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Will Lower NII & Fee Income Hurt Comerica's (CMA) Q3 Earnings?
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Comerica Incorporated (CMA - Free Report) is scheduled to report its third-quarter 2023 results on Oct 20, before the opening bell. The bank’s revenues and earnings are likely to have declined from the year-ago quarter’s reported number.
Comerica’s earnings for second-quarter 2023 surpassed the Zacks Consensus Estimate. Results were primarily aided by a rise in net interest income (NII), supported by higher interest rates and loan growth. However, higher expenses and increased provisions were the undermining factors.
CMA has an impressive surprise history. Its earnings surpassed estimates in all the trailing four quarters, the average beat being 3.51%.
The company’s activities in the to-be-reported quarter were unable to instill analysts’ confidence in the stock. The Zacks Consensus Estimate for third-quarter earnings is pegged at $1.70 per share, revised marginally downward in the past week. Also, the estimate indicates a 34.6% decline from the year-ago quarter’s reported figure.
The consensus estimate for revenues is pegged at $880.9 million, indicating a fall of 10.6% from the year-ago quarter.
Key Developments During the Quarter
In mid-August, Comerica launched Comerica Maximize, an interest-bearing checking account and competitive cash management solutions for qualifying small business and business banking customers. The new package enables them to earn interest income while growing and protecting their businesses with essential treasury services.
Factors at Play
NII: The overall lending scenario was muted in the to-be-reported quarter. Per the Federal Reserve’s latest data, the demand for commercial and industrial loans improved modestly in the quarter under review, while consumer loans (specifically credit cards) declined sequentially. This is likely to have affected the loan balances of CMA during the third quarter.
Markedly, from second-quarter 2023-end through August-end, the company’s average loans decreased $1.1 billion to $54.3 billion. The fall was due to a decline in mortgage banker, equity funds services and middle-market lending. Management expects average loans to remain stable sequentially in the third quarter.
However, average deposits increased to $65.4 billion from the second quarter’s $64.3 billion. The company expects the average deposit balance to decline 1-2%, assuming general stabilization. Moreover, interest-bearing deposits constituted a higher proportion of deposits. The unfavorable shift in the deposit mix will likely impede NII growth for CMA.
Also, continuing with its efforts to curb inflation, the Fed raised interest rates by another 25 basis points in July and kept the rates unchanged at 5.25-5.5% during the September FOMC meeting.
With such successive rate hikes, the positive impact of high interest rates on the company’s NII is anticipated to have been limited. It expects its third-quarter NII to decline 4% sequentially as funding costs weigh on it. The consensus mark of $595 million for NII indicates a 4.2% decrease sequentially.
Fee Income: Rising rates and high inflation 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 third-quarter 2023. The Zacks Consensus Estimate for card fees is pegged at $73 million, indicating a 1.4% rise from the prior quarter.
Global deal-making witnessed a slight rebound in the third quarter. A host of factors, like geopolitical tensions, government shutdown, inflation, higher interest rates and fears of a global macroeconomic slowdown, acted as major headwinds.
Thus, the deal volume and total value numbers were weak in the third quarter. Hence, overall growth in merger and acquisition advisory fees is not expected to have been that impressive in the quarter, thereby affecting capital markets income.
Deposit balances are not expected to have grown much in the third quarter as customers continued to look for better returns elsewhere. This is likely to have affected the revenues from service charges on deposit accounts. The Zacks Consensus Estimate of $46.6 million for service charges on deposit accounts indicates a marginal decline from the prior quarter.
The consensus estimate of $287 million for overall fee income suggests a 5.3% fall from the last quarter. Management projects non-interest income to decline 5%, mainly due to lower capital markets income.
Expenses: The company is expected to have incurred higher expenses due to rising salaries on account of inflation. 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. Also, on a sequential basis, management expects non-interest expenses to rise 1-2%, primarily due to salary pressures.
Asset Quality: With expectations of a worsening macroeconomic outlook, CMA is expected to have set aside more money to cover expected loan losses in the third quarter. The consensus estimate of $193 million for non-performing loans suggests a 3.8% rise from the last reported quarter.
What Our Model Predicts
Our proven model does not conclusively predict an earnings beat for Comerica this time. 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%.
Here are a couple of stocks that you may want to consider as they have the right combination of elements to post an earnings beat in their upcoming releases: First Bancorp (FBNC - Free Report) and First Citizens BancShares, Inc. (FCNCA - Free Report) .
The Earnings ESP for FBNC is +5.26% and the stock currently carries a Zacks Rank #3. It is slated to report its third-quarter 2023 results on Oct 25.
The Zacks Consensus Estimate for FBNC’s third-quarter earnings has remained unchanged over the past 30 days.
FCNCA currently has an Earnings ESP of +3.85% and a Zacks Rank #2. It is scheduled to release its third-quarter 2023 results on Oct 26.
The Zacks Consensus Estimate for FCNCA’s third-quarter earnings has been revised 2.7% upward over the past 30 days.
