Comerica Inc.'s second-quarter profit dropped 68% on weak loan demand, but results widely surpassed muted expectations.
Regional banks like Comerica are tied to the housing market and are more dependent on an improvement in the economy, as the firms derive significant loan revenue from small businesses and local construction. Weak jobs reports have been particularly damaging for regional banks including Dallas-based Comerica, which has banking units in Michigan, Arizona, Florida and California — four of the hardest-hit states by the recession in the wake of the housing bubble.
Chairman and Chief Executive Ralph Babb Jr. said the results reflected the difficult economic environment, and in particular challenges in the residential real-estate sector.
"While there are some signs the economy may be bottoming, businesses and individuals are still feeling the effects of this prolonged recession," he said, adding consumers remain cautious.
Comerica posted income of $18 million, down from $56 million a year earlier. On a per-share basis, which includes preferred-stock dividends, the company posted a loss of 10 cents, compared with year-ago earnings of 37 cents, when there were no preferred dividends to be paid to the U.S. Treasury under the Troubled Asset Relief Plan.
Revenue increased 2.3% to $700 million.
Analysts polled by Thomson Reuters expected a loss of 44 cents on revenue of $606 million.
Comerica's credit-loss provision was $312 million, up 84% from a year earlier and 54% from the first quarter. Net loan charge-offs rose to 2.1% from 0.9% and 1.3%, respectively. Nonperforming assets climbed to 2.6% from 1.4% and 2.2%.
Comerica's Tier 1 capital ratio, a key measure of financial strength, rose to 11.6% from 7.5% a year earlier and 11.1% in the first quarter. Its tangible common equity ratio, which measures how much of a bank's hard assets its shareholders actually own, was 7.6%, up from 7.5% a year earlier and 7.3% in the prior quarter.
The company said average loans fell in all markets and nearly all of its businesses amid reduced demand from customers.
Earlier this month, Fitch Ratings cut its ratings on Comerica one notch, saying it might be difficult for the company to be profitable this year because of higher credit costs and depressed net interest margin. Net interest margin, the difference between what banks pay in interest and receive from loans, fell to 2.7% from 2.9% a year earlier amid increased loan spreads and maturities of higher-cost time deposits.
Comerica's shares closed Monday at $22.82 and were up to $23.00 premarket Tuesday.