Comerica Reports Fourth Quarter 2013 Net Income Of $145 Million

DALLAS, Jan. 17, 2014 /PRNewswire/ -- Comerica Incorporated (NYSE: CMA) today reported fourth quarter 2013 net income of $145 million, compared to $147 million for the third quarter 2013 and $130 million for the fourth quarter 2012. Earnings per diluted share were 77 cents for the fourth quarter 2013, compared to 78 cents for the third quarter 2013 and 68 cents for the fourth quarter 2012.

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Full-year 2013 net income was $569 million, an increase of $48 million, or 9 percent, compared to 2012. Earnings per diluted share were $3.00 for 2013, an increase of 33 cents, or 12 percent, compared to 2012.

"Our relationship banking focus and our customers' strength in this uncertain national economy drove a 3 percent increase in average loans and a 4 percent increase in average deposits in 2013," said Ralph W. Babb Jr., chairman and chief executive officer. "2013 net income increased 9 percent, primarily as a result of tight expense control and strong credit quality, offsetting the headwinds of the continuing low rate environment.

"Average loans in the fourth quarter 2013 were stable, compared to the prior quarter, while growth trends throughout the quarter were positive, resulting in a broad-based, $1.3 billion increase in period-end loans. Earnings in the fourth quarter of 2013, compared to the prior quarter, reflected greater than expected purchase accounting accretion. This was offset by slightly lower fee income, following strong fee generation in the third quarter and the impact of slower economic activity, as well as additional costs related to regulatory compliance.

"Our solid capital position supports our growth and provides us the ability to return excess capital to our shareholders. We repurchased 7.4 million shares in 2013 under our share repurchase program; together with dividends we returned 73 percent of 2013 net income to shareholders. We recently filed our 2014-2015 capital plan with the Federal Reserve, which is expected to release its summary results in March 2014.

"In this low rate environment, our conservative, consistent approach to banking continues to serve us well, including our credit management, investment strategy, and capital position. We are pleased with our footprint, where there are many opportunities to leverage our relationship banking strategy by providing our customers with the products and services they desire."

Full-Year 2013 and Fourth Quarter Overview

Full-Year 2013 Compared to Full-Year 2012

• Net income of $569 million for 2013 increased $48 million, or 9 percent, compared to 2012.
• Average total loans increased $1.1 billion, or 3 percent, to $44.4 billion, primarily reflecting an increase of $1.7 billion, or 7 percent, in commercial loans, partially offset by a decrease of $686 million, or 6 percent, in combined commercial mortgage and real estate construction loans. The increase in commercial loans was primarily driven by increases in National Dealer Services, general Middle Market and Energy, partially offset by decreases in Mortgage Banker Finance and Corporate Banking.
• Average total deposits increased $2.2 billion, or 4 percent, to $51.7 billion, reflecting increases of $1.4 billion, or 7 percent, in noninterest-bearing deposits and $803 million, or 3 percent, in interest-bearing deposits.
• Net interest income of $1.7 billion decreased by $56 million, or 3 percent, primarily as a result of a decrease in yields and a decrease in accretion of the purchase discount on the acquired loan portfolio, partially offset by a decrease in funding costs. Loan yields decreased primarily as a result of shifts in the average loan portfolio mix and lower LIBOR rates, while yields on mortgage-backed securities declined primarily due to prepayments on higher-yielding securities and reinvestments at lower yields.
• Credit quality of the loan portfolio remained strong. The provision for credit losses declined $33 million to $46 million in 2013 compared to 2012. Net credit-related charge-offs decreased $97 million to $73 million.
• Noninterest income increased $8 million, or 1 percent, to $826 million in 2013. The increase reflected an increase of $13 million in customer-driven fee income, partially offset by a decrease of $5 million in noncustomer-driven categories.
• Noninterest expenses decreased $79 million, or 4 percent, to $1.7 billion in 2013, primarily reflecting decreases of $35 million in merger and restructuring charges and $23 million in litigation-related expenses, as well as declines in several other categories of noninterest expenses, reflecting tight expense control.

