Key Factors to Note Ahead of Comerica's (CMA) Q2 Earnings
Comerica Incorporated CMA is scheduled to report second-quarter 2023 results on Jul 21, before the opening bell. The bank’s revenues are likely to have increased from the year-ago quarter’s reported figure, while earnings are likely to have declined.
Comerica’s earnings for first-quarter 2023 surpassed the Zacks Consensus Estimate. Results were primarily aided by increased net interest income (NII), supported by higher interest rates and loan growth. However, higher expenses and increased provisions were the undermining factors.
CMA has an impressive surprise history. Its earnings surpassed estimates in all of the trailing four quarters, the average beat being 4.04%.
Comerica Incorporated Price and EPS Surprise
Comerica Incorporated price-eps-surprise | Comerica Incorporated Quote
The company’s activities in the to-be-reported quarter were inadequate to instill analysts’ confidence in the stock. The Zacks Consensus Estimate for second-quarter earnings is pegged at $1.89 per share, revised 1% down in the past week. Also, the estimate indicates a 1.6% decline from the year-ago quarter’s reported figure.
The consensus estimate for revenues is pegged at $904.8 million, suggesting growth of 9.1% from the year-ago quarter’s reported number.
Key Developments During the Quarter
In mid-June, Comerica announced plans to exit the mortgage banker finance business by 2023-end. As of the first-quarter 2023-end, the company had $1.7 billion in mortgage banker finance loans. After exit, it will smoothen seasonality in its loan portfolio, enhance liquidity and improve the loan-to-deposit ratio by 150 basis points at 2023-end.
Factors at Play
NII: Lending activities slowed down in the yet-to-be-reported quarter. Per the Federal Reserve’s latest data, the demand for commercial and industrial loans, as well as commercial real estate loans, were soft in April and May, while consumer loans (specifically credit cards) witnessed decent demand. This is likely to have affected the loan balances of CMA during the second quarter.
Markedly, from the start of the year through May-end, the company’s average loans increased by $1.8 billion to $55.3 billion from first-quarter 2023-end, backed by commercial real estate loans and large corporate & national dealer services.
However, average deposits declined to $64.4 billion from the first quarter’s $67.8 billion. Moreover, interest-bearing deposits constituted a higher proportion of deposits. The unfavorable shift in the deposit mix will likely impede NII growth for CMA.
Also, continuing with its efforts to curb inflation, the Fed raised interest rates by another 25 basis points in May before pausing the hike at the June FOMC meeting. The policy rate is now at a 15-year high of 5-5.25%.
With such successive rate hikes, the positive impact of high-interest rates on the company’s NII is anticipated to have been limited. The company underlined expectations for its second-quarter NII to sequentially decline at the low end of 11-13%. The consensus mark for NII suggests a 12.7% fall from the prior quarter’s reported number to $618 million.
Fee Income: The rising rates and high inflation are expected to have increased card use and, thereby, card fees in the quarter. Comerica’s card fees are major contributors to its fee income; hence, it is likely to have aided fee income growth during second-quarter 2023. The Zacks Consensus Estimate for card fees is pegged at $71 million, indicating a 2.9% rise from the prior quarter’s reported number.
Global deal-making continued to slump on a year-over-year basis in the second quarter, though green shoots were visible toward the end of the quarter. Several factors, like geopolitical tensions, stand-off over the U.S. debt ceiling, inflation, rising interest rates and fears of a global recession, acted as major headwinds.
Thus, the deal volume and total value numbers crashed in the second quarter. Hence, overall growth in merger and acquisition advisory fees is not expected to have been that impressive in the quarter, thereby affecting capital markets income.
Management expects the average deposit balance to have declined during the quarter, indicating that customers have been utilizing balances to fund business activities during the quarter. This is likely to have affected the revenues from service charges on deposit accounts. Nonetheless, the Zacks Consensus Estimate of $46.06 million for service charges on deposit accounts indicates a marginal rise from the prior quarter’s reported number.
The consensus estimate of $287 million for overall fee income suggests a 1.8% rise from the last reported figure.Non-interest income is projected to rise by 1-2% by management.
Expenses: The company has been investing in its technology platform due to its business initiatives. It is expected to have incurred higher expenses due to rising salaries on account of inflation as well as higher revenue-related costs. Such rising costs are estimated to have weighed on its expense base to some extent in the quarter under review and hindered bottom-line growth.
Asset Quality: With expectations of a worsening macroeconomic outlook and growing recession fears, CMA is expected to have set aside more money to cover expected loan losses in the second quarter. The consensus estimate of $226 million for non-performing loans suggests a 2.3% rise from the last reported figure.
What Our Model Predicts
Our proven model does not predict an earnings beat for Comerica this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.
Earnings ESP: Comerica has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Comerica currently has a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Stocks That Warrant a Look
A couple of stocks that you may want to consider as they have the right combination of elements to post an earnings beat in their upcoming releases are First Citizens BancShares, Inc. FCNCA and Byline Bancorp, Inc. BY.
The Earnings ESP for FCNCA is +3.21% and the stock currently carries a Zacks Rank #3. It is slated to report second-quarter 2023 results on Aug 8.
The Zacks Consensus Estimate for FCNCA’s second-quarter earnings has moved 4.3% south over the past 30 days.
BY currently has an Earnings ESP of +3.59% and a Zacks Rank #3. It is scheduled to release second-quarter 2023 results on Jul 27.
The Zacks Consensus Estimate for BY’s second-quarter earnings has remained unchanged over the past 60 days.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Comerica Incorporated (CMA) : Free Stock Analysis Report
First Citizens BancShares, Inc. (FCNCA) : Free Stock Analysis Report
Byline Bancorp, Inc. (BY) : Free Stock Analysis Report
