Comerica Reports Second Quarter 2012 Net Income Of $144 Million Earnings Per Share 73 Cents, Up 11 Percent from First Quarter 2012

Average Total Loan Growth Continues - Driven by a $1.2 Billion, 5 Percent Increase in Commercial Loans

Strong Capital Supports Shareholder Return of 81 Percent of Second Quarter 2012 Net Income

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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(dollar amounts in millions, except per share data)

2nd Qtr '12

 

1st Qtr '12

 

2nd Qtr '11

 

Net interest income

$

435

   

$

443

   

$

391

   

Provision for credit losses

19

   

22

   

45

   

Noninterest income

211

   

206

   

202

   

Noninterest expenses

433

 

(a)

449

   

411

 

(a)

Provision for income taxes

50

   

48

   

41

   
             

Net income

144

   

130

   

96

   
             

Net income attributable to common shares

142

   

129

   

95

   
             

Diluted income per common share

0.73

   

0.66

   

0.53

   
             

Average diluted shares (in millions)

194

   

196

   

178

   
             

Tier 1 common capital ratio (c)

10.32

%

(b)

10.27

%

 

10.53

%

 

Tangible common equity ratio (c)

10.27

   

10.21

   

10.90

   
   

(a)

Included restructuring expenses of $8 million ($5 million, after tax) and $5 million ($3 million, after tax) in the second quarter 2012 and 2011, respectively, associated with the acquisition of Sterling Bancshares, Inc. on July 28, 2011.

(b)

June 30, 2012 ratio is estimated.

(c)

See Reconciliation of Non-GAAP Financial Measures.

"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

                       

(dollar amounts in millions)

2nd Qtr '12

 

1st Qtr '12

 

2nd Qtr '11

Net interest income

$

435

   

$

443

   

$

391

 
           

Net interest margin

3.10

%

 

3.19

%

 

3.14

%

           

Selected average balances:

         

Total earning assets

$

56,653

   

$

56,186

   

$

50,136

 

Total investment securities

9,728

   

9,889

   

7,407

 

Total loans

43,228

   

42,269

   

39,174

 
           

Total deposits

48,679

   

48,311

   

41,480

 

Total noninterest-bearing deposits

20,128

   

19,637

   

15,786

 
   
  • 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

                       

(dollar amounts in millions)

2nd Qtr '12

 

1st Qtr '12

 

2nd Qtr '11

Net credit-related charge-offs

$

45

   

$

45

   

$

90

 

Net credit-related charge-offs/Average total loans

0.42

%

 

0.43

%

 

0.92

%

           

Provision for loan losses

$

8

   

$

23

   

$

47

 

Provision for credit losses on lending-related commitments

11

   

(1)

   

(2)

 

Total provision for credit losses

19

   

22

   

45

 
           

Nonperforming loans (a)

747

   

856

   

974

 

Nonperforming assets (NPAs) (a)

814

   

923

   

1,044

 

NPAs/Total loans and foreclosed property

1.85

%

 

2.14

%

 

2.66

%

           

Loans past due 90 days or more and still accruing

$

43

   

$

50

   

$

64

 
           

Allowance for loan losses

667

   

704

   

806

 

Allowance for credit losses on lending-related commitments (b)

36

   

25

   

30

 

Total allowance for credit losses

703

   

729

   

836

 
           

Allowance for loan losses/Total loans (c)

1.52

%

 

1.64

%

 

2.06

%

Allowance for loan losses/Nonperforming loans

89

   

82

   

83

 
     

(a)

Excludes loans acquired with credit impairment.

 

(b)

Included in "Accrued expenses and other liabilities" on the consolidated balance sheets.

(c)

Reflects the impact of acquired loans, which were initially recorded at fair value, with no related allowance for loan losses.

"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.

                                   

(dollar amounts in millions)

2nd Qtr '12

 

1st Qtr '12

 

2nd Qtr '11

Business Bank

$

210

 

84

%

 

$

206

 

89

%

 

$

176

 

95

%

Retail Bank

19

 

8

   

14

 

6

   

(3)

 

(2)

 

Wealth Management

20

 

8

   

11

 

5

   

12

 

7

 
 

249

 

100

%

 

231

 

100

%

 

185

 

100

%

Finance

(95)

     

(92)

     

(86)

   

Other (a)

(10)

     

(9)

     

(3)

   

Total

$

144

     

$

130

     

$

96

   

(a)   

Includes items not directly associated with the three major business segments or the Finance Division.

