Comerica Reports Fourth Quarter Net Income of $96 Million

DALLAS, Jan. 18, 2011 /PRNewswire/ -- Comerica Incorporated (NYSE: CMA) today reported fourth quarter 2010 net income of $96 million, compared to $59 million for the third quarter 2010. Fourth quarter 2010 net income included a provision for loan losses of $57 million, compared to $122 million for the third quarter 2010.

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"We saw many encouraging and positive signs in the fourth quarter," said Ralph W. Babb Jr., chairman and chief executive officer.  "Period-end loan outstandings were stable, with commercial loans up more than $700 million, or about three percent.  We were pleased to see growth in loan outstandings across multiple business lines, particularly Middle Market loans in Texas, as well as growth in National Dealer Services, Mortgage Banker Finance, Energy Lending, and Technology and Life Sciences. These increases were muted by the planned and continued reduction of loans in our Commercial Real Estate business line.  We also saw broad-based improvement in credit quality, strong deposit growth and fee income generation.  Continued balance sheet strength through careful management of liquidity and capital has positioned Comerica for growth as the economic environment improves.

"Our customers are conveying a more positive and confident tone.  Generally, they are feeling much better about the economy.  Throughout our geographic footprint, our relationship managers report a growing sense of optimism among customers and prospects.  This can be seen in our strong loan pipeline.  Given the many positive signs we have seen, as well as our strategy for success, which is focused on growth and balance, we believe we are uniquely positioned for the future."

Fourth Quarter and Full-Year 2010 Overview

Fourth Quarter 2010 Highlights Compared to Third Quarter 2010

• Credit quality improvement accelerated in the fourth quarter 2010.  Net credit-related charge-offs decreased $19 million to $113 million. Internal watch list loans declined $629 million to $5.5 billion.  Nonaccrual loans decreased $83 million and loans past due 90 days or more declined $42 million.  As a result, the provision for loan losses decreased $65 million to $57 million.
• Period-end total loan outstandings were stable, with growth in commercial loans of $713 million muted by runoff in the Commercial Real Estate business line.  Average loans increased $229 million in the fourth quarter 2010, excluding a decrease of $332 million in the Commercial Real Estate business line.  In total, average loans decreased $103 million, compared to declines of $570 million and $641 million in the third and second quarters of 2010, respectively.
• Average core deposits increased $1.1 billion in the fourth quarter 2010, reflecting increases in noninterest-bearing deposits and money market and NOW deposits, partially offset by a decrease in customer certificates of deposit.  Average core deposits increased across all markets and in most business lines.
• Total revenue increased five percent in the fourth quarter 2010, driven by an increase in noninterest income of $29 million, reflecting increases in numerous fee categories.
• The net interest margin of 3.29 percent increased six basis points. Average earning assets decreased $1.1 billion in the fourth quarter 2010, compared to the third quarter 2010, primarily due to a $1.2 billion decrease in excess liquidity, to $1.8 billion in the fourth quarter 2010.
• Noninterest expenses totaled $437 million in the fourth quarter 2010, an increase of $35 million from the third quarter 2010, in part the result of an increase in salaries expense of $18 million. The increase in salaries expense was largely driven by an increase in incentive compensation, reflecting improved overall performance and final 2010 peer rankings, and an increase in deferred compensation plan costs, which was offset by an increase in deferred compensation asset returns in noninterest income.  
• In October 2010, Comerica redeemed $515 million of 6.576% subordinated notes due 2037 at par and recognized a pre-tax charge of $5 million in noninterest expenses resulting from the accelerated accretion of the original issuance discount. The notes related to trust preferred securities issued by an unconsolidated subsidiary, which were concurrently redeemed.
• Capital ratios remained strong. The tangible common equity ratio increased 15 basis points to 10.54 percent at December 31, 2010 and the estimated Tier 1 ratio increased 12 basis points, to 10.08 percent at December 31, 2010, from September 30, 2010.
• In the fourth quarter 2010, Comerica doubled the quarterly dividend to 10 cents per share, authorized the repurchase of up to 12.6 million shares of common stock in the open market and authorized the purchase of outstanding warrants to purchase up to 11.5 million shares of common stock.  

