Comerica Reports Second Quarter 2012 Net Income Of $144 Million

DALLAS, July 17, 2012 /PRNewswire/ -- Comerica Incorporated (NYSE: CMA) today reported second quarter 2012 net income of $144 million, an increase of $14 million compared to $130 million for the first quarter 2012. Earnings per fully diluted share of 73 cents increased 7 cents, or 11 percent, compared to 66 cents for the first quarter 2012.

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"Our second quarter results reflect our focus on the bottom line in this slow growing national economy," said Ralph W. Babb Jr., chairman and chief executive officer. "Loans continued to grow, with average loans up $959 million, or 2 percent, compared to the first quarter, primarily reflecting an increase of $1.2 billion, or 5 percent, in commercial loans. This was the eighth consecutive quarter of average commercial loan growth, resulting in a 20 percent year-over-year increase, including our acquisition of Sterling Bancshares last July. The increase in average commercial loans in the second quarter was broad-based, primarily driven by increases in National Dealer Services, Global Corporate Banking, Middle Market Banking and Energy. As expected, this was partially offset by the continued decline in commercial real estate loans.

"Deposits continued to grow, credit quality remained solid, and we maintained our tight control of expenses.

"Our capital position remains a source of strength to support our future growth. We repurchased 2.9 million shares under our share repurchase program in the second quarter of 2012. In April, our Board of Directors increased the quarterly cash dividend 50 percent, to 15 cents per share. The combined share buyback and dividend returned 81 percent of second quarter net income to shareholders. We also have carefully reviewed the Basel III regulatory capital framework and believe that, on a fully phased-in pro forma basis, we are well above the proposed capital levels.

"Our consistent, conservative, relationship-focused approach to banking is making a positive difference for us and our customers."

Second Quarter 2012 Highlights Compared to First Quarter 2012

• Net income of $144 million, or 73 cents per fully diluted share, increased 11 percent compared to first quarter 2012.
• Average total loans increased $959 million, or 2 percent, primarily reflecting an increase of $1.2 billion, or 5 percent, in commercial loans, partially offset by a decrease of $252 million, or 2 percent, in commercial real estate loans (commercial mortgage and real estate construction loans). The increase in commercial loans was broad-based, primarily driven by increases in National Dealer Services, Global Corporate Banking, Middle Market Banking and Energy.
• Period-end total loans increased $980 million, or 2 percent, from March 31, 2012 to June 30, 2012, primarily reflecting an increase of $1.4 billion, or 5 percent, in commercial loans, partially offset by a $314 million, or 3 percent, decrease in commercial real estate loans. The increase in period-end commercial loans was primarily driven by increases in Mortgage Banker Finance, National Dealer Services, Global Corporate Banking, Technology and Life Sciences, and Energy.
• Average total deposits increased $368 million, or 1 percent, primarily reflecting an increase of $491 million, or 2 percent, in noninterest-bearing deposits.
• Strong credit quality continued in the second quarter 2012. Nonaccrual loans decreased $111 million, to $719 million at June 30, 2012. Net credit-related charge-offs were stable at $45 million, or 0.42 percent of average loans, in the second quarter 2012. The provision for credit losses was $19 million in the second quarter 2012, compared to $22 million in the first quarter 2012.
• Noninterest income increased to $211 million in the second quarter 2012, compared to $206 million for the first quarter 2012. The $5 million increase was primarily due to a $5 million annual incentive bonus received in the second quarter 2012 from Comerica's third-party credit card provider.
• Noninterest expenses decreased $16 million to $433 million in the second quarter 2012, compared to the first quarter 2012. The decrease primarily reflected a $12 million decrease in salaries expense and smaller decreases in several other categories of noninterest expenses, partially offset by a $8 million increase in merger and restructuring charges related to the Sterling acquisition.
• Comerica repurchased 2.9 million shares of common stock under the share repurchase program and increased the quarterly dividend by 50 percent, to $0.15 per share, in the second quarter 2012.

Net Interest Income

• Net interest income of $435 million in the second quarter 2012 decreased $8 million compared to the first quarter 2012.
  • Interest earned on loans decreased $3 million in the second quarter 2012. The benefit from an increase in average loans ($8 million) was offset by a decrease in the accretion of the purchase discount on the acquired Sterling loan portfolio ($7 million) and lower loan yields ($4 million). The lower loan yields reflected a shift in the average loan portfolio mix, largely due to the decrease in average commercial real estate loans and the increase in lower yielding, higher credit quality commercial loans. Accretion of the purchase discount on the acquired Sterling loan portfolio was $18 million in the second quarter 2012, compared to $25 million in the first quarter 2012. For the remainder of 2012, $20 million to $25 million of accretion is expected to be recognized.
  • Interest earned on investment securities available-for-sale decreased $5 million, primarily as a result of accelerated premium amortization ($3 million), as well as lower reinvestment yields and a decrease in mortgage-backed investment securities ($2 million).
• Average earning assets increased $467 million in the second quarter 2012, compared to the first quarter 2012, primarily reflecting increases of $959 million in average loans, partially offset by decreases of $336 million in average Federal Reserve Bank deposits and $161 million in average investment securities available-for-sale.
• Average deposits increased $368 million in the second quarter 2012, compared to the first quarter 2012, primarily due to a $491 million increase in average noninterest-bearing deposits, partially offset by a decrease in money market and interest-bearing checking accounts.

Noninterest Income

Noninterest income increased $5 million, to $211 million for the second quarter 2012. The increase primarily resulted from a $5 million annual incentive bonus received in the second quarter 2012 from Comerica's third party credit card provider, a $3 million increase in customer-driven fee income and a $3 million increase in net income from principal investing and warrants. Customer-driven fee income increased in the second quarter 2012, primarily due to a $5 million increase in customer derivative income, partially offset by a $3 million decrease in service charges on deposit accounts. Deferred compensation asset returns decreased $7 million in the second quarter 2012, compared to the first quarter 2012. The decrease in deferred compensation asset returns in noninterest income is offset by a decrease in deferred compensation plan expense in noninterest expenses.

Noninterest Expenses

Noninterest expenses totaled $433 million in the second quarter 2012, a decrease of $16 million compared to $449 million in the first quarter 2012. The decrease in noninterest expenses was primarily due to a decrease in salaries expense of $12 million, a $4 million decrease in other real estate expense, a $3 million decrease in litigation-related expense and smaller decreases in several other categories of noninterest expenses, partially offset by an increase in merger and restructuring charges of $8 million. The decrease in salaries expense primarily resulted from a $7 million decrease in deferred compensation plan expense and $5 million of stock grants expensed in the first quarter 2012. Restructuring charges of approximately $25 million to $30 million are expected to be incurred for the remainder of 2012.

Credit Quality

"Credit quality continued to be strong," said Babb. "Net credit-related charge-offs were stable at $45 million, or 42 basis points of total loans. The provision for credit losses decreased $3 million to $19 million. We believe we will continue to see the provision and net charge-offs at or near these levels for the remainder of the year."

• Net credit-related charge-offs remained stable at $45 million in both the second and first quarter of 2012.
• The provision for credit losses was $19 million in the second quarter 2012, compared to $22 million in the first quarter 2012.
• Internal watch list loans continued the downward trend, declining $371 million in the second quarter 2012, to $3.8 billion at June 30, 2012. Nonperforming assets decreased $109 million to $814 million at June 30, 2012.
• During the second quarter 2012, $47 million of borrower relationships over $2 million were transferred to nonaccrual status, a decrease of $22 million from the first quarter 2012.
• The allowance for loan losses to total loans ratio was 1.52 percent and 1.64 percent at June 30, 2012 and March 31, 2012, respectively.

Balance Sheet and Capital Management

Total assets and common shareholders' equity were $62.7 billion and $7.0 billion, respectively, at June 30, 2012, compared to $62.6 billion and 7.0 billion, respectively, at March 31, 2012. There were approximately 194 million common shares outstanding at June 30, 2012. Comerica repurchased $88 million of common stock (2.9 million shares) under the share repurchase program during the second quarter 2012. Combined with the increased dividend of $0.15 per share in the second quarter, share repurchases and dividends returned 81 percent of second quarter 2012 net income to shareholders.

In the second quarter 2012, U.S. banking regulators issued proposed rules for the U.S. adoption of the Basel III regulatory capital framework. The proposals narrow the definition of capital, increase the minimum levels of required capital, introduce capital buffers and increase the risk weights for various asset classes. On a fully-phased-in pro forma basis, Comerica is currently estimated to be well above the proposed capital levels.

Comerica's tangible common equity ratio was 10.27% at June 30, 2012, an increase of 6 basis points from March 31, 2012. The estimated Tier 1 common capital ratio increased 5 basis points, to 10.32% at June 30, 2012, from March 31, 2012.

Full-Year 2012 Outlook Compared to Full-Year 2011

For 2012, management expects the following, assuming a continuation of the current economic environment:

• Average loans increasing 5 percent to 6 percent.
• Net interest income increasing 3 percent to 5 percent.
• Net credit-related charge-offs and provision for credit losses declining.
• Noninterest income increasing 1 percent to 2 percent.
• Noninterest expenses increasing or decreasing 1 percent.
• Effective tax rate of approximately 26 percent.

Business Segments

Comerica's operations are strategically aligned into three major business segments: the Business Bank, the Retail Bank and Wealth Management. The Finance Division is also reported as a segment. The financial results below are based on the internal business unit structure of the Corporation and methodologies in effect at June 30, 2012 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses second quarter 2012 results compared to first quarter 2012.

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

Business Bank

• Average loans increased $1.2 billion, primarily due to increases in National Dealer Services, Global Corporate Banking, Middle Market and Energy.
• Average deposits increased $148 million, primarily due to increases in Technology and Life Sciences and the Financial Services Division, partially offset by declines in Global Corporate Banking and Middle Market.
• Net interest income increased $6 million, primarily due to higher average loan balances, partially offset by a decrease in accretion on the acquired Sterling loan portfolio.
• The provision for credit losses increased $10 million, primarily reflecting increases in Technology and Life Sciences and Middle Market, partially offset by a decrease in National Dealer Services.
• Noninterest expenses decreased $7 million, primarily due to a decrease in net allocated corporate overhead expenses. The decrease in net allocated corporate overhead expense primarily reflected decreases in salaries and incentive expense in overhead departments and smaller decreases in several other categories of overhead expense.

Retail Bank

• Average loans declined $212 million, primarily due to a decrease in Small Business Banking.|
• Average deposits increased $152 million, primarily due to an increase in Personal Banking.
• Net interest income decreased $6 million, primarily due to a decrease in accretion on the acquired Sterling loan portfolio, a decrease in average loan balances and lower loan yields.
• Noninterest income increased $5 million, primarily due to a $5 million annual incentive bonus received in the second quarter 2012 from Comerica's third-party credit card provider.
• Noninterest expenses decreased $7 million, primarily due to a decrease in net allocated corporate overhead expenses, for the reasons previously described in the Business Bank section.

Wealth Management

• Average loans decreased $40 million due to a decrease in Private Banking. |
• Average deposits increased $29 million, primarily due to an increase in Private Banking, partially offset by a decrease in Trust.
• The provision for credit losses decreased $13 million, primarily due to a decrease in Private Banking in the Midwest market.

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 June 30, 2012 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses second quarter 2012 results compared to first quarter 2012.

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

Midwest Market

• Average loans decreased $59 million, primarily due to decreases in Small Business Banking, Personal Banking and Middle Market, partially offset by increases in Global Corporate Banking and National Dealer Services.
• Average deposits decreased $188 million, primarily due to decreases in Global Corporate Banking and the Financial Services Division, partially offset by increases in Personal Banking and Middle Market.
• The provision for credit losses decreased $10 million, primarily reflecting a decrease in Private Banking.
• Noninterest expenses decreased $5 million primarily due to lower net allocated corporate overhead expenses, for the reasons previously described in the Business Bank section.

