Comerica Reports Fourth Quarter and 2009 Results

DALLAS, Jan. 21 /PRNewswire-FirstCall/ -- Comerica Incorporated (NYSE: CMA) today reported a fourth quarter 2009 net loss of $29 million, compared to net income of $19 million for the third quarter 2009 and $20 million for the fourth quarter 2008.  After preferred dividends of $33 million and $34 million in the fourth quarter and third quarters of 2009, respectively, and $17 million in the fourth quarter 2008, the net loss applicable to common stock was $62 million, or $0.41 per diluted share, for the fourth quarter 2009, compared to a net loss applicable to common stock of $15 million, or $0.10 per diluted share, for the third quarter 2009 and net income applicable to common stock of $3 million, or $0.02 per diluted share, for the fourth quarter 2008.  Fourth quarter 2009 included a $257 million provision for loan losses, compared to $311 million for the third quarter 2009 and $192 million for the fourth quarter 2008, and net securities gains of $10 million, compared to $107 million for the third quarter 2009 and $4 million for the fourth quarter 2008.  

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Net income was $17 million for full-year 2009, compared to $213 million for full-year 2008. After preferred dividends of $134 million and $17 million in 2009 and 2008, respectively, the net loss applicable to common stock was $117 million, or $0.77 per diluted share, for full-year 2009, compared to net income applicable to common stock of $196 million, or $1.29 per diluted share, for full-year 2008. The most significant items contributing to the decrease in net income were an increase in the provision for credit losses of $397 million, a decline in net interest income of $248 million and an increase in Federal Deposit Insurance Corporation (FDIC) insurance expense of $74 million.  These were partially offset by a $176 million increase in net securities gains, an $88 million auction-rate securities charge in 2008 (included in "litigation and operational losses"), and a $94 million decrease in salaries expense.

"We saw many encouraging signs in the fourth quarter, including improved credit metrics, continued strong deposit growth, a slower pace of decline in loan demand and a notable increase in the net interest margin," said Ralph W. Babb Jr., chairman and chief executive officer.  "These positive developments lead us to believe our core fundamentals will continue to show improvement in 2010.

"With unemployment still at 10 percent, business owners and managers, as well as consumers, remain cautious.  However, our customers are conveying a more confident tone and we are seeing more loans in the pipeline.  Combined with our solid capital position and dedicated colleagues, we believe we are ideally positioned to develop new relationships, and expand existing ones, as the economy continues its recovery."

Fourth Quarter and Full-Year 2009 Overview

Fourth Quarter 2009 Compared to Third Quarter 2009

• Average earning assets decreased $3.6 billion, reflecting decreases of $2.0 billion in average loans and $1.6 billion in other earning assets, primarily Federal Reserve Bank deposits and investment securities. The decline in loans slowed significantly in the fourth quarter 2009 and reflected subdued demand from customers in a recovering economic environment.  
• Average core deposits increased $935 million in the fourth quarter 2009, reflecting a $1.2 billion increase in noninterest-bearing deposits and a $1.0 billion increase in money market and NOW deposits, partially offset by a $1.3 billion decrease in higher-cost customer certificates of deposit.
• Net interest income increased $11 million, to $396 million for the fourth quarter 2009 compared to $385 million for the third quarter 2009.
• The net interest margin of 2.94 percent increased 26 basis points, from 2.68 percent in the third quarter 2009. Excluding excess liquidity, represented by average balances deposited with the Federal Reserve Bank, the net interest margin would have been 3.07 percent, an increase of 23 basis points from 2.84 percent in the third quarter 2009, resulting primarily from maturing wholesale funding.  Also, Business Bank loan spreads continued to improve.
• Net credit-related charge-offs were $225 million, or 2.10 percent of average total loans, for the fourth quarter 2009, compared to $239 million, or 2.14 percent of average total loans, for the third quarter 2009. The provision for loan losses was $257 million for the fourth quarter 2009, compared to $311 million for the third quarter 2009, and the period-end allowance to total loans ratio increased to 2.34 percent at December 31, 2009, from 2.19 percent at September 30, 2009. Nonaccrual loans at December 31, 2009 declined $31 million from September 30, 2009. Nonaccrual loans were charged down 44 percent as of December 31, 2009, compared to 41 percent as of September 30, 2009 and 34 percent one year ago.
• Noninterest income decreased $101 million, primarily due to a $97 million decrease in net securities gains ($10 million in the fourth quarter 2009 compared to $107 million in the third quarter 2009).
• Noninterest expenses increased $25 million from the third quarter, primarily due to increases in other real estate expense ($12 million) and severance and related expenses ($11 million, a workforce reduction of approximately 300).
• The provision for income taxes decreased $13 million from the third quarter, reflecting the decrease in income before income taxes, partially offset by the third quarter 2009 recognition of interest benefits related to certain anticipated federal tax refunds ($9 million, after-tax).  
• The tangible common equity ratio was 7.99 percent at December 31, 2009, an increase of three basis points from September 30, 2009. The estimated Tier 1 common ratio was 8.18 percent and the estimated Tier 1 capital ratio was 12.46 percent at December 31, 2009, increases of 14 basis points and 25 basis points, respectively, from September 30, 2009.

Full-Year 2009 Compared to Full-Year 2008

• Average loans in 2009 were $46.2 billion, a decrease of $5.6 billion from 2008, with declines in all geographic markets, consistent with post-recessionary environments, when loan demand is weak. Average earning assets were $58.2 billion in 2009, a decrease of $2.2 billion from 2008, as excess liquidity and investment securities increased.
• Average core deposits increased $973 million, reflecting a $2.3 billion increase in noninterest-bearing deposits, partially offset by a $1.3 billion decrease in money market and NOW deposits.
• The net interest margin was 2.72 percent for 2009, compared to 3.02 percent for 2008.  The decrease in the net interest margin was primarily due to loan rates declining faster than deposit rates with late 2008 rate reductions, excess liquidity and the reduced contribution of noninterest-bearing funds in a significantly lower rate environment, partially offset by increased loan spreads.  Excluding excess liquidity, the net interest margin would have been 2.83 percent for 2009, compared to 3.03 percent for 2008.
• Noninterest income increased $157 million compared to 2008, largely due to increases in net securities gains ($176 million) and deferred compensation asset returns ($36 million) (offset by an increase in deferred compensation plan costs in noninterest expenses), partially offset by decreases in fiduciary income ($38 million).
• Noninterest expenses decreased $102 million, or six percent, compared to 2008, primarily due to decreases in salaries expense ($94 million), reflecting a decline in workforce and reduced incentives, the provision for credit losses on lending-related commitments ($19 million), discretionary expenses and an $88 million charge in 2008 related to the repurchase of auction-rate securities (included in "litigation and operational expenses"), partially offset by increases in FDIC insurance expense ($74 million), other real estate expense ($38 million) and pension expense ($37 million).  Full-time equivalent employees decreased eight percent from year-end 2008 to year-end 2009.
• Net credit-related charge-offs were 1.88 percent of average total loans for 2009, compared to 91 basis points for 2008, largely due to credit issues concentrated in residential real estate development in the Commercial Real Estate business line.

Net Interest Income and Net Interest Margin

• The $11 million increase in net interest income in the fourth quarter 2009, when compared to third quarter 2009, resulted primarily from an increase in the net interest margin.
• The net interest margin of 2.94 percent increased 26 basis points, compared to third quarter 2009, primarily from maturing wholesale funding. The net interest margin was reduced by approximately 13 basis points in the fourth quarter 2009 from excess liquidity, which was represented by $2.5 billion of average balances deposited with the Federal Reserve Bank, compared to a reduction of 16 basis points from $3.5 billion of average balances in the third quarter 2009, and by three basis points from $778 million of average balances in the fourth quarter 2008. The decrease in Federal Reserve Bank deposits was mostly due to maturities of other time deposits (brokered retail certificates of deposit).
• Fourth quarter 2009 average core deposits increased $935 million compared to third quarter 2009, reflecting a $1.2 billion increase in noninterest-bearing deposits and a $1.0 billion increase in money market and NOW deposits, partially offset by a $1.3 billion decrease in higher-cost customer certificates of deposit.

Noninterest Income

Noninterest income was $214 million for the fourth quarter 2009, compared to $315 million for the third quarter 2009 and $174 million for the fourth quarter 2008. The $101 million decrease in noninterest income in the fourth quarter 2009, compared to the third quarter 2009, was primarily due to a decrease in net securities gains on sales of mortgage-backed government agency securities of $97 million.  Selected categories of noninterest income are highlighted in the following table.

Noninterest Expenses

Noninterest expenses were $424 million for the fourth quarter 2009, compared to $399 million for the third quarter 2009 and $411 million for the fourth quarter 2008. The $25 million increase in noninterest expenses in the fourth quarter 2009, compared to the third quarter 2009, was primarily due to increases in other real estate expense ($12 million) and severance and related expenses ($11 million).  Full-time equivalent staff decreased by approximately 54 employees from September 30, 2009 and 856 employees, or eight percent, from December 31, 2008.  Certain categories of noninterest expenses are highlighted in the table below.  

Credit Quality

"We were pleased to see broad-based improvement in credit quality in the fourth quarter, with declines in net charge-offs, nonperforming assets and the provision for loan losses," said Babb.  "We also saw inflows to nonaccrual loans slow in the fourth quarter, and our watch list loans decreased, as well.  We believe these improved credit metrics are the result of our diligent management of credit throughout this economic cycle."

• The provision for loan losses decreased $54 million, with declines in the Midwest, Western, Texas and Florida markets, and primarily in the Commercial Real Estate and Middle Market business lines.
• Net credit-related charge-offs in the Commercial Real Estate business line in the fourth quarter 2009 decreased to $62 million, from $91 million in the third quarter 2009. Commercial Real Estate net credit-related charge-offs decreased in Western, Texas, Florida and Other Markets, slightly offset by an increase in the Midwest market.
• Nonperforming assets decreased $13 million to $1.3 billion, or 3.06 percent of total loans and foreclosed property, at December 31, 2009.  
• During the fourth quarter 2009, $266 million of loan relationships greater than $2 million were transferred to nonaccrual status, a decrease of $95 million from the third quarter 2009.  Of the transfers of loan relationships greater than $2 million to nonaccrual in the fourth quarter 2009, $85 million were in Middle Market and $64 million were in the Commercial Real Estate business line.  Commercial Real Estate business line transfers to nonaccrual decreased $147 million from the third quarter 2009.
• Nonaccrual loans were charged down 44 percent as of December 31, 2009, compared to 41 percent as of September 30, 2009 and 34 percent one year ago.
• Loans past due 90 days or more and still accruing were $101 million at December 31, 2009, a decrease of $60 million compared to September 30, 2009.
• The allowance for loan losses to total loans ratio increased to 2.34 percent at December 31, 2009, from 2.19 percent at September 30, 2009 and 1.52 percent at December 31, 2008.

Balance Sheet and Capital Management

Total assets and common shareholders' equity were $59.3 billion and $4.9 billion, respectively, at December 31, 2009, compared to $59.6 billion and $4.9 billion, respectively, at September 30, 2009. There were approximately 151 million common shares outstanding at December 31, 2009.  

Comerica's tangible common equity ratio was 7.99 percent at December 31, 2009. The fourth quarter 2009 estimated Tier 1 common, Tier 1 and total risk-based capital ratios were 8.18 percent, 12.46 percent and 16.93 percent, respectively.  

Full-Year 2010 Outlook

For 2010, management expects the following, compared to 2009, based on a modestly improving economic environment:

• Management expects low single-digit period-end to period-end loan growth.  Investment securities are expected to remain at a level similar to year-end 2009.
• Based on no increase in the Federal Funds rate, management expects an average full-year net interest margin between 3.15 percent and 3.25 percent, reflecting the benefit, compared to full-year 2009, from improved loan pricing, lower funding costs and a lower level of excess liquidity.
• Management expects full-year net credit-related charge-offs to decrease to between $775 million and $825 million.  The provision for credit losses is expected to be slightly in excess of net charge-offs.
• Management expects flat noninterest income, after excluding $243 million of 2009 net securities gains.
• Management expects a low single-digit decrease in noninterest expenses.
• Management expects income tax expense to approximate 35 percent of income before income taxes less approximately $60 million of permanent differences related to low-income housing and bank-owned life insurance.

Business Segments

Comerica's continuing operations are strategically aligned into three major business segments: the Business Bank, the Retail Bank, and Wealth & Institutional Management.  The Finance Division also is included as a segment. The financial results below are based on the internal business unit structure of the Corporation and methodologies in effect at December 31, 2009 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses fourth quarter 2009 results compared to third quarter 2009.

The following table presents net income (loss) by business segment.

