DETROIT, July 20 /PRNewswire-FirstCall/ -- Comerica Incorporated (NYSE: CMA) today reported second quarter 2006 earnings of $200 million, or $1.22 per diluted share, compared to $194 million, or $1.18 per diluted share, for the first quarter 2006 and $217 million, or $1.28 per diluted share, for the second quarter 2005.
(Logo: http://www.newscom.com/cgi-bin/prnh/20010807/CMALOGO ) (dollar amounts in millions, except per share data) 2nd Qtr '06 1st Qtr '06 2nd Qtr '05 Net interest income $502 $479 $483 Provision for loan losses 27 (27) 2 Noninterest income 225 215 219 Noninterest expenses Provision for credit losses on lending-related commitments 1 13 (3) Noninterest expenses - other 404 436 386 Total noninterest expenses 405 449 383 Provision for income taxes 95 70 100 Income before cumulative effect of change in accounting principle 200 202 217 Cumulative effect of change in accounting principle, net of tax - (8) - Net income 200 194 217 Diluted EPS before cumulative effect of change in accounting principle 1.22 1.23 1.28 Diluted EPS 1.22 1.18 1.28 Return on average common shareholders' equity 15.50 % 15.33 % 16.99 % Net interest margin 3.83 3.80 4.09
"The second quarter was a solid one for Comerica, with financial results that reflect the successful execution of our strategy," said Ralph W. Babb Jr., chairman and chief executive officer. "Revenue increased, primarily as a result of accelerated loan growth in our fastest growing markets, Texas and the West. We continue to invest in banking centers and people in those markets to bring greater geographic balance to our operations. In the second quarter, we continued to control expenses and our net interest margin was stable."
Second Quarter and Six-Month 2006 Highlights
Second Quarter 2006 Compared to First Quarter 2006
-- Total revenue increased $33 million, or 5 percent over the first
quarter 2006, and $25 million, or 4 percent, over the second quarter
2005.
-- On an annualized basis, average loans increased 15 percent, an
accelerated pace from the first quarter, with growth in all geographic
markets including 21 percent in the Western market, 34 percent in the
Texas market and 5 percent in Midwest & Other Markets (growth rates
exclude Financial Services Division loans).
-- The net interest margin was 3.83 percent in the second quarter 2006, up
from 3.80 percent in the first quarter 2006.
-- Credit quality remained strong, with net loan charge-offs at 15 basis
points for the second quarter of 2006, virtually unchanged from the
first quarter of 2006.
-- Noninterest expenses decreased $44 million from the first quarter 2006,
which included a tax-related item.
-- Early in the second quarter 2006, Comerica began to explore the
possibility of a sale of its stake in Munder Capital Management, an
investment services affiliate.
First Six Months of 2006 compared to First Six Months of 2005
-- Total revenue grew 4 percent. Average loan growth was 7 percent,
excluding Financial Services Division loans, with 14 percent growth in
the Western market, 15 percent growth in the Texas market and one
percent growth in Midwest & Other Markets.
-- Net loan charge-offs were at 15 basis points for the first six months
of 2006, down from 31 basis points in the same period in 2005.
Nonperforming assets were down 29 percent to $174 million at June 30,
2006, compared to $246 million at June 30, 2005.
-- Noninterest expenses increased 13 percent, more than half of which was
related to interest on tax liabilities ($15 million), share-based
compensation ($15 million) and credit-related costs ($24 million).
-- Earnings per diluted share, before the cumulative effect of a change in
accounting principle ($0.05) in 2006, were $2.45, compared to $2.44 in
2005.
Net Interest Income
Net interest income was $502 million for the second quarter 2006, compared to $479 million for the first quarter 2006 and $483 million for the second quarter 2005. The $23 million increase in net interest income from the first quarter 2006 level resulted principally from earning asset growth and the impact of one more day ($5 million) in the second quarter 2006. Average earning assets of $52.4 billion for the second quarter 2006 increased $1.4 billion from the first quarter 2006, primarily the result of a $1.3 billion increase in average loans to $47.8 billion for the second quarter 2006. Average Financial Services Division loans (primarily low-rate) declined $352 million. Average deposits of $42.0 billion for the second quarter 2006 increased $823 million from the first quarter 2006. Total average noninterest-bearing deposits of $13.6 billion remained consistent with first quarter 2006 levels. Average Financial Services Division noninterest-bearing deposits increased $110 million to $4.8 billion in the second quarter 2006, compared to the first quarter 2006.
The net interest margin was 3.83 percent in the second quarter 2006, compared to 3.80 percent in the first quarter 2006 and 4.09 percent in the second quarter 2005. When compared to the first quarter 2006, the second quarter 2006 net interest margin was positively impacted by lower average Financial Services Division loans (primarily low-rate) and a higher benefit from noninterest-bearing sources of funds, partially offset by competitive loan pricing and the margin impact of loan growth in excess of deposit growth.
Noninterest Income
Noninterest income was $225 million for the second quarter 2006, compared to $215 million for the first quarter 2006 and $219 million for the second quarter 2005. Most categories of noninterest income were stable in the second quarter 2006, with increases generated from investment advisory revenue and card fees. Certain categories of noninterest income are highlighted in the table below.
(in millions) 2nd Qtr'06 1st Qtr'06 2nd Qtr'05
Other noninterest income
Impairment on assets held-for-sale $- $(5) $-
Income (net of write-downs) from
unconsolidated venture capital
and private equity investments - 2 (5)
Risk management hedge
ineffectiveness (1) (2) 5
Noninterest Expenses
Noninterest expenses were $405 million for the second quarter 2006, compared to $449 million for the first quarter 2006 and $383 million for the second quarter 2005. The decrease in noninterest expenses from the first quarter 2006 was primarily the result of lower credit-related costs, including the provision for credit losses on lending-related commitments and other real estate expenses ($15 million), share-based compensation expense ($5 million), pension expense ($5 million), and customer services expense ($4 million). These decreases were partially offset by an increase in regular salaries and incentives expenses ($9 million). The change in noninterest expenses caused by interest on tax liabilities is explained below.
Certain categories of noninterest expenses are highlighted in the table below. 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, the earnings credit allowance provided on these deposits, and a competitive environment.
(in millions) 2nd Qtr '06 1st Qtr '06 2nd Qtr '05
Salaries
Salaries - regular $158 $155 $148
Severance 1 1 1
Incentives 35 29 35
Share-based compensation 16 21 13
Total salaries 210 206 197
Employee benefits - pension expense 7 12 8
Customer services 9 13 10
Provision for credit losses on
lending-related commitments 1 13 (3)
Other noninterest expenses
Interest on tax liabilities (6) 26 3
Charitable contributions - 1 -
Other real estate expense 1 4 1
Tax-Related Items
The second quarter 2006 interest on tax liabilities (included in noninterest expenses) was reduced by $6 million due to the settlement of various refund claims with the Internal Revenue Service. In the first quarter 2006, the previously reported completion of the examination of the Corporation's federal tax returns for the years 1996 through 2000 and an updated assessment of reserves resulted in a decrease in federal taxes of $16 million and an increase in interest on tax liabilities of $23 million (included in noninterest expenses).
Credit Quality
"Credit quality remained solid in the second quarter as our metrics reflected the continued stability and good performance of our loan portfolio," said Babb.
(dollar amounts in millions) 2nd Qtr'06 1st Qtr'06 2nd Qtr'05
Net loan charge-offs $18 $17 $29
Net lending-related commitment
charge-offs 1 5 -
Total net credit-related charge-offs 19 22 29
Net loan charge-offs/Average total
loans 0.15 % 0.14 % 0.27 %
Provision for loan losses $27 $(27) $2
Provision for credit losses on
lending-related commitments 1 13 (3)
Total provision for credit losses 28 (14) (1)
Nonperforming assets (NPAs) 174 141 246
NPAs/Total loans & other real estate 0.37 % 0.32 % 0.57 %
Allowance for loan losses $481 $472 $609
Allowance for credit losses on
lending-related commitments* 41 41 15
Total allowance for credit losses 522 513 624
Allowance for loan losses/Total
loans 1.04 % 1.06 % 1.41 %
Allowance for loan losses/NPAs 278 334 248
*Included in "Accrued expenses and other liabilities" on the
consolidated balance sheets
During the second quarter 2006, $51 million of loans greater than $2 million were transferred to nonaccrual status, an increase of $31 million from the first quarter 2006. Nonperforming assets were $174 million at June 30, 2006, an increase of $33 million from March 31, 2006.
Potential Sale of Munder Capital Management
Comerica is considering the sale of its stake in Munder Capital Management, which provides investment advisory services to institutions, municipalities, unions, charitable organizations and private investors, and also serves as investment advisor for Munder Funds. Comerica has retained Morgan Stanley and Co., Incorporated to act as financial advisor. There is no assurance that a transaction will occur. As of June 30, 2006, Munder Capital Management had approximately $41 billion in total assets under management. These assets include $9.1 billion in actively managed equity securities; $6.3 billion in fixed income securities; $9.7 billion in cash management assets; and $15.9 billion in index assets. Munder's contribution to Comerica's pre-tax income was $8 million for the first six months of 2006, which excludes the $12 million pre-tax cumulative effect of adopting Statement of Financial Accounting Standards (SFAS) No. 123 ®, related to the accounting for options and restricted shares of Munder. Munder's contribution to Comerica's pre-tax income for 2005 was $18 million, which excludes the $53 million pre-tax gain on the sale of its interest in Framlington Group Limited. Comerica intends to use the proceeds from any sale of Munder to advance its strategy of investing in growth markets and businesses, and to repurchase shares. In anticipation of a potential transaction, Comerica ceased repurchasing its stock during the second quarter. Comerica will be resuming its share repurchase program.
Balance Sheet and Capital Management
Total assets and common shareholders' equity were $57.1 billion and $5.2 billion, respectively, at June 30, 2006, compared to $56.4 billion and $5.1 billion, respectively, at March 31, 2006. There were approximately 162 million shares outstanding at both June 30, 2006 and March 31, 2006. Comerica's second quarter 2006 estimated tier 1 common, tier 1 and total risk-based capital ratios were 7.69 percent, 8.26 percent and 11.55 percent, respectively.
Full Year 2006 Outlook
High-single digit average loan growth excluding Financial Services Division loans
-- Average full year net interest margin of about 3.80 percent
-- Credit-related net charge-offs of 15 to 20 basis points of average
loans and, for the remainder of 2006, a provision for credit losses
slightly in excess of credit-related net charge-offs
-- Low-single digit noninterest income growth, 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 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 June 30, 2006 and are presented on a fully taxable equivalent (FTE) basis.
The following table presents net income (loss) by business segment.
(dollar amounts in millions) 2nd Qtr '06 1st Qtr '06 2nd Qtr '05
Business Bank $140 71 % $144 77 % $169 72 %
Retail Bank 37 19 36 19 50 21
Wealth & Institutional
Management 20 10 8 4 17 7
197 100 % 188 100 % 236 100 %
Finance (7) (3) (18)
Other* 10 9 (1)
Total $200 $194 $217
* Includes items not directly associated with the three major business
segments or the Finance Division
Net income for the Business Bank was $140 million for the second quarter 2006, compared to $144 million for the first quarter 2006. Net interest income (FTE) of $333 million in the second quarter 2006 increased $19 million from the first quarter 2006, primarily due to an increase in loan balances and deposit spreads and the impact of one more day in the second quarter. Average loans of $38.2 billion in the second quarter increased $1.3 billion, or 14 percent on an annualized basis, compared to the first quarter 2006, primarily due to increases in the Middle Market, Commercial Real Estate, and National Dealer Services businesses. Average deposits of $17.9 billion in the second quarter 2006 decreased $1.0 billion, compared to the first quarter 2006, with a majority of the decrease in interest-bearing deposits in the Financial Services Division and Global Corporate Banking deposits. The net interest margin increased three basis points to 3.48 percent for the second quarter 2006, compared to the first quarter 2006. The provision for loan losses increased $35 million, due to loan growth and stable credit quality trends. Noninterest income of $71 million in the second quarter 2006 increased $8 million from the first quarter 2006, primarily due to an increase in warrant income and a $5 million impairment charge on assets held-for-sale recorded in the first quarter 2006. Second quarter 2006 noninterest expenses of $177 million decreased $10 million from the first quarter 2006, primarily due to decreases in the provision for credit losses on lending-related commitments and customer services expense.
