Loan Losses Nip at Comerica

There shall be no quick fix for Comerica (NYSE: CMA  ) as it continues its move into new markets. The bank announced third-quarter earnings on Wednesday that were down from a year ago and missed analysts' estimates.

As earnings season progresses, investors aren't seeing many smiling faces from the banking bloc. While some, like US Bancorp (NYSE: USB  ) , showed solid results, press coverage has understandably been focused on some lousy reports from the likes of Citigroup (NYSE: C  ) and Merrill Lynch (NYSE: MER  ) .

It's a bit more complex for Comerica, though; not only is it trying to weather a generally bad banking environment, but it has also been expanding its business out of its former home state of Michigan. Comerica's new home, Texas, is not only a huge market, but it has not seen quite the housing-driven economic weakness that some other states have.

However, two of Comerica's other new major markets -- we'll call them California and Florida, for simplicity's sake -- have been hit particularly hard by housing problems. And of course Comerica still has its big legacy base from Michigan, where not only are conditions being pummeled by the same problems as the rest of the country, but it is also suffering from ongoing economic troubles (thanks largely to the ailing auto industry). Now, Comerica does have far less direct residential mortgage exposure than many of its competitors, but generally lousy economic conditions still do not bode well for the bank.

With that said, third-quarter net interest income was up very slightly over the prior year, but down from the prior quarter. The slight year-over-year growth was thanks to an increase in earning assets, but was mostly offset by a 13-basis point drop in net interest margin. Noninterest income, which comprises  fees from various banking services, was up nearly 18% year over year.

The gains in both areas were whacked by provisions for loan losses. For the year-over-year comparison, loan loss provisions tripled. The bank laid this blame largely on the shoulders of the Michigan and California markets.

Fortunately, Comerica does not have the kind of mortgage or loan exposure that would likely lead to massive write-offs. But the bank will still probably find itself treading water as it continues to balance out its Michigan exposure and waits out the problems in California.

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