Comerica Reports Fourth Quarter 2014 Net Income Of $149 Million, Or 80 Cents Per Share

DALLAS, Jan. 16, 2015 /PRNewswire/ -- Comerica Incorporated (NYSE: CMA) today reported full-year 2014 net income of $593 million, or $3.16 per diluted share, compared to $541 million, or $2.85 per diluted share for full-year 2013. Excluding the impact to 2013 results of an unfavorable jury verdict in a lender liability case, which decreased 2013 net income by $28 million, or 15 cents per share, 2014 net income increased $24 million, or 4 percent, and earnings per diluted share increased 16 cents, or 5 percent.

Fourth quarter 2014 net income was $149 million, compared to $154 million for the third quarter 2014 and $117 million for the fourth quarter 2013. Earnings per diluted share were 80 cents for the fourth quarter 2014, compared to 82 cents for the third quarter 2014 and 62 cents for the fourth quarter 2013. Fourth quarter 2014 results reflected net charges of $3 million, after tax, or 2 cents per share, from certain actions taken during the period, compared to a net benefit of $5 million, after tax, or 3 cents per share, in the third quarter. Excluding the fourth quarter 2013 impact of the unfavorable jury verdict discussed above, fourth quarter 2014 net income increased $4 million, or 3 percent, and earnings per diluted share increased 3 cents, or 4 percent, compared to fourth quarter 2013.

"Our 2014 net income increased 10 percent from a year ago, reflecting lower litigation-related expenses, a decrease in pension expense, and our continued drive for efficiency," said Ralph W. Babb Jr., chairman and chief executive officer. "Also, credit quality continued to be strong. We had modestly lower net interest income due to the decline in accretion as well as the impact of the continued low-rate environment and loan portfolio dynamics, all of which were predominantly offset by the contribution from loan growth. Our loan and deposit growth was solid in 2014, as average total loans increased $2.2 billion, or 5 percent, and average deposits were up $3.1 billion, or 6 percent, with increases in all business lines and all three of our major markets.

"As expected, fourth quarter average loans increased $202 million compared to the third quarter, the result of seasonality in National Dealer Services and Mortgage Banker Finance, as well as small increases in most other businesses. Average deposit growth was robust, increasing $2.6 billion compared to the third quarter. Revenue increased 2 percent with higher fee income generation. Our expenses reflected certain efficiency-related actions as well as seasonally higher technology and consulting expenses. Credit quality was strong. While we have not yet seen adverse trends materialize in our Energy portfolio, our methodology has appropriately considered the impact of the recent fall in oil and gas prices in our year-end allowance.

"While we continue to manage headwinds, including the low-rate environment as well as rising technology and regulatory expenses, we remain focused on the long term. We believe our diverse geographic footprint is well situated, and along with our relationship banking strategy should contribute to our long-term growth. We continue to be well positioned for rising rates and to benefit as the economy continues to improve."

Full-Year 2014 and Fourth Quarter Overview

Full-Year 2014 Compared to Full-Year 2013

• Net income of $593 million for 2014 increased $52 million, or 10 percent, compared to 2013.
• Average total loans increased $2.2 billion, or 5 percent, to $46.6 billion in 2014, primarily reflecting increases of $1.7 billion, or 6 percent, in commercial loans, $158 million, or 10 percent, in residential mortgage loans and $117 million, or 5 percent, in consumer loans.
• Average total deposits increased $3.1 billion, or 6 percent, to $54.8 billion in 2014, reflecting increases of $2.6 billion, or 12 percent, in noninterest-bearing deposits and $433 million, or 1 percent, in interest-bearing deposits.
• Net interest income of $1.7 billion for 2014 decreased by $17 million, or 1 percent, primarily as a result of a $15 million decrease in accretion of the purchase discount on the acquired loan portfolio. The benefit from an increase in loan volume was offset by continued pressure on yields from the low-rate environment and loan portfolio dynamics.
• The provision for credit losses decreased $19 million to $27 million in 2014, compared to 2013. Net charge-offs were $25 million, or 0.05 percent of average loans, for 2014, compared to $73 million, or 0.16 percent of average loans, for 2013.
• Noninterest income decreased $14 million, or 2 percent, to $868 million in 2014. The decrease was primarily the result of a $19 million decrease in noncustomer-driven income categories, with the largest decreases in deferred compensation asset returns, securities trading income and warrant income, partially offset by a $5 million increase in customer-driven fees, largely driven by increases in fiduciary income and card fees, partially offset by a decrease in letter of credit fees.
• Noninterest expenses decreased $96 million, or 6 percent, to $1.6 billion in 2014, primarily reflecting decreases of $48 million in litigation-related expenses and $47 million in pension expense.
• Comerica repurchased approximately 5.2 million shares of common stock during 2014 under the share repurchase program. Together with dividends of $0.79 per share, $392 million was returned to shareholders.

Fourth Quarter 2014 Compared to Third Quarter 2014

• Average total loans increased $202 million to $47.4 billion in the fourth quarter 2014, primarily reflecting a $203 million increase in commercial loans. The increase in commercial loans was primarily driven by increases in National Dealer Services and Energy, partially offset by a decrease in Mortgage Banker Finance.
• Average total deposits increased $2.6 billion, or 5 percent, to $57.8 billion in the fourth quarter 2014, reflecting increases of $2.2 billion in noninterest-bearing deposits and $368 million in interest-bearing deposits. Average deposits increased in all lines of business and markets.
• Net interest income increased $1 million to $415 million in the fourth quarter 2014, compared to $414 million in the third quarter 2014, primarily reflecting a $6 million increase in accretion on the acquired loan portfolio and higher loan volumes, partially offset by a $5 million increase in negative residual value adjustments to assets in the leasing portfolio.
• The provision for credit losses was $2 million in the fourth quarter 2014, compared to $5 million in the third quarter 2014, reflecting continued strong credit quality. Net charge-offs were $1 million, or 0.01 percent of average loans, in the fourth quarter 2014, compared to $3 million, or 0.03 percent, in the third quarter 2014.
• Noninterest income increased $10 million to $225 million in the fourth quarter 2014, reflecting an increase in customer-driven fee income, primarily due to an increase in customer derivative income.
• Noninterest expenses increased $22 million to $419 million in the fourth quarter 2014, primarily reflecting the impact of expenses of $4 million in the fourth quarter related to certain efficiency-related actions compared to an $8 million net benefit in the third quarter, as well as an increase in technology-related contract labor and seasonal increases in several other categories.
• Capital remained solid at December 31, 2014, as evidenced by an estimated Tier 1 common capital ratio of 10.53 percent and a tangible common equity ratio of 9.85 percent.
• Comerica repurchased approximately 1.3 million shares of common stock during fourth quarter 2014 under the share repurchase program. Together with dividends of $0.20 per share, $95 million was returned to shareholders.

• Net interest income of $415 million in the fourth quarter 2014 increased $1 million compared to the third quarter 2014.
  • Interest on loans increased $2 million, primarily reflecting a $6 million increase in accretion of the purchase discount on the acquired loan portfolio and higher loan volumes, partially offset by a $5 million increase in negative residual value adjustments to assets in the leasing portfolio.
  • Interest on mortgage-backed investment securities decreased $1 million, primarily as a result of a decrease in yields.
  • An increase in Federal Reserve Bank deposits increased net interest income by $1 million.
• The net interest margin of 2.57 percent decreased 10 basis points compared to the third quarter 2014. The decrease in net interest margin reflected an increase in Federal Reserve Bank deposits (-10 basis points), negative residual value adjustments to assets in the leasing portfolio (-3 basis points) and a decrease in the yield on mortgage-backed securities (-1 basis point), partially offset by an increase in accretion of the purchase discount on the acquired loan portfolio (+3 basis points) and an increase in interest received on nonaccrual loans (+1 basis point).
• Average earning assets increased $2.8 billion to $64.5 billion in the fourth quarter 2014, compared to the third quarter 2014, primarily reflecting an increase of $2.6 billion in Federal Reserve Bank deposits.

Noninterest Income

Noninterest income increased $10 million to $225 million for the fourth quarter 2014, compared to $215 million for the third quarter 2014. Customer-driven fee income increased $11 million and noncustomer-driven income was stable. The increase in customer-driven fee income primarily reflected increases in customer derivative income of $6 million (a component of other noninterest income) and commercial lending fees of $3 million.

Noninterest Expenses

Noninterest expenses increased $22 million to $419 million in the fourth quarter 2014 compared to $397 million in the third quarter 2014. The increase primarily reflected the impact of expenses of $4 million in the fourth quarter related to certain efficiency-related actions compared to a net benefit of $8 million from actions taken in the third quarter 2014, as well as a $5 million increase in technology-related contract labor expense and seasonal increases in consulting and advertising expenses. Actions taken in the fourth quarter were primarily associated with real estate optimization. Third quarter actions included the early redemption of debt, resulting in a $32 million gain, a $9 million contribution to the Comerica Charitable Foundation, and other charges totaling $15 million associated with real estate optimization and several other efficiency-related actions, which included $6 million in salaries and benefits expense (severance-related) and $5 million in occupancy expense.

Credit Quality

"Credit quality continued to be strong, with only 1 basis point of net charge-offs in the fourth quarter and 5 basis points for the full-year 2014. Nonaccrual loans are at the lowest level since 2007," said Babb. "This includes our Energy business, where our 30-plus years of expertise has been demonstrated by strong performance through a number of cycles. We have a robust Energy credit policy, and as of year-end 2014 less than 3 percent of the portfolio is classified as criticized, with no nonaccruals. Given that the significant decline in oil and gas prices has only materialized in the past couple of months and our customers are generally well hedged, we have not yet seen adverse trends in the portfolio. We continue to closely monitor the total portfolio, as well as the Energy sector, and any residual impacts on the Texas economy. Our methodology has appropriately considered these developments in our year-end allowance."

• Nonaccrual loans decreased $56 million, to $273 million at December 31, 2014, compared to $329 million at September 30, 2014.
• Criticized loans decreased $201 million, to $1.9 billion at December 31, 2014, compared to $2.1 billion at September 30, 2014.
• During the fourth quarter 2014, $41 million of borrower relationships over $2 million were transferred to nonaccrual status, a decrease of $13 million from the third quarter 2014.

Balance Sheet and Capital Management

Total assets and common shareholders' equity were $69.2 billion and $7.4 billion, respectively, at December 31, 2014, compared to $68.9 billion and $7.4 billion, respectively, at September 30, 2014.

There were approximately 179 million common shares outstanding at December 31, 2014. Combined with the dividend of $0.20 per share, share repurchases under the share repurchase program and dividends returned 63 percent of fourth quarter 2014 net income to shareholders.

Comerica's tangible common equity ratio was 9.85 percent at December 31, 2014, a decrease of 9 basis points from September 30, 2014. The estimated Tier 1 common capital ratio decreased 6 basis points, to 10.53 percent at December 31, 2014, from September 30, 2014. 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, 2014.

Full-Year 2015 Outlook

Management expectations for full-year 2015 compared to full-year 2014, assuming a continuation of the current economic and low-rate environment, are as follows:

• Average full-year loan growth consistent with 2014, reflecting typical seasonality throughout the year and continued focus on pricing and structure discipline.
• Net interest income relatively stable, assuming no rise in interest rates, reflecting a decrease of about $30 million in purchase accounting accretion, to $4 million to $6 million, and the impact of a continuing low rate environment on asset yields, offset by earning asset growth.
• Provision for credit losses higher, consistent with modest net charge-offs and continued loan growth.
• Noninterest income relatively stable, reflecting growth in fee income, particularly card fees and fiduciary income, mostly offset by regulatory impacts on letter of credit, derivative and warrant income.
• Noninterest expenses higher, reflecting increases in technology, regulatory and pension expenses, as well as typical inflationary pressures, with continued focus on driving efficiencies for the long term.
• Income tax expense to approximate 33 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, 2014 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses fourth quarter 2014 results compared to third quarter 2014.

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

 

• Average loans increased $140 million, primarily reflecting increases in National Dealer Services, Energy and Technology and Life Sciences, partially offset by decreases in Mortgage Banker Finance and general Middle Market.
• Average deposits increased $2.1 billion, primarily reflecting increases in noninterest-bearing deposits in almost all lines of business.
• Net interest income increased $10 million, primarily due to an increase in net funds transfer pricing (FTP) credits, largely due to the increase in average deposits, and an increase in purchase accounting accretion, partially offset by the impact of lower loan yields, in part due to a negative leasing residual value adjustment.
• The provision for credit losses increased $14 million, primarily due to increases in Energy and Corporate Banking, partially offset by decreases in Technology and Life Sciences and general Middle Market.
• Noninterest income increased $7 million, primarily due to increases in customer derivative income and commercial lending fees.
• Noninterest expenses decreased $4 million, primarily due to a decrease in allocated corporate overhead expenses due to certain actions taken in the third quarter 2014, including a contribution to the Comerica Charitable Foundation, charges associated with real estate optimization and several other efficiency-related expenses.

• Average loans increased $23 million, primarily due to an increase in consumer loans in Retail Banking.
• Average deposits increased $252 million, primarily reflecting an increase in noninterest-bearing deposits in both Retail Banking and Small Business.
• The provision for credit losses decreased $4 million, primarily due to improvements in Small Business credit quality.
• Noninterest income increased $3 million, primarily due to increases in customer derivative income and income from the Corporation's third party credit card provider.
• Noninterest expenses decreased $2 million, primarily due to a decrease in allocated corporate overhead expenses, largely for the same reasons as described above in the Business Bank section, as well as a decrease in salaries and benefit expense, partially offset by an increase in charges associated with real estate optimization.

 

• Average loans increased $39 million, primarily due to an increase in Private Banking.
• Average deposits increased $175 million, primarily reflecting an increase in interest-bearing deposits in Private Banking.
• Net interest income increased $1 million, primarily due to an increase in FTP credits, largely due to the increase in average deposits, and higher loan yields.
• The provision for credit losses decreased $16 million, primarily reflecting continued strong credit quality.
• Noninterest income increased $1 million, primarily due to small increases in several categories.
• Noninterest expenses increased $1 million, primarily due to small increases in several categories, partially offset by a decrease in allocated corporate overhead expenses, for the same reasons as described above in the Business Bank section, as well as a decrease in salaries and benefit expense, primarily due to the impact of efficiency-related actions taken in the third quarter 2014.

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, 2014 and are presented on a fully taxable equivalent (FTE) basis.

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

 

• Average loans increased $268 million and $180 million in California and Texas, respectively, and decreased $106 million in Michigan. The increase in California primarily reflected increases in Technology and Life Sciences, Commercial Real Estate and National Dealer Services, while the increase in Texas primarily reflected an increase in Energy. The decrease in Michigan was primarily due to decreases in general Middle Market and Corporate Banking, partially offset by an increase in National Dealer Services.
• Average deposits increased across all markets, including increases of $1.7 billion in California, $316 million in Michigan and $192 million in Texas. The increases were primarily in noninterest-bearing deposits, partially offset by decreases in time deposits, in all markets.
• Net interest income increased $10 million in California and $9 million in Texas and decreased $6 million in Michigan. The increase in California primarily reflected an increase in FTP credits, largely due to the increase in average deposits, and the benefit from an increase in average loans. The increase in Texas was primarily the result of an increase in the accretion of the purchase discount on the acquired loan portfolio and an increase in average loans. The decrease in Michigan primarily reflected lower loan yields mostly attributed to a negative leasing residual value adjustment.
• The provision for credit losses decreased $24 million in California and $11 million in Michigan. The decrease in California primarily reflected decreases in Technology and Life Sciences and general Middle Market. The decrease in Michigan primarily reflected decreases in Private Banking and Commercial Real Estate, partially offset by an increase in Corporate Banking. In Texas, the provision increased $15 million, primarily due to an increase in Energy, partially offset by decreases in general Middle Market and Technology and Life Sciences.
• Noninterest income increased $5 million, $3 million and $1 million in Michigan, Texas and California, respectively. The increase in Michigan was primarily due to an increase in customer derivative income. The increases in Texas and California reflected small increases in several noninterest income categories.
• Noninterest expenses decreased $9 million in Michigan and $1 million in California and was unchanged in Texas. The decrease in Michigan was primarily due to a decrease in allocated corporate overhead expenses, for the same reasons as previously described in the Business Bank section.

Conference Call and Webcast

Comerica will host a conference call to review fourth quarter 2014 financial results at 8 a.m. CT Friday, January 16, 2015. Interested parties may access the conference call by calling (877) 523-5249 or (210) 591-1147 (event ID No. 51485794). The call and supplemental financial information, as well as 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," "projects," "models" 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 changes in interest rates; 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; the effects of more stringent capital or liquidity requirements; declines or other changes in the businesses or industries of Comerica's customers; operational difficulties, failure of technology infrastructure or information security incidents; the implementation of Comerica's strategies and business initiatives; Comerica's ability to utilize technology to efficiently and effectively develop, market and deliver new products and services; 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; any future strategic acquisitions or divestitures; 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 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 12 of Comerica's Annual Report on Form 10-K for the year ended December 31, 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 common equity Tier 1 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.

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