Rising Loans and Rates to Support Comerica (CMA) Third Quarter Earnings – October 17, 2022

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Comerica Incorporated (CMA Free Report) is expected to release its third quarter 2022 results before the October 19 opening bell. The bank’s revenue is expected to have increased from the figure reported a year ago, while profits are expected to have remained stable.

Comerica’s better-than-expected earnings for the second quarter of 2022 reflect high total loan balances and a significant decline in non-performing assets. However, high expenses were detrimental factors.

CMA has a decent surprise history. Its earnings beat estimates in three of the past four quarters and missed the other, averaging 5.99%.

CMA’s activity in the reportable quarter was enough to inspire analyst confidence in the stock. Clearly, the Zacks consensus estimate of $2.57 for third-quarter earnings has been revised slightly higher over the past week. The estimate indicates a 35.3% increase from the figure reported a year ago. The consensus revenue estimate is set at $961.5 million, suggesting a growth of 27.4% from the figure reported a year ago.

Factors at play

Net interest income (NII): While lending activity improved sequentially in the third quarter, the pace of loan growth across most categories slowed as the quarter progressed. According to the latest data from the Fed, residential mortgages and consumer loans moderated slightly in the third quarter compared to the second quarter.

Commercial real estate lending, as well as commercial and industrial lending growth, accelerated in the quarter under review. This likely helped the company’s performance in the third quarter, as the majority of its loan book consists of business and commercial mortgages.

In mid-September, CMA provided an update at a conference, indicating that at the end of August, average loans stood at $50.9 billion, increasing by $900 million on a sequential. With strong loan pipelines, the company should have ended the quarter with higher loan balances.

Decent loans aside, rising interest rates should have supported the CMA’s NII. In the third quarter, the Fed raised interest rates by 150 basis points. This likely had a favorable impact on CMA’s net interest margin and NII.

The consensus rating for NII suggests a jump of 45.9% from the number reported the previous year at $693 million. Management expects NII (including PPP) to rise 21% sequentially.

fee income: Weaker stimulus, rising rates and high inflation are expected to have increased card usage and fees in the quarter. However, high stimulus payment activity over the past year likely presented challenging conditions for card fees for Comerica (a major contributor to fee revenue) in Q3 2022. The consensus estimate of Zacks’ $69 million for card fees calls for a 4.2% drop from the number reported the previous year.

Additionally, the consensus estimate of $28.3 million for commercial loan fees suggests an 8.7% decline from the figure reported a year ago.

With customers using their balances to fund their business activities, deposit growth slowed in the quarter. The company noted average deposits of $74.7 billion at the end of August, down 3.7% sequentially. This likely affected revenues from service charges on deposits. Still, Zacks’ consensus estimate for the deposit service fee is set at $50 million, suggesting no change from the figure reported a year ago.

The consensus estimate of $266 million for overall fee income suggests a 5% decline from the figure reported a year ago.

Expenses: The company is investing in its technology platform, through its business initiatives. It is expected that he incurred higher expenses due to higher salaries due to inflation. These rising costs are expected to have weighed on its expense base to some extent in the quarter under review and hamper earnings growth.

Asset quality: With loan growth, expectations of a deteriorating macro outlook and rising recession fears, CMA should have set aside more money to cover expected loan losses in the third quarter. In the second quarter of 2022, the company increased the provision for credit losses by $10 million to $609 million. The growing momentum is also expected to continue in the third quarter.

Now let’s see what our quantitative model predicts:

The odds of Comerica earnings exceeding the Zacks consensus estimate in the third quarter are high. This is because it has the right combination of the two key ingredients – a positive win ESP and a Zacks rank #3 (Hold) or higher – that are needed to increase the chances of a win beat.

You can discover the best stocks to buy or sell before they’re flagged with our earnings ESP filter.

ESP Earnings: Comerica has an ESP on revenue of +0.13%.

Zacks Rank: Comerica currently has a Zacks Rank #2 (Buy). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other actions worth a look

A few financial stocks, which you may want to consider, as they also have the right combination of elements to show a pace of earnings in their next releases according to our model, are Associated Bank-Corp (BSA free report) and United Bank (BKU free report).

Associated Banc-Corp is expected to release its third quarter 2022 results on October 20. The company, which currently carries a Zacks rank of No. 3, has an ESP profit of +0.57%.

The earnings ESP for BKU is +1.32% and the company currently holds rank 3 of Zacks. BKU is expected to release its third quarter 2022 results on October 20.

Stay on top of upcoming earnings announcements with Zacks Earnings Calendar.

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