Business Bank

• Average loans decreased $1.8 billion, reflecting declines across all markets and businesses. The decline in loans slowed in the fourth quarter 2009.
• Average deposits increased $1.2 billion, primarily due to increases in Global Corporate, Technology and Life Sciences, Middle Market and Commercial Real Estate.
• The net interest margin of 4.21 percent increased 20 basis points, primarily due to an increase in deposit spreads and an increase in noninterest-bearing deposits. Also, loan spreads continued to improve.
• The provision for loan losses decreased $72 million, due to decreases in Commercial Real Estate and Middle Market.
• Noninterest income increased $5 million, reflecting increases in several fee categories.
• Noninterest expenses increased $4 million, due to increases in other real estate and severance and related expenses, partially offset by a decrease in the provision for credit losses on lending-related commitments.

Retail Bank

• Average loans decreased $171 million, across all businesses. The decline in loans slowed in the fourth quarter 2009.
• Average deposits decreased $543 million, primarily due to a decrease in higher-cost customer certificates of deposit, partially offset by an increase in noninterest-bearing, NOW and money market deposits.
• The net interest margin of 3.02 percent increased 15 basis points, due to an increase in deposit spreads related to maturing higher-cost customer certificates of deposit.
• The provision for loan losses decreased $6 million, due to a decrease in Small Business.
• Noninterest expenses increased $7 million, primarily due to increases in severance and related expenses and other real estate expense.

Wealth and Institutional Management

• Average loans decreased $14 million.
• Average deposits increased $114 million, reflecting an increase in noninterest-bearing, NOW  and money market deposits, partially offset by a decrease in higher-cost customer certificates of deposit.
• The net interest margin of 3.50 percent increased two basis points, primarily due to the benefit provided by an increase in noninterest-bearing deposits, partially offset by a decrease in loan spreads.
• Noninterest income decreased $6 million, primarily due to a decrease in net securities gains.
• Noninterest expenses increased $3 million, reflecting nominal increases in several categories.

Geographic Market Segments

Comerica also provides market segment results for four primary geographic markets: Midwest, Western, Texas and Florida.  In addition to the four primary geographic markets, Other Markets and International are also reported as market segments.  The financial results below are based on methodologies in effect at December 31, 2009 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses fourth quarter 2009 results compared to third quarter 2009.

The following table presents net income (loss) by market segment.

Midwest Market

• Average loans decreased $576 million, reflecting declines in Middle Market and Global Corporate. The decline in loans slowed in the fourth quarter 2009.
• Average deposits decreased $194 million, due to a decrease in Personal Banking, partially offset by an increase in Global Corporate.
• The net interest margin of 4.73 percent increased one basis point, primarily due to an increase in deposit spreads related to maturing higher-cost customer certificates of deposit.
• The provision for loan losses decreased $42 million, primarily due to a decline in Middle Market.
• Noninterest expenses increased $4 million, due to increases in other real estate expense and severance and related expenses, partially offset by a decrease in the provision for credit losses on lending-related commitments.

Western Market

• Average loans decreased $634 million, primarily due to declines in Middle Market, Commercial Real Estate and National Dealer Services.  The decline in loans slowed in the fourth quarter 2009.
• Average deposits increased $753 million, primarily due to increases in Technology and Life Sciences, Middle Market and Commercial Real Estate.
• The net interest margin of 4.85 percent increased 32 basis points, primarily due to the benefit provided by an increase in noninterest-bearing deposits.
• The provision for loan losses decreased $22 million, due to a decrease in Commercial Real Estate.
• Noninterest expenses increased $4 million, primarily due to an increase in other real estate expense.

Texas Market

• Average loans decreased $287 million, primarily due to Energy Lending and Middle Market.  The decline in loans slowed in the fourth quarter 2009.
• Average deposits increased $128 million, primarily due to increases in Small Business, Global Corporate and Middle Market, partially offset by a decline in Personal Banking.
• The net interest margin of 4.46 percent increased 24 basis points, primarily due to an increase in loan spreads and the benefit provided by an increase in noninterest-bearing deposits and maturing higher-cost customer certificates of deposit.
• The provision for loan losses decreased $9 million, due to declines in Energy Lending and Middle Market.
• Noninterest expenses increased $3 million, reflecting nominal increases in several categories.

