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Comerica (CMA) Tops Q4 Earnings Estimates, Expenses Drop
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Comerica Inc. (CMA - Free Report) delivered a positive earnings surprise of 4.2% in fourth-quarter 2016. Adjusted earnings per share of 99 cents came ahead of the Zacks Consensus Estimate of 95 cents. The adjusted figure excludes a restructuring charge of 7 cents per share. Also, earnings increased 43.8% year over year.
Better-than-expected results reflect higher revenues and lower expenses. Moreover, fall in provisions was another tailwind. However, lower deposits and rise in non-performing assets remain concerns.
Shares of Comerica edged down around 1% in the pre-market session, indicating that investors have been bearish on the results. The price reaction during the full trading session will give a fair idea about the extent of disappointment among investors.
Net income came in at $164 million, up 41.4% year over year. This figure includes a restructuring charge of $20 million.
Furthermore, segment wise, on a year-over-year basis, net income increased 3.5% at Business Bank and9.5% at Wealth Management. On the other hand, Retail Bank and Finance segments recorded net loss in the quarter.
For full-year 2016, net income was $477 million or $2.68 per share compared with $515 million or $2.84 per share in 2015. Earnings per share lagged the Zacks Consensus Estimate of $2.98. Notably, 2016 results include a restructuring charge of $59 million or 34 cents per share.
Revenue Up, Expenses Down
For full-year 2016, the company reported net revenue of $2.8 billion, up 3.7% year over year. However, it lagged the Zacks Consensus Estimate of $2.9 billion.
Comerica’s fourth-quarter net revenue was $722 million, up 3.3% year over year. However, the figure lagged the Zacks Consensus Estimate of $729 million.
Net interest income increased 5.1% on a year-over-year basis to $455 million. Moreover, net interest margin expanded 7 basis points (bps) to 2.65%.
Total non-interest income came in at $267 million, slightly up on a year-over-year basis. Increased card fees and other non-interest income primarily led to the rise, partially countered by lower commercial lending fees.
Further, non-interest expenses totaled $461 million, down 4.4% year over year. The fall was chiefly due to lower salaries and benefits expense and other non-interest expenses, partly mitigated by higher restructuring charges.
Notably, Growth in Efficiency and Revenue (GEAR Up) Initiative Implementation continues with over $25 million of expense savings in 2016.
Solid Balance Sheet
As of Dec 31, 2016, total assets and common shareholders' equity were $73.0 billion and $7.8 billion, respectively, compared with $71.9 billion and $7.6 billion as of Dec 31, 2015.
Total loans were slightly up, on a year-over-year basis, to $49.1 billion. However, total deposits decreased 1.5% from the prior-year quarter to $59 billion.
Credit Quality a Mixed Bag
Total non-performing assets surged 55.2% year over year to $607 million. Also, allowance for loan losses was $730 million, up 15.1% from the prior-year period. Additionally, the allowance for loan losses to total loans ratio was 1.49% as of Dec 31, 2016, up from 1.29% as of Dec 31, 2015.
However, net loan charge-offs plunged 29.4% on a year-over-year basis to $36 million. In addition, provision for credit losses plummeted 41.7% year over year to $35 million.
Strong Capital Position
As of Dec 31, 2016, the company's tangible common equity ratio was 9.89%, down 19 bps year over year. Common equity Tier 1 capital ratio was 11.07%, up from 10.54% in the year-ago quarter. Total risk-based capital ratio was 13.24%, up from 12.69% in the prior-year quarter.
Capital Deployment Update
Comerica’s capital deployment initiatives highlight the company’s capital strength. During 2016, Comerica repurchased 6.6 million shares under the existing share repurchase program. This, combined with dividends, resulted in a total payout of $458 million to shareholders in the year.
Notably, during the reported quarter, Comerica repurchased 1.8 million shares under its existing equity repurchase program. This, combined with dividends, resulted in a total payout of $139 million to shareholders.
Impressive Outlook for 2017
Comerica guided for 2017, taking into consideration the current economic environment and the persistent low rates, along with the GEAR Up initiative, resulting in $30 million in revenue and $125 million in expense savings.
The company anticipates higher net interest income, including the benefit of short-term rate increase and loan growth in Dec 2016, partially mitigated by rise in funding costs and slight loan yield compression. Notably, the recent rise in short-term rates is likely to be over $70 million, assuming a 25% deposit beta.
Non-interest income is estimated to be higher, reflecting an increase of 4–6%. The rise is expected on the GEAR Up opportunities, slight growth in treasury management and card fees, along with wealth management products, including fiduciary and brokerage services.
Non-interest expenses are predicted to be lower, excluding an estimated $25–$50 million restructuring expense. Notably, additional $125 million in GEAR Up savings is expected. Including restructuring charges, expenses are projected to decrease 4–5%.
