Will Lower NII & Rising Expenses Hurt Comerica's Q3 Earnings?

Comerica Incorporated CMA is scheduled to report third-quarter 2024 results on Oct. 18, before the opening bell. The bank’s revenues and earnings are expected to decline from the year-ago quarter’s reported figures. Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar. The bank’s earnings for the second quarter of 2024 surpassed the Zacks Consensus Estimate by 28.6%. Results benefited from increased loan demand and a strong capital position. Nil provisions recorded in the quarter were another supporting factor. However, a decline in net interest income (NII) and fee income, along with increased expenses, was a major headwind. CMA has an impressive surprise history. Its earnings surpassed estimates in each of the trailing four quarters, the surprise being 14.19%, on average. The Zacks Consensus Estimate for third-quarter earnings of $1.17 per share revised marginally upward in the past seven days. However, the estimate indicates a 36.4% decline from the year-ago quarter’s reported figure. The consensus estimate for third-quarter 2024 revenues is pegged at $815.5 million, indicating a decline of 9% from the year-ago reported figure.Comerica Incorporated Price and EPS Surprise Comerica Incorporated price-eps-surprise | Comerica Incorporated QuoteFactors to Influence CMA’s Q3 EarningsLoans & NII: Per the Fed’s latest data, the demand for commercial and industrial loans and consumer loans was decent in the third quarter of 2024, while real estate loan was subdued. Given the significant exposure in commercial loans, CMA’s lending book is likely to have been supported by the decent demand in commercial loans while the subdued real estate loan demand might have offset growth to some extent. The Zacks Consensus Estimate of $72.1 billion for average earning assets indicates a sequential marginal increase. From the second quarter of 2024-end until the end of August, the company’s average loans decreased $0.5 billion to $50.6 billion. Management expects average loans to increase 1% sequentially in the third quarter, driven by a stabilizing macroeconomic outlook. Average deposits increased $1.2 billion to $64.3 billion from the second quarter of 2024-end until the end of August. The company expects average deposits to increase 1% sequentially in the third quarter of 2024.  On Sept. 18, the Federal Reserve cut interest rates by 50 basis points to 4.75-5% for the first time since March 2020. While this development might prove to be helpful in the long term, it is not expected to have a positive impact on CMA’s NII during the third quarter. Also, relatively higher rates might have hurt NII growth prospects similar to the last quarter due to the elevated funding/deposit costs and an inverted yield curve during the major part of the quarter. The consensus estimate for NII is pegged at $528.6 million, indicating a marginal decline from the prior quarter's reported figure. Management expects NII to decline in the 2-3% range, excluding the non-cash Bloomberg Short-Term Bank Yield impact. Non-Interest Income:  Consumer spending activities were decent in the third quarter of 2024. As card fees are major contributors to CMA’s fee income, the favorable trend is likely to have aided its fee growth during the quarter under review. The Zacks Consensus Estimate for card fees is pegged at $65.4 million, indicating a 2.2% rise from the prior quarter. Global mergers and acquisitions in the third quarter of 2024 showed improvement after subdued 2023 and 2022.  Both deal value and volume were decent during the quarter, driven by solid financial performance, higher chances of a soft landing of the U.S. economy, buoyant markets and interest rate cuts. Also, the impressive equity market performance drove some solid activity in follow-up equity issuances.   However, the IPO market saw signs of cautious optimism, given the market volatility, geopolitical challenges and global monetary easing. Furthermore, tough scrutiny by antitrust regulators and ongoing geopolitical issues posed challenges. Thus, the company’s capital markets fees are likely to have been negatively impacted in the quarter to be reported. The Zacks Consensus Estimate for capital markets income is pegged at $34.9 million, indicating a sequential fall of 5.8%. The Zacks Consensus Estimate for service charge on deposit is pegged at $46.7 million, indicating a rise of 1.4% from the prior quarter. The Zacks Consensus Estimate for overall fee income is pinned at $282.9 million, indicating a decline of 2.8% from the previous quarter. Expenses: The company is expected to have incurred higher expenses due to a rise in salaries and benefits expenditures. 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. Moreover, the agreement with Ameriprise (completed in 2023) to act as a new investment platform is anticipated to impact profitability due to integration costs. Asset Quality: The company is likely to have set aside a substantial amount of money for potential bad loans, given the expectations of an economic slowdown. The Zacks Consensus Estimate for non-performing loans is pegged at $228.5 million, indicating a rise of 1.1% from the prior quarter's reported figure. What Does Our Model Unveil for CMA?Per our proven model, the chances of Comerica beating estimates this time are low. 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. That is not the case here, as you can see below. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. Earnings ESP: Comerica has an Earnings ESP of -0.41%. Zacks Rank: CMA currently carries a Zacks Rank of 3.Stocks to ConsiderHere are some finance stocks that you may want to consider, as our model shows that these hold the right combination of elements to post an earnings beat this time around. First Horizon Corporation FHN has an Earnings ESP of +3.18% and carries a Zacks Rank #3 at present. The company is scheduled to release its third-quarter 2024 earnings on Oct. 16.  You can see the complete list of today’s Zacks #1 Rank stocks here. FHN’s quarterly earnings estimates have been unchanged over the past seven days. The Earnings ESP for M&T Bank Corporation MTB is +0.33% and it also carries a Zacks Rank #3 at present. The company is slated to report its third-quarter 2024 results on Oct. 17.The Zacks Consensus Estimate for MTB’s quarterly earnings has remained unchanged in the past seven days.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.7% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>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 Comerica Incorporated (CMA): Free Stock Analysis Report M&T Bank Corporation (MTB): Free Stock Analysis Report First Horizon Corporation (FHN): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks