Comerica (CMA) Q3 Earnings Beat on Higher Revenues

Comerica Inc. 's CMA third-quarter 2015 results recorded a 7.2% positive earnings surprise on higher revenues. The company reported earnings per share of 74 cents, outpacing the Zacks Consensus Estimate of 69 cents. However, the reported figure compared unfavorably with the prior-year quarter earnings of 82 cents per share.

Improved top line along with higher loans and deposit balances reflects organic growth. Moreover, the quarter reflected a strong capital position. However, higher expenses and increased provision for credit losses were the downsides.

Net income came in at $136 million, down 11.7% year over year.

Furthermore, segment-wise, on a year-over-year basis, net income of the Business Bank segment decreased 8.1% in the quarter, while net income of the Retail Bank and Wealth Management increased 85.7% and 75%, respectively. However, the Finance segment reported a loss.

Quarter in Detail

Comerica's third-quarter net revenue was $686 million, up 9.1% year over year. However, it lagged the Zacks Consensus Estimate of $692 million.

Net interest income increased nearly 1.9% on a year-over-year basis to $422 million in the quarter. However, net interest margin fell 13 basis points (bps) year over year to 2.54%.

Total non-interest income came in at $264 million, up 22.8% year over year. Increased card fees mainly led to the rise.

Non-interest expenses totaled $461 million, up 16.1% on a year-over-year basis. The rise was primarily due to higher outside processing fee expense, partially offset by lower other expenses.

Notably, due to contractual changes to a card program that went effective Jan 1, 2015, the company's non-interest income and non-interest expenses reflected increase of $48 million each.

As of Sep 30, 2015, total assets and common shareholders' equity were $71 billion and $7.6 billion, respectively, compared with $68.9 billion and $7.4 billion as of Sep 30, 2014.

Total loans were up 2.5% year over year to $48.9 billion. Also, total deposits rose 2.1% from the prior-year quarter to $58.8 billion.

Credit Quality

Comerica's credit quality metrics deteriorated in the quarter. Total non-performing assets increased 6.7% year over year to $381 million. Net loan charge-offs increased significantly on a year-over-year basis to $23 million. Additionally, the allowance for loan losses to total loans ratio was 1.27% as of Sep 30, 2015, up from 1.24% as of Sep 30, 2014.

Moreover, provision for credit losses increased significantly year over year to $26 million. The increase in reserves associated with Technology and Life Sciences and energy exposure contributed to the rise. Allowance for loan losses stood at $622 million, up from $592 million in the prior-year period.

Capital Position

On Jan 1, 2015, Basel III capital rules went effective for Comerica.

As of Sep 30, 2015, the company's tangible common equity ratio was 9.91%, down 3 basis points year over year. Basel III Tier 1 risk-based capital ratio stood at 10.58%. This ratio reflects transition provisions and excludes most factors of accumulated other comprehensive income (AOCI).

Capital Deployment Update

Comerica's capital deployment initiatives exhibit its capital strength. During the reported quarter, Comerica repurchased 1.2 million shares worth $59 million under its existing equity repurchase program. This, combined with dividends, resulted in a total payout of 71% of third-quarter net income to shareholders.

Outlook for fourth-quarter and 2015

Comerica has reiterated previously provided outlook for 2015, while provided the following fourth-quarter 2015 outlook as compared with the third-quarter 2015.

The company expects relatively stable net interest income. Moreover, it expects the impact of a persistent low rate environment on asset yields to be offset by growth in earnings asset.

The company expects non-interest income to remain slightly higher. Growth in fee income, mainly card fees, investment banking revenues and fiduciary income are expected.

Non-interest expenses are expected to be moderately higher. Rise in expenses reflects seasonal rise in benefits expense, outside processing, marketing and occupancy expenses.

However, provision for credit losses is anticipated to remain low, with fourth quarter provision to remain unchanged on a sequential basis.

Comerica expects average loan growth to be stable, with expected seasonal declines in Mortgage Banker Finance. Moreover, persistent decline in Energy and increases in other lines of business is also anticipated.

Given the current low-interest rate environment, the company's outlook is modest.

Our Viewpoint

Consistent growth in revenues is encouraging. Moreover, an improving loan portfolio is expected to offset margin pressure to some extent. Further, the company's efficient capital deployment activities in the form of shares repurchase, regular payouts and dividend hikes seem impressive. Going forward, we expect synergies from Comerica's strategic acquisitions to support top-line growth.

However, net interest margin will likely continue to be under pressure owing to increasing competition and a persistent low interest rate environment. Also, regulatory issues, deteriorating credit metrics and rising expenses remain major concerns.

Currently, Comerica carries a Zacks Rank #3 (Hold).

Performance of Other Major Banks

Banking major - JPMorgan Chase & Co. JPM which kicked started the third-quarter earnings has missed the Zacks Consensus Estimate. The bank came up with adjusted earnings of $1.32 per share, delivering a negative surprise of 4.3%. The bottom line also declined 2.9% from the year-ago earnings of $1.36 per share. Weak trading activities primarily led to a decline in the overall profit for JPMorgan this time around. Revenues from trading fixed income, currencies and commodities fell 23%to $2.93 billion.

Driven by top-line growth, Wells Fargo & Company's WFC earnings of $1.05 per share in third-quarter 2015 beat the Zacks Consensus Estimate by a penny. Moreover, results were above the year-ago quarter earnings of $1.02 per share. Wells Fargo reflected organic growth aided by higher revenues along with strong loans and deposit balances. Moreover, a strong capital position and returns on assets and equity acted as the positives. However, higher non-interest expenses and provisions were a concern.

U.S. Bancorp USB reported third-quarter 2015 results wherein earnings per share of 81 cents came in line with the Zacks Consensus Estimate. Results were above the prior-year quarter earnings of 78 cents. Growth in average loans and deposits along with top-line expansion reflected organic growth. Reduction in provisions and a strong capital position were the other positives. However, increase in expenses was on the downside.

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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.

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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