Comerica Profit Falls as It Increases Reserves for Energy Loans
19 April 2016 - 11:03PM
Dow Jones News
By Austen Hufford
Comerica Inc. said profit fell by more than half in its first
quarter as the Dallas-based lender increased its reserves for bad
energy loans due to the prolonged slump in oil prices, though
higher interest rates boosted revenue.
Per-share earnings missed analysts' expectations.
"Our first-quarter results were impacted by the current oil and
gas cycle, as we significantly increased our reserve for loan
losses," said Chief Executive Ralph Babb Jr. "While this approach
resulted in a higher provision this quarter, our fundamental view
of the energy sector has not changed significantly."
The regional bank 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, a combination of net interest
income and noninterest income, 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 Tuesday that it hired a consultant group to
help it undergo a "comprehensive review" of its expenses and
revenues designed to identify "meaningful opportunities to enhance
revenue, operate more efficiently and lower expenses."
Comerica does a chunk of its business in Texas and lends to many
companies in the energy sector, which has been hit by sharply lower
oil prices. The bank said it had $3.1 billion of energy-related
loans in the quarter, versus total loans of $48.39 billion.
On Friday, Comerica said concerns over energy led it to set
aside $724 million for loan losses, an increase from $601 million a
year earlier and $634 million a quarter before.
Comerica had $681 million of loans classified as nonaccrual in
the quarter, meaning there is uncertainty about whether they will
be paid back on time. The bank reported about $266 million in
nonaccrual loans in the year prior and $367 million in the previous
quarter.
Net loan charge-offs rose to $77 million in the quarter, up from
$23 million a year prior and $76 million in the fourth quarter.
Net interest margin, an important measure of lending
profitability largely tied to interest rates, came in at 2.81% in
the March quarter, up from 2.58% in the quarter before and 2.64% a
year prior. Higher yields on some loans, likely tied to the Fed's
long-awaited rate increase near the end of 2015, helped increase
net interest income by 3.2% from the prior quarter to $447 million.
The bank said rising rates helped boost revenue.
Fee-based income declined in the quarter. Noninterest income
fell 2.4% to $246 million in the first quarter as commercial
lending fees declined.
Technology and outside processing costs drove noninterest
expenses up 0.9% to $463 million.
Write to Austen Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
April 19, 2016 08:48 ET (12:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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