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Fall in NII, High Costs to Hurt Comerica (CMA) in Q4 Earnings
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Comerica Incorporated (CMA - Free Report) is scheduled to report fourth-quarter and full-year 2023 results on Jan 19, before the opening bell. The company is expected to have witnessed year-over-year decline in quarterly revenues and earnings.
In third-quarter 2023, CMA surpassed the Zacks Consensus Estimate on increased fee income. However, higher expenses and increased allowance for credit losses were the undermining factors.
Comerica has an impressive earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the surprise being 5.28%, on average.
The company’s activities in the to-be-reported quarter were unable to instill analysts’ confidence in the stock. The Zacks Consensus Estimate for fourth-quarter earnings of $1.27 per share revised 6.6% downward in the past month. Also, the estimate indicates a 50.8% decline from the year-ago figure.
The consensus estimate for revenues is pegged at $838.5 million, indicating a fall of 17.8% from a year ago.
Factors at Play
Loans & NII: Per Fed’s latest data,demand for commercial and residential real estate loans improved in November from third-quarter 2023 levels. Also, consumer lending showed some signs of advancement throughout October and November.However, demand for commercial and industrial loans weakened in the first two months of the quarter under review from third-quarter 2023 figures. This is likely to have affected the company’s average interest earning assets during the quarter.
In fact, the Zacks Consensus Estimate for average interest-earning assets is pegged at $78 billion, suggesting a 2.8% decrease from the prior quarter’s figure.
Markedly, from third-quarter 2023 end to the end of November, the company’s average loans decreased $1 billion to $53 billion. The fall was due to a decline in mortgage banker, equity funds services and middle-market lending. Management expects average loans to decline 1%sequentially in the fourth quarter.
Average deposits decreased to $65.8 billion as of November end from the third quarter’s $65.9 billion. The company expects the average deposit balance tobe flat to down 1% on a sequential basis in fourth-quarter 2023. Moreover, interest-bearing deposits constituted a higher proportion of deposits. Hence, the unfavorable shift in the deposit mix will likely impede NII growth for CMA. In fact, management expects NII to decline 5-6% on a sequential basis as funding costs weigh on it.
Federal Reserve paused interest rate hikes during fourth-quarter 2023. Though interest rates remained at a 22-year high of 5.25-5.5%, wanning loan demand and high funding costs are expected to limit NII growth and margins in the fourth quarter. The consensus mark of $568 million for NII indicates a 5.5% decrease sequentially.
Fee Income: High interest rates are expected to have increased card use and, thereby, card fees in the quarter. Comerica’s card fees are major contributors to its fee income. Hence, it is likely to have aided fee income growth during fourth-quarter 2023. The Zacks Consensus Estimate for card fees is pegged at $71 million, remaining flat from the prior quarter.
Global deal making witnessed a slight rebound in the fourth quarter, and green shoots were observed in capital markets and issuance activities. Notably, at Goldman Sachs’ U.S. Financial Services Conferenceheld in early December, bank executives stated that global deal-making conditions have started to improve. The major factor driving a better picture was the stabilizing interest rate environment.
Thus, the deal volume and total value numbers are expected to have improved in the fourth quarter. Hence, overall growth in merger and acquisition advisory fees is likely to have been impressive in the quarter, positively impacting capital markets income. However, the Zacks Consensus Estimate for the metric is pegged at $31.1 million, declining 11.3% from the prior quarter.
Deposit balances are not expected to have grown much in the fourth quarter as customers continued to look for better returns elsewhere. This is likely to have affected revenues from service charges on deposit accounts. The Zacks Consensus Estimate for service charges on deposit accounts of $46.82 million indicates a marginal decline from the prior quarter.
Through a regulatory filing in January 2024, management disclosed that pursuant to an accounting change, it expects to recognize a net non-cash pretax charge of $91 million in non-interest income during the fourth quarter. It also projects to record a non-cash pretax benefit of $3 million in net interest income during the quarter.
Management projects non-interest income to decline 3-4% in fourth-quarter 2023 on a sequential basis. The consensus estimate for overall fee income of $284 million suggests a 3.7% fall from the last quarter.
Expenses: CMA is expected to have incurred higher expenses due to rising salaries. Such rising costs are estimated to have weighed on its expense base to some extent in the quarter under review and hindered bottom-line growth. In fact, management expects non-interest expenses to rise 3% on a sequential basis, primarily due to salary pressures.
Per a regulatory filing in January 2024, the company disclosed that it expects to record $109 million relating to Federal Deposit Insurance Corporation special assessment fees during the quarter. Also, it expects to incur $25 million in a cost-cutting initiative.
What Our Model Predicts
Our proven model predicts an earnings beat for Comerica this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP of Comerica is +0.67%.
Zacks Rank: The company currently carries a Zacks Rank #3.
Other Stocks Worth a Look
A couple of other finance stocks, which you may want to consider, as these too have the right combination of elements to post an earnings beat in their upcoming releases, per our model, are Associated Banc-Corp (ASB - Free Report) and Independent Bank Corporation (IBCP - Free Report) .
ASB is scheduled to release quarterly earnings on Jan 25. The company has a Zacks Rank #3 and an Earnings ESP of +5.36% at present.
