-----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, NZWaNIvFG+YMQcvak/uknnw9cqd4AzU0+A7L+tQq5OtkkRCwcN17KssgsSSlArkc 1pLcsiHPloFHOlGW38PIqA== 0000028412-98-000003.txt : 19980519 0000028412-98-000003.hdr.sgml : 19980519 ACCESSION NUMBER: 0000028412-98-000003 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980518 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/A SEC ACT: SEC FILE NUMBER: 001-10706 FILM NUMBER: 98627067 BUSINESS ADDRESS: STREET 1: ONE DETROIT CENTER STREET 2: 500 WOODWARD AVE 31ST FL CITY: DETROIT STATE: MI ZIP: 48226 BUSINESS PHONE: 3132223300 MAIL ADDRESS: STREET 1: ONE DETROIT CENTER 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/A 1 1 FORM 10-Q/A 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 March 31, 1998 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 April 30, 1998: 156,612,000 shares 2 Explanatory Note On May 15, 1998, Comerica Incorporated (the "Corporation") filed its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998, with the Securities and Exchange Commission (the "Commission"). The Corporation is now filing with the Commission its amended Quarterly Report on Form 10-Q/A. The sole purpose for filing the amended Quarterly Report is to correct for the inadvertent omission of footnote 5, Income Taxes. Each of the other figures set forth in the Quarterly Report on Form 10-Q is correct. For ease of reference, this amended Quarterly Report contains all of the information required to be set forth in a Quarterly Report on Form 10-Q. 3 PART I. FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS Comerica Incorporated and Subsidiaries
March 31, December 31, March 31, (In thousands, except share data) 1998 1997 1997 ------------- ------------ ------------- ASSETS Cash and due from banks $ 1,883,135 $ 1,927,087 $ 1,703,871 Interest-bearing deposits with banks 3,671 3,319 66,847 Federal funds sold and securities purchased under agreements to resell 94,171 149,801 53,650 Trading account securities 4,064 9,102 6,319 Assets held for sale 2,132,337 40,735 30,970 Investment securities available for sale 3,744,532 4,005,962 4,798,923 Commercial loans 16,498,894 15,805,549 14,158,843 International loans 2,084,372 2,085,090 1,933,784 Real estate construction loans 912,100 940,910 786,227 Commercial mortgage loans 3,696,455 3,633,785 3,509,272 Residential mortgage loans 1,462,667 1,565,445 1,722,274 Consumer loans 2,000,608 4,347,665 4,514,663 Lease financing 554,017 516,600 424,624 ----------- ----------- ----------- Total loans 27,209,113 28,895,044 27,049,687 Less allowance for credit losses (429,648) (424,147) (391,418) ----------- ----------- ----------- Net loans 26,779,465 28,470,897 26,658,269 Premises and equipment 362,905 380,157 397,955 Customers' liability on acceptances outstanding 12,081 18,392 34,692 Accrued income and other assets 1,475,990 1,286,946 1,116,212 ----------- ----------- ----------- TOTAL ASSETS $36,492,351 $36,292,398 $34,867,708 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits (noninterest- bearing) $ 6,211,420 $ 6,761,202 $ 6,491,323 Interest-bearing deposits 16,981,882 15,825,115 15,656,476 ----------- ----------- ----------- Total deposits 23,193,302 22,586,317 22,147,799 Federal funds purchased and securities sold under agreements to repurchase 2,387,061 592,860 1,500,964 Other borrowed funds 914,094 2,600,041 2,663,017 Acceptances outstanding 12,081 18,392 34,692 Accrued expenses and other liabilities 422,111 446,625 459,716 Medium- and long-term debt 6,736,815 7,286,387 5,492,082 ----------- ----------- ----------- Total liabilities 33,665,464 33,530,622 32,298,270 Nonredeemable preferred stock - $50 stated value: Authorized - 5,000,000 shares Issued - 5,000,000 shares at 3/31/98, 12/31/97 and 3/31/97 250,000 250,000 250,000 Common stock - $5 par value: Authorized - 250,000,000 shares Issued-157,188,873 shares at 3/31/98, 156,815,367 shares at 12/31/97 and 105,861,240 shares at 3/31/97 785,944 784,077 529,306 Capital surplus 12,906 - - Unrealized gains and losses on investment securities available for sale 4,425 (1,937) (49,847) Retained earnings 1,814,056 1,731,419 1,842,488 Deferred compensation (1,570) (1,783) (2,509) Less cost of common stock in treasury- 578,661 shares at 03/31/98 (38,874) - - ----------- ----------- ----------- Total shareholders' equity 2,826,887 2,761,776 2,569,438 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $36,492,351 $36,292,398 $34,867,708 =========== =========== =========== /TABLE 4 CONSOLIDATED STATEMENTS OF INCOME Comerica Incorporated and Subsidiaries
