Comerica Reports Fourth Quarter 2011 Net Income of $96 Million

Period-end Total Loan Growth of $1.5 Billion; Commercial Loans Increased $1.9 Billion

Net Interest Income up Five Percent

Record Deposits of $47.8 Billion

Repurchased 4.1 Million Shares(1) in 2011

DALLAS, Jan. 20, 2012 /PRNewswire/ -- Comerica Incorporated (NYSE: CMA) today reported fourth quarter 2011 net income of $96 million, a decrease of $2 million compared to $98 million for the third quarter 2011. Fourth quarter 2011 included merger and restructuring charges of $37 million ($23 million, after tax; $0.12 per diluted share) associated with the acquisition of Sterling Bancshares, Inc. (Sterling), completed on July 28, 2011, compared to $33 million ($21 million, after tax; $0.11 per diluted share) in the third quarter 2011.

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"We were pleased to see total loan growth of $1.5 billion, or 4 percent, on a period-end basis," said Ralph W. Babb Jr., chairman and chief executive officer.  "The growth was driven by a $1.9 billion, or 8 percent, increase in commercial loans, particularly in National Dealer Services, Mortgage Banker Finance, Energy Lending, Technology and Life Sciences, and Global Corporate Banking.

"We had record deposit levels of $47.8 billion at year-end, an increase of $303 million from the third quarter.  In addition, our net interest income increased $21 million, or 5 percent, primarily driven by an increase in average earning assets.  We continue to be pleased by the broad-based improvement in credit quality, which resulted in a decrease in the provision for loan losses."

"With respect to our acquisition of Sterling, we announced the successful completion of systems integrations and the opening of former Sterling branches as Comerica banking centers on November 14, 2011," said Babb. "All former Sterling customers can now bank at any Comerica banking center, with complete access to our full line of extended product and service offerings. This acquisition continues to be a great fit, as the former Sterling's size, geographic footprint and customer focus uniquely fits our strategy and expands our presence in Texas.

"In the fourth quarter, we repurchased 1.6 million shares, and repurchased a total of 4.1 million shares in 2011 under the share repurchase program. Combined with dividends, this resulted in a total return to shareholders of 47 percent of net income. We continue to be an active capital manager and believe we are approaching capital management from a position of strength.  As required, we submitted our Capital Plan to the Federal Reserve on January 9, 2012.  As previously announced, we are targeting a first quarter 2012 total payout ratio of up to 50 percent of net income through the share repurchase program and dividends."

(1) Shares repurchased under Comerica's share repurchase program.

Fourth Quarter and Full-Year 2011 Overview

Fourth Quarter 2011 Highlights Compared to Third Quarter 2011

• Period-end total loans increased $1.5 billion, or 4 percent, from September 30, 2011 to December 31, 2011, primarily reflecting an increase of $1.9 billion, or 8 percent, in commercial loans, partially offset by a decrease of $390 million in commercial real estate loans (commercial mortgage and real estate construction loans).  The increase in commercial loans was primarily driven by increases in National Dealer Services, Mortgage Banker Finance, Energy Lending, Technology and Life Sciences, and Global Corporate Banking.  Average total loans increased $1.4 billion, or 3 percent, in the fourth quarter, in part due to one additional month of Sterling.
• Period-end deposits increased $303 million, or one percent, primarily reflecting an increase of $648 million in noninterest-bearing deposits, partially offset by decreases in savings ($247 million) and customer certificates of deposit ($172 million). Average total deposits increased $2.7 billion, in part due to one additional month of Sterling in the fourth quarter.
• Net interest income of $444 million increased $21 million, or 5 percent, compared to the third quarter, primarily resulting from an increase in average earning assets of $2.4 billion.
• Credit quality continued to improve in the fourth quarter 2011. Net credit-related charge-offs decreased $17 million to $60 million.  The provision for loan losses decreased to $19 million in the fourth quarter 2011, compared to $38 million in the third quarter 2011.
• Noninterest income decreased $19 million to $182 million in the fourth quarter 2011, compared to $201 million for the third quarter 2011, primarily due to a $16 million decrease in net securities gains (losses), reflecting a net loss of $4 million in the fourth quarter 2011 compared to a net gain of $12 million in the third quarter 2011.
• Noninterest expenses increased $18 million to $478 million in the fourth quarter 2011, compared to $460 million in the third quarter 2011, primarily due to increases in severance and related expenses ($5 million) and merger and restructuring charges ($4 million), as well as one additional month of Sterling expenses (approximately $8 million).

Full-Year 2011 Highlights Compared to Full-Year 2010

• Net income of $393 million for 2011 increased $116 million, or 42 percent, compared to 2010.
• Period-end total loans increased $2.4 billion, or 6 percent, from year-end 2010 to year-end 2011, reflecting the acquisition of Sterling and primarily including a net increase of $2.9 billion, or 13 percent, in commercial loans, partially offset by a net decrease of $223 million in commercial real estate loans.  The increase in commercial loans was primarily driven by increases in Mortgage Banker Finance, Energy Lending and Technology and Life Sciences, as well as increases in Middle Market and Global Corporate Banking.  Average loans declined $442 million in 2011.
• Period-end deposits increased $7.3 billion, or 18 percent, in part due to the acquisition of Sterling. Average total deposits increased $4.3 billion.
• Net interest income increased $7 million in 2011, compared to 2010, as the benefit provided by accretion of the purchase discount on the acquired Sterling loan portfolio in 2011 and an increase in average earning assets of $1.1 billion was largely offset by decreased yields on mortgage-backed investment securities and a decrease in business loan swap income.
• Credit quality improved significantly.  The provision for loan losses declined $327 million to $153 million in 2011, compared to 2010.  Net credit-related charge-offs decreased $236 million to $328 million.    
• Noninterest income increased $3 million compared to 2010.
• Noninterest expenses increased $122 million compared to 2010.  2011 included Sterling-related merger and restructuring charges of $75 million ($47 million, after-tax; $0.25 per diluted share) and five months of Sterling expenses.
• Repurchases of 4.1 million shares in 2011, combined with dividends, returned 47 percent of 2011 net income to shareholders.

Net Interest Income

• The $21 million increase in net interest income in the fourth quarter 2011, when compared to the third quarter 2011, resulted primarily from an increase in average earning assets of $2.4 billion, partially offset by decreasing yields on mortgage-backed investment securities and a decrease in the accretion of the purchase discount on the acquired Sterling loan portfolio.  Decreasing yields on the mortgage-backed investment securities portfolio reflected the impact of lower yields on securities purchased to reinvest prepayments.  Accretion of the purchase discount was $26 million in the fourth quarter 2011, compared to $27 million in the third quarter.    
• Average earning assets increased $2.4 billion in the fourth quarter 2011, compared to the third quarter 2011, reflecting increases of $1.6 billion in average investment securities available-for-sale and $1.4 billion in average loans, partially offset by a $584 million decrease in average Federal Reserve Bank deposits. The increase in average loans included one additional month of Sterling in the fourth quarter and primarily reflected increases in commercial loans in Mortgage Banker Finance, Energy Lending, National Dealer Services, and Technology and Life Sciences.
• Average deposits increased $2.7 billion in the fourth quarter 2011, compared to the third quarter 2011, in part due to one additional month of Sterling. Average noninterest-bearing deposits increased $1.7 billion and average money market and NOW deposits increased $1.1 billion.

Noninterest Income

Noninterest income was $182 million for the fourth quarter 2011, compared to $201 million for the third quarter 2011. The $19 million decrease was primarily due to decreases in net securities gains (losses) ($16 million) and card fees ($6 million), due primarily to the implementation of regulatory limits on debit card transaction processing fees, partially offset by an increase in deferred compensation asset returns ($5 million) (offset by an increase in deferred compensation plan costs in noninterest expenses).  Net securities gains (losses) in the third quarter 2011 reflected net gains of $12 million due primarily to the repositioning of the acquired Sterling investment securities portfolio, compared to a net loss of $4 million in the fourth quarter 2011 that resulted primarily from a $5 million charge related to a derivative contract tied to the conversion rate of Visa Class B shares.

Noninterest Expenses

Noninterest expenses totaled $478 million in the fourth quarter 2011, an increase of $18 million compared to $460 million in the third quarter 2011. The increase was primarily due to increases in deferred compensation plan costs ($5 million) (offset by an increase in deferred compensation asset returns in noninterest income), severance and related expenses ($5 million) and merger and restructuring charges ($4 million), as well as one additional month of Sterling expenses (approximately $8 million).  

Credit Quality

"We continued to see steady improvement in credit trends in the fourth quarter," said Babb.  "This was the 10th consecutive quarter of decline in net charge-offs, with a $17 million decrease.  The decline in net charge-offs was larger than expected, primarily the result of higher recoveries in the quarter. Other credit metrics were in line with expectations.  Nonperforming assets were under $1 billion for the first time since the fourth quarter of 2008.   The former Sterling loan portfolio has performed as expected. As a result of the overall improvements in credit quality, the provision for loan losses declined to $19 million."

• Net credit-related charge-offs decreased $17 million to $60 million in the fourth quarter 2011, from $77 million in the third quarter 2011. The decrease in net credit-related charge-offs primarily reflected decreases in Small Business Banking ($12 million), Middle Market ($11 million) and Commercial Real Estate ($7 million), partially offset by an increase in Technology and Life Sciences ($10 million).
• Internal watch list loans declined $502 million in the fourth quarter 2011, to $4.5 billion at December 31, 2011, and nonperforming assets decreased $64 million.
• During the fourth quarter 2011, $99 million of borrower relationships greater than $2 million were transferred to nonaccrual status, a decrease of $31 million from the third quarter 2011.  Of the transfers of borrower relationships greater than $2 million to nonaccrual in the fourth quarter 2011, $27 million were from Commercial Real Estate, $24 million were from Private Banking and $21 million were from Global Corporate Banking.
• Nonperforming loans decreased $71 million, compared to September 30, 2011, to $887 million, or 2.08 percent of total loans, at December 31, 2011.

Balance Sheet and Capital Management

Total assets and common shareholders' equity were $61.0 billion and $6.9 billion, respectively, at December 31, 2011, compared to $60.9 billion and $7.0 billion, respectively, at September 30, 2011. There were approximately 197 million common shares outstanding at December 31, 2011. Comerica repurchased 1.6 million and 4.1 million shares of common stock in the open market in the fourth quarter and full-year 2011, respectively, under the share repurchase program.

Comerica's tangible common equity ratio was 10.27 percent at December 31, 2011, a decrease of 16 basis points from September 30, 2011.  The estimated Tier 1 common capital ratio decreased 26 basis points, to 10.31 percent at December 31, 2011, from September 30, 2011.  

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 moderately.
• Net interest income increasing moderately.  
• Net credit-related charge-offs declining and a relatively stable provision for credit losses.
• Noninterest income relatively stable.  
• Noninterest expenses relatively stable.

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 included as a segment. The financial results below are based on the internal business unit structure of the Corporation and methodologies in effect at December 31, 2011 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses fourth quarter 2011 results compared to third quarter 2011.

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

Business Bank

• Average loans increased $1.3 billion, primarily reflecting increases in Mortgage Banker Finance, Energy Lending, National Dealer Services, Technology and Life Sciences and Commercial Real Estate, partially offset by a decrease in Global Corporate Banking.
• Average deposits increased $1.5 billion, reflecting increases across most business lines, primarily Middle Market, Energy Lending, the Financial Services Division, Technology and Life Sciences and Global Corporate Banking.
• Net interest income of $382 million increased $19 million, primarily due to increases in loan and deposit balances as well as an increase in the benefit provided by accretion of the purchase discount on the acquired Sterling loan portfolio.
• The provision for loan losses decreased $24 million, primarily reflecting decreases in Middle Market and Commercial Real Estate, partially offset by an increase in Technology and Life Sciences.
• Noninterest income decreased $4 million, primarily due to a decrease in warrant income.

Retail Bank

• Average loans increased $88 million, primarily due to an increase in the Texas market, partially offset by declines in the Midwest and Western markets.
• Average deposits increased $923 million, primarily due to one additional month of Sterling in the fourth quarter.
• Net interest income of $176 million increased $3 million, primarily due to an increase in average loan and deposit balances, partially offset by a decrease in the accretion of the purchase discount on the acquired Sterling loan portfolio.
• The provision for loan losses decreased $2 million, primarily reflecting a decline in Small Business Banking, partially offset by an increase in Personal Banking.
• Noninterest income declined $12 million, primarily due to a decrease in card fees, reflecting the implementation of regulatory limits on debit card transaction processing fees, and a $5 million charge related to a derivative contract tied to the conversion rate of Visa Class B shares.  
• Noninterest expenses increased $8 million, primarily due to one additional month of Sterling noninterest expense.

Wealth Management

• Average loans decreased $34 million.
• Average deposits increased $202 million, primarily reflecting increases in the Midwest, Western and Texas markets.
• Net interest income of $46 million increased $1 million, primarily due to an increase in average deposit balances.
• The provision for loan losses increased $4 million.
• Noninterest expenses increased $5 million, primarily due to an increase in other real estate expenses and a charge related to technology upgrades.

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 December 31, 2011 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses fourth quarter 2011 results compared to third quarter 2011.

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

Midwest Market

• Average loans decreased $148 million, as an increase in National Dealer Services was more than offset by declines in Small Business Banking, Middle Market, Global Corporate Banking and Personal Banking.  
• Average deposits increased $565 million, primarily due to increases in the Financial Services Division and Middle Market.
• Net interest income increased $2 million, primarily due to an increase in average deposits.
• The provision for loan losses decreased $1 million, primarily reflecting a decrease in Middle Market, partially offset by increases in Commercial Real Estate, Small Business Banking, and Private Banking.
• Noninterest income decreased $11 million, primarily due to a decline in card fees and a $4 million charge related to a derivative contract tied to Visa Class B shares, as previously described in the Retail Bank section.

Western Market

• Average loans increased $137 million, primarily due to increases in Technology and Life Sciences and National Dealer Services, partially offset by a decrease in Middle Market.  
• Average deposits increased $696 million, primarily reflecting increases in Middle Market, Technology and Life Sciences, Global Corporate Banking and Private Banking.
• Net interest income increased $4 million, primarily due to an increase in average deposits.
• The provision for loan losses decreased $26 million, primarily reflecting decreases in Small Business Banking, Commercial Real Estate and Middle Market.
• Noninterest expenses increased $4 million, primarily due to increases in salaries and benefits expenses and other real estate expenses.

Texas Market

• Average loans increased $807 million, primarily reflecting increases in Energy Lending, Small Business Banking, Commercial Real Estate and Middle Market, in part due to one additional month of Sterling in the fourth quarter.
• Average deposits increased $1.5 billion, primarily reflecting one additional month of Sterling.
• Net interest income increased $15 million, primarily due to one additional month of Sterling.
• The provision for loan losses increased $15 million, primarily reflecting increases in Middle Market and Small Business Banking.
• Noninterest income decreased $3 million, primarily due to a decrease in warrant income.
• Noninterest expenses increased $9 million, primarily due to one additional month of Sterling.

Florida Market

• Average loans decreased $20 million, as an increase in National Dealer Services was more than offset by decreases in Commercial Real Estate and Private Banking.
• The provision for loan losses increased $2 million, primarily reflecting an increase in Commercial Real Estate.

Conference Call and Webcast

Comerica will host a conference call to review fourth quarter and full-year 2011 financial results at 7 a.m. CT Friday, January 20, 2012. Interested parties may access the conference call by calling (800) 309-2262 or (706) 679-5261 (event ID No. 37433486). The call and supplemental financial information can also be accessed on the Internet at www.comerica.com.  A telephone replay will be available approximately two hours following the conference call through January 31, 2012. The conference call replay can be accessed by calling (855) 859-2056 or (404) 537-3406 (event ID No. 37433486). 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 the reconcilement 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," "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," "pending," "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 and related credit and market conditions; changes in trade, monetary and fiscal policies, including the interest rate policies of the Federal Reserve Board; adverse conditions in the capital markets; the interdependence of financial service companies; changes in regulation or oversight, including the effects of recently enacted legislation, actions taken by or proposed by the U.S. Treasury, the Board of Governors of the Federal Reserve System, the Texas Department of Banking and the Federal Deposit Insurance Corporation, legislation or regulations enacted in the future, and the impact and expiration of such legislation and regulatory actions; 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 in which Comerica has a concentration of loans, including, but not limited to, the automotive production industry and the real estate business lines; the implementation of Comerica's strategies and business models, including the anticipated performance of any new banking centers and 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 or information security problems; changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing; the entry of new competitors in Comerica's markets; changes in customer borrowing, repayment, investment and deposit practices; 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 war and other armed conflicts or acts of terrorism and the effects of catastrophic events including, but not limited to, hurricanes, tornadoes, earthquakes, fires, droughts and floods. 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 16 of Comerica's Annual Report on Form 10-K for the year ended December 31, 2010, "Item 1A. Risk Factors" beginning on page 65 of Comerica's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, "Item 1A. Risk Factors" beginning on page 74 of Comerica's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 and "Item 1A. Risk Factors" beginning on page 81 of Comerica's Quarterly Report on Form 10-Q for the quarter ended September 30, 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.