Morningstar DBRS Confirms Comerica Incorporated's Long-Term Issuer Rating at "A," Trend Stable

DBRS, Inc. (Morningstar DBRS) confirmed the credit ratings of Comerica Incorporated (Comerica or the Company), including its Long-Term Issuer Rating of "A." At the same time, Morningstar DBRS confirmed the credit ratings of the Company's primary banking subsidiary, Comerica Bank (the Bank). The trend on all credit ratings is Stable. The Intrinsic Assessment (IA) of the Bank is A (high) while its Support Assessment remains SA1. The Company's Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank's IA.

KEY CREDIT RATING CONSIDERATIONS
Comerica's credit ratings and Stable trends reflect its well-established, leading middle-market commercial lending franchise that is supported by a low-cost deposit base with a significant level of non-interest-bearing deposits. In addition, the Company has a long track record of generating typically sound financial results. The credit ratings also consider the Company's proven conservative credit-risk management. Comerica's somewhat less diversified loan portfolio and lower-than-peer levels of fee income are also factored into the credit ratings. The challenging operating environment, the level of unrealized losses in the investment securities portfolio, and the potential impact on earnings and capital in the unlikely scenario that those losses are realized are also factored into the credit ratings.

The Bank's Intrinsic Assessment of A (high) has been assigned at the midpoint of the Intrinsic Assessment Range as Morningstar DBRS views Comerica's credit fundamentals and performance as commensurate with those of similarly rated peers.

CREDIT RATING DRIVERS
Over the longer term, increased scale of the franchise, including greater revenue diversity, while maintaining a similar risk profile would result in an upgrade of the credit ratings. Conversely, the credit ratings would be downgraded if there were substantial weakening of earnings metrics or a sustained deterioration in asset quality.

CREDIT RATING RATIONALE
Franchise Combined Building Block Assessment: Good / Moderate
Headquartered in Dallas, Comerica operates a relationship-focused commercial banking franchise primarily in middle-market lending as well as a few industry verticals. While the bulk of its loan and deposit franchise is focused on its three main footprint states of California, Michigan, and Texas, the Company has lending relationships on a national basis in some business lines.

Earnings Combined Building Block Assessment: Strong / Good
Comerica's business mix usually creates sound returns and net interest margin. However, net income decreased 21% percent in 2024 compared with 2023, reflecting decreases in revenue, partially offset by decreases in non-interest expenses and provision for credit losses. Lower loan volume, the impact of higher rates, and a change in deposit mix, partially offset by a decline in short-term borrowings, drove a decrease in net interest income. Positively, the net interest margin has improved over the last two quarters as interest rates have declined. The Company reported $698 million of net income in 2024 equating to returns on assets (ROA) and equity (ROE) of 0.87% and 11.23%, respectively. Most recently in Q1 2025, Comerica reported net income of $172 million, representing a ROA of 0.90% and ROE of 10.60%.

Risk Combined Building Block Assessment: Strong / Good
Comerica's current asset quality metrics are normalizing while still remaining below historical averages, including a nonperforming assets ratio of 0.60% of loans at March 31, 2025. Additionally, net charge-offs (NCOs)_remain highly manageable at just 10 basis points (bps) in 2024 and 21bps in Q1 2025. Additionally, criticized loans have been relatively flat at 5.2% of loans. However, Morningstar DBRS expects asset quality to weaken somewhat from the current still-low levels. Factoring in the expected deterioration, the Company has maintained its allowance for credit losses at approximately 1.44% of loans. Looking forward, Comerica expects F2025 NCOs to be at the lower end of their normal 20 bps to 40 bps range.

Funding and Liquidity Combined Building Block Assessment: Strong / Good
Comerica's funding and liquidity remains solid, supported by its deposit base, which comprises a considerable amount of non-interest-bearing balances (38% of total deposits as of March 31, 2025). However, a large percentage (approximately 46% less affiliate deposits) of deposits are uninsured, which has made the Company potentially more vulnerable to deposit outflows in times of stress. However, Comerica has made significant progress in reducing its use of wholesale funding while building available liquidity. Overall, Morningstar DBRS views Comerica as having sufficient on balance sheet and access to liquidity ($42.5 billion in total liquidity capacity as of April 29, 2025) to offset a potential decline in deposits, and the loan-to-deposit ratio, at 81%, remains below historical averages.

Capitalization Combined Building Block (BB) Assessment: Strong / Good
Morningstar DBRS considers Comerica's capital levels, including its CET1 ratio of 12.05% at March 31, 2025, as solid and well above the Company's internal target of 10.0% and 57 bps above the 11.48% level a year ago. At 8.93%, Comerica's CET1 ratio would also meet capital requirements if accumulated other comprehensive income, including investment securities portfolio losses, were included in the calculation.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/453481.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 4, 2024), https://dbrs.morningstar.com/research/433881. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024; https://dbrs.morningstar.com/research/437781) in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The primary sources of information used for these credit ratings include Morningstar, Inc. and company documents. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings was of satisfactory quality.

The rating was not initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's outlooks and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277