Three Months Ended March 31 -------------------- (In thousands, except per share data) 1998 1997 -------- -------- INTEREST INCOME Interest and fees on loans $606,990 $545,572 Interest on investment securities: Taxable 62,306 76,483 Exempt from federal income tax 2,093 3,055 -------- -------- Total interest on investment securities 64,399 79,538 Trading account interest 44 65 Interest on federal funds sold and securities purchased under agreements to resell 1,560 728 Interest on time deposits with banks 42 747 Interest on assets held for sale 826 593 -------- -------- Total interest income 673,861 627,243 INTEREST EXPENSE Interest on deposits 167,137 159,666 Interest on short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 30,597 28,450 Other borrowed funds 13,249 26,989 Interest on medium- and long-term debt 109,828 75,681 Net interest rate swap income (12,558) (15,328) -------- -------- Total interest expense 308,253 275,458 -------- -------- Net interest income 365,608 351,785 Provision for credit losses 28,000 41,000 -------- -------- Net interest income after provision for credit losses 337,608 310,785 NONINTEREST INCOME Income from fiduciary activities 40,735 33,076 Service charges on deposit accounts 38,450 34,954 Securities gains/(losses) (1,150) 122 Other noninterest income 56,817 61,242 -------- -------- Total noninterest income 134,852 129,394 NONINTEREST EXPENSES Salaries and employee benefits 134,767 132,915 Net occupancy expense 22,761 23,292 Equipment expense 15,124 16,068 Telecommunications expense 6,622 7,144 Other noninterest expenses 70,599 69,318 -------- -------- Total noninterest expenses 249,873 248,737 -------- -------- Income before income taxes 222,587 191,442 Provision for income taxes 78,204 67,670 -------- -------- NET INCOME $144,383 $123,772 ======== ======== Net income applicable to common stock $140,108 $119,497 ======== ======== Basic net income per common share $ 0.89 $ 0.75 Diluted net income per common share $ 0.88 $ 0.74 Cash dividends declared on common stock $ 50,191 $ 45,682 Dividends per common share $ 0.32 $ 0.29
5 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Comerica Incorporated and Subsidiaries
Nonredeem- able Unrealized Total Preferred Common Capital Gains/ Retained Deferred Treasury Shareholders' (in thousands) Stock Stock Surplus (Losses) Earnings Compensation Stock Equity --------- --------- --------- ---------- ---------- ------------ --------- ------------- BALANCES AT JANUARY 1, 1997 $250,000 $536,487 $ - $ (22,789) $1,854,116 $ (2,245) $ - $2,615,569 Net income for 1997 - - - - 123,772 - - 123,772 Nonowner changes in equity: Unrealized holding gains/(losses) arising during the period - - - (41,506) - - - (41,506) Less: Reclassification adjustment for gains/ (losses) included in net income - - - 122 - - - 122 Nonowner changes in equity before income taxes - - - (41,628) - - - (41,628) Provision for income taxes related to nonowner changes in equity - - - (14,570) - - - (14,570) Nonowner changes in equity, net of tax - - - (27,058) - - - (27,058) Net income and nonowner changes in equity - - - - - - - 96,714 Cash dividends declared: Preferred stock - - - - (4,275) - - (4,275) Common stock - - - - (45,682) - - (45,682) Purchase and retirement of 1,810,250 shares of common stock - (9,051) - - (98,495) - - (107,546) Issuance of common stock under employee stock plans - 1,870 - - 13,052 (530) - 14,392 Amortization of deferred compensation - - - - - 266 - 266 -------- -------- --------- --------- ---------- --------- -------- ---------- BALANCES AT MARCH 31, 1997 $250,000 $529,306 $ - $ (49,847) $1,842,488 $ (2,509) $ - $2,569,438 ======== ======== ========= ======== ========== ========= ======== ========== BALANCES AT JANUARY 1, 1998 $250,000 $784,077 $ - $ (1,937) $1,731,419 $ (1,783) $ - $2,761,776 Net income for 1998 - - - - 144,383 - - 144,383 Nonowner changes in equity: Unrealized holding gains/ (losses) arising during the period - - - 8,638 - - - 8,638 Less: Reclassification adjustment for gains/ (losses) included in net income - - - (1,150) - - - (1,150) Nonowner changes in equity before income taxes - - - 9,788 - - - 9,788 Provision for income taxes related to nonowner changes in equity - - - 3,426 - - - 3,426 Nonowner changes in equity, net of tax - - - 6,362 - - - 6,362 Net income and nonowner changes in equity - - - - - - - 150,745 Cash dividends declared: Preferred stock - - - - (4,275) - - (4,275) Common stock - - - - (50,173) - - (50,173) Purchase of 729,450 shares of common stock - - - - - - (48,847) (48,847) Purchase and retirement of 60,000 shares of common stock - (300) (3,182) - - - - (3,482) Issuance of common stock under employee stock plans - 2,167 16,088 - (7,298) - 9,973 20,930 Amortization of deferred compensation - - - - - 213 - 213 -------- -------- --------- --------- ---------- --------- -------- ---------- BALANCES AT MARCH 31, 1998 $250,000 $785,944 $ 12,906 $ 4,425 $1,814,056 $ (1,570) $(38,874) $2,826,887 ======== ======== ========= ========= ========== ========== ======== ========== /TABLE 6 CONSOLIDATED STATEMENTS OF CASH FLOWS Comerica Incorporated and Subsidiaries
Three Months Ended March 31 --------------------------- (in thousands) 1998 1997 ------------ ------------ OPERATING ACTIVITIES: Net income $ 144,383 $ 123,772 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 28,000 41,000 Depreciation 14,115 15,359 Restructuring charge (7,775) (15,386) Net (increase) decrease in trading account securities 5,038 (310) Net (increase) decrease in assets held for sale (28,665) 7,099 Net (increase) decrease in accrued income receivable 16,985 (11,091) Net increase in accrued expenses 332 15,835 Net amortization of intangibles 6,731 7,111 Other, net (241,992) 59,319 ------------ ------------ Total adjustments (207,231) 118,936 ------------ ------------ Net cash provided by (used in) operating activities (62,848) 242,708 INVESTING ACTIVITIES: Net increase in interest-bearing deposits with banks (352) (39,518) Net (increase) decrease in federal funds sold and securities purchased under agreements to resell 55,630 (21,450) Proceeds from sale of investment securities available for sale 17,193 12,818 Proceeds from maturity of investment securities available for sale 239,364 211,261 Purchases of investment securities available for sale (7,103) (305,321) Net increase in loans (other than purchased loans) (365,180) (826,082) Purchase of loans (1,115) (33,644) Fixed assets, net (4,461) (5,651) Net (increase) decrease in customers' liability on acceptances outstanding 6,311 (1,590) ------------ ------------ Net cash used in investing activities (59,713) (1,009,177) FINANCING ACTIVITIES: Net increase (decrease) in deposits 606,985 (219,374) Net increase (decrease) in short-term borrowings 108,254 (325,210) Net increase (decrease) in acceptances outstanding (6,311) 1,590 Proceeds from issuance of medium- and long-term debt 800,000 1,450,000 Repayments and purchases of medium- and long-term debt (1,349,572) (199,687) Proceeds from issuance of common stock and other capital transactions 20,930 14,922 Purchase of common stock for treasury and retirement (52,329) (107,546) Dividends paid (49,348) (46,115) ------------ ------------ Net cash provided by financing activities 78,609 568,580 ------------ ------------ Net decrease in cash and due from banks (43,952) (197,889) Cash and due from banks at beginning of year 1,927,087 1,901,760 ------------ ------------ Cash and due from banks at end of period $ 1,883,135 $ 1,703,871 ============ ============ Interest paid $ 356,163 $ 283,987 ============ ============ Income taxes paid $ 233 $ 5,935 ============ ============ Noncash investing and financing activities: Loan transfers to assets held for sale $ 2,029,727 $ - Loan transfers to other real estate 1,284 1,771 ============ ============
7 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 three months ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the annual report of Comerica Incorporated and Subsidiaries (the "Corporation") on Form 10-K for the year ended December 31, 1997. Derivative financial instruments, including foreign exchange contracts, may be used to manage the Corporation's exposure to interest rate and foreign currency risks. These instruments are treated as hedges, and accounted for on an accrual basis, since there is a high correlation with the on-balance sheet instrument being hedged. If this correlation ceases to exist, the existing unrealized gain or loss is amortized over the remaining term of the instrument, and future changes in fair value are accounted for on a mark-to-market basis. Derivative financial instruments executed as a service to customers are accounted for on a mark-to-market basis. For further information, refer to the Accounting Policies footnote in the Corporation's 1997 annual report. Note 2 - Investment Securities At March 31, 1998, investment securities having a carrying value of $2.5 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 $32 million. Note 3 - Allowance for Credit Losses The following analyzes the changes in the allowance for credit losses included in the consolidated balance sheets:
1998 1997 (in thousands) --------- --------- Balance at January 1 $ 424,147 $ 367,165 Charge offs (32,838) (28,476) Recoveries 10,339 11,729 --------- --------- Net charge offs (22,499) (16,747) Provision for credit losses 28,000 41,000 --------- --------- Balance at March 31 $ 429,648 $ 391,418 ========= =========
Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," considers a loan impaired when it is probable that interest and principal payments will not be made in accordance with the contractual terms of the loan agreement. 8 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 3 - Allowance for Credit Losses (continued) Consistent with this definition, all nonaccrual and reduced-rate loans (with the exception of residential mortgage and consumer loans) are impaired. Impaired loans averaged $68 million for the quarter ended March 31, 1998, compared to $78 million for the comparable period last year. The following are period-end balances:
(in thousands) March 31, 1998 December 31, 1997 -------------- ----------------- Total impaired loans $63,406 $70,470 Impaired loans requiring an allowance 52,718 60,376 Impairment allowance 10,013 20,358
Those impaired loans not requiring an allowance represent loans for which the fair value exceeded the recorded investment in the loan. Note 4 - Medium- and Long-term Debt Medium- and long-term debt consisted of the following at March 31, 1998 and December 31, 1997:
(in thousands) March 31, 1998 December 31, 1997 -------------- ----------------- Parent Company 9.75% subordinated notes due 1999 $ 74,900 $ 74,877 10.125% subordinated debentures due 1998 74,986 74,965 7.25% subordinated notes due 2007 148,547 148,509 ---------- ---------- Total parent company 298,433 298,351 Subsidiaries Subordinated notes: 7.25% subordinated notes due 2007 198,150 198,100 7.875% subordinated notes due 2026 146,941 146,914 8.375% subordinated notes due 2024 147,957 147,938 7.25% subordinated notes due 2002 149,285 149,246 6.875% subordinated notes due 2008 99,238 99,220 7.125% subordinated notes due 2013 148,251 148,224 ---------- ---------- Total subordinated notes 889,822 889,642 Medium-term notes: Floating rate based on Treasury bill indices 486,996 487,000 Floating rate based on Prime indices 1,000,000 1,100,007 Floating rate based on LIBOR indices 3,011,879 2,811,793 Floating rate based on Federal Funds indices 200,000 349,998 Fixed rate notes with interest rates ranging from 5.75% to 6.875% 849,685 1,349,596 ---------- ---------- Total medium-term notes 5,548,560 6,098,394 Total subsidiaries 6,438,382 6,988,036 ---------- ---------- Total medium- and long-term debt $6,736,815 $7,286,387 ========== ========== /TABLE 9 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. State and foreign taxes are then added to the federal provision. 10 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Off-Balance Sheet Derivatives and Foreign Exchange Contracts
March 31, 1998 December 31, 1997 ------------------------------ ------------------------------ Notional/ Notional/ Contract Unrealized Fair Contract Unrealized Fair (in millions) Amount Gains Losses Value Amount Gains Losses Value (1) (2) (3) (1) (2) (3) ------------------------------ ------------------------------ Risk Management Interest rate contracts Swaps (4) $ 8,070 $138 $ (5) $ 133 $ 8,515 $137 $ (14) $ 123 Floors purchased 50 - - - 52 - - - Caps written 1 - - - - - - - Foreign exchange contracts Spot and forward 397 11 (13) (2) 445 12 (9) 3 Swaps 145 3 - 3 154 5 - 5 ------- ---- ----- ----- ------- ---- ----- ----- Total risk management 8,663 152 (18) 134 9,166 154 (23) 131 Customer Initiated and Other Interest rate contracts Caps written 301 - (1) (1) 314 - - - Caps and floors purchased 160 1 - 1 32 - - - Swaps 150 3 (3) - 150 6 (6) - Foreign exchange contracts Spot, forward and options 1,625 6 (4) 2 1,837 37 (33) 4 ------- ---- ----- ----- ------- ---- ----- ----- Total customer initiated and other 2,236 10 (8) 2 2,333 43 (39) 4 ------- ---- ----- ----- ------- ---- ----- ----- Total derivatives and foreign exchange contracts $10,899 $162 $ (26) $ 136 $11,499 $197 $ (62) $ 135 ======= ==== ===== ===== ======= ==== ===== ===== (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 $3,126 million and $3,521 million at March 31, 1998 and December 31, 1997, respectively. These swaps had net unrealized gains of $4 million and net unrealized losses of $4 million at March 31, 1998 and December 31, 1997, respectively. As of March 31, 1998 index amortizing swaps had an average expected life of approximately 2 years with a stated maturity that averaged 4 years.
11 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). Management believes this strategy achieves 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, although there can be no assurance that such a strategy will be successful. 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 March 31, 1998. The swaps are grouped by the assets or liabilities to which they have been designated. The Corporation also uses various other types of off-balance sheet financial instruments 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 March 31, 1998 and December 31, 1997, the notional amounts of commitments to purchase and sell U.S. Treasury and municipal bond securities related to the Corporation's trading account totaled $65 million and $2 million, respectively; the notional amounts of commitments to sell mortgage loans totaled $23 million and $30 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, interest rate caps and forward rate agreements, at the request of customers. The Corporation minimizes market risk arising from customer initiated foreign exchange contracts and forward rate agreements 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 March 31, 1998 and for the year ended December 31, 1997. 12 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, the Corporation has established authority limits 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 three-month period ended March 31, 1998 and for the year ended December 31, 1997. 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 $1.7 billion at March 31, 1998 and $1.8 billion at December 31, 1997. Management believes that 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. 13 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Off-Balance Sheet Derivatives and Foreign Exchange Contracts (continued)
Remaining Expected Maturity of Interest Rate Swaps: (dollar amounts 2003- Dec. 31, in millions) 1998 1999 2000 2001 2002 2026 Total 1997 Variable rate asset designation: Receive fixed swaps Generic $ - $ - $ 700 $ 800 $ - $ - $ 1,500 $ 700 Amortizing - - - - - - - 100 Index amortizing 624 734 790 366 423 173 3,110 3,504 Weighted average: (1) Receive rate 6.36% 6.36% 6.33% 6.12% 6.41% 6.20% 6.29% 6.33% Pay rate 5.67% 5.66% 5.68% 5.68% 5.66% 5.69% 5.67% 5.90% Floating/floating swaps (3) $ - $ - $ 55 $ - $ - $ - $ 55 $ 55 Fixed rate asset designation: Pay fixed swaps Generic $ - $ 2 $ - $ - $ - $ - $ 2 $ 2 Index amortizing 3 3 10 - - - 16 17 Weighted average: (1) Receive rate 5.69% 5.78% 5.69% -% -% -% 5.72% 5.97% Pay rate 5.34% 6.70% 5.34% -% -% -% 5.72% 5.85% Medium- and long-term debt designation: Generic receive fixed swaps $ 450 $ - $ 200 $ - $ 150 $ 900 $1,700 $2,200 Weighted average: (1) Receive rate 6.03% -% 6.91% -% 7.37% 7.66% 7.11% 6.84% Pay rate 5.52% -% 5.68% -% 5.85% 5.78% 5.70% 5.83% Floating/floating swaps $1,650 $ - $ 37 $ - $ - $ - $1,687 $1,937 Weighted average: (2) Receive rate 5.69% -% 5.36% -% -% -% 5.68% 5.73% Pay rate 5.62% -% 5.62% -% -% -% 5.62% 5.77% Total notional amount $2,727 $ 739 $1,792 $1,166 $ 573 $1,073 $8,070 $8,515 (1) Variable rates are based on LIBOR rates paid or received at March 31, 1998. (2) Variable rates paid are based on LIBOR at March 31, 1998, while variable rates received are based on prime. (3) Variable rates paid were 5.79%, based on LIBOR at March 31, 1998, while variable rates received represent the return on principal only total return swaps. This return is based on principal paydowns of the referenced securities as well as changes in market value. /TABLE 14 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Off-Balance Sheet Derivatives and Foreign Exchange Contracts (continued) 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, 1997 $ 8,567 $ 599 $ 496 $ 1,837 Additions 802 1,518 270 9,267 Maturities/amortizations (1,248) (1,575) (155) (9,479) Terminations - - - - ------- ------- ------ ------- Balances at March 31, 1998 $ 8,121 $ 542 $ 611 $ 1,625 ======= ======= ====== =======
Additional information regarding the nature, terms and associated 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 1997 annual report on page 33 and in Notes 1 and 18 to the consolidated financial statements. 15 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition ------------------- Results of Operations - --------------------- Net income for the quarter ended March 31, 1998 was $144 million, up $20 million, or 17 percent, from $124 million reported for the first quarter of 1997. Diluted net income per share increased 19 percent to $0.88 from $0.74 a year ago. Return on average common shareholders' equity was 22.09 percent and return on average assets was 1.61 percent, compared to 20.41 percent and 1.46 percent, respectively, for the comparable quarter last year. On January 15, 1998, the Corporation's board of directors declared a three-for-two stock split, effected in the form of a 50 percent stock dividend paid on April 1, 1998, as well as increased the quarterly cash dividend 12 percent to $0.32 per share. All per share data included in the financial statements and managements discussion and analysis have been retroactively adjusted to reflect the split. Net Interest Income - ------------------- The rate-volume analysis in Table I details the components of the change in net interest income on a fully taxable equivalent (FTE) basis for the quarter ended March 31, 1998. On a FTE basis, net interest income was $368 million for the three months ended March 31, 1998, an increase of $14 million over the comparable quarter in 1997. The net interest margin for the three months ended March 31, 1998, was 4.50 percent, a decrease of 9 basis points from 4.59 percent for the first quarter of 1997. This decrease in net interest margin was primarily due to a greater reliance on higher cost interest-bearing sources of funds to support the growth in earning assets. Net income generated by the risk management interest rate swap portfolio resulted in a contribution of 15 basis points to the net interest margin in the first quarter of 1998, compared to a 20 basis-point contribution in the year-earlier quarter. 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 monitor the effect of movements in interest rates on net interest income by regularly performing interest sensitivity gap and earnings simulation analyses. At March 31, 1998, the Corporation was in an asset sensitive position of $2.6 billion (on an elasticity adjusted basis), or 8 percent of earning assets. The earnings simulation analysis performed at the end of the quarter reflects changes to both interest rates and loan, investment and deposit volumes. The measurement of risk exposure at March 31, 1998 for a 200 basis point rise in short-term interest rates identified approximately $9 million, or 1 percent, of net interest income at risk during the next 12 months. If short-term interest rates decline 200 basis points, the Corporation will have approximately $40 million, or 3 percent, of net interest income at risk. These results are within established corporate policy guidelines. 16 TABLE I - QUARTERLY ANALYSIS OF NET INTEREST INCOME & RATE/VOLUME (FTE)
Three Months Ended ------------------------------------------------------------- March 31, 1998 March 31, 1997 ----------------------------- ----------------------------- Average Average Average Average (in millions) Balance Interest Rate Balance Interest Rate - ---------------------------------------------------------------------------------------------- Loans $28,921 $608 8.50% $26,229 $547 8.43% Investment securities 3,848 66 6.84 4,745 81 6.81 Other earning assets 168 2 5.97 141 2 6.17 - ---------------------------------------------------------------------------------------------- Total earning assets 32,937 676 8.30 31,115 630 8.17 Interest-bearing deposits 16,303 167 4.16 15,958 160 4.06 Short-term borrowings 3,206 44 5.55 4,249 55 5.29 Medium- and long-term debt 7,155 110 6.21 4,850 76 6.31 Net interest rate swap (income)/ expense (1) - (13) - - (15) - - ---------------------------------------------------------------------------------------------- Total interest-bearing sources $26,664 308 4.68 $25,057 276 4.45 ----------------- ----------------- Net interest income/ Rate spread (FTE) $368 3.62 $354 3.72 ====== ====== FTE adjustment $2 $2 ====== ====== Impact of net noninterest- bearing sources of funds 0.88 0.87 - ---------------------------------------------------------------------------------------------- Net interest margin as a percent of average earning assets (FTE) 4.50% 4.59% ============================================================================================== (1) After allocation of the income or expense generated by interest rate swaps for the three months ended March 31, 1998, to the related assets and liabilities, the average yield on total loans was 8.59 percent as of March 31, 1998, compared to 8.56 percent a year ago. The average cost of funds for medium- and long-term debt was 5.83 percent as of March 31, 1998, compared to 5.77 percent a year earlier. Increase Increase (Decrease) (Decrease) Net Due to Due to Increase Rate Volume* (Decrease) ---------- ---------- ---------- (in millions) Loans $ 8 $ 53 $ 61 Investment securities - (15) (15) Other earning assets - - - ------------------------------ Total earning assets 8 38 46 Interest-bearing deposits 2 5 7 Short-term borrowings 3 (14) (11) Medium- and long-term debt (1) 35 34 Net interest rate swap (income)/expense 2 - 2 ------------------------------ Total interest-bearing sources 6 26 32 ------------------------------ Net interest income/Rate spread (FTE) $ 2 $ 12 $ 14 ============================== * Rate/Volume variances are allocated to variances due to volume. /TABLE 17 Provision for Credit Losses - --------------------------- The provision for credit losses for the first quarter of 1998 was $28 million, an increase of $13 million from the first quarter of 1997. The Corporation establishes this provision to maintain an adequate allowance for credit losses, which is discussed in the section entitled "Allowance for Credit Losses and Nonperforming Assets." Noninterest Income - ------------------ Noninterest income was $135 million for the three months ended March 31, 1998, an increase of $6 million, or 4 percent over the same period in 1997. Excluding the effect of certain large nonrecurring items, principally a $17 million gain on the sale of the bond indenture services business in the first quarter of 1997 and divestitures in both periods, noninterest income increased 20 percent in the first quarter of 1998 compared to the first quarter of 1997. Accounting for the majority of this increase were higher levels of fiduciary income, service charges and retail and commercial fee income. Noninterest Expenses - -------------------- Noninterest expenses were $250 million for the quarter ended March 31, 1998, an increase of $1 million, or less than 1 percent, from the first quarter of 1997. This nominal increase reflects management's