Full-Year 2010 Compared to Full-Year 2009

• Credit quality improved significantly.  Net credit-related charge-offs decreased $305 million to $564 million. Internal watch list loans declined $2.2 billion to $5.5 billion. Nonaccrual loans decreased $85 million and loans past due 90 days or more declined $39 million.  As a result, the provision for loan losses decreased $602 million to $480 million.    
• Average earning assets were $51.0 billion in 2010, a decrease of $7.2 billion from 2009. Average loans decreased $5.6 billion in 2010 to $40.5 billion, reflecting subdued loan demand from customers in a modestly recovering economic environment.
• Average core deposits increased $3.4 billion to $38.7 billion, primarily reflecting increases of $3.4 billion in money market and NOW deposits and $2.2 billion in noninterest-bearing deposits, partially offset by a $2.3 billion decrease in customer certificates of deposit.

Full-Year 2010 Compared to Full-Year 2009 (continued)

• The net interest margin was 3.24 percent for 2010, compared to 2.72 percent for 2009.  The increase in the net interest margin was primarily due to changes in the funding mix, including a continued shift in funding sources toward lower-cost funds, and improved loan spreads.  
• Noninterest income decreased $261 million compared to 2009.  Increases in commercial lending fees ($16 million), card fees ($7 million) and letter of credit fees ($7 million) were partially offset by decreases in service charges on deposit accounts ($20 million) and fiduciary income ($7 million). Additionally, 2009 included net securities gains ($243 million), gains related to the repurchase of debt ($15 million) and net gains on the termination of leveraged leases ($8 million).
• Noninterest expenses decreased $10 million, compared to 2009, primarily reflecting decreases in FDIC insurance expense ($28 million), pension expense ($27 million) and other real estate expense ($19 million), partially offset by an increase in salaries expense ($53 million).  The increase in salaries expense was largely driven by an increase in incentive compensation, reflecting improved overall performance and final 2010 peer rankings. Full-time equivalent staff decreased by approximately 330 employees, or four percent, from December 31, 2009.
• In March 2010, Comerica fully redeemed $2.25 billion of preferred stock issued to the U.S. Treasury.  The redemption was funded by the net proceeds from an $880 million common stock offering also completed in March 2010 and from excess liquidity at the parent company.  The redemption resulted in a one-time charge of $94 million, included in preferred stock dividends, reflecting the accelerated accretion of the remaining discount. In addition, in October 2010, Comerica redeemed $515 million of subordinated notes related to trust preferred securities.

Net Interest Income and Net Interest Margin

• Net interest income was stable, as the impact of a decline in average earning assets was offset by an increase in the net interest margin.
• Average earning assets decreased $1.1 billion, primarily due to a decrease of $1.2 billion in excess liquidity, represented by average Federal Reserve Bank deposits. Excluding a decrease of $332 million  in the Commercial Real Estate business line, average loans increased $229 million in the fourth quarter 2010, including increases across all markets in the National Dealer Services, Mortgage Banker Finance and Energy Lending business lines.  Additionally, average loans increased in the Middle Market business line in the Texas market.
• The net interest margin of 3.29 percent increased six basis points compared to third quarter 2010.  The increase in the net interest margin reflected the benefit from the decrease in excess liquidity and the redemption of higher-cost trust preferred securities discussed above, partially offset by a decrease in yields on investment securities, primarily resulting from elevated prepayment activity in higher-yielding, mortgage-backed investment securities.
• Fourth quarter 2010 average core deposits increased $1.1 billion compared to third quarter 2010, reflecting increases of $687 million in noninterest-bearing deposits and $621 million in money market and NOW deposits, partially offset by a decrease of $206 million in customer certificates of deposit.   Average core deposits increased across all markets and in most business lines.

Noninterest Income

Noninterest income was $215 million for the fourth quarter 2010, compared to $186 million for the third quarter 2010.  The $29 million increase resulted largely from increases in commercial lending fees ($7 million), deferred compensation asset returns ($6 million), bank-owned life insurance ($5 million), customer derivative income ($4 million), and a $4 million insurance recovery in the fourth quarter 2010, as well as smaller increases across several fee categories.  As expected, service charges on deposit accounts declined $2 million, largely the result of the impact of Regulation E on overdraft fees.

