Comerica's (CMA) Q3 Earnings and Revenues Beat Estimates

Riding on higher revenues, Comerica Incorporated CMA reported a positive earnings surprise of 5.8% in third-quarter 2017. Adjusted earnings per share of $1.27 surpassed the Zacks Consensus Estimate of $1.20. The figure excludes restructuring charges and tax benefit from employee stock transactions.

Results reflected increase in revenues supported by easing margin pressure and higher fee income. Also, the company was successful in reducing expenses on the back of its GEAR Up initiative. Strong capital position was another positive. However, higher provisions and a fall in loans balance remained major headwinds.

Net income attributable to common shares came in at $224 million, up 51.4% year over year.

Segment wise, on a year-over-year basis, net income increased 20% at Retail Bank while it remained almost stable at Wealth Management and Business Bank segment. However, the Finance segment recorded a net loss of $6 million compared with net loss of $58 million in the prior-year quarter.

Revenues Improve, Expenses Decline

Comerica’s revenues for the quarter was $821 million, up 13.7% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $812.8 million. The increase in revenues was supported by expanded net interest margin and higher fee income.

Net interest income increased 21.3% on a year-over-year basis to $546 million. Moreover, net interest margin expanded 63 basis points (bps) to 3.29%.

Total non-interest income came in at $275 million, up 1.1% year over year. Increased card fees, fiduciary income and service charges on deposit accounts primarily led to the rise.

Further, non-interest expenses totaled $463 million, down 6.1% year over year. The fall was chiefly due to lower salaries and restructuring charges, partly offset by increased processing fees and software expenses.

Loans Decline, Deposits Increase

As of Jun 30, 2017, total assets and common shareholders' equity were $72 billion and $8 billion, respectively, compared with $71.4 billion and $7.9 billion as of Jun 30, 2017.

Total loans were down slightly on a sequential basis, to $49.2 billion. However, total deposits increased 1.8% from the previous quarter to $57.8 billion.

Credit Quality: A Mixed Bag

Total non-performing assets decreased 30.6% year over year to $458 million. Also, allowance for loan losses was $712 million, down 2.1% from the prior-year period. Additionally, allowance for loan losses to total loans ratio was 1.45% as of Sep 30, 2017, down 3 bps year over year.

However, net loan charge-offs increased 56.3% on a year-over-year basis to $25 million. In addition, provision for credit losses rose 50% year over year to $24 million.

Capital Position Strengthens

The company's tangible common equity ratio improved 71 bps year over year to 10.35% as of Sep 30, 2017. Further, common equity Tier 1 and tier 1 risk-based capital ratio was 11.51%, up from 10.69% in the prior-year quarter. Total risk-based capital ratio was 13.65%, up 81 bps from the prior-year quarter.

Capital Deployment Update

Notably, during the reported quarter, Comerica repurchased 2 million shares under its existing equity repurchase program. This, combined with dividends, resulted in a total payout of $192 million to shareholders.

Impressive Outlook for Fourth-Quarter 2017

Comerica provided guidance for fourth-quarter 2017 assuming continuation of the current economic environment and low rates, along with contributions from the GEAR Up initiative.

The company anticipates net interest income to benefit from loan growth, partially offset by lower nonaccrual interest recoveries.

Non-interest income is expected benefit from GEAR Up opportunities, which shall drive modest growth in treasury management, card fees and fiduciary income, offset by lower noncustomer-driven income such as bank-owned life insurance.

Non-interest expenses are predicted to be affected by restructuring expenses of about $15 million and those related to revenue growth such as outside processing expenses and advertising.

Provision for credit losses is expected to reflect continued solid performance in overall portfolio. Notably, net charge-offs are expected to remain low while provisions are expected to be in the range of 20-25 bps.

Income tax expenses are anticipated to be approximately 33% of pre-tax income on the assumption of no tax impact from employee stock transactions.

Comerica expects average loan growth to be 1%. Management expects loan growth to be 3%, reflecting a seasonal increase in National Dealer Services and increases in general Middle Market, Corporate Banking and Technology and Life Sciences, partially offset by a seasonal decrease in Mortgage Banker Finance.

Our Viewpoint

Comerica reported another strong quarter. The company remains well poised to benefit from its ongoing strategic initiatives. Additionally, its strong capital position continues to lend support. Further, the top-line continues to benefit easing pressure on margins.  

Comerica Incorporated Price and EPS Surprise

Comerica Incorporated Price and EPS Surprise | Comerica Incorporated Quote

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

Citigroup Inc. C delivered a positive earnings surprise of 7.6% in third-quarter 2017 on prudent expense management. Earnings per share of $1.42 for the quarter easily outpaced the Zacks Consensus Estimate of $1.32. Also, earnings compared favorably with the year-ago figure of $1.24 per share. Notably, results included after-tax gain related to the sale of a fixed income analytics business.

Wells Fargo & Company’s WFC third-quarter 2017 adjusted earnings of $1.04 per share were in line with the Zacks Consensus Estimate. Including previously disclosed mortgage-related discrete litigation accrual of 20 cents per share, earnings came in at 84 cents per share, comparing unfavorably with the prior-year quarter’s earnings of $1.03 per share.

JPMorgan Chase & Co. JPM reported third-quarter 2017 earnings of $1.76 per share, which easily surpassed the Zacks Consensus Estimate of $1.67. Also, the figure reflects a 11% rise from the year-ago period. Notably, the results included a legal benefit of $107 million.

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