Comerica Reports Third Quarter 2012 Net Income Of $117 Million

DALLAS, Oct. 17, 2012 /PRNewswire/ -- Comerica Incorporated (NYSE: CMA) today reported third quarter 2012 net income of $117 million, compared to $144 million for the second quarter 2012. Earnings per fully diluted share was 61 cents compared to 73 cents for the second quarter 2012. Third quarter 2012 earnings per fully diluted share included restructuring expenses of 8 cents associated with the acquisition of Sterling Bancshares, Inc. (Sterling) compared to 2 cents for the second quarter 2012.

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"Our customer relationship focus supported loan and deposit growth in the third quarter, despite a slow growing national economy," said Ralph W. Babb Jr., chairman and chief executive officer. "Average loans were up $369 million, or 1 percent, compared to the second quarter, primarily reflecting an increase of $717 million, or 3 percent, in commercial loans. This was the ninth consecutive quarter of average commercial loan growth, resulting in more than a 20 percent year-over-year increase, including our acquisition of Sterling in July 2011. The increase in average commercial loans in the third quarter was primarily driven by increases in Mortgage Banker Finance, Technology and Life Sciences, and Energy.

"Net interest income declined slightly, reflecting the expected continued shift in loan portfolio mix and decline in accretion, as well as a decline in nonaccrual interest received and a leasing residual value adjustment. Lower loan and securities portfolio yields were partially offset by increased loan volume.''

"Strong noninterest-bearing deposit growth continued in the third quarter. We had record average deposits of $50 billion in the third quarter 2012, with an increase of $1 billion, primarily driven by the increase in noninterest-bearing deposits.

"Our capital position remained a source of strength. We repurchased 2.9 million shares in the third quarter under our share repurchase program. Combined with our dividend, we returned $119 million to shareholders in the third quarter."

Third Quarter 2012 Compared to Second Quarter 2012

• Average total loans increased $369 million, or 1 percent, primarily reflecting an increase of $717 million, or 3 percent, in commercial loans, partially offset by a decrease of $344 million, or 3 percent, in commercial real estate loans (commercial mortgage and real estate construction loans). The increase in commercial loans was primarily driven by increases in Mortgage Banker Finance, Technology and Life Sciences and Energy.
• Average total deposits increased $1.2 billion, to $49.9 billion, primarily reflecting an increase of $1.3 billion, or 7 percent, in noninterest-bearing deposits.
• Strong credit quality continued in the third quarter 2012. Nonaccrual loans decreased $54 million, to $665 million at September 30, 2012. Net credit-related charge-offs decreased $2 million to $43 million, or 0.39 percent of average loans, in the third quarter 2012. The provision for credit losses was $22 million in the third quarter 2012 compared to $19 million in the second quarter 2012.
• Net interest income was $427 million in the third quarter 2012 compared to $435 million in the second quarter 2012. The $8 million decrease in net interest income was primarily due to a decline in nonaccrual interest received($4 million) and a leasing residual value adjustment ($2 million), as well as the expected continued shift in the mix of the loan portfolio ($6 million), a decrease in the accretion of the purchase discount on the acquired Sterling loan portfolio ($3 million) and lower reinvestment yields on mortgage-backed investment securities ($2 million), partially offset by lower funding costs ($2 million), an increase in loan volumes ($3 million) and one more day in the third quarter ($4 million).
• Noninterest income was $197 million in the third quarter 2012 compared to $211 million for the second quarter 2012. The $14 million decrease was primarily due to decreases in certain non-customer driven income categories. Net securities gains of $6 million and a $5 million annual incentive bonus received in the second quarter 2012 were not repeated in the third quarter, and net income from principal investing and warrants declined $3 million.
• Noninterest expenses were $449 million in the third quarter 2012, compared to $433 million in the second quarter 2012. The $16 million increase primarily reflected a $17 million increase in restructuring expenses related to the Sterling acquisition.
• Comerica repurchased 2.9 million shares of common stock under the share repurchase program in the third quarter 2012. Combined with the dividend, and in accordance with the capital plan approved earlier this year, $119 million, or 101 percent of net income, was returned to shareholders in the third quarter (89 percent, excluding the third quarter restructuring charge).

Net Interest Income

• Net interest income of $427 million in the third quarter 2012 decreased $8 million compared to the second quarter 2012.
  • Second quarter 2012 included an unusually high amount of interest received on nonaccrual loans, which declined by $4 million in the third quarter. In addition, third quarter 2012 included a $2 million negative residual value adjustment to assets in the leasing portfolio.
  • The continued shift in the loan portfolio mix reduced net interest income $6 million, primarily due to the decrease in higher-yielding commercial real estate loans, the increase in lower-yielding commercial loans, the maturity of higher-yielding fixed-rate loans and positive credit quality migration throughout the loan portfolio.
  • Accretion of the purchase discount on the acquired Sterling loan portfolio decreased $3 million, to $15 million in the third quarter 2012, compared to $18 million in the second quarter 2012. For the fourth quarter of 2012, $7 million to $9 million of accretion is expected to be recognized.
  • Interest earned on investment securities available-for-sale decreased $2 million, as a result of lower reinvestment yields on mortgage-backed investment securities.
  • An increase in loan volumes ($3 million), one more day in the third quarter ($4 million) and lower funding costs ($2 million) partially offset the items noted above.
• Average earning assets increased $1.1 billion in the third quarter 2012, compared to the second quarter 2012, primarily reflecting a $697 million increase in excess liquidity and a $369 million increase in average loans.
• Average deposits increased $1.2 billion in the third quarter 2012, compared to the second quarter 2012, primarily due to a $1.3 billion increase in average noninterest-bearing deposits, partially offset by a decrease in customer certificates of deposit. The rate paid on total average interest-bearing deposits decreased 1 basis point, to 24 basis points.
• Net interest margin of 2.96 percent decreased 14 basis points compared to the second quarter 2012. In addition to the decrease from the unusually high amount of nonaccrual interest received in the second quarter (3 basis points) and the negative leasing residual value adjustment in the third quarter (2 basis points), net interest margin was negatively impacted by lower accretion on the acquired Sterling loan portfolio (2 basis points), continued shift in mix in the loan portfolio (3 basis points), lower reinvestment yields on mortgage-backed securities (2 basis points) and the increase in excess liquidity (3 basis points). Lower funding costs partially offset the decline (1 basis point).

Noninterest Income

Noninterest income totaled $197 million for the third quarter 2012 compared to $211 million for the second quarter 2012. The $14 million decrease was primarily due to decreases in certain non-customer driven income categories. Net securities gains of $6 million and a $5 million annual incentive bonus received from Comerica's third-party credit card provider in the second quarter 2012 were not repeated in the third quarter, and net income from principal investing and warrants declined $3 million. Additionally, customer derivative income decreased $3 million in the third quarter 2012. These declines were partially offset by a $5 million increase in deferred compensation asset returns. The increase in deferred compensation asset returns is offset by an increase in deferred compensation expense in noninterest expenses.

Noninterest Expenses

Noninterest expenses totaled $449 million in the third quarter 2012 compared to $433 million in the second quarter 2012. The $16 million increase was primarily due to increases of $17 million in restructuring expenses and $3 million in salaries expense, partially offset by a decrease of $5 million in legal expenses. Additionally, noninterest expenses were reduced by $6 million in the third quarter 2012 and $3 million in the second quarter due to gains on sales of assets. Restructuring charges related to the Sterling acquisition are substantially complete. The increase in salaries expense was primarily due to a $5 million increase in deferred compensation expense, partially offset by a $3 million decrease in executive incentive compensation.

Credit Quality

"Credit quality continued to be strong," said Babb. "With 39 basis points of net charge-offs and watch list loans at 8.3 percent of the total loan portfolio, we are well within our historical normal range."

• Internal watch list loans continued the downward trend, declining $182 million in the third quarter 2012, to $3.7 billion at September 30, 2012. Nonperforming assets decreased $59 million to $755 million at September 30, 2012.
• During the third quarter 2012, $35 million of borrower relationships over $2 million were transferred to nonaccrual status, a decrease of $12 million from the second quarter 2012.

Balance Sheet and Capital Management

Total assets and common shareholders' equity were $63.3 billion and $7.1 billion, respectively, at September 30, 2012, compared to $62.7 billion and 7.0 billion, respectively, at June 30, 2012. There were approximately 191 million common shares outstanding at September 30, 2012. Comerica repurchased $90 million of common stock (2.9 million shares) under the share repurchase program during the third quarter 2012. Combined with the dividend of $0.15 per share in the third quarter 2012, and in accordance with the capital plan approved earlier this year, share repurchases and dividends returned 101 percent of third quarter 2012 net income to shareholders (89 percent, excluding the third quarter restructuring charge).

Comerica's tangible common equity ratio was 10.25% at September 30, 2012, a decrease of 2 basis points from June 30, 2012. The estimated Tier 1 common capital ratio decreased 6 basis points, to 10.32% at September 30, 2012, from June 30, 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 7 percent to 8 percent.
• Net interest income increasing 4 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 September 30, 2012 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses third quarter 2012 results compared to second quarter 2012.

