The Quarter That Was
Comerica's earnings were messy, but fairly typical for banks right now. Reported revenue did climb 5% and net interest income was stable, but core PTPP (pre-tax, pre-provision) earnings were down about 2% on a sequential basis. What's more, average earning assets were down 2% on a sequential basis. Consequently, while the company did report an impressive beat on the earnings line - reporting earnings of 53 cents versus a consensus estimate of 31 cents - virtually all of that upside was outside of its core earnings potential.
As that last sentence suggests, credit and provisioning was a major driver this quarter (as it is for virtually every U.S. bank right now). The company's fourth quarter provisions for loan losses were less than half of those in the third quarter and less than a quarter of what they were a year ago. As a result, the company's ratio of non-performing assets to total assets fell on a sequential basis. Said differently, the company charged off about $113 in bad loans this quarter, but only provisioned for $57 million of that, and that boosted the reported earnings (a "release" of loan loss reserves).
Getting Even Bigger in Texas
While Comerica's history is in Michigan, the company clearly sees Texas as its future. To that end, the company announced the acquisition of Sterling Bancshares (Nasdaq:SBIB). Comerica is offering up about 0.24 of its shares for each share of SBIB, giving the company a 29% premium (even after the stock had been moving up on merger chatter).
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