continued focus on efficiency and recognition of the positive effects of Direction 2000: Phase III. Provision for Income Taxes - -------------------------- The provision for income taxes for the first quarter of 1998 totaled $78 million, an increase of 16 percent compared to $68 million reported for the same period a year ago. The effective tax rate was 35 percent for the first quarter of both 1998 and 1997. Strategic Lines of Business - --------------------------- The Corporation has strategically aligned its operations into three major lines of business: the Business Bank, the Individual Bank and the Investment Bank. The following table presents the financial results of these business lines for the three months ended March 31, 1998 and 1997. For a description of the business activities of each line of business and the methodologies which form the basis for these results, refer to the discussion entitled "Strategic Lines of Business" on page 26 of the Corporation's 1997 annual report. 18 Table II - Strategic Lines of Business Financial Results
Three Months Ended March 31 Business Individual Investment Bank Bank Bank* Other Total - ----------------------------------------------------------------------------------------------------------------- (in millions) 1998 1997 1998 1997 1998 1997 1998 1997 1998 1997 - ----------------------------------------------------------------------------------------------------------------- Average assets $21,538 $18,523 $9,356 $9,612 $ 35 $ 26 $4,979 $5,711 $35,908 $33,872 Total revenues (FTE) 207 183 254 249 28 24 13 28 502 484 Net income 86 74 55 44 2 1 1 5 144 124 Return on average assets 1.60% 1.60% 1.21% 1.00% 21.93% 3.70% 0.05% 0.18% 1.61% 1.46% Return on average common equity 27.50% 28.85% 26.59% 22.84% 31.98% 14.82% 1.33% 3.86% 22.09% 20.41% * Net income was reduced by charges for fees internally transferred to other lines of business for referrals to the Investment Bank. If excluded, Investment Bank net income would have been $3 million and $1 million and return on average common equity would have been 48.74% and 21.61%, in 1998 and 1997, respectively. /TABLE 19 Financial Condition - ------------------- Total assets were $36.5 billion at March 31, 1998, compared with $36.3 billion at December 31, 1997. Included in "Assets held for sale" at March 31, 1998, are approximately $2.1 billion of assets of the Individual Bank which the Corporation intends to sell. These assets, which include consumer loans, certain credit card receivables and mortgage servicing rights are being carried at the lower of cost or market. No write-down was necessary as a result of the reclassification. The section entitled "Other Matters" discusses additional information regarding these asset sales. The Corporation has continued to generate commercial loan growth in 1998. Since December 31, 1997, commercial loans have increased $693 million, or 4 percent. Total loans decreased $1.7 billion, or 6 percent, since year-end 1997 due to the reclassification of assets held for sale discussed above. The increase in commercial loans was partially funded by runoff of investment securities, which declined $261 million, or 7 percent, since December 31, 1997. Total liabilities increased $135 million, or less than 1 percent, to $33.7 billion since December 31, 1997. Interest-bearing deposits increased $1.2 billion, or 7 percent, since December 31, 1997. This increase was offset by declines of $550 million in both noninterest- bearing deposits and medium- and long-term debt. Allowance for Credit Losses and Nonperforming Assets - ---------------------------------------------------- The Corporation maintains the allowance for credit losses at a level that in management's judgement is adequate to provide for estimated probable credit losses inherent in on- and off-balance sheet credit exposure. The allowance for credit losses attributable to off-balance sheet exposure is not material. Management determines the adequacy of the allowance for credit 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 credit 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. However, the Corporation cannot assure that the actual loss ratios will not vary from those projected. At March 31, 1998, the allowance for credit losses was $430 million, an increase of $6 million, or 1 percent, since December 31, 1997. The allowance as a percentage of total loans increased to 1.58 percent, compared to 1.47 percent at December 31, 1997. As a percentage of total nonperforming assets, the allowance increased from 413 percent at year-end 1997 to 488 percent at March 31, 1998. Net charge-offs for the first quarter of 1998 were $22 million, or 0.31 percent of average total loans, compared with $17 million, or 0.26 percent, for the year-earlier quarter. An analysis of the allowance for credit losses is presented in Note 5 to the consolidated financial statements. 20 Nonperforming assets declined $15 million, or 14 percent, since December 31, 1997, and were categorized as follows:
(in thousands) March 31, 1998 December 31, 1997 -------------- ----------------- Nonaccrual loans: Commercial $ 55,892 $ 58,914 International 500 1,000 Real estate construction 2,265 3,438 Commercial mortgage 9,765 11,088 Residential mortgage 5,024 3,719 --------- --------- Total nonaccrual loans 73,446 78,159 Reduced-rate loans 8,207 7,583 --------- --------- Total nonperforming loans 81,653 85,742 Other real estate 6,306 17,046 --------- --------- Total nonperforming assets $ 87,959 $ 102,788 ========= ========= Loans past due 90 days or more-domestic $ 61,110 $ 52,805 ========= =========
