What happened
Comerica's (CMA -0.98%) stock price plummeted on Tuesday, down about 7.5% as of 11:10 a.m. ET. The stock was trading at about $36 per share at that time, down roughly 46% year to date.
The market was mixed on Tuesday, with the S&P 500 up six points (0.2%), the Dow Jones Industrial Average down 137 points (-0.4%), and the Nasdaq Composite gaining 90 points (0.7%) as of 11:10 a.m. ET.
So what
The market has not been kind to Comerica this year, as the bank, like most regional banks, has been hurt by the banking crisis.
But the drop on Tuesday appeared to be specifically related to a report by industry publication American Banker that the bank violated compliance requirements for the U.S. Treasury's Direct Express program. The Direct Express program provides federal benefits on prepaid cards to millions of Americans who do not have bank accounts and are considered "unbanked."
According to the report, Comerica allowed fraud disputes as well as Direct Express cardholders' personal data to be handled by a third-party vendor with an office in Lahore, Pakistan. The bank, per its agreement with the Treasury Department, is required to perform all services for this program in the U.S.
The article said Comerica executives acknowledged the compliance failures, according to internal documents.
Now what
This issue aside, Comerica actually performed fairly well in the first quarter, better than many of its peers. It had robust loan growth and a 55% increase in net interest income year over year. Overall, net income jumped to $324 million, up from $189 million in the first quarter of 2022. Deposits were down about 5% from the fourth quarter to $67.8 billion, mostly concentrated in technology and life sciences, and corporate banking -- with uninsured deposits down $10.5 billion.
Credit quality remained strong, with Comerica's tier 1 capital ratio rising from 10.5% in Q4 to 10.6% after the first quarter and its provision for credit losses down to $30 million from $33 million in the previous quarter. Nonperforming loans were also down from the fourth quarter and a year ago.
Comerica is cheap, trading at a very low value, with a price-to-earnings ratio of just 4.8. It's generally a solid bank, but there are concerns for regional banks tied to the economy, regulations, and for Comerica in particular, this issue with the Treasury program. This is probably one to put on a hold or watch list.