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Fall in NII, High Costs to Hurt Comerica (CMA) in Q4 Earnings
Comerica Incorporated (CMA - Free Report) is scheduled to report fourth-quarter and full-year 2023 results on Jan 19, before the opening bell. The company is expected to have witnessed year-over-year decline in quarterly revenues and earnings.
In third-quarter 2023, CMA surpassed the Zacks Consensus Estimate on increased fee income. However, higher expenses and increased allowance for credit losses were the undermining factors.
Comerica has an impressive earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the surprise being 5.28%, on average.
Comerica Incorporated Price and EPS Surprise
Comerica Incorporated price-eps-surprise | Comerica Incorporated Quote
The company’s activities in the to-be-reported quarter were unable to instill analysts’ confidence in the stock. The Zacks Consensus Estimate for fourth-quarter earnings of $1.27 per share revised 6.6% downward in the past month. Also, the estimate indicates a 50.8% decline from the year-ago figure.
The consensus estimate for revenues is pegged at $838.5 million, indicating a fall of 17.8% from a year ago.
Factors at Play
Loans & NII: Per Fed’s latest data,demand for commercial and residential real estate loans improved in November from third-quarter 2023 levels. Also, consumer lending showed some signs of advancement throughout October and November.However, demand for commercial and industrial loans weakened in the first two months of the quarter under review from third-quarter 2023 figures. This is likely to have affected the company’s average interest earning assets during the quarter.
In fact, the Zacks Consensus Estimate for average interest-earning assets is pegged at $78 billion, suggesting a 2.8% decrease from the prior quarter’s figure.
Markedly, from third-quarter 2023 end to the end of November, the company’s average loans decreased $1 billion to $53 billion. The fall was due to a decline in mortgage banker, equity funds services and middle-market lending. Management expects average loans to decline 1%sequentially in the fourth quarter.
Average deposits decreased to $65.8 billion as of November end from the third quarter’s $65.9 billion. The company expects the average deposit balance tobe flat to down 1% on a sequential basis in fourth-quarter 2023. Moreover, interest-bearing deposits constituted a higher proportion of deposits. Hence, the unfavorable shift in the deposit mix will likely impede NII growth for CMA. In fact, management expects NII to decline 5-6% on a sequential basis as funding costs weigh on it.
Federal Reserve paused interest rate hikes during fourth-quarter 2023. Though interest rates remained at a 22-year high of 5.25-5.5%, wanning loan demand and high funding costs are expected to limit NII growth and margins in the fourth quarter. The consensus mark of $568 million for NII indicates a 5.5% decrease sequentially.
Fee Income: High interest rates are expected to have increased card use and, thereby, card fees in the quarter. Comerica’s card fees are major contributors to its fee income. Hence, it is likely to have aided fee income growth during fourth-quarter 2023. The Zacks Consensus Estimate for card fees is pegged at $71 million, remaining flat from the prior quarter.
Global deal making witnessed a slight rebound in the fourth quarter, and green shoots were observed in capital markets and issuance activities. Notably, at Goldman Sachs’ U.S. Financial Services Conferenceheld in early December, bank executives stated that global deal-making conditions have started to improve. The major factor driving a better picture was the stabilizing interest rate environment.
Thus, the deal volume and total value numbers are expected to have improved in the fourth quarter. Hence, overall growth in merger and acquisition advisory fees is likely to have been impressive in the quarter, positively impacting capital markets income. However, the Zacks Consensus Estimate for the metric is pegged at $31.1 million, declining 11.3% from the prior quarter.
Deposit balances are not expected to have grown much in the fourth quarter as customers continued to look for better returns elsewhere. This is likely to have affected revenues from service charges on deposit accounts. The Zacks Consensus Estimate for service charges on deposit accounts of $46.82 million indicates a marginal decline from the prior quarter.
Through a regulatory filing in January 2024, management disclosed that pursuant to an accounting change, it expects to recognize a net non-cash pretax charge of $91 million in non-interest income during the fourth quarter. It also projects to record a non-cash pretax benefit of $3 million in net interest income during the quarter.
Management projects non-interest income to decline 3-4% in fourth-quarter 2023 on a sequential basis. The consensus estimate for overall fee income of $284 million suggests a 3.7% fall from the last quarter.
Expenses: CMA is expected to have incurred higher expenses due to rising salaries. Such rising costs are estimated to have weighed on its expense base to some extent in the quarter under review and hindered bottom-line growth. In fact, management expects non-interest expenses to rise 3% on a sequential basis, primarily due to salary pressures.
Per a regulatory filing in January 2024, the company disclosed that it expects to record $109 million relating to Federal Deposit Insurance Corporation special assessment fees during the quarter. Also, it expects to incur $25 million in a cost-cutting initiative.
What Our Model Predicts
Our proven model predicts an earnings beat for Comerica this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP of Comerica is +0.67%.
Zacks Rank: The company currently carries a Zacks Rank #3.
Other Stocks Worth a Look
A couple of other finance stocks, which you may want to consider, as these too have the right combination of elements to post an earnings beat in their upcoming releases, per our model, are Associated Banc-Corp (ASB - Free Report) and Independent Bank Corporation (IBCP - Free Report) .
ASB is scheduled to release quarterly earnings on Jan 25. The company has a Zacks Rank #3 and an Earnings ESP of +5.36% at present.
IBCP is slated to report quarterly results on Jan 25. It has an Earnings ESP of +8.45% and sports a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.