-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, QFRE+OZwxsUuQpTqe4li1MUNg0uxUDoDwgd0PMazftgku6rTaaR0/wRvj+gp1g1u +fUX/piWUSDAML+VGlM/wA== 0000028412-94-000025.txt : 19941116 0000028412-94-000025.hdr.sgml : 19941116 ACCESSION NUMBER: 0000028412-94-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMERICA INC /NEW/ CENTRAL INDEX KEY: 0000028412 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 381998421 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10706 FILM NUMBER: 94558916 BUSINESS ADDRESS: STREET 1: 100 RENAISCANCE CTR STREET 2: SUITE 3800 CITY: DETROIT STATE: MI ZIP: 48243 BUSINESS PHONE: 3132224000 MAIL ADDRESS: STREET 1: 411 W LAFAYETTE MAIL CODE 3415 STREET 2: ATTN: JAY K OBERG CITY: DETROIT STATE: MI ZIP: 48226 FORMER COMPANY: FORMER CONFORMED NAME: DETROITBANK CORP DATE OF NAME CHANGE: 19850311 10-Q 1 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-10706 Comerica Incorporated (Exact name of registrant as specified in its charter) Delaware 38-1998421 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Comerica Tower at Detroit Center Detroit, Michigan 48226 (Address of principal executive offices) (Zip Code) (313) 222-3300 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. $5 par value common stock: outstanding as of October 31, 1994: 117,596,000 shares 2 PART I. FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS Comerica Incorporated and Subsidiaries
Sept. 30, Dec. 31, Sept. 30, (In thousands, except per share data) 1994 1993 1993 ----------- ------------ ----------- ASSETS Cash and due from banks $ 1,410,911 $ 1,600,695 $ 1,407,581 Interest-bearing deposits with banks 275,361 1,026,473 905,408 Federal funds sold and securities purchased under agreements to resell 50,499 1,091,789 40,830 Trading account securities 8,473 3,600 10,413 Mortgages held for sale 108,565 330,667 230,470 Investment securities available for sale 3,047,713 2,322,101 - Investment securities held to maturity (estimated fair value of $4,864,287 at 9/30/94, $4,030,492 at 12/31/93 and $6,464,853 at 9/30/93) 5,081,797 3,977,450 6,320,251 ----------- ----------- ----------- Total investment securities 8,129,510 6,299,551 6,320,251 Commercial loans 9,787,241 9,086,757 8,828,146 International loans 1,167,371 1,135,585 1,056,125 Real estate construction loans 398,557 437,481 442,502 Commercial mortgage loans 3,008,809 2,699,861 2,629,013 Residential mortgage loans 2,289,889 1,856,822 1,937,542 Consumer loans 3,942,077 3,674,256 3,660,334 Lease financing 222,807 209,185 198,261 ----------- ----------- ----------- Total loans 20,816,751 19,099,947 18,751,923 Less allowance for loan losses (327,962) (298,685) (305,892) ----------- ----------- ----------- Net loans 20,488,789 18,801,262 18,446,031 Premises and equipment 440,254 399,123 384,686 Customers' liability on acceptances outstanding 38,502 38,212 41,807 Accrued income and other assets 852,725 703,501 682,459 ----------- ----------- ----------- TOTAL ASSETS $31,803,589 $30,294,873 $28,469,936 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits (noninterest- bearing) $ 4,617,674 $ 4,939,234 $ 4,501,769 Interest-bearing deposits 14,886,757 14,642,834 14,661,764 Deposits in foreign offices 820,265 1,367,811 1,030,869 ----------- ----------- ----------- Total deposits 20,324,696 20,949,879 20,194,402 Federal funds purchased and securities sold under agreements to repurchase 1,655,471 450,092 841,021 Other borrowed funds 3,528,471 4,950,507 3,681,190 Acceptances outstanding 38,502 38,212 41,807 Accrued expenses and other liabilities 268,353 263,969 234,919 Long-term debt 3,602,381 1,460,556 1,267,309 ----------- ----------- ----------- Total liabilities 29,417,874 28,113,215 26,260,648 Common stock - $5 par value: Authorized - 250,000,000 shares Issued-119,294,531 shares at 9/30/94, 119,294,531 shares at 12/31/93, and 120,081,660 shares at 9/30/93 596,473 596,473 600,408 Capital surplus 524,915 524,186 541,449 Unrealized gains/(losses) on investment securities available for sale (33,772) 27,473 - Retained earnings 1,331,379 1,155,280 1,097,941 Less cost of common stock in treasury-1,193,179 shares at 9/30/94, 4,423,603 shares at 12/31/93 and 1,033,466 shares at 9/30/93 (33,280) (121,754) (30,510) ----------- ----------- ----------- Total shareholders' equity 2,385,715 2,181,658 2,209,288 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $31,803,589 $30,294,873 $28,469,936 =========== =========== =========== /TABLE 3 CONSOLIDATED STATEMENTS OF INCOME Comerica Incorporated and Subsidiaries
Three Months Ended Nine Months Ended September 30 September 30 -------------------- ------------------------ (In thousands, except per share data) 1994 1993 1994 1993 -------- -------- ---------- ---------- INTEREST INCOME Interest and fees on loans $408,709 $349,516 $1,129,270 $1,038,193 Interest on investment securities: Taxable 117,805 68,229 327,425 227,544 Exempt from federal income tax 7,358 9,724 23,445 31,654 -------- -------- ---------- ---------- Total interest on investment securities 125,163 77,953 350,870 259,198 Trading account interest 52 72 (18) 412 Interest on federal funds sold and securities purchased under agreements to resell 642 1,077 4,095 3,403 Interest on time deposits with banks 3,646 6,402 17,204 19,988 Interest on mortgages held for sale 2,722 3,068 8,965 10,065 -------- -------- ---------- ---------- Total interest income 540,934 438,088 1,510,386 1,331,259 INTEREST EXPENSE Interest on deposits 141,129 128,469 389,231 404,019 Interest on short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 33,241 8,354 81,092 26,379 Other borrowed funds 16,880 13,276 60,894 31,643 Interest on long-term debt 41,741 15,613 89,418 44,795 Net interest rate swap income (5,056) (7,539) (28,093) (20,978) -------- -------- ---------- ---------- Total interest expense 227,935 158,173 592,542 485,858 -------- -------- ---------- ---------- Net interest income 312,999 279,915 917,844 845,401 Provision for loan losses 14,000 15,000 44,000 55,000 -------- -------- ---------- ---------- Net interest income after provision for loan losses 298,999 264,915 873,844 790,401 NONINTEREST INCOME Income from fiduciary activities 29,019 29,311 91,738 91,175 Service charges on deposit accounts 32,029 30,325 91,456 91,120 Customhouse broker fees 10,201 10,134 30,481 29,349 Revolving credit fees 10,200 9,195 28,557 26,003 Securities gains 1,581 526 2,363 1,567 Other noninterest income 33,608 30,523 99,415 91,986 -------- -------- ---------- ---------- Total noninterest income 116,638 110,014 344,010 331,200 NONINTEREST EXPENSES Salaries and employee benefits 138,456 133,118 406,407 403,213 Net occupancy expense 25,188 24,135 74,881 72,714 Equipment expense 16,313 15,714 49,570 46,090 FDIC insurance expense 11,106 10,758 33,129 33,699 Other noninterest expenses 72,052 70,096 215,711 205,832 -------- -------- ---------- ---------- Total noninterest expenses 263,115 253,821 779,698 761,548 -------- -------- ---------- ---------- Income before income taxes 152,522 121,108 438,156 360,053 Provision for income taxes 51,918 37,412 147,511 109,505 -------- -------- ---------- ---------- NET INCOME $100,604 $ 83,696 $ 290,645 $ 250,548 ======== ======== ========== ========== Net income applicable to common stock $100,604 $ 83,696 $ 290,645 $ 250,506 ======== ======== ========== ========== NET INCOME PER SHARE: Primary $.84 $.70 $2.46 $2.09 Fully diluted $.84 $.70 $2.46 $2.08 Primary average shares 119,436 120,080 118,148 120,079 Cash dividends declared $37,897 $33,291 $107,724 $93,284 Dividends per share $.32 $.28 $.92 $.79
4 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Comerica Incorporated and Subsidiaries
Redeemable Unrealized Total Preferred Common Capital Gains/ Retained Treasury Shareholders' (in thousands) Stock Stock Surplus (Losses) Earnings Stock Equity --------- --------- --------- ---------- ----------- -------- ------------ BALANCES AT JANUARY 1, 1993 $ 37,605 $ 309,219 $ 538,097 $ - $ 1,239,078 $ (28,862) $ 2,095,137 Net income for 1993 - - - - 250,548 - 250,548 Cash dividends declared: Preferred stock - - - - (42) - (42) Common stock - - - - (93,284) - (93,284) Purchase of 500,317 shares of common stock - - - - - (14,717) (14,717) Retirement of treasury stock - (170) - - (505) 675 - Issuance of common stock under employee stock plans and for conversion of debentures - 3,780 2,846 - (6,101) 12,394 12,919 Stock split - 287,579 - - (287,579) - - Amortization of deferred compensation - - 506 - - - 506 Redemption of preferred stock (37,605) - - - (4,174) - (41,779) -------- --------- --------- ---------- ----------- --------- ----------- BALANCES AT SEPT. 30, 1993 $ - $ 600,408 $ 541,449 $ - $ 1,097,941 $ (30,510) $ 2,209,288 ======== ========= ========= ========== =========== ========== =========== BALANCES AT JANUARY 1, 1994 $ - $ 596,473 $ 524,186 $ 27,473 $ 1,155,280 $(121,754) $ 2,181,658 Net income for 1994 - - - - 290,645 - 290,645 Cash dividends declared on common stock - - - - (107,724) - (107,724) Purchase of 1,601,164 shares of common stock - - - - - (43,892) (43,892) Issuance of common stock: Employee stock plans - - 318 - (2,964) 7,145 4,499 Acquisition of Pacific Western - - - - (3,858) 125,221 121,363 Amortization of deferred compensation - - 411 - - - 411 Change in unrealized gains/(losses) on investment securities available for sale - - - (61,245) - - (61,245) -------- --------- --------- ---------- ----------- --------- ----------- BALANCES AT SEPT. 30, 1994 $ - $ 596,473 $ 524,915 $ (33,772) $ 1,331,379 $ (33,280) $ 2,385,715 ======== ========= ========= ========== =========== ========== ===========
5 CONSOLIDATED STATEMENTS OF CASH FLOWS Comerica Incorporated and Subsidiaries
Nine Months Ended September 30 --------------------------- (in thousands) 1994 1993 ------------ ------------ OPERATING ACTIVITIES: Net income $ 290,645 $ 250,548 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 44,000 55,000 Depreciation 44,320 41,016 Net (increase) decrease in trading account securities (4,873) 98,966 Net decrease in mortgages held for sale 222,102 4,242 Net increase in accrued income receivable (26,289) (1,540) Net increase (decrease) in accrued expenses (20,113) 15,468 Net amortization of intangibles 21,277 28,470 Other, net (27,893) (92,405) ------------ ------------ Total adjustments 252,531 149,217 ------------ ------------ Net cash provided by operating activities 543,176 399,765 INVESTING ACTIVITIES: Net decrease in interest-bearing deposits with banks 751,112 416,107 Net decrease in federal funds sold and securities purchased under agreements to resell 1,041,290 45,802 Proceeds from sale of investment securities available for sale 1,509 - Proceeds from maturity of investment securities available for sale 455,785 - Purchases of investment securities available for sale (1,147,791) - Proceeds from maturity of investment securities held to maturity 1,249,296 2,246,289 Purchases of investment securities held to maturity (2,125,409) (3,332,236) Net increase in loans (other than purchased loans) (844,671) (563,591) Purchase of loans (227,192) (20,226) Fixed assets, net (65,452) (51,411) Net increase in customers' liability on acceptances outstanding (290) (16,143) Net cash provided by acquisitions 58,626 - ------------ ------------ Net cash used in investing activities (853,187) (1,275,409) FINANCING ACTIVITIES: Net decrease in deposits (1,802,852) (1,005,116) Net increase (decrease) in short-term borrowings (77,988) 1,300,502 Net decrease in acceptances outstanding 290 16,143 Proceeds from issuance of long-term debt 2,750,000 705,000 Repayments and purchases of long-term debt (608,175) (173,788) Proceeds from issuance of common stock and other capital transactions 4,910 8,329 Purchase of common stock for treasury (43,892) (14,717) Redemption of preferred stock - (41,779) Dividends paid (102,066) (91,091) ------------ ------------ Net cash provided by financing activities 120,227 703,483 ------------ ------------ Net decrease in cash and due from banks (189,784) (172,161) Cash and due from banks at beginning of year 1,600,695 1,579,742 ------------ ------------ Cash and due from banks at end of period $ 1,410,911 $ 1,407,581 ============ ============ Interest paid $ 597,862 $ 485,360 ============ ============ Income taxes paid $ 127,851 $ 85,512 ============ ============ Noncash investing and financing activities: Loan transfers to other real estate $ 12,241 $ 27,086 ============ ============ Conversion of debentures to equity $ - $ 5,095 ============ ============ Treasury stock issued for acquisition $ 121,363 $ - ============ ============ Loan transfer to investment securities $ 91,538 $ - ============ ============
6 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 1 - Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 1994 are not necessarily indicative of the results that may be expected for the year ended December 31, 1994. For further information, refer to the consolidated financial statements and footnotes thereto included in the Comerica Incorporated and Subsidiaries' annual report on Form 10-K for the year ended December 31, 1993. Note 2 - Investment Securities At September 30, 1994 investment securities having a carrying value of $6,175,807,000 were pledged where permitted or required by law to secure liabilities and public and other deposits including deposits of the State of Michigan of $34,738,000. 7 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 3 - Allowance for Loan Losses The following analyzes the changes in the allowance for loan losses included in the consolidated balance sheets:
1994 1993 (in thousands) --------- --------- Balance at January 1 $ 298,685 $ 308,007 Allowance acquired 19,467 - Loans charged off (60,863) (81,193) Recoveries on loans previously charged off 26,673 24,078 --------- --------- Net loans charged off (34,190) (57,115) Provision for loan losses 44,000 55,000 --------- --------- Balance at September 30 $ 327,962 $ 305,892 ========= =========
Note 4 - Long-term Debt Long-term debt consisted of the following at September 30, 1994 and December 31, 1993:
(in thousands) Sept. 30, 1994 Dec. 31, 1993 -------------- ----------------- 9.75% subordinated notes due 1999 $ 74,579 $ 74,511 10.125% subordinated debentures due 1998 74,701 74,641 ---------- ---------- Total Parent Company 149,280 149,152 8.375% subordinated notes due 2024 147,690 - 7.25% subordinated notes due 2002 148,738 148,619 Medium-term fixed rate notes bearing interest at rates ranging from 3.35% to 5.95% and maturing on dates ranging from 1994 through 1997 2,898,785 904,285 6.875% subordinated notes due 2008 98,970 98,913 7.125% subordinated notes due 2013 147,862 147,779 FDIC subordinated note due 1994 to 1995 9,000 8,941 Notes payable bearing interest at rates ranging from 6.29% to 13% and maturing on dates ranging from 1994 through 1996 2,056 2,867 ---------- ---------- Total Subsidiaries 3,453,101 1,311,404 ---------- ---------- Total Comerica Incorporated $3,602,381 $1,460,556 ========== ==========
8 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 5 - Income Taxes The provision for income taxes is computed by applying statutory federal income tax rates to income before income taxes as reported in the financial statements after deducting non-taxable items, principally interest income on state and municipal securities. 9 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Derivatives The Corporation utilizes various types of derivative products, primarily interest rate swaps, to manage the interest rate, currency and other market risks associated with assets and liabilities. The Corporation's use of derivatives takes place predominately in the interest rate markets and involves the use of forwards, futures, swaps, caps, floors and options. Corporate Policy allows only diminutive authority limits for trading derivatives and, therefore, related notional values and gains and losses are insignificant. The notional, or contractual, amounts of the Corporation's off- balance-sheet derivative instrument portfolio are not indicative of the potential for gain or loss on such positions. Likewise, notional amounts do not represent the credit or market risks of the positions held. Credit risk is measured as the cost of replacing, at current market rates, contracts in an unrealized gain position. In order to minimize credit risk exposure, the Corporation evaluates the creditworthiness of all off- balance-sheet counterparties adhering to the same standards used in other credit transactions. In addition, Bilateral Collateral Agreements are in place with a substantial number of counterparties in order to minimize credit risk exposure and secure amounts due. At September 30, 1994 and December 31, 1993, the replacement cost of uncollaterized off-balance- sheet derivatives in an unrealized gain position approximated $12 million and $66 million, respectively. All of the Corporation's derivative contracts, excluding futures contracts which are exchange-traded, have been transacted with either major investment banks or commercial banks, resulting in some degree of liquidity. Since the Corporation uses derivatives to alter the interest and foreign exchange rate characteristics of underlying assets and liabilities, termination of a contract would be an unlikely event, and the Corporation always has the option of offsetting a contract with an opposite effect derivative product. 10 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Derivatives (Continued) Summary information with respect to the Corporation's off-balance- sheet derivative activity follows:
Nine Months Ended Year Ended September 30, December 31, (in millions) 1994 1993 ------------ ------------ Notional balance at beginning of period $ 4,414 $ 3,025 Additions 35,816 51,622 Maturities/Amortizations (35,138) (50,233) Terminations - - -------- -------- Notional balance at end of period $ 5,092 $ 4,414 ======== ========
11 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Derivatives (Continued) The notional and fair values of the Corporation's off-balance-sheet derivatives instrument portfolio are shown below:
September 30, 1994 December 31, 1993 ------------------- ------------------- Notional Fair Notional Fair (in millions) Value Value Value Value -------- ------ -------- ------ Interest rate contracts Swaps: Variable rate asset designation: Generic receive fixed $ 50 $ 1 $ 550 $ 18 Amortized receive fixed 328 (23) - - Index amortized receive fixed 2,008 (116) 1,883 24 Fixed rate asset designation: Generic receive fixed 21 - 121 - Generic pay fixed 195 - 600 (13) Amortized receive fixed 17 - 21 - Amortized pay fixed 8 - 9 - Long-term debt designation: Generic receive fixed 675 (36) 375 14 Generic pay fixed 25 (1) 25 (2) Floating/Floating 675 (1) 50 - Futures and forwards - - 65 63 Caps written and purchased 355 3 339 1 ------ ------ ------ ------ Total interest rate contracts $4,357 $ (173) $4,038 $ 105 Foreign exchange rate contracts Generic receive variable swap 15 1 20 - Spot, forwards, and futures 708 2 356 1 ------ ------ ------ ------ Total exchange rate contracts 735 3 376 1 ------ ------ ------ ------ Total derivatives contracts $5,092 $ (170) $4,414 $ 106 ====== ====== ====== ======
12 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Derivatives (Continued) The Corporation uses off-balance-sheet derivative products to manage on-balance-sheet exposure to changes in interest and foreign exchange rate risks; therefore, the unrealized gains or losses on derivatives are offset by the opposite effect to on-balance-sheet items. Unrealized gains and losses on off-balance-sheet derivative products at September 30, 1994 and December 31, 1993, are summarized as follows:
September 30, December 31, (in millions) 1994 1993 ------------- ------------ Off-Balance-Sheet Derivatives: Unrealized gains $ 15 $ 69 Unrealized losses (188) (23) ----- ---- Net unrealized gain (loss) $(173) $ 46 ===== ====
Interest rate swap agreements involve the exchange of fixed and floating rate interest payments based on an underlying notional amount, and constitute a major portion of the Corporation's derivative portfolio. The Corporation utilizes swaps as an end-user to manage risk; therefore, net interest income is recognized as it accrues. For the nine months ended September 30, 1994, interest rate swaps generated $28 million of net interest income, compared to $21 million for the same period in 1993, and $32 million for the year ended December 31, 1993. 13 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Derivatives (Continued) The table below summarizes the expected maturities and weighted average interest rates to be paid and received on the Corporation's interest rate swap portfolio as of September 30, 1994. A key assumption in the calculation of the table is that rates remain constant at September 30, 1994 levels.
