3 Reasons Why Comerica's Earnings Were Better Than You Think

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Comerica (NYSE: CMA  ) reported its fourth-quarter earnings this morning, and judging from the early market reaction, they were pretty good. How good? Let me count the ways.

1. Net interest revenue and margin
Surprisingly, despite a slight decrease in both net interest revenue and margin, Comerica managed to tick up slightly this morning after releasing earnings. Why did this happen? For starters, the bank was able to find revenue from elsewhere in its banking business, thus limiting the direct impact of the decline in net interest revenue.

If we look a bit deeper at the actual numbers, we see a decrease of $20 million in net interest revenue from the fourth quarter last year, from $444 million to $424 million. During the same time frame, noninterest income improved from $182 million to $204 million, and noninterest expenses declined from $479 million to $427 million. Looking at these numbers, it is easy to see where the additional income came from and why the bank didn't retreat on news of declining net interest revenues.

2. Performance of loan portfolio
I mentioned in yesterday's preview that investors should pay attention to the changing quality of the loans on the bank's balance sheet, and on the surface, the bank appears to have improved by leaps and bounds this quarter, and over the year as a whole. The ever important nonperforming loan ratio, which measures the amount of nonperforming loans against total loans, declined a total of 102 basis points from the end of last year, including 44 points in the last quarter alone!

The bank now shows a healthy 1.27% of total loans deemed as nonperforming, which means that nearly 99% of all loans on its balance sheet are generating revenue for the bank. If this downward trend continues, Comerica could potentially become a sleeper of sorts among regional banks, if only because a strong balance sheet is needed to compete with larger banks.

3. Returning value to shareholders
As most investors know, there are primarily two ways a company can directly control the return of shareholders. The first is by paying dividends, which Comerica does at a modest rate of $0.15 per quarter. The other way is to repurchase shares, which lowers the number of shares outstanding, therefore spreading the earnings wider among all shareholders. Comerica also did this, repurchasing 10 million shares during 2012.

Between these two actions, the bank returned 79% of net income to shareholders this year, which is pretty impressive. Combined with the 13.5% that the stock returned last year, you have some very happy Comerica shareholders in 2012. Whether or not 2013 can match this performance remains to be seen, but it definitely started off the year on the right foot.

As bank earnings continue to trickle in over the next few days, one to keep an eye out for as a bellwether of the industry is Bank of America, which reports tomorrow morning. To learn more about the most-talked-about bank out there, check out our in-depth company report on Bank of America. The report details Bank of America's prospects, including three reasons to buy and three reasons to sell. Just click here to get access.

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9/27/2016 4:02 PM
CMA $46.34 Up +0.62 +1.36%
Comerica CAPS Rating: *****