It has been about a month since the last earnings report for Comerica Incorporated (CMA Quick QuoteCMA - Free Report) . Shares have added about 9.1% 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 its most recent earnings report in order to get a better handle on the important drivers.

Comerica Q2 Earnings Surpass Estimates, NII Rises

Comerica reported second-quarter earnings per share of $1.92, beating the Zacks Consensus Estimate of $1.77. However, the bottom line came in lower than the prior-year quarter figure of $2.32.

The result reflected strong NII growth, high total loan balances and a significant decrease in non-performing assets. However, high expenses were an undermining factor.

Net income attributable to common shares came in at $255 million in the quarter, plunging 21% year over year from $321 million.

Revenues Rise, Expenses Flare Up

Comerica’s second-quarter total revenues were $829 million, up 11% year over year. Further, the top line beat the consensus estimate of $805.5 million.

NII increased 21% on a year-over-year basis to $561 million in the quarter on higher short-term rates and volume of earning assets. NIM rose 55 basis points (bps) to 2.74%.

Total non-interest income was $268 million, down 6% on a year-over-year basis. The decrease in non-interest income was mainly due to a decrease in card fees.
Non-interest expenses totaled $482 million, up 4% year over year. The upswing resulted chiefly from higher salaries and benefit expenses, consulting fees, software expenses and operational losses.

The efficiency ratio was 58.03% compared with the prior-year quarter’s 61.72%. The decrease in the ratio indicates high profitability.

Balance-Sheet Position Mixed

As of Jun 30, 2022, total assets and common shareholders' equity were $86.89 billion and $6.04 billion, respectively, compared with $89.17 billion and $6.64 billion, as of Mar 31, 2022.

Total loans increased 4% on a sequential basis to $51.45 billion. However, total deposits declined 2.3% from the prior quarter’s level to $75.77 billion.

Credit Quality Improves

Total non-performing assets decreased 17% year over year to $266 million. The allowance for credit losses was $609 million, down from $683 million in the prior-year quarter. The allowance for credit losses to total loans ratio was 1.18% as of Jun 30, 2022, down from 1.36% as of Jun 30, 2021.

However, the company did not record any net credit-related charge-offs during the quarter compared with $11 million of recoveries in the prior-year quarter. A provision for credit losses of $10 million was recorded in the reported quarter against a benefit of $135 million in the prior-year quarter.

Weak Capital Position

As of Jun 30, 2022, Comerica’s tangible common equity ratio was 6.26%, down from 7.85% in the prior-year quarter. The total capital ratio was 11.75%, declining from 12.95% in the year-ago quarter.

Common Equity Tier 1 (CET1) capital ratio was 9.72%, falling from 10.35% in the prior-year quarter.

Outlook

Third-Quarter 2022

NII (including PPP) is anticipated to increase 21% sequentially.

2022

Comerica provided the guidance for 2022.

Average loans (excluding PPP) are expected to grow 6-7%. Including PPP loans, the metric is expected to be up 1-2%.

Average deposits are expected to decline 2%. A modest decline in the remainder of the year is expected.

NII (including PPP) is expected to jump 31% year over year.

Non-interest income is likely to decline 6-7% due to revenues from cards, derivatives, warrants and deferred comps.

Non-interest expenses are estimated to rise 4-5% due to increased technology investments and inflationary pressure.

The company expects net charge-offs at the lower end of its normal range, while non-accruals and criticized loans might remain low.

CET1 is targeted to be 10%.

The tax rate for 2022 is anticipated to be 22-23%, excluding discrete items.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

Currently, Comerica Incorporated has a poor Growth Score of F, a grade with the same score on the momentum front. 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Comerica Incorporated has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Comerica Incorporated is part of the Zacks Banks - Major Regional industry. Over the past month, The Bank of New York Mellon Corporation (BK Quick QuoteBK - Free Report) , a stock from the same industry, has gained 2.7%. The company reported its results for the quarter ended June 2022 more than a month ago.

The Bank of New York Mellon Corporation reported revenues of $4.25 billion in the last reported quarter, representing a year-over-year change of +7.4%. EPS of $1.15 for the same period compares with $1.13 a year ago.

The Bank of New York Mellon Corporation is expected to post earnings of $1.09 per share for the current quarter, representing a year-over-year change of +4.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.2%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for The Bank of New York Mellon Corporation. Also, the stock has a VGM Score of C.