-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AaopofKkFJlqG8JqZ55Iyk/osgSSnWFlAUw5fks5KE5eWKLmlo8982PmI2wOssaS +gd3e/IIx095AcsKfu89/w== 0000028412-96-000013.txt : 19960812 0000028412-96-000013.hdr.sgml : 19960812 ACCESSION NUMBER: 0000028412-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960809 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMERICA INC /NEW/ CENTRAL INDEX KEY: 0000028412 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 381998421 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07269 FILM NUMBER: 96607601 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 June 30, 1996 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 July 31, 1996: 114,979,000 shares 2 PART I. FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS Comerica Incorporated and Subsidiaries
June 30, December 31, June 30, (In thousands, except share data) 1996 1995 1995 ----------- ------------ ----------- ASSETS Cash and due from banks $ 1,677,375 $ 2,028,375 $ 1,674,750 Interest-bearing deposits with banks 228,589 23,568 112,417 Federal funds sold and securities purchased under agreements to resell 442,850 203,798 608,300 Trading account securities 5,032 10,668 9,313 Loans held for sale 58,454 511,562 142,100 Investment securities available for sale 5,590,562 6,859,310 2,897,875 Investment securities held to maturity (estimated fair value of $4,757,777 at 6/30/95) - - 4,804,396 ----------- ----------- ----------- Total investment securities 5,590,562 6,859,310 7,702,271 Commercial loans 13,208,865 12,041,009 11,687,285 International loans 1,505,585 1,384,814 1,223,631 Real estate construction loans 698,592 641,432 521,530 Commercial mortgage loans 3,603,524 3,254,041 3,175,013 Residential mortgage loans 2,009,141 2,221,359 2,501,476 Consumer loans 4,643,212 4,570,015 4,610,586 Lease financing 360,038 329,608 274,600 ----------- ----------- ----------- Total loans 26,028,957 24,442,278 23,994,121 Less allowance for loan losses (364,601) (341,344) (337,879) ----------- ----------- ----------- Net loans 25,664,356 24,100,934 23,656,242 Premises and equipment 462,480 455,002 460,170 Customers' liability on acceptances outstanding 104,027 21,135 40,460 Accrued income and other assets 1,152,402 1,255,522 1,045,453 ----------- ----------- ----------- TOTAL ASSETS $35,386,127 $35,469,874 $35,451,476 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits (noninterest- bearing) $ 6,280,195 $ 5,579,536 $ 5,239,315 Interest-bearing deposits 16,176,726 15,461,213 15,062,885 Deposits in foreign offices 491,418 2,126,466 1,586,916 ----------- ----------- ----------- Total deposits 22,948,339 23,167,215 21,889,116 Federal funds purchased and securities sold under agreements to repurchase 355,547 3,206,612 476,563 Other borrowed funds 3,790,109 1,467,550 5,870,111 Acceptances outstanding 104,027 21,135 40,460 Accrued expenses and other liabilities 276,881 355,219 279,208 Medium- and long-term debt 5,045,054 4,644,416 4,411,281 ----------- ----------- ----------- Total liabilities 32,519,957 32,862,147 32,966,739 Nonredeemable preferred stock - $50 stated value: Authorized - 5,000,000 shares Issued - 5,000,000 shares at 6/30/96 250,000 - - Common stock - $5 par value: Authorized - 250,000,000 shares Issued-119,294,531 shares at 6/30/96, 115,094,531 shares at 12/31/95 and 115,212,031 shares at 6/30/95 596,473 575,473 576,060 Capital surplus 509,432 408,644 417,274 Unrealized gains and losses on investment securities available for sale (81,428) (4,141) (2,268) Retained earnings 1,773,684 1,640,980 1,510,008 Less cost of common stock in treasury-4,371,333 shares at 6/30/96, 490,704 shares at 12/31/95 and 627,316 shares at 6/30/95 (181,991) (13,229) (16,337) ----------- ----------- ----------- Total shareholders' equity 2,866,170 2,607,727 2,484,737 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $35,386,127 $35,469,874 $35,451,476 =========== =========== =========== /TABLE 3 CONSOLIDATED STATEMENTS OF INCOME Comerica Incorporated and Subsidiaries
Three Months Ended Six Months Ended June 30 June 30 -------------------- ------------------------ (In thousands, except per share data) 1996 1995 1996 1995 -------- -------- ---------- ---------- INTEREST INCOME Interest and fees on loans $540,923 $527,860 $1,077,801 $1,017,603 Interest on investment securities: Taxable 93,300 119,423 201,621 238,414 Exempt from federal income tax 5,055 7,054 10,383 13,824 -------- -------- ---------- ---------- Total interest on investment securities 98,355 126,477 212,004 252,238 Trading account interest 46 103 121 154 Interest on federal funds sold and securities purchased under agreements to resell 1,403 1,908 3,147 2,636 Interest on time deposits with banks 326 2,251 444 6,451 Interest on loans held for sale 1,139 1,393 3,105 2,532 -------- -------- ---------- ---------- Total interest income 642,192 659,992 1,296,622 1,281,614 INTEREST EXPENSE Interest on deposits 171,927 182,411 352,817 354,236 Interest on short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 23,857 41,676 57,053 82,052 Other borrowed funds 27,762 40,348 57,301 70,749 Interest on medium- and long-term debt 76,071 69,786 147,321 134,526 Net interest rate swap (income)/expense (13,914) 2,720 (23,620) 4,514 -------- -------- ---------- ---------- Total interest expense 285,703 336,941 590,872 646,077 -------- -------- ---------- ---------- Net interest income 356,489 323,051 705,750 635,537 Provision for loan losses 25,000 15,500 53,500 27,500 -------- -------- ---------- ---------- Net interest income after provision for loan losses 331,489 307,551 652,250 608,037 NONINTEREST INCOME Income from fiduciary activities 33,289 31,993 66,894 62,734 Service charges on deposit accounts 35,600 32,141 70,740 63,988 Customhouse broker fees 2,640 9,099 10,764 18,348 Revolving credit fees 4,518 9,379 11,442 16,254 Securities gains 3,310 71 3,670 272 Other noninterest income 41,433 35,749 94,708 72,175 -------- -------- ---------- ---------- Total noninterest income 120,790 118,432 258,218 233,771 NONINTEREST EXPENSES Salaries and employee benefits 