Ralph
W. Babb Jr.
Chairman and
Chief Executive Officer
I
am pleased to report to you
that the strategy we put in place two years ago is working. As a result of
our sharp focus on the six key drivers of that strategy – growth, balance,
relationships, risk management, accountability and diversity – and the
intense determination of our colleagues to help customers succeed, we demonstrated
solid financial performance in 2005.
We are expanding in growing markets in California, Texas, Arizona and Florida,
while maintaining our leadership position in Michigan. We continue to receive
high scores in customer satisfaction surveys for all of our lines of business.
We steadily improved our credit quality, continuing the positive trend that
began in 2004. And we ranked in the top 50 companies for diversity by DiversityInc
Magazine.
In 2005, we reported net income of $5.11 per diluted share, return on equity
of 16.90 percent and return on assets of 1.64 percent.
During 2005 we returned excess capital to our shareholders through our share
repurchase and dividend programs, with a total payout of 104 percent of earnings.
Comerica has increased its annual dividend for 37 consecutive years.
Here is a review of our progress on each of the key drivers of our strategy.
GROWTH
In 2006, we will complete
our three-year plan to open 50 new banking centers in strong growth markets,
primarily in Texas and our Western Market, which includes California and Arizona.
While we won’t be in every location, we’ll be in the right locations
to serve our target business, wealth management and retail customers.
By the end of 2005, we opened 35 new banking centers, including 17 in California,
10 in Texas, six in Michigan and two in Arizona. In Michigan, we also consolidated
some branches and refurbished others, as we continue to optimize our market-leading
position there.
Expanding and improving our access points for customers is one part of our
four-part strategy to grow The Retail Bank. The other parts include:
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Creating
national platforms to assure we provide consistent, superior customer
service and a strong product line in all of our markets; |
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Energizing
our sales efforts to enhance our customer relationships; and |
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Applying
technology to expand our capabilities to meet our customers’ financial
requirements quickly and efficiently. |
Skilled, experienced teams
of bankers who deliver on customer promise are critical to the success of
our Retail strategy.
The Business Bank is growing
steadily, particularly in Texas and California. We continue to develop new
products and services to enable our customers to be more efficient and to
help them grow. For example, we offer prepaid debit cards to our corporate
customers and to a number of states including Georgia, Utah and Virginia,
to help reduce the expense of disbursing payroll to employees.
We are also developing
a single web-based corporate banking portal through which business applications
will flow, providing our customers with the customized information and tools
they need to succeed. Called Comerica Business Connect, it’s a great
example of the kind of innovation that will help us meet the growing online
needs of our business customers.
And, we plan to open a
new office in Shanghai, China, to better assist U.S. businesses – especially
those in California – that are interested in building relationships
with the Chinese manufacturing and consumer markets.
In 2005, the Wealth &
Institutional Management Division underwent significant internal change to
prepare to take advantage of the untapped potential for its products and services
in our client base in all our markets.
A new organizational structure
was put in place, as well as new compensation plans to better align individual
and corporate success. Existing products were introduced to new markets, and
new products were developed, including two new Comerica Securities’
accounts, the Private Client Investment Management Account (PCIM) and Managed
Portfolio Solutions (MPS), to provide our customers with investment expertise
that is responsive to their needs.
By virtually any measure,
Munder Capital Management had an exceptional year in 2005. The relative performance
of the firm’s investment products exceeded their benchmarks nearly across
the board, with all of the firm’s diversified equity disciplines and
all bond styles besting their industry yardsticks for the year. This superior
investment performance is a primary reason for the firm’s significant
increases in sales and asset growth in both the retail and institutional market
groups in 2005.
BALANCE
To help us achieve consistent
growth through all phases of a business cycle, we are diversifying our earnings
mix by business segment and geographic market.
The markets outside of
the Midwest contributed approximately 46 percent of the net income from our
geographic markets for 2005, and our strategy is to continue to grow that
number.
Today, Comerica operates
in seven of the 11 largest cities in the United States: Los Angeles, Houston,
Phoenix, San Diego, Dallas, San Jose and Detroit. According to U.S. Census
Bureau projections, two-thirds of all Americans will live in the southern
and western United States by 2030, with 30 percent in just three states –
California, Texas and Florida.
The market diversification
strategy put in place more than 10 years ago is working. As states’
economies fluctuate, this strategy helps to balance the impact of an economy
that is not performing as well as others.
We’re also making
the investments necessary to balance our net income by line of business. For
2005, The Retail Bank and Wealth & Institutional Management segments provided
29 percent of the net income from our business segments. We want to grow that
percentage by cross-selling our personal and wealth management products and
services to our existing customers, particularly our business customers, as
well as by developing new customer relationships.
RELATIONSHIPS
This is our competitive
edge, our core strength. Colleagues in all three divisions – The Business
Bank, The Retail Bank, and Wealth & Institutional Management – are
focused on building and enhancing relationships with customers. And they’re
doing it right: according to customer satisfaction survey scores in all of
our lines of business, our ability to build and retain customer relationships
is high.
Customers appreciate the
fact that we are offering the products and capabilities of a large bank with
the service of a community bank. They appreciate the accessibility of our
officers and their long tenure at Comerica. Our customers tell us we are professional,
and we inspire their trust and confidence.
This is the culture we
take with us when we enter new markets.
RISK
MANAGEMENT
The five “pillars”
of risk are credit, market and liquidity, operational, compliance, and business
risk, the last of which is made up of reputational and strategic risk. In
2005, there were a number of significant accomplishments related to risk management.
For example, our credit
quality was at an historically strong level, as measured by any metric.
We developed a number
of processes that will protect Comerica and its customers: Third-Party Risk,
which helps colleagues working with outside vendors identify and monitor the
risks involved in those business relationships; Anti-Money Laundering, to
ensure that we have strong anti-money laundering procedures in place to meet
or exceed regulatory agency expectations; and Privacy, to ensure that all
colleagues understand the requirements of privacy and consumer protection
laws.
ACCOUNTABILITY
Because execution is one
of the most important components of any business model, we are continually
developing and updating the metrics by which we measure our results and hold
ourselves accountable.
Each division has specific
scorecards to monitor and evaluate the quantity and quality of customer interaction,
to ensure that we accurately assess the customers’ needs and recommend
the most appropriate product or service.
For example, when we
embarked on our three-year plan to open new banking centers in high-growth
markets, we strengthened our metrics around site selection, deposit tracking
and profitability reporting.
We also expanded our
financial reporting this year so that shareholders and others can now see
the contributions to Comerica’s net income from our primary geographic
markets in addition to our three major business segments.
DIVERSITY
We take diversity seriously
here at Comerica. Our goals are to:
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establish
Comerica as a leader in diversity and work life practices |
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position
Comerica as the partner of choice for our multicultural constituencies |
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hire,
retain and develop a diverse work force |
For the first time, Comerica
ranked in DiversityInc’s “Top 50 Companies for Diversity.”
We were 34th in the survey, the only national ranking of its kind, and considered
the most in-depth empirical analysis of corporate diversity management and
planning. Companies were evaluated based on their commitment to diversity
in a number of areas including corporate leadership commitment, corporate
communications and supplier diversity, among others.
The solid financial performance
we reported for 2005 is the result of our successful execution of our strategy.
We’ve charted a course for Comerica, and we’re investing in the
people, products, technology and new banking centers that will enable us to
grow well into the future.
Ralph W. Babb Jr.
Chairman and Chief Executive Officer
