Provides 2Q22 Mid-Quarter Update Ahead of Investor Conference
We maintain our Market Perform rating on CMA following the release of its slides and ahead of
its presentation at an investor conference today. Net-net, the update (through 5/31/22) is largely
positive where: (1) average loan balances are currently tracking ahead of current consensus
expectations for full-quarter 2Q22; (2) average deposit balances are tracking in line with current
consensus expectations for full-quarter 2Q22, (3) sequential growth in net interest income for
2Q22 is tracking ahead of current consensus expectations, and (4) y/y growth in net interest
income for full-year 2022 is tracking ahead of current consensus expectations. In turn, and with
CMA shares down -16.8% QTD/-13.5% YTD vs. -15.1%/-20.3 for the BKX and -13.9%/18.2% for the
S&P 500, we would expect shares to react positively to the update.
2Q22 loan balances tracking higher sequentially:
TD average loan balances in 2Q22 are up ~ $1.4 billion (+12% ann.) to ~$49.7 billion through 5/31/22, which is tracking ahead of the FactSet consensus estimate of ~$49.2 billion for the full quarter average and on par with our forecast of ~ $49.7 billion. However, average loans ex. PPP are up ~$1.7 billion (+13% ann.) QTD through May 31. In the slides, Comerica noted pipelines remain very strong and QTD ex. PPP results have been reflective of increases in General Middle Market (+$0.5 billion, 16% ann.), Corporate Banking (+ $0.3 billion, +23% ann.), and Equity Fund Services (+$0.3 billion, +38% ann.). Comerica’s average loan growth stands below the trend for the 25 largest banks, which per the most recent H.8 filing (link) have experienced 11% ann. loan growth through June 10th. Its outlook for full quarter 2Q22 calls for average loan balances to be stable to slightly higher loan balances from QTD levels.
Deposit balances lower in 2Q22:
TD average deposit balances in 2Q22 are down ~ $700 million (-4% ann.; -$600 million in interest-bearing and -$100 million in noninterest-bearing) to ~$78.4 billion as of 5/31/22, which is tracking in line with the FactSet consensus but above our forecast of ~$77.5 billion for full quarter 2Q22. However, in the slides, it noted that 5/31/22 spot deposit balances were $77.8 billion and reflect a $171 million increase from 3/31/22 spot balances. Moreover, it noted interest-bearing deposit costs remained at just 5 bp and that its 2Q22 outlook calls for balances to remain stable to slightly lower from current QTD levels. It’s QTD average deposit are well below the 1% ann. decrease for the largest 25 banks through June 10 (link).
Additional highlights from presentation:
(1) Subsequent to close of 1Q22, it made $1.3 billion in net securities purchases bringing the total and portfolio yield to $18.6 billion/ 1.87% (1Q22: $17.3 billion/ 1.74%); (2) in April and May, it added $5.3 billion of additional forward rate swaps at an average rate of 2.72%; (3) assuming the forward curve, its 1Q22 loan & deposit outlook, and no additional securities purchased after 5/31, it expects 2022 NII (inclusive of PPP) will increase +25% y/y to ~$2.3 billion vs. consensus of ~$2.2 billion/+20% and that 2Q22 NII will increase ~20% q/q to ~$547 million vs. consensus of ~$526 million/+15% (4) in 2022, its expects 40% of its tech spend will be used to run the bank (2021: 35%) with the remaining 60% being used to change the bank (2021: 65%). Its long term outlook calls for a 50/50% split; (5) between 2012 and 1Q22, it reduced its corporate real estate footprint by ~24% from 5.55 million square fee to 4.24 million square feet; (6) its average loan/deposit ratio of 63.4% through 5/31/22 is up from 61.1% for 1Q22; and (7) it reiterated its ~10% CET1 target; did not provide an update on 2Q22 share repurchases.