Comerica Incorporated (CMA) reported fourth-quarter 2013 earnings per share of 77 cents, beating the Zacks Consensus Estimate of 74 cents and comparing favorably with 68 cents earned in the prior-year quarter. Net income was $145 million in the quarter, up 11.5% from $130 million in the prior-year quarter.
Comerica’s results reflect top-line growth, aided by a rise in net interest income. Additionally, the company’s healthy capital position and strong capital deployment activities were the tailwinds. However, a slight increase in expenses was a negative.
Furthermore, segment-wise, on a year-over-year basis, Retail Bank and Wealth Management segments’ net income increased 75.0% and 43.8% respectively, while the Business Bank segment reported a fall of 4.3%.
For full-year 2013, net income attributable to common shares was $561 million or $3.00 per share compared with $515 million or $2.67 per share in 2012. Earnings per share outpaced the Zacks Consensus Estimate by 3 cents.
Performance in Detail
On a fully taxable equivalent basis, Comerica’s total revenue (net of interest expenses) of $635 million in the quarter was up 1% year over year. Further, it surpassed the Zacks Consensus Estimate of $618 million.
For full-year 2013, the company reported revenues of $2.5 billion, down 1.9% year over year. However, it came in line with the Zacks Consensus Estimate.
Comerica’s net interest income rose 1.4% year over year to $431 million in the quarter. The increase was mainly due to lower interest costs. However, net interest margin declined 1 basis point (bp) year over year to 2.86%. Comerica’s non-interest income came in at $204 million, in line with the prior-year quarter.
Non-interest expenses totaled $429 million, up slightly on a year-over-year basis. The marginal rise was mainly due to an increase in salaries and employee benefits expenses.
Credit Quality
Credit quality significantly improved at Comerica in the final quarter. Net loan charge-offs fell 64.9% year over year to $13 million. Nonperforming assets to total loans and foreclosed property was 0.84% in the quarter, down from 1.29% in the year-ago quarter.
Provision for credit losses declined 43.8% year over year to $9 million. The allowance for loan losses to total loans ratio was 1.32% as of Dec 31, 2013, down from 1.37% as of Dec 31, 2012.
For 2014, Comerica expects provisions for credit losses to remain stable based on improvement in credit quality.
Capital Position
During the reported quarter, Comerica’s capital levels remained strong. As of Dec 31, 2013, total assets and common shareholders' equity were $65.2 billion and $7.2 billion respectively, compared with $65.1 billion and $6.9 billion as of Dec 31, 2012.
Net loans fell 1.1% year over year to $44.9 billion. Total deposits nudged up 2.1% from the prior-year quarter to $53.3 billion.
As of Dec 31, 2013, Comerica's tangible common equity ratio was 10.11%, up 35 bps year over year. Moreover, the estimated Tier 1 common capital ratio moved up 46 bps year over year to 10.60%. The estimated Tier 1 common ratio under fully phased-in Basel III capital rules was 10.3% as of Dec 31, 2013, compared with 9.8% in the prior-year quarter. This ratio excludes most factors of accumulated other comprehensive income (AOCI).
Capital Deployment Update
Comerica’s capital deployment initiatives through dividend payment and share buybacks exhibit its capital strength. During the year 2013, Comerica repurchased 7.4 million shares under the existing share repurchase program. This, combined with dividends, resulted in a total payout of 73% of net income to shareholders in the year.
Notably, during the reported quarter, the company returned 71% of net income to shareholders. We expect such activities to boost investors’ confidence in the stock.
Outlook for 2014
Comerica has given an updated outlook for the year 2014. Given the sluggish growth in economy and low-interest rate environment, the company’s outlook for 2014 is a modest one.
The company expects average loans to be stable in 2014 compared to 2013 levels. The anticipation reflects stabilization in Mortgage Banker Finance which is expected to be near the average level of fourth-quarter 2013, improving trends in Commercial Real Estate and continued focus on pricing and structure.
Further, Comerica expects lower net interest income in 2014, due to continued pressure from the low rate environment and decrease in purchase accounting accretion.
Customer-driven non-interest income is expected to remain relatively stable, compared to 2013. Comerica expects lower non-interest expense in 2014, on account of 50% reduction in pension expense.
Our Viewpoint
Going forward, we expect Comerica’s continuous geographic diversification beyond its traditional and slower-growing Midwest markets to drive growth in the next cycle. Revenue synergies from opportunistic acquisitions are likely to augment top-line growth.
However, the company’s significant exposure to commercial real estate markets, the unsettled economic environment, persistent low interest rate environment and stringent regulatory issues remain matters of concern.
Currently, Comerica carries a Zacks Rank #3 (Hold).
Performances of Large Wall Street Firms
The fourth-quarter earnings season kick started with big Wall Street players such as Wells Fargo & Company (WFC) and JPMorgan Chase & Co. (JPM). Wells Fargo achieved the sixteenth consecutive quarter of earnings growth by reporting earnings of $1.00 per share. Results improved from 99 cents earned in the prior quarter and 91 cents in the year-ago quarter. Also, results beat the Zacks Consensus Estimate by 2 cents.
Moreover, JPMorgan returned to its earnings story in the fourth quarter after covering its legal costs. The banking giant came out with earnings of $1.30 per share, beating the Zacks Consensus Estimate of $1.25. However, earnings deteriorated from the year-ago number of $1.39.
The strength of JPMorgan’s legal reserves made a return to positive earnings surprise possible. The company remained in good shape despite resolving the legal issues related to Global RMBS, Gibbs & Bruns and Madoff.
Further, we look forward to the results of another major bank – U.S. Bancorp (USB), which is scheduled to report its fourth-quarter earnings on Jan 22.
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