Comerica Reports Second Quarter 2013 Net Income Of $143 Million

DALLAS, July 16, 2013 /PRNewswire/ -- Comerica Incorporated (NYSE: CMA) today reported second quarter 2013 net income of $143 million, compared to $134 million for the first quarter 2013. Earnings per diluted share were 76 cents for the second quarter 2013, compared to 70 cents for the first quarter 2013.

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"Average loan growth and fee growth, expense control and continued solid credit quality, contributed to our 9 percent increase in earnings per share in the second quarter," said Ralph W. Babb Jr., chairman and chief executive officer. "Average total loans grew $276 million compared to the first quarter, and reflected an increase of $337 million, or 1 percent, in commercial loans. Our Middle Market business lines across all three of our major geographies were a key contributor to our loan growth in the second quarter. Overall, customers remain cautious, but relatively more positive, in this slow growing economy.

"Economic indicators in Texas and California are positive, with job growth in both markets above the U.S. average, while increased auto production and sales have strengthened the Michigan economy. We are well positioned in our primary markets, where our relationship-based approach and experience combine to make a positive difference for our customers.

"Our capital position continues to be a source of strength to support our growth. We repurchased 1.9 million shares in the second quarter under the share repurchase program and combined with dividends, returned 72 percent of second quarter net income to shareholders."

Second Quarter 2013 Compared to First Quarter 2013

• Average total loans increased $276 million, or 1 percent, to $44.9 billion, primarily reflecting an increase of $337 million, or 1 percent, in commercial loans, partially offset by a decrease of $67 million, or 1 percent, in combined commercial mortgage and real estate construction loans. The increase in commercial loans was primarily driven by increases in general Middle Market and National Dealer Services, partially offset by a decrease in Corporate Banking. Period-end total loans increased $392 million to $45.5 billion, primarily reflecting a $678 million increase in commercial loans, partially offset by a $227 million decrease in combined commercial mortgage and real estate construction loans.
• Average investment securities available-for-sale decreased $228 million, or 2 percent, to $9.8 billion, primarily reflecting a slowing of reinvestments related to paydowns on mortgage-backed investment securities. Period-end investment securities decreased $655 million, or 6 percent, to $9.6 billion, primarily reflecting both a slowing of reinvestments related to paydowns and a $219 million decrease in net unrealized gains on mortgage-backed investment securities due to rising interest rates during the period.
• Average total deposits increased $756 million, or 1 percent, to $51.4 billion, primarily reflecting increases of $570 million, or 3 percent, in noninterest-bearing deposits and $250 million, or 1 percent, in money market and interest-bearing checking accounts. The increase in average noninterest-bearing deposits primarily reflected increases in Corporate Banking and the Financial Services Division. Period-end total deposits decreased $862 million to $51.3 billion, reflecting a decrease of $907 million in noninterest-bearing deposits.
• Net interest income remained relatively stable at $414 million in the second quarter 2013, compared to $416 million in the first quarter 2013, as one additional day in the second quarter and loan growth partially offset a decrease in accretion and lower loan yields due to shifts in the loan portfolio mix.
• The provision for credit losses decreased $3 million to $13 million in the second quarter 2013, compared to $16 million in the first quarter 2013, reflecting strong credit quality.
• Noninterest income increased $8 million to $208 million in the second quarter 2013, compared to $200 million in the first quarter 2013, reflecting broad-based growth in several categories as well as an annual incentive received from our third-party credit card provider.
• Noninterest expenses of $416 million in the second quarter 2013 were unchanged compared to the first quarter 2013, primarily reflecting a $6 million decrease in salaries expense, offset by a $4 million write-down on other foreclosed assets and a $2 million increase in outside processing fee expense.
• The provision for income taxes was stable at $50 million for the second quarter 2013. The effective tax rate decreased to 25.8 percent for the second quarter 2013, compared to 27.1 percent in the first quarter 2013, primarily reflecting a $2 million net benefit in the second quarter 2013 from certain discrete tax items.
• Comerica repurchased 1.9 million shares of common stock ($72 million) in the second quarter 2013 under the share repurchase program. Combined with dividends, 72 percent of net income was returned to shareholders in the second quarter 2013.
• Capital remained solid at June 30, 2013, as evidenced by an estimated Tier 1 common capital ratio of 10.41 percent and a tangible common equity ratio of 10.04 percent.

• Net interest income of $414 million in the second quarter 2013 decreased $2 million compared to the first quarter 2013.
  • One additional day in the second quarter 2013 increased net interest income by $4 million.
  • An increase in loan volumes increased net interest income by $2 million.
  • A decrease in funding costs increased net interest income by $1 million, primarily reflecting the maturity of debt in the second quarter 2013 and a decline in the rate paid on total average interest-bearing deposits of 2 basis points.
  • A decrease in the accretion of the purchase discount on the acquired loan portfolio decreased net interest income by $4 million.
  • Lower loan yields due to shifts in the loan portfolio mix decreased net interest income by $4 million.
  • Lower reinvestment yields on mortgage-backed investment securities and a decrease in average balances decreased net interest income by $1 million.
• Average earning assets increased $321 million in the second quarter 2013, compared to the first quarter 2013, primarily reflecting increases of $299 million in excess liquidity and $276 million in average loans, partially offset by a $228 million decrease in average investment securities available-for-sale.
• The net interest margin of 2.83 percent decreased 5 basis points compared to the first quarter 2013. The decrease in net interest margin was primarily due to lower accretion on the acquired loan portfolio (3 basis points), lower loan yields (2 basis points) and an increase in excess liquidity (1 basis point), partially offset by lower funding costs (1 basis point).

Noninterest Income
Noninterest income increased $8 million to $208 million for the second quarter 2013, compared to $200 million for the first quarter 2013. Customer-driven fee income increased $4 million and noncustomer-driven income increased $4 million. The increase in customer-driven fee income was primarily due to a $3 million increase in customer derivative income and broad-based increases across most customer-driven fee income categories, partially offset by a $2 million decrease in service charges on deposit accounts from high first quarter 2013 levels. The increase in noncustomer-driven income was primarily due to a $6 million annual incentive received in the second quarter 2013 from Comerica's third-party credit card provider, partially offset by a second quarter 2013 securities loss of $2 million.

Noninterest Expenses
Noninterest expenses of $416 million in the second quarter 2013 were unchanged compared to the first quarter 2013, as a $6 million decrease in salaries expense was offset by a $4 million write-down on other foreclosed assets and a $2 million increase in outside processing fee expense. The decrease in salaries expense was primarily due to decreases in incentive and stock based compensation and lower staffing levels, partially offset by the impact of merit increases and one additional day in the quarter.

Credit Quality
"Credit quality was solid in the second quarter, with net charge-offs of 15 basis points, which is the lowest level since the first quarter of 2007," said Babb. "Nonaccrual loans also decreased, as did watch list loans. These positive metrics are indicative of our strong credit culture and have resulted in a $3 million decrease in the provision for credit losses."

• Nonaccrual loans decreased $45 million, to $449 million at June 30, 2013, compared to $494 million at March 31, 2013.
• Internal watch list loans decreased $224 million, to $2.9 billion at June 30, 2013, compared to $3.1 billion at March 31, 2013.
• During the second quarter 2013, $37 million of borrower relationships over $2 million were transferred to nonaccrual status, an increase of $3 million from the first quarter 2013.

Balance Sheet and Capital Management
Total assets and common shareholders' equity were $62.9 billion and $6.9 billion, respectively, at June 30, 2013, compared to $64.9 billion and $7.0 billion, respectively, at March 31, 2013. The $2.0 billion decrease in total assets primarily reflected decreases of $1.9 billion in excess liquidity and $655 million in investment securities available-for-sale, partially offset by a $392 million increase in loans. Common shareholders' equity included a $128 million increase in accumulated other comprehensive loss, primarily reflecting a temporary unrealized loss on investment securities available-for-sale of $142 million, net of tax, largely due to the impact of rising rates on the fair value of mortgage-backed investment securities.

There were approximately 185 million common shares outstanding at June 30, 2013. Diluted weighted average shares of 187 million at June 30, 2013 were unchanged compared to March 31, 2013, as the impact of the repurchase of $72 million of common stock (1.9 million shares) under the share repurchase program during the second quarter 2013 was offset by the impact of an increase in share dilution from options and warrants due to an increase in Comerica's stock price. Combined with the dividend of $0.17 per share, share repurchases under the share repurchase program and dividends returned 72 percent of second quarter 2013 net income to shareholders.

Comerica's tangible common equity ratio was 10.04 percent at June 30, 2013, an increase of 18 basis points from March 31, 2013. The estimated Tier 1 common capital ratio increased 4 basis points, to 10.41 percent at June 30, 2013, from March 31, 2013. The estimated Tier 1 common ratio under fully phased-in Basel III capital rules was 10.1 percent percent at June 30, 2013, assuming the election to exclude most elements of AOCI. If the option to exclude most elements of AOCI is not elected, the estimated ratio would be 9.3 percent.

Full-Year 2013 Outlook
For full-year 2013, management expects the following compared to full-year 2012, assuming a continuation of the current slow growing economic environment:

• Continued growth in average loans at a slower pace, with economic uncertainty impacting demand and a continued focus on maintaining pricing and structure discipline in a competitive environment.
• Lower net interest income, reflecting both a decline in purchase accounting accretion and the effect of continued low rates. Loan growth should partially offset the impact of low rates on loans and securities. Purchase accounting accretion is expected to be $25 million to $30 million for full-year 2013, compared to $71 million in full-year 2012.
• Provision for credit losses declining, reflecting lower nonperforming loans and net charge-offs, partially offset by loan growth. The provision for credit losses for the second half of 2013 is expected to be similar to the provision for the first six months of 2013.
• Customer-driven noninterest income relatively stable, reflecting cross-sell initiatives partially offset by regulatory pressures on certain fees. Outlook does not include expectations for non-customer driven income.
• Lower noninterest expense, reflecting further cost savings due to tight expense control and no restructuring expenses. Full-year 2012 included restructuring expenses of $35 million.
• Effective tax rate of approximately 27.5 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, 2013 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses second quarter 2013 results compared to first quarter 2013.

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

• Average loans increased $202 million, primarily reflecting increases in National Dealer Services and general Middle Market, partially offset by a decrease in Corporate Banking.
• Average deposits increased $473 million, primarily reflecting increases in Corporate Banking and Commercial Real Estate.
• Net interest income decreased $3 million, primarily due to a decrease in accretion of the purchase discount on the acquired loan portfolio, lower loan yields and a decrease in funds transfer pricing (FTP) credits, partially offset by the benefit provided by an increase in average loans and one additional day in the quarter.
• The provision for credit losses decreased $10 million, primarily reflecting a decrease in Middle Market, partially offset by an increase in Mortgage Banker Finance. The decrease in Middle Market primarily reflected decreases in Technology and Life Sciences, Environmental Services and Energy.
• Noninterest income increased $3 million, primarily due to an increase in income from principal investing and warrants and small increases in several other noninterest income categories, partially offset by a decrease in service charges on deposit accounts from high first quarter 2013 levels.
• Noninterest expenses increased $1 million, primarily due to a $4 million write-down on other foreclosed assets and an increase in outside processing fee expense, partially offset by a decrease in salaries expense.

• Average loans decreased $5 million, primarily due to a decrease in Retail Banking, partially offset by an increase in Small Business.
• Average deposits increased $192 million, primarily due to increases in Retail Banking and Small Business.
• Noninterest income increased $5 million, primarily due to a $6 million annual incentive received in the second quarter 2013 from Comerica's third-party credit card provider, partially offset by a second quarter 2013 securities loss of $2 million.
• Noninterest expense increased $3 million, primarily due to small increases in several categories.

• Average loans increased $79 million, primarily due to an increase in Private Banking.
• Noninterest expenses decreased $2 million, primarily due to small decreases in several categories.

Geographic Market Segments
Comerica also provides market segment results for three primary geographic markets: Michigan, California and Texas. In addition to the three primary geographic markets, Other Markets is also reported as a market segment. Other Markets includes Florida, Arizona, the International Finance division and businesses that have a significant presence outside of the three primary geographic markets. The tables below present the geographic market results based on the methodologies in effect at June 30, 2013 and are presented on a fully taxable equivalent (FTE) basis.

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

• Average loans increased $370 million and $108 million in California and Texas, respectively, and decreased $52 million in Michigan. The increase in California primarily reflected increases in National Dealer Services and Commercial Real Estate. In Texas, the increase was primarily due to an increase in general Middle Market.
• Average deposits increased $315 million and $228 million in California and Texas, respectively, and decreased $96 million in Michigan. The increase in California primarily reflected increases in general Middle Market and Corporate Banking. In Texas, the increase was primarily due to increases in Corporate Banking, Technology and Life Sciences, and Energy.
• The provision for credit losses in California decreased $14 million, primarily reflecting decreases in Technology and Life Sciences and general Middle Market.

Conference Call and Webcast
Comerica will host a conference call to review second quarter 2013 financial results at 7 a.m. CT Tuesday, July 16, 2013. Interested parties may access the conference call by calling (800) 309-2262 or (706) 679-5261 (event ID No. 96351362). The call and supplemental financial information can also be accessed via Comerica's "Investor Relations" page at www.comerica.com. A replay of the Webcast can 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; any future acquisitions or divestitures; 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; 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 or determinations; 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 13 of Comerica's Annual Report on Form 10-K for the year ended December 31, 2012. 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.