1999- (in millions) 1994 1995 1996 1997 1998 2013 Total ----- ----- ----- ----- ----- ----- ------ Remaining Expected Maturity of Interest Rate Swaps: Generic Receive Fixed - --------------------- Notional Amount $21 $75 $50 $50 $- $550 $746 Weighted Average: Receive Rate 5.85% 3.71% 8.00% 9.35% -% 7.69% 7.37% Pay Rate 4.81 4.81 5.13 4.88 - 5.29 5.19 Generic Pay Fixed - ----------------- Notional Amount $10 $148 $60 $- $- $2 $220 Weighted Average: Receive Rate 4.88% 5.03% 5.10% -% -% 5.00% 5.04% Pay Rate 6.68 7.49 7.56 - - 8.73 7.48 Amortizing Receive Fixed-Generic - ------------- Notional Amount $31 $98 $24 $84 $100 $8 $345 Weighted Average: Receive Rate 4.75% 4.75% 4.58% 4.75% 4.75% 6.29% 4.77% Pay Rate 4.88 4.88 4.88 4.88 4.88 4.81 4.88 Amortizing Receive Fixed-Index - ----------- Notional Amount $129 $384 $352 $774 $94 $275 $2,008 Weighted Average: Receive Rate 5.43% 5.49% 5.46% 5.19% 5.78% 5.70% 5.41% Pay Rate 4.97 4.96 4.95 4.89 5.04 5.06 4.95 Amortizing Pay Fixed - -------------------- Notional Amount $- $- $- $- $- $8 $8 Weighted Average: Receive Rate -% -% -% -% -% 4.81% 4.81% Pay Rate - - - - - 6.19 6.19 Floating/Floating - ----------------- Notional Amount $200 $475 $- $- $- $- $675 Weighted Average: Receive Rate 1.75% 4.74% -% -% -% -% 3.85% Pay Rate 4.86 5.27 - - - - 5.15
14 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Derivatives (Continued) The Corporation's index amortizing swaps are interest rate swaps whose notional principal amortizes, or decreases, at a rate that varies with the level of a specified index according to a predetermined schedule. The majority of these swaps are indexed to short-term interest rates. Currently, the expected average life of all index amortizing swaps is approximately 2 years with a stated maturity that averages 3 years. LIBOR is the basis of the variable rate portion of all the Corporation's interest rate swaps. The Corporation's basis swaps (receiving floating/paying floating) convert variable rate debt based on prime and Treasury bills as well as range-based floating rate debt into variable rate debt based on LIBOR. 15 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Comerica Incorporated reported net income of $101 million for the third quarter of 1994, an increase of 20 percent compared to $84 million reported for the comparable period in 1993. Net income was $0.84 per share for the third quarter of 1994, compared to $0.70 per share a year ago. Return on average common shareholders' equity was 17.11 percent and return on average assets was 1.27 percent for the third quarter, compared to 15.44 percent and 1.25 percent, respectively, for the same period in 1993. Net income for the nine months ended September 30, 1994, was $2.46 per share, or $291 million, representing an 18 percent increase per share from net income of $2.09 per share, or $251 million, for the corresponding period in 1993. Return on equity was 16.94 percent and return on assets was 1.24 percent, compared to 15.73 percent and 1.25 percent, respectively, for the first nine months in 1993. Acquisitions On March 31, 1994, the Corporation completed the acquisition of the $1 billion Pacific Western Bancshares (Pacific Western) in San Jose, California, for $121 million of common stock, in a transaction accounted for as a purchase. The second quarter was the first to include the operating results of Pacific Western. On August 4, 1994, the Corporation completed the acquisition of Lockwood Banc Group (Lockwood), in Houston, Texas, for $44 million in cash. The transaction was accounted for as a purchase. The financial condition of the corporation at September 30, 1994, reflects Lockwood's contribution of $324 million in assets, $179 million in loans, and $273 million in deposits. 16 Net Interest Income Net interest income for the third quarter of 1994, on a fully taxable equivalent (FTE) basis, rose to $319 million, an increase of $31 million, or 11 percent, versus the comparable period a year earlier. The rise in net interest income, primarily caused by acquisitions and strong growth in earning assets, was partially offset by a decline in the net interest margin. Total average earning assets increased $5 billion, or 19 percent, compared to last year's third quarter, due to acquisitions and growth in the commercial, residential mortgage, and international loan portfolios as well as the investment securities portfolio. Average loans were up $2 billion, or 11 percent, while average investment securities rose $3 billion, or 61 percent. The net interest margin fell 31 basis points to 4.35 percent from 4.66 percent a year ago, because growth in earning assets was funded by short-term liabilities. These funding sources yield a lower rate spread than deposit funding sources. For the first nine months of 1994, net interest income on an FTE basis totaled $936 million, an increase of $68 million, or 8 percent, compared to the same period in 1993. Average investment securities for the nine months ended September 30, 1994, increased $3 billion, or 53 percent, over the comparable period in 1993, while total average earning assets increased $4 billion, or 17 percent, resulting in a more desirable mix of earning assets. Average loans increased $2 billion, or 9 percent, due primarily to acquisitions and greater consumer demand. The net interest margin decreased 38 basis points to 4.34 percent for the first nine months of 1994 from 4.72 percent for the same period in 1993, because earning asset growth was funded by short-term liabilities which produce a lower rate spread than deposits. The Corporation, which was asset sensitive by approximately $50 million (after elasticity adjustments) as of September 30, 1994, expects to become more asset sensitive during the fourth quarter of 1994 as investment securities continue to runoff and the mix of earning assets moves toward a greater concentration of higher-yielding loans. 17 The Rate-Volume Analyses, in Tables I and II, indicate the components of the change in net interest income (FTE), quarterly and year- to-date. Provision for Loan Losses The provision for loan losses was $14 million in the third quarter of 1994 versus $15 million in the third quarter of 1993. For the nine months ended September 30, 1994, the provision was $44 million compared to $55 million in the same period last year. The provision is predicated upon maintaining an adequate allowance for loan losses, which is further discussed in the section entitled "Financial Condition." The reduction in the provision from prior year is due to a lower level of charge-offs as well as continued improvement in the quality of the loan portfolio. 18 TABLE I - QUARTERLY ANALYSIS OF NET INTEREST INCOME & RATE/VOLUME (FTE)
Three Months Ended ------------------------------------------------------------- September 30, 1994 September 30, 1993 ----------------------------- ----------------------------- Average Average Average Average (in millions) Balance Interest Rate Balance Interest Rate - ---------------------------------------------------------------------------------------------- Loans $20,463 $ 411 7.99% $18,394 $ 351 7.60% Investment securities 8,228 129 6.24 5,114 84 6.55 Other earning assets 479 7 5.92 1,086 11 3.94 - ---------------------------------------------------------------------------------------------- Total earning assets 29,170 547 7.45 24,594 446 7.22 Interest-bearing deposits 16,743 136 3.34 15,967 121 3.19 Short-term borrowings 4,361 50 4.61 2,890 21 3.00 Long-term debt 3,185 42 5.24 1,090 16 5.74 - ---------------------------------------------------------------------------------------------- Total interest-bearing sources $24,289 228 3.73 $19,947 158 3.15 ----------------- ----------------- Net interest income/ Rate spread (FTE) $ 319 3.72 $ 288 4.07 ====== ====== FTE adjustment $ 6 $ 8 ====== ====== Impact of net noninterest- bearing sources of funds 0.63 0.59 - ---------------------------------------------------------------------------------------------- Net interest margin as a percent of average earning assets (FTE) 4.35% 4.66% ============================================================================================== Increase Increase (Decrease) (Decrease) Net Due to Due to Increase Rate Volume* (Decrease) ---------- ---------- ---------- (in millions) Loans $ 19 $ 41 $ 60 Investment securities 2 43 45 Other earning assets 5 (9) (4) ------------------------------ Total earning assets 26 75 101 Interest-bearing deposits 8 7 15 Short-term borrowings 12 17 29 Long-term debt (1) 27 26 ------------------------------ Total interest-bearing sources 19 51 70 ------------------------------ Net interest income/Rate spread (FTE) $ 7 $ 24 $ 31 ============================== * Rate/Volume variances are allocated to variances due to volume. /TABLE 19 TABLE II - YEAR-TO-DATE ANALYSIS OF NET INTEREST INCOME & RATE/VOLUME (FTE)
Nine Months Ended ------------------------------------------------------------- September 30, 1994 September 30, 1993 ----------------------------- ----------------------------- Average Average Average Average (in millions) Balance Interest Rate Balance Interest Rate - ---------------------------------------------------------------------------------------------- Loans $19,825 $1,135 7.65% $18,143 $1,044 7.69% Investment securities 7,996 363 6.06 5,239 276 7.03 Other earning assets 931 30 4.34 1,161 34 3.91 - ---------------------------------------------------------------------------------------------- Total earning assets 28,752 1,528 7.10 24,543 1,354 7.37 Interest-bearing deposits 16,641 361 3.13 16,384 383 3.30 Short-term borrowings 4,948 142 3.84 2,655 58 2.92 Long-term debt 2,298 89 5.19 1,004 45 5.95 - ---------------------------------------------------------------------------------------------- Total interest-bearing sources $23,887 592 3.32 $20,043 486 3.24 ----------------- ------------------ Net interest income/ Rate spread (FTE) $ 936 3.78 $ 868 4.13 ====== ====== FTE adjustment $ 18 $ 23 ====== ====== Impact of net noninterest-bearing sources of funds 0.56 0.59 - ---------------------------------------------------------------------------------------------- Net interest margin as a percent of average earning assets (FTE) 4.34% 4.72% ============================================================================================== Increase Increase (Decrease) (Decrease) Net Due to Due to Increase Rate Volume* (Decrease) ---------- ---------- ---------- (in millions) Loans $ 3 $ 88 $ 91 Investment securities (22) 109 87 Other earning assets 3 (7) (4) ------------------------------ Total earning assets (16) 190 174 Interest-bearing deposits (25) 3 (22) Short-term borrowings 18 66 84 Long-term debt (6) 50 44 ------------------------------ Total interest-bearing sources (13) 119 106 ------------------------------ Net interest income/Rate spread (FTE) $ (3) $ 71 $ 68 ============================== * Rate/Volume variances are allocated to variances due to volume.
20 Noninterest Income Noninterest income rose $2 million, after adjusting for the acquisitions of Pacific Western and Lockwood, to $112 million in the third quarter of 1994, a 2 percent increase versus the comparable period in 1993. The sale of international assets generated $1.5 million in gains during the third quarter of 1994. Other noninterest income increased $2 million, or 8 percent, primarily due to a $3.7 million gain on the sale of originated mortgage servicing rights (OMSRs). These increases were offset by a $1.5 million decline in fee income from fiduciary activities, service charges on deposits, and bank cards. On a year-to-date basis, noninterest income rose $4 million, or one percent, to $335 million, excluding the income associated with the acquisitions of Pacific Western and Lockwood. Increases in gains on the sale of securities and income from mortgage-related activities were the primary contributors to this growth. Gains realized on the sale of securities increased over the prior year nine-month period due to the sale of international assets as previously discussed. Other noninterest income increased $6 million, or 6 percent, over the corresponding period in 1993, benefiting from higher levels of mortgage-related income due to a $7 million gain on the sale of OMSRs. However, these increases were offset by a $3.7 million decrease in income generated from trust fees and service charges on deposits. Noninterest Expenses Exclusive of the Pacific Western and Lockwood acquisitions, noninterest expenses decreased $5 million to $249 million for the third quarter of 1994, a 2 percent reduction from the same period in 1993, led by decreases in staff expenses and other noninterest expenses. Salaries and employee benefits expenses declined $0.8 million, excluding acquisitions, compared to the third quarter of 1993, benefiting from decreases in temporary staffing requirements as merger- related systems conversions are completed. 