Comerica Incorporated Management Discusses Q2 2012 Results - Earnings Call Transcript

Comerica Incorporated (CMA)

Q2 2012 Earnings Call

July 17, 2012 8:00 am ET

Executives

Darlene P. Persons - Senior Vice President and Director of Investor Relations

Ralph W. Babb - Chairman, Chief Executive Officer, President, Chairman of Capital Committee, Chairman of Special Preferred Stock Committee and Member of Management Policy Committee

Karen L. Parkhill - Vice Chairman and Chief Financial Officer

Lars C. Anderson - Executive Vice President of The Business Bank and Member of Management Policy Committee

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

Analysts

Jon G. Arfstrom - RBC Capital Markets, LLC, Research Division

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

Stephen Scinicariello - UBS Investment Bank, Research Division

Matthew D. O'Connor - Deutsche Bank AG, Research Division

Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division

Michael Turner - Compass Point Research & Trading, LLC, Research Division

Craig Siegenthaler - Crédit Suisse AG, Research Division

Ken A. Zerbe - Morgan Stanley, Research Division

Christopher M. Mutascio - Stifel, Nicolaus & Co., Inc., Research Division

Gary P. Tenner - D.A. Davidson & Co., Research Division

Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division

John G. Pancari - Evercore Partners Inc., Research Division

Michael Rose - Raymond James & Associates, Inc., Research Division

Paul J. Miller - FBR Capital Markets & Co., Research Division

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

Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division

Leanne Erika Penala - BofA Merrill Lynch, Research Division

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Josh Levin - Citigroup Inc, Research Division

Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division

Presentation

Operator

Good morning. My name is Carmen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Comerica Second Quarter 2012 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Darlene Persons, Director of Investor Relations. Please go ahead, ma'am.

Darlene P. Persons

Thank you, Carmen. Good morning, and welcome to Comerica's second quarter 2012 earnings conference call. Participating on this call will be our Chairman, Ralph Babb; Vice Chairman and Chief Financial Officer, Karen Parkhill; Vice Chairman of the Business Bank, Lars Anderson; and Chief Credit Officer, John Killian. A copy of our press release and presentation slides are available on the SEC's website, as well as in the Investor Relations section of our website, comerica.com. As we review our second quarter results, we will be referring to the slides which provide additional details on our earnings.

Before we get started, I would like to remind you that this conference call contains forward-looking statements. In that regard, you should be mindful of the risks and uncertainties that can cause future results to vary from expectations. 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 this release issued today, as well as Slide 2 of this presentation, which I incorporate into this call as well as our filings with the SEC.

Also, this conference call will reference non-GAAP measures and in that regard, I would direct you to the reconciliation of these measures within the presentation.

Now, I'll turn the call over to Ralph, who will begin on Slide 3.

Ralph W. Babb

Good morning. Today, we reported second quarter 2012 earnings per share of $0.73, or $144 million, an 11% increase from the first quarter. Our results reflect our focus on the bottom line in this slow-growing national economy.

Turning to Slide #4, in further highlights, loans continued to grow with average loans up $959 million, or 2%, compared to the first quarter, primarily reflecting an increase of $1.2 billion, or 5%, in commercial loans. This was the eighth consecutive quarter of average commercial loan growth resulting in a 20% year-over-year increase, including our acquisition of Sterling Bank shares last July.

The increase in average commercial loans in the second quarter was broad-based with increases across nearly all of our businesses. Deposits continued to grow in the second quarter. We had record deposits of $49.4 billion at June 30, 2012 with an increase in average deposits of $368 million, primarily driven by an increase in noninterest-bearing deposits.

Excluding the decline in accretion, net interest income was stable. Non-interest income increased $5 million to $211 million, including a $3 million increase in customer-driven fee income. We maintained our tight control of expenses with decreases in several categories. Credit quality continued to be strong. The provision for credit losses decreased $3 million to $19 million.

Our capital position remains a source of strength to support our future growth. We repurchased 2.9 million shares under our share repurchase program in the second quarter. In April, our Board of Directors increased the quarterly cash dividend 50% to $0.15 per share. The combined share buyback and dividend returned 81% of second quarter net income to shareholders.

In addition, we have reviewed the Basel III regulatory capital framework and believe that on a fully phased-in pro forma basis, we are well above the proposed capital levels.

Turning to Slide 5, in our corporate news, Comerica Bank ranked highly in the 2012 American Banker/Reputation Institute Survey of the reputations of 30 large banks. Comerica ranks fourth overall and #1 in the categories of citizenship and governance. According to the consumer survey, Comerica had the second largest positive gain in reputation from a year ago and was 1 of only 2 banks that placed in the top 5 of nearly every survey category.

And on Slide 6, a new Census Bureau report shows the cities with the largest growth. Comerica has a presence in 9 of the top 15: Houston, San Antonio, Austin, Los Angeles, Dallas, Phoenix, San Diego, Fort Worth and San Jose. We believe population growth drives economic growth and that we are well positioned in these growing cities.

Turning to our key markets, we had 38% average loan growth year-over-year in Texas, including our acquisition of Sterling. Our growth has been broad-based with increases in almost every business line. We are also investing resources in Texas in Technology & Life Sciences, Environmental Services and Mortgage Banker Finance. In his most recent Texas Economic Activity Index, our Chief Economist, Robert Dye, stated that Texas drilling activity remains strong with the state's energy sector driving job gains. The energy and manufacturing sectors are boosting the demand for services, providing a broad basis for ongoing economic growth.

Average loans were relatively stable year-over-year in our Midwest market, which is primarily Michigan. The rate of growth in the Michigan economy has slowed into mid-2012 after being lifted by the rebounding auto industry in 2011. A softer U.S. economy through mid-year 2012 will likely dampen further gains in auto sales and production for the second half of 2012. However, with ample pent-up demand and high affordability, auto sales are expected to hold up near a 14-million unit pace this summer and that will support ongoing moderate growth in the Michigan economy.

We had average loan growth of 7% year-over-year in our Western market, which is primarily California, with increases in National Dealer Services, Global Corporate Banking, Technology & Life Sciences and Entertainment, as well as notable growth in Middle Market the last 2 quarters. Our most recent California Economic Activity Index showed an expansion in that state's economy, driven by gains in the high-tech sector, which includes many of our Technology & Life Sciences customers. However, California job growth is below the national average and state and municipal fiscal conditions remain challenging.

In summary, our loan and deposit growth, solid credit performance and tight expense management reflect our focus on the bottom line. Our capital position remains solid, and we continue to be active capital managers. Our consistent, conservative relationship-focused approach to banking is making a positive difference for us and our customers.

And now, I will turn the call over to Karen.

Karen L. Parkhill

Thank you, Ralph, and good morning, everyone. Turning to Slide 7. As Ralph mentioned, total average loan growth was 2%, or $959 million, quarter-over-quarter as shown on the left-hand side of the slide. On the right-hand side, you can see commercial loans drove the increase, up 5% or $1.2 billion as a result of growth in many lines of business, including National Dealer Services, Global Corporate Banking, Middle Market Banking and Energy. The green part of the bar shows that on average, Mortgage Banker loans were essentially unchanged.

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