DETROIT, Jan. 19 /PRNewswire-FirstCall/ -- Comerica Incorporated (NYSE: CMA) today reported fourth quarter 2005 earnings of $207 million, or $1.25 per diluted share, compared to $238 million, or $1.41 per diluted share, for the third quarter 2005 and $207 million, or $1.21 per diluted share, for the fourth quarter 2004.
(Logo: http://www.newscom.com/cgi-bin/prnh/20010807/CMALOGO ) (dollar amounts in millions) 4th Qtr '05 3rd Qtr '05 4th Qtr '04 Diluted EPS $1.25 $1.41 $1.21 Net interest income $501 $512 $466 Net interest margin 4.00% 4.15% 3.96% Provision for loan losses $(20) $(30) $(21) Noninterest income $281 $232 $203 Noninterest expenses Provision for credit losses on lending-related commitments $25 $(1) $3 Noninterest expenses - other 462 423 377 Total noninterest expenses $487 $422 $380 Net income $207 $238 $207 Return on equity 16.28% 18.59% 16.39%
Net income for 2005 was $861 million, or $5.11 per diluted share, compared to $757 million, or $4.36 per diluted share, for 2004. Return on average common shareholders' equity was 16.90 percent and return on average assets was 1.64 percent for 2005, compared to 15.03 percent and 1.49 percent, respectively, for 2004.
Full Year and Fourth Quarter 2005 Highlights Full Year 2005 Compared to Full Year 2004
-- Revenue grew 9% (7% excluding the net gain on the sales of businesses), with average loan growth of 5%, excluding Financial Services Division loans; net interest margin improved 20 basis points to 4.06%; and noninterest income (excluding the net gain on sales of businesses) grew 4%
-- Noninterest expenses rose 12%, with approximately half of the increase related to customer services expense in the Financial Services Division ($46 million) and credit-related costs ($39 million), including the provision for credit losses on lending-related commitments and other real estate expense. Other factors contributing to the increase in noninterest expenses included profitability-based incentives ($41 million), pension and staff insurance ($20 million) and new banking centers ($12 million).
-- Credit quality was at an historically strong level, with charge-offs at 25 basis points, down from 48 basis points in 2004; and nonperforming assets were down 52% to $162 million, compared to $339 million at year-end 2004
Fourth Quarter 2005 Compared to Third Quarter 2005
-- On an annualized basis, average loans increased 2%, led by 14% growth in the Texas market and 10% growth in the Western market, partially offset by a 5% decline in the Midwest & Other markets (growth rates exclude Financial Services Division loans)
-- Credit quality remained solid, with nonperforming assets declining 27% to $162 million at December 31, 2005
-- Noninterest expenses were up $65 million, reflecting higher incentives from increased profitability, a higher provision for credit losses on lending- related commitments related to the automotive industry, and a contribution to the Comerica Charitable Foundation
"We continue to make investments to support the growth of our businesses and to bring better balance to our geographic and business mix over time," said Ralph W. Babb Jr., chairman and chief executive officer. "Our fourth quarter results underscore many of the positive trends we have seen all year, including loan growth -- particularly in the Western and Texas markets -- and credit quality continues to be solid by any metric," Babb said.
"We remain focused on revenue growth and our other key strategic drivers to create attractive shareholder returns over time," Babb said. "As we enter 2006, we expect to deliver good loan growth with solid credit quality, while generating positive operating leverage."
Net Interest Income
Net interest income was $501 million for the fourth quarter 2005, compared to $512 million for the third quarter 2005 ($492 million without the previously reported warrant accounting adjustment) and $466 million for the fourth quarter 2004. The $9 million increase in net interest income from the adjusted third quarter 2005 level resulted from the spread improvement provided by noninterest-bearing deposits in a rising interest rate environment. Average earning assets of $49.8 billion for the fourth quarter 2005 increased $698 million from the third quarter 2005, primarily as a result of a $667 million, or one percent, increase in average loans to $45.2 billion for the fourth quarter 2005. The Corporation's Financial Services Division contributed $435 million of the increase in average loans for the fourth quarter 2005. Average deposits of $41.5 billion for the fourth quarter 2005 increased $204 million from the third quarter 2005.
The net interest margin was 4.00 percent in the fourth quarter 2005, compared to 4.15 percent for the third quarter 2005 (3.99 percent without the warrant accounting adjustment). The fourth quarter 2005 net interest margin benefited from a greater contribution from noninterest-bearing deposits in a higher rate environment.
Noninterest Income
Noninterest income was $281 million for the fourth quarter 2005, compared to $232 million for the third quarter 2005 and $203 million for the fourth quarter 2004. Commercial lending fees, investment advisory revenue and card fees each experienced linked-quarter growth, while most other categories remained relatively flat. Certain categories of noninterest income are highlighted in the table below. Net gain on sales of businesses in the fourth quarter 2005 resulted from the sale of the Corporation's interest in Framlington Group Limited, a London, England based asset manager. Risk management hedge ineffectiveness relates to libor and prime interest rate swap hedges and foreign exchange balance sheet hedges, and varies from period to period as rates and rate spreads change.
(in millions) 4th Qtr '05 3rd Qtr '05 4th Qtr '04
Net gain on sales of businesses $55 $1 $ -
Other noninterest income
Income (net of write-downs) from
unconsolidated venture capital
and private equity investments - 13 4
Risk management hedge
ineffectiveness 6 (3) (3)
Noninterest Expenses
Noninterest expenses were $487 million for the fourth quarter 2005, compared to $422 million for the third quarter 2005 and $380 million for the fourth quarter 2004. Noninterest expenses reflect higher incentives tied to increased profitability, continued investment in banking centers, technology and products, and higher credit costs related to other real estate and the provision for credit losses on lending-related commitments. Certain categories of noninterest expense are highlighted in the table below. Salaries increased $16 million, largely due to severance ($2 million) and business unit incentives ($11 million), primarily in investment advisory and lending-related units. Investment advisory incentives resulted from better-than-expected revenue growth. Lending-related incentives are based on risk-adjusted profits, and were therefore positively impacted by solid credit quality. Customer services expense varies from period to period as a result of changes in the level of noninterest-bearing deposits in the Corporation's Financial Services Division and the earnings credit allowance provided on these deposits, as well as a competitive environment. The provision for credit losses on lending- related commitments increased primarily due to exposure to the automotive industry. The increase in contributions was used to fund the Comerica Charitable Foundation. Other real estate expense primarily related to a large write-down and operating costs incurred on a single property.
(in millions) 4th Qtr '05 3rd Qtr '05 4th Qtr '04 Salaries Severance $3 $1 $3 Business unit incentives 45 34 29 Customer services 19 29 6 Provision for credit losses on lending-related commitments 25 (1) (3) Other noninterest expenses Charitable contributions 11 - 7 Other real estate expense 9 2 2 Credit Quality
"Consistently solid credit quality metrics in the fourth quarter 2005 resulted in a $23 million decline in the allowance for credit losses from the third quarter," said Babb. "Nonperforming assets continued to improve from already low levels."
(dollar amounts in millions) 4th Qtr '05 3rd Qtr '05 4th Qtr '04
Net loan charge-offs $22 $21 $35
Net lending-related commitment
charge-offs $6 $ - $ -
Total credit-related charge-offs $28 $21 $35
Net loan charge-offs/Average
total loans 0.20% 0.18% 0.34%
Provision for loan losses $(20) $(30) $(21)
Provision for credit losses
on lending-related commitments $25 $(1) $(3)
Total provision for credit
losses $5 $(31) $(24)
Nonperforming assets (NPAs) $162 $220 $339
NPAs/Total loans, Other real
estate & Nonaccrual debt
securities 0.37% 0.52% 0.83%
Allowance for loan losses $516 $558 $673
Allowance for credit losses
on lending-related commitments* $33 $14 $21
Total allowance for credit
losses $549 $572 $694
Allowance for loan
losses/Total loans 1.19% 1.33% 1.65%
Allowance for loan losses/NPAs 319 253 198
* Included in "Accrued expenses and other liabilities" on the consolidated balance sheets.
During the fourth quarter 2005, $28 million of loans greater than $2 million were transferred to nonaccrual status, a decrease of $53 million from the third quarter 2005. Nonperforming assets were $162 million at December 31, 2005, a decrease of $58 million from September 30, 2005.
Balance Sheet and Capital Management
Total assets and common shareholders' equity were $53.0 billion and $5.1 billion, respectively, at December 31, 2005, compared to $54.3 billion and $5.1 billion, respectively, at September 30, 2005. There were approximately 163 million shares outstanding at December 31, 2005, compared to approximately 165 million shares outstanding at September 30, 2005. In the fourth quarter 2005, approximately 2.5 million shares were repurchased in the open market for $146 million. Comerica's fourth quarter 2005 estimated tier 1 common, tier 1 and total risk-based capital ratios were 7.83 percent, 8.44 percent and 11.66 percent, respectively.
2006 Outlook
Comerica's outlook for full-year 2006 compared to the full year 2005 is as follows:
-- Mid-to-high single digit average loan growth (mid-single-digit average loan growth excluding Financial Services Division loans)
-- Average full year net interest margin of about 4.00 percent
-- Provision for credit losses consistent with credit-related charge-offs of 25 to 30 basis points of average loans
-- Low single digit noninterest income growth, excluding net gain on sales of businesses
-- Noninterest expenses unchanged -- Active capital management Business Segments
Comerica's operations are strategically aligned into three major business segments: the Business Bank, Small Business & Personal Financial Services, and Wealth & Institutional Management. The Finance Division also is included as a segment. The financial results below are based on the internal business unit structure of the Corporation and are presented on a fully taxable equivalent (FTE) basis.
The following table presents net income (loss) by business segment.
(dollar amounts in millions) 4th Qtr '05 3rd Qtr '05 4th Qtr '04
Business Bank $125 65% $186 75% $160 75%
Small Business & Personal
Financial Services 29 15 40 16 40 19
Wealth & Institutional
Management 39 20 23 9 12 6
193 100% 249 100% 212 100%
Finance (4) (20) (37)
Other* 18 9 32
Total $207 $238 $207
* Includes items not directly associated with the major business segments or the Finance Division
Net income for the Business Bank was $125 million for the fourth quarter 2005, compared to $186 million for the third quarter 2005. Net interest income (FTE) of $336 million in the fourth quarter 2005 decreased $31 million from the third quarter 2005. The decrease in net interest income (FTE) was primarily due to higher levels of low rate loans in the Financial Services Division in the fourth quarter 2005, compared to the third quarter 2005, and a $20 million positive adjustment in the third quarter 2005 resulting from a warrant accounting change. Average loans of $35.8 billion in the fourth quarter 2005 increased $576 million, or two percent, compared to the third quarter 2005, primarily due to increases in loans in the Financial Services Division, Commercial Real Estate, and National Dealer Services businesses. Average deposits of $20.6 billion in the fourth quarter 2005 decreased $299 million compared to the third quarter 2005, primarily due to a decrease in deposits in the Financial Services Division. Fourth quarter 2005 noninterest expenses of $226 million increased $41 million from the third quarter 2005, primarily due to increases in the provision for credit losses on lending- related commitments, net corporate overhead expenses and incentive compensation, partially offset by a decrease in customer services expense.
Net income for Small Business & Personal Financial Services was $29 million for the fourth quarter 2005, compared to $40 million for the third quarter 2005. The change largely reflects higher expenses, including those related to banking center investments.
Net income for Wealth & Institutional Management was $39 million for the fourth quarter 2005, compared to $23 million for the third quarter 2005. Noninterest income of $137 million in the fourth quarter 2005 increased $54 million compared to the third quarter 2005, primarily due to the sale of the Corporation's interest in Framlington Group Limited, described above. Fourth quarter 2005 noninterest expenses of $114 million increased $25 million compared to the third quarter 2005, primarily due to increases in incentive compensation, severance expense, net corporate overhead expenses and other real estate expenses.
Geographic Market Segments
Comerica also provides market segment results for four primary geographic markets: Midwest & Other Markets, Western, Texas and Florida. The financial results below are presented on a FTE basis.
The following table presents net income (loss) by market segment.
(dollar amounts in millions) 4th Qtr '05 3rd Qtr '05 4th Qtr '04
Midwest & Other Markets $109 56% $134 54% $120 57%
Western 63 33 87 35 69 32
Texas 19 10 21 8 19 9
Florida 2 1 7 3 4 2
193 100% 249 100% 212 100%
Finance & Other 14 (11) (5)
Total $207 $238 $207
Net income for the Midwest & Other markets was $109 million in the fourth quarter 2005, compared to $134 million in the third quarter 2005. Noninterest income of $201 million in the fourth quarter 2005 increased $47 million compared to the third quarter 2005, primarily due to the sale of the Corporation's interest in Framlington Group Limited, described above. Fourth quarter 2005 noninterest expenses of $304 million increased $71 million compared to the third quarter 2005, primarily due to increases in the provision for credit losses on lending-related commitments, net corporate overhead expenses, incentive compensation and other real estate expenses.
Net income for the Western market was $63 million for the fourth quarter 2005, compared to $87 million for the third quarter 2005. Net interest income (FTE) of $188 million in the fourth quarter 2005 decreased $26 million from the third quarter 2005. The decrease in net interest income (FTE) was primarily due to higher levels of low rate loans in the Financial Services Division in the fourth quarter 2005, compared to the third quarter 2005, and a $20 million positive adjustment in the third quarter 2005 resulting from a warrant accounting change. Average loans of $15.0 billion in the fourth quarter 2005 increased $734 million compared to the third quarter 2005, primarily due to increases in loans in the Financial Service Division, National Dealer Services, and Commercial Real Estate businesses. Average deposits of $17.0 billion in the fourth quarter 2005 decreased $367 million compared to the third quarter 2005, primarily due to a decrease in deposits in the Financial Services Division.
Net income for the Texas market was $19 million for the fourth quarter 2005, compared to $21 million for the third quarter 2005. Average loans of $5.3 billion in the fourth quarter 2005 increased $181 million, compared to third quarter 2005. Average deposits of $3.7 billion in the fourth quarter 2005 increased $107 million compared to the third quarter 2005.
Conference Call and Webcast
Comerica will host a conference call to review fourth quarter and full year 2005 financial results at 8 a.m. ET Thursday, January 19, 2006. Interested parties may access the conference call by calling (706) 679-5261 (event ID No. 3603986). The call and supplemental financial information can also be accessed on the Internet at http://www.comerica.com/ . A replay of the conference call will be available approximately two hours following the call through Sunday, February 19, 2006. The conference call replay can be accessed by calling (800) 642-1687 or (706) 645-9291 (event ID No. 3603986). A replay of the Webcast can also be accessed via Comerica's "Investor Relations" page at http://www.comerica.com/ .
Comerica Incorporated is a financial services company headquartered in Detroit, strategically aligned into three major business segments: the Business Bank, Small Business & Personal Financial Services, and Wealth & Institutional Management. Comerica focuses on relationships and helping businesses and people to be successful.
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," "feels," "expects," "estimates," "seeks," "strives," "plans," "intends," "outlook," "forecast," "position," "target," "mission," "assume," "achievable," "potential," "strategy," "goal," "aspiration," "outcome," "continue," "remain," "maintain," "trend," "objective" 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 the pace of an economic recovery and related changes in employment levels, the effects of war and other armed conflicts or acts of terrorism, the effects of natural disasters including, but not limited to, hurricanes, tornadoes, earthquakes and floods, the implementation of Comerica's strategies and business models, management's ability to maintain and expand customer relationships, management's ability to retain key officers and employees, changes in the accounting treatment of any particular item, the impact of regulatory examinations, declines or other changes in the businesses or industries in which Comerica has a concentration of loans, including, but not limited to, automotive production, the anticipated performance of any new banking centers, the entry of new competitors in Comerica's markets, changes in the level of fee income, changes in applicable laws and regulations, including those concerning taxes, banking, securities and insurance, changes in trade, monetary and fiscal policies, including the interest rate policies of the Board of Governors of the Federal Reserve System, fluctuations in inflation or interest rates, changes in general economic conditions and related credit and market conditions and adverse conditions in the stock market. Comerica cautions that the foregoing list of factors is not exclusive. 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.
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SOURCE: Comerica Incorporated
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