Comerica (CMA) Reports Decline in Average Loans & Deposits
Comerica Incorporated CMA provided an update on its fourth-quarter guidance at a recent investor conference.
From the start of the quarter through Nov 30, average loans aggregated $53 billion, down from $54 billion as of the third-quarter end. This decline was primarily attributed to mortgage banker, equity funds services, corporate banking and middle market, while increases in commercial real estate and national dealer services offset the declines to some extent.
Due to increased selectivity, CMA expects lower average loan balances than the prior fourth-quarter guidance of a sequential decline of 1%.
Similarly, from the start of the quarter through Nov 30, average deposits aggregated $65.8 billion, down from $65.9 billion as of the third-quarter end. The company saw a $1-billion increase in interest-bearing deposits, while non-interest-bearing deposits decreased by the same amount. Also, an increase in middle-market lending, retail and TLS was offset by a decline in brokered CDs and mortgage banker finance.
Relative to the third quarter, the average deposit balance is anticipated to be in the higher end of flat to down 1%.
Nonetheless, the company has reiterated its net interest income (NII) projections and expects the same to decline 5-6% sequentially.
We remain optimistic about Comerica’s income-generation capability, given its loan growth. The metric witnessed a five-year compound annual growth rate (CAGR) of 0.9% (ended 2022), with the momentum continuing in the first nine months of 2023. Given the decent loan pipeline, a similar trend is expected to continue in the near term. Management expects average loans to grow 7% in 2023.
Improvement in Comerica’s NII over the years has supported top-line growth. The metric witnessed a three-year CAGR of 13.6% (ended 2022), with the rising trend persisting in the first nine months of 2023. With expectations of the Federal Reserve keeping interest rates high in the near term, NII and net interest margin are expected to continue witnessing growth, while a rise in funding costs will weigh on both. NII is anticipated to increase 1-2%, reflecting the impacts of loan growth, partially offset by the impacts of higher funding costs.
The bank expects $109 million in FDIC special assessment in fourth-quarter 2023. With this, non-interest expenses are forecast to rise 3%. Also, management expects expenses to rise 11% in 2023. Such rising costs are likely to hinder bottom-line growth in the upcoming quarters.
Shares of this Zacks Rank #3 (Hold) bank have gained 1.9% in the past three months compared with the industry’s growth of 9.4%.
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