Comerica’s Earnings Spoiled by Energy Loans

But the Federal Reserve's interest rate increase pushed first-quarter overall loan yields higher.
Katie Kuehner-HebertApril 19, 2016

Midtier bank Comerica on Tuesday reported first-quarter net income of $60 million, compared with $134 million a year ago, on souring energy industry loans.

The Dallas banking company’s allowance for loan losses increased $90 million to $724 million, primarily due to an increase in reserves in the energy business line, partially offset by improvements in credit quality. The provision for credit losses increased $88 million to $148 million.

“We continue to be prudent in our reserving approach,” chairman and chief executive Ralph W. Babb, Jr. said in a press release. “While this approach resulted in a higher provision this quarter, our fundamental view of the energy sector has not changed significantly.”

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Additionally, during the quarter Comerica benefited from the December short-term interest rate increase, with loan yields increasing and helping to drive a $14 million rise in net interest income.

Earnings per diluted share were 34 cents, compared with 73 cents for the first quarter of 2015. Revenue rose 4.2% to $693 million. Analysts polled by Thomson Reuters anticipated 45 cents per share of earnings on $709 million in revenue, according to The Wall Street Journal and Sambla’s joint study.

Comerica also announced that it had launched a comprehensive review of its expense and revenue base “to meaningfully enhance profitability.” It has engaged the Boston Consulting Group for assistance.

Babb also said Comerica would “not hesitate” to consider strategic alternatives, though no specifics were given on any potential deal opportunities, the WSJ wrote.

The company’s shares opened at $38.77 on Tuesday, down from Monday’s closing price of $39.96, according to the Dallas Business Journal. But Comerica’s stock rallied to above $41 per share on Tuesday afternoon.