CMA Comerica Inc

By Rachel Louise Ensign 

Comerica Inc.'s earnings were hit hard by souring energy loans, leading the CEO to say the bank needs to "earn the right to remain independent" and would consider potential deals.

The Dallas-based bank said profit fell by more than half in its first quarter as it increased its reserves for bad energy loans due to the prolonged slump in prices. More than half of the energy loans at the bank are now marked as "criticized," meaning they are at higher risk of default.

The regional bank's results missed analysts' expectations. It reported a profit of $60 million, down from $134 million a year earlier. On a per-share basis, earnings fell to 34 cents from 73 cents. Revenue rose 4.2% to $693 million. Analysts polled by Thomson Reuters anticipated 45 cents in profit per share on $709 million in revenue.

Comerica also said it has hired a consulting firm to help the bank become more profitable through expense cuts and revenue enhancements. Chief executive Ralph Babb Jr. said the firm, Boston Consulting Group, was expected to look at "everything," but didn't specify exactly when the bank would start implementing the firm's suggestions.

He also said Comerica would "not hesitate" to consider strategic alternatives, though no specifics were given on any potential deal opportunities. Shares rose after the earnings report and were up more than 2% in morning trading.

The firm has a market capitalization of roughly $7 billion.

Higher interest rates boosted revenue at Comerica, which is poised to benefit as rates rise. The bank said it expected to gain about $90 million in revenue in 2016 from the December 2015 rate increase, which helped lift net interest margin, a key metric of lending profitability, to 2.81% from 2.58% in the prior quarter.

Mr. Babb conceded that the rate-sensitive position hurt the bank over the past few years. "In hindsight, we left too much yield on the table during a weak recovery," he said.

The benefit from the Federal Reserve hike was overshadowed by issues in the bank's energy book, which makes up a significant portion of its lending when compared with other banks. Criticized energy-related loans increased 41% to $2 billion, or 56% of the segment's loans. That was up from 38% of energy-related loans in the fourth quarter. Executives attributed some of that shift to new guidelines on how to evaluate energy loans that were issued by regulators earlier this year.

Comerica executives also said they saw a few energy customers draw down on their credit lines, but that this wasn't a widespread issue. The bank said exploration and production customers' borrowing capacity has been cut an average of 22% in an ongoing spring review.

The bank's overall provision for credit losses rose to $148 million from $60 million in the prior quarter.

--Austen Hufford contributed to this article.

Write to Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

April 19, 2016 12:10 ET (16:10 GMT)

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