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Comerica (CMA) Q3 Earnings Beat Estimates, Revenues Rise

Zacks Equity Research

Comerica CMA reported third-quarter 2019 earnings per share of $1.96 that surpassed the Zacks Consensus Estimate of $1.91. Also, the bottom line was up from the prior-year quarter figure of $1.86.

Higher revenues on the back of non-interest income growth, and lower expenses were recorded. Moreover, rise in deposits was another tailwind. However, lower loans and rise in provisions were undermining factors. Also, contraction of margins posed a headwind.

Net income for the quarter totaled $292 million, down 8.2% year over year.

Furthermore, segment wise, on a year-over-year basis, net income decreased 6.1% at Business Bank. However, it increased 31% both for Retail Bank and Wealth Management unit. The Finance segment incurred net loss, similar to the prior-year quarter.

Revenues Improve, Expenses Fall

Comerica’s third-quarter net revenues were $842 million, up 1.1% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $831.3 million.

Net interest income decreased 2.2% on a year-over-year basis to $586 million. In addition, net interest margin contracted 8 basis points (bps) to 3.52%.

Total non-interest income came in at $256 million, up 9.4% on a year-over-year basis. Higher card fees and commercial lending fees were mostly offset by decrease in mainly service charges on deposit accounts and other non-interest income.

Further, non-interest expenses totaled $435 million, down 3.8%. The decline resulted from lower salaries and benefits expense, restructuring expenses, software expense and FDIC insurance expenses.

Efficiency ratio was 51.54% compared with 52.93% in the prior-year quarter. A fall in ratio indicates a rise in profitability.

Solid Balance Sheet

As of Sep 30, 2019, total assets and common shareholders' equity were $72.8 billion and $7.2 billion, respectively, compared with $72.5 billion and $7.3 billion as of Jun 30, 2019.

Total loans were down slightly on a sequential basis to $51.5 billion. However, total deposits increased 2.3% from the prior quarter to $56.8 billion.

Credit Quality: A Mixed Bag

Total non-performing assets fell 4.6% year over year to $229 million. Also, allowance for credit losses was $681 million, down 2.3%. Additionally, allowance for loan losses to total loans ratio was 1.27% as of Sep 30, 2019, down from 1.35% as of Sep 30, 2018.

However, net loan charge-offs came in at $42 million, up significantly from the year-ago quarter. In addition, provision for credit losses was $35 million against nil provisions in the prior-year quarter.

Strong Capital Position

As of Sep 30, 2019, the company's tangible common equity ratio was 9.09% compared with 10.09% in prior-year quarter. Common equity Tier 1 capital ratio was 9.92%, down from 11.68%. Total risk-based capital ratio was 11.91%, down from 13.76%.

Capital Deployment Update

Comerica’s capital deployment initiatives highlight its capital strength. During the third quarter, the company repurchased 5.7 million shares for a total cost of $370 million under its existing equity repurchase program. This, combined with dividends, resulted in a total payout of $467 million to shareholders.

Impressive Outlook for 2019

Comerica has guided for full-year 2019, taking into consideration the current economic and rate environment.

It expects average loans to be up 4%. However, deposits are likely to decline 1-2%.

The company anticipates net interest income to remain stable or decline 1%. The expectation includes a decline of 25 basis points (bps) in the federal funds rates in December 2019.

Non-interest income is estimated to be more than 2%.

Non-interest expenses are predicted to remain stable, excluding restructuring charges of $53 million incurred in 2018.

Provision for credit losses is likely to be 15-20 bps of total loans.

Our Viewpoint

Consistent loan growth and strong fee income base is likely to drive Comerica’s revenues to some extent. Also, prudent expense management will aid bottom-line expansion. Its robust capital position supports steady capital deployment activities through share repurchases and dividend hikes, which seem impressive.

However, higher provisions remain a concern. Also, contraction of margin on account of lower interest rates might continue to impede interest income growth.

Comerica Incorporated Price, Consensus and EPS Surprise

Comerica Incorporated Price, Consensus and EPS Surprise

Comerica Incorporated price-consensus-eps-surprise-chart | Comerica Incorporated Quote

Currently, Comerica carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Citigroup C delivered a positive earnings surprise of 1% in third-quarter 2019, backed by improved investment banking performance. Adjusted earnings per share of $1.98 outpaced the Zacks Consensus Estimate of $1.96. Also, bottom line climbed 20% year over year.

First Republic Bank’s FRC third-quarter 2019 earnings per share of $1.31 surpassed the Zacks Consensus Estimate of $1.21. Also, the bottom line jumped 10.1% from the year-ago quarter.

Wells Fargo’s WFC third-quarter 2019 earnings of 92 cents per share lagged the Zacks Consensus Estimate of $1.15 on lower net interest income. The figure also comes in lower than the prior-year quarter earnings of $1.13 per share.

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