(Corrects paragraph 7 to say Comerica sees a potential reduction in the $38 million annual debit interchange fees, not a potential reduction of $38 million)
* Q2 EPS $0.39 vs est $0.23
* Bad loan provisions drop 60 pct
* Sees subdued loan growth in H2‘10 (Recasts; adds conference call details, updates stock movement)
By Abhinav Sharma
BANGALORE, July 21 (Reuters) - Comerica Inc (CMA.N), a large U.S. regional bank, posted a quarterly profit that beat Wall Street estimates as improved credit quality led to significantly lower provision for bad loans, but expects subdued loan growth for remainder of 2010.
“We expect that commercial & industrial borrowings will grow as working capital needs increase, and will be partially offset by declining commercial real estate outstandings,” CFO Elizabeth Acton said on a post-earnings call.
For fiscal 2010, the company expects net interest margin to be between 3.20 percent and 3.30 percent, reflecting improved loan pricing and lower funding costs.
“It will benefit from improving credit quality and is well positioned for solid NIM expansion given its asset sensitivity, both of which will drive solid core earnings growth,” Morgan Stanley’s Ken Zerbe, who rates the stock “overweight”, said.
Comerica has strong capital base to support future growth organically, as well as through acquisitions, Chief Executive Ralph Babb said in a statement.
“It is our sense that industry merger and acquisition activity will pick up much sooner than many may expect. We are focused on opportunities in the urban market of Texas and California,” the CEO added on conference call.
The company also said it sees potential reduction in the $38 million annual debit interchange fees, due to the new regulation on interchange fees.
The rule applies to banks with more than $10 billion in assets. It allows regulators to set the maximum on debit interchange fees and permits merchants to offer discounts for different types of payments. [ID:nSGE65F0IJ]
Second-quarter net income attributable to common shares was $69 million, or 39 cents a share, compared with a loss of $16 million, or 11 cents a share, last year.
Analysts expected the company to earn 23 cents a share, according to Thomson Reuters I/B/E/S.
Provisions for bad loans shrunk to $126 million, a drop of 60 percent from $312 million last year.
“Pre-provision expense improved sequentially, credit quality showed incremental improvement, Comerica generated positive operating leverage, and capital levels are strong,” Robert Baird analyst David George, who has a price target of $42 on the stock, said in a note.
Net interest margin, the difference between the interest a bank earns on its assets and interest it pays out on deposits, rose 10 basis points sequentially to 3.28 percent.
Shares of the Dallas-based company were up a percent at $37.19 in morning trade Wednesday on the New York Stock Exchange. (Reporting by Abhinav Sharma in Bangalore; Editing by Anne Pallivathuckal, Prem Udayabhanu)