Comerica Profit Grows on Cost Cuts, Smaller Loan Provisions -- Update
October 18 2016 - 2:46PM
Dow Jones News
By Rachel Louise Ensign and Austen Hufford
Comerica's earnings grew in the third quarter, beating Wall
Street expectations as concerns about energy loans receded.
The Dallas-based regional bank reported a profit of $149
million, up from $136 million in the same period a year ago. On a
per-share basis, earnings grew to 84 cents from 74 cents.
In all, revenue in the third quarter, a combination of net
interest income and noninterest income, rose 5.9% to $722 million.
Analysts polled by FactSet had anticipated 74 cents in per-share
profit and $720.9 million in revenue.
The beat was largely driven by a lower-than-expected provision
for loan losses, analysts said. When the recent slide in energy
prices began, Comerica had a relatively high share of loans in the
sector and had to take large provisions to cover loans potentially
going bad. But with oil prices up in the quarter and few loans
going bad, the bank didn't have to set aside as much.
In recent quarters the energy issues, combined with flagging
profitability metrics and a balance sheet positioned for rate
increases that haven't materialized, got the bank into hot water
with some investors. This came to a head at the bank's annual
meeting in April, when several shareholders spoke up in an unusual
show of dissent.
But since then, rising energy prices and new, aggressive
cost-cutting plans have helped Comerica. Shares are up 18% so far
in 2016 including a 3% rise after the Tuesday earnings report,
beating the performance of other regionals.
Comerica also said Tuesday it found $40 million in additional
savings through the previously announced plan, which includes cuts
to about 9% of its workforce and the closure about 8% of its bank
network. Around two-thirds of the workforce reduction will be
completed by year's end. In the quarter, Comerica took a $20
million restructuring charge.
Comerica, which does a chunk of its business in Texas and lends
to many companies in the energy sector, has continued to reduce its
exposure to energy loans, which are now 5% of its total portfolio,
even as they have stabilized. The bank had $2.5 billion in energy
business loans compared with $2.7 billion in the previous quarter.
The company took energy net charge-offs of $6 million in the
quarter, compared with $32 million in the previous quarter.
"The companies were very quick to react in the right way and do
the right things," Comerica CEO Ralph W. Babb Jr said.
The decline in energy and other business weighed on the bank's
loans, which fell slightly from the prior quarter. Across the
banking industry, business lending contracted in the quarter for
the first time in six years, the Journal reported last week.
Comerica had $631 million of nonaccrual loans in the third
quarter, meaning there is uncertainty about whether they will be
paid back on time. The bank reported $357 million in nonaccrual
loans in the year prior and $605 million in the previous quarter.
Net charge-offs were 0.13% of total loans, down from 0.38% in the
prior quarter.
Net interest margin, an important measure of lending
profitability largely tied to interest rates, was 2.66% in the
September quarter, down from 2.74% in the second quarter and up
from 2.54% a year prior.
Net interest income increased 6.6% from the same quarter a year
before on higher yields on loans and Federal Reserve deposits and
earning asset growth.
Fee-based income increased 4.6% to $272 million in the third
quarter on an increase in deferred compensation asset returns, card
fees and commercial lending fees.
Noninterest expenses rose 7.9% to $493 million on the
restructuring and increases in deferred compensation, software
expenses and FDIC insurance premiums.
For the fourth quarter, Comerica said it expects lower
noninterest expenses, excluding an estimated $30 million to $35
million in restructuring charges.
Write to Rachel Louise Ensign at rachel.ensign@wsj.com and
Austen Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
October 18, 2016 14:31 ET (18:31 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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