143,036 140,760 288,960 277,867 Net occupancy expense 25,742 24,390 52,573 48,657 Equipment expense 16,790 16,854 34,836 33,883 FDIC insurance expense 639 11,073 1,265 21,918 Telecommunications expense 7,419 7,104 15,057 14,797 Other noninterest expenses 76,570 72,401 156,480 139,676 -------- -------- ---------- ---------- Total noninterest expenses 270,196 272,582 549,171 536,798 -------- -------- ---------- ---------- Income before income taxes 182,083 153,401 361,297 305,010 Provision for income taxes 63,862 51,869 126,470 103,456 -------- -------- ---------- ---------- NET INCOME $118,221 $101,532 $ 234,827 $ 201,554 ======== ======== ========== ========== Net income applicable to common stock $118,221 $101,532 $ 234,827 $ 201,554 ======== ======== ========== ========== Net income per share $1.00 $0.86 $1.98 $1.71 Average common and common equivalent shares 118,098 118,438 118,620 117,865 Cash dividends declared $45,088 $40,932 $86,327 $78,148 Dividends per share $0.39 $0.35 $0.74 $0.67
4 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Comerica Incorporated and Subsidiaries
Nonredeem- able Unrealized Total Preferred Common Capital Gains/ Retained Treasury Shareholders' (in thousands) Stock Stock Surplus (Losses) Earnings Stock Equity --------- --------- --------- ---------- ---------- --------- ------------- BALANCES AT JANUARY 1, 1995 $ - $596,473 $525,052 $ (55,039) $1,390,405 $ (65,111) $2,391,780 Net income for 1995 - - - - 201,554 - 201,554 Cash dividends declared - - - - (78,148) - (78,148) Purchase of 1,346,600 shares - - - - - (36,623) (36,623) Purchase and retirement of 4,082,500 shares - (20,413) (109,168) - - - (129,581) Issuance of shares: Employee stock plans - - (242) - (3,803) 10,834 6,789 Acquisitions - - 1,137 - - 74,563 75,700 Amortization of deferred compensation - - 495 - - - 495 Change in unrealized gains/(losses) on securities available for sale - - - 52,771 - - 52,771 -------- -------- -------- --------- --------- --------- ---------- BALANCES AT JUNE 30, 1995 $ - $576,060 $417,274 $ (2,268) $1,510,008 $ (16,337) $2,484,737 ======== ======== ======== ========== ========== ========= ========== BALANCES AT JANUARY 1, 1996 $ - $575,473 $408,644 $ (4,141) $1,640,980 $ (13,229) $2,607,727 Net income for 1996 - - - - 234,827 - 234,827 Issuance of preferred stock 250,000 - (3,125) - - - 246,875 Cash dividends declared on common stock - - - - (86,327) - (86,327) Purchase of 4,986,626 shares of common stock - - - - - (208,653) (208,653) Issuance of common stock for: Employee stock plans - - 4,993 - (16,004) 30,633 19,622 Acquisitions - 21,000 98,472 - 208 9,258 128,938 Amortization of deferred compensation - - 448 - - - 448 Change in unrealized gains/(losses) on securities available for sale - - - (77,287) - - (77,287) -------- -------- -------- --------- --------- --------- ---------- BALANCES AT JUNE 30, 1996 $250,000 $596,473 $509,432 $ (81,428) $1,773,684 $(181,991) $2,866,170 ======== ======== ======== ========== ========== ========= ==========
5 CONSOLIDATED STATEMENTS OF CASH FLOWS Comerica Incorporated and Subsidiaries
Six Months Ended June 30 --------------------------- (in thousands) 1996 1995 ------------ ------------ OPERATING ACTIVITIES: Net income $ 234,827 $ 201,554 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 53,500 27,500 Depreciation 33,540 31,223 Net (increase) decrease in trading account securities 5,636 (4,981) Net (increase) decrease in loans held for sale 453,108 (50,553) Net (increase) decrease in accrued income receivable 10,171 (17,341) Net increase (decrease) in accrued expenses (108,735) 39,990 Net amortization of intangibles 16,069 14,112 Funding for employee benefit plans (25,000) (125,000) Other, net 213,863 (62,589) ------------ ------------ Total adjustments 652,152 (147,639) ------------ ------------ Net cash provided by operating activities 886,979 53,915 INVESTING ACTIVITIES: Net (increase) decrease in interest-bearing deposits with banks (204,965) 266,456 Net increase in federal funds sold and securities purchased under agreements to resell (169,052) (527,000) Proceeds from sale of investment securities available for sale 1,079,019 21,353 Proceeds from maturity of investment securities available for sale 695,040 193,722 Purchases of investment securities available for sale (367,060) (29,769) Proceeds from maturity of investment securities held to maturity - 347,917 Purchases of investment securities held to maturity - (145,978) Net increase in loans (other than purchased loans) (931,537) (1,538,707) Purchase of loans (11,490) (35,867) Fixed assets, net (31,533) (36,855) Net increase in customers' liability on acceptances outstanding (82,892) (6,828) Net cash provided by acquisitions/sale 94,232 28,794 ------------ ------------ Net cash provided by (used in) investing activities 69,762 (1,462,762) FINANCING ACTIVITIES: Net decrease in deposits (1,230,907) (961,940) Net increase (decrease) in short-term borrowings (537,291) 2,141,266 Net increase in acceptances outstanding 82,892 6,828 Proceeds from issuance of medium- and long-term debt 1,101,000 1,360,000 Repayments and purchases of medium- and long-term debt (700,362) (1,051,306) Proceeds from issuance of preferred stock 246,875 - Proceeds from issuance of common stock and other capital transactions 20,070 7,284 Purchase of common stock for treasury (208,653) (166,204) Dividends paid (81,365) (74,644) ------------ ------------ Net cash provided by (used in) financing activities (1,307,741) 1,261,284 ------------ ------------ Net decrease in cash and due from banks (351,000) (147,563) Cash and due from banks at beginning of year 2,028,375 1,822,313 ------------ ------------ Cash and due from banks at end of period $ 1,677,375 $ 1,674,750 ============ ============ Interest paid $ 634,240 $ 614,182 ============ ============ Income taxes paid $ 127,238 $ 103,725 ============ ============ Noncash investing and financing activities: Loan transfers to other real estate $ 5,872 $ 13,175 ============ ============ Stock issued for acquisitions $ 128,938 $ 75,700 ============ ============
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, the statements 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 six months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. 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, 1995. Note 2 - Investment Securities At June 30, 1996 investment securities having a carrying value of $4.0 billion were pledged where permitted or required by law to secure liabilities and public and other deposits, including deposits of the State of Michigan of $29 million. Note 3 - Allowance for Loan Losses The following analyzes the changes in the allowance for loan losses included in the consolidated balance sheets:
(in thousands) 1996 1995 --------- --------- Balance at January 1 $ 341,344 $ 326,195 Allowance acquired 10,370 3,260 Loans charged off (57,950) (38,870) Recoveries on loans previously charged off 17,337 19,794 --------- --------- Net loans charged off (40,613) (19,076) Provision for loan losses 53,500 27,500 --------- --------- Balance at June 30 $ 364,601 $ 337,879 ========= =========
A loan is considered impaired if it is probable that interest and principal payments will not be made in accordance with the contractual terms of the loan agreement. Consistent with this definition, all nonaccrual and reduced-rate loans (with the exception of residential mortgage and consumer loans) are impaired. Impaired loans averaged $121 million and $129 million for the quarter and six months ended June 30, 1996, respectively. Of the $116 million period-end impaired loans, approximately $75 million required an allowance for loan losses of $25 million in accordance with SFAS No. 114. The remaining impaired loan balance represents loans for which the fair value exceeded the recorded investment in the loan. 7 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 4 - Medium- and Long-term Debt Medium- and long-term debt consisted of the following at June 30, 1996 and December 31, 1995:
(in thousands) June 30, 1996 December 31, 1995 ------------- ----------------- Parent Company 9.75% subordinated notes due 1999 $ 74,737 $ 74,692 10.125% subordinated debentures due 1998 74,840 74,800 7.25% subordinated notes due 2007 148,623 148,584 ---------- ---------- Total parent company 298,200 298,076 Subsidiaries Subordinated notes: 8.375% subordinated notes due 2024 147,821 147,782 7.25% subordinated notes due 2002 149,009 148,931 6.875% subordinated notes due 2008 99,104 99,066 7.125% subordinated notes due 2013 148,056 148,000 ---------- ---------- Total subordinated notes 543,990 543,779 Medium-term notes: Floating rate based on Treasury bill indices 1,049,838 1,099,701 Floating rate based on Prime indices 450,000 550,000 Floating rate based on LIBOR indices 1,423,958 624,937 Fixed rate notes with interest rates ranging from 5.50% to 6.875% 1,273,684 1,523,433 ---------- ---------- Total medium-term notes 4,197,480 3,798,071 Notes payable maturing on dates ranging from 1996 through 2015 5,384 4,490 ---------- ---------- Total subsidiaries 4,746,854 4,346,340 ---------- ---------- Total medium- and long-term debt $5,045,054 $4,644,416 ========== ==========
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. 8 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Off-Balance-Sheet Derivatives and Foreign Exchange Contracts
June 30, 1996 December 31, 1995 ------------------------------ ------------------------------ Notional/ Notional/ Contract Unrealized Fair Contract Unrealized Fair Amount Gains Losses Value Amount Gains Losses Value (in millions) (1) (2) (3) (1) (2) (3) ------------------------------ ------------------------------ Risk Management Interest rate contracts Swaps (4) $ 8,841 $ 27 $(161) $(134) $5,925 $ 88 $(20) $(68) Options, caps and floors purchased 56 - - - 40 19 (21) (2) Caps written 152 - - - 154 - - - Foreign exchange contracts Spot and forwards 506 4 (1) 3 229 2 (1) 1 Swaps 45 1 (1) - 50 8 - 8 ------- ---- ----- ----- ------ ---- ---- ---- Total risk management 9,600 32 (163) (131) 6,398 117 (42) (75) Customer Initiated and Other Interest rate contracts Caps written 425 - (1) (1) 360 - - - Floors purchased 2 - - - - - - - Swaps - - - - 3 - - - Foreign exchange contracts Spot, forward, futures and options 830 8 (5) 3 320 5 (5) - ------- ---- ----- ----- ------ ---- ----- ---- Total customer initiated and other 1,257 8 (6) 2 683 5 (5) - ------- ---- ----- ----- ------ ---- ----- ---- Total derivatives and foreign exchange contracts $10,857 $ 40 $(169) $(129) $7,081 $122 $(47) $(75) ======= ==== ===== ===== ====== ==== ===== ==== (1) Notional or contract amounts, which represent the extent of involvement in the derivatives market, are generally used to determine the contractual cash flows required in accordance with the terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts subject to credit or market risk, and are not reflected in the consolidated balance sheets. (2) Represents credit risk, which is measured as the cost to replace, at current market rates, contracts in a profitable position. Credit risk is calculated before consideration is given to bilateral collateral agreements or master netting arrangements that effectively reduce credit risk. (3) The fair values of derivatives and foreign exchange contracts generally represent the estimated amounts the Corporation would receive or pay to terminate or otherwise settle the contracts at the balance sheet date. The fair values of customer initiated and other derivatives and foreign exchange contracts are reflected in the consolidated balance sheets. Futures contracts are subject to daily cash settlements; therefore, the fair value of these instruments is zero. (4) Includes index amortizing swaps with a notional amount of $5,337 million and $3,688 million at June 30, 1996 and December 31, 1995, respectively. These swaps had net unrealized loss of $123 million at June 30, 1996 versus a net unrealized gain of $4 million at December 31, 1995. As of June 30, 1996 index amortizing swaps had an average expected life of approximately 3.09 years with a stated maturity that averaged 4.87 years.
