Comerica Reports First Quarter 2011 Net Income of $103 Million, Up Eight Percent From Fourth Quarter 2010

DALLAS, April 19, 2011 /PRNewswire/ -- Comerica Incorporated (NYSE: CMA) today reported first quarter 2011 net income of $103 million, an increase of $7 million compared to $96 million for the fourth quarter 2010.

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"We had an eight percent increase in net income in the first quarter of 2011, when compared to the fourth quarter of 2010, which was primarily driven by reduced credit costs and good control of expenses," said Ralph W. Babb Jr., chairman and chief executive officer.  "Among the many positive and encouraging signs we saw in the first quarter were loan growth in the Global Corporate Banking, Energy and Middle Market lines of business, and an acceleration of loan growth in Texas.  These were more than offset by the continued and planned reductions in Commercial Real Estate, and a decrease in Mortgage Banker Finance.  First quarter revenue was down three percent from the fourth quarter, primarily driven by lower total average loans.

"Key credit metrics continued to move in the right direction in the first quarter.  In addition, deposit growth remained strong and our solid capital continued to position us well for future growth. We believe we are in the right markets with the right people and products to build upon this momentum going forward.

"We continue to be on track to close our pending acquisition of Sterling Bancshares in the second quarter, subject to customary closing conditions, including regulatory and Sterling shareholder approvals.  Preparations for the integration of Sterling are moving forward, as planned. We expect to complete the systems conversions in the fourth quarter, and anticipate a smooth and seamless transition. Sterling also reported first quarter 2011 earnings today, and they were consistent with our expectations. The more work we do and the better we get to know Sterling, the more confident we are in the fit of our two organizations."

First Quarter 2011 Highlights Compared to Fourth Quarter 2010

• Net income of $103 million, or $0.57 per fully diluted share, increased eight percent compared to the fourth quarter 2010.
• Average loans increased in the Global Corporate Banking business line ($276 million; six percent), in Energy Lending in the Specialty Businesses business line ($154 million; 12 percent) and in the Middle Market business line ($94 million; one percent).  These increases were more than offset by decreases in Mortgage Banker Finance in the Specialty Businesses business line ($535 million; 49 percent) and in the Commercial Real Estate business line ($324 million; seven percent), resulting in a decrease in average total loans of $448 million, or one percent.
• Average loans in the Texas market increased $389 million, or six percent, with increases in all major business lines other than Commercial Real Estate.  
• Average core deposits increased $290 million in the first quarter 2011.
• The net interest margin of 3.25 percent decreased four basis points, primarily resulting from an increase in excess liquidity, represented by average balances deposited with the Federal Reserve Bank, and the maturity of interest rate swaps at positive spreads.  
• Average earning assets increased $245 million in the first quarter 2011.
• Credit quality improvement continued in the first quarter 2011.  Net credit-related charge-offs decreased $12 million to $101 million. Internal watch list loans declined $376 million to $5.2 billion and nonaccrual loans decreased $84 million.  As a result, the provision for loan losses decreased $8 million to $49 million.
• Noninterest expenses totaled $415 million in the first quarter 2011, a decrease of $22 million from the fourth quarter 2010, primarily the result of a decrease in salaries expense of $17 million.
• The estimated Tier 1 ratio increased 24 basis points, to 10.37 percent at March 31, 2011, from December 31, 2010.

Net Interest Income and Net Interest Margin

• The $10 million decrease in net interest income in the first quarter 2011, when compared to the fourth quarter 2010, resulted primarily from two less days in the quarter and the maturity of interest rate swaps at positive spreads.
• The net interest margin of 3.25 percent declined four basis points compared to the fourth quarter 2010.  The decline in the net interest margin reflected the impact of an increase in excess liquidity and the maturity of interest rate swaps at positive spreads.
• Average earning assets increased $245 million, primarily due to increases of $504 million in Federal Reserve Bank deposits (excess liquidity) and $199 million in average investment securities available-for-sale, partially offset by a $448 million decrease in average loans.  
• First quarter 2011 average core deposits increased $290 million compared to fourth quarter 2010, primarily reflecting increases in money market and NOW deposits ($495 million), partially offset by decreases in noninterest-bearing deposits ($148 million) and customer certificates of deposit ($93 million).  

Noninterest Income

Noninterest income was $207 million for the first quarter 2011, compared to $215 million for the fourth quarter 2010.  The $8 million decline reflected increases in net income from principal investing and warrants ($4 million) and service charges on deposit accounts ($3 million), which were more than offset by decreases in commercial lending fees ($8 million) and bank-owned life insurance ($6 million).

