Comerica Reports Second Quarter Net Income of $70 Million

DALLAS, July 21 /PRNewswire-FirstCall/ -- Comerica Incorporated (NYSE: CMA) today reported second quarter 2010 net income from continuing operations of $70 million, compared to $35 million for the first quarter 2010. Second quarter net income attributable to common shares of $69 million, compared to a net loss attributable to common shares of $71 million for the first quarter 2010, reflected a lower provision for loan losses resulting from continued improvement in credit quality and the benefit of the first quarter 2010 full redemption of $2.25 billion of preferred stock issued to the U.S. Treasury. Second quarter 2010 included a $126 million provision for loan losses, compared to $175 million for the first quarter 2010.

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"Our financial results reflect the many positive trends we have seen over several quarters," said Ralph W. Babb Jr., chairman and chief executive officer. "This includes three consecutive quarters of broad-based improvement in credit quality, with leading indicators of future credit quality also pointing positive. Our net interest margin continued to expand, and our expenses remained well controlled.  We have strong capital and liquidity to support future growth, with the flexibility to grow organically as well as by acquisition.

"We continue to reach out to our customers, taking their pulse on the economy, their current financial needs and future plans.  As a relationship-focused 'Main Street' bank, this type of proactive outreach is how we differentiate ourselves. Since the onset of the economic downturn, we stepped-up our calling efforts to be sure we were ideally positioned to assist customers in navigating the economic environment and to meet their needs as the economy improves.  This is reflected in our loan pipeline, which is now at its highest level in more than two years.

"While the pace of the economic recovery remains uncertain, we continue to focus on growing new relationships, and expanding existing ones, with confidence we are in the right markets with the right people and a full array of products and services to make a positive difference for our customers, shareholders and the communities we serve."

Second Quarter 2010 Highlights Compared to First Quarter 2010

• Net interest income increased $7 million to $422 million for the second quarter 2010, compared to $415 million for the first quarter 2010. The net interest margin of 3.28 percent increased 10 basis points, from 3.18 percent in the first quarter 2010, with little change from the impact of excess liquidity, represented by average balances deposited with the Federal Reserve Bank.  
• Net credit-related charge-offs decreased $27 million to $146 million, or 1.44 percent of average total loans, for the second quarter 2010, compared to $173 million, or 1.68 percent of average total loans, for the first quarter 2010.
• Watch list loans - generally consistent with regulatory defined special mention, substandard and doubtful (nonaccrual) loans - declined $851 million to $6.7 billion from March 31, 2010 to June 30, 2010.
• The provision for credit losses decreased $56 million to $126 million for the second quarter 2010, compared to $182 million for the first quarter 2010, due to continued broad-based improvement in credit metrics.
• The tangible common equity ratio was 10.11 percent at June 30, 2010, an increase of 43 basis points from March 31, 2010. The estimated Tier 1 common ratio was 9.79 percent and the estimated Tier 1 capital ratio was 10.61 percent at June 30, 2010, increases of 22 basis points and 23 basis points, respectively, from March 31, 2010.  
• There were no preferred stock dividends in second quarter 2010, compared to $123 million in the first quarter 2010. Comerica fully redeemed the $2.25 billion of preferred stock issued to the U.S. Treasury under the Capital Purchase Program in March 2010.  

Net Interest Income and Net Interest Margin

• The $7 million increase in net interest income in the second quarter 2010, when compared to first quarter 2010, resulted primarily from an increase in the net interest margin.
• The net interest margin of 3.28 percent increased 10 basis points, compared to first quarter 2010, primarily from maturing higher-cost wholesale funding and a less costly blend of core deposits. The net interest margin was reduced by approximately 23 and 24 basis points in the second and first quarters of 2010, respectively, from excess liquidity, which was represented by $3.7 billion of average balances deposited with the Federal Reserve Bank in the second quarter 2010, compared to $4.1 billion of average balances in the first quarter 2010. At June 30, 2010, excess liquidity was represented by $3.3 billion of balances deposited with the Federal Reserve Bank, compared to $3.8 billion at March 31, 2010.
• Average earning assets decreased $1.1 billion, reflecting decreases of $641 million in average loans and $465 million in other earning assets. Over one-half of the decrease in average loans was in the Commercial Real Estate business line, while Mortgage Banker Finance, National Dealer Services, Technology and Life Sciences and Private Banking showed increases. The pace of decline in loans in the second quarter 2010 continued to slow when compared to declines of $1.4 billion in the first quarter 2010 and $2.0 billion in the fourth quarter 2009. While customers remained cautious, credit line utilization was stable since the middle of the first quarter 2010.
• Second quarter 2010 average core deposits increased $1.7 billion compared to first quarter 2010, including a $1.3 billion increase in money market and NOW deposits and a $594 million increase in noninterest-bearing deposits.

Noninterest Income

Noninterest income was $194 million for both the second and first quarters of 2010.  Commercial service charges declined from a seasonally high first quarter 2010, while card fees and letter of credit fees increased in the second quarter 2010, compared to the first quarter 2010.