9 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Off-Balance-Sheet Derivatives and Foreign Exchange Contracts (Continued) Risk Management - --------------- Interest rate risk arises in the normal course of business to the extent there is a difference between the repricing and maturity characteristics of interest-earning assets and interest-bearing liabilities. This gap in the balance sheet structure reflects the sensitivity of the Corporation's net interest income to a change in interest rates. Foreign exchange rate risk arises from changes in the value of certain assets and liabilities denominated in foreign currencies. The Corporation employs on-balance sheet instruments such as investment securities, as well as off-balance sheet derivative financial instruments and foreign exchange contracts to manage exposure to these and other risks, including liquidity risk. As an end-user, the Corporation mainly accesses the interest rate markets to obtain off-balance sheet derivatives instruments for use principally in connection with asset and liability management activities. Interest rate swaps are predominantly utilized with the objective of managing the sensitivity of net interest income to interest rate fluctuations. To accomplish this objective, interest rate swaps are primarily used to modify the interest rate characteristics of certain assets and liabilities (for example, from a floating rate to a fixed rate, a fixed rate to a floating rate, or from one floating rate index to another). This strategy permits the achievement of an optimal match between the rate maturities of assets and their funding sources which, in turn, reduces the overall exposure of net interest income to interest rate risk. The following table summarizes the expected maturity distribution of the notional amount of interest rate swaps used for risk management purposes. The table also indicates the weighted average interest rates associated with amounts to be received or paid on interest rate swap agreements as of June 30, 1996. The swaps are grouped by the assets or liabilities to which they have been designated. Various other types of off-balance sheet financial instruments may also be used to manage interest rate and foreign currency risks associated with specific assets or liabilities, including interest rate caps and floors, forward and futures interest and foreign exchange rate contracts, and foreign exchange rate swaps, which are reflected in the table above. At June 30, 1996 and December 31, 1995, the notional amounts of commitments to purchase securities totaled $21 million and $16 million, respectively; the notional amounts of commitments to sell securities totaled $17 million and $14 million, respectively; and the notional amounts of commitments to sell mortgage loans totaled $40 million and $147 million, respectively. These commitments, which are similar in nature to forward contracts, are not reflected in the above table due to the immaterial impact they have on the financial statements. Customer Initiated and Other - ----------------------------- The Corporation earns additional income by executing various transactions, primarily foreign exchange contracts and interest rate caps, at the request of customers. Market risk arising from customer initiated foreign exchange contracts is significantly minimized by entering into offsetting transactions. Average fair values and income from customer initiated and other foreign exchange contracts were not material for the quarter ended June 30, 1996 and for the year ended December 31, 1995. 10 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Off-Balance-Sheet Derivatives and Foreign Exchange Contracts (Continued)
- ----------------------------------------------------------------------------------------- Remaining Expected Maturity of Risk Management Interest Rate Swaps: 2001- Dec. 31, (dollar amounts in millions) 1996 1997 1998 1999 2000 2014 Total 1995 ----------------------------------------------------------------------------------------- Variable rate asset designation: Receive fixed swaps Generic $ 50 $ - $ - $ - $ - $ - $ 50 $ 50 Amortizing 8 84 100 - - - 192 200 Index Amortizing 361 1,486 881 1,087 672 850 5,337 3,688 Weighted average: (1) Receive rate 6.38% 5.65% 6.25% 6.39% 6.16% 6.38% 6.13% 6.02% Pay rate 5.45% 5.49% 5.50% 5.50% 5.49% 5.50% 5.49% 5.84% Fixed rate asset designation: Generic pay fixed swaps $ 35 $ - $ - $ 2 $ - $ - $ 37 $ 37 Weighted average: (1) Receive rate 5.33% -% -% 5.77% -% -% 5.35% 5.76% Pay rate 7.05% -% -% 8.73% -% -% 7.14% 7.14% Medium- and long-term debt designation: Generic receive fixed swaps $ 300 $ 950 $ - $ - $200 $ 700 $2,150 $1,375 Weighted average: (1) Receive rate 5.67% 5.76% -% -% 6.91% 7.65% 6.47% 7.01% Pay rate 5.40% 5.40% -% -% 5.59% 5.53% 5.46% 5.80% Generic pay fixed swaps $ 25 $ - $ - $ - $ - $ - $ 25 $ 25 Weighted average: (1) Receive rate 5.81% -% -% -% -% -% 5.81% 5.70% Pay rate 8.28% -% -% -% -% -% 8.28% 8.28% Floating/Floating swaps $ 625 $ 400 $ - $ - $ - $ - $1,025 $ 550 Weighted average: (2) Receive rate 5.37% 5.19% -% -% -% -% 5.30% 5.76% Pay rate 5.40% 5.38% -% -% -% -% 5.39% 5.75% Total notional amount $1,404 $2,920 $981 $1,089 $872 $1,550 $8,816 $5,925 - ----------------------------------------------------------------------------------------- (1) Variable rates are based on LIBOR rates paid or received at June 30, 1996. (2) Variable rates paid are based on LIBOR at June 30, 1996, while variable rates received are based on prime or LIBOR. - -----------------------------------------------------------------------------------------
