Comerica Reports First Quarter 2013 Net Income Of $134 Million - 70 Cents Per Share

DALLAS, April 16, 2013 /PRNewswire/ -- Comerica Incorporated (NYSE: CMA) today reported first quarter 2013 net income of $134 million, compared to $130 million for the fourth quarter 2012. Earnings per fully diluted share were 70 cents for the first quarter 2013, compared to 68 cents for the fourth quarter 2012.

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"Broad-based average loan growth in each of our primary geographic markets, together with tight expense controls, contributed to our increased net income in the first quarter," said Ralph W. Babb Jr., chairman and chief executive officer. "Our commercial banking expertise drove our overall loan growth. An expected decline in Mortgage Banker Finance was more than offset by increases in general Middle Market, National Dealer Services, Energy, and Technology and Life Sciences. Credit quality continued to be stable.

"We remain focused on total payout to shareholders, reflected by share repurchases and dividends, while maintaining our strong capital ratios. We repurchased 2.1 million shares in the first quarter and combined with dividends, we returned 77 percent of first quarter net income to shareholders. On March 14, we announced that the Federal Reserve had completed its 2013 capital plan review and did not object to our capital plan and contemplated capital distributions. Our capital plan includes up to $288 million in share repurchases for the four-quarter period that ends in the first quarter 2014."

First Quarter 2013 Compared to Fourth Quarter 2012

• Average total loans increased $498 million, or 1 percent, to $44.6 billion, primarily reflecting an increase of $594 million, or 2 percent, in commercial loans, partially offset by a decrease of $106 million, or 1 percent, in combined commercial mortgage and real estate construction loans. A $356 million decrease in Mortgage Banker Finance was more than offset by broad-based increases in other business lines, including general Middle Market, National Dealer Services, Energy, and Technology and Life Sciences. Period-end total loans decreased $990 million, or 2 percent, to $45.1 billion, primarily reflecting a decrease of $687 million in Mortgage Banker Finance.
• Average total deposits decreased $590 million, to $50.7 billion, primarily reflecting a decrease of $1.3 billion, or 6 percent, in noninterest-bearing deposits. The decrease in average noninterest-bearing deposits reflected a $675 million decrease in the Financial Services Division, which provides services to title and escrow companies. Period-end total deposits decreased $74 million to $52.1 billion, reflecting a decrease of $502 million in noninterest-bearing deposits, largely offset by increases of $267 million in money market and interest-bearing checking deposits and $222 million in customer certificates of deposit.
• Net interest income was $416 million in the first quarter 2013, compared to $424 million in the fourth quarter 2012. The $8 million decrease in net interest income was primarily due to two fewer days in the first quarter. Accretion of the purchase discount on the acquired loan portfolio was $11 million in the first quarter 2013, compared to $13 million in the fourth quarter 2012.
• Stable credit quality continued in the first quarter 2013. The provision for credit losses of $16 million in the first quarter 2013 was unchanged compared to the fourth quarter 2012.
• Noninterest income decreased $4 million to $200 million in the first quarter 2013, compared to $204 million in the fourth quarter 2012, primarily reflecting decreases in customer derivative income and commercial lending fees from high fourth quarter 2012 levels.
• Noninterest expenses decreased $11 million to $416 million in the first quarter 2013, compared to $427 million in the fourth quarter 2012, primarily due to a decrease in salaries expense.
• Comerica repurchased 2.1 million shares of common stock ($71 million) in the first quarter 2013 under the 2012 capital plan. Combined with dividends, 77 percent of net income was returned to shareholders in the first quarter 2013.
• As previously announced, the Federal Reserve completed its review of Comerica's 2013 capital plan in the first quarter 2013 and did not object to the capital distributions contemplated in the plan, including up to $288 million of share repurchases for the four-quarter period ending March 31, 2014.
• Capital remained solid at March 31, 2013, as evidenced by an estimated Tier 1 common capital ratio of 10.40 percent and an estimated Tier 1 common capital ratio under fully phased-in Basel III (as proposed) of 9.4 percent.

