It has been about a month since the last earnings report for Comerica Incorporated (
CMA Quick Quote CMA - Free Report) . Shares have added about 5.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Comerica Incorporated due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Comerica Q2 Earnings Top Estimates on Reserve Release
Comerica delivered a second-quarter 2021 earnings surprise of 43.2%. Earnings per share of $2.32 easily surpassed the Zacks Consensus Estimate of $1.62. The bottom line compared significantly favorably with the figure reported in the prior-year quarter.
The company’s results were supported by a significant fall in provisions and fee income growth. The capital position remained strong. Nevertheless, lower net interest revenues due to a reduction in loan volumes were recorded. Higher expenses and reduced loan balance were major drags.
Net income was $328 million in the quarter compared with $118 million in the prior-year quarter.
Revenues Up on Higher Fee income, Expenses Rise
Comerica’s second-quarter net revenues were $749 million, up 4.3% year over year. The top line beat the consensus estimate of $722.8 million.
NII slipped 1.3% on a year-over-year basis to $465 million in the quarter on lower loan volumes, partially offset by a reduction in deposit costs. NIM contracted 21 basis points (bps) to 2.29%.
Total non-interest income was $284 million, up 15% on a year-over-year basis. Higher card fees, commercial lending fees and derivatives income mainly supported the fee income.
Non-interest expenses totaled $463 million, up 6.7% year over year. The upswing resulted chiefly from higher salaries and benefits expenses, outside processing fees, and litigation-related costs.
Efficiency ratio was 61.66% compared with the prior-year quarter’s 60.11%. A rise in ratio indicates a fall in profitability.
Balance Sheet Position Improves
As of Jun 30, 2021, total assets and common shareholders' equity were $88.4 billion and $7.9 billion, respectively, compared with $86.3 billion and $8.2 billion as of Mar 31, 2021.
Total loans declined 2% on a sequential basis to $49.8 billion. Nonetheless, total deposits increased 6% from the prior quarter to $75.5 billion.
Credit Quality: A Mixed Bag
Total non-performing assets increased 13.5% year over year to $320 million.
Nonetheless, the allowance for credit losses was $683 million, down 36%. Allowance for loan losses to total loans ratio was 1.36% as of Jun 30, 2021, down from 1.99% on Jun 30, 2020. Net credit-related recoveries were $11 million against charge-offs of $50 million in the prior-year quarter.
A benefit to provision for credit losses of $135 million was recorded in the quarter against provision expenses of $138 million in the prior-year quarter.
Strong Capital Position
As of Jun 30, 2021, the company's tangible common equity ratio was 7.85%, down from 8.08% in the prior-year quarter. Common Equity Tier (CET) 1 capital ratio was 10.39%, up from 9.99%. Total capital ratio was 13%, up from 12.95%.
Capital Deployment Activities
In the quarter, Comerica returned $542 million to shareholders through share repurchases and dividends. The company repurchased $450 million of common stock under its share repurchase program.
Comerica has provided guidance for second half of 2021 compared with the second quarter of 2021 on expectations of continued economic growth.
Solid loan growth in nearly all business lines is expected (excluding Paycheck Protection Program or PPP), more than offset by forgiveness of the bulk of PPP loans.
Average deposits are expected to remain strong, benefiting from the latest stimulus.
The company expects NII to reflect gains from a risein loan volume and additional days, offset by the impact of lower PPP loans.
Non-interest income is likely to be supported by customer-driven fee categories benefitting from a rebound ineconomic conditions. However, card fees are anticipated to decrease as the benefit from growing merchant and corporate volumes could be more than offset by lower government card activity as stimulus payments fall.
Non-interest expenses are estimated to decrease due to lower litigation-related expenses and deferred compensation, partially offset by increases in seasonal expenses and technology investments.
Income tax expenses for 2021 are anticipated to be 22-23% of pre-tax income, excluding discrete items. CET1 is targeted to be 10%.
Credit quality is expected to remain robust. Assuming the economy strides in the current path, the allowance should continue to move toward pre-pandemic levels.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 6.45% due to these changes.
At this time, Comerica Incorporated has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Comerica Incorporated has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.