21 Other noninterest expenses decreased $4 million, or 6 percent, on a quarter-to-quarter basis after adjusting for acquisitions, primarily due to a $2.3 million decrease in consultants fees as the need for merger-related consultation diminishes, and a $1.3 million reduction in legal fees caused mainly by a recovery in the third quarter of 1994 of fees expensed in prior years. Excluding the expenses associated with the acquisitions of Pacific Western and Lockwood, noninterest expenses decreased $8 million, or one percent, to $754 million for the nine months ended September 30, 1994, versus the comparable period a year ago. This decrease was primarily the result of reductions in salaries and employee benefits and other noninterest expenses. These reductions, however, were offset by an increase in equipment expense. Salaries and employee benefits expenses, on a year-to-date basis and excluding acquisitions, fell $8 million, or 2 percent, versus the first nine months of 1993, benefiting from a significant reduction in temporary staffing requirements related to the merger and $4 million of income received in connection with company-owned life insurance policies which have been in effect for approximately one year. The year-to-date increase in equipment expense of $3 million, or 6 percent, after adjusting for acquisitions, was a result of higher levels of depreciation expense related to newly acquired computer systems. Other noninterest expenses through September 30, 1994, decreased $1 million from the comparable period in 1993, excluding the impact of acquisitions, led by reductions in consultants fees and legal fees as previously discussed. 22 Provision for Income Taxes The provision for income taxes in the first nine months of 1994 and 1993 totaled $148 million and $110 million, respectively, an increase of $38 million, or 35 percent. The provision for income taxes differs from taxes calculated at the statutory rate, predominately due to tax-exempt income earned on state and municipal securities. Financial Condition Total assets at September 30, 1994, rose $1.5 billion to $31.8 billion, a 5 percent increase since December 31, 1993. Earning assets grew 6 percent, or $1.5 billion, since year-end 1993, led by increases in the loan and investment securities portfolios, and partially offset by declines in interest-bearing deposits with banks and federal funds sold. Investment securities increased $1.1 billion, or 28 percent, since year-end 1993, largely as a result of increased purchases of U.S. Government Agency securities, which offer superior credit quality and relatively attractive yields. The $1.7 billion, or 9 percent, increase in the loan portfolio since December 31, 1993, was concentrated in commercial loans, which increased $700 million; commercial and residential mortgage loans, which increased $742 million; and consumer loans, which increased $267 million. The increases were attributable to acquisitions, strong demand for commercial loans, the purchase of two residential mortgage loan portfolios since year-end 1993, and growth in consumer demand for bank card and home equity loans. Liabilities increased $1.3 billion, or 5 percent, to $29.4 billion since December 31, 1993, mainly due to acquisitions. Increases in federal funds purchased and long-term debt occurred to provide an alternate source of funding in light of declines in the deposit base. These increases were partially offset by decreases in other borrowed funds and noninterest-bearing and foreign office deposits. 23 Despite a $1.2 billion increase in federal funds purchased and securities sold under agreements to repurchase, short-term borrowings declined $217 million, or 4 percent, since December 31, 1993, due primarily to a decrease in the purchase of treasury, tax and loan funds within other borrowed funds totaling $1.6 billion. The Corporation's long-term debt increased $2.1 billion since year-end 1993, primarily because of the issuance of $2.6 billion of medium-term notes and $150 million of subordinated notes. This increase was partially offset by the maturity of $605 million of medium-term notes. An analysis of long-term debt is contained in the notes to the consolidated financial statements. Allowance for Loan Losses and Nonperforming Assets The allowance for loan losses was $328 million at September 30, 1994, an increase of $29 million, or 10 percent, since December 31, 1993. As a percentage of total loans, the allowance was 1.58 percent at September 30, 1994, compared to 1.56 percent at December 31, 1993. Net charge-offs were $11 million for the third quarter of 1994, and $17 million for the comparable period a year ago. For the nine months ended September 30, 1994 and 1993, net charge-offs totaled $34 million and $57 million, respectively. An analysis of the allowance for loan losses is contained in the notes to the consolidated financial statements. Management determines the adequacy of the allowance for loan losses by applying projected loss ratios to the risk-ratings of loans, both individually and by category. The projected loss ratios incorporate a variety of factors such as recent loss experience, current economic conditions, trends in past due and nonaccrual amounts, risk characteristics of the various categories and concentrations of loans, and other factors. 24 Nonperforming assets increased $5 million compared to December 31, 1993, and were categorized as follows:
(in thousands) Sept. 30, 1994 Dec. 31, 1993 -------------- ------------- Nonaccrual loans: Commercial $ 67,865 $ 71,268 International - 215 Real estate construction 3,476 18,748 Real estate mortgage (principally commercial) 88,240 63,688 --------- --------- Total nonaccrual loans 159,581 153,919 Reduced-rate loans 2,477 5,057 --------- --------- Total nonperforming loans 162,058 158,976 Other real estate 51,659 50,174 --------- --------- Total nonperforming assets $ 213,717 $ 209,150 ========= ========= Loans past due 90 days $ 46,607 $ 45,880 ========= =========
Nonperforming assets as a percentage of total loans and other real estate at September 30, 1994 and December 31, 1993, were 1.02 percent and 1.09 percent, respectively. Capital Shareholders' equity increased $204 million from December 31, 1993 to September 30, 1994, principally through retention of earnings and the issuance of $126 million of common stock in connection with employee stock plans and the acquisition of Pacific Western in the first quarter of 1994. The increase was partially offset by the repurchase of $44 million of common stock (1,601,164 shares) and a $61 million decrease in unrealized gains (losses) on investment securities available for sale. 25 Capital ratios continue to comfortably exceed minimum regulatory requirements and were as follows:
