Comerica Reports Fourth Quarter 2015 Net Income Of $130 Million, Or 71 Cents Per Share

DALLAS, Jan. 19, 2016 /PRNewswire/ -- Comerica Incorporated (NYSE: CMA) today reported full-year 2015 net income of $535 million, or $2.92 per diluted share, compared to $593 million, or $3.16 per diluted share for full-year 2014. Fourth quarter 2015 net income was $130 million, compared to $136 million for the third quarter 2015 and $149 million for the fourth quarter 2014. Earnings per diluted share were 71 cents for fourth quarter 2015 compared to 74 cents for third quarter 2015 and 80 cents for fourth quarter 2014.

"In 2015 we had good balance sheet growth as average loans topped $48 billion and average deposits grew to a record $58 billion," said Ralph W. Babb, Jr., chairman and chief executive officer. "All the while, we are navigating our way through a modestly growing U.S. economy, as well as increased regulatory and technology demands. Credit quality continued to be solid, and while net charge-offs and the provision increased, they remain below normal historical levels. Through buybacks and dividends we returned $389 million or 73 percent of 2015 net income to shareholders. Both our book value and tangible book value per share increased 4 percent over the past year, as we continue to focus on creating long-term shareholder value.

"With respect to the fourth quarter, revenue increased more than 2 percent.  This was a result of growth in net interest income, which benefited from higher nonaccrual interest and the rise in rates late in the quarter, as well as an increase in fee generation, particularly commercial lending and card fees. Technology and regulatory costs drove noninterest expenses higher, as anticipated. Negative credit migration in our energy exposure continued as expected, while overall our customers have been acting prudently as evidenced by declining loan balances. The remainder of the loan book continues to perform well. We increased our share buyback to $65 million from the $59 million that was repurchased in each of the past six quarters.

"As we look forward to the year ahead, we remain keenly focused on growing loans and deposits along with managing expenses as we make necessary investments.  With the Federal Reserve increasing its benchmark rate 25 basis points in December, our revenue picture looks better, as our balance sheet remains well positioned to benefit from rising rates.  With oil prices at a cyclical low, we have been closely monitoring our energy customers. In each quarter of 2015, we increased our reserves for energy and related loans^(a). Well into the cycle, we continue to feel comfortable with our energy portfolio.  In summary, we are committed to providing high quality financial services and building lasting customer relationships, which combined with our diverse geographic footprint, will continue to assist us in building long-term shareholder value."

^(a) Loans related to energy at December 31, 2015 included approximately $3.1 billion of outstanding loans in our Energy business line as well as approximately $625 million of loans in other lines of business to companies that have a sizable portion of their revenue related to energy or could be otherwise disproportionately negatively impacted by prolonged low oil and gas prices.

Full-Year 2015 and Fourth Quarter Overview

Full-Year 2015 Compared to Full-Year 2014

• Average total loans increased $2.0 billion, or 4 percent, to $48.6 billion in 2015, reflecting increases in almost all lines of business, with the largest increases in Technology and Life Sciences, Mortgage Banker Finance, National Dealer Services and Commercial Real Estate, partially offset by a decrease in Corporate Banking. Period-end loans increased $516 million, or 1 percent, to $49.1 billion, primarily reflecting increases in Mortgage Banker Finance, Technology and Life Sciences, Commercial Real Estate and National Dealer Services, partially offset by decreases in general Middle Market, Corporate Banking and Energy.
• Average total deposits increased $3.5 billion, or 6 percent, to $58.3 billion in 2015, reflecting increases of $3.1 billion, or 12 percent, in noninterest-bearing deposits and $474 million, or 2 percent, in interest-bearing deposits. Period-end deposits increased $2.4 billion, or 4 percent, to $59.9 billion, reflecting an increase of $3.6 billion, or 13 percent, in noninterest-bearing deposits, partially offset by a decrease of $1.2 billion, or 4 percent, in interest-bearing deposits.
• Net interest income of $1.7 billion for 2015 increased by $34 million, or 2 percent, primarily as a result of higher earning asset volume, partially offset by lower loan yields, in part due to a decrease in accretion of the purchase discount on the acquired loan portfolio and continued pressure on yields from the low-rate environment and loan portfolio dynamics.
• The allowance for loan losses increased $40 million compared to 2014, primarily due to increases in reserves related to energy and Technology and Life Sciences, partially offset by improvements in credit quality in the remainder of the portfolio. Net charge-offs were $75 million, or 0.15 percent of average loans, for 2015, compared to $25 million, or 0.05 percent of average loans, for 2014. The provision for credit losses increased $95 million to $122 million in 2015, compared to 2014.
• Noninterest income increased $182 million to $1.1 billion in 2015. Excluding the $181 million impact of a change to the accounting presentation for a card program, noninterest income was stable. Increases in card fees, service charges on deposit accounts and fiduciary income were largely offset by lower investment banking income, lower fee income on certain categories impacted by regulatory changes and decreases in several non-fee categories.
• Noninterest expenses increased $219 million to $1.8 billion in 2015. Excluding the $181 million impact of a change to the accounting presentation for a card program, noninterest expenses increased $38 million, or 2 percent, primarily due to increases in technology and regulatory expenses, outside processing fees and pension expense, partially offset by a $36 million decrease in litigation-related expenses, reflecting the release of $33 million of litigation reserves in the second and third quarters of 2015, and cost savings realized in 2015 from certain actions taken in the second half of 2014.
• Comerica repurchased approximately 5.1 million shares of common stock and 500,000 warrants during 2015 under the equity repurchase program. Together with dividends of $0.83 per share, $389 million was returned to shareholders.

Fourth Quarter 2015 Compared to Third Quarter 2015 

• Average total loans decreased $424 million to $48.5 billion, primarily reflecting decreases in Mortgage Banker Finance, general Middle Market, Energy and Corporate Banking, partially offset by increases in Commercial Real Estate and National Dealer Services. Period-end total loans increased $167 million, to $49.1 billion, largely driven by increases in National Dealer Services, Mortgage Banker Finance and Commercial Real Estate, partially offset by decreases in general Middle Market and Energy.
• Average total deposits increased $596 million, or 1 percent, to $59.7 billion, primarily driven by a $1.0 billion increase in noninterest-bearing deposits. The increase in average total deposits was primarily due to increases in Corporate Banking and Private Banking, partially offset by decreases in Technology and Life Sciences and general Middle Market. Average deposits increased in all major geographic markets. Period-end total deposits increased $1.1 billion to $59.9 billion.
• Net interest income increased $11 million to $433 million compared to third quarter 2015, primarily reflecting an increase in loan yields, largely due to higher interest recognized on nonaccrual loans and the increase in short-term rates, and a larger securities portfolio, partially offset by a decrease in average loans.
• The allowance for loan losses increased $12 million in the fourth quarter 2015, primarily due to an increase in reserves related to energy. Net charge-offs were $26 million, or 0.21 percent of average loans, in the fourth quarter 2015, compared to $23 million, or 0.19 percent, in the third quarter 2015. As a result, the provision for credit losses was $35 million for the fourth quarter 2015.
• Noninterest income increased $6 million in the fourth quarter 2015, primarily the result of an increase in commercial lending fees.
• Noninterest expenses increased $28 million in the fourth quarter 2015, primarily due to increases in technology and regulatory-related contract labor and consulting expenses, as well as seasonally higher staff insurance expense. Additionally, the third quarter 2015 benefited from a release of $3 million of litigation reserves, low deferred compensation expense and lower share-based compensation expense as a result of forfeitures, which were not repeated in the fourth quarter.
• The provision for income taxes decreased $14 million in the fourth quarter 2015. The effective tax rate was 28 percent for the fourth quarter 2015, compared to 32 percent in the third quarter 2015, primarily reflecting a $5 million tax benefit from the early termination of certain leveraged lease transactions.
• Capital remained solid at December 31, 2015, as evidenced by an estimated common equity Tier 1 capital ratio of 10.53 percent and a tangible common equity ratio of 9.72 percent.
• Comerica repurchased approximately 1.5 million shares of common stock under the equity repurchase program, which, together with dividends, returned $102 million to shareholders.

• Net interest income increased $11 million to $433 million in the fourth quarter 2015, compared to the third quarter 2015.
  • Interest on loans increased $5 million, reflecting higher interest recognized on nonaccrual loans (+$6 million) and higher loan yields (+$3 million), partially offset by the impact of lower average loan balances (-$3 million) and a decrease in accretion of the purchase discount on the acquired loan portfolio (-$1 million).
  • Interest on investment securities increased $2 million, primarily reflecting the reinvestment of excess Federal Reserve Bank deposits into higher yielding Treasury securities in the fourth quarter 2015.
  • Interest on short-term investments increased $2 million, primarily reflecting an increase in average Federal Reserve Bank deposit balances.
• The net interest margin of 2.58 percent increased 4 basis points compared to the third quarter 2015, primarily due to the impact of higher interest recognized on nonaccrual loans (+3 basis points) and higher loan yields (+2 basis points), partially offset by the impact of an increase in Federal Reserve Bank deposit balances (-1 basis point).

Noninterest Income

Noninterest income increased $6 million to $270 million in the fourth quarter 2015, compared to $264 million for the third quarter 2015. The increase primarily reflected increases of $8 million in commercial lending fees (primarily syndication agent fees) and $6 million in deferred compensation asset returns, partially offset by decreases of $4 million in warrant-related income and $3 million in hedge ineffectiveness income. The increase in deferred compensation asset returns was offset by an increase in deferred compensation plan expense in noninterest expenses.

Noninterest Expenses

Noninterest expenses increased $28 million to $489 million in the fourth quarter 2015, compared to $461 million for the third quarter 2015, primarily reflecting a $22 million increase in salaries and benefits expense, a $3 million increase in litigation-related expense, reflecting the release of reserves in the third quarter 2015, and smaller increases in several other categories, partially offset by a $3 million decrease in outside processing fees. The increase in salaries and benefits expense primarily reflected an increase in technology-related contract labor expense and higher staff insurance expense. Additionally, benefits in the third quarter 2015 from low deferred compensation expense and lower share-based compensation expense as a result of forfeitures were not repeated in the fourth quarter.

Credit Quality

"Net charge-offs were 21 basis points of average loans in the fourth quarter, remaining below historical normal levels," said Babb. "Given persistently low oil and gas prices, we continue to see negative migration in the energy book, which has resulted in an increase in criticized loans, nonaccrual loans and charge-offs.  We have appropriately increased our reserves for energy and related loans in each quarter of 2015, and as of quarter end, our reserve allocation for energy and related loans was more than 4 percent of our total of these loans. Loans in our Energy line of business have declined by approximately $700 million from the February peak and, as of year-end, totaled about $3.1 billion, or about 6.25 percent of our total loans. Well into the cycle, we continue to feel comfortable with our energy and related exposure, and the remainder of the portfolio continues to perform well."

• Net charge-offs increased $3 million to $26 million, or 0.21 percent of average loans, in the fourth quarter 2015, compared to $23 million, or 0.19 percent, in the third quarter 2015.
• During the fourth quarter 2015, $105 million of borrower relationships over $2 million were transferred to nonaccrual status, of which $93 million were loans related to energy.
• Criticized loans increased $295 million to $3.2 billion at December 31, 2015, compared to $2.9 billion at September 30, 2015, reflecting an increase of approximately $370 million in criticized loans related to energy.

Balance Sheet and Capital Management

Total assets and common shareholders' equity were $71.9 billion and $7.6 billion, respectively, at December 31, 2015, compared to $71.0 billion and $7.6 billion, respectively, at September 30, 2015.

