Loans to Aid Comerica (CMA) Q2 Earnings, Fee Income to Hurt
Comerica Incorporated CMA is scheduled to report second-quarter 2022 results before the opening bell on Jul 20. Although the bank’s earnings are likely to have declined from the year-ago reported figure, its revenues are likely to have increased.
Comerica’s earnings missed the Zacks Consensus Estimate in the prior quarter. Results were affected by a decline in revenues due to lower fee income. Higher expenses and a decline in the deposit balance were other negatives.
CMA has a decent surprise history. Its earnings surpassed estimates in three of the trailing four quarters and missed in the other, the average beat being 14.7%.
Comerica Incorporated Price and EPS Surprise
Comerica Incorporated price-eps-surprise | Comerica Incorporated Quote
CMA’s activities in the to-be-reported quarter were adequate to instill analysts’ confidence in the stock. Evidently, the Zacks Consensus Estimate of $1.76 for second-quarter earnings has been revised 2.3% upward in the past 30 days. However, the figure indicates a 24.1% fall from the year-ago quarter’s reported figure. The consensus estimate for revenues is pegged at $803.2 million, suggesting growth of 7.2% from the year-ago reported figure.
Factors at Play
Net Interest Income (NII): In the second quarter, lending activity improved sequentially. This is likely to have been a tailwind for CMA, which is primarily focused on the lending business. Per the Fed’s latest data, there was considerable strength in commercial lending in April and May, backed by commercial and industrial loans, and commercial real estate loans. Residential real estate loans and consumer loans also improved. This is likely to have aided the company’s second-quarter performance as the majority of its loan portfolio comprises commercial and commercial mortgage loans.
In June 2022, CMA provided an update at a conference, stating that total loans stood at $49.7 billion, as of May end, increasing from first-quarter 2022 reported figure of $48.3 billion. The company also has strong loan pipelines.
Decent lending aside, higher interest rates too are expected to have supported CMA’s NII. In the second quarter, the Fed hiked interest rates by 50 basis points (bps) in May and another 75 bps in June. With this, the level of the policy rate reached 1.5-1.75%, the highest since just before the March 2020 pandemic. This is likely to have had a favorable impact on CMA’s net interest margin (NIM) and NII.
The Zacks Consensus Estimate of $82.6 billion for the quarterly average interest-earning assets indicates a 1.3% increase from the year-ago period’s reported figure, while the consensus mark for NII suggests a 14.6% increase from the prior-year reported number to $533 million. Management expects NII (including PPP) to increase around 20% sequentially.
Fee Income: Rising inflation and uncertainty over economic growth going forward mainly due to the ongoing geopolitical concerns are likely to have hurt consumer sentiments. This has likely had a negative impact on Comerica’s card fees (a major contributor to fee income). The Zacks Consensus Estimate of $70 million for card fees calls for a 16.7% fall from the prior-year reported number.
The consensus estimate of $25.7 million for commercial lending fees suggests a 4.6% decline from the year-ago reported figure.
Deposit growth slowed in the quarter likely due to a decrease in government aids and customers using balances to fund business activity. These are likely to have affected revenues from service charges on deposits. Nonetheless, the Zacks Consensus Estimate for service charges on deposit is pegged at $48.5 million, indicating a rise from the year-ago reported figure of $47 million.
The consensus estimate of $226 million for overall fee income suggests a 20.4% decline from the year-ago reported figure.
Expenses: The company continues to invest in its technology platform, owing to its business initiatives. It is expected to have incurred higher expenses due to rising salaries on account of inflation. Such rising costs are expected to have weighed on its expense base to some extent in the quarter under review and hinder bottom-line growth.
Asset Quality: CMA was releasing reserves last year that it had built to cover losses from the effects of the coronavirus pandemic. However, with the rise in loan balance and expectations of economic slowdown due to geopolitical and inflation concerns, the company is anticipated to have built reserves in the second quarter.
The consensus estimates for non-performing assets in the to-be-reported quarter are pegged at $273 million, indicating a 14.7% decline sequentially.
Now, let’s have a look at what our quantitative model predicts:
The chances of Comerica’s earnings beating the Zacks Consensus Estimate in the second quarter are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — that are required for increasing the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: Comerica has an Earnings ESP of -0.38%.
Zacks Rank: Comerica currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Bank Stocks to Consider
Here are a couple of bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
M&T Bank MTB is scheduled to release second-quarter 2022 earnings on Jul 20. The company, which carries a Zacks Rank #2 (Buy) at present, has an Earnings ESP of +1.82%.
MTB’s quarterly earnings estimates have been unchanged over the past month.
The Earnings ESP for Truist Financial TFC is +1.38% and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2022 results on Jul 19.
Over the past 30 days, the Zacks Consensus Estimate for TFC’s quarterly earnings has been unchanged.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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Comerica Incorporated (CMA) : Free Stock Analysis Report
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