Western Market

• Average loans increased $537 million, primarily due to increases in National Dealer Services and Middle Market.
• Average deposits increased $474 million, primarily due to increases in Technology and Life Sciences and the Financial Services Division, partially offset by a decrease in Middle Market.
• Net interest income increased $6 million, primarily due to an increase in average loan balances.
• The provision for credit losses increased $8 million, primarily reflecting increases in Middle Market and Technology and Life Sciences, partially offset by a decrease in Small Business Banking.
• Noninterest income increased $4 million, primarily due to an increase in warrant income.
• Noninterest expenses decreased $3 million, primarily due to a decrease in net allocated corporate overhead expenses, for the reasons previously described in the Business Bank section.

Texas Market

• Average loans increased $211 million, primarily due to increases in Energy and Middle Market, partially offset by a decrease in Small Business Banking.
• Average deposits decreased $44 million, primarily reflecting a decrease in Small Business Banking and Energy, partially offset by an increase in Global Corporate Banking.
• Net interest income decreased $8 million, primarily due to a decrease in accretion on the acquired Sterling loan portfolio and lower loan yields, partially offset by an increase in average loan balances.
• The provision for credit losses decreased $7 million, primarily due to decreases in Commercial Real Estate and Small Business Banking.
• Noninterest expense decreased $4 million, primarily due to a decrease in net allocated corporate overhead expenses, for the reasons previously described in the Business Bank section. 

Florida Market

• Average loans increased $11 million, primarily due to increases in National Dealer Services and Middle Market, partially offset by decreases in Commercial Real Estate and Private Banking.
• Average deposits increased $22 million, primarily due to increases in Private Banking and the Financial Services Division.
• The provision for credit losses increased $5 million, primarily due to an increase in Middle Market.

Conference Call and Webcast

Comerica will host a conference call to review second quarter 2012 financial results at 7 a.m. CT Tuesday, July 17, 2012. Interested parties may access the conference call by calling (800) 309-2262 or (706) 679-5261 (event ID No. 90096639). The call and supplemental financial information can also be accessed via Comerica's "Investor Relations" page at www.comerica.com. A telephone replay will be available approximately two hours following the conference call through July 31, 2012. The conference call replay can be accessed by calling (855) 859-2056 or (404) 537-3406 (event ID No. 90096639). A replay of the Webcast can also be accessed via Comerica's "Investor Relations" page at www.comerica.com.

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

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

Forward-looking Statements

Any statements in this news release that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Words such as "anticipates," "believes," "contemplates," "feels," "expects," "estimates," "seeks," "strives," "plans," "intends," "outlook," "forecast," "position," "target," "mission," "assume," "achievable," "potential," "strategy," "goal," "aspiration," "opportunity," "initiative," "outcome," "continue," "remain," "maintain," "on course," "trend," "objective," "looks forward" and variations of such words and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "might," "can," "may" or similar expressions, as they relate to Comerica or its management, are intended to identify forward-looking statements. These forward-looking statements are predicated on the beliefs and assumptions of Comerica's management based on information known to Comerica's management as of the date of this news release and do not purport to speak as of any other date. Forward-looking statements may include descriptions of plans and objectives of Comerica's management for future or past operations, products or services, and forecasts of Comerica's revenue, earnings or other measures of economic performance, including statements of profitability, business segments and subsidiaries, estimates of credit trends and global stability. Such statements reflect the view of Comerica's management as of this date with respect to future events and are subject to risks and uncertainties. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, Comerica's actual results could differ materially from those discussed. Factors that could cause or contribute to such differences are changes in general economic, political or industry conditions; changes in monetary and fiscal policies, including the interest rate policies of the Federal Reserve Board; volatility and disruptions in global capital and credit markets; changes in Comerica's credit rating; the interdependence of financial service companies; changes in regulation or oversight; unfavorable developments concerning credit quality; the acquisition of Sterling Bancshares, Inc., or any future acquisitions; 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, including the implementation of revenue enhancements and efficiency improvements; 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; 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, 2011. 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 tangible common equity removes preferred stock and the effect of intangible assets from capital and the effect of intangible assets from total assets and 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