Comerica Incorporated’s (CMA) fourth-quarter adjusted earnings per share of 82 cents outpaced the Zacks Consensus Estimate of 77 cents. This also compared favorably with the prior-year figure of 62 cents.
Shares of Comerica are up nearly 2% in the early trading, indicating that investors have taken the results positively. However, share price movement for the whole trading session will give us a better idea.
Better-than-expected results were driven by growth in the top line on the back of increase in non-interest income and lower expenses. Lower provision for credit losses and improving credit metrics were the other positives. However, fall in net interest income and deteriorating capital ratios were on the downside.
Including an after-tax net charge of $3 million or 2 cents per share from certain one-time items, net income came in at $149 million or 80 cents in the quarter.
Furthermore, segment-wise, on a year-over-year basis, net income of Business Bank increased 24.7% to $212 million, whereas net income of the Wealth Management segment remained stable at $24 million. However, Retail Bank segment’s net income fell 13.3% to $13 million.
For 2014, net income attributable to common shares was $593 million or $3.16 per share compared with $541 million or $2.85 per share in 2013. Full year earnings per share outpaced the Zacks Consensus Estimate by 6 cents.
Performance in Detail
For 2014, the company reported revenues of $2.5 billion, down 1.2% year over year. However, revenues came in line with the Zacks Consensus Estimate.
Comerica’s fourth-quarter net revenue on a fully taxable equivalent basis was $640 million, down 1.4% year over year. However, it outpaced the Zacks Consensus Estimate of $634 million.
Net interest income decreased 3.5% on a year-over-year basis to $415 million in the quarter. However, net interest margin fell 29 basis points (bps) year over year to 2.57%.
Comerica’s non-interest income came in at $225 million, up 2.7% from the prior-year quarter.
Non-interest expenses totaled $419 million, down 11.4% on a year-over-year basis. The decrease was mainly due to a reduction in salaries and employee benefit expenses.
As of Dec 31, 2014, total assets and common shareholders' equity were $69.2 billion and $7.4 billion, respectively, compared with $65.2 billion and $7.2 billion as of Dec 31, 2013.
Total loans were up 6.9% year over year to $48.6 billion, while total deposits rose 7.9% from the prior-year quarter to $57.5 billion.
Credit Quality
Comerica’s credit quality showed significant improvement during the quarter. Total non-performing assets declined 21.7% year over year to $300 million. Also, net loan charge-offs fell 92.3% year over year to $1 million.
Further, provision for credit losses declined 77.8% year over year to $2 million. Allowance for loan losses stood at $594 million, slightly down from $598 million in the prior-year period. Also, the allowance for loan losses to total loans ratio was 1.22% as of Dec 31, 2014, down from 1.32% as of Dec 31, 2013.
For 2015, Comerica expects provisions for credit losses to increase, consistent with rise in net charge-offs and loan growth.
Capital Position
However, Comerica’s capital ratios deteriorated during the quarter.
As of Dec 31, 2014, the company's tangible common equity ratio was 9.85%, down 22 bps year over year. The estimated Tier 1 common capital ratio moved down 11 bps year over year to 10.53%.
The estimated Tier 1 common ratio under fully phased-in Basel III capital rules was 10.3% as of Dec 31, 2014, in line with the prior-year quarter. This ratio excludes most factors of accumulated other comprehensive income (AOCI).
Capital Deployment Update
Comerica’s capital deployment initiatives exhibit its capital strength. During the reported quarter, Comerica repurchased 1.3 million shares under its existing share repurchase program. This, combined with dividends, resulted in a total payout of 63% of fourth-quarter net income to shareholders.
In 2014, the company repurchased 5.2 million shares under the share repurchase program, returning $392 million or 66% of 2014 net income to shareholders.
Outlook for 2015
Comerica has given an updated outlook for 2015. The company expects a relatively stable net interest income, reflecting an approximate decrease of $30 million related to purchase accounting accretion to $4-6 million. Moreover, it expects the low yield on assets to continue. The company expects non-interest income to also remain relatively stable.
Comerica expects average full-year loan growth at the same pace as 2014, with continued focus on pricing and structure discipline.
However, it also anticipates an increase in provision for credit losses, consistent with modest net charge-offs and loan growth. Moreover, it expects a rise in non-interest expense due to increases in regulatory, technology and pension expenses along with inflationary pressures. Further, Income tax expenses are expected to be nearly 33% of pre-tax income.
Given the sluggish economic growth and low-interest rate environment, the company’s outlook is modest.
Our Viewpoint
Comerica continues to focus on lowering its expenses, which is expected to boost its operational efficiency. Moreover, improving loan portfolio is expected to offset the margin pressure to some extent. Further, the company’s efficient capital deployment activities in the form of shares repurchase, regular payouts and dividend hikes seem impressive. Going forward, we expect synergies from Comerica’s strategic acquisitions to support top-line growth.
However, net interest margin will likely continue to be under pressure owing to increasing competition, shift in the portfolio mix toward lower yielding loans as well as lower reinvestment rates for the securities portfolio. Also, regulatory issues remain a major concern.
Currently, Comerica carries a Zacks Rank #3 (Hold).
Performance of other Major Banks
The fourth-quarter earnings season kick started with Wall Street biggies – Wells Fargo & Company (WFC) and JPMorgan Chase & Co. (JPM). Amid a challenging industry backdrop, Wells Fargo’s fourth-quarter 2014 earnings met expectations. The financial bigwig came out with earnings per share of $1.02, meeting the Zacks Consensus Estimate. Also the reported figure came above the year-ago number of $1.00.
JPMorgan reported earnings of $1.19 per share missed the Zacks Consensus Estimate of $1.30. This included $990 million of (after-tax) legal charges. Excluding this charge, the company would have earned $1.45 per share.
Legal charges aside, JPMorgan’s operating expenses were down significantly, depicting success of its cost-saving initiatives. However, improvement in net interest income was more than offset by a fall in non-interest income. Also, provision did not work in favor.
Another banking major Citigroup Inc. (C) reported adjusted earnings per share of 6 cents, lagging the Zacks Consensus Estimate of 9 cents. Further, earnings came significantly below the year-ago figure of 82 cents per share.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment