Comerica Reports Third Quarter 2012 Net Income Of $117 Million Customer Relationship Focus Supports Loan and Deposit Growth

Average Total Loan Growth Continues - Driven by a $717 Million, 3 Percent Increase in Commercial Loans

Average Deposits Increase to Record Level of $50 Billion

Strong Capital Supports Shareholder Return of $119 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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(dollar amounts in millions, except per share data)

3rd Qtr '12

 

2nd Qtr '12

 

3rd Qtr '11

Net interest income (a)

$

427

   

$

435

   

$

423

 

Provision for credit losses

22

   

19

   

35

 

Noninterest income

197

   

211

   

201

 

Noninterest expenses (b)

449

   

433

   

463

 

Provision for income taxes

36

   

50

   

28

 
           

Net income

117

   

144

   

98

 
           

Net income attributable to common shares

116

   

142

   

97

 
           

Diluted income per common share

0.61

   

0.73

   

0.51

 
           

Average diluted shares (in millions)

191

   

194

   

192

 
           

Tier 1 common capital ratio (d)

10.32

%

(c)

10.38

%

 

10.57

%

Tangible common equity ratio (d)

10.25

   

10.27

   

10.43

 

(a)

Included accretion of the purchase discount on the acquired Sterling loan portfolio of $15 million ($9 million, after tax), $18 million ($11 million, after tax) and $27 million ($17 million, after tax) in the third and second quarter 2012 and the third quarter 2011, respectively.

(b)

Included restructuring expenses of $25 million ($16 million, after tax), $8 million ($5 million, after tax) and $33 million ($21 million, after tax) in the third and second quarter 2012 and the third quarter 2011, respectively, associated with the acquisition of Sterling.

(c)

September 30, 2012 ratio is estimated.

(d)

See Reconciliation of Non-GAAP Financial Measures.

"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

                       

(dollar amounts in millions)

3rd Qtr '12

 

2nd Qtr '12

 

3rd Qtr '11

Net interest income

$

427

   

$

435

   

$

423

 
           

Net interest margin

2.96

%

 

3.10

%

 

3.18

%

           

Selected average balances (a):

         

Total earning assets

$

57,801

   

$

56,653

   

$

53,243

 

Total loans

43,597

   

43,228

   

40,098

 

Total investment securities

9,791

   

9,728

   

8,158

 

Federal Reserve Bank deposits (excess liquidity)

4,160

   

3,463

   

4,800

 
           
           

Total deposits

49,857

   

48,679

   

45,098

 

Total noninterest-bearing deposits

21,469

   

20,128

   

17,511

 

a)

Average balances in 3rd quarter 2011 included Sterling balances from July 28 through September 30, 2011.

   

 

  • 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."

                       

(dollar amounts in millions)

3rd Qtr '12

 

2nd Qtr '12

 

3rd Qtr '11

Net credit-related charge-offs

$

43

   

$

45

   

$

77

 

Net credit-related charge-offs/Average total loans

0.39

%

 

0.42

%

 

0.77

%

           

Provision for credit losses

$

22

   

$

19

   

$

35

 
           

Nonperforming loans (a)

692

   

747

   

958

 

Nonperforming assets (NPAs) (a)

755

   

814

   

1,045

 

NPAs/Total loans and foreclosed property

1.71

%

 

1.85

%

 

2.53

%

           

Loans past due 90 days or more and still accruing

$

36

   

$

43

   

$

81

 
           

Allowance for loan losses

647

   

667

   

767

 

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

35

   

36

   

27

 

Total allowance for credit losses

682

   

703

   

794

 
           

Allowance for loan losses/Total loans

1.46

%

 

1.52

%

 

1.86

%

Allowance for loan losses/Nonperforming loans

94

   

89

   

80

 

(a)

Excludes loans acquired with credit impairment.

(b)

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

  • 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.

                                   

(dollar amounts in millions)

3rd Qtr '12

 

2nd Qtr '12

 

3rd Qtr '11

Business Bank

$

211

 

88

%

 

$

210

 

84

%

 

$

179

 

86

%

Retail Bank

10

 

4

   

19

 

8

   

19

 

9

 

Wealth Management

18

 

8

   

20

 

8

   

11

 

5

 
 

239

 

100

%

 

249

 

100

%

 

209

 

100

%

Finance

(103)

     

(95)

     

(91)

   

Other (a)

(19)

     

(10)

     

(20)

   

    Total

$

117

     

$

144

     

$

98

   

(a) 

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

Business Bank

                       

(dollar amounts in millions)

3rd Qtr '12

   

2nd Qtr '12

   

3rd Qtr '11

 

Net interest income (FTE)

$

386

   

$

385

   

$

363

 

Provision for credit losses

15

   

12

   

18

 

Noninterest income

76

   

83

   

77

 

Noninterest expenses

144

   

151

   

164

 

Net income

211

   

210

   

179

 
           

Net credit-related charge-offs

27

   

26

   

40

 
           

Selected average balances:

         

Assets

34,863

   

34,376

   

30,608

 

Loans

33,856

   

33,449

   

29,957

 

Deposits

25,142

   

24,145

   

21,759

 
   

 

  • 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

                       

(dollar amounts in millions)

3rd Qtr '12

   

2nd Qtr '12

   

3rd Qtr '11

 

Net interest income (FTE)

$

161

   

$

161

   

$

173

 

Provision for credit losses

6

   

3

   

16

 

Noninterest income

41

   

47

   

47

 

Noninterest expenses

181

   

177

   

175

 

Net income (loss)

10

   

19

   

19

 
           

Net credit-related charge-offs

13

   

9

   

28

 
           

Selected average balances:

         

Assets

5,964

   

5,946

   

5,985

 

Loans

5,265

   

5,250

   

5,483

 

Deposits

20,682

   

20,525

   

19,792

 
     

 

  • 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

                       

(dollar amounts in millions)

3rd Qtr '12

   

2nd Qtr '12

   

3rd Qtr '11

 

Net interest income (FTE)

$

47

   

$

46

   

$

45

 

Provision for credit losses

3

   

2

   

7

 

Noninterest income

62

   

66

   

56

 

Noninterest expenses

78

   

79

   

77

 

Net income

18

   

20

   

11

 
           

Net credit-related charge-offs

3

   

10

   

9

 
           

Selected average balances:

         

Assets

4,566

   

4,604

   

4,674

 

Loans

4,476

   

4,529

   

4,658

 

Deposits

3,667

   

3,640

   

3,198

 
     

 

  • 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.

                                   

(dollar amounts in millions)

3rd Qtr '12

 

2nd Qtr '12

 

3rd Qtr '11

Midwest

$

71

 

30

%

 

$

75

 

31

%

 

$

60

 

28

%

Western

70

 

29

   

69

 

27

   

50

 

23

 

Texas

45

 

19

   

51

 

20

   

64

 

31

 

Florida

(1)

 

   

(5)

 

(2)

   

1

 

1

 

Other Markets

41

 

17

   

47

 

19

   

22

 

11

 

International

13

 

5

   

12

 

5

   

12

 

6

 
 

239

 

100

%

 

249

 

100

%

 

209

 

100

%

Finance & Other (a)

(122)

     

(105)

     

(111)

   

    Total

$

117

     

$

144

     

$

98

   

(a)

 Includes items not directly associated with the geographic markets.

Midwest Market

                       

(dollar amounts in millions)

3rd Qtr '12

   

2nd Qtr '12

   

3rd Qtr '11

 

Net interest income (FTE)

$

194

   

$

196

   

$

199

 

Provision for credit losses

2

   

1

   

20

 

Noninterest income

95

   

96

   

96

 

Noninterest expenses

175

   

177

   

183

 

Net income

71

   

75

   

60

 
           

Net credit-related charge-offs

12

   

10

   

33

 
           

Selected average balances:

         

Assets

13,784

   

14,028

   

14,118

 

Loans

13,468

   

13,766

   

13,873

 

Deposits

19,628

   

19,227

   

18,510

 
   

 

  • 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

                       

(dollar amounts in millions)

3rd Qtr '12

   

2nd Qtr '12

   

3rd Qtr '11

 

Net interest income (FTE)

$

181

   

$

177

   

$

166

 

Provision for credit losses

   

1

   

13

 

Noninterest income

34

   

37

   

32

 

Noninterest expenses

105

   

104

   

106

 

Net income

70

   

69

   

50

 
           

Net credit-related charge-offs

10

   

12

   

32

 
           

Selected average balances:

         

Assets

13,442

   

13,170

   

12,110

 

Loans

13,163

   

12,920

   

11,889

 

Deposits

15,192

   

14,371

   

12,975

 
   

 

  • 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

                       

(dollar amounts in millions)

3rd Qtr '12

   

2nd Qtr '12

   

3rd Qtr '11

 

Net interest income (FTE)

$

139

   

$

143

   

$

143

 

Provision for credit losses

10

   

7

   

(8)

 

Noninterest income

30

   

31

   

29

 

Noninterest expenses

89

   

88

   

81

 

Net income

45

   

51

   

64

 
           

Net credit-related charge-offs

7

   

4

   

2

 
           

Selected average balances:

         

Assets

10,327

   

10,270

   

8,510

 

Loans

9,585

   

9,506

   

8,145

 

Deposits

9,941

   

10,185

   

8,865

 
   

 

  • 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

                       

(dollar amounts in millions)

3rd Qtr '12

   

2nd Qtr '12

   

3rd Qtr '11

 

Net interest income (FTE)

$

10

   

$

11

   

$

11

 

Provision for credit losses

5

   

11

   

2

 

Noninterest income

3

   

4

   

4

 

Noninterest expenses

10

   

11

   

11

 

Net income

(1)

   

(5)

   

1

 
           

Net credit-related charge-offs

9

   

10

   

5

 
           

Selected average balances:

         

Assets

1,309

   

1,407

   

1,450

 

Loans

1,328

   

1,429

   

1,477

 

Deposits

512

   

446

   

404

 
   

 

  • 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.