Following an unfavorable verdict from the Montana jury on
) announced revised earnings for fourth-quarter 2013 and
full-year 2013. Based on the unexpected outcome of the case,
which was filed in Montana Second District Judicial Court, the
company increased litigation reserves and reduced incentive
compensation expense as of Dec 31, 2013.
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The litigation involved $9 million revolving line of credit loan,
which was extended by Comerica, a third-party defendant in the
case to Michigan-based office supply company-Masters Group
International Inc. in 2006. Further, the line of credit was
extended to $10.5 million. However, following the default in loan
payment by Masters, Comerica succeeded in collecting the full
amount through collection actions.
Therefore, Comerica Chairman and CEO Ralph W. Babb Jr. believed
the company possessed estimable defenses for the litigation and
expected a favorable outcome. However, the jury verdict came out
otherwise and therefore Comerica reported revised earnings for
the final quarter, adjusting for the verdict.
Revised Q4 and 2013 Results
Comerica restated fourth-quarter 2013 net income of 117 million
or 62 cents per share, down from the previously reported net
income of 145 million or 77 cents per share. For full-year 2013,
revised net income came in at $541 million or $2.85 per share
compared with the previously reported net income of $569 million
or $3.00 per share.
Further, as of Dec 31, 2013, the revised estimated Tier 1 common
capital ratio was 10.56%, down from the previously reported ratio
of 10.60%, while the estimated Basel III Tier 1 common capital
ratio remained unchanged at 10.3%. Moreover, Comerica's tangible
common equity ratio was 10.07%, down from previously reported
ratio of 10.11%.
Non-interest expenses which was reported at $429 million has been
increased to $473 million in the quarter, including
litigation-related charges of $52 million, decreased salaries of
$6 million and reduced other non-interest expenses of $2 million.
However, Comerica reiterated its outlook for 2014 as reported
last week. Given the sluggish growth in economy and low-interest
rate environment, the company's outlook for 2014 is modest.
Capital Deployment Update
Comerica's board of directors increased the quarterly cash
dividend for common stock to 19 cents from 12 cents per share.
The revised dividend indicates a 58.3% hike in dividend. The new
dividend will be paid on Apr 1, 2014, to common stock
shareholders of record as of Mar 14, 2014. The hike in dividend
was part of the company's 2013 Capital Plan, which was approved
by the Federal Reserve's in Mar 2013.
Comerica's capital deployment initiatives through dividend
payment and share buybacks exhibit its capital strength. Notably,
during 2013, Comerica repurchased 7.4 million shares under the
existing share repurchase program. This, combined with dividends,
resulted in a total payout of 76% of net income to shareholders
in the year. We expect such activities to boost investors'
confidence in the stock.
Going forward, we expect Comerica's continuous geographic
diversification beyond its traditional and slower-growing Midwest
markets to drive growth in the next cycle. Revenue synergies from
opportunistic acquisitions are likely to augment top-line growth.
However, the company's significant exposure to commercial real
estate markets, the unsettled economic environment, persistent
low interest rate environment, litigation issues and stringent
regulatory issues remain matters of concern.
Currently, Comerica carries a Zacks Rank #3 (Hold). Some
better-ranked major regional banks worth considering include
Bank of America Corporation
Fifth Third Bancorp
). All these 3 carry a Zacks Rank #2 (Buy).