Provision for credit losses is likely to remain low, with steady performance in overall portfolio. Notably, provision and net charge-offs are expected to be in line with historical normalized levels of 30–40 basis points.
Income tax expense is anticipated to approximate 33% of pre-tax income.
Comerica expects average loan growth to be higher, in line with Gross Domestic Product growth. The outlook reflects rise in most lines of business and a sustained decline in energy portfolio.
Our Viewpoint
The consistent improvement in the loan portfolio is projected to offset the pressure on revenues to some extent. Further, the company should benefit from its ongoing strategic initiatives. Additionally, its robust capital position supports steady capital deployment activities through share repurchases and dividend hikes which seem impressive. Though regulatory issues and unstable credit metrics remain major concerns, fall in expenses depict prudent expense management.
Comerica Incorporated Price, Consensus and EPS Surprise
Meanwhile, Bank of America Corporation (BAC - Free Report) reported fourth-quarter 2016 earnings. Rise in trading revenue as well as mortgage banking fees led to earnings of 40 cents per share, which surpassed the Zacks Consensus Estimate of 38 cents. Further, the figure was 48% higher than the year-ago quarter number.
Impressive growth in fixed income trading revenues, rebound in equity trading and significant rise in mortgage banking income supported revenues. However, as anticipated, investment banking fees declined due to lower advisory fees and equity underwriting fees. In addition, provision for credit losses recorded a fall as energy sector concerns seem to be over. Further, absence of legal costs and efficient expense management were sufficient in aidingthe bottom line.
Driven by interest income, Wells Fargo & Company’s (WFC - Free Report) fourth-quarter 2016 earnings recorded a positive surprise of about 3%. Adjusted earnings of $1.03 per share outpaced the Zacks Consensus Estimate by 3 cents. Moreover, it compared favorably with the prior-year quarter’s earnings of $1.00 per share.Including net hedge ineffectiveness accounting impact of 7 cents, earnings came in at 96 cents per share.
Wells Fargo witnessed organic growth aided by strong loans and deposit balances, along with elevated interest income. Moreover, a solid capital position, along with returns on assets and equity, acted as the key drivers. However, higher expensesand lower non-interest income was a concern.
Among other Wall Street giants, U.S. Bancorp (USB - Free Report) is scheduled to report fourth-quarter 2016 earnings on Jan 18.
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Comerica (CMA) Tops Q4 Earnings Estimates, Expenses Drop
Comerica Inc. (CMA - Free Report) delivered a positive earnings surprise of 4.2% in fourth-quarter 2016. Adjusted earnings per share of 99 cents came ahead of the Zacks Consensus Estimate of 95 cents. The adjusted figure excludes a restructuring charge of 7 cents per share. Also, earnings increased 43.8% year over year.
Better-than-expected results reflect higher revenues and lower expenses. Moreover, fall in provisions was another tailwind. However, lower deposits and rise in non-performing assets remain concerns.
Shares of Comerica edged down around 1% in the pre-market session, indicating that investors have been bearish on the results. The price reaction during the full trading session will give a fair idea about the extent of disappointment among investors.
Net income came in at $164 million, up 41.4% year over year. This figure includes a restructuring charge of $20 million.
Furthermore, segment wise, on a year-over-year basis, net income increased 3.5% at Business Bank and9.5% at Wealth Management. On the other hand, Retail Bank and Finance segments recorded net loss in the quarter.
For full-year 2016, net income was $477 million or $2.68 per share compared with $515 million or $2.84 per share in 2015. Earnings per share lagged the Zacks Consensus Estimate of $2.98. Notably, 2016 results include a restructuring charge of $59 million or 34 cents per share.
Revenue Up, Expenses Down
For full-year 2016, the company reported net revenue of $2.8 billion, up 3.7% year over year. However, it lagged the Zacks Consensus Estimate of $2.9 billion.
Comerica’s fourth-quarter net revenue was $722 million, up 3.3% year over year. However, the figure lagged the Zacks Consensus Estimate of $729 million.
Net interest income increased 5.1% on a year-over-year basis to $455 million. Moreover, net interest margin expanded 7 basis points (bps) to 2.65%.
Total non-interest income came in at $267 million, slightly up on a year-over-year basis. Increased card fees and other non-interest income primarily led to the rise, partially countered by lower commercial lending fees.
Further, non-interest expenses totaled $461 million, down 4.4% year over year. The fall was chiefly due to lower salaries and benefits expense and other non-interest expenses, partly mitigated by higher restructuring charges.
Notably, Growth in Efficiency and Revenue (GEAR Up) Initiative Implementation continues with over $25 million of expense savings in 2016.
Solid Balance Sheet
As of Dec 31, 2016, total assets and common shareholders' equity were $73.0 billion and $7.8 billion, respectively, compared with $71.9 billion and $7.6 billion as of Dec 31, 2015.
