Comerica (CMA) Q2 Earnings Top Estimates on Reserve Release
Comerica Incorporated CMA has delivered a second-quarter 2021 earnings surprise of 43.2%. Earnings per share of $2.32 easily surpassed the Zacks Consensus Estimate of $1.62. The bottom line compared favorably with 84 cents reported in the prior-year quarter.
The company’s results were supported by a significant fall in provisions and fee income growth. The capital position remained strong. Nevertheless, lower net interest revenues due to a reduction in loan volumes were recorded. Higher expenses and reduced loan balance were major drags.
Net income was $328 million in the quarter compared with $118 million in the prior-year quarter.
Revenues Up on Higher Fee income, Expenses Rise
Comerica’s second-quarter net revenues were $749 million, up 4.3% year over year. The top line beat the consensus estimate of $722.8 million.
Net interest income slipped 1.3% on a year-over-year basis to $465 million in the quarter on lower loan volumes, partially offset by a reduction in deposit costs. Net interest margin contracted 21 basis points (bps) to 2.29%.
Total non-interest income was $284 million, up 15% on a year-over-year basis. Higher card fees, commercial lending fees and derivatives income mainly supported the fee income.
Non-interest expenses totaled $463 million, up 6.7% year over year. The upswing resulted chiefly from higher salaries and benefits expenses, outside processing fees, and litigation-related costs.
Efficiency ratio was 61.66% compared with the prior-year quarter’s 60.11%. A rise in ratio indicates a fall in profitability.
Balance Sheet Position Improves
As of Jun 30, 2021, total assets and common shareholders' equity were $88.4 billion and $7.9 billion, respectively, compared with $86.3 billion and $8.2 billion as of Mar 31, 2021.
Total loans declined 2% on a sequential basis to $49.8 billion. Nonetheless, total deposits increased 6% from the prior quarter to $75.5 billion.
Credit Quality: A Mixed Bag
Total non-performing assets increased 13.5% year over year to $320 million.
Nonetheless, the allowance for credit losses was $683 million, down 36%. Allowance for loan losses to total loans ratio was 1.36% as of Jun 30, 2021, down from 1.99% on Jun 30, 2020. Net credit-related recoveries were $11 million against charge-offs of $50 million in the prior-year quarter.
A benefit to provision for credit losses of $135 million was recorded in the quarter against provision expenses of $138 million in the prior-year quarter.
Strong Capital Position
As of Jun 30, 2021, the company's tangible common equity ratio was 7.85%, down from 8.08% in the prior-year quarter. Common equity Tier (CET) 1 capital ratio was 10.39%, up from 9.99%. Total capital ratio was 13%, up from 12.95%.
Capital Deployment Activities
In the quarter, Comerica returned $542 million to shareholders through share repurchases and dividends. The company repurchased $450 million of common stock under its share repurchase program.
Outlook for 2H21
Comerica has provided its guidance for the second half of 2021 compared with the second quarter of 2021.
Comerica expects solid growth in average loans in nearly all businesses, offset by a decline in PPP loans due to the forgiveness process.
Average deposits are expected to remain strong.
The company expects net interest income to reflect gains from high loans and additional days, offset by the impact of lower PPP loans.
Non-interest income is likely to be supported by a rise in customer-related fees due to a rebound in economic activity, partly offset by lower card and fiduciary fees.
Non-interest expenses are estimated to inflate due to increases in seasonal expenses and technology investments, more than offset by lower litigation-related expenses and deferred compensation.
Income tax expenses for 2021 are anticipated to be 22-23% of pre-tax income, excluding discrete items. CET1 is targeted to be 10%.
Comerica's prospects look promising as its initiatives are likely to boost the performance. Also, lower provisions acted as a tailwind. Nevertheless, restricted top-line expansion, eroded by a lower margin and falling loan balance, is concerning.
Comerica Incorporated Price, Consensus and EPS Surprise
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 Banks
KeyCorp’s KEY second-quarter 2021 earnings of 72 cents per share handily surpassed the Zacks Consensus Estimate of 55 cents. The bottom line improved substantially from 16 cents earned in the prior-year quarter.
Zions Bancorporation’s ZION second-quarter 2021 net earnings per share of $2.08 surpassed the Zacks Consensus Estimate of $1.25. The bottom line marks a significant improvement from 34 cents earned in the year-ago quarter.
State Street’s STT second-quarter 2021 adjusted earnings of $1.97 per share outpaced the Zacks Consensus Estimate of $1.78. The bottom line was 4.8% higher than the prior-year level.
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