Fourth Quarter 2013 Compared to Third Quarter 2013

• Average total loans remained stable at $44.1 billion, as increases in National Dealer Services and Technology and Life Sciences were offset by a decrease in Mortgage Banker Finance. Period-end total loans increased $1.3 billion, or 3 percent, to $45.5 billion, reflecting increases in almost all lines of business.
• Average total deposits increased $904 million, or 2 percent, to $52.8 billion, reflecting increases in most lines of business and all primary markets. Period-end deposits increased $383 million, or 1 percent, to $53.3 billion, primarily reflecting an increase of $404 million in interest-bearing deposits.
• Net interest income increased $18 million, or 4 percent, to $430 million in the fourth quarter 2013, compared to $412 million in the third quarter 2013, primarily reflecting a $15 million increase in accretion on the acquired portfolio and a $5 million increase in interest collected from nonaccrual loans. The increase in accretion resulted from better than expected collections on the purchased credit-impaired portfolio due to improvements in the economic environment.
• The provision for credit losses was $9 million in the fourth quarter 2013, compared to $8 million in the third quarter 2013, reflecting continued strong credit quality.
• Noninterest income decreased $10 million to $204 million in the fourth quarter 2013, reflecting decreases of $5 million in customer-driven fee income and $5 million in noncustomer-driven income.
• Noninterest expenses increased $12 million to $429 million in the fourth quarter 2013, primarily reflecting an increase of $7 million in salaries expense, of which $6 million was due to an increase in deferred compensation, and a $5 million increase in litigation-related expenses from a low third quarter amount.
• Capital remained solid at December 31, 2013, as evidenced by an estimated Tier 1 common capital ratio of 10.60 percent and a tangible common equity ratio of 10.11 percent.

Net Interest Income

• Net interest income of $430 million in the fourth quarter 2013 increased $18 million compared to the third quarter 2013.
  • Interest on loans increased $16 million, primarily reflecting an increase in the accretion of the purchase discount on the acquired loan portfolio ($15 million) and an increase in interest collected on nonaccrual loans ($5 million), partially offset by the impact of loan portfolio dynamics ($4 million), including a decline in LIBOR and other shifts in portfolio mix.
  • Interest on mortgage-backed investment securities increased net interest income by $1 million, primarily as a result of improvement in yields due to slowing prepayment speeds.
  • A decrease in funding costs increased net interest income by $1 million, primarily reflecting lower deposit pricing and a shift in the deposit mix.
• The net interest margin of 2.86 percent increased 7 basis points compared to the third quarter 2013. The increase in net interest margin was primarily due to an increase in the accretion of the purchase discount on the acquired loan portfolio (+10 basis points), an increase in interest collected on nonaccrual loans (+3 basis points), the impact of yield improvements on mortgage-backed securities (+1 basis point) and lower funding costs (+1 basis point), partially offset by an increase in excess liquidity (-5 basis points) and lower loan yields (-3 basis points).
• Average earning assets increased $1.0 billion to $59.9 billion in the fourth quarter 2013, compared to the third quarter 2013, reflecting an increase of $1.1 billion in excess liquidity due to deposit growth.

Noninterest Income
Noninterest income decreased $10 million to $204 million for the fourth quarter 2013, compared to $214 million for the third quarter 2013. Customer-driven fee income decreased $5 million and noncustomer-driven income decreased $5 million. The decrease in customer-driven fee income reflected a $2 million decrease in letter of credit fees and small decreases in other categories of noninterest income, partially offset by a $2 million increase in fiduciary income. The decrease in noncustomer-driven income was primarily due to a $6 million decrease in warrant income and a $3 million decrease in income on bank-owned life insurance, partially offset by a $6 million increase in deferred compensation plan asset returns, which was offset by an increase in deferred compensation expense as described below.

Noninterest Expenses
Noninterest expenses of $429 million in the fourth quarter 2013 increased $12 million compared to the third quarter 2013. Excluding a $6 million increase in deferred compensation expense, noninterest expenses increased $6 million, primarily reflecting the impact of a $5 million favorable outcome in litigation in the third quarter. The $6 million increase in deferred compensation expense (included in salaries expense) was offset by the increase in deferred compensation asset returns in noninterest income. Incentive compensation remained unchanged from the elevated third quarter level as financial performance relative to peers continued to improve.

Credit Quality
"The provision for credit losses was $9 million in the fourth quarter 2013, compared to $8 million in the third quarter 2013, reflecting continued strong credit quality and an increase in loan commitments and outstandings," said Babb. "Net credit-related charge-offs decreased slightly and remain at a very low level."

• Nonaccrual loans decreased $87 million, to $350 million at December 31, 2013, compared to $437 million at September 30, 2013.
• Criticized loans decreased $201 million, to $2.3 billion at December 31, 2013, compared to $2.5 billion at September 30, 2013.
• During the fourth quarter 2013, $23 million of borrower relationships over $2 million were transferred to nonaccrual status, a decrease of $27 million from the third quarter 2013.

Balance Sheet and Capital Management
Total assets and common shareholders' equity were $65.2 billion and $7.2 billion, respectively, at December 31, 2013, compared to $64.7 billion and $7.0 billion, respectively, at September 30, 2013. The $540 million increase in total assets primarily reflected an increase of $1.3 billion in loans, partially offset by decreases of $437 million in excess liquidity and $181 million in investment securities available-for-sale.