Noninterest Expenses

Noninterest expenses were $437 million for the fourth quarter 2010, compared to $402 million for the third quarter 2010. The $35 million increase in noninterest expenses was primarily due to an increase in salaries expense ($18 million), a $5 million one-time charge related to the redemption of subordinated notes previously discussed, and increases in outside processing fees ($4 million) and litigation and operational losses ($4 million). The increase in salaries expense was primarily due to increases in executive and business unit incentives ($10 million), deferred compensation plan costs ($6 million) (offset by an increase in deferred compensation asset returns in noninterest income) and severance expense ($3 million), partially offset by a decrease in share-based compensation expense ($5 million). Full-time equivalent staff decreased by approximately 330 employees, or four percent, from December 31, 2009.

Credit Quality

"All of the key credit metrics are moving in the right direction, with decreases in net charge-offs, watch list loans and nonaccrual loans, all leading to a significant decline in the provision for loan losses," said Babb.  "Comerica's credit performance throughout this cycle has been among the best in our peer group.  We believe it is a reflection of our strong credit culture and the diligent credit quality review processes we employ.  We expect to see continued improvement given the moderate pace of the economic recovery."

• Net credit-related charge-offs decreased $19 million to $113 million in the fourth quarter 2010, from $132 million in the third quarter 2010. The decrease in net credit-related charge-offs primarily resulted from decreases of $19 million in the Commercial Real Estate business line and $9 million in the Middle Market business line, partially offset by increases of $6 million in the Global Corporate Banking business line and $4 million in Private Banking.
• Internal watch list loans declined $629 million to $5.5 billion from September 30, 2010 to December 31, 2010.
• During the fourth quarter 2010, $180 million of loan relationships greater than $2 million were transferred to nonaccrual status, a decrease of $114 million from the third quarter 2010, primarily due to a $61 million decrease in transfers from the Commercial Real Estate business line and a $54 million decrease in transfers from the Middle Market business line.  Of the transfers of loan relationships greater than $2 million to nonaccrual in the fourth quarter 2010, $71 million were from the Commercial Real Estate business line, primarily in the Midwest and Florida markets, and $71 million were from the Middle Market business line, in the Midwest and Western markets.
• Nonperforming assets decreased $76 million to $1.2 billion, or 3.06 percent of total loans and foreclosed property, at December 31, 2010.  
• Nonaccrual loans were charged down 46 percent at December 31, 2010.
• Foreclosed property decreased $8 million to $112 million at December 31, 2010, from $120 million at September 30, 2010.
• Loans past due 90 days or more and still accruing were $62 million at December 31, 2010, a decrease of $42 million compared to September 30, 2010.
• The provision for loan losses decreased $65 million, primarily due to reductions in the Middle Market, Private Banking, Commercial Real Estate and Leasing business lines, partially offset by increases in the Global Corporate Banking and Personal Banking business lines.
• The allowance for loan losses to total loans ratio was 2.24 percent and 2.38 percent at December 31, 2010 and September 30, 2010, respectively.

Balance Sheet and Capital Management

Total assets and common shareholders' equity were $53.7 billion and $5.8 billion, respectively, at December 31, 2010, compared to $55.0 billion and $5.9 billion, respectively, at September 30, 2010. There were approximately 177 million common shares outstanding at December 31, 2010.  

Comerica's tangible common equity ratio was 10.54 percent at December 31, 2010, an increase of 15 basis points from September 30, 2010. The estimated Tier 1 ratio increased 12 basis points, to 10.08 percent at December 31, 2010, from September 30, 2010.  

Full-Year 2011 Outlook

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

• A low single-digit decrease in average loans.  Excluding the Commercial Real Estate business line, a low single-digit increase in average loans.    
• Average earning assets of approximately $48 billion, reflecting lower excess liquidity in addition to a decrease in average loans.
• An average net interest margin similar to full-year 2010, based on no increase in the Federal Funds rate.  
• Net credit-related charge-offs between $350 million and $400 million. The provision for credit losses is expected to be between $150 million and $200 million.
• A low single-digit decline in noninterest income, primarily due to the impact of regulatory changes.  
• A low single-digit increase in noninterest expenses, primarily due to an increase in employee benefits expense.
• Income tax expense to approximate 36 percent of income before income taxes less approximately $60 million of permanent differences related to low-income housing and bank-owned life insurance.
• Commence a share repurchase program that, combined with dividend payments, results in a payout of less than 50 percent of earnings.

