Rising deposit costs eat into Comerica's 3Q profit

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Comerica on Wednesday reported a decline in third-quarter profits as modest growth in both loans and fee income was more than offset by higher deposit costs and an increased provision for loan losses.

The Dallas company, with $71.7 billion of assets, said it earned $292 million in the third quarter, down 8.2% from the year-earlier period. Earnings per share increased by 10 cents year over year to $1.96, beating by 6 cents the mean estimates of analysts polled by FactSet Research Systems.

Interest income increased 5.3% year over year to $711 million, thanks largely to a 5% increase in total loans to $50.9 billion. The growth was driven primarily by increases in energy, mortgage banker finance, national deal services and general middle-market loans, the company said in a news release.

It was tempered, however, by a 64% increase in interest expenses year over year and a $35 million provision for loan losses.

Comerica reported no provision for loan losses in last year’s third quarter. It attributed the increase primarily to an 11% increase in criticized loans to $191 billion. Charge-offs in the quarter more than doubled to $61 million.

Noninterest income climbed 9.4% year over year to $256 million as gains in card fees and commercial lending fees offset declines in service charges on deposit accounts.

Noninterest expenses, excluding restructuring charges, fell 1.1% to $435 million, due primarily to a $5 million decline in deposit insurance costs.

Looking ahead, the company said that it expects loan growth to be relatively flat in the fourth quarter but that it expects net interest income to fall by about $35 million due to the anticipated impact of Federal Reserve interest rate cuts on loan yields.

Comerica’s shares were down 0.3% in early trading Wednesday to $66.80. Year to date, the shares are down 7.3%. The KBW Nasdaq Bank Index, which tracks the stocks of large and regional U.S. banks, is up about 13% since the start of the year.

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