Comerica Incorporated 's CMA fourth-quarter 2015 results recorded a 3% positive earnings surprise on higher revenues. The company reported earnings per share of 71 cents, outpacing the Zacks Consensus Estimate of 69 cents. However, the reported figure compared unfavorably with the prior-year quarter earnings of 80 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 $130 million, down 13% year over year.
Furthermore, segment-wise, on a year-over-year basis, net income of the Business Bank and Wealth Management segments decreased 8% and 5%, respectively, in the quarter, while net income of the Retail Bank increased 28%. However, the Finance segment reported a loss.
For full-year 2015, net income attributable to common shares was $529 million or $2.92 per share compared with $586 million or $3.16 per share in 2014. Earnings per share outpaced the Zacks Consensus Estimate by 3 cents.
Performance in Detail
For full-year 2015, the company reported net revenues of $2.7 billion, up 8% year over year. However, it came in line with the Zacks Consensus Estimate.
Comerica's fourth-quarter net revenue was $703 million, up 10% year over year. Moreover, it outpaced the Zacks Consensus Estimate of $693 million.
Net interest income increased nearly 5% on a year-over-year basis to $433 million in the quarter. Moreover, net interest margin inched up1 basis point year over year to 2.58%.
Total non-interest income came in at $270 million, up 20% year over year. Increased card fees mainly led to the rise.
Non-interest expenses totaled $489 million, up 17% on a year-over-year basis. The rise was primarily due to higher outside processing fee expense and salaries and benefits 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 $45 million each.
As of Dec 31, 2015, total assets and common shareholders' equity were $71.9 billion and $7.6 billion, respectively, compared with $69.3 billion and $7.5 billion as of Dec 31, 2014.
Total loans were up 3% year over year to $48.5 billion. Also, total deposits rose 4% from the prior-year quarter to $59.7 billion.
Comerica's credit quality metrics deteriorated in the quarter. Total non-performing assets increased 31% year over year to $391 million. Net loan charge-offs increased significantly on a year-over-year basis to $26 million. Additionally, the allowance for loan losses to total loans ratio was 1.29% as of Dec 31, 2015, up from 1.22% as of Dec 31, 2014.
Moreover, provision for credit losses increased significantly year over year to $35 million. The increase in reserves associated with energy exposure contributed to the rise. Allowance for loan losses stood at $634 million, up from $594 million in the prior-year period.
As of Dec 31, 2015, the company's tangible common equity ratio was 9.72%, down 13 basis points year over year. Basel III Tier 1 risk-based capital ratio stood at 10.53%. 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 year 2015, Comerica repurchased 5.1 million shares and 500,000 warrants under the existing share repurchase program. This, combined with dividends, resulted in a total payout of 73% of net income to shareholders in the year.
Notably, during the reported quarter, Comerica repurchased 1.5 million shares worth $65 million under its existing equity repurchase program. This, combined with dividends, resulted in a total payout of 79% of fourth-quarter net income to shareholders.
Outlook for 2016
Comerica has provided outlook for 2016, with the assumption of persistent current economic and low-rate environment.
The company expects higher net interest income based on the short-term rate increase in Dec 2015, loan growth and a bigger securities portfolio, partially offset by higher funding costs.
The company expects non-interest income to be slightly higher. Growth in fee income, mainly card fees is expected. Moreover, cross-sell opportunities, including wealth management products such as fiduciary and brokerage services are anticipated to benefit.
Non-interest expenses are expected to be moderately higher. Rise in expenses reflects high technology costs and regulatory expenses, outside processing expenses, FDIC insurance expense due to recent regulatory proposal and high costs on inflationary pressures.
Provision for credit losses are expected to be higher. Net charge-offs are expected to escalate but likely to remain below historical normalized levels.
Comerica expects average loan growth to be slightly higher, in line with Gross Domestic Product growth. The outlook reflects persistent decrease in Energy business, mostly offset by improvement in other lines of business.
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, 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 kick started the fourth-quarter 2015 earnings season for the sector, earned $1.32 per share, beating the Zacks Consensus Estimate of $1.26, which was pretty conservative after a number of downward revisions lately. The figure shows a 10.9% improvement over the year-ago period, which had seen lower-than-usual earnings of $1.19 per share.
Driven by effective cost control, Wells Fargo & Company's WFC fourth-quarter 2015 earnings recorded a positive surprise of about 1%. Earnings of $1.03 per share beat the Zacks Consensus Estimate as well as the prior-year quarter's earnings by a penny.
U.S. Bancorp USB reported fourth-quarter 2015 earnings per share of 79 cents, in line with the Zacks Consensus Estimate as well as the prior-year quarter earnings. Including a gain on the sale of a deposit portfolio, which was partially offset by legal accruals, earnings per share were 80 cents.
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