Noninterest Expenses

Noninterest expenses were $397 million for the second quarter 2010, compared to $404 million for the first quarter 2010. The $7 million decrease in noninterest expenses in the second quarter 2010, compared to the first quarter 2010, was primarily due to decreases in the provision for credit losses on lending-related commitments ($7 million) and other real estate expense ($7 million), partially offset by an increase in salaries expense ($10 million).  Salaries expense reflected the impact of one additional day in the second quarter, annual merit increases and increased share-based compensation expense. Full-time equivalent staff decreased by approximately 100 employees from March 31, 2010 and approximately 400 employees, or four percent, from June 30, 2009.  

Credit Quality

"The continued broad-based improvement in credit quality reflects our early recognition of issues, and our ability to quickly and proactively work through problem loans," Babb said.  "Overall charge-offs declined in the second quarter, with a notable decrease in commercial real estate charge-offs. The pace of improvement in credit quality is significant and faster than we had expected. A key indicator of future credit quality is our watch list loans, which are down $851 million.  As a result of the positive trends we have seen, we have reduced our charge-off outlook for full-year 2010."

• Net credit-related charge-offs decreased $27 million to $146 million in the second quarter 2010, from $173 million in the first quarter 2010. The decrease in net credit-related charge-offs resulted primarily from a $50 million decrease in the Commercial Real Estate business line in the second quarter 2010, with decreases in all markets, partially offset by a $32 million increase in the Middle Market business line, primarily in Other Markets.
• Nonperforming assets decreased $37 million to $1.2 billion, or 2.98 percent of total loans and foreclosed property, at June 30, 2010.  
• Watch list loans declined $851 million to $6.7 billion from March 31, 2010 to June 30, 2010.
• The provision for credit losses decreased $56 million, with significant declines in the Midwest, Western and Texas markets, partially offset by increases in Florida and Other Markets.
• During the second quarter 2010, $199 million of loan relationships greater than $2 million were transferred to nonaccrual status, a decrease of $46 million from the first quarter 2010.  Of the transfers of loan relationships greater than $2 million to nonaccrual in the second quarter 2010, $118 million were in Middle Market, primarily Midwest and Other Markets, $33 million were in the Commercial Real Estate business line and $30 million were in Private Banking.
• Nonaccrual loans were charged down 45 percent and 44 percent as of June 30, 2010 and March 31, 2010, respectively, compared to 39 percent one year ago.
• Foreclosed property increased $4 million to $93 million at June 30, 2010, from $89 million at March 31, 2010.
• Loans past due 90 days or more and still accruing were $115 million at June 30, 2010, an increase of $32 million compared to March 31, 2010.
• The allowance for loan losses to total loans ratio was 2.38 percent at June 30, 2010, compared to 2.42 percent at March 31, 2010.

Balance Sheet and Capital Management

Total assets and common shareholders' equity were $55.9 billion and $5.8 billion, respectively, at June 30, 2010, compared to $57.1 billion and $5.7 billion, respectively, at March 31, 2010. There were approximately 176 million common shares outstanding at June 30, 2010.  

In the second quarter 2010, the U.S. Treasury sold 11.5 million warrants to purchase an equal amount of shares of Comerica common stock at $29.40 per share, for $16.00 per warrant.  The warrants were originally issued to the U.S. Treasury in connection with Comerica's participation in the Capital Purchase Program.  Comerica fully redeemed the $2.25 billion of related preferred stock in March 2010. The sale of the warrants by the U.S. Treasury had no impact on Comerica's equity and the warrants remained outstanding at June 30, 2010.    

Comerica's tangible common equity ratio was 10.11 percent at June 30, 2010, an increase of 43 basis points from March 31, 2010. The estimated Tier 1 common ratio was 9.79 percent and the estimated Tier 1 capital ratio was 10.61 percent at June 30, 2010, increases of 22 basis points and 23 basis points, respectively, from March 31, 2010.  

Full-Year 2010 Outlook

For full-year 2010, management expects the following, based on an uncertain pace of economic recovery.

• Management expects loans to be stable from period-end June 30, 2010 to period-end December 31, 2010.  Investment securities, excluding auction-rate securities, are expected to remain at a level similar to June 30, 2010.
• Based on excess liquidity remaining similar to June 30, 2010 through year-end 2010, management expects an average net interest margin between 3.20 percent and 3.30 percent for full-year 2010, reflecting the benefit, compared to 2009, from improved loan pricing and lower funding costs.  No Federal Funds rate increase is assumed.
• Management expects net credit-related charge-offs between $600 million and $650 million for full-year 2010. The provision for credit losses is expected to be below net credit-related charge-offs.
• Management expects a low to mid single-digit decline in noninterest income compared to 2009, after excluding $243 million of 2009 net securities gains.  Included in the outlook is an estimated $5 million negative impact on service charge income in the second half of 2010 from overdraft policy changes consistent with new regulations issued by the Federal Reserve.
• Management expects a low single-digit decrease in noninterest expenses compared to 2009.
• 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, partially offset by approximately $5 million of state adjustments.