Business Segments

Comerica's continuing operations are strategically aligned into three major business segments: the Business Bank, the Retail Bank, and Wealth & Institutional Management.  The Finance Division also is included as a segment. The financial results below are based on the internal business unit structure of the Corporation and methodologies in effect at December 31, 2010 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses fourth quarter 2010 results compared to third quarter 2010.

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

Business Bank

• Average loans increased $7 million, reflecting increases in National Dealer Services, Mortgage Banker Finance and Energy Lending largely offset by decreases in Commercial Real Estate, Middle Market and Global Corporate Banking.
• Average deposits increased $626 million, primarily due to increases in Middle Market and Technology and Life Sciences.
• The net interest margin of 4.51 percent increased six basis points, primarily due to increases in loan spreads and deposit balances, partially offset by a decrease in deposit spreads.
• The provision for loan losses decreased $49 million, primarily due to a decrease in Middle Market.
• Noninterest income increased $12 million, primarily due to an increase in commercial lending fees.
• Noninterest expenses increased $3 million, primarily due to increases in incentive compensation included in corporate overhead and the provision for credit losses on lending-related commitments, partially offset by a decrease in other real estate expense.

Retail Bank

• Average loans decreased $122 million, reflecting declines across all markets and business lines.
• Average deposits increased $299 million, primarily due to increases in transaction and money market deposits, partially offset by a decline in customer certificates of deposit.
• The net interest margin of 3.07 percent decreased three basis points, primarily due to decreases in deposit spreads and loan balances.
• The provision for loan losses increased $5 million, primarily due to an increase in Personal Banking in the Midwest market.
• Noninterest income decreased $2 million, primarily due to a decrease in service charges on deposit accounts, largely the result of the impact of Regulation E on overdraft fees.
• Noninterest expenses increased $4 million, primarily due to an increase in incentive compensation included in corporate overhead.

Wealth and Institutional Management

• Average loans decreased $4 million.
• Average deposits increased $124 million, primarily due to increases in transaction and money market deposits.
• The net interest margin of 3.43 percent increased one basis point.
• The provision for loan losses decreased $14 million, primarily due to a decrease in the Western market.
• Noninterest expenses increased $15 million, primarily due to increases in salaries expense, outside processing fees, litigation and operational losses, and incentive compensation included in corporate overhead.

Geographic Market Segments

Comerica also provides market segment results for four primary geographic markets: Midwest, Western, Texas and Florida.  In addition to the four primary geographic markets, Other Markets and International are also reported as market segments.  The financial results below are based on methodologies in effect at December 31, 2010 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses fourth quarter 2010 results compared to third quarter 2010.

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

Midwest Market

• Average loans decreased $57 million, with declines in most business lines, partially offset by increases in National Dealer Services and Global Corporate Banking.
• Average deposits increased $182 million, primarily due to increases in Small Business Banking and Middle Market, partially offset by a decrease in Global Corporate Banking.
• The provision for loan losses increased $8 million, primarily due to increases in Global Corporate Banking, Commercial Real Estate and Personal Banking, partially offset by a decrease in Middle Market.
• Noninterest expenses increased $16 million, primarily due to increases in incentive compensation included in corporate overhead, litigation and operational losses and outside processing fees.

Western Market

• Average loans decreased $59 million, primarily due to decreases in Commercial Real Estate and Middle Market, partially offset by an increase in National Dealer Services.
• Average deposits increased $655 million, primarily due to increases in Middle Market, the Financial Services Division and Technology and Life Sciences.
• The net interest margin of 5.01 percent increased five basis points, primarily due to increases in loan spreads and deposit balances.
• The provision for loan losses decreased $40 million, primarily due to decreases in Private Banking, Middle Market and Commercial Real Estate.
• Noninterest income increased $4 million, primarily due to an increase in commercial lending fees.

Texas Market

• Average loans increased $78 million, primarily due to increases in Middle Market and Energy Lending, partially offset by a decrease in Commercial Real Estate.
• Average deposits increased $114 million, primarily due to increases in Small Business Banking and Technology and Life Sciences.
• The net interest margin of 4.91 percent increased four basis points, primarily due to increases in loan spreads and deposit balances.
• The provision for loan losses decreased $2 million, primarily due to a decrease in Commercial Real Estate, partially offset by an increase in Energy Lending.
• Noninterest income increased $6 million, primarily due to an increase in commercial lending fees.
• Noninterest expenses increased $6 million, primarily due to increases in the provision for credit losses on lending-related commitments and incentive compensation included in corporate overhead.

