Comerica Earnings: Net Interest Income and Expense Outlook Steady

Key Morningstar Metrics for Comerica

• Fair Value Estimate: $73.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Comerica’s Earnings

Comerica CMA was mostly steady in the first quarter of 2024. Earnings per share of $0.98 missed the FactSet consensus estimate of $1.09, but excluding the FDIC special assessment and hedging losses, we estimate core EPS of $1.28. We attribute much of the core EPS beat to better-than-expected net interest income and lower loan loss provisions. There was little in the earnings release that would alter our long-term view of the firm. We will maintain our $73 fair value estimate and regard the shares as undervalued.

Net interest income of $548 million was down 6% sequentially and 23% from the year-ago quarter, better than the firm’s expected 9%-10% sequential decline. Net interest margin declined to 2.70% from 2.81% in the fourth quarter. Deposits continue to shift toward interest-bearing, but the pace of this shift is slowing. Comerica maintained its 2024 net interest income outlook of down 11% for the full year as fewer rate cuts are offset by a slightly smaller balance sheet versus its last update. It expects a 2% sequential decline in the second quarter, which implies a ramp-up in the back half of the year.

Credit trends were mixed in the quarter. Net charge-offs declined sequentially, but nonperforming assets and criticized loans increased, suggesting possible future credit headwinds. One soft area was senior housing, under pressure from lower occupancy and rising interest rates. Comerica still expects core expenses to increase about 3% this year as it focuses on reducing headcount and real estate spending.