DBRS: Comerica’s 3Q14 Balance Sheet Fundamentals Remain Favorable; Higher Net Income From Debt Gain

Summary:
• Excluding one-time items, Comerica reported core net income of $149 million, down modestly from 2Q14 primarily from lower revenues.
• Comerica reported broad-based loan and deposit growth. Moreover, the loan pipeline remains robust and strengthened from 2Q14 levels.
• DBRS rates Comerica Incorporated Issuer & Senior Debt at ‘A’ with a Stable trend.

DBRS, Inc. (DBRS) views Comerica Incorporated’s (Comerica or the Company) 3Q14 results as sound, reflecting broad-based loan and deposit growth, and the maintenance of the Company’s strong balance sheet. Moreover, core expenses remain well managed. Positively, Comerica announced that its contract with the U.S. Treasury to provide prepaid debit cards was extended an additional five years to January 2020.

Average total loans increased 1% during the quarter even with the expected seasonal decline in the National Dealer Services portfolio. Positively, the loan pipeline remains robust and strengthened from 2Q14 levels. For 2014, the Company narrowed its loan growth guidance to approximately 5%. Meanwhile, average total deposits increased a very strong 3%, including a $1.3 billion increase in average non-interest bearing deposits.

Revenues were down modestly sequentially primarily reflecting lower accretion, weaker foreign exchange income and lower investment banking. Results in 3Q14 included a net $8 million pre-tax benefit that included a gain on early redemption of debt, a charitable donation and several efficiency-related actions. Excluding these non-core items, noninterest expenses were well controlled increasing 1%. The Company noted that it expects another $5-$7 million of real estate optimization charges in 4Q13. Overall, Comerica’s efficiency ratio continues to trend in a positive direction, declining to 62.9% for the quarter but remains above its longer-term goal of below 60%.

The balance sheet remains supportive of the rating with strong asset quality and ample capital. Specifically, criticized loans, nonperforming assets and net charge-offs all declined during the quarter. Meanwhile, Comerica’s tangible common equity ratio was a solid 9.94% and the estimated Basel III common equity Tier 1 capital ratio was 10.4%. The Company noted that its liquidity coverage ratio was approximately 80%, which positions Comerica well to meet the 90% January 1, 2016 requirement.

DBRS rates Comerica Incorporated Issuer & Senior Debt at ‘A’ with a Stable trend.

Note:
All figures are in U.S. Dollars unless otherwise noted.