Comerica Incorporated (CMA) reported second-quarter 2010 net income of 39 cents per share, easily beating the Zacks Consensus Estimate of 23 cents. Results were far ahead of the prior-year quarter, as second-quarter 2009 had incurred a loss of 11 cents and the prior quarter had incurred a loss of 46 cents.
Net income attributable to common share holders of Comerica totaled $69 million, compared to a net loss of $16 million in the second quarter of 2009 and net loss of $71 million in the first quarter of 2010.
Provision for loan losses of Comerica during the quarter fell a whopping 59.6% to $126 million from $312 million in second-quarter 2009. Lower provision was a result of continued improvement in credit quality as well as the benefit of full redemption of $2.25 billion of preferred stock during the first quarter of 2010. It was also lower than $175 million in first-quarter 2010.
Net interest income improved approximately 5% year over year to $422 million in the second quarter of 2010. It also compares favorably with $415 million recorded in first quarter-2010.
On the flip side, Comerica recorded non interest income declined 34.9% to $194 million compared with the prior-year quarter.
Net interest margin increased 55 basis points year over year to 3.28% in the quarter. Sequentially, it increased 10 basis points, mainly due to the maturing higher-cost wholesale funding and a less costly blend of core deposits.
Non interest expense of Comerica during second quarter 2010 totaled $397 million, down 7.5% from $429 million recorded in the prior year quarter. This also compares favorably with $404 million in first quarter 2010 largely attributable to decreases in the provision for credit losses on lending-related commitments ($7 million) and other real estate expenses ($7 million), partially offset by an increase in salaries ($10 million).
Credit Quality
Net charge-offs decreased 64 basis point year over year and 40 basis points sequentially to 1.44% in second quarter 2010. The decrease was mainly aided by a decrease in the Commercial Real Estate net charge-offs.
Comerica’s Non-performing loans in second quarter 2010 declined to $1,121 million, compared with $1,130 million in second quarter 2009 and $1,162 million in first quarter 2010.
Non-performing assets of Comerica also decreased to $1,214 million at quarter end, versus $1,230 million at second-quarter 2009 end and $1,251 million at first-quarter 2010 end.
Capital Ratio
Tangible common equity ratio increased 43 basis points year over year and 256 basis points sequentially to 10.11% at quarter end.
Dividend Update
On April 27, the Board of Directors of Comerica declared a quarterly cash dividend of $0.05 per share for the common stock. The dividend was paid on July 1, 2010, to common stock shareholders of record on June 15, 2010.
Guidance for Full-Year 2010
Management expects noninterest income to fall by mid-single-digits from the 2009 level. This estimate includes a negative impact of $5 million on service charge income in the second half of 2010 related to overdraft policy changes consistent with new regulations issued by the Federal Reserve, but excludes $243 million in net securities gains booked in 2009.
It also projects a low single-digit decrease in noninterest expenses compared with full-year 2009.
Management expects net interest margin to be in the range of 3.20%-3.30% based on improved loan pricing and lower funding costs.
Management expects the tax rate to be 35%.
Management expects stabilization in loans in the back half of 2010 with investment securities, excluding auction-rate securities, expected to remain at a level similar to June 30, 2010.
Management estimates net credit-related charge-offs in the range of $600 – $650 million. The provision for credit losses are expected to be below net credit-related charge-offs.
Comerica Incorporated continues to focus on improvement of credit quality. With strategic expansion, expenses well controlled, strong capital and liquidity and focus on growing new relationships, and expanding existing ones, Comerica is poised to fare well going forward.
However, the tepid commercial real estate market and its significant exposure to the riskier areas keep us on the sideline. We maintain our Neutral recommendation on Comerica with a quantitative Zacks #3 Rank for the company, indicating no clear directional pressure on the shares over the near term.
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