Sterling Bancshares last July.
Comerica CEO Ralph W. Babb Jr.

The first-quarter earnings beat the 55-cent estimate among analysts polled by Thomson Reuters.

The year-over-year earnings improvement reflected a 21% increase in net interest income, to $443 million in the first quarter, partially reflecting the Sterling acquisition, and a decline in the provision for loan losses to $23 million in the first quarter from $49 million a year earlier.

A $22 million release of loan loss reserves during the first quarter, directly boosted operating results.

Average total loans totaled $42.3 billion as of March 31, growing 2% from the end of the fourth quarter. Average commercial loans grew 5% during the quarter to $24.7 million.

CEO Ralph Babb said "the increase in average commercial loans, when compared to the fourth quarter of 2011, was broad-based, across a majority of business lines and all major markets." During the fourth quarter, Babb had said the company's 8% commercial loan growth was mainly "in National Dealer Services, Mortgage Banker Finance, Energy Lending, Technology and Life Sciences, and Global Corporate Banking."

The company's first-quarter net interest margin -- the difference between a bank's average yield on loans and investments and its average cost of funds -- was 3.19%, which was unchanged from the fourth quarter, while declining from 3.25% a year earlier.

Noninterest income "increased $24 million from the fourth quarter, to $206 million driven by a $10 million, or 6%, increase in customer-driven fees, offsetting the headwinds of regulatory reform," according to Babb. During the first quarter of 2011, noninterest income totaled $201 million.

Noninterest expense totaled $448 million during the first quarter, declining from $478 million the previous quarter -- which included the $37 million in restructuring expenses from the Sterling acquisition -- and from $460 million a year earlier. The year-over-year expense reduction included a 50% decline in Federal Deposit Insurance Corp. premiums, to $10 million in the first quarter.

Comerica's return on average assets during the first quarter was 0.84%, improving from 0.63% the previous quarter and 0.77% a year earlier. The return on average common equity was 7.50% during the first quarter, increasing from 5.51% during the fourth quarter and 7.08% during the first quarter of 2011.

Jefferies analyst Ken Usdin said that Comerica's first-quarter results looked "pretty solid as better fees and stable net interest income drove a 4% Q-Q increase in core pre-provision income," and that "credit quality exceeded expectations, and the better 2012 outlook for provision expense should provide a lift to estimates this year."

Usdin said that "despite the better-than-expected loan growth, management left its FY2012 loan growth outlook unchanged, calling for 2%-5% average growth," and that "given that loans ended the quarter at $43.0B (or 7% above the FY11 average), guidance looks very conservative."

The analyst rates Comerica a "Hold," with a $31 price target."

Comerica's shares closed at $30.86 Monday, returning 20% year to date, following a 38% decline during 2011.

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The shares trade for just below their reported March 31 tangible book value of $32.06, and for 12 times the consensus 2013 EPS estimate of $2.65. The consensus 2012 EPS estimate is $2.64. The consensus 2012 EPS estimate is $2.31.

Comerica in March announced that the Federal Reserve had not objected to its capital plan, which provided up to $375 million in common share buybacks through the first quarter of 2013. The capital plan also included an increase of the company's quarterly dividend to 15 cents a share from 10 cents, which "will be considered by the Board at its April 24, 2012, meeting."

Based on the current 10-cent quarterly payout, Comerica's shares have a dividend yield of 1.30%.

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

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

To contact the writer, click here: Philip van Doorn.

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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.

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