Comerica (CMA) Q1 Earnings Beat Estimates, Revenues Up Y/Y

Comerica CMA has reported positive earnings surprise of 7.2% in first-quarter 2019 on high interest income. Adjusted earnings per share of $2.08 in the first quarter surpassed the Zacks Consensus Estimate of $1.94. Further, earnings were up from the prior-year quarter adjusted figure of $1.54. Including certain non-recurring items, earnings came in at $2.11.

Higher revenues, rise in interest as well as non-interest income, and improved credit metrics were recorded. Moreover, rise in loans was another tailwind. However, lower deposits and rise in expenses were undermining factors.

Adjusted net income came in at $334 million, up 23.2% year over year. This figure excludes securities repositioning charge of $6 million and other non-recurring items.

Furthermore, segment wise, on a year-over-year basis, net income increased 25.7% at Business Bank, more than doubled at Retail Bank and 3.1% at Wealth Management. The Finance segment reported net loss as against the income recorded in the prior-year quarter.

Revenues Up, Expenses Escalate

Comerica’s first-quarter net revenues were $852 million, up 7.4% year over year.
However, the figure lagged the Zacks Consensus Estimate of $853.1 million.

Net interest income increased 11% on a year-over-year basis to $606 million. In addition, net interest margin expanded 38 basis points (bps) to 3.79%.

Total adjusted non-interest income came in at $246 million, slightly up on a year-over-year basis. Higher card fees and other non-interest income were mostly offset by decrease in mainly fiduciary income and service charges on deposit accounts.

Further, adjusted non-interest expenses totaled $433 million, slightly up year over year. The upswing resulted from higher salaries and benefits expense, outside processing fee expense and other non-interest expenses.

Adjusted efficiency ratio was 50.81% compared with 54.32% in the prior-year quarter. A fall in ratio indicates a rise in profitability.

Solid Balance Sheet

As of Mar 31, 2019, total assets and common shareholders' equity were $70.7 billion and $7.4 billion, respectively, compared with $72.3 billion and $8 billion as of Mar 31, 2018.

Total loans were up marginally on a sequential basis to $50.3 billion. However, total deposits decreased 2.7% from the prior quarter to $54.1 billion.

Credit Quality Improved

Total non-performing assets plunged 41.3% year over year to $199 million. Also, allowance for loan losses was $677million, down 8.3% from the prior-year period. Additionally, the allowance for loan losses to total loans ratio was 1.29% as of Mar 31, 2019, down from 1.42% as of Mar 31, 2018.

Furthermore, net loan charge-offs slumped 60.7% on a year-over-year basis to $11 million. In addition, provision for credit losses was a benefit of $13 million compared with provision of $12 million in the prior-year quarter.

Strong Capital Position

As of Mar 31, 2019, the company's tangible common equity ratio was 9.66%, down 60 bps year over year. Common equity Tier 1 capital ratio was 10.48%, down from 11.06% reported in the year-ago quarter. Total risk-based capital ratio was 12.80%, down from 14.12% in the prior-year quarter.

Capital Deployment Update

Comerica’s capital-deployment initiatives highlight the company’s capital strength. During the Jan-Mar quarter, Comerica repurchased 5.1 million shares for a total cost of $425 million under its existing equity repurchase program. This, combined with dividends, resulted in a total payout of $530 million to shareholders.

Impressive Outlook for 2019

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

Comerica expects average loans to be up 2-4%. The outlook reflects growth across most lines of business. However, deposits are likely to decline 1-2% due to lower non-interest bearing deposits.

The company anticipates 3-4% higher net interest income, including the benefit of short-term rate increase and growth in average loans. Notably, higher wholesale funding, as well as lower interest recoveries and change in deposit mix might partially offset the benefit.

Non-interest income is estimated to be 1-2% higher, resulting from growth in fiduciary income and card fees, partly mitigated by reduced derivative income and service charges on deposit accounts.

Non-interest expenses are predicted to be down 3%, indicating the end of restructuring charges from the GEAR Up initiatives, reduction in FDIC insurance expenses by $16 million from the discontinuance of the surcharge, lower compensation and pension expense. These are expected to be partly muted by elevated outside processing expenses, in line with improving revenues, technology costs and typical inflationary pressures.

Provision for credit losses is likely to be 10-15 bps and net charge-offs are anticipated to be low, with persistent solid credit quality.

Income tax expenses are expected to approximate 23% of pre-tax income, excluding further tax impact from employee-stock transactions.

Common equity Tier 1 capital ratio is targeted at 9.5-10% through continued return of excess capital.

Our Viewpoint

Consistent expansion of the company’s margin will likely keep driving revenues to some extent. Further, Comerica will benefit from its ongoing strategic initiatives. Its robust capital position supports steady capital-deployment activities through share repurchases and dividend hikes, which seem impressive. However, decline in deposits and rise in expenses remain concerns.

Comerica Incorporated Price, Consensus and EPS Surprise

Comerica Incorporated Price, Consensus and EPS Surprise | Comerica Incorporated Quote

Currently, Comerica carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Wall Street Biggies

Driven by prudent expense management, Wells Fargo WFC recorded a positive earnings surprise of 11.1% in first-quarter 2019. Earnings of $1.20 per share surpassed the Zacks Consensus Estimate of $1.08. Results also came in above the prior-year quarter adjusted earnings of $1.12. Higher net interest income and fall in expenses aided the company’s performance. However, reduced fee income was an undermining factor. Moreover, provisions soared. Further, reduction in loans and deposits acted as headwinds.

PNC Financial PNC reported positive earnings surprise of 0.8% in first-quarter 2019. Earnings per share of $2.61 surpassed the Zacks Consensus Estimate of $2.59. Further, the bottom line reflected a 7.4% jump from the prior-year quarter. Higher revenues, driven by easing margin pressure and escalating fee income, aided the results. However, rise in costs and provisions were headwinds.

Higher rates and improved investment banking performance drove JPMorgan’s JPM first-quarter 2019 earnings of $2.65 per share, which outpaced the Zacks Consensus Estimate of $2.32. Also, the figure was up 12% from the prior-year quarter. Investment banking fees recorded 9% growth with 12% rise in advisory fees and 21% increase in debt underwriting income, partially offset by 23% decline in equity underwriting fees. Decent loan growth (driven largely by rise in wholesale and credit card loans) and higher interest rates supported net interest income.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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