DETROIT, Oct. 19 /PRNewswire-FirstCall/ -- Comerica Incorporated (NYSE: CMA) today reported third quarter 2006 earnings of $200 million, or $1.23 per diluted share, compared to $200 million, or $1.22 per diluted share, for the second quarter 2006 and $238 million, or $1.41 per diluted share, for the third quarter 2005. The third quarter 2005 earnings included a $30 million negative provision for loan losses and the positive net pre-tax effect of a $14 million warrant accounting adjustment. During the third quarter 2006, Comerica announced it had reached a definitive agreement to sell its stake in Munder Capital Management (Munder). The transaction is expected to close by year-end, with an initial after-tax gain in the range of $100 million to $110 million. Effective third quarter 2006, Comerica is accounting for Munder as a discontinued operation, and all periods presented have been restated to reflect this change.
(dollar amounts in millions, except per share data) 3rd Qtr '06 2nd Qtr '06 3rd Qtr '05 Net interest income $502 $500 $512 Provision for loan losses 15 27 (30) Noninterest income 196 205 215 Noninterest expenses 400 391 411 Net income 200 200 238 Diluted EPS from continuing operations 1.20 1.19 1.38 Diluted EPS from discontinued operations 0.03 0.03 0.03 Diluted EPS 1.23 1.22 1.41 Return on average common shareholders' equity 15.38 % 15.50 % 18.59 % Net interest margin 3.79 3.82 4.15"Our third quarter results underscore many positive core operating trends, and reflect our emphasis on growth and balance," said Ralph W. Babb Jr., chairman and chief executive officer. "Loan growth in our fastest-growing markets continued at a double-digit pace and credit quality in all markets remained excellent. Net charge-offs were at an historically low level, while nonperforming assets increased slightly from the second quarter but remained at a low level."
Third Quarter and Nine-Month 2006 Highlights Third Quarter 2006 Compared to Second Quarter 2006
* On an annualized basis, excluding Financial Services Division loans, average loans increased seven percent, with growth of 12 percent in the Western market, 24 percent in the Texas market and one percent in Midwest & Other Markets.
* The net interest margin was 3.79 percent in the third quarter 2006, a decrease of 3 basis points from 3.82 percent in the second quarter 2006.
* Total revenue decreased $7 million, or one percent. Excluding a mark- to-market loss on warrants of $5 million and an incremental loss on the sale of the Mexican bank charter of $7 million in the third quarter 2006, total revenue increased $5 million, or one percent.
* Net loan charge-offs as a percent of average total loans were 2 basis points for the third quarter of 2006, compared to 15 basis points for the second quarter of 2006, reflecting continued strong credit quality.
* Noninterest expenses, excluding the provision for credit losses on lending-related commitments, increased $15 million, or four percent, over the second quarter 2006, primarily due to salaries and employee benefits expense of $9 million and interest on tax liabilities of $8 million, largely reflecting a $6 million tax-related refund received in the second quarter.
* Open market share repurchases totaled 3.7 million shares, or two percent of total shares.
First Nine Months of 2006 Compared to First Nine Months of 2005
* Average loan growth was eight percent, excluding Financial Services Division loans, with 15 percent growth in the Western market, 18 percent growth in the Texas market and one percent growth in Midwest & Other Markets.
* Total revenue was unchanged while net interest income increased two percent. Total revenue increased $38 million, or two percent, excluding the 2006 loss on the sale of the Mexican bank charter of $12 million and the benefit of a warrant accounting change of $20 million in the third quarter 2005.
* Net loan charge-offs as a percent of average total loans were 11 basis points for the first nine months of 2006, down from 27 basis points in the same period in 2005. Nonperforming assets decreased 11 percent to $197 million at September 30, 2006, compared to $220 million at September 30, 2005.
* The provision for loan losses was $15 million for the first nine months of 2006, compared to a negative $27 million for the first nine months of 2005. The provision for credit losses on lending-related commitments was $9 million for the first nine months of 2006, compared to a negative $7 million for the first nine months of 2005.
* Noninterest expenses, excluding the provision for credit losses on lending-related commitments, increased $57 million, or five percent, largely due to interest on tax liabilities of $14 million, share-based compensation of $14 million and outside processing fees of $8 million.
Net Interest Income and Net Interest Margin in Line with Full-Year Outlook
(dollar amounts in millions) 3rd Qtr '06 2nd Qtr '06 3rd Qtr '05
Net interest income $502 $500 $512
Net interest margin 3.79 % 3.82 % 4.15 %
Selected average balances:
Total earning assets $52,500 $52,371 $49,066
Total loans 48,125 47,802 44,582
FSD loans (primarily low-rate) 2,093 2,557 2,334
Total interest-bearing deposits 29,133 28,446 25,540
Total noninterest-bearing
deposits 12,723 13,575 15,734
FSD noninterest-bearing
deposits 4,079 4,793 6,430
* Net interest income in the third quarter 2006 benefited from earning asset growth and one more day in the quarter, when compared to the second quarter 2006, and was partially offset by a decline in noninterest-bearing deposits and funding loan growth with non-core deposits and purchased funds.
* When compared to the second quarter 2006, the third quarter 2006 net interest margin reflected competitive loan and deposit pricing, the decline in noninterest-bearing deposits and loan growth in excess of deposit growth. This decrease was partially offset by the positive impact of lower average Financial Services Division loans (primarily low-rate) and a higher benefit from noninterest-bearing sources of funds in a rising rate environment.
* Third quarter 2005 reflected a change in accounting for warrants, which increased net interest income and net interest margin by $20 million and 16 basis points, respectively.
Noninterest Income Reflects Stable Trends in Fee Income
Noninterest income was $196 million for the third quarter 2006, compared to $205 million for the second quarter 2006 and $215 million for the third quarter 2005. The $9 million decrease in noninterest income in the third quarter 2006, compared to the second quarter 2006, reflected a $9 million decline in warrant income and a $7 million incremental loss recognized on the sale of the Mexican bank charter in the third quarter 2006, included in "net loss on sales of businesses" on the consolidated statements of income. This decrease was partially offset by higher income from venture capital investments of $5 million, and higher fee income from several sources such as service charges on deposit accounts, letter of credit fees and commercial lending fees. Certain categories of noninterest income are highlighted in the table below.
(in millions) 3rd Qtr '06 2nd Qtr '06 3rd Qtr '05
Warrant income $(5) $4 $2
Net loss on sales of businesses (7) - -
Other noninterest income
Income (net of write-downs) from
unconsolidated venture capital
and private equity investments 5 - 13
Noninterest Expenses Remain Well Controlled
Noninterest expenses were $400 million for the third quarter 2006, compared to $391 million for the second quarter 2006 and $411 million for the third quarter 2005. The increase in noninterest expenses from the second quarter 2006 reflected increased salaries and employee benefits expense of $9 million and interest on tax liabilities of $8 million primarily reflecting a $6 million tax-related refund in the second quarter, partially offset by a decrease in the provision for credit losses on lending-related commitments of $6 million.
Certain categories of noninterest expenses are highlighted in the table below. Customer services expense varies from period-to-period due to changes in the level of noninterest-bearing deposits in the Financial Services Division, the earnings credit allowance provided on these deposits and a competitive environment.
(in millions) 3rd Qtr '06 2nd Qtr '06 3rd Qtr '05
Salaries
Salaries - regular $157 $153 $148
Incentives 32 30 42
Share-based compensation 13 14 11
Total salaries 202 197 201
Employee benefits - pension
expense 10 7 8
Customer services 11 9 29
Provision for credit losses on
lending-related commitments (5) 1 (1)
Other noninterest expenses
Interest on tax liabilities 2 (6) 3
Munder Sale Expected to Close by Year-End
On August 4, 2006, Comerica announced it had reached a definitive agreement to sell its stake in Munder to an investor group. Completion of the closing, which is currently anticipated for late 2006, is subject to certain regulatory and third party approvals and the satisfaction of other customary conditions.
Comerica expects it will recognize an initial after-tax gain from the sale of Munder in the range of $100 million to $110 million upon closing. Effective with the third quarter 2006, Comerica is accounting for Munder as a discontinued operation, which means the after-tax earnings of Munder are reported as a single item at the bottom of the income statements. All periods presented have been restated to reflect this change.
Credit Quality Remained Excellent with Charge-offs at Historically Low Level
"Credit quality continues to be excellent, particularly in the West and Texas," said Babb. "Net credit-related charge-offs remained very low, at 6 basis points of average total loans. We are fully aware of the issues facing the automotive and real estate segments, and we believe we have reflected that awareness in our loss reserves."
During the third quarter 2006, $39 million of loans greater than $2 million were transferred to nonaccrual status, a decrease of $12 million from the second quarter 2006. The total provision for credit losses exceeded net credit-related charge-offs, reflecting trends in the automotive and real estate segments. While nonperforming assets increased by five basis points of total loans compared to the second quarter 2006, they remained at the low level of 42 basis points of total loans.
(dollar amounts in millions) 3rd Qtr '06 2nd Qtr '06 3rd Qtr '05
Net loan charge-offs $3 $18 $21
Net lending-related commitment
charge-offs 5 1 -
Total net credit-related
charge-offs 8 19 21
Net loan charge-offs/Average
total loans 0.02 % 0.15 % 0.18 %
Net credit-related charge-offs/
Average total loans 0.06 0.16 0.18
Provision for loan losses $15 $27 $(30)
Provision for credit losses
on lending-related commitments (5) 1 (1)
Total provision for credit losses 10 28 (31)
Nonperforming assets (NPAs) 197 174 220
NPAs/Total loans & other real estate 0.42 % 0.37 % 0.52 %
Allowance for loan losses $493 $481 $558
Allowance for credit losses on
lending-related commitments* 31 41 14
Total allowance for credit losses 524 522 572
Allowance for loan losses/Total loans 1.06 % 1.04 % 1.33 %
Allowance for loan losses/NPAs 251 278 253
*Included in "Accrued expenses and other liabilities" on the consolidated balance sheets
Balance Sheet and Capital Management
Total assets and common shareholders' equity were $58.5 billion and $5.2 billion, respectively, at September 30, 2006, compared to $57.1 billion and $5.2 billion, respectively, at June 30, 2006. There were approximately 159 million shares outstanding at September 30, 2006, compared to 162 million shares outstanding at June 30, 2006. Open market share repurchases for the current and prior quarter are shown in the following table:
3rd Qtr '06 2nd Qtr '06
Number Number
(in millions) of Shares Amount of Shares Amount
Open market share repurchases 3.7 $210 - $-
In anticipation of a potential announcement of a Munder sale, Comerica did not repurchase shares in the second quarter 2006.
Comerica's third quarter 2006 estimated tier 1 common, tier 1 and total risk-based capital ratios were 7.49 percent, 8.05 percent and 11.26 percent, respectively.
Full Year 2006 Outlook Compared to Full Year 2005 For Continuing Operations
* High-single digit average loan growth excluding FSD loans * Average full year net interest margin of about 3.80 percent
* Credit-related net charge-offs of about 15 basis points of average loans and, for the remainder of 2006, a provision for credit losses in excess of credit-related net charge-offs
* Stable noninterest income, excluding net gain on sales of businesses
* Low-single digit noninterest expense growth, excluding the provision for credit losses on lending-related commitments (included in above outlook for the provision for credit losses)
* Active capital management Business Segments
Comerica's continuing operations are strategically aligned into three major business segments: the Business Bank, the Retail Bank, 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 methodologies in effect at September 30, 2006 and are presented on a fully taxable equivalent (FTE) basis. The accompanying narrative addresses third quarter 2006 results compared to second quarter 2006.
The following table presents net income (loss) by business segment.
(dollar amounts in millions) 3rd Qtr '06 2nd Qtr '06 3rd Qtr '05
Business Bank $145 74 % $140 73 % $194 76 %
Retail Bank 36 19 37 19 44 17
Wealth & Institutional
Management 15 7 16 8 18 7
196 100 % 193 100 % 256 100 %
Finance (5) (7) (20)
Other* 9 14 2
Total $200 $200 $238
* Includes discontinued operations and items not directly associated with the three major business segments or the Finance Division
Business Bank (dollar amounts in millions) 3rd Qtr '06 2nd Qtr '06 3rd Qtr '05 Net interest income (FTE) $332 $333 $368 Provision for loan losses 15 22 (34) Noninterest income 55 71 72 Noninterest expenses 166 177 184 Net income 145 140 194 Net loan charge-offs (3) 11 16 Selected average balances: Assets 39,722 39,401 36,506 Loans 38,473 38,175 35,273 Deposits 17,183 17,931 20,877 Net interest margin 3.41 % 3.48 % 4.17 %
* The net interest margin of 3.41 percent decreased seven basis points, primarily due to lower noninterest-bearing deposits in the Financial Services Division, a change in the deposit mix, and competitive loan pricing, partially offset by a decrease in Financial Services Division loans (primarily low- rate).