There were approximately 182 million common shares outstanding at December 31, 2013. Combined with the dividend of $0.17 per share, share repurchases under the share repurchase program and dividends returned 71 percent of fourth quarter 2013 net income to shareholders.

Comerica's tangible common equity ratio was 10.11 percent at December 31, 2013, an increase of 24 basis points from September 30, 2013. The estimated Tier 1 common capital ratio decreased 12 basis points, to 10.60 percent at December 31, 2013, from September 30, 2013. The estimated Tier 1 common ratio under fully phased-in Basel III capital rules and excluding most elements of AOCI was 10.3 percent percent at December 31, 2013.

Full-Year 2014 Outlook
Management expectations for full-year 2014 compared to full-year 2013, assuming a continuation of the slow growing economy and low rate environment, are as follows:

• Average loan growth consistent with 2013, reflecting stabilization in Mortgage Banker Finance near average fourth quarter 2013 levels, improving trends in Commercial Real Estate and continued focus on pricing and structure discipline.
• Net interest income modestly lower, reflecting a decrease in purchase accounting accretion, to $10 million to $20 million, and the effect of a continued low rate environment, partially offset by loan growth.
• Provision for credit losses stable as a result of continued strong credit quality.
• Noninterest income stable, reflecting continued growth in customer-driven fee income.
• Noninterest expenses lower, reflecting a more than 50 percent reduction in pension expense. Increases in merit, healthcare and regulatory costs mostly offset by continued expense discipline.
• Income tax expense to approximate 28 percent of pre-tax income.

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 December 31, 2013 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses fourth quarter 2013 results compared to third quarter 2013.

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

• Average loans decreased $158 million, primarily reflecting decreases in Mortgage Banker Finance and Energy, partially offset by increases in National Dealer Services and Technology and Life Sciences. Period-end loans increased $1.1 billion.
• Average deposits increased $589 million, primarily reflecting increases in Corporate Banking, Technology and Life Sciences and Commercial Real Estate, partially offset by a decline in general Middle Market.
• Net interest income increased $19 million, primarily due to an increase in purchase accounting accretion and an increase in funds transfer pricing credits.
• The provision for credit losses increased $25 million, primarily reflecting an increase in period-end loan balances, partially offset by improved credit quality.
• Noninterest income decreased $9 million, primarily due to a decrease in warrant income.

• Average loans increased $38 million, primarily due to an increase in Small Business.
• Average deposits increased $181 million, primarily due to an increase in Retail Banking.
• The provision for credit losses decreased $18 million, primarily due to improved credit quality, partially offset by an increase in period-end loan balances.

• Average loans increased $80 million, primarily due to an increase in Private Banking.
• Average deposits increased $151 million, primarily due to an increase in Private Banking.
• The provision for credit losses decreased $10 million, primarily reflecting improved credit quality, partially offset by an increase in period-end loan balances.

Geographic Market Segments
Comerica also provides market segment results for three primary geographic markets: Michigan, California and Texas. In addition to the three primary geographic markets, Other Markets is also reported as a market segment. 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 December 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 $429 million and $47 million in California and Michigan, respectively, and decreased $176 million in Texas. The increases in California and Michigan primarily reflected an increase in National Dealer Services. Technology and Life Sciences also contributed to the increase in California. The decrease in Texas was primarily due to a decrease in Energy.
• Average deposits increased $36 million in Michigan, primarily due to an increase in Small Business. In California, average deposits increased $652 million, primarily reflecting increases in Corporate Banking and Private Banking. The increase in Texas of $238 million was primarily due to increases in Technology and Life Sciences, Energy and Retail Banking.
• The provision for credit losses decreased $12 million in Texas and $5 million in California, primarily reflecting improved credit quality, partially offset by an increase in period-end loan balances. In Michigan, the provision increased $15 million, primarily due to an increase in period-end loan balances.
• Noninterest income in California decreased $5 million, primarily due to a decrease in warrant income.

Conference Call and Webcast
Comerica will host a conference call to review fourth quarter 2013 financial results at 7 a.m. CT Friday, January 17, 2014. Interested parties may access the conference call by calling (800) 309-2262 or (706) 679-5261 (event ID No. 23046513). The call and supplemental financial information can also be accessed via Comerica's "Investor Relations" page at www.comerica.com. A replay of the Webcast can 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 and on page 68 of the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013. 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 final rule approved by U.S. banking regulators in July 2013 for the U.S. adoption of the Basel III regulatory capital framework. The final Basel III capital rules are effective January 1, 2015 for banking organizations subject to the standardized approach. 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