on Tuesday announced a deal to acquire
of Houston and also announced fourth-quarter earnings that beat analysts' expectations.
Comerica agreed to acquire Sterling in an all-stock transaction valued at just over $1 billion, or $10 per Sterling share, representing a 30% premium over Sterling's closing share price of $7.70 on Friday. The announcement followed reports that Sterling's management was
for a sale, with
also listed as a possible acquirer.
Sterling had been included in
in December. The deal is a nice fill-in transaction for Comerica, since the company only had a 1% deposit market share in Texas as of June 30, according to the Federal Deposit Insurance Corporation. Comerica relocated its headquarters from Detroit to Dallas in 2007 and its Texas deposit market share will double when it completed the Sterling acquisition.
For the fourth quarter, Comerica reported net income to common shareholders of $95 million, or 53 cents a share, improving from $59 million, or 33 cents a share, the previous quarter and a loss of $62 million, 42 cents a share, in the fourth quarter of 2009.
The fourth-quarter results beat the consensus estimate of fourth quarter earnings of 32 cents a share, among analysts polled by Thomson Reuters.
For all of 2010, Comerica's net income attributable to common shareholders was $153 million, or 88 cents a share, compared to a 2009 net loss of $118 million, or 79 cents a share.
The largest factor in the fourth-quarter earnings improvement was a reduction in the provision for loan loss reserves, which was $57 million during the fourth quarter, declining from $122 million during the third quarter and $256 million during the fourth quarter of 2009. Since net charge-offs - loan losses less recoveries - during the fourth quarter totaled $113 million, Comerica "released" $57 million in loan loss reserves, which directly boosted bottom-line results.
This followed the pattern for large U.S. banks, including
, which saw a $1.9 billion reduction in loan loss reserves during the fourth quarter and
, which reported a $3 billion decline in its allowance for loan losses.
Nonperforming assets - including nonaccrual loans and repossessed assets - totaled $1.2 billion as of December 31, or 2.30% of total assets, compared to 2.38% in September and 2.18% at the end of 2009. The annualized ratio of net charge-offs to average loans for the fourth quarter was 1.13%, improving from 1.32% the previous quarter and 2.10% a year earlier.
Comerica's fourth-quarter net interest margin - the difference between the bank's average yield on loans and investments and its average cost of funds - was 3.29%, improving from 3.23% in the third quarter and 2.94% in the fourth quarter of 2009.
With the profits came a continued increase in capital levels. Comerica's year-end tangible common equity ratio was 10.54%, increasing from 10.39% in September and 7.99% at the end of 2009. The company raised $880 million in common equity in the first quarter of 2010.
CEO Ralph Babb said Comerica's customers were "conveying a more positive and confident tone and that "a growing sense of optimism among customers and prospects" could be seen in the company's "strong loan pipeline."
Regarding the Sterling acquisition, Babb said "Sterling has a very appealing branch network which almost doubles our presence in Houston, provides an entry into the San Antonio market." Comerica also said that because of Sterling's strong capitalization, the acquisition would have a negligible effect on the acquiring bank's capital levels.
Written by Philip van Doorn in Jupiter, Fla.
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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.