* Average loans increased $298 million, or three percent on an annualized basis. Excluding the Financial Services Division and the seasonably slow National Dealer Services business, average loans increased $952 million, or nine percent on an annualized basis, primarily due to growth in the Middle Market, Global Corporate Banking, and Commercial Real Estate businesses.
* Average deposits increased $252 million, excluding the $1.0 billion deposit decline in the Financial Services Division.
* The provision for loan losses declined $7 million, primarily due to lower net loan charge-offs.
* Noninterest income decreased $16 million, primarily due to a $9 million decline in warrant income and an incremental loss of $7 million on the sale of the Mexican bank charter.
* Noninterest expenses decreased $11 million, primarily due to a decrease in the provision for credit losses on lending-related commitments.
Retail Bank (dollar amounts in millions) 3rd Qtr '06 2nd Qtr '06 3rd Qtr '05 Net interest income (FTE) $160 $161 $153 Provision for loan losses 6 7 - Noninterest income 53 54 54 Noninterest expenses 153 152 139 Net income 36 37 44 Net loan charge-offs 6 8 7 Selected average balances: Assets 6,741 6,730 6,559 Loans 6,037 6,034 5,862 Deposits 16,742 16,742 16,774 Net interest margin 3.80 % 3.86 % 3.66 %
* The net interest margin of 3.80 percent decreased six basis points, primarily due to interest received on a nonaccrual loan in the second quarter 2006.
* Average loans and deposits were relatively unchanged.
* The provision for loan losses decreased $1 million, primarily due to lower net loan charge-offs.
* Opened seven new banking centers in growth markets in the third quarter 2006 and 14 year-to-date through September 30.
Wealth and Institutional Management (dollar amounts in millions) 3rd Qtr '06 2nd Qtr '06 3rd Qtr '05 Net interest income (FTE) $37 $38 $38 Provision for loan losses - (1) (4) Noninterest income 65 66 65 Noninterest expenses 80 80 78 Net income 15 16 18 Net loan charge-offs - - (3) Selected average balances: Assets 3,714 3,670 3,577 Loans 3,577 3,530 3,422 Deposits 2,327 2,491 2,550 Net interest margin 4.13 % 4.30 % 4.43 %
* The net interest margin of 4.13 percent decreased 17 basis points, primarily due to lower deposit balances.
* Average loans increased $47 million, or five percent on an annualized basis.
* Average deposits declined $164 million. 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 based on methodologies in effect at September 30, 2006 and are presented on a FTE basis. The accompanying narrative addresses third quarter 2006 results compared to second quarter 2006.
The following table presents net income (loss) by market segment.
(dollar amounts in millions) 3rd Qtr '06 2nd Qtr '06 3rd Qtr '05
Midwest & Other Markets $111 57 % $108 56 % $124 48 %
Western 56 29 64 33 108 42
Texas 22 11 20 10 17 7
Florida 7 3 1 1 7 3
196 100 % 193 100 % 256 100 %
Finance & Other* 4 7 (18)
Total $200 $200 $238
* Includes discontinued operations and items not directly associated with the four primary geographic markets
Midwest and Other Markets (dollar amounts in millions) 3rd Qtr '06 2nd Qtr '06 3rd Qtr '05 Net interest income (FTE) $274 $275 $273 Provision for loan losses 21 21 10 Noninterest income 127 135 139 Noninterest expenses 228 237 224 Net income 111 108 124 Net loan charge-offs 1 15 23 Selected average balances: Assets 25,286 25,189 25,089 Loans 24,043 23,989 23,826 Deposits 18,243 18,271 18,857 Net interest margin 4.49 % 4.57 % 4.55 %
* The net interest margin of 4.49 percent decreased 8 basis points due to a decline in both loan and deposit spreads.
* Average loans increased $54 million, or one percent on an annualized basis.