Noninterest Expenses

Noninterest expenses totaled $415 million in the first quarter 2011, a decrease of $22 million from the fourth quarter 2010. The $22 million decrease in noninterest expenses was primarily due to a decrease in salaries expense ($17 million) and a one-time charge recognized in the fourth quarter 2010 related to the redemption of subordinated notes ($5 million), partially offset by an increase in employee benefits expense ($7 million).  The decrease in salaries expense primarily reflected a decrease in executive and business unit incentive expense ($8 million), a reduction in severance expense ($6 million) and the impact of two less days in the first quarter ($3 million), partially offset by an increase in share-based compensation expense ($5 million), resulting from annual share-based grants for retirement-eligible employees in the first quarter.

Credit Quality

"Overall, the first quarter results displayed a continuation of the steady improvement we have seen in our credit metrics over the last six quarters," Babb said.  "First quarter net credit-related charge-offs decreased $12 million, with a significant decline in Commercial Real Estate, partially offset by an increase in Middle Market net charge-offs. The increase in Middle Market net charge-offs was primarily the result of several previously identified problem loans that are working their way through the collection process.  Based on our analysis of Middle Market default rates, risk rating migration patterns as well as the watch list and nonaccruals, which were stable, we believe that the increase in charge-offs this quarter is not a trend. Our credit culture has served us well.  It is one of our key strengths and has resulted in some of the best credit metrics among our peers."

• Net credit-related charge-offs decreased $12 million to $101 million in the first quarter 2011, from $113 million in the fourth quarter 2010. The decrease in net credit-related charge-offs primarily reflected decreases of $29 million in the Commercial Real Estate business line, $13 million in the Private Banking business line and $7 million in the Specialty Businesses business line, partially offset by an increase of $36 million in the Middle Market business line.
• Internal watch list loans declined $376 million to $5.2 billion from December 31, 2010 to March 31, 2011.
• During the first quarter 2011, $166 million of loan relationships greater than $2 million were transferred to nonaccrual status, a decrease of $14 million from the fourth quarter 2010, primarily due to a $35 million decrease in transfers from the Commercial Real Estate business line and a $10 million decrease in transfers from the Private Banking business line, partially offset by a $30 million increase in transfers from the Middle Market business line.  Of the transfers of loan relationships greater than $2 million to nonaccrual in the first quarter 2011, $101 million were from the Middle Market business line, primarily in the Midwest and Other markets, and $37 million were from the Commercial Real Estate business line in the Midwest market.
• Nonperforming assets decreased $131 million to $1.1 billion, or 2.81 percent of total loans and foreclosed property, at March 31, 2011.  
• Nonaccrual loans were charged down 46 percent at March 31, 2011.
• Foreclosed property decreased $38 million to $74 million at March 31, 2011, from $112 million at December 31, 2010.
• Loans past due 90 days or more and still accruing were $72 million at March 31, 2011, an increase of $10 million compared to December 31, 2010.
• The provision for loan losses decreased $8 million, primarily due to reductions in the Commercial Real Estate, Global Corporate Banking, Private Banking and Specialty Businesses business lines, partially offset by an increase in the Middle Market business line.
• The allowance for loan losses to total loans ratio was 2.17 percent and 2.24 percent at March 31, 2011 and December 31, 2010, respectively.

Balance Sheet and Capital Management

Total assets and common shareholders' equity were $55.0 billion and $5.9 billion, respectively, at March 31, 2011, compared to $53.7 billion and $5.8 billion, respectively, at December 31, 2010. There were approximately 177 million common shares outstanding at March 31, 2011.  Comerica repurchased 400,000 shares of common stock in the open market in the first quarter 2011 under the share repurchase program.

Comerica's tangible common equity ratio was 10.43 percent at March 31, 2011, a decrease of 11 basis points from December 31, 2010. The estimated Tier 1 ratio increased 24 basis points, to 10.37 percent at March 31, 2011, from December 31, 2010.  

Full-Year 2011 Outlook Compared to Full-Year 2010

For full-year 2011, management expects the following, compared to full-year 2010, based on a continuation of modest growth in the economy.  This outlook does not include any impact from the pending acquisition of Sterling Bancshares, Inc.

