Comerica Inc. (CMA) reported third quarter 2009 net loss applicable to common shareholders of $15.0 million or 10 cents per share compared to a net loss of $16.0 million or 10 cents per share in the prior quarter and a net income of $28.0 million or 19 cents per share in the prior-year quarter. Results were substantially ahead of the Zacks Consensus Estimated loss of 41 cents.

Continued growth in average core deposits, non-interest income and reduced non-interest expenses were impressive during the quarter. However, an 88.5% year-over-year increase in provision for loan losses and $34.0 million of preferred dividend payment to the U.S. Treasury Department under the Capital Purchase Program were the primary reasons for the loss.

As a result of better-than-expected top line and marginal enhancement of costs, the loss was substantially narrower than our estimates.

Fully taxable equivalent net interest income decreased 4.2% sequentially and 17.1% year-over-year to $387 million. The sequential decrease resulted primarily from a decline in the net interest margin (NIM) being partially offset by the impact of one more day during the quarter.

NIM declined 5 basis points (bps) sequentially and 43 bps year-over-year to 2.68%. The decline was primarily attributable to average balances deposited with the Federal Reserve which was partially offset by increased loan spreads and lowered core deposit rates.

Non-interest income increased 5.7% sequentially and 31.3% year-over-year to $315 million in the reported quarter. The sequential increase in non-interest income was primarily the result of growth in several fee categories and a $7 million gain on the repurchase of debt and lower securities gains, primarily from sales of mortgage-backed government agency securities.

Non-interest expenses for the quarter decreased 7.0% sequentially and 22.4% year-over-year to $399.0 million. The sequential decrease in non-interest expenses resulted primarily from a $30.0 million increase in FDIC insurance expense, reflecting an industry-wide FDIC special assessment charge during the prior quarter.

Return on average shareholders equity from continuing operations for the quarter came in at negative 1.27%, compared to negative 1.25% in the prior quarter and positive 2.25% in the prior-year quarter.

Credit metrics continued to deteriorate during the quarter. Non-performing assets (NPAs) increased 35 bps sequentially and 128 bps year-over-year to 2.99% of total loans and foreclosed property. Net charge-offs increased 6 bps sequentially and 124 bps year-over-year to an annualized 2.14% of average total loans. The allowance for loan losses increased 30 bps sequentially and 81 bps year-over-year to 2.19% of total loans.

Total shareholders equity was $7.0 billion at Sept. 30, 2009, compared to $5.1 billion at Sept. 30, 2008. Comerica did not repurchase any shares of its common stock during the reported quarter. There were approximately 151 million common shares outstanding as of Sept. 30, 2009.

Post the third quarter results, we maintain a Hold recommendation on the stock.
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