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Interest-bearing funds drive deposit growth at Comerica as loans decline

Comerica Inc. executives said seasonal slowdowns during the third quarter were a drag on loan growth, while interest-bearing funds boosted deposit balances.

Loans at Comerica declined $641 million from the quarter prior, which executives attributed to seasonality in business lines such as auto dealer finance and middle market. Loans totaled $49.01 billion for the quarter, compared with $49.79 billion in the second quarter and $49.21 billion in the third quarter of 2017.

President Curtis Farmer said the bank has yet to see accelerated capital expenditures from customers, despite their increased optimism. Executives attributed that to customers benefiting from tax reform and either sitting on the cash or deleveraging. Additionally, the bank remains selective in the competitive corporate space. Farmer said the competition continues to come from nonbanks or shadow banks, with deals that feature higher leverage or lighter covenants.

Despite that, 40% of Comerica's new originations have come from new customers. Loan growth could rebound somewhat in the fourth quarter, as period-end commitments reached $650 million led by activity in technology and life sciences and middle market. CFO Muneera Carr said overall sentiment remains "positive" but commercial customers are "cautious" due to recently imposed tariffs, trade discussions and a tight labor market.

The declining loan growth came as interest-bearing deposits boosted average deposits by $263 million during the quarter, Carr said, with most activity coming from technology and life sciences and wealth management. Pricing on interest-bearing funds rose 9 basis points during the quarter, increasing deposit costs by $7 million. The bank also increased its rate on certain interest-bearing deposit products following the September rate hike. Carr said this action is similar to moves that competitor banks have made and will increase average deposit costs by 12 to 15 basis points in the fourth quarter. Broadly, deposit costs at the bank should follow increasing short-term rates.

Comerica executives continued their incremental approach of announcing one quarter's worth of capital actions at a time following the company's unexpected release from the 2018 Comprehensive Capital Analysis and Review. Carr said the bank is targeting a $500 million share repurchase in the fourth quarter, which it plans to do in an accelerated program. That follows the $600 million that the bank returned to shareholders through repurchases and an increased dividend in the second quarter. Those actions helped Comerica's common equity Tier 1 ratio decline by 23 basis points to 11.66%. Ultimately, Comerica executives are targeting a ratio of 9.5% to 10% by the end of 2019 through a combination of loan growth and earnings generation, as well as other avenues of capital distribution.

The bank reported third-quarter net income attributable to common shares of $316 million, or $1.86 per share, up from net income of $224 million, or $1.26 per share, in the same quarter of the prior year.