11 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Off-Balance-Sheet Derivatives and Foreign Exchange Contracts (Continued) Customer initiated interest rate caps generally are not offset by other on- or off-balance sheet financial instruments; however, authority limits have been established for engaging in these transactions in order to minimize risk exposure. As a result, average fair values and income from this activity were not significant for the six-month period ended June 30, 1996 and for the year ended December 31, 1995. Available credit lines on fixed rate credit card and check product accounts, which expose the Corporation to the risk of a reduction in net interest income as rates increase, totaled approximately $2.1 billion at June 30, 1996 and $2.0 billion at December 31, 1995. Market risk exposure arising from these revolving credit commitments is very limited, however, since it is unlikely that a significant number of customers with these accounts will simultaneously borrow up to their maximum available credit lines. Off-Balance-Sheet Derivative and Foreign Exchange Activity - ---------------------------------------------------------- The following table provides a reconciliation of the beginning and ending notional amounts for interest rate derivatives and foreign exchange contracts.
Customer Initiated Risk Management and Other ----------------------- ----------------------- Interest Foreign Interest Foreign Rate Exchange Rate Exchange (in millions) Contracts Contracts Contracts Contracts ----------------------- ----------------------- Balances at December 31, 1995 $ 6,119 $ 279 $ 363 $ 320 Additions 3,469 2,595 178 18,961 Maturities/amortizations (539) (2,323) (114) (18,451) Terminations - - - - ------- ------- ----- -------- Balances at June 30, 1996 $ 9,049 $ 551 $ 427 $ 830 ======= ======= ===== ========
Additional information regarding the nature, terms and attendant risks of the above off-balance sheet derivatives and foreign exchange contracts, along with information on derivative accounting policies, can be found in the Corporation's 1995 annual report on page 30 and in Notes 1 and 17 to the consolidated financial statements. 12 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition ----------------------- Results of Operations - --------------------- Net income for the quarter ended June 30, 1996 was $118 million, up $16 million, or 16 percent, from $102 million reported for the second quarter of 1995. Net income per share increased 16 percent to $1.00 from $0.86 a year ago. Return on average common shareholders' equity was 17.73 percent and return on average assets was 1.37 percent, compared to 16.02 percent and 1.19 percent, respectively, for the comparable quarter last year. Net income for the first six months of 1996 was $235 million or $1.98 per share, compared to $202 million or $1.71 for the same period in 1995. Return on common equity was 17.50 percent and return on assets was 1.35 percent, compared to 16.28 percent and 1.20 percent, respectively, for the first six months of 1995. Acquisitions - ------------ In January 1996, the Corporation completed the acquisition of Metrobank, headquartered in Los Angeles, California, for $125 million of common stock, in a transaction accounted for as a purchase. Metrobank contributed total assets of $1.2 billion, loans of $700 million and deposits of $1 billion, as well as nonperforming assets of $18 million. Metrobank's results of operations are reflected in the consolidated statement of income for the six months ended June 30, 1996. Net Interest Income - ------------------- The Rate-Volume Analyses in Table I details the components of the change in net interest income (FTE) for the quarter ended June 30, 1996. On a fully taxable equivalent (FTE) basis, net interest income was $361 million for the three months ended June 30, 1996, an increase of $32 million, or 10 percent, over the amount reported for the comparable quarter in 1995. The improvement was primarily the result of loan growth, both internally and through acquisitions, and an increase in the net interest margin. Average total loans for the second quarter of 1996 increased $2.1 billion, or 9 percent, over the second quarter of 1995, driven primarily by growth in the commercial and commercial mortgage portfolios. Average commercial loans rose $1.5 billion, or 13 percent, while average commercial mortgage loans grew $372 million, or 12 percent. Average investment securities were reduced $1.9 billion, or 32 percent, to allow a shift in the mix of earning assets toward higher-yielding loans. This shift was the primary factor in the rise in net interest margin. The net interest margin for the three months ended June 30, 1996, was 4.55 percent, an increase of 40 basis points from 4.15 percent for the second quarter of 1995. Table II provides an analysis of net interest income for the first six months of 1996. On an FTE basis, net interest income for the six months ended June 30, 1996 was $714 million compared to $647 million for the same period in 1995. This increase was due to the same factors indicated in the quarterly discussion. Average total loans increased $2.4 billion for the first six months of 1996 compared to the first six months of 1995. The net interest margin for the six months ended June 30, 1996 was 4.47 percent compared to 4.16 percent for the same period in 1995. 13 Net income generated by the risk management interest rate swap portfolio resulted in a contribution of 18 basis points to the net interest margin in the second quarter of 1996, compared to a 3 basis-point reduction in the year-earlier quarter. The contribution for the first six months of 1996 was 15 basis points compared to a 3 basis point reduction in 1995. Interest rate swaps permit management to control the sensitivity of net interest income to fluctuations in interest rates in a manner similar to on-balance sheet investment securities but without significant impact to capital or liquidity. These instruments are designated against certain assets and liabilities, therefore, their impact on net interest income is generally offset by and should be considered in relation to the level of net interest income generated by the related on-balance sheet assets and liabilities. In addition to using interest rate swaps and other off-balance sheet instruments to control the Corporation's exposure to interest rate risk, management attempts to minimize the effect of movements in interest rates on net interest income by regularly performing interest sensitivity gap and earnings simulation analyses. At June 30, 1996, the Corporation was in a liability sensitive position of $671 million (on an elasticity- adjusted basis), or 2 percent of earning assets. The earnings simulation analysis performed at the end of the quarter covers the calendar year 1997 and reflects changes to both interest rates and loan, investment and deposit volumes. For 1997, forecasted net interest income could decline $16 million, or less than 2 percent, for a 200 basis point rise in short- term interest rates. Given a 200 basis point decline in short-term interest rates, forecasted net interest income could decline $20 million, or less than 2 percent, due principally to an anticipated weaker economy and lower loan volumes. These results are within established corporate policy guidelines. The preceding forward-looking statements are based on current expectations, but there are numerous factors that could cause variances in these projections as economic, industry and competitive conditions change. Provision for Loan Losses - ------------------------- The provision for loan losses for the second quarter of 1996 was $25 million, up $10 million from the second quarter of 1995. The provision for the first six months of 1996 was $54 million compared to $28 for the same period in 1995. The provision is predicated upon maintaining an adequate allowance for loan losses, which is discussed in the section entitled "Financial Condition." Noninterest Income - ------------------ Noninterest income was $121 million for the three months ended June 30, 1996, an increase of $22 million, or 2 percent, over the same period in 1995. Excluding the effects of nonrecurring items, divestitures and acquisitions, noninterest income rose $8 million for the second quarter of 1996, a 7 percent increase over the corresponding period in 1995. The improvement in noninterest income was primarily attributable to a $3 million increase in service charges on retail and commercial deposits and $3 million in securities gains. Other noninterest income grew in excess of $3 million, or 10 percent, from the second quarter of 1995, benefiting principally from a climb in fees and commissions generated by the securities brokerage and insurance businesses. For the first six months of 1996 noninterest income rose $14 million, or 6 percent, over the same period in 1995, excluding nonrecurring items, divestitures and acquisitions. Service charges and other noninterest income were the primary contributors to this increase. 14 TABLE I - QUARTERLY ANALYSIS OF NET INTEREST INCOME & RATE/VOLUME (FTE)
Three Months Ended ------------------------------------------------------------- June 30, 1996 June 30, 1995 ----------------------------- ----------------------------- Average Average Average Average (in millions) Balance Interest Rate Balance Interest Rate - ---------------------------------------------------------------------------------------------- Loans $25,592 $542 8.51% $23,505 $530 9.03% Investment securities 5,895 101 6.78 7,814 130 6.64 Other earning assets 202 3 5.77 342 6 6.71 - ---------------------------------------------------------------------------------------------- Total earning assets 31,689 646 8.17 31,661 666 8.42 Interest-bearing deposits 16,918 172 4.09 16,916 182 4.33 Short-term borrowings 3,938 51 5.28 5,436 82 6.05 Medium- and long-term debt 4,986 76 6.13 4,359 70 6.42 Net interest rate swap (income)/expense (1) - (14) - - 3 - - ---------------------------------------------------------------------------------------------- Total interest-bearing sources $25,842 285 4.45 $26,711 337 5.06 -------------- --------------- Net interest income/ Rate spread (FTE) $361 3.72 $329 3.36 ==== ==== FTE adjustments $ 4 $ 6 ==== ==== Impact of net noninterest-bearing sources of funds 0.83 0.79 - ---------------------------------------------------------------------------------------------- Net interest margin as a percent of average earning assets (FTE) 4.55% 4.15% ============================================================================================== (1) After allocation of the income or expense generated by interest rate swaps for the three months ended June 30, 1996, to the related assets and liabilities, the average yield on total loans was 8.66 percent as of June 30, 1996, compared to 8.93 percent a year ago. The average cost of funds for medium- and long-term debt was 5.74 percent as of June 30, 1996, compared to 6.19 percent a year earlier. Increase Increase (Decrease) (Decrease) Net Due to Due to Increase Rate Volume* (Decrease) ---------- ---------- ---------- (in millions) Loans $(31) $ 43 $ 12 Investment securities 3 (32) (29) Other earning assets (1) (2) (3) ---------------------------- Total earning assets (29) 9 (20) Interest-bearing deposits (10) - (10) Short-term borrowings (11) (20) (31) Medium- and long-term debt (3) 9 6 Net interest rate swap (income)/expense (17) - (17) ---------------------------- Total interest-bearing sources (41) (11) (52) ---------------------------- Net interest income/Rate spread (FTE) $ 12 $ 20 $ 32 ============================ * Rate/Volume variances are allocated to variances due to volume. /TABLE 15 TABLE II - YEAR-TO-DATE ANALYSIS OF NET INTEREST INCOME & RATE/VOLUME (FTE)
Six Months Ended ------------------------------------------------------------- June 30, 1996 June 30, 1995 ----------------------------- ----------------------------- Average Average Average Average (in millions) Balance Interest Rate Balance Interest Rate - ---------------------------------------------------------------------------------------------- Loans $25,368 $1,080 8.56% $22,938 $1,022 8.96% Investment securities 6,423 218 6.75 7,816 259 6.61 Other earning assets 225 7 6.17 359 12 6.67 - ---------------------------------------------------------------------------------------------- Total earning assets 32,016 1,305 8.17 31,113 1,293 8.34 Interest-bearing deposits 17,154 353 4.14 16,849 354 4.24 Short-term borrowings 4,289 114 5.36 5,160 153 5.97 Medium- and long-term debt 4,797 147 6.17 4,197 134 6.45 Net interest rate swap (income)/expense (1) - (23) - - 5 - - ---------------------------------------------------------------------------------------------- Total interest-bearing sources $26,240 591 4.53 $26,206 646 4.97 ----------------- ------------------ Net interest income/ Rate spread (FTE) $ 714 3.64 $ 647 3.37 ====== ====== FTE adjustment $ 8 $ 12 ====== ====== Impact of net noninterest-bearing sources of funds 0.83 0.79 - ---------------------------------------------------------------------------------------------- Net interest margin as a percent of average earning assets (FTE) 4.47% 4.16% ============================================================================================== (1) After allocation of the income or expense generated by interest rate swaps for the six months ended June 30, 1996, to the related assets and liabilities, the average yield on total loans was 8.68 percent as of June 30, 1996, compared to 8.82 percent a year ago. The average cost of funds for medium- and long-term debt was 5.79 percent as of June 30, 1996, compared to 6.17 percent a year earlier. Increase Increase (Decrease) (Decrease) Net Due to Due to Increase Rate Volume* (Decrease) ---------- ---------- ---------- (in millions) Loans $(43) $101 $ 58 Investment securities 6 (47) (41) Other earning assets (2) (3) (5) ---------------------------- Total earning assets (39) 51 12 Interest-bearing deposits (7) 6 (1) Short-term borrowings (15) (24) (39) Medium- and long-term debt (6) 19 13 Net interest rate swap (income)/expense (28) - (28) ---------------------------- Total interest-bearing sources (56) 1 (55) ---------------------------- Net interest income/Rate spread (FTE) $ 17 $ 50 $ 67 ============================ * Rate/Volume variances are allocated to variances due to volume. /TABLE 16 Noninterest Expenses - -------------------- Noninterest expenses decreased 1 percent, or $2 million, to $270 million for the three months ended June 30, 1996. This total includes $3 million in charges related to the Corporation's previously announced internal efficiency improvement program. After adjusting for the effects of acquisitions, divestitures, the reduction in FDIC insurance expenses, and the aforementioned charges, noninterest expenses increased less than 1 percent, or $2 million. This nominal increase in noninterest expenses reflects management's efforts to maintain a stable operating expense level. Excluding the effects of acquisitions, divestitures, the reduction in FDIC expense, and nonrecurring items, noninterest expense for the first six months of 1996 remained relatively unchanged compared to the same period in 1995. Provision for Income Taxes - -------------------------- The provision for income taxes for the second quarter of 1996 totaled $64 million, an increase of 23 percent compared to $52 million reported for the same period a year ago. The effective tax rate increased to 35 percent for the second quarter of 1996 from 34 percent for the second quarter of 1995, as a result of lower tax-exempt income. Financial Condition - ------------------- Total assets were $35.4 billion at June 30, 1996, or essentially unchanged since December 31, 1995. Earning assets grew 1 percent to $32.4 billion since year-end 1995, as $1.0 billion of investment securities were sold to partially fund the $1.6 billion, or 6 percent, increase in loans during the first six months of the year. Loan growth 1996 has been concentrated in the commercial and commercial mortgage loan categories, which rose $1.2 billion, or 10 percent, and $349 million, or 11 percent, respectively, since December 31, 1995. Total liabilities fell $342 million, or 2 percent, to $32.5 billion since December 31, 1995, primarily due to a $1.6 billion decrease in foreign office deposits and an $529 million reduction in short-term borrowings. The overall decline in liabilities was net of a $1.4 billion increase in domestic deposits, reflecting the Metrobank acquisition. Allowance for Loan Losses and Nonperforming Assets - -------------------------------------------------- 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 such factors as recent loan loss experience, current economic conditions and trends, geographic dispersion of borrowers, trends in past due and nonaccrual amounts, risk characteristics of various categories and concentrations of loans, and transfer risks. 17 At June 30, 1996, the allowance for loan losses was $365 million, an increase of $23 million, or 7 percent, since December 31, 1995. The allowance as a percentage of total loans remained constant at 1.40 percent since December 31, 1995. As a percentage of total nonperforming assets, the allowance increased from 209 percent at year-end 1995 to 227 percent at June 30, 1996. Net charge-offs for the second quarter of 1996 were $18 million, or 0.28 percent of average total loans, compared with $13 million, or 0.22 percent, for the year-earlier quarter. The rise in total net charge-offs over the second quarter last year was primarily the result of credit card charge-offs increasing in the base portfolio and 1995 special credit card promotions. An analysis of the allowance for loan losses is presented in the notes to the consolidated financial statements. Despite the addition of $18 million in nonperforming assets from the Metrobank transaction, total nonperforming assets have declined slightly since December 31, 1995, and were categorized as follows:
