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