There were approximately 176 million common shares outstanding at December 31, 2015. Share repurchases of $65 million (1.5 million shares) under the equity repurchase program, combined with dividends of 21 cents per share, returned 79 percent of fourth quarter 2015 net income to shareholders. Diluted average shares decreased 2 million to 179 million for the fourth quarter 2015.

The estimated common equity Tier 1 capital ratio, reflective of transition provisions and excluding accumulated other comprehensive income ("AOCI"), was 10.53 percent at December 31, 2015. Certain deductions and adjustments to regulatory capital began phasing in on January 1, 2015 and will be fully implemented on January 1, 2018. The estimated ratio under fully phased-in Basel III capital rules is largely the same as the transitional ratio. Comerica's tangible common equity ratio was 9.72 percent at December 31, 2015, a decrease of 19 basis points from September 30, 2015.

Full-Year 2016 Outlook

For full-year 2016 compared to full-year 2015, management expects the following, assuming a continuation of the current economic and low-rate environment:

• Average loans modestly higher in line with Gross Domestic Product growth, reflecting a continued decline in Energy more than offset by increases in most other lines of business.
• Net interest income higher, reflecting the benefit from the December 2015 short-term rate increase, loan growth and a larger securities portfolio, more than offsetting higher funding costs.
• Provision for credit losses higher, with net charge-offs expected to increase but remain below historical normal levels.
• Noninterest income modestly higher, primarily due to growth in card fees from merchant processing services, government card and commercial card. Continued focus on cross-sell opportunities, including wealth management products such as fiduciary and brokerage services.
• Noninterest expenses higher, reflecting continued increases in technology costs and regulatory expenses, increased outside processing in line with growing revenue, higher FDIC insurance expense due to recent regulatory proposal, and typical inflationary pressures. Additionally, 2015 benefited from a $33 million legal reserve release which is offset by lower pension expense in 2016.
• Income tax expense to approximate 32 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, 2015 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses fourth quarter 2015 results compared to third quarter 2015.

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

• Average loans decreased $431 million, primarily reflecting decreases in Mortgage Banker Finance, general Middle Market, Energy and Corporate Banking, partially offset by increases in Commercial Real Estate and National Dealer Services.
• Average deposits increased $341 million, primarily reflecting an increase in Corporate Banking, partially offset by decreases in Technology and Life Sciences and general Middle Market.
• Net interest income increased $7 million, primarily reflecting higher interest recognized on nonaccrual loans and higher loan yields, as well as an increase in net funds transfer pricing (FTP) credits, largely due to the increase in average deposits and an increase in the deposit crediting rate, partially offset by the impact of a decrease in average loan balances.
• The allowance for loan losses increased $8 million, primarily due to an increase in reserves related to Energy, partially offset by decreases in reserves related to general Middle Market and Technology and Life Sciences. Net charge-offs increased $12 million, primarily reflecting an increase in Energy, partially offset by a decrease in general Middle Market. As a result, the provision for credit losses was $41 million for the fourth quarter 2015.
• Noninterest income increased $2 million, primarily due to increases in commercial lending fees (primarily syndication agent fees), and card fees, partially offset by decreases in warrant-related income and customer derivative income.
• Noninterest expenses increased $8 million, primarily due to increases in corporate overhead expenses and salaries and benefits expense, partially offset by a decrease in outside processing fees. The increase in corporate overhead expense was largely the result of increases in technology costs, regulatory expenses and staff insurance expenses in the fourth quarter that were allocated to the segments. Additionally, third quarter 2015 corporate overhead benefited from a release of litigation reserves.

• Average loans increased $33 million, reflecting an increase in Retail Banking, partially offset by a decrease in Small Business.
• Average deposits increased $183 million, primarily reflecting increases in money market and checking deposits, partially offset by a decrease in time deposits.
• Net interest income increased $2 million, primarily due to an increase in loan yields and an increase in net FTP credits, largely due to the increase in average deposits.
• The provision for credit losses decreased $4 million, primarily reflecting a decrease in Personal Banking.
• Noninterest expenses increased $7 million, primarily reflecting an increase in corporate overhead expenses. See the Business Bank discussion for an explanation of the increase in corporate overhead expense.