June 30, December 31, (in thousands) 1996 1995 ------------- ------------ Nonaccrual loans: Commercial $ 82,702 $ 87,195 Real estate construction 4,713 6,578 Commercial mortgage 25,809 31,123 Residential mortgage 5,143 5,507 ------------- ------------ Total nonaccrual loans 118,367 130,403 Reduced-rate loans 7,203 3,244 ------------- ------------ Total nonperforming loans 125,570 133,647 Other real estate 34,770 29,384 ------------- ------------ Total nonperforming assets $ 160,340 $ 163,031 ============= ============ Loans past due 90 days or more $ 60,102 $ 57,134 ============= ============
Nonperforming assets as a percentage of total loans and other real estate at June 30, 1996 and December 31, 1995, were 0.62 percent and 0.67 percent, respectively. Capital - ------- Common shareholders' equity was up $86 million from December 31, 1995 to June 30, 1996, excluding the change in unrealized losses on investment securities available for sale. The increase was due to retention of $149 million in earnings and the issuance of $125 million of common stock in connection with the acquisition of Metrobank in January 1996, offset by the repurchase of 5 million shares of common stock under various corporate programs. 18 During the second quarter, the Corporation issued 5 million shares of Fixed/Adjustable Rate Noncumulative Preferred Stock, Series E, with a stated value of $50 per share. Dividends are payable quarterly, commencing October 1, 1996, at a rate of 6.84% per annum through July 1, 2001. Thereafter, the rate will be equal to .625% plus an effective rate, but not less than 7.34% nor greater than 13.34%. The effective rate will be equal to the highest of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Thirty Year Constant Maturity Rate (as defined in the prospectus). The Corporation, at its option, may redeem all or part of the outstanding shares on or after July 1, 2001. Capital ratios continue to comfortably exceed minimum regulatory requirements as follows:
June 30, December 31, 1996 1995 ------------- ------------ Leverage ratio (3.00 - minimum) 7.72% 6.87% Tier 1 risk-based capital ratio (4.0 - minimum) 8.04 7.63 Total risk-based capital ratio (8.0 - minimum) 11.39 11.21
At June 30, 1996, the capital ratios of all 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 - ------------- On August 2, 1996, the Corporation sold its $1.4 billion Illinois subsidiary, Comerica Bank-Illinois, for approximately $190 million in cash. On May 18, 1996, the Corporation sold the business and certain assets of John V. Carr & Son, Inc., the wholly owned customs brokerage and freight forwarding subsidiary of Comerica Bank. In March 1996, the Corporation formed a strategic alliance with National Data Corporation's subsidiary, National Data Payment Systems (NDPS), to provide the Corporation's business customers with a comprehensive line of merchant credit card processing systems and services. The Corporation provides merchant contracts and multi-state marketing opportunities to the new joint venture, Comerica Merchant Alliance, while NDPS provides processing, settlement, authorization and marketing support. As disclosed in Part I, Item 3 of Form 10-K for the year ended December 31, 1995, a lawsuit was filed on July 24, 1990, by the State of Michigan against a subsidiary bank involving hazardous waste issues. The Corporation's motion for summary judgment was granted in January 1993, however, the State of Michigan has filed an appeal that is still pending. Management believes that even if the summary judgment is not upheld on appeal, the results of this action will not have a materially adverse effect on the Corporation's consolidated financial position. Although, depending upon the amount of the ultimate liability, if any, and the consolidated results of operations in the year of final resolution, the legal action may have a materially adverse effect on the consolidated results of operation in that year. 19 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits (11) Statement re: Computation of Earnings Per Share (b) Reports on Form 8-K June 18, 1996 - New Shareholder Rights Agreement June 21, 1996 - Sale of 5,000,000 shares of Series E Preferred Stock 20 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/Ralph W. Babb, Jr. -------------------------------------- Ralph W. Babb, Jr. 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: August 9, 1996 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 Six Months Ended June 30 June 30 ------------------- ------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Primary: Average shares outstanding 116,202 117,400 116,810 117,008 Common stock equivalent: Net effect of the assumed exercise of stock options 1,896 1,038 1,810 857 -------- -------- -------- -------- Primary average shares 118,098 118,438 118,620 117,865 ======== ======== ======== ======== Net income $118,221 $101,532 $234,827 $201,554 -------- -------- -------- -------- Primary net income per share $1.00 $0.86 $1.98 $1.71 Fully diluted: Average shares outstanding 116,202 117,400 116,810 117,008 Common stock equivalent: Net effect of the assumed exercise of stock options 1,982 1,237 2,014 1,176 -------- -------- -------- -------- Fully diluted average shares 118,184 118,637 118,824 118,184 ======== ======== ======== ======== Net income $118,221 $101,532 $234,827 $201,554 Less preferred stock dividends - - - - -------- -------- -------- -------- Net income applicable to common stock $118,221 $101,532 $234,827 $201,554 ======== ======== ======== ======== Fully diluted net income per share $1.00 $0.86 $1.98 $1.71
EX-27 3
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 1996 FORM 10Q FOR COMERICA INCORPORATED AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1,677,375 228,589 442,850 5,032 5,590,562 0 0 26,028,957 364,601 35,386,127 22,948,339 4,145,656 380,908 5,045,054 596,473 0 250,000 2,019,697 35,386,127 1,077,801 212,004 6,817 1,296,622 352,817 590,872 705,750 53,500 3,670 549,171 361,297 234,827 0 0 234,827 1.98 1.98 4.47 118,367 60,102 7,203 394,354 341,344 57,950 17,337 364,601 278,817 2,416 83,368
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