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Comerica (CMA) Q3 Earnings Beat Estimates, Revenues Increase

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Comerica’s (CMA - Free Report) third-quarter 2018 adjusted earnings per share of $1.86 surpassed the Zacks Consensus Estimate of $1.76. Also, the results compared favorably with year-ago adjusted figure of $1.27.  

Higher revenues and improved credit metrics were recorded. Moreover, the capital position remained strong. However, lower deposits and loans remained an undermining factor. Also, higher expenses were a headwind.

Including certain non-recurring items, net income came in at $318 million, up 40.7% from $226 million reported in the year-ago quarter.

Segment wise, on a year-over-year basis, net income increased 27.5% at Business Bank and 61.1% at Wealth Management. Retail Bank segment recorded net income against net loss in the prior-year quarter. Finance segment reported loss in the current quarter, consistent with year-ago quarter.

Revenues and Expenses Increase

Comerica’s third-quarter adjusted revenues were $853 million, up 7.8% year over year. The Zacks Consensus Estimate was $852.7 million.

Net interest income increased 9.7% to $599 million. Moreover, net interest margin expanded 32 basis points (bps) to 3.60%.

Adjusted non-interest income came in at $254 million, up 3.7% on a year-over-year basis. Higher card fees, fiduciary income and other non-interest income were partially offset by decreased service charge on deposits. After considering certain one-time items, noninterest income tanked 14.9% year over year.  

Further, adjusted non-interest expenses totaled $440 million, up 3.3% year over year. The rise was chiefly due to increase in salaries and benefits expense and higher outside processing fee partially offset by lower software and FDIC insurance expense. Including one-time items, non-interest expenses declined 2.4% from year-ago quarter.

Balance Sheet Position Weakens

As of Sep 30, 2018, total assets and common shareholders' equity were $71.4 billion and $7.8 billion, respectively, compared with $72 billion and $8.1 billion as of Sep 30, 2017.

Total loans fell 1.6% year over year to $49 billion. Also, total deposits decreased about 2% from the prior-year quarter to $56 billion.

Credit Quality Improves

Total non-performing assets plunged 48% year over year to $240 million. Also, allowance for loan losses was $697 million, down 7.4% from the prior-year period. Additionally, allowance for loan losses to total loans ratio was 1.35% as of Sep 30, 2018, down from 1.45% as of Sep 30, 2017. In addition, nil provision for credit losses was reported against $24 million in the year-ago quarter.

Furthermore, Comerica reported net charge-offs of $15 million compared with $25 million recorded in prior-year quarter.

Strong Capital Position

As of Sep 30, 2018, the company's tangible common equity ratio was 10.09%, down 26 bps year over year. Common equity tier 1 capital ratio was 11.66%, up from 11.51% reported in the year-ago quarter. Total risk-based capital ratio was 13.74%, up from 13.65% in the prior-year quarter.

Capital Deployment Update

Comerica’s capital-deployment initiatives highlight the company’s capital strength. During the reported quarter, Comerica repurchased 5.1 million shares under its existing equity repurchase program. This, combined with dividends, resulted in a total payout of $600 million to shareholders.

Impressive Outlook for Q4

Comerica guided for fourth-quarter 2018, taking into consideration the current economic and rate environment, along with the GEAR Up initiative.

The company anticipates higher net interest income, including the benefit of short-term rate increase. Notably, higher average debt as well as lower interest recoveries and loan fees are expected to partially offset the benefit.

Non-interest income is estimated to be higher resulting from GEAR Up opportunities driving growth in treasury management and card fees, along with fiduciary income.

Non-interest expenses are predicted to remain stable, excluding securities losses, BOLI and deferred compensation asset returns. Notably, GEAR Up savings are expected to remain on track and help drive growth in card fees and fiduciary income.

Restructuring charges of $10 million are anticipated. Persistent higher technology expenditures and typical inflationary pressures are likely to occur, resulting in modestly higher noninterest expenses.

Provision for credit losses is likely to be $10-$20 million and net charge-offs are expected to be low.

Income tax expenses are expected to approximate 23% of pre-tax income, excluding further tax impact from employee stock transactions.

Comerica expects average loans to be stable. The outlook reflects rise across most lines of business, partially offset by seasonal decline in some portfolios.

Our Viewpoint

Consistent expansion of margin is likely to keep supporting revenues to some extent. Further, the company will benefit from its ongoing strategic initiatives. Its robust capital position supports steady capital-deployment activities through share repurchases and dividend hikes, which seem impressive. However, rise in expenses and decline in loans during the quarter were the headwinds.

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

Driven by stellar revenues, PNC Financial (PNC - Free Report) delivered a positive earnings surprise of 3.3% in third-quarter 2018. Earnings per share of $2.82 beat the Zacks Consensus Estimate of $2.73. Moreover, the bottom line reflected a 30.6% jump from the prior-year quarter.

Driven by expense management, Citigroup (C - Free Report) delivered a positive earnings surprise of 4.8% in third-quarter 2018. Earnings from continuing operations per share of $1.74 for the quarter handily outpaced the Zacks Consensus Estimate of $1.66. Also, earnings climbed 22.5% year over year.

Impacted by lower mortgage banking revenues, Wells Fargo (WFC - Free Report) recorded a negative earnings surprise of 3.4% in third-quarter 2018. Earnings of $1.13 per share missed the Zacks Consensus Estimate of $1.17. However, the bottom-line compared favorably with 83 cents recorded in the prior-year quarter.

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