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 June 30, 2010 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses second quarter 2010 results compared to first quarter 2010.

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

Business Bank

• Average loans decreased $565 million, reflecting declines in all major markets. Over one-half of the decline was in Commercial Real Estate, while Mortgage Banker Finance, National Dealer Services and Technology and Life Sciences showed increases. The decline in loans continued to slow in the second quarter 2010.
• Average deposits increased $1.3 billion, primarily due to increases in the Financial Services Division and Global Corporate Banking.
• The net interest margin of 4.63 percent increased 15 basis points, primarily due to the benefit provided by the increases in noninterest-bearing deposits and money market deposits.
• The provision for loan losses decreased $54 million, primarily due to decreases in Commercial Real Estate and Middle Market.
• Noninterest expenses decreased $5 million, primarily due to decreases in the provision for credit losses on lending-related commitments and other real estate expense, partially offset by increases in salaries expense and allocated corporate overhead expenses.

Retail Bank

• Average loans decreased $153 million, reflecting declines across all markets and business lines.
• Average deposits increased $212 million, due to increases in all deposit categories except customer certificates of deposit.
• The provision for loan losses decreased $11 million, primarily due to a decrease in Personal Banking.
• Noninterest expenses increased $6 million, primarily due to increases in salaries expense and allocated corporate overhead expenses.

Wealth and Institutional Management

• Average loans increased $51 million.
• Average deposits increased $133 million, reflecting increases in money market and noninterest-bearing deposits.
• The net interest margin of 3.73 percent increased 20 basis points, primarily due to an increase in loan spreads.
• The provision for loan losses increased $7 million due to an increase in the Florida market.
• Noninterest expenses increased $6 million, due to increases in salaries expense and nominal increases in other expense 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 June 30, 2010 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses second quarter 2010 results compared to first quarter 2010.

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

Midwest Market

• Average loans decreased $373 million, primarily reflecting declines in Global Corporate Banking and Middle Market. The decline in loans continued to slow in the second quarter 2010.
• Average deposits increased $937 million, primarily due to increases in the Financial Services Division, Global Corporate Banking and Small Business Banking.
• The net interest margin of 4.69 percent decreased 17 basis points, due to an increase in deposits, a decrease in deposit spreads and a decline in loans.
• The provision for loan losses decreased $41 million, primarily due to a decrease in Middle Market.
• Noninterest expenses decreased $5 million, due to a decrease in the provision for credit losses on lending-related commitments, partially offset by an increase in allocated corporate overhead expense.

Western Market

• Average loans decreased $188 million, primarily due to a decline in Commercial Real Estate. The decline in loans continued to slow in the second quarter 2010.
• Average deposits increased $24 million, primarily due to increases in Technology and Life Sciences, the Financial Services Division and Private Banking, partially offset by decreases in Commercial Real Estate and Middle Market.
• The net interest margin of 5.13 percent increased nine basis points, primarily due to an increase in loan spreads.
• The provision for loan losses decreased $32 million, primarily due to decreases in Commercial Real Estate and Middle Market.
• Noninterest expenses increased $5 million, primarily due to increases in salaries expense and allocated corporate overhead expense.

Texas Market

• Average loans decreased $276 million, primarily due to decreases in Energy Lending, Middle Market and Commercial Real Estate.
• Average deposits increased $359 million, primarily due to increases in Global Corporate Banking and Energy Lending.
• The net interest margin of 5.05 percent increased 26 basis points, primarily due to the benefit provided by an increase in noninterest-bearing and NOW deposits.
• The provision for loan losses decreased $18 million, primarily due to a decline Commercial Real Estate.
• Noninterest expenses increased $5 million due to increases in salaries expense and allocated corporate overhead expenses.

Florida Market

• Average deposits increased $43 million, primarily due to an increase in Global Corporate Banking.
• The net interest margin of 2.94 percent increased 40 basis points primarily due to an increase in loan spreads and the benefit provided by an increase in noninterest-bearing deposits.
• The provision for loan losses increased $14 million primarily due to Private Banking.

Conference Call and Webcast

Comerica will host a conference call to review second quarter 2010 financial results at 7 a.m. CT Wednesday, July 21, 2010. Interested parties may access the conference call by calling (800) 309-2262 or (706) 679-5261 (event ID No. 82678684). 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 July 30, 2010. The conference call replay can be accessed by calling (800) 642-1687 or (706) 645-9291 (event ID No. 82678684). 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 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, the effects of recently enacted legislation, actions taken by or proposed 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, legislation enacted in the future, and the impact and expiration of such legislation and regulatory actions, 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. In particular, please refer to "Item 1A. Risk Factors" beginning on page 11 of Comerica's Annual Report on Form 10-K for the year ended December 31, 2009 and "Item 1A. Risk Factors" beginning on page 67 of Comerica's Quarterly Report on Form 10-Q for the quarter ended March 31, 2010. 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