September 30, December 31 1994 1993 ------------- ------------ Minimum leverage ratio (3.00 - minimum) 7.01% 7.04% Tier 1 risk-based capital ratio (4.0 - minimum) 8.40 8.21 Total risk-based capital ratio (8.0 - minimum) 12.13 11.58
At September 30, 1994, the capital ratios of all of the Corporation's banking subsidiaries exceeded the minimum ratios required of a "well capitalized" institution as defined in the final rule under FDICIA. Other Matters As disclosed in Part I, Item 3 of Form 10-K for the year ended December 31, 1993, a lawsuit was filed on July 24, 1990, by the State of Michigan against Manufacturers Bank, N.A. (which was merged with and into Comerica Bank in September 1992) seeking to impose strict, joint, and several liabilities upon Manufacturers Bank pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), the Resource Conservation and Recovery Act, and the Michigan Water Resources Commission Act. Plaintiff alleged that Manufacturers Bank was an operator of certain facilities which have environmental problems and that Manufacturers Bank had indicia of ownership under CERCLA. The facilities involved were actually owned and operated by Auto Specialties Manufacturing Company ("AUSCO"), now in bankruptcy. Plaintiff seeks cleanup costs and damages and has expressed the opinion that the claim will be well in excess of $30,000,000. On January 12, 1993, the United States District Court for the Western District of Michigan granted Comerica Bank its motion for summary judgment. The Attorney General has appealed the Court's order for summary judgment. Comerica's management believes that this action will 26 not have a materially adverse effect on the Corporation's consolidated financial position, although it may, depending upon the amount of ultimate liability, if any, and the consolidated results of operations in the year of final resolution, have a materially adverse effect on the consolidated results of operations in that year. The Corporation entered into an Agreement and Plan of Merger on October 4, 1994, with the $422 million University Bank & Trust Company in Palo Alto, California, for the acquisition by Comerica of University Bank & Trust for approximately $73 million of Comerica common stock. Consummation of the transaction, subject to regulatory and shareholder approval, is expected in the second quarter of 1995, and is anticipated to be accounted for as a purchase. On November 4, 1994, the Corporation and Munder Capital Management announced a merger of the Corporation's investment advisory business with Munder Capital Management, Michigan's largest independent investment advisor with assets under management totaling $8 billion. The merger will combine the Corporation's Woodbridge Capital Management and World Asset Management subsidiaries and Munder Capital Management, forming a money management firm with $30 billion in assets under management. Munder Capital Management will hold a majority interest in the resulting partnership, which will retain the Munder Capital Management name, and Comerica will hold a minority interest. The merger is subject to regulatory approval, which is expected by year-end. 27 PART II ITEM 6. Exhibits (a) Exhibits 11. Statements re: computation of earnings per share (b) Reports on Form 8-K None 28 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COMERICA INCORPORATED -------------------------------------- (Registrant) /s/Paul H. Martzowka -------------------------------------- Paul H. Martzowka Executive Vice President and Chief Financial Officer (Principal Financial Officer) /s/Arthur W. Hermann -------------------------------------- Arthur W. Hermann Senior Vice President and Controller (Principal Accounting Officer) Date: November 8, 1994 EX-11 2 1 Exhibit (11) - Statement Re: Computation of Earnings Per Share COMPUTATION OF EARNINGS PER SHARE Comerica Incorporated and Subsidiaries
(In thousands, except per share data) Three Months Ended Nine Months Ended September 30 September 30 ------------------- ------------------- 1994 1993 1994 1993 -------- -------- -------- -------- Primary: Average shares outstanding 118,466 119,024 117,212 118,896 Common stock equivalent: Net effect of the assumed exercise of stock options 970 1,056 936 1,183 -------- -------- -------- -------- Primary average shares 119,436 120,080 118,148 120,079 ======== ======== ======== ======== Net income $100,604 $ 83,696 $290,645 $250,548 Less preferred stock dividends - - - 42 -------- -------- -------- -------- Income applicable to common stock $100,604 $ 83,696 $290,645 $250,506 ======== ======== ======== ======== Primary net income per share $0.84 $0.70 $2.46 $2.09 Fully diluted: Average shares outstanding 118,466 119,024 117,212 118,896 Common stock equivalents: Net effect of the assumed exercise of stock options 971 1,057 940 1,184 Average shares reserved for conversion of convertible debt - 26 - 222 -------- -------- -------- -------- Fully diluted average shares 119,437 120,107 118,152 120,302 ======== ======== ======== ======== Net income $100,604 $ 83,696 $290,645 $250,548 Less preferred stock dividends - - - 42 -------- -------- -------- -------- Income applicable to common stock $100,604 $ 83,696 $290,645 $250,506 Interest on convertible debt less related income tax effect - - - 86 -------- -------- -------- -------- Net income applicable to common stock excluding above interest (net of income tax effect) $100,604 $ 83,696 $290,645 $250,592 ======== ======== ======== ======== Fully diluted net income per share $0.84 $0.70 $2.46 $2.08
EX-27 3
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEPTEMBER 1994 FORM 10Q FOR COMERICA INCORPORATED AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1994 JAN-01-1994 SEP-30-1994 1,410,911 275,361 50,499 8,473 3,047,713 5,081,797 4,864,287 20,816,751 327,962 31,803,589 20,324,696 5,183,942 268,353 3,602,381 596,473 0 0 1,789,242 31,803,589 1,129,270 350,870 30,246 1,510,386 389,231 592,542 917,844 44,000 2,363 779,698 438,156 290,645 0 0 290,645 2.46 2.46 4.34 159,581 46,607 2,477 369,556 298,685 60,863 26,673 327,962 221,227 2,862 103,873
-----END PRIVACY-ENHANCED MESSAGE-----