• A low single-digit decrease in average loans. Excluding the Commercial Real Estate business line, a low single-digit increase in average loans.
• Average earning assets of approximately $48.5 billion, reflecting lower excess liquidity in addition to a decrease in average loans.
• An average net interest margin of 3.25 percent to 3.30 percent, based on no increase in the Federal Funds rate.  
• Net credit-related charge-offs between $350 million and $400 million for full-year 2011. The provision for credit losses is expected to be between $150 million and $200 million for full-year 2011.
• A low single-digit decline in noninterest income compared to 2010, primarily due to the impact of regulatory changes.  
• A low single-digit increase in noninterest expenses compared to 2010, primarily due to an increase in employee benefits expense.
• Income tax expense to approximate 36 percent of income before income taxes less approximately $60 million of permanent differences related to low-income housing and bank-owned life insurance.
• Continue share repurchase program that, combined with dividend payments, results in a payout up to 50 percent of full-year earnings.

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 March 31, 2011 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses first quarter 2011 results compared to fourth quarter 2010.

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

Business Bank

• Average loans decreased $338 million, reflecting increases in Global Corporate Banking, Energy Lending and Middle Market more than offset by decreases in Mortgage Banker Finance and Commercial Real Estate.
• Average deposits increased $192 million, primarily due to increases in Global Corporate Banking, Technology and Life Sciences and Mortgage Banker Finance partially offset by decreases in Middle Market, the Financial Services Division and Commercial Real Estate.
• The net interest margin of 4.66 percent increased 15 basis points, primarily due to an increase in deposit spreads and deposit balances.
• The provision for loan losses increased $10 million, primarily due to an increase in Middle Market, partially offset by decreases in Commercial Real Estate and Global Corporate Banking.
• Noninterest income decreased $4 million, primarily due to a decrease in commercial lending fees, partially offset by an increase in service charges on deposit accounts.
• Noninterest expenses increased $2 million, primarily due to an increase in other real estate expenses, partially offset by a decrease in corporate overhead expenses.

Retail Bank

• Average loans decreased $86 million, primarily reflecting declines in all business lines in the Midwest market.
• Average deposits increased $89 million, primarily due to increases in transaction and money market deposits, partially offset by a decline in customer certificates of deposit.
• The net interest margin of 3.25 percent increased 18 basis points, primarily due to increases in deposit spreads, partially offset by a decrease in loan balances.
• The provision for loan losses decreased $6 million, primarily reflecting decreases in all business lines in the Midwest and Texas markets, partially offset by increases in all business lines in the Western market.
• Noninterest expenses decreased $7 million, primarily due to a decrease in corporate overhead and nominal decreases in other expense categories.

Wealth and Institutional Management

• Average loans decreased $13 million.
• Average deposits increased $70 million, primarily due to increases in transaction and money market deposits.
• The net interest margin of 3.76 percent increased 33 basis points, primarily due to an increase in deposit spreads, partially offset by a decrease in loan balances.
• The provision for loan losses decreased $15 million, primarily reflecting decreases in the Western and Midwest markets.
• Noninterest income increased $5 million, primarily due to increases in gains on the redemption of auction-rate securities and investment banking fees.
• Noninterest expenses decreased $15 million, primarily due to decreases in salaries expense, outside processing fees and corporate overhead expenses.

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 March 31, 2011 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses first quarter 2011 results compared to fourth quarter 2010.

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

Midwest Market

• Average loans decreased $115 million, with declines in most business lines, partially offset by increases in National Dealer Services, Global Corporate Banking and Middle Market.
• Average deposits increased $271 million, primarily due to increases in Global Corporate Banking, Personal Banking, the Financial Services Division and Private Banking, partially offset by decreases in Middle Market and Small Business Banking.
• The net interest margin of 4.49 percent increased four basis points, primarily due to increases in deposit spreads and deposit balances, partially offset by a decrease in loan balances and loan spreads.
• The provision for loan losses decreased $12 million, primarily due to decreases in Global Corporate Banking, Commercial Real Estate, Private Banking and Small Business Banking, partially offset by an increase in Middle Market.
• Noninterest expenses decreased $13 million, primarily due to decreases in corporate overhead expense, litigation and operational losses and outside processing fees, partially offset by an increase in other real estate expenses.

Western Market

• Average loans decreased $114 million, primarily due to decreases in Commercial Real Estate and National Dealer Services, partially offset by increases in Middle Market and Global Corporate Banking.
• Average deposits decreased $213 million, primarily due to decreases in the Financial Services Division, Middle Market and Commercial Real Estate, partially offset by increases in Technology and Life Sciences and Global Corporate Banking.
• The net interest margin of 5.37 percent increased 36 basis points, primarily due to increases in loan and deposit spreads, partially offset by a decrease in deposit balances.
• Noninterest income increased $2 million, primarily due to an increase in warrant income.

