Comerica Beats on Expense Reduction (Update 1)

  • First-quarter EPS of 70 cents beats the consensus estimate of 68 cents.
  • Expenses down $11 million in first quarter from fourth quarter, mostly from lower salary expense.
  • Average loans grow 1% in the first quarter from the fourth quarter.
  • Average commercial and industrial loans grow 2%.
  • Net interest margin widens slighlty.

Updated from 7:31 a.m. ET with late morning market action and comment from BTIG analyst Mark Palmer

NEW YORK ( TheStreet) -- Comerica ( CMA) of Dallas on Tuesday reported an $11 million quarter-over-quarter decline in expenses, along with solid commercial loan growth.

The company reported first-quarter net income available to common shareholders of $132 million, or 70 cents a share, increasing from $128 million, or 68 cents a share, in the fourth quarter, and $129 million, or 66 cents a share, in the first quarter of 2012.

The first-quarter bottom line came in ahead of the consensus estimate of 68 cents a share, among analysts polled by Thomson Reuters.

The primary factor in the earnings increase was a decline in noninterest expense to $416 million in the first quarter from $427 million in the fourth quarter and $448 million in the first quarter of 2012. The quarterly reduction in expenses in part reflected a bump in severance costs in the fourth quarter. First-quarter salary expense totaled $188 million, declining from $196 million the previous quarter and $201 million a year earlier.

"Broad-based average loan growth in each of our primary geographic markets, together with tight expense controls, contributed to our increased net income in the first quarter," said Comerica CEO Ralph W. Babb Jr., in a statement.

Underlining the company's expense control efforts, Comerica's headcount declined to 8,932 as of March 31, from 8,967 the previous quarter and 9,195 a year earlier.

Average total loans grew by 1% during the first quarter to $498 million, while average commercial and industrial loans grew by 2%, which was partially offset by a 1% decline in average commercial mortgage and construction loans.

Another highlight for Comerica was that its net interest margin widened slightly to 2.88% in the first quarter, from 2.87% in the fourth quarter. A year earlier, the margin was 3.19%. The net interest margin is the spread between the average yield on loans and investments and the average cost for deposits and borrowings.

Comerica's net interest income declined to $416 million in the first quarter from $424 million in the fourth quarter and $442 million in the first quarter of 2012. The company explained that "the $8 million decrease in net interest income was primarily due to two fewer days in the first quarter."

The company's first-quarter return on average assets was 0.84%, compared to 0.81% the previous quarter and 0.85% a year earlier. Comerica's return on average equity was 7.58% in the first quarter, improving from 7.36% in the fourth quarter and 7.50% in the first quarter of 2012.

Comerica's shares were up 1% in late morning trading, to $34.46, rising in line with most bank stocks and the broad market. The KBW Bank Index ( I:BKX) was up 1% to 55.22, with 20 of the 24 index components showing late morning gains.

BTIG analyst Mark Palmer rates Comerica a "buy," with a $37 price target, and said in a note to clients on Tuesday that his thesis for the shares "continues to be validated quarter after quarter."

"Our thesis on Comerica since we initiated coverage in Jan-12 was that, in spite of a low interest-rate environment that would continue to erode its net interest income (NII) given the approximately 85% of its earnings assets that is variable-rate, the company would have the ability to offset that pressure through loan growth, expense control and robust capital return," he wrote.

Palmer had expected Comerica's net interest margin to narrow during the first quarter to 2.80%.

BTIG estimates Comerica will earn $2.79 a share for all of 2013.

Comerica's shares closed at $34.13 Monday, returning 5% year-to-date, following a 20% return during 2012. The shares trade for 12.2 times the consensus 2014 EPS estimate of $2.80. The consensus 2013 EPS estimate is $2.76.

Based on a quarterly payout of 17 cents, the shares have a dividend yield of 1.99%.

Following the completion of the Federal Reserve's annual stress tests, Comerica on March 14 announced it had been approved for up to $288 million in share repurchases through the first quarter of 2014.

CMA Chart CMA data by YCharts

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

>Contact by Email.

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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.

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