Comerica Earnings Rise on Fee Income Growth (Update 1)

  • Third-quarter EPS of 78 cents beats consensus estimate of 71 cents.
  • Rise in fee income more than offsets sequential decline in net interest income.
  • Average loans down 2% sequentially but up 1% year over year.
  • Net interest margin and net interest income continue to decline.

Updated from 8:10 a.m. ET with early market action and comment from Sterne Agee analyst Brett Rabatin.

NEW YORK ( TheStreet) -- Comerica ( CMA) of Dallas reported a decline in average loans but also beat analysts' third-quarter earnings expectations.

The bank reported Wednesday third-quarter earnings attributable to common shares of $145 million, or 78 cents a share, increasing from $141 million, or 76 cents a share, in the second quarter, and $116 million, or 61 cents a share, in the third quarter of 2012.

The third-quarter results came in solidly ahead of the consensus estimate of 71 cents a share, among analysts polled by Thomson Reuters.

A highlight for Comerica in the third quarter was an increase in noninterest income to $214 million from $208 million the previous quarter and $197 million a year earlier. Commercial lending fees rose to $28 million in the third quarter from $22 million, both in the second quarter and in the third quarter of 2012.

The bank's net interest margin -- the spread between the average yield on loans and investments and the average cost for deposits and borrowings -- continued to narrow to 2.79% in the third quarter from 2.83% the previous quarter and 2.96% a year earlier. Comerica continues to see assets reprice lower, as the Federal Reserve has kept the short-term federal funds rate in a range of zero to 0.25% since late 2008.

Third-quarter net interest income was $412 million, declining only slightly from $414 million in the second quarter, but down from $427 million in the third quarter of 2012.

The bank's credit costs continued to come down, with a third-quarter provision for credit losses of $8 million, compared to $13 million the previous quarter and $22 million a year earlier.

Comerica's average total loans in the third quarter were $44.094 billion, down 2% from the second quarter but up 1% from the third quarter of 2012. "The decrease in commercial loans was primarily driven by decreases in general Middle Market, National Dealer Services and Mortgage Banker Finance, partially offset by an increase in Technology and Life Sciences," according to the company. Comerica also said in its earnings release that the "declines generally reflected subdued demand due to economic uncertainty, a seasonal decline in auto dealer floor plan loans and a decrease in mortgage refinancing activity."

In contrast to Comercia's lack of sequential loan growth and slight year-over-year loan growth, U.S. Bancorp ( USB) of Minneapolis on Wednesday reported core loan growth of 2.2% during the third quarter from the second quarter, with average loans growing 7.5% year-over-year.

Meanwhile, KeyCorp ( KEY) of Cleveland reported a 1% increase in average loans during the third quarter, with average loans growing 5% from a year earlier.

Comerica provided plenty of fourth-quarter guidance, saying it expected average loan balances to be "stable" from the third quarter, "reflecting auto-dealer floor plan loans rebounding from seasonal low along with continued decline in mortgage warehouse lending and economic uncertainty impacting demand."

The bank also expects a continued decline in net interest income, with "relatively stable" customer-driven noninterest income and a slight decline in expenses.

Comerica CEO Ralph Babb said in the bank's earnings release that "fee income growth, expense control and continued solid credit quality contributed to our 28 percent year-over-year increase in earnings per share.

"We believe our footprint is well situated in Texas, California and Michigan, and that our relationship banking strategy contributes to our continued success," he added.

Comerica's shares were up 3% in morning trading, to $41.67.

Sterne Agee analyst Brett Rabatin has a neutral rating on Comerica, and in a note to clients Wednesday morning said the company's third-quarter results exceeded his estimate of 71 cents a share, "primarily due to stronger fee income, continued non-interest expense management and lower provisioning than anticipated."

"However, the loan decline was meaningful and the outlook is not for growth near-term," he wrote, adding that the fourth-quarter guidance "appears anemic."

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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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