• Average loans decreased $26 million.
• Average deposits increased $167 million, primarily reflecting increases in money market and checking deposits, partially offset by a decrease in time deposits.
• Net interest income increased $2 million, primarily due to an increase in net FTP credits, largely due to the increase in average deposits, and an increase in loan yields.
• The provision for credit losses decreased $4 million, from a negative provision of $3 million in the third quarter 2015 to a negative provision of $7 million in the fourth quarter 2015, primarily reflecting a high level of recoveries in the fourth quarter 2015.
• Noninterest income decreased $2 million, primarily due to lower fiduciary income.
• Noninterest expenses increased $7 million, primarily due to an increase in corporate overhead expenses, for the reasons previously described in the Business Bank discussion, as well as an increase in operational losses.

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, 2015 and are presented on a fully taxable equivalent (FTE) basis.

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

• Average loans decreased $237 million in Michigan, primarily reflecting a decrease in general Middle Market, and $104 million in Texas, primarily reflecting a decrease in Energy. Average loans increased $244 million in California, primarily reflecting increases in National Dealer Services and smaller increases in almost all other lines of business, partially offset by decreases in general Middle Market and Private Banking.
• Average deposits increased $177 million in Michigan, $173 million in California and $54 million in Texas. The increase in Michigan primarily reflected an increase in general Middle Market. The increase in California primarily reflected increases in Corporate Banking and Private Banking, partially offset by decreases in Technology and Life Sciences and general Middle Market. The increase in Texas primarily reflected increases in Energy, Retail Banking and Small Business, partially offset by a decrease in general Middle Market.
• Net interest income increased $6 million, $3 million and $2 million in California, Michigan and Texas, respectively. The increase in California primarily reflected the benefit from an increase in net FTP credits, largely due to increases in average deposits as well as the deposit crediting rate, an increase in loan yields and the impact higher average loan balances. The increases in Michigan and Texas primarily reflects an increase in loan yields, partially offset by a decrease in average loan balances. Loan yields in all markets benefited from increased interest recognized on nonaccrual loans.
• The provision for credit losses increased $47 million in Texas and decreased $31 million and $18 million in California and Michigan, respectively. The increase in Texas primarily reflected an increase in reserves for Energy. In California, the provision decreased primarily as a result of decreased reserves for Technology and Life Sciences, while the decrease in Michigan was primarily the result of a decreased provision in general Middle Market.
• Noninterest income decreased $3 million and $2 million in Michigan and Texas, respectively, and increased $3 million in California. The decrease in Michigan was primarily due to decreases in fiduciary income, customer derivative income and small decreases in several other categories. The decrease in Texas reflected small variances in several categories, partially offset by an increase syndication agent fees, and the increase in California primarily reflected an increase in syndication agent fees.
• Noninterest expenses increased $10 million in Michigan, $7 million in Texas and $6 million in California, primarily reflecting increased corporate overhead expenses, for the same reasons discussed previously, in the Business Bank section.

Conference Call and Webcast

Comerica will host a conference call to review fourth quarter 2015 financial results at 7 a.m. CT Tuesday January 19, 2016. Interested parties may access the conference call by calling (877) 523-5249 or (210) 591-1147 (event ID No. 93937227). 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," "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; changes in regulation or oversight; Comerica's ability to maintain adequate sources of funding and liquidity; the effects of more stringent capital or liquidity requirements; declines or other changes in the businesses or industries of Comerica's customers, including the energy industry; operational difficulties, failure of technology infrastructure or information security incidents; reliance on other companies to provide certain key components of business infrastructure; factors impacting noninterest expenses which are beyond Comerica's control; changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing; changes in Comerica's credit rating; unfavorable developments concerning credit quality; the interdependence of financial service companies; 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; 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, 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 12 of Comerica's Annual Report on Form 10-K for the year ended December 31, 2014. 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.