Florida Market

• Average loans increased $63 million, primarily due to an increase in National Dealer Services.
• Average deposits increased $11 million, primarily due to an increase in Private Banking, partially offset by a decrease in Global Corporate Banking.
• The net interest margin of 2.64 percent increased three basis points, primarily due to an increase in deposit spreads.
• The provision for loan losses decreased $6 million, reflecting decreases in most business lines.

Conference Call and Webcast

Comerica will host a conference call to review fourth quarter and full-year 2010 financial results at 7 a.m. CT Tuesday, January 18, 2011. Interested parties may access the conference call by calling (800) 309-2262 or (706) 679-5261 (event ID No. 38040930). The call and supplemental financial information can also be accessed on the Internet at www.comerica.com.  A replay will be available approximately two hours following the conference call through January 31, 2011. The conference call replay can be accessed by calling (800) 642-1687 or (706) 645-9291 (event ID No. 38040930). A replay of the Webcast can also be accessed via Comerica's "Investor Relations" page at www.comerica.com.

Comerica Incorporated is a financial services company headquartered in Dallas, Texas, and strategically aligned by three major business segments: the Business Bank, the Retail Bank, and Wealth & Institutional Management. Comerica focuses on relationships and helping people and businesses be successful. In addition to Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico.

This press release contains both financial measures based on accounting principles generally accepted in the United States (GAAP) and non-GAAP based financial measures, which are used where management believes it to be helpful in understanding Comerica's results of operations or financial position.  Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconcilement to the comparable GAAP financial measure, can be found in this press release.  These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Forward-looking Statements

Any statements in this news release that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Words such as "anticipates," "believes," "feels," "expects," "estimates," "seeks," "strives," "plans," "intends," "outlook," "forecast," "position," "target," "mission," "assume," "achievable," "potential," "strategy," "goal," "aspiration," "outcome," "continue," "remain," "maintain," "trend," "objective" 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 further economic downturns, changes in the pace of an economic recovery and related changes in employment levels, changes in real estate values, fuel prices, energy costs or other events that could affect customer income levels or general economic conditions, the effects of recently enacted legislation, actions taken by or proposed by the U.S. Department of Treasury, the Board of Governors of the Federal Reserve System, the Texas Department of Banking and the Federal Deposit Insurance Corporation, legislation or regulations enacted in the future, and the impact and expiration of such legislation and regulatory actions, the effects of war and other armed conflicts or acts of terrorism, the effects of natural disasters including, but not limited to, hurricanes, tornadoes, earthquakes, fires, droughts  and floods, the disruption of private or public utilities, the implementation of Comerica's strategies and business models, management's ability to maintain and expand customer relationships, changes in customer borrowing, repayment, investment and deposit practices, management's ability to retain key officers and employees, changes in the accounting treatment of any particular item, the impact of regulatory examinations, declines or other changes in the businesses or industries in which Comerica has a concentration of loans, including, but not limited to, the automotive production industry and the real estate business lines, the anticipated performance of any new banking centers, the entry of new competitors in Comerica's markets, changes in the level of fee income, changes in applicable laws and regulations, including those concerning taxes, banking, securities and insurance, changes in trade, monetary and fiscal policies, including the interest rate policies of the Board of Governors of the Federal Reserve System, fluctuations in inflation or interest rates, changes in general economic, political or industry conditions and related credit and market conditions, the interdependence of financial service companies and adverse conditions in the stock market. 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 11 of Comerica's Annual Report on Form 10-K for the year ended December 31, 2009, "Item 1A. Risk Factors" beginning on page 67 of Comerica's Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, "Item 1A. Risk Factors" beginning on page 71 of Comerica's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 and "Item 1A. Risk Factors" beginning on page 72 of Comerica's Quarterly Report on Form 10-Q for the quarter ended September 30, 2010. Forward-looking statements speak only as of the date they are made. Comerica does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made. For any forward-looking statements made in this news release or in any documents, Comerica claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

SOURCE Comerica Incorporated