Comerica (CMA) Posts Q1 Loss as Revenues Fall, Stock Down 5%

Comerica CMA has reported first-quarter 2020 loss per share of 46 cents due to a reserve build of $900 million for the coronavirus-related crisis. The Zacks Consensus Estimate for earnings was pegged at 77 cents.

The stock declined more than 5% in pre-market trading, reflecting investors’ disappointment with the results. Notably, the full-day trading session will display a clearer picture.

Results were affected by a decline in net interest income due to the contraction of margins. Also, the deterioration of credit quality was a headwind. However, lower expenses supported bottom-line expansion. Moreover, rise in deposits and loans were tailwinds.

The company reported net loss of $65 million in the quarter against $339 million in the year-ago quarter.

Furthermore, segment wise, on a year-over-year basis, net income decreased across all segments. Also, the Business Bank segment reported net loss against income recorded in the prior-year quarter.

Revenues Down, Expenses Decline

Comerica’s first-quarter net revenues were $750 million, down 11.1% year over year. Also, the figure missed the Zacks Consensus Estimate of $752.3 million.

Net interest income slipped 15.3% on a year-over-year basis to $513 million in the quarter. In addition, net interest margin contracted 73 basis points (bps) to 3.06%.

Total non-interest income was $237 million, almost stable on a year-over-year basis. Higher fiduciary income and insurance income were offset by a decrease in card fees and service charges on deposit accounts.

In addition, non-interest expenses totaled $425 million, down 1.8% year over year. The fall resulted mainly from lower salaries and benefits expenses and outside processing fee expenses.

Adjusted efficiency ratio was 56.57% compared with the prior-year quarter’s 50.81%. A rise in ratio indicates a fall in profitability.

Balance Sheet Solid

As of Mar 31, 2020, total assets and common shareholders' equity were $76.3 billion and $7.4 billion, respectively, compared with $70.7 billion and $7.41 billion as of Mar 31, 2019.

Total loans were up 6.1% on a sequential basis to $53.5 billion. Also, total deposits inched up slightly from the prior quarter to $57.4 billion.

Credit Quality Deteriorates

Credit metrics were a mixed bag during the reported quarter. Total non-performing assets climbed 25.6% year over year to $250 million. Also, allowance for loan losses was $916 million, up 41.6% from the prior-year period. Additionally, the allowance for loan losses to total loans ratio was 1.71% as of Mar 31, 2020, up from 1.29% as of Mar 31, 2019.

In addition, the provision for credit losses was $411 million compared with the release of $13 million in the prior-year quarter. Also, net loan charge-offs surged significantly on a year-over-year basis to $84 million.

Capital Position Strong

As of Mar 31, 2020, the company's tangible common equity ratio was 8.93%, down 73 bps year over year. Common equity Tier 1 capital ratio was 9.51%, down from the 10.78% reported in the year-ago quarter. Total risk-based capital ratio was 11.83%, down from the prior-year quarter’s 12.8%.

Capital Deployment Update

Comerica’s capital-deployment initiatives highlight its capital strength. Notably, during the reported quarter, the company repurchased 3.2 million shares for $189 million under its existing equity-repurchase program. This combined with dividends resulted in a total payout of $283 million to shareholders.

Our Viewpoint

Comerica will benefit from its strong balance sheet position and cost-saving efforts. Its robust capital position supports steady capital-deployment activities through share repurchases and dividend hikes, which seem impressive. Nevertheless, lower interest rates and coronavirus-induced economic slowdown are major near-term concerns.

Comerica Incorporated Price, Consensus and EPS Surprise

 

Comerica Incorporated Price, Consensus and EPS Surprise

Comerica Incorporated price-consensus-eps-surprise-chart | Comerica Incorporated Quote

Currently, Comerica carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

M&T Bank Corporation MTB has pulled off first-quarter 2020 positive earnings surprise of 26% on higher mortgage banking revenues. Net operating earnings per share of $1.95 surpassed the Zacks Consensus Estimate of $1.55. However, the bottom line compares unfavorably with $3.35 per share reported in the year-ago quarter.

Truist Financial’s TFC first-quarter 2020 adjusted earnings of 87 cents per share surpassed the Zacks Consensus Estimate of 54 cents. However, the bottom line declined 22.3% from the prior quarter.

Regions Financial Corporation RF reported first-quarter 2020 adjusted earnings of 15 cents per share, missing the Zacks Consensus Estimate of 19 cents. The figure plummeted 59.5% year over year.

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