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Comerica (CMA) Q1 Earnings Beat Estimates, Provisions Fall

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Comerica (CMA - Free Report) delivered a first-quarter 2021 positive earnings surprise of 76.1%. Earnings per share of $2.43 easily surpassed the Zacks Consensus Estimate of $1.38. Also, the bottom line compared favorably with a loss of 46 cents reported in the prior-year quarter.

The company’s results were supported by significant fall in provisions and fee income growth. Also, the capital position remained strong. Nevertheless, lower revenues, due to reduction in net interest income, were recorded. Moreover, higher expenses and reduced loans balance were major drags.

Net income came in at $350 million in the quarter against net loss of $59 million in the prior-year quarter.

Furthermore, segment wise, on a year-over-year basis, Commercial Bank reported net income against loss in the prior-year quarter. Wealth Management reported 52% growth in net income. Retail Bank also reported growth in net income. The Finance and Other segments reported net loss.

Revenues Fall on Low Rates, Expenses Rise

Comerica’s first-quarter net revenues were $713 million, down 4.9% year over year. Also, the top line missed the consensus estimate of $715.9 million.

Net interest income slipped 14% on a year-over-year basis to $443 million in the quarter, on lower short-term rates. In addition, net interest margin contracted 77 basis points (bps) to 2.29%.

Total non-interest income came in at $270 million, up 14% on a year-over-year basis. Higher card fees, commercial lending fees and derivatives income mainly supported the fee income.

Non-interest expenses totaled $447 million, up 7% year over year. The upswing resulted chiefly from higher salaries and benefits expense, outside processing fees, software expense and occupancy-related costs.

Efficiency ratio was 62.55% compared with the prior-year quarter’s 55.58%. A rise in ratio indicates a fall in profitability.

Solid Balance Sheet

As of Mar 31, 2021, total assets and common shareholders' equity were $86.3 billion and $8.2 billion, respectively, compared with $88.1 billion and $8.1 billion as of Dec 31, 2020.

Total loans declined 3.3% on a sequential basis to $50.6 billion. However, total deposits jumped 1.3% from the prior quarter to $73.8 billion.

Credit Quality: A Mixed Bag

Total non-performing assets increased 30% year over year to $325 million.

Also, allowance for loan losses was $807 million, down 17.5%. Additionally, allowance for loan losses to total loans ratio was 1.59% as of Mar 31, 2021, down from 1.83% on Mar 31, 2020. Further, net loan charge-offs declined 96% to $3 million.

Moreover, a benefit to provision for credit losses of $182 million was recorded during the quarter against provision expense of $411 million in the prior-year quarter.

Strong Capital Position

As of Mar 31, 2021, the company's tangible common equity ratio was 8.3%, down 63 bps year over year. Common equity Tier (CET) 1 capital ratio was 11.09%, up from 9.52%. Total capital ratio was 13.94%, up from 11.85%.

Capital Deployment Activities

During the quarter, Comerica returned a total of $95 million to shareholders through common stock dividends. Notably, the company expects to resume share repurchases from the second quarter of 2021.

Outlook for Q2

Comerica has provided guidance for second-quarter 2021 compared with the first quarter of 2021 on expectations of gradual improvement in economic conditions.

Comerica expects average loans to reflect growth in several businesses, including Middle Market, offset by declines in Mortgage Banker Finance, National Dealer Services and Energy. In addition, decline in PPP loans due to forgiveness process will have an impact.

Average deposits are expected to remain strong, benefiting from the latest stimulus.

The company projects net interest income to increase as lease residual adjustment will not repeat in the second quarter.

Non-interest income is likely to decline as first-quarter levels of derivatives, warrants and deferred compensation asset returns are not expected to repeat, partly offset by increase in card, fiduciary and syndication fees.

Non-interest expenses are estimated to remain stable, resulting from lower salaries and benefits, offset by increase in outside processing as well as seasonal rise in occupancy and advertising costs.

Provisions for credit losses are expected to be reflective of economic environment, including pace of economic recovery.

CET 1 ratio is expected of around 10%.

Our Viewpoint

Comerica's prospects look promising as strategic initiatives are likely to boost performance. Also, lower provisions despite coronavirus-led chaos acted as a tailwind. Nevertheless, restricted top-line expansion, eroded by a lower margin and falling loans balance, is a concern.

 

Comerica Incorporated Price, Consensus and EPS Surprise

Comerica Incorporated Price, Consensus and EPS Surprise

Comerica Incorporated price-consensus-eps-surprise-chart | Comerica Incorporated Quote

 

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

PNC Financial (PNC - Free Report) pulled off first-quarter 2021 positive earnings surprise of 49.1% on substantial reserves release. Earnings per share of $4.10 surpassed the Zacks Consensus Estimate of $2.75. Also, the bottom line compared favorably with $1.59 in the prior-year quarter.

Citizens Financial Group (CFG - Free Report) has reported first-quarter 2021 adjusted earnings per share of $1.41, surpassing the Zacks Consensus Estimate of 97 cents. Also, the bottom line compares favorably with the year-ago quarter’s 9 cents.

U.S. Bancorp (USB - Free Report) reported first-quarter 2021 earnings per share of $1.45, which surpassed the Zacks Consensus Estimate of 95 cents. The bottom line compared favorably with the prior-year quarter’s figure of 72 cents.

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