Comerica Earnings: Net Interest Income Grew from Trough

Key Morningstar Metrics for Comerica

• Fair Value Estimate: $59.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of Comerica’s Earnings

Comerica CMA reported solid results in the third quarter that largely met our expectations. Earnings per share of $1.33 declined by 10.7% from a quarter ago, mostly driven by a 6% decline in the fee income, with some noise related to non-core items. More importantly, Comerica increased its net interest income by 0.2% from the previous quarter, making it out of the trough.

The updated guidance for a NII decline of 13% is better than the previous decline of 14%. Fee income is expected to be flat, slightly lower than management’s previous guidance of it being up 1%-2%, partially driven by non-core items like hedging and the cessation of the Bloomberg Short-Term Bank Yield Index. After incorporating third-quarter results and management’s updated outlook, we maintain our fair value estimate of $59 per share and regard the shares as fairly valued.

Net interest income was reported at $534 million, up 0.2% from the previous quarter. Adjusting for the impact of the BSBY index’s cessation, NII grew by 1.3% sequentially. We note the bank paid down some higher funding sources, like wholesale funding and brokered certificates of deposits, in the quarter. The total cost of interest-bearing liabilities decreased by 1 basis point from the previous quarter. With tepid loan demand, Comerica can continue to pay down its high-cost funding sources.

Additional rate cuts by the Federal Reserve will also help the bank lower its funding costs, as Comerica is now slightly liability-sensitive. The updated 2024 guidance implies a 6% quarter-over-quarter increase in fourth-quarter NII, mostly in line with our expectations.

Comerica’s common equity Tier 1 ratio was 11.97% at the end of the third quarter. While the bank expects to hold this ratio above 11% in the short term, it has excess capital on its balance sheet, and management anticipates starting a $100 million share buyback program in the fourth quarter.