Image: Shutterstock
Will Lower NII & Fee Income Hurt Comerica's (CMA) Q3 Earnings?
Comerica Incorporated (CMA - Free Report) is scheduled to report its third-quarter 2023 results on Oct 20, before the opening bell. The bank’s revenues and earnings are likely to have declined from the year-ago quarter’s reported number.
Comerica’s earnings for second-quarter 2023 surpassed the Zacks Consensus Estimate. Results were primarily aided by a rise in net interest income (NII), supported by higher interest rates and loan growth. However, higher expenses and increased provisions were the undermining factors.
CMA has an impressive surprise history. Its earnings surpassed estimates in all the trailing four quarters, the average beat being 3.51%.
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 third-quarter earnings is pegged at $1.70 per share, revised marginally downward in the past week. Also, the estimate indicates a 34.6% decline from the year-ago quarter’s reported figure.
The consensus estimate for revenues is pegged at $880.9 million, indicating a fall of 10.6% from the year-ago quarter.
Key Developments During the Quarter
In mid-August, Comerica launched Comerica Maximize, an interest-bearing checking account and competitive cash management solutions for qualifying small business and business banking customers. The new package enables them to earn interest income while growing and protecting their businesses with essential treasury services.
Factors at Play
NII: The overall lending scenario was muted in the to-be-reported quarter. Per the Federal Reserve’s latest data, the demand for commercial and industrial loans improved modestly in the quarter under review, while consumer loans (specifically credit cards) declined sequentially. This is likely to have affected the loan balances of CMA during the third quarter.
Markedly, from second-quarter 2023-end through August-end, the company’s average loans decreased $1.1 billion to $54.3 billion. The fall was due to a decline in mortgage banker, equity funds services and middle-market lending. Management expects average loans to remain stable sequentially in the third quarter.
However, average deposits increased to $65.4 billion from the second quarter’s $64.3 billion. The company expects the average deposit balance to decline 1-2%, assuming general stabilization. Moreover, interest-bearing deposits constituted a higher proportion of deposits. The unfavorable shift in the deposit mix will likely impede NII growth for CMA.
Also, continuing with its efforts to curb inflation, the Fed raised interest rates by another 25 basis points in July and kept the rates unchanged at 5.25-5.5% during the September FOMC meeting.
With such successive rate hikes, the positive impact of high interest rates on the company’s NII is anticipated to have been limited. It expects its third-quarter NII to decline 4% sequentially as funding costs weigh on it. The consensus mark of $595 million for NII indicates a 4.2% decrease sequentially.
Fee Income: Rising rates and high inflation 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 third-quarter 2023. The Zacks Consensus Estimate for card fees is pegged at $73 million, indicating a 1.4% rise from the prior quarter.
Global deal-making witnessed a slight rebound in the third quarter. A host of factors, like geopolitical tensions, government shutdown, inflation, higher interest rates and fears of a global macroeconomic slowdown, acted as major headwinds.
Thus, the deal volume and total value numbers were weak in the third quarter. Hence, overall growth in merger and acquisition advisory fees is not expected to have been that impressive in the quarter, thereby affecting capital markets income.
Deposit balances are not expected to have grown much in the third quarter as customers continued to look for better returns elsewhere. This is likely to have affected the revenues from service charges on deposit accounts. The Zacks Consensus Estimate of $46.6 million for service charges on deposit accounts indicates a marginal decline from the prior quarter.
The consensus estimate of $287 million for overall fee income suggests a 5.3% fall from the last quarter. Management projects non-interest income to decline 5%, mainly due to lower capital markets income.
Expenses: The company is expected to have incurred higher expenses due to rising salaries on account of inflation. 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. Also, on a sequential basis, management expects non-interest expenses to rise 1-2%, primarily due to salary pressures.
Asset Quality: With expectations of a worsening macroeconomic outlook, CMA is expected to have set aside more money to cover expected loan losses in the third quarter. The consensus estimate of $193 million for non-performing loans suggests a 3.8% rise from the last reported quarter.
What Our Model Predicts
Our proven model does not conclusively predict an earnings beat for Comerica this time. 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. You can see the complete list of today’s Zacks #1 Rank stocks here.
Stocks Worth a Look
Here are a couple of stocks that you may want to consider as they have the right combination of elements to post an earnings beat in their upcoming releases: First Bancorp (FBNC - Free Report) and First Citizens BancShares, Inc. (FCNCA - Free Report) .
The Earnings ESP for FBNC is +5.26% and the stock currently carries a Zacks Rank #3. It is slated to report its third-quarter 2023 results on Oct 25.
The Zacks Consensus Estimate for FBNC’s third-quarter earnings has remained unchanged over the past 30 days.
FCNCA currently has an Earnings ESP of +3.85% and a Zacks Rank #2. It is scheduled to release its third-quarter 2023 results on Oct 26.
The Zacks Consensus Estimate for FCNCA’s third-quarter earnings has been revised 2.7% upward over the past 30 days.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.