Business Bank

                       

(dollar amounts in millions)

2nd Qtr '12

   

1st Qtr '12

   

2nd Qtr '11

 

Net interest income (FTE)

$

385

   

$

379

   

$

342

 

Provision for credit losses

12

   

2

   

2

 

Noninterest income

83

   

81

   

79

 

Noninterest expenses

151

   

158

   

162

 

Net income

210

   

206

   

176

 
           

Net credit-related charge-offs

26

   

28

   

54

 
           

Selected average balances:

         

Assets

34,376

   

33,184

   

29,893

 

Loans

33,449

   

32,238

   

29,427

 

Deposits

24,145

   

23,997

   

20,396

 
   
  • 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

                       

(dollar amounts in millions)

2nd Qtr '12

   

1st Qtr '12

   

2nd Qtr '11

 

Net interest income (FTE)

$

161

   

$

167

   

$

141

 

Provision for credit losses

3

   

4

   

24

 

Noninterest income

47

   

42

   

46

 

Noninterest expenses

177

   

184

   

162

 

Net income (loss)

19

   

14

   

(3)

 
           

Net credit-related charge-offs

9

   

12

   

22

 
           

Selected average balances:

         

Assets

5,946

   

6,173

   

5,454

 

Loans

5,250

   

5,462

   

4,999

 

Deposits

20,525

   

20,373

   

17,737

 
     
  • 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

                       

(dollar amounts in millions)

2nd Qtr '12

   

1st Qtr '12

   

2nd Qtr '11

 

Net interest income (FTE)

$

46

   

$

47

   

$

48

 

Provision for credit losses

2

   

15

   

14

 

Noninterest income

66

   

65

   

63

 

Noninterest expenses

79

   

80

   

76

 

Net income

20

   

11

   

12

 
           

Net credit-related charge-offs

10

   

5

   

14

 
           

Selected average balances:

         

Assets

4,604

   

4,636

   

4,728

 

Loans

4,529

   

4,569

   

4,748

 

Deposits

3,640

   

3,611

   

2,978

 
     
  • 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.

                                   

(dollar amounts in millions)

2nd Qtr '12

 

1st Qtr '12

 

2nd Qtr '11

Midwest

$

75

 

31

%

 

$

68

 

30

%

 

$

62

 

34

%

Western

69

 

27

   

65

 

28

   

50

 

27

 

Texas

51

 

20

   

49

 

21

   

33

 

18

 

Florida

(5)

 

(2)

   

(1)

 

   

(5)

 

(3)

 

Other Markets

47

 

19

   

38

 

16

   

30

 

16

 

International

12

 

5

   

12

 

5

   

15

 

8

 
 

249

 

100

%

 

231

 

100

%

 

185

 

100

%

Finance & Other (a)

(105)

     

(101)

     

(89)

   

Total

$

144

     

$

130

     

$

96

   

(a)  

 Includes items not directly associated with the geographic markets.

Midwest Market

                       

(dollar amounts in millions)

2nd Qtr '12

   

1st Qtr '12

   

2nd Qtr '11

 

Net interest income (FTE)

$

196

   

$

198

   

$

204

 

Provision for credit losses

1

   

11

   

15

 

Noninterest income

96

   

98

   

100

 

Noninterest expenses

177

   

182

   

183

 

Net income

75

   

68

   

62

 
           

Net credit-related charge-offs

10

   

18

   

37

 
           

Selected average balances:

         

Assets

14,028

   

14,095

   

14,262

 

Loans

13,766

   

13,825

   

14,050

 

Deposits

19,227

   

19,415

   

18,318

 
   
  • 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

                       

(dollar amounts in millions)

2nd Qtr '12

   

1st Qtr '12

   

2nd Qtr '11

 

Net interest income (FTE)

$

177

   

$

171

   

$

166

 

Provision for credit losses

1

   

(7)

   

16

 

Noninterest income

37

   

33

   

37

 

Noninterest expenses

104

   

107

   

112

 

Net income

69

   

65

   

50

 
           

Net credit-related charge-offs

12

   

11

   

26

 
           

Selected average balances:

         

Assets

13,170

   

12,623

   

12,329

 

Loans

12,920

   

12,383

   

12,121

 

Deposits

14,371

   

13,897

   

12,458

 
   
  • 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

                       

(dollar amounts in millions)

2nd Qtr '12

   

1st Qtr '12

   

2nd Qtr '11

 

Net interest income (FTE)

$

143

   

$

151

   

$

89

 

Provision for credit losses

7

   

14

   

(2)

 

Noninterest income

31

   

31

   

25

 

Noninterest expenses

88

   

92

   

63

 

Net income

51

   

49

   

33

 
           

Net credit-related charge-offs

4

   

7

   

3

 
           

Selected average balances:

         

Assets

10,270

   

10,082

   

7,082

 

Loans

9,506

   

9,295

   

6,872

 

Deposits

10,185

   

10,229

   

6,176

 
   
  • 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

                       

(dollar amounts in millions)

2nd Qtr '12

   

1st Qtr '12

   

2nd Qtr '11

 

Net interest income (FTE)

$

11

   

$

10

   

$

12

 

Provision for credit losses

11

   

6

   

12

 

Noninterest income

4

   

4

   

4

 

Noninterest expenses

11

   

9

   

11

 

Net income

(5)

   

(1)

   

(5)

 
           

Net credit-related charge-offs

10

   

2

   

15

 
           

Selected average balances:

         

Assets

1,407

   

1,416

   

1,534

 

Loans

1,429

   

1,418

   

1,565

 

Deposits

446

   

424

   

396

 
   
  • 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.