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Comerica (CMA) Q3 Earnings Surpass Estimates, Loans Decline

Comerica Incorporated CMA has delivered a third-quarter 2021 earnings surprise of 13.10%. Earnings per share of $1.90 easily surpassed the Zacks Consensus Estimate of $1.68. The bottom line compared favorablywith $1.48 reported in the prior-year quarter.

The company’s results were supported by benefits from provisions and fee income growth. The net interest income also improved on lower deposit costs. Nevertheless, a reduction in loan volumes was recorded. Higher expenses and weak capital position were major concerns.

The net income was $262 million in the quarter compared with $217 million in the prior-year quarter.

Revenues Rise on Higher Fee Income, Expenses Increase

Comerica’s third-quarter net revenues were $755 million, up 6.3% year over year. The top line beat the consensus estimate of $733 million.

Net interest income improved 4% on a year-over-year basis to $475 million in the quarter on higher loan fees and a reduction in deposit costs. The net interest margin contracted 10 basis points (bps) to 2.23%.

Total non-interest income was $280 million, up 11% on a year-over-year basis. Higher card fees, commercial lending fees and fiduciary income mainly supported the fee income.

Non-interest expenses totaled $465 million, up 6% year over year. The upswing resulted chiefly from higher salaries and benefits expenses, outside processing fees, and occupancy expenses.

The efficiency ratio was 61.57% compared with the prior-year quarter’s 61.74%. A decline in the ratio indicates a rise in profitability.

Balance Sheet Position Decent

As of Sep 30, 2021, total assets and common shareholders' equity were $94.52 billion and $7.80 billion, respectively, compared with $83.63 billion and $7.87 billion as of Sep 30, 2020.

Total loans declined 3.4% on a sequential basis to $48.13 billion. Nonetheless, total deposits increased 4.8% from the prior quarter to $79.11 billion.

Credit Quality Strong

Total non-performing assets decreased 11.6% year over year to $296 million. The allowance for credit losses was $639 million, down from $1.04 billion in the prior-year quarter. The allowance for loan losses to total loans ratio was 1.33% as of Sep 30, 2021, down from 1.98% as of Sep 30, 2020.

Net credit-related charge-offs were $2 million compared with $33 million in the prior-year quarter. A benefit to provision for credit losses of $42 million was recorded in the reported quarter against provision expenses of $5 million in the prior-year quarter.

Capital Position Weak

As of Sep 30, 2021, the company's tangible common equity ratio was 7.20%, down from 8.24% in the prior-year quarter. The total capital ratio was 12.51%, declining from 13.12%.

Common Equity Tier 1 capital ratio was 10.21%, falling from 10.25% in the prior-year quarter.

Capital Deployment Activities

In the reported quarter, Comerica returned $309 million to shareholders through share repurchases and dividends. The company repurchased $220 million of common stock under its share repurchase program.

Our Viewpoint

Comerica's prospects look promising as its initiatives are likely to boost the performance. Also, lower provisions acted as a tailwind. Nevertheless, restricted top-line expansion, eroded by a lower margin and falling loan balance, is concerning.

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

Fifth Third Bancorp FITB reported third-quarter 2021 earnings (excluding the after-tax impact of certain items) of 94 cents per share, beating the Zacks Consensus Estimate of 91 cents. Including the impacts of these items, earnings per share were 97 cents per share, indicating a 24% year-over-year rise.

State Street’s STT third-quarter 2021 adjusted earnings of $2.00 per share outpaced the Zacks Consensus Estimate of $1.92. Also, the bottom line was 37.9% higher than the prior-year level.

First Republic Bank FRC delivered an earnings surprise of 4.4% in third-quarter 2021 on solid top-line strength. Earnings per share of $1.91 surpassed the Zacks Consensus Estimate of $1.83. Additionally, the bottom line improved 18.6% from the year-ago quarter.


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