Cost cuts and rate hikes drive Comerica's 4Q profits

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Despite showing declines in deposits, total loans and fee income year over year, Comerica beat earnings estimates in the fourth quarter thanks largely to a widening net interest margin and shrinking overhead.

The Dallas company, with $70.8 billion of assets, said Tuesday that it earned $310 million in the quarter that ended Dec. 31, or $1.88 per diluted share. Earnings per share were a penny higher than the mean estimates of analysts surveyed by FactSet Research Systems.

Total loans decreased 0.2% in the quarter when compared with a year earlier, to $48.8 billion, but net interest income climbed 13%, to $614 million, as rising interest rates boosted the yields on those loans. The net interest margin climbed 43 basis points year over year, to 3.7%.

Total deposits fell 3.3% to $55.3 billion, and interest paid on deposits nearly tripled to $90 million due to rising rates.

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Fee income fell 12.3% year over year to $250 million, largely due to a sharp decline in card fees. Early last year the company discontinued a prepaid card program for recipients of Social Security benefits after fraudsters exploited securities flaws in the program and drained accounts belonging to retirees and veterans.

Net income was aided by a 7.2% decrease in noninterest expenses year over year to $448 million, as a slight increase in salary and benefit costs was more than offset by declining expenses for outside processing and a sharp decrease in its federal deposit insurance premiums. Comerica’s efficiency ratio was 51.93% in the fourth quarter, a marked improvement from a ratio of 58.14% in the fourth quarter of 2016.

Looking ahead, Comerica said that it expects average loans to increase between 2% and 4% in 2019 and that it expects net interest income to climb between 4% and 5% due to a combination of loan growth and repositioning of its securities portfolio to take advantage of rising interest rates.

The company also said that it expects deposits to decline by 1% to 2% this year, fee income to climb by 2% to 3% and noninterest expenses to fall 3% when compared with 2018.

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