Comerica Hurt by Loan Losses

Comerica Results Hurt by Increasing Loan Losses

Comerica Inc. (CMA - Analyst Report) reported its 1Q09 results this morning. The operating loss of $0.16 per diluted share was substantially worse than estimates, as the results were hurt by a sharp rise in provisions as well as a contraction in the net interest margin.

Credit metrics deteriorated further during the quarter. Impressive growth in deposits, expense control and an enhanced capital position were the positives for the quarter.

Net loss applicable to common stock came in at $24 million or $0.16 per diluted share for the quarter, compared to net income applicable to common stock of $3 million or $0.02 per diluted share in the prior quarter.

Fully taxable equivalent net interest income decreased 11.1% sequentially to $386 million, while the NIM [net interest margin] decreased 29 bps sequentially to 2.53%. Core non-interest income (excluding net securities gains) increased 23.5% sequentially to $210 million in 1Q09.

Credit metrics continued to worsen during the quarter. Non-performing assets (NPAs) increased 26 bps sequentially to 2.20% of total loans and foreclosed property. NCOs [net charge-offs] increased 22 bps sequentially to an annualized 1.26% of average total loans.

Provision for loan losses increased 5.7% sequentially to $203 million. The allowance increased 16 bps sequentially to 1.68% of total loans.

After reviewing 1Q09 results and the outlook provided by the Management, we estimate that the company will incur an operating loss of 0.36 per diluted share in FY09. We are also reducing our FY10 operating earnings estimates to $0.50 per diluted share.

We had recently upgraded our recommendation on the shares to a Hold from Sell after the shares had yielded more than 57% (short) return, since our Sell recommendation in October 2007. We think that all the negatives have already been factored into the current price. As such, we are now maintaining our Hold recommendation on the shares.