• Net interest income of $416 million in the first quarter 2013 decreased $8 million compared to the fourth quarter 2012. 
  • Two fewer days in the first quarter 2013 decreased net interest income by $7 million.
  • An increase in loan volumes increased net interest income by $4 million.
  • Lower loan yields due to shifts in the loan portfolio mix decreased net interest income by $2 million and a decline in LIBOR decreased net interest income by $1 million.
  • A decrease in the accretion of the purchase discount on the acquired loan portfolio decreased net interest income by $2 million. 
  • A decrease in funding costs increased net interest income by $2 million. The rate paid on total average interest-bearing deposits decreased 1 basis point to 21 basis points for the first quarter 2013.
  • Lower reinvestment yields on mortgage-backed investment securities and a decrease in average balances decreased net interest income by $2 million.
• Average earning assets decreased $669 million in the first quarter 2013, compared to the fourth quarter 2012, primarily reflecting decreases of $969 million in excess liquidity and $229 million in average investment securities available-for-sale, partially offset by a $498 million increase in average loans.
• The net interest margin of 2.88 percent increased 1 basis point compared to the fourth quarter 2012. The increase in net interest margin was primarily due to the benefit provided by a decrease in excess liquidity (4 basis points) and lower deposit costs (1 basis point), partially offset by lower loan yields (2 basis points), lower accretion on the acquired loan portfolio (1 basis point) and lower yields on mortgage-backed investment securities (1 basis point).

Noninterest Income
Noninterest income decreased $4 million to $200 million for the first quarter 2013, compared to $204 million for the fourth quarter 2012. The decrease was primarily due to decreases of $5 million in customer derivative income and $4 million in commercial lending fees, both from high fourth quarter 2012 levels, partially offset by a $3 million seasonal increase in service charges on deposit accounts.

Noninterest Expenses
Noninterest expenses decreased $11 million to $416 million in the first quarter 2013, compared to $427 million in the fourth quarter 2012. The decrease was primarily due to decreases of $8 million in salaries expense, largely reflecting two fewer days in the quarter and a decrease in severance expense, $3 million in net occupancy expense, $2 million in restructuring expenses and $2 million in other real estate expense, partially offset by an increase of $4 million in employee benefits expense, primarily due to an increase in pension expense.

Provision for Income Taxes
The provision for income taxes was $50 million in the first quarter 2013, compared to $55 million in the fourth quarter 2012. The fourth quarter 2012 provision for income taxes included adjustments for certain discrete state tax items totaling $5 million.

Credit Quality
"Our strong credit culture continued to be reflected in solid credit quality metrics," said Babb. "We had lower net charge-offs along with a decline in nonperforming assets. Our provision for credit losses was basically unchanged from the fourth quarter 2012."

• Nonaccrual loans decreased $25 million, to $494 million at March 31, 2013, compared to $519 million at December 31, 2012.
• Internal watch list loans remained stable at $3.1 billion at both March 31, 2013 and December 31, 2012. 
• During the first quarter 2013, $34 million of borrower relationships over $2 million were transferred to nonaccrual status, a decrease of $2 million from the fourth quarter 2012.   

Full-Year 2013 Outlook
For full-year 2013, management expects the following compared to 2012, assuming a continuation of the current slow growing economic environment:

• Continued growth in average loans at a slower pace, with economic uncertainty impacting demand and a continued focus on maintaining pricing and structure discipline in a competitive environment.
• Lower net interest income, reflecting both a decline of $40 million to $50 million in purchase accounting accretion and the effect of continued low rates. Loan growth should partially offset the impact of low rates on loans and securities.
• Provision for credit losses stable, reflecting loan growth offset by a decline in nonperforming loans and net charge-offs.
• Customer-driven noninterest income relatively stable, reflecting cross-sell initiatives and selective pricing adjustments partially offset by regulatory pressures on certain products, such as customer derivatives. Outlook does not include expectations for non-customer driven income.
• Lower noninterest expense, reflecting further cost savings due to tight expense control and no restructuring expenses.
• Effective tax rate of approximately 27.5 percent.

Business Segments
Comerica's operations are strategically aligned into three major business segments: the Business Bank, the Retail Bank and Wealth Management. The Finance Division is also reported 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, 2013 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses first quarter 2013 results compared to fourth quarter 2012.

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

• Average loans increased $428 million, primarily reflecting an increase in Middle Market, partially offset by a decrease in Mortgage Banker Finance. The increase in Middle Market was primarily due to increases in general Middle Market, National Dealer Services, Energy, and Technology and Life Sciences.
• Average deposits decreased $537 million, primarily reflecting a decrease in Middle Market, partially offset by an increase in Corporate. The decrease in Middle Market was primarily due to decreases in the Financial Services Division, Technology and Life Sciences, and Energy.
• Net interest income decreased $12 million, primarily due to two fewer days in the quarter, a decrease in funds transfer pricing (FTP) credits, due to a decrease in average deposits, and lower loan yields, partially offset by the benefit provided by an increase in average loans.
• The provision for credit losses increased $14 million, primarily reflecting an increase due to the impact of enhancements to the approach used to estimate probability of default statistics used in determining the allowance for loan losses, partially offset by improvements in credit quality.
• Noninterest income decreased $2 million, primarily due to decreases in commercial lending fees, customer derivative income and letter of credit fees, partially offset by an increase in service charges on deposit accounts.
• Noninterest expenses decreased $3 million, primarily due to decreases in salaries expense and legal fees.

• Average loans increased $21 million, primarily due to an increase in Small Business, partially offset by a decrease in Retail Banking.
• Average deposits increased $139 million, primarily due to an increase in Retail Banking, partially offset by a decrease in Small Business.
• Noninterest income decreased $2 million, primarily due to decreases in customer derivative income in Small Business and service charges on deposit accounts.
• Noninterest expense decreased $6 million, primarily due to a decrease in salaries expense and smaller decreases in several other noninterest expense categories.

• Average loans increased $49 million, primarily due to an increase in Private Banking.
• Average deposits decreased $116 million, primarily due to a decrease in Private Banking.
• The provision for credit losses decreased $8 million, primarily due to improvements in credit quality, partially offset by the impact of enhancements to the approach used to estimate probability of default statistics used in determining the allowance for loan losses.
• Noninterest expenses decreased $5 million, primarily due to an operational loss recorded in the fourth quarter and a decrease in salaries expense.

Geographic Market Segments
The geographic market segments were realigned in the fourth quarter 2012 to reflect Comerica's three largest geographic markets: Michigan, California and Texas. Other Markets includes Florida, Arizona, the International Finance division and businesses that have a significant presence outside of the three primary geographic markets. The tables below present the geographic market results based on the methodologies in effect at March 31, 2013 and are presented on a fully taxable equivalent (FTE) basis.

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

• Average loans increased $235 million in Michigan, $267 million in California and $253 million in Texas.
• Average deposits decreased $1.1 billion in California and increased $236 million in Michigan and $150 million in Texas. The decrease in California was primarily due to decreases in Middle Market and Private Banking, partially offset by an increase in Corporate. The decrease in Middle Market primarily reflected decreases in the Financial Services Division and Technology and Life Sciences.
• The provision for credit losses in California increased $14 million, primarily reflecting an increase due to the impact of enhancements in the approach used to estimate probability of default statistics used in determining the allowance for loan losses.

Conference Call and Webcast
Comerica will host a conference call to review first quarter 2013 financial results at 7 a.m. CT Tuesday, April 16, 2013. Interested parties may access the conference call by calling (800) 309-2262 or (706) 679-5261 (event ID No. 22329365). The call and supplemental financial information can also be accessed via Comerica's "Investor Relations" page at www.comerica.com. A telephone replay will be available approximately two hours following the conference call through April 30, 2013. The conference call replay can be accessed by calling (855) 859-2056 or (404) 537-3406 (event ID No. 22329365). 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 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 a reconciliation 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," "contemplates," "feels," "expects," "estimates," "seeks," "strives," "plans," "intends," "outlook," "forecast," "position," "target," "mission," "assume," "achievable," "potential," "strategy," "goal," "aspiration," "opportunity," "initiative," "outcome," "continue," "remain," "maintain," "on course," "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; changes in monetary and fiscal policies, including the interest rate policies of the Federal Reserve Board; volatility and disruptions in global capital and credit markets; changes in Comerica's credit rating; the interdependence of financial service companies; changes in regulation or oversight; unfavorable developments concerning credit quality; any future acquisitions or divestitures; the effects of more stringent capital or liquidity requirements; declines or other changes in the businesses or industries of Comerica's customers; the implementation of Comerica's strategies and business models; Comerica's ability to utilize technology to efficiently and effectively develop, market and deliver new products and services; operational difficulties, failure of technology infrastructure or information security incidents; changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing; competitive product and pricing pressures among financial institutions within Comerica's markets; changes in customer behavior; 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 or determinations; the effectiveness of methods of reducing risk exposures; the effects of terrorist activities and other hostilities; the effects of catastrophic events including, but not limited to, hurricanes, tornadoes, earthquakes, fires, droughts and floods; changes in accounting standards and the critical nature of Comerica's accounting policies. 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 13 of Comerica's Annual Report on Form 10-K for the year ended December 31, 2012. 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.

The Tier 1 common capital ratio removes preferred stock and qualifying trust preferred securities from Tier 1 capital as defined by and calculated in conformity with bank regulations. The Basel III Tier 1 common capital ratio further adjusts Tier 1 common capital and risk-weighted assets to account for the proposed changes issued in the U.S. banking regulators proposed rules for the U.S. adoption of the Basel III regulatory capital framework issued in June 2012. The tangible common equity ratio removes preferred stock and the effect of intangible assets from capital and the effect of intangible assets from total assets. Tangible common equity per share of common stock removes the effect of intangible assets from common shareholders equity per share of common stock. Comerica believes these measurements are meaningful measures of capital adequacy used by investors, regulators, management and others to evaluate the adequacy of common equity and to compare against other companies in the industry.

SOURCE Comerica Incorporated