* Noninterest income decreased $8 million, primarily due to an incremental loss of $7 million on the sale of the Mexican bank charter.
* Noninterest expenses decreased $9 million, primarily due to a decrease in the provision for credit losses on lending-related commitments.
Western Market (dollar amounts in millions) 3rd Qtr '06 2nd Qtr '06 3rd Qtr '05 Net interest income (FTE) $176 $180 $215 Provision for loan losses 4 2 (50) Noninterest income 23 34 29 Noninterest expenses 108 110 122 Net income 56 64 108 Net loan charge-offs - 3 (2) Selected average balances: Assets 16,557 16,644 14,853 Loans 16,000 16,067 14,227 FSD loans 2,093 2,557 2,334 Deposits 14,005 14,898 17,415 FSD deposits 5,408 6,449 8,863 Net interest margin 4.37 % 4.48 % 4.94 %
* The net interest margin of 4.37 percent declined 11 basis points, primarily due to lower noninterest-bearing deposits in the Financial Services Division, a change in the deposit mix, and competitive loan pricing, partially offset by a decrease in Financial Services Division loans (primarily low- rate).
* Average loans decreased $67 million, or two percent on an annualized basis. Excluding the Financial Services Division, average loans increased $397 million, or 12 percent on an annualized basis, primarily due to growth in the Global Corporate Banking, Middle Market, and Commercial Real Estate businesses.
* Average deposits decreased $893 million. Excluding the Financial Services Division, deposits increased $148 million, or seven percent on an annualized basis. Financial Services Division deposits decreased $1.0 billion.
* Noninterest income decreased $11 million, primarily due to a $9 million decline in warrant income.
Texas Market (dollar amounts in millions) 3rd Qtr '06 2nd Qtr '06 3rd Qtr '05 Net interest income (FTE) $67 $65 $60 Provision for loan losses (1) - 6 Noninterest income 19 19 20 Noninterest expenses 54 54 48 Net income 22 20 17 Net loan charge-offs 2 1 (1) Selected average balances: Assets 6,475 6,113 5,254 Loans 6,202 5,849 5,069 Deposits 3,691 3,683 3,611 Net interest margin 4.28 % 4.44 % 4.78 %
* The net interest margin of 4.28 percent decreased 16 basis points, primarily due to loan spread compression and a change in the deposit mix.
* Net interest income increased $2 million, primarily due to an increase in average loans.
* Average loans increased $353 million, or 24 percent on an annualized basis, primarily due to growth in the Energy Lending, Middle Market, and Commercial Real Estate businesses.
Florida Market (dollar amounts in millions) 3rd Qtr '06 2nd Qtr '06 3rd Qtr '05 Net interest income (FTE) $12 $12 $11 Provision for loan losses (3) 5 (4) Noninterest income 4 3 3 Noninterest expenses 9 8 7 Net income 7 1 7 Net loan charge-offs - - 1 Selected average balances: Assets 1,859 1,855 1,446 Loans 1,842 1,834 1,435 Deposits 313 312 318 Net interest margin 2.63 % 2.62 % 3.19 %
* The provision for loan losses decreased $8 million, primarily due to a decline in the credit quality of a specific customer in the second quarter 2006.
Conference Call and Webcast
Comerica will host a conference call to review third quarter 2006 financial results at 8 a.m. ET Thursday, October 19, 2006. Interested parties may access the conference call by calling (706) 679-5261 (event ID No. 6946724). The call and supplemental financial information can also be accessed on the Internet at http://www.comerica.com/ . A replay will be available approximately two hours following the conference call for a period of one year. The conference call replay can be accessed by calling (800) 642-1687 or (706) 645-9291 (event ID No. 6946724). 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, the Retail Bank, and Wealth & Institutional Management. Comerica focuses on relationships and helping businesses and people to be successful. Comerica Bank locations can be found in Michigan, California, Texas, Florida and Arizona, with select businesses operating in several other states, and Canada and Mexico.
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 disruption of private or public utilities, 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.
CONTACT: Media Contact: Wayne J. Mielke, +1-313-222-4732, Investor
Contacts: Darlene P. Persons, +1-313-222-2840, Paul Jaremski, +1-313-222-6317,
all of Comerica Incorporated
