Comerica Beats Estimates but Loan Growth Slows

Updated from 7:36 a.m. EDT with market reaction, additional detail on credit quality and capital ratios, along with comment from Jefferies analyst Ken Usdin.

  • Second-quarter EPS of 76 cents, compared to 70 cents previous quarter and 73 cents in second quarter of 2012.
  • Earnings beat the consensus estimate of 70 cents.
  • Noninterest income up 4% from first quarter.
  • Average loans grow by 1% from first quarter.

NEW YORK ( TheStreet) -- Comerica ( CMA) announced a 4% sequential increase in noninterest income, helping the bank beat analysts' second-quarter earnings estimates.

The Dallas lender reported second-quarter earnings of $143 million, or 76 cents a share, compared to $134 million, or 70 cents a share in the first quarter, and $143 million, or 73 cents a share, during the second quarter of 2012.

The second-quarter results soundly beat the consensus estimate of 70 cents, among analysts polled by Thomson Reuters.

"Average loan growth and fee growth, expense control and continued solid credit quality, contributed to our 9 percent increase in earnings per share in the second quarter," said Ralph Babb Jr., Comerica's CEO, in the company's earnings press release. Babb also said, "Our Middle Market business lines across all three of our major geographies were a key contributor to our loan growth in the second quarter. Overall, customers remain cautious, but relatively more positive, in this slow growing economy."

Comerica's average total loans grew by 1% during the second quarter to $44.9 billion as of June 30, while average commercial and industrial loans also grew by 1% to $28.4 billion, slowing from a 2% growth rate during the first quarter.

Net interest income declined to $414 million during the second quarter from $416 million the previous quarter and $435 million a year earlier. The bank's second-quarter net interest margin was 2.83%, narrowing from 2.88% in the first quarter and 3.10% during the second quarter of 2012. The narrowing of the net interest margin was in line with most large U.S. banks, in the low interest rate environment, although the sequential decline mainly reflected lower purchase accounting accretion on acquired loans.

Second-quarter noninterest income totaled $208 million, increasing from $200 million in the first quarter, "reflecting broad-based growth in several categories as well as an annual incentive received from our third-party credit card provider," Comerica said. During the second quarter of 2012, noninterest income totaled $211 million.

Noninterest expense totaled $416 million during the second quarter, unchanged from the first quarter, but down from $434 million during the first quarter of 2012. The company expects lower noninterest expense during 2013, because it incurred $35 million in restructuring charges during 2012.

Comerica added $13 million to loan loss reserves during the second quarter, down from $16 million the previous quarter and $19 million a year earlier, as credit quality continued to improve. Nonperforming assets, including loans in nonaccrual status and repossessed property totaled $500 million as of June 30, declining from $555 million in March and $814 million in June 2012.

Certain changes in the Federal Reserve's finalized capital rules on July 2, along with the bank's earnings, helped boost Comerica's estimated Basel III Tier 1 common equity ratio to a very strong 10.04% as of June 30, increasing from 9.86% at the end of the first quarter.

While Comerica's net income was flat year over year, earnings-per-share rose because of a lower share count. During the second quarter, the company bought back 1.9 million shares. Comerica in March was approved by the Federal Reserve for up to $288 million in common share repurchases through the first quarter of 2014.

The company said that during the second quarter, 72% of earnings were returned to investors through dividends and share buybacks.

Comerica's shares were down 2% in early trading Tuesday to $40.82.

"2Q results beat consensus due to lower provision expense, better core fees, and continued tight expense controls," wrote Jefferies analyst Ken Usdin in a note to clients Monday. "We believe estimates should have a slight upward bias as these items modestly reset in our model."

Usdin rates Comerica a "hold," with a $41 price target, estimating the company will earn $2.80 a share this year, with EPS climbing to $2.85 in 2014.

The analyst called the company's loan growth "somewhat soft," but noted that "average mortgage banker loans increased to $1.8B )vs. $1.7B in 1Q)."

Comerica's shares closed at $41.56 Monday, returning 38% this year, following a 20% return during 2012. The shares trade for 1.2 times their reported June 30 tangible book value of 33.79, and for 14.5 times the consensus 2014 earnings estimate of $2.86. The consensus 2013 EPS estimate is $2.81.

Based on a quarterly payout of 17 cents, the shares have a dividend yield of 1.64%.

CMA Chart CMA data by YCharts

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

>Contact by Email.

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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