-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, asxmqF1y6eRv9EFK1S+EIXcFZhTfdxHFB58rZcknYmv71oSzkAxYxvFZXLC5o/TV H7r2izXJc7FWyZxJynKbAw== 0000028412-94-000014.txt : 19940519 0000028412-94-000014.hdr.sgml : 19940519 ACCESSION NUMBER: 0000028412-94-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMERICA INC /NEW/ CENTRAL INDEX KEY: 0000028412 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 381998421 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10706 FILM NUMBER: 94528068 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 FORM 10-Q REPORT FOR PERIOD ENDED MARCH 31, 1994 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 March 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-10706 Comerica Incorporated (Exact name of registrant as specified in its charter) Delaware 38-1998421 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Comerica Tower at Detroit Center Detroit, Michigan 48226 (Address of principal executive offices) (Zip Code) (313) 222-3300 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. $5 par value common stock: outstanding as of April 30, 1994: 118,561,000 shares 2
PART I. FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS COMERICA INCORPORATED AND SUBSIDIARIES (In thousands, except share data) March 31, Dec. 31, March 31, 1994 1993 1993 ----------- ------------ ----------- ASSETS Cash and due from banks $ 1,586,946 $ 1,600,695 $ 1,861,001 Interest-bearing deposits with banks 791,607 1,026,473 846,386 Federal funds sold and securities purchased under agreements to resell 121,041 1,091,789 33,682 Trading account securities 5,768 3,600 2,859 Mortgages held for sale 194,817 330,667 171,870 Investment securities available for sale 3,113,396 2,322,101 - Investment securities held to maturity (estimated fair value of $5,310,525 at 3/31/94, $4,030,492 at 12/31/93 and $5,631,042 at 3/31/93) 5,365,748 3,977,450 5,474,806 ----------- ----------- ----------- Total investment securities 8,479,144 6,299,551 5,474,806 Commercial loans 9,450,856 9,086,757 8,256,345 International loans 1,294,825 1,135,585 758,919 Real estate construction loans 399,478 437,481 432,120 Commercial mortgage loans 2,953,978 2,699,861 2,646,150 Residential mortgage loans 2,161,824 1,856,822 2,037,865 Consumer loans 3,655,422 3,674,256 3,729,968 Lease financing 204,187 209,185 196,213 ----------- ----------- ----------- Total loans 20,120,570 19,099,947 18,057,580 Less allowance for loan losses (319,586) (298,685) (310,464) ----------- ----------- ----------- Net loans 19,800,984 18,801,262 17,747,116 Premises and equipment 414,461 399,123 371,693 Customers' liability on acceptances outstanding 35,329 38,212 36,350 Accrued income and other assets 739,144 703,501 597,111 ----------- ----------- ----------- TOTAL ASSETS $32,169,241 $30,294,873 $27,142,874 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits (noninterest- bearing) $ 5,278,470 $ 4,939,234 $ 4,336,159 Interest-bearing deposits 15,056,736 14,642,834 15,285,562 Deposits in foreign offices 1,285,236 1,367,811 1,243,089 ----------- ----------- ----------- Total deposits 21,620,442 20,949,879 20,864,810 Federal funds purchased and securities sold under agreements to repurchase 1,847,457 450,092 2,052,557 Other borrowed funds 4,152,101 4,950,507 926,703 Acceptances outstanding 35,329 38,212 36,350 Accrued expenses and other liabilities 310,566 263,969 246,717 Long-term debt 1,885,478 1,460,556 903,068 ----------- ----------- ----------- Total liabilities 29,851,373 28,113,215 25,030,205 Common stock - $5 par value: Authorized - 250,000,000 shares Issued-119,294,531 shares at 3/31/94, 119,294,531 shares at 12/31/93, and 119,969,288 shares at 3/31/93 596,473 596,473 599,846 Capital surplus 524,523 524,186 539,543 Unrealized gains/(losses) on investment securities available for sale 8,748 27,473 - Retained earnings 1,209,647 1,155,280 998,987 Less cost of common stock in treasury-787,521 shares at 3/31/94, 4,423,603 shares at 12/31/93 and 876,902 shares at 3/31/93 (21,523) (121,754) (25,707) ----------- ----------- ----------- Total shareholders' equity 2,317,868 2,181,658 2,112,669 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $32,169,241 $30,294,873 $27,142,874 =========== =========== =========== /TABLE 3 CONSOLIDATED STATEMENTS OF INCOME COMERICA INCORPORATED AND SUBSIDIARIES
(In thousands, except per share data) Three Months Ended March 31 -------------------- 1994 1993 -------- -------- INTEREST INCOME Interest and fees on loans $342,112 $340,644 Interest on investment securities: Taxable 91,191 82,175 Exempt from federal income tax 8,665 11,606 -------- -------- Total interest on investment securities 99,856 93,781 Trading account interest (136) 283 Interest on federal funds sold and securities purchased under agreements to resell 2,468 1,194 Interest on time deposits with banks 7,365 7,822 Interest on mortgages held for sale 3,730 3,423 -------- -------- Total interest income 455,395 447,147 INTEREST EXPENSE Interest on deposits 118,699 140,172 Interest on short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 18,405 9,212 Other borrowed funds 20,195 9,384 Interest on long-term debt 22,291 13,016 Net interest rate swap income (14,486) (6,539) -------- -------- Total interest expense 165,104 165,245 -------- -------- Net interest income 290,291 281,902 Provision for loan losses 15,000 22,000 -------- -------- Net interest income after provision for loan losses 275,291 259,902 NONINTEREST INCOME Income from fiduciary activities 32,005 29,790 Service charges on deposit accounts 29,174 30,493 Customhouse broker fees 9,725 9,140 Revolving credit fees 7,931 7,902 Securities gains 424 634 Other noninterest income 32,686 31,719 -------- -------- Total noninterest income 111,945 109,678 NONINTEREST EXPENSES Salaries and employee benