Comerica Reports First Quarter 2015 Net Income Of $134 Million, Or 73 Cents Per Share

DALLAS, April 17, 2015 /PRNewswire/ -- Comerica Incorporated (NYSE: CMA) today reported first quarter 2015 net income of $134 million, compared to $149 million for the fourth quarter 2014 and $139 million for the first quarter 2014. Earnings per diluted share were 73 cents for the first quarter 2015, compared to 80 cents for the fourth quarter 2014 and 73 cents for the first quarter 2014.

 

"Our first quarter results reflect our strong focus on relationships and ability to generate loans in a highly competitive environment as we maintain our pricing and credit discipline," said Ralph W. Babb, Jr., chairman and chief executive officer. "Average loans were up $3.1 billion, or 7 percent, compared to a year ago. Relative to the fourth quarter, average loans grew $790 million, or 2 percent, with growth across all of our markets. Average loans in our Energy business line increased about $200 million, peaking in February, then declining as customers adjusted their cash flow needs and were able to access the capital markets. Average loan growth was also driven by increases in Technology and Life Sciences, National Dealer Services, general Middle Market and Small Business.

"First quarter net interest income was relatively stable, and credit quality continued to be strong. Our capital position remains solid. Share repurchases under our equity repurchase program, combined with dividends, returned $95 million to shareholders in the first quarter. We remain focused on the long term and carrying out our relationship banking strategy, which has served us well over many cycles, and we continue to believe we are positioned to benefit from a rising rate environment."

First Quarter 2015 Compared to Fourth Quarter 2014 

• Average total loans increased $790 million, or 2 percent, to $48.2 billion, primarily reflecting a $699 million increase in commercial loans. The increase in commercial loans was primarily driven by increases in Energy, general Middle Market, Technology and Life Sciences and National Dealer Services. Average loans increased across all markets. Period-end total loans increased $479 million, to $49.1 billion.
• Average total deposits decreased $770 million, or 1 percent, to $57.0 billion, following robust growth of $2.6 billion, or 5 percent, in the fourth quarter 2014. The decrease primarily reflected a decline in noninterest-bearing deposits of $807 million, largely driven by Corporate Banking. Period-end total deposits increased $84 million, to $57.6 billion.
• Net interest income remained relatively stable at $413 million.
• Overall credit quality remained strong. The allowance for credit losses increased $5 million, primarily reflecting the impact of loan growth and increased reserves for loans related to energy(a), including a qualitative component, partially offset by improvements in credit quality in the remainder of the portfolio. Net charge-offs were $8 million, or 0.07 percent of average loans, in the first quarter 2015, compared to $1 million, or 0.01 percent, in the fourth quarter 2014. As a result, the provision for credit losses increased to $14 million in the first quarter 2015.
• Excluding the impact of a change in accounting presentation for a card program ($44 million), noninterest income decreased $13 million in the first quarter 2015, primarily reflecting decreases in customer derivative income and commercial lending fees.
• Excluding the impact of the change in accounting presentation for a card program ($44 million), noninterest expenses decreased $3 million in the first quarter 2015, primarily reflecting lower net occupancy and consulting expenses, partially offset by a seasonal net increase in compensation expense.
• Capital remained solid at March 31, 2015, as evidenced by an estimated common equity Tier 1 capital ratio of 10.43 percent and a tangible common equity ratio of 9.97 percent. As previously announced, the Federal Reserve completed its 2015 Comprehensive Capital Analysis and Review (CCAR) in March 2015 and did not object to the capital distributions contemplated in Comerica's capital plan. Basel III capital rules became effective for Comerica on January 1, 2015.
• Comerica repurchased approximately 1.4 million shares of common stock during the first quarter 2015 under the equity repurchase program. Together with dividends of $0.20 per share, $95 million was returned to shareholders.

First Quarter 2015 Compared to First Quarter 2014

• Average total loans increased $3.1 billion, or 7 percent, reflecting increases in almost all lines of business.
• Average total deposits increased $4.2 billion, or 8 percent, driven by an increase in noninterest-bearing deposits of $3.5 billion, or 15 percent, and reflecting increases in all major lines of business.
• Net income decreased $5 million, or 3 percent, primarily reflecting revenue increases offset by higher outside processing expenses related to revenue generating activities and increases in the provision for credit losses and technology-related contract labor expenses.

(a) Loans related to energy at March 31, 2015 included approximately $3.6 billion of outstanding loans in our Energy business line as well as approximately $750 million of loans in other lines of business to companies that have a sizable portion of their revenue related to energy or could be otherwise disproportionately negatively impacted by prolonged low oil and gas prices.

 

 

• Net interest income decreased $2 million to $413 million in the first quarter 2015, compared to the fourth quarter 2014.
  • Interest on loans decreased $4 million, primarily reflecting the impact of two fewer days in the first quarter (-$7 million), a decrease in accretion of the purchase discount on the acquired loan portfolio (-$6 million), lower loan prepayment fees and interest recognized on nonaccrual loans (-$4 million), partially offset by the impact of a negative residual value adjustment to assets in the leasing portfolio in the fourth quarter 2014 (+$7 million) and the benefit from an increase in average loan balances (+$6 million).
  • Interest on investment securities increased $2 million, reflecting an increase in average balances (+$3 million), partially offset by lower yields (-$1 million).
• The net interest margin of 2.64 percent increased 7 basis points compared to the fourth quarter 2014, primarily reflecting a decrease in Federal Reserve Bank deposits (+9 basis points) and the impact of the negative leasing residual value adjustment (+5 basis points), partially offset by a decline in accretion of the purchase discount on the acquired loan portfolio (-4 basis points) and lower loan prepayment fees and nonaccrual interest recognized (-2 basis points).
• Average earning assets decreased $1.0 billion, to $63.5 billion in the first quarter 2015, compared to the fourth quarter 2014, primarily reflecting a decrease of $2.3 billion in Federal Reserve Bank deposits, partially offset by increases of $790 million in average loans and $542 million in average investment securities.

Noninterest IncomeEffective January 1, 2015, contractual changes to a card program resulted in a change to the accounting presentation of the related revenues and expenses. The effect of the change was an increase of $44 million to both noninterest income and noninterest expenses in the first quarter 2015. Future quarters will be similarly impacted by this change.

Excluding the impact of this change, noninterest income decreased $13 million in the first quarter 2015, compared to $225 million for the fourth quarter 2014. The decrease primarily reflected decreases of $7 million in customer derivative income and $4 million in commercial lending fees from high fourth quarter 2014 levels.

Noninterest ExpensesExcluding the impact of the above-described change, noninterest expenses decreased $3 million in the first quarter 2015, compared to $419 million for the fourth quarter 2014. Net occupancy expense decreased $8 million, largely reflecting a $5 million real estate optimization charge incurred in the fourth quarter 2014 that was not repeated in the first quarter 2015 and several discrete first quarter items. Consulting fees, a component of other noninterest expenses, were $3 million lower. Salaries and benefits expense increased $8 million, primarily reflecting seasonal fluctuations including increases in share-based compensation expense and payroll taxes in the first quarter 2015, partially offset by lower healthcare costs and the impact of two fewer days in the quarter.

Credit Quality"Credit quality continued to be strong in the first quarter," said Babb. "Net charge-offs remained low at $8 million, or 7 basis points. At this point in the cycle, our energy portfolio continues to perform well, with only modest negative credit migration. However, in light of the fact that oil and gas prices remain depressed, we expect that our criticized loans may increase from current very low levels as the year progresses. In fact, our robust allowance methodology resulted in an increase to our reserve for energy exposure, including an increase to the qualitative component, in the first quarter. Overall, we had a modest increase of $5 million in our total allowance for credit losses and an increase in the provision for credit losses to $14 million.

"Our energy customers are generally decreasing their expenditures and accessing the capital markets, among other actions, to help mitigate the impact of lower oil and gas prices on their businesses. We are actively engaged with our customers, assisting them as they navigate the cycle. Our deep understanding of the sector and our customers is a key component of how we have managed this business successfully for more than 30 years."

 

• Net charge-offs increased $7 million to $8 million, or 0.07 percent of average loans, in the first quarter 2015, compared to $1 million, or 0.01 percent, in the fourth quarter 2014.
• Criticized loans increased $174 million to $2.1 billion at March 31, 2015, compared to $1.9 billion at December 31, 2014, including an increase of approximately $50 million in criticized loans related to energy.

Balance Sheet and Capital ManagementTotal assets and common shareholders' equity were $69.3 billion and $7.5 billion, respectively, at March 31, 2015, compared to $69.2 billion and $7.4 billion, respectively, at December 31, 2014.

There were approximately 178 million common shares outstanding at March 31, 2015. Share repurchases of $59 million (1.4 million shares) under the equity repurchase program, combined with dividends, returned 71 percent of first quarter 2015 net income to shareholders.

As previously announced, the Federal Reserve completed its 2015 CCAR review in March 2015 and did not object to Comerica's capital plan and capital distributions contemplated in the plan. Comerica's capital plan provides for up to $393 million in equity repurchases for the five-quarter period ending June 30, 2016. Comerica's capital plan further contemplates a 1-cent increase in the quarterly dividend to $0.21 per common share. The dividend proposal will be considered by Comerica's Board of Directors at its next scheduled meeting on April 28, 2015.

In July 2013, U.S. banking regulators issued a final rule for the U.S. adoption of the Basel III regulatory capital framework ("Basel III"). Basel III includes a more stringent definition of capital and introduces a new common equity Tier 1 capital requirement; sets forth two comprehensive methodologies for calculating risk-weighted assets, a standardized approach and an advanced approach; introduces a capital conservation buffer; and sets out minimum capital ratios and overall capital adequacy standards. As a banking organization subject to the standardized approach, Basel III became effective for Comerica on January 1, 2015. Certain deductions and adjustments to regulatory capital began phasing in on January 1, 2015 and will be fully implemented on January 1, 2018. The capital conservation buffer phases in beginning January 1, 2016 and will be fully implemented on January 1, 2019.

The estimated common equity Tier 1 capital ratio, reflective of transition provisions and excluding most elements of accumulated other comprehensive income ("AOCI"), was 10.43 percent at March 31, 2015. The estimated ratio under fully phased-in Basel III capital rules is not significantly different from the transitional ratio. Comerica's tangible common equity ratio was 9.97 percent at March 31, 2015, an increase of 12 basis points from December 31, 2014.

Full-Year 2015 OutlookManagement expectations for full-year 2015 compared to full-year 2014, assuming a continuation of the current economic and low-rate environment, are as follows:

• Average full-year loan growth consistent with 2014, reflecting typical seasonality throughout the year and continued focus on pricing and structure discipline.
• Net interest income relatively stable, assuming no rise in interest rates, reflecting a decrease of about $30 million in purchase accounting accretion, to about $6 million, and the impact of a continuing low rate environment on asset yields, offset by earning asset growth.
• Provision for credit losses higher, consistent with modest net charge-offs and continued loan growth.
• Noninterest income relatively stable, excluding the impact of the change in accounting presentation for a card program. Stable noninterest income reflects growth in fee income, particularly card fees and fiduciary income, mostly offset by a decline in warrant income and regulatory impacts on letter of credit and derivative income.
• Noninterest expenses higher, excluding the impact of the change in accounting presentation for a card program, reflecting increases in technology, regulatory and pension expenses, as well as typical inflationary pressures, with continued focus on driving efficiencies for the long term.
• Income tax expense to approximate 33 percent of pre-tax income.

Business SegmentsComerica'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 March 31, 2015 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses first quarter 2015 results compared to fourth quarter 2014.

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

 

 

• Average loans increased $729 million, primarily reflecting increases in Energy, Technology and Life Sciences, National Dealer Services and general Middle Market.
• Average deposits decreased $756 million, primarily reflecting a decrease in Corporate Banking noninterest-bearing deposits.
• Net interest income decreased $17 million, primarily due to the decrease in average deposits and a lower funds transfer pricing (FTP) crediting rate. The benefit from an increase in average loan balances and the impact of a negative residual value adjustment to assets in the leasing portfolio in the fourth quarter 2014 were largely offset by a decrease in purchase accounting accretion and two fewer days in the quarter.
• The allowance for credit losses increased $6 million, primarily reflecting the impact of loan growth and increased reserves for loans related to energy, including a qualitative component, partially offset by improvements in credit quality in the remainder of the portfolio. The provision for credit losses increased $15 million.
• Excluding the impact of the change in accounting presentation for certain card programs as described previously, noninterest income decreased $6 million, primarily due to decreases in customer derivative income and commercial lending fees from high fourth quarter 2014 levels.
• Excluding the impact of the change in accounting presentation for certain card programs as described previously, noninterest expenses increased $8 million, primarily due to an increase in allocated corporate overhead expenses and a seasonal net increase in salaries and benefits expense.

 

 

• Average loans increased $72 million, primarily due to increases in Small Business and consumer loans in Retail Banking.
• Average deposits increased $104 million, primarily reflecting an increase in money market and interest-bearing checking deposits, partially offset by decreases in time deposits and noninterest-bearing deposits.
• The provision for credit losses decreased $4 million, primarily due to credit quality improvements in Small Business.
• Noninterest expenses decreased $6 million, primarily due to a decrease in occupancy expense resulting from a real estate optimization charge incurred in the fourth quarter 2014 that was not repeated in the first quarter 2015.

 

 

• Average deposits decreased $97 million, primarily reflecting a decrease in noninterest-bearing deposits.
• Net interest income decreased $4 million, primarily due to a decrease in FTP credits, largely due to the decrease in average deposits, and two fewer days in the quarter.
• The provision for credit losses increased $8 million, primarily reflecting a large benefit to the provision recognized in the fourth quarter 2014 from a reduction in reserves due to the payoff of a single large criticized credit.
• Noninterest income decreased $3 million, primarily reflecting a securities loss in the first quarter.
• Noninterest expenses decreased $3 million, reflecting small decreases in several categories.

Geographic Market SegmentsComerica 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 March 31, 2015 and are presented on a fully taxable equivalent (FTE) basis.

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

 

• Average loans increased $416 million in California, $208 million in Texas (primarily Energy) and $81 million in Michigan (primarily National Dealer Services). The increase in California was led by Technology and Life Sciences, general Middle Market and National Dealer Services.
• Average deposits decreased $1.2 billion in California and increased $185 million and $180 million in Texas and Michigan, respectively. The decrease in California was primarily due to decreases in noninterest-bearing deposits in Corporate Banking, general Middle Market, Technology and Life Sciences and Private Banking.
• Net interest income decreased $16 million and $8 million in California and Texas, respectively, and increased $4 million in Michigan. The decrease in California primarily reflected a decrease in FTP credits, largely due to the decrease in average deposits, partially offset by the benefit from an increase in average loans. The decrease in Texas was primarily the result of a decrease in the accretion of the purchase discount on the acquired loan portfolio. The increase in Michigan primarily reflected the impact of a negative leasing residual adjustment in the fourth quarter. Net interest income in all three markets reflected the impact of two fewer days in the first quarter.
• The allowance for credit losses increased $3 million in Michigan, $7 million in California and $1 million in Texas. In all markets, the changes in reserves primarily reflected the impact of loan growth and increased reserves for loans related to energy, including a qualitative component, partially offset by improvements in credit quality in the remainder of the portfolio. Net charge-offs increased $8 million in Michigan, remained stable in California and increased $1 million in Texas. The provision for credit losses increased $11 million in Michigan, $7 million in California and $3 million in Texas.
• Noninterest income decreased $8 million and $2 million in Michigan and Texas, respectively, and was unchanged in California. The decrease in Michigan was primarily due to decreases in customer derivative income and commercial lending fees. The decrease in Texas was primarily due to a decrease in commercial lending fees.
• Noninterest expenses decreased $2 million in both Michigan and California, and increased $1 million in Texas.

 

Conference Call and WebcastComerica will host a conference call to review first quarter 2015 financial results at 7 a.m. CT Friday, April 17, 2015. Interested parties may access the conference call by calling (877) 523-5249 or (210) 591-1147 (event ID No. 99335770). 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," "projects," "models" 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 changes in interest rates; changes in regulation or oversight; Comerica's ability to maintain adequate sources of funding and liquidity; the effects of more stringent capital or liquidity requirements; declines or other changes in the businesses or industries of Comerica's customers, including the energy industry; operational difficulties, failure of technology infrastructure or information security incidents; reliance on other companies to provide certain key components of business infrastructure; factors impacting noninterest expenses which are beyond Comerica's control; changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing; changes in Comerica's credit rating; unfavorable developments concerning credit quality; the interdependence of financial service companies; the implementation of Comerica's strategies and business initiatives; Comerica's ability to utilize technology to efficiently and effectively develop, market and deliver new products and services; competitive product and pricing pressures among financial institutions within Comerica's markets; changes in customer behavior; any future strategic acquisitions or divestitures; 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 12 of Comerica's Annual Report on Form 10-K for the year ended December 31, 2014. Forward-looking statements speak only as of the date they are made. Comerica does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made. For any forward-looking statements made in this news release or in any documents, Comerica claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Tier 1 common capital ratio removes preferred stock and qualifying trust preferred securities from Tier 1 capital as defined by and calculated in conformity with Basel I risk-based capital rules in effect through December 31, 2014. Effective January 1, 2015, regulatory capital components and risk-weighted assets are defined by and calculated in conformity with Basel III risk-based capital rules. The tangible common equity ratio removes preferred stock and the effect of intangible assets from capital and the effect of intangible assets from total assets. Tangible common equity per share of common stock removes the effect of intangible assets from common shareholders equity per share of common stock. Comerica believes these measurements are meaningful measures of capital adequacy used by investors, regulators, management and others to evaluate the adequacy of common equity and to compare against other companies in the industry.

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