Texas Market

• Average loans increased $389 million, primarily due to increases in Energy Lending, Middle Market and Global Corporate Banking, partially offset by a decrease in Commercial Real Estate.
• Average deposits increased $229 million, primarily due to increases in Global Corporate Banking, Technology and Life Sciences and Energy Lending, partially offset by a decrease in Middle Market.
• The net interest margin of 5.17 percent increased 26 basis points, primarily due to increases in loan and deposit spreads and deposit balances.
• The provision for loan losses decreased $11 million, with decreases across all lines of business.
• Noninterest income decreased $4 million, primarily due to decreases in commercial lending fees and warrant income.
• Noninterest expenses decreased $6 million, primarily due to decreases in salaries expense and other real estate expenses.

Florida Market

• Average loans decreased $32 million, primarily due to decreases in Commercial Real Estate and Global Corporate Banking.
• Average deposits decreased $8 million, primarily due to a decrease in Global Corporate Banking.
• The net interest margin of 2.82 percent increased 18 basis points, primarily due to an increase in loan and deposit spreads.
• The provision for loan losses increased $4 million, primarily due to increases in Middle Market and Private Banking.
• Noninterest expenses increased $3 million, primarily due to an increase in other real estate expenses.

Conference Call and Webcast

Comerica will host a conference call to review first quarter 2011 financial results at 7 a.m. CT Tuesday, April 19, 2011. Interested parties may access the conference call by calling (800) 309-2262 or (706) 679-5261 (event ID No. 51888978). The call and supplemental financial information can also be accessed on the Internet at www.comerica.com.  A telephone replay will be available approximately two hours following the conference call through April 30, 2011. The conference call replay can be accessed by calling (800) 642-1687 or (706) 645-9291 (event ID No. 51888978). 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," "opportunity," "initiative," "outcome," "continue," "remain," "maintain," "trend," "objective," "looks forward" 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 changes in general economic, political or industry conditions and related credit and market conditions; changes in trade, monetary and fiscal policies, including the interest rate policies of the Federal Reserve Board; adverse conditions in the capital markets; the interdependence of financial service companies; changes in regulation or oversight, including the effects of recently enacted legislation, actions taken by or proposed by the U.S. Treasury, the Board of Governors of the Federal Reserve System, the Texas Department of Banking and the Federal Deposit Insurance Corporation, legislation or regulations enacted in the future, and the impact and expiration of such legislation and regulatory actions; unfavorable developments concerning credit quality; the proposed acquisition of Sterling Bancshares, Inc. ("Sterling"), or any future acquisitions; the effects of more stringent capital or liquidity requirements; 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 implementation of Comerica's strategies and business models, including the anticipated performance of any new banking centers; Comerica's ability to utilize technology to efficiently and effectively develop, market and deliver new products and services; operational difficulties or information security problems; changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing; the entry of new competitors in Comerica's markets; changes in customer borrowing, repayment, investment and deposit practices; management's ability to maintain and expand customer relationships; management's ability to retain key officers and employees; the impact of legal and regulatory proceedings; the effectiveness of methods of reducing risk exposures; the effects of war and other armed conflicts or acts of terrorism and the effects of catastrophic events including, but not limited to, hurricanes, tornadoes, earthquakes, fires, droughts and floods. 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 16 of Comerica's Annual Report on Form 10-K for the year ended December 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.

Additional Information for Shareholders

In connection with the proposed merger transaction, Comerica has filed with the SEC a Registration Statement on Form S-4 that includes a Proxy Statement of Sterling and a Prospectus of Comerica, and Sterling mailed the definitive Proxy Statement/Prospectus to its shareholders on or about April 6, 2011. Each of Comerica and Sterling may file other relevant documents concerning the proposed transaction. SHAREHOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT AND THE DEFINITIVE PROXY STATEMENT/PROSPECTUS REGARDING THE MERGER AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.

A free copy of the definitive Proxy Statement/Prospectus, as well as other filings containing information about Comerica and Sterling, may be obtained at the SEC's Internet site (http://www.sec.gov). You may be able to obtain these documents, free of charge, from Comerica at www.comerica.com under the tab "Investor Relations" and then under the heading "SEC Filings" or from Sterling by accessing Sterling's website at www.banksterling.com under the tab "Investor Relations" and then under the heading "SEC Filings."

Comerica and Sterling and certain of their directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Sterling in connection with the proposed merger. Information about the directors and executive officers of Comerica is set forth in the proxy statement for Comerica's 2011 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 18, 2011. Information about the directors and executive officers of Sterling is set forth in Sterling's Form 10-K/A filed with the SEC on April 8, 2011. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the above-referenced definitive Proxy Statement/Prospectus and other relevant materials filed with the SEC. Free copies of these documents may be obtained as described in the preceding paragraph.

SOURCE Comerica Incorporated