Total loans were slightly up, on a year-over-year basis, to $49.1 billion. However, total deposits decreased 1.5% from the prior-year quarter to $59 billion.
Credit Quality a Mixed Bag
Total non-performing assets surged 55.2% year over year to $607 million. Also, allowance for loan losses was $730 million, up 15.1% from the prior-year period. Additionally, the allowance for loan losses to total loans ratio was 1.49% as of Dec 31, 2016, up from 1.29% as of Dec 31, 2015.
However, net loan charge-offs plunged 29.4% on a year-over-year basis to $36 million. In addition, provision for credit losses plummeted 41.7% year over year to $35 million.
Strong Capital Position
As of Dec 31, 2016, the company's tangible common equity ratio was 9.89%, down 19 bps year over year. Common equity Tier 1 capital ratio was 11.07%, up from 10.54% in the year-ago quarter. Total risk-based capital ratio was 13.24%, up from 12.69% in the prior-year quarter.
Capital Deployment Update
Comerica’s capital deployment initiatives highlight the company’s capital strength. During 2016, Comerica repurchased 6.6 million shares under the existing share repurchase program. This, combined with dividends, resulted in a total payout of $458 million to shareholders in the year.
Notably, during the reported quarter, Comerica repurchased 1.8 million shares under its existing equity repurchase program. This, combined with dividends, resulted in a total payout of $139 million to shareholders.
Impressive Outlook for 2017
Comerica guided for 2017, taking into consideration the current economic environment and the persistent low rates, along with the GEAR Up initiative, resulting in $30 million in revenue and $125 million in expense savings.
The company anticipates higher net interest income, including the benefit of short-term rate increase and loan growth in Dec 2016, partially mitigated by rise in funding costs and slight loan yield compression. Notably, the recent rise in short-term rates is likely to be over $70 million, assuming a 25% deposit beta.
Non-interest income is estimated to be higher, reflecting an increase of 4–6%. The rise is expected on the GEAR Up opportunities, slight growth in treasury management and card fees, along with wealth management products, including fiduciary and brokerage services.
Non-interest expenses are predicted to be lower, excluding an estimated $25–$50 million restructuring expense. Notably, additional $125 million in GEAR Up savings is expected. Including restructuring charges, expenses are projected to decrease 4–5%.
Provision for credit losses is likely to remain low, with steady performance in overall portfolio. Notably, provision and net charge-offs are expected to be in line with historical normalized levels of 30–40 basis points.
Income tax expense is anticipated to approximate 33% of pre-tax income.
Comerica expects average loan growth to be higher, in line with Gross Domestic Product growth. The outlook reflects rise in most lines of business and a sustained decline in energy portfolio.
Our Viewpoint
The consistent improvement in the loan portfolio is projected to offset the pressure on revenues to some extent. Further, the company should benefit from its ongoing strategic initiatives. Additionally, its robust capital position supports steady capital deployment activities through share repurchases and dividend hikes which seem impressive. Though regulatory issues and unstable credit metrics remain major concerns, fall in expenses depict prudent expense management.
Comerica Incorporated Price, Consensus and EPS Surprise
Comerica Incorporated Price, Consensus and EPS Surprise | Comerica Incorporated Quote
Currently, Comerica flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Performance of Other Wall Street Majors
Meanwhile, Bank of America Corporation (BAC - Free Report) reported fourth-quarter 2016 earnings. Rise in trading revenue as well as mortgage banking fees led to earnings of 40 cents per share, which surpassed the Zacks Consensus Estimate of 38 cents. Further, the figure was 48% higher than the year-ago quarter number.
Impressive growth in fixed income trading revenues, rebound in equity trading and significant rise in mortgage banking income supported revenues. However, as anticipated, investment banking fees declined due to lower advisory fees and equity underwriting fees. In addition, provision for credit losses recorded a fall as energy sector concerns seem to be over. Further, absence of legal costs and efficient expense management were sufficient in aidingthe bottom line.
Driven by interest income, Wells Fargo & Company’s (WFC - Free Report) fourth-quarter 2016 earnings recorded a positive surprise of about 3%. Adjusted earnings of $1.03 per share outpaced the Zacks Consensus Estimate by 3 cents. Moreover, it compared favorably with the prior-year quarter’s earnings of $1.00 per share.Including net hedge ineffectiveness accounting impact of 7 cents, earnings came in at 96 cents per share.
Wells Fargo witnessed organic growth aided by strong loans and deposit balances, along with elevated interest income. Moreover, a solid capital position, along with returns on assets and equity, acted as the key drivers. However, higher expensesand lower non-interest income was a concern.
Among other Wall Street giants, U.S. Bancorp (USB - Free Report) is scheduled to report fourth-quarter 2016 earnings on Jan 18.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>