Nonperforming assets as a percentage of total loans and other real estate at March 31, 1998 and December 31, 1997, were 0.32 percent and 0.36 percent, respectively. Capital - ------- Common shareholders' equity was up $59 million from December 31, 1997 to March 31, 1998, excluding the change in unrealized gains/(losses) on investment securities available for sale. The increase was primarily due to the retention of $90 million in earnings, offset by the repurchase of 0.8 million shares of common stock under various corporate programs. Capital ratios continue to comfortably exceed minimum regulatory requirements as follows:
March 31, December 31, 1998 1997 ----------- ----------- Leverage ratio (3.00 - minimum) 7.21% 7.09% Tier 1 risk-based capital ratio (4.0 - minimum) 7.10 7.07 Total risk-based capital ratio (8.0 - minimum) 11.10 11.14
At March 31, 1998, 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. 21 Other Matters - ------------- In April 1998, the Corporation completed the sale of $186 million of its non-relationship credit card accounts and $1.8 billion of indirect automobile and marine/RV loans. Combined with the sale of mortgage servicing rights, for which an agreement has been signed but settlement has yet to occur, the Corporation expects to record a nominal gain. These assets were classified as "Assets held for sale" at March 31, 1998. Included in Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition are forward-looking statements based on current expectations or the assumptions made in the earnings simulation analyses, but numerous factors could cause variances in these projections, and their underlying assumptions, such as changes in interest rates and the industries where the Corporation has a concentration of loans. 22 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits (11) Statement re: Computation of Earnings Per Share (21) Subsidiaries of Registrant (27) Financial Data Schedule (b) Reports on Form 8-K The Corporation did not file any reports on Form 8-K during the three months ended March 31, 1998. 23 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/Marvin J. Elenbaas -------------------------------------- Marvin J. Elenbaas Senior Vice President and Controller (Principal Accounting Officer) Date: May 15, 1998 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 March 31 ------------------- 1998 1997 -------- ------- Basic: Average shares outstanding 156,717 159,901 Net income $144,383 $123,772 Less preferred stock dividends 4,275 4,275 -------- -------- Net income applicable to common stock $140,108 $119,497 ======== ======== Basic net income per share $0.89 $0.75 Diluted Average shares outstanding 156,717 159,901 Nonvested stock 190 208 Common stock equivalent: Net effect of the assumed exercise of stock options 2,861 2,290 -------- -------- Diluted average shares 159,768 162,399 ======== ======== Net income $144,383 $123,772 Less preferred stock dividends 4,275 4,275 -------- -------- Net income applicable to common stock $140,108 $119,497 ======== ======== Diluted net income per share $0.88 $0.74
EX-21 3 1 Exhibit (21) - Subsidiaries of Registrant
Name State or Jurisdiction of Incorporation - ---- -------------------------------------- or Organization --------------- Comerica Investment Services, Inc. Michigan Comerica Capital Markets Corporation Michigan Comerica Insurance Services, Inc. Michigan Comerica Insurance Group, Inc. Michigan Comerica Securities, Inc. Michigan Wilson, Kemp & Associates, Inc. Michigan WAM Holdings, Inc. Delaware Comerica AutoLease, Inc. Michigan VRB Corp. Michigan Comerica International Corporation U.S. Comerica International (Canada), Limited Ontario, Canada Comerica International (Canada) Properties Ontario, Canada Limited Comerica Trust Company of Bermuda, Ltd. Bermuda Comerica Holdings Incorporated Delaware CMT Holdings, Inc. Texas Comerica Merchant Services, Inc. Delaware Interstate Select Insurance Services, Inc. California Comerica Acceptance Corporation Michigan Comerica Assurance Ltd Bermuda Comerica Corporate Services Incorporated Michigan Comerica Insurance Company Arizona Comerica Properties Corporation Michigan Professional Life Underwriters Services, Inc. Michigan Comerica Trade Services Limited Hong Kong Comerica Leasing Corporation Michigan Comerica Management Co., Inc. Michigan Munder UK, LLC Delaware Comerica Networking, Inc. Michigan Comerica England Branch Bermuda Viyella Finance Bermuda Comerica London Branch Bermuda Comerica UK Branch Bermuda Comerica West Incorporated Delaware Comerica Bank-Mexico, S.A. Mexico Comerica Bank-California California Comerica Bank-Texas Texas Comerica Bank & Trust, F.S.B. Florida Comerica Bank-Midwest, N.A. United States Comerica Bank-Ann Arbor, N.A. United States Comerica Bank-Canada Canada Comerica Bank Michigan
EX-27 4
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 1998 FORM 10-Q FOR COMERICA INCORPORATED AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1,883,135 3,671 94,171 4,064 3,744,532 0 0 27,209,113 429,648 36,492,351 23,193,302 3,301,155 434,192 6,736,815 785,944 0 250,000 1,790,943 36,492,351 606,990 64,399 2,472 673,861 167,137 308,253 365,608 28,000 (1,150) 249,873 222,587 144,383 0 0 144,383 0.89 0.88 4.50 73,446 61,110 8,207 0 424,147 32,838 10,339 429,648 194,705 4,203 230,740
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