Net Income for the Retail Bank was $37 million for the second quarter 2006, compared to $36 million for the first quarter 2006. Net interest income (FTE) of $161 million in the second quarter 2006 increased $6 million compared to the first quarter 2006, primarily due to an increase in deposit spreads, as second quarter 2006 loan and deposit balances were relatively unchanged compared to the first quarter 2006. The net interest margin increased 11 basis points to 3.86 percent for the second quarter 2006, compared to the first quarter 2006. The provision for loan losses increased $1 million, primarily due to higher charge-offs in the second quarter of 2006. Noninterest income of $54 million in the second quarter 2006 increased $4 million compared to the first quarter 2006. Noninterest expenses of $152 million in the second quarter 2006 increased $7 million from the first quarter 2006, due in part to increases in salaries and employee benefits, advertising, and other real estate expenses. Comerica opened four banking centers in the second quarter 2006 and seven year-to-date, and is on target to open 24 banking centers in 2006, 23 of which are in the fastest growing markets.
Net income for Wealth and Institutional Management was $20 million for the second quarter 2006, compared to $8 million for the first quarter 2006. Net interest income (FTE) of $39 million in the second quarter 2006 increased $1 million compared to the first quarter 2006. Second quarter 2006 average loans of $3.5 billion and average deposits of $2.5 billion were flat compared to the first quarter 2006. The second quarter 2006 net interest margin of 4.43 percent increased seven basis points compared to the first quarter 2006. The second quarter 2006 provision for loan losses decreased $1 million compared to the first quarter 2006. Second quarter 2006 noninterest income of $86 million increased $2 million from first quarter 2006, primarily due to an increase in investment advisory fees. Second quarter 2006 noninterest expenses of $95 million decreased $3 million compared to the first quarter 2006, in part due to a decrease in other real estate expenses. In addition, there was an $8 million, net of tax, transition adjustment related to the adoption of SFAS No. 123 ® recorded in the first quarter 2006 associated with Munder Capital Management.
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 June 30, 2006 and are presented on a FTE basis.
The following table presents net income (loss) by market segment.
(dollar amounts
in millions) 2nd Qtr '06 1st Qtr '06 2nd Qtr '05
Midwest & Other Markets $112 57 % $102 55 % $108 46 %
Western 64 32 61 32 94 40
Texas 20 10 21 11 30 12
Florida 1 1 4 2 4 2
197 100 % 188 100 % 236 100 %
Finance & Other* 3 6 (19)
Total $200 $194 $217
* Includes items not directly associated with the four primary geographic
markets
Net income for the Midwest and Other markets was $112 million in the second quarter 2006, compared to $102 million in the first quarter 2006. Net interest income (FTE) of $276 million in the second quarter 2006 increased $10 million from the first quarter 2006, primarily due to an increase in average loan balances and deposit spreads and the impact of one more day in the second quarter, partially offset by a decrease in deposit balances. Average loans of $24.0 billion in the second quarter 2006 increased $282 million, or five percent annualized, compared to the first quarter 2006. Average deposits of $18.3 billion in the second quarter 2006 decreased $395 million compared to the first quarter 2006. The net interest margin increased six basis points to 4.59 percent for the second quarter 2006, compared to the first quarter 2006. The provision for loan losses increased $22 million, primarily due to loan growth and a slight decrease in credit quality. Noninterest income of $155 million in the second quarter 2006 increased $8 million compared to the first quarter 2006, primarily due to an increase in investment advisory income and a $5 million impairment on assets held-for-sale recorded in the first quarter 2006. Noninterest expenses of $252 million in the second quarter 2006 decreased $11 million compared to the first quarter 2006, primarily due to decreases in the provision for credit losses on lending related commitments. In addition, there was an $8 million, net of tax, transition adjustment related to the adoption of SFAS No. 123 ® recorded in the first quarter 2006 associated with Munder Capital Management.
Net income for the Western market was $64 million for the second quarter 2006, compared to $61 million for the first quarter 2006. Net interest income (FTE) of $180 million in the second quarter 2006 increased $11 million from the first quarter 2006, primarily due to an increase in average loan balances and deposit spreads. Excluding the Financial Services Division, average loans of $13.5 billion in the second quarter 2006 increased $687 million, or 21 percent on an annualized basis, primarily due to increases in the Middle Market Banking, National Dealer Services, Commercial Real Estate and Global Corporate Banking businesses. Average deposits of $14.9 billion in the second quarter 2006 decreased $539 million compared to the first quarter 2006, primarily due to a decrease in interest-bearing deposits in the Financial Services Division. The second quarter 2006 net interest margin increased 15 basis points to 4.48 percent, primarily due to an increase in average demand deposits, a decrease in higher cost interest-bearing deposits, and a decrease in low interest rate loans in the Financial Services Division. The provision for loan losses increased $7 million, primarily due to loan growth, partially offset by credit quality improvements. Noninterest income of $34 million in the second quarter 2006 increased $6 million compared to the first quarter 2006, primarily due to an increase in warrant income. Second quarter 2006 noninterest expenses of $110 million increased $1 million from the first quarter 2006.
Net income for the Texas market was $20 million for the second quarter 2006, compared to $21 million for the first quarter 2006. Net interest income (FTE) of $65 million for the second quarter 2006 increased $4 million compared the first quarter 2006, primarily due to an increase in average loan balances and deposit spreads. Average loans of $5.8 billion in the second quarter 2006 increased $459 million, or 34 percent on an annualized basis, compared to the first quarter 2006, primarily due to increases in the Middle Market and Energy Lending businesses. Average deposits of $3.7 billion for the second quarter 2006 were flat compared to the first quarter. The net interest margin of 4.44 percent for the second quarter 2006 declined 11 basis points, compared to the first quarter 2006, as a result of a change in funding mix associated with rapid loan growth. The provision for loan losses increased $2 million, primarily due to loan growth, partially offset by credit quality improvements. Noninterest income of $19 million in the second quarter 2006 increased $1 million from the first quarter 2006. Noninterest expenses of $54 million in the second quarter 2006 increased $4 million compared to the first quarter 2006.
Net income for the Florida market was $1 million for the second quarter 2006 compared to $4 million for the first quarter 2006. Second quarter 2006 net interest income (FTE) of $12 million increased $1 million compared to the first quarter 2006. Second quarter 2006 average loans of $1.8 billion increased $231 million, compared to the first quarter 2006. Second quarter 2006 deposits of $312 million were flat compared to the first quarter 2006. The second quarter 2006 provision for loan losses increased $4 million primarily due to the decline in the credit quality of a specific customer. Second quarter 2006 noninterest income of $3 million decreased $1 million compared to the first quarter 2006. Noninterest expenses of $8 million were unchanged compared to the first quarter 2006.
Conference Call and Webcast
Comerica will host a conference call to review second quarter 2006 financial results at 8 a.m. ET Thursday, July 20, 2006. Interested parties may access the conference call by calling (706) 679-5261 (event ID No. 2081567). 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. 2081567). 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
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CONTACT: Media: Sharon R. McMurray, +1-313-222-4881, or Wayne J. Mielke,
+1-313-222-4732, or Investors: Paul E. Burdiss, +1-313-222-2840, or Paul
Jaremski, +1-313-222-6317, both of Comerica Incorporated
Web site: http://www.comerica.com/