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

Business Bank

• Average loans increased $407 million, primarily due to increases in Mortgage Banker Finance and Middle Market, partially offset by a decrease in Commercial Real Estate. The increase in Middle Market primarily reflected increases in Energy and Technology and Life Sciences.
• Average deposits increased $997 million. The increase was broad-based, reflecting increases in Middle Market, Corporate, Commercial Real Estate and Mortgage Banker Finance.
• Net interest income increased $1 million, primarily due to higher loan volumes, increased net funds transfer pricing (FTP) credits, as a result of higher deposit balances, and one more day in the third quarter, partially offset by decreases in loan yields and accretion on the acquired Sterling loan portfolio.
• The provision for credit losses increased $3 million, primarily reflecting increases in Middle Market and Mortgage Banker Finance, partially offset by a decrease in Commercial Real Estate. The increase in Middle Market primarily reflected increases in Technology and Life Sciences, National Dealer Services and Energy, partially offset by a decrease in general Middle Market.
• Noninterest income decreased $7 million, primarily due to decreases in commercial lending fees and warrant income.
• Noninterest expenses decreased $7 million, primarily due to decreases in net allocated corporate overhead expense and processing charges, and a third quarter gain on sale of assets; partially offset by an increase in legal expenses.

Retail Bank

• Average deposits increased $157 million, primarily due to an increase in Small Business.|
• The provision for credit losses increased $3 million, primarily due to an increase in Small Business.
• Noninterest income decreased $6 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 increased $4 million, primarily due to small increases in several noninterest expense categories.

Wealth Management

• Average loans decreased $53 million, primarily due to a decrease in Private Banking. |
• Average deposits increased $27 million, primarily due to an increase in Private Banking.
• Noninterest income decreased $4 million, primarily due a decrease in gains on the sale of auction-rate securities.

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

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

Midwest Market

• Average loans decreased $298 million, primarily due to decreases in Middle Market, Commercial Real Estate, Corporate, and Private Banking.
• Average deposits increased $401 million, primarily due to increases in Corporate, Middle Market and Small Business, partially offset by a decrease in Personal Banking.
• Net interest income decreased $2 million, primarily due to decreases in loan volumes and yields, partially offset by one more day in the third quarter 2012 and an increase in net FTP credits, primarily as a result of higher deposit balances and lower loan balances.

Western Market

• Average loans increased $243 million, primarily due to increases in Middle Market and Corporate. The increase in Middle Market primarily reflected increases in Technology and Life Sciences and National Dealer Services.
• Average deposits increased $821 million, primarily due to increases in Middle Market, Commercial Real Estate and Small Business. The increase in Middle Market was broad-based.
• Net interest income increased $4 million, primarily due to an increase in loan volumes, one more day in the third quarter 2012, and an increase in net FTP credits as a result of higher deposit balances.
• Noninterest income decreased $3 million, primarily due to a decrease in warrant income.

Texas Market

• Average loans increased $79 million, primarily due to an increase in Middle Market, partially offset by a decrease in Commercial Real Estate. The increase in Middle Market was primarily due to an increase in Energy.
• Average deposits decreased $244 million, primarily reflecting decreases in Middle Market, Small Business and Private Banking. The decrease in Middle Market primarily reflected decreases in Technology and Life Sciences and Energy.
• Net interest income decreased $4 million, primarily due to a decrease in accretion on the acquired Sterling loan portfolio and lower loan yields, partially offset by an increase in loan volumes and one more day in the third quarter 2012.
• The provision for credit losses increased $3 million, primarily due to an increase in Private Banking.

Florida Market

• Average loans decreased $101 million, primarily due to decreases in Commercial Real Estate and Private Banking.
• Average deposits increased $66 million, primarily due to an increase in Private Banking.
• The provision for credit losses decreased $6 million, primarily due to decreases in Private Banking and Middle Market.

Conference Call and Webcast

Comerica will host a conference call to review third quarter 2012 financial results at 7 a.m. CT Wednesday, October 17, 2012. Interested parties may access the conference call by calling (800) 309-2262 or (706) 679-5261 (event ID No. 31764718). 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 October 31, 2012. The conference call replay can be accessed by calling (855) 859-2056 or (404) 537-3406 (event ID No. 31764718). 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 ratio removes preferred stock and the effect of intangible assets from capital and the effect of intangible assets from total assets. Tangible common equity per share of common stock removes the effect of intangible assets from common shareholders equity per share of common stock. Comerica believes these measurements are meaningful measures of capital adequacy used by investors, regulators, management and others to evaluate the adequacy of common equity and to compare against other companies in the industry.

SOURCE Comerica Incorporated