Comerica Earnings: Net Interest Income Run Rate Looks a Bit Worse Than Expected

Key Morningstar Metrics for Comerica

• Fair Value Estimate: $73.00
• Morningstar Rating: 5 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Comerica’s Earnings

Comerica CMA reported decent third-quarter results. The firm largely met or exceeded expectations, as reported earnings per share of $1.84 beat FactSet consensus of $1.69 and our own estimate of $1.59. However, the beat was largely driven by lower provisioning, and while the bank maintained its full-year outlook for net interest income, or NII, the implied run rate for 2024 is a bit worse than we expected.

The potential bottom for NII has been one of the big remaining uncertainties for the regional banks. We are starting to get a better view, but some uncertainty remains. As we crunch the numbers, we now expect NII may not bottom until the first quarter of 2024. We previously thought the fourth quarter of 2023 might be the bottom. We also expect the trough run rate to be a bit worse than we originally anticipated, probably bottoming closer to between $550 million and $560 million. We expect to lower our 2024 NII forecast.

On the positive side, the bank was able to increase deposits, and deposit pricing is trending as we expected. We are getting closer to equilibrium, but not quite there yet. The bank expects 2024 expenses to be “modestly higher” than in 2023, but we will not get explicit guidance until fourth-quarter earnings. We think 4% growth is probably in the ballpark. For now, it looks as if profitability will worsen for Comerica as NII continues its decline and expenses trend higher. It is difficult to know when this dynamic will reverse, but we expect it will flatten out sometime in 2024.

We anticipate a mid-single-digit percentage decline in our $73 fair value estimate. We still see a bank that will remain profitable and ride out the current turmoil. While Comerica is one of the riskier names under our coverage, our base case remains that it will be fine. The shares currently trade at 61% of tangible book value adjusted for accumulated other comprehensive income.