Florida Market

• Average loans decreased $61 million, primarily due to decreases in Middle Market and Commercial Real Estate.  The decline in loans slowed in the fourth quarter 2009.
• Average deposits increased $6 million, primarily due to an increase in Private Banking.
• The net interest margin of 2.57 percent decreased 13 basis points, primarily due to a decrease in loan spreads.
• The provision for loan losses decreased $24 million, due decreases in Commercial Real Estate, Middle Market and Private Banking.

Conference Call and Webcast

Comerica will host a conference call to review fourth quarter 2009 financial results at 7 a.m. CT Thursday, January 21, 2010. Interested parties may access the conference call by calling (800) 309-2262 or (706) 679-5261 (event ID No. 47127335). The call and supplemental financial information can also be accessed on the Internet at www.comerica.com.  A replay will be available approximately two hours following the conference call through January 31, 2010. The conference call replay can be accessed by calling (800) 642-1687 or (706) 645-9291 (event ID No. 47127335). A replay of the Webcast can also be accessed via Comerica's "Investor Relations" page at www.comerica.com.

Comerica Incorporated is a financial services company headquartered in Dallas, Texas, and strategically aligned by three major business segments: the Business Bank, the Retail Bank, and Wealth & Institutional Management. Comerica focuses on relationships and helping people and businesses be successful. In addition to Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada, China and Mexico.

This press release contains both financial measures based on accounting principles generally accepted in the United States (GAAP) and non-GAAP based financial measures, which are used where management believes it to be helpful in understanding Comerica's results of operations or financial position.  Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconcilement to the comparable GAAP financial measure, can be found in this press release.  These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Forward-looking Statements

Any statements in this news release that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Words such as "anticipates," "believes," "feels," "expects," "estimates," "seeks," "strives," "plans," "intends," "outlook," "forecast," "position," "target," "mission," "assume," "achievable," "potential," "strategy," "goal," "aspiration," "outcome," "continue," "remain," "maintain," "trend," "objective" and variations of such words and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "might," "can," "may" or similar expressions, as they relate to Comerica or its management, are intended to identify forward-looking statements. These forward-looking statements are predicated on the beliefs and assumptions of Comerica's management based on information known to Comerica's management as of the date of this news release and do not purport to speak as of any other date. Forward-looking statements may include descriptions of plans and objectives of Comerica's management for future or past operations, products or services, and forecasts of Comerica's revenue, earnings or other measures of economic performance, including statements of profitability, business segments and subsidiaries, estimates of credit trends and global stability. Such statements reflect the view of Comerica's management as of this date with respect to future events and are subject to risks and uncertainties. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, Comerica's actual results could differ materially from those discussed.  Factors that could cause or contribute to such differences are further economic downturns, changes in the pace of an economic recovery and related changes in employment levels, changes in real estate values, fuel prices, energy costs or other events that could affect customer income levels or general economic conditions, changes related to the headquarters relocation or to its underlying assumptions, the effects of recently enacted legislation, such as the Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009, and actions taken by the U.S. Department of Treasury, the Board of Governors of the Federal Reserve System, the Texas Department of Banking and the Federal Deposit Insurance Corporation, the effects of war and other armed conflicts or acts of terrorism, the effects of natural disasters including, but not limited to, hurricanes, tornadoes, earthquakes, fires, droughts  and floods, the disruption of private or public utilities, the implementation of Comerica's strategies and business models, management's ability to maintain and expand customer relationships, changes in customer borrowing, repayment, investment and deposit practices, management's ability to retain key officers and employees, changes in the accounting treatment of any particular item, the impact of regulatory examinations, declines or other changes in the businesses or industries in which Comerica has a concentration of loans, including, but not limited to, the automotive production industry and the real estate business lines, the anticipated performance of any new banking centers, the entry of new competitors in Comerica's markets, changes in the level of fee income, changes in applicable laws and regulations, including those concerning taxes, banking, securities and insurance, changes in trade, monetary and fiscal policies, including the interest rate policies of the Board of Governors of the Federal Reserve System, fluctuations in inflation or interest rates, changes in general economic, political or industry conditions and related credit and market conditions, the interdependence of financial service companies and adverse conditions in the stock market. Comerica cautions that the foregoing list of factors is not exclusive. For discussion of factors that may cause actual results to differ from expectations, please refer to our filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made. Comerica does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made. For any forward-looking statements made in this news release or in any documents, Comerica claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

SOURCE Comerica Incorporated

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