Comerica Incorporated CEO Discusses Q4 2010 Earnings Call Transcript

Comerica Incorporated (CMA)

Q4 2010 Earnings Call

January 18, 2011 8:00 am ET

Executives

Beth Acton - Chief Financial Officer, Executive Vice President, Member of Management Policy Committee, Chief Financial Officer of Comerica Bank and Executive Vice President of Comerica Bank

Darlene Persons - Senior Vice President and Director of Investor Relations

John Killian - Chief Credit Officer, Executive Vice President, Member of Management Policy Committee, Chief Credit Officer of Comerica Bank and Executive Vice President of Comerica Bank

Ralph Babb - Chairman, Chief Executive Officer, President, Chairman of Special Preferred Stock Committee, Member of Management Policy Committee, Chairman of Comerica Bank, Chief Executive Officer of Comerica Bank and President of Comerica Bank

Analysts

Craig Siegenthaler - Crédit Suisse AG

Brian Klock - Keefe, Bruyette, & Woods, Inc.

Sachin Shah - ICAP

Ian Foley

Paul Miller - FBR Capital Markets & Co.

John Pancari - Evercore Partners Inc.

Judy Delgado

Brian Foran - Goldman Sachs

Christopher Mutascio - Stifel, Nicolaus & Co., Inc.

Heather Wolf - UBS Investment Bank

Steven Alexopoulos - JP Morgan Chase & Co

Michael Zaremski - Crédit Suisse AG

Ken Zerbe

Presentation

Operator

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Comerica conference call. [Operator Instructions] I would now like to turn the conference over to Darlene Persons, Director of Investor Relations. Ms. Persons, you may begin the conference.

Darlene Persons

Thank you, Regina. Good morning, and thank you for joining us. Today, we issued two press releases and two presentation slide decks, one announcing our fourth quarter financial results and one announcing our acquisition of Sterling Bancshares. Copy of the both releases and presentation decks are available on the SEC website as well as in the Investor Relations section of our website.

Participating on this call will be our Chairman, Ralph Babb; our Chief Financial Officer, Beth Acton; and Chief Credit Officer, John Killian; as well as Dale Greene, Executive Vice President of the Business Bank.

First, Ralph will provide comments regarding our fourth quarter results and then review Sterling transactions. Beth and John will then provide a regular quarterly review of our financial results, which will be followed by a question-and-answer period.

Before we get started, I would like to remind you that this conference call contains forward-looking statements. And in that regard, you should be mindful of the risks and uncertainties that can cause future results to vary from expectation. Forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update any forward-looking statements. I refer you to the Safe Harbor statement contained in the releases issued today, as well as Slide 2 of each presentation slide deck which I incorporate into this call, as well as our filings with the SEC.

Also, this conference call will reference non-GAAP measures. In that regard, I would direct you to the reconciliation of these measures within each presentation slide deck . Now I'll turn the call over to Ralph.

Ralph Babb

Good morning, everyone. Today, we reported fourth quarter net income of $96 million or $0.53 per share. Fourth quarter revenue grew 5% over the third quarter driven by stronger fee income. Our results also reflected the broad-based improvement in credit quality, which led to a significant decline in the provision for loan losses to $57 million from $122 million in the third quarter. Quarter-over-quarter, period in loans outstanding were stable, with commercial loans increasing $713 million or 3%. Excluding the Commercial Real Estate line of business, which continued to run off as expected, average loans increased $229 million.

Deposit growth was very strong with core deposits increasing $1.1 billion. Overall, we are pleased with the quarter and the many positive trends we continue to see. Beth and John will provide further detail on our earnings results later in the call.

First, I would like to discuss our acquisition of Sterling Bancshares. My remarks will follow the acquisition presentation starting on Slide 3. We are very excited about this opportunity. Our approach to acquisitions has been a strategic one. We focus on opportunities to accelerate our growth, particularly in the urban markets of California and Texas.

Sterling, with its presence in the Houston, San Antonio and Dallas-Fort Worth markets, fits our strategy perfectly. There have not been nor other expected to be many banks in Texas that have the size, fit and focus of a bank like Sterling. In fact, there have only been two unassisted acquisitions of banks with over $5 billion in assets in Texas in the past seven years. Also, there are only four other U.S. public banks headquartered in Texas with assets in excess of $5 billion remaining, exemplifying the scarcity value of the franchise.

Sterling has a very appealing branch network, which almost doubles our presence in Houston, provides an entry into the San Antonio market, which is one of the fastest-growing metropolitan areas in the country and complements our banking center network in Dallas-Fort Worth. Sterling also has a very attractive deposit base with a relatively large component of noninterest-bearing deposits.

We believe this gives us the ability to leverage additional marketing capacity to offer a wide array of products through a larger distribution network, particularly to middle market and small business companies. Also, the timing is right. The economic environment is improving, and the industry is getting more clarity on regulatory topics.

With this acquisition, we expect to maintain our strong capital position, which will support growth. We are confident that we can manage the integration given the size and our in-depth knowledge of the Texas market.

Slide 4 provides an overview of the terms of the transaction. This is 100% stock deal for the purchase price of $1,027,000,000. The transaction is expected to be breakeven to Comerica's earnings the first full fiscal year, excluding merger and integration costs of approximately $80 million after tax and be increasingly accretive thereafter.

Estimated synergies include expense savings of $56 million to be fully realized on a run rate basis by year end 2012. Because the transaction is expected to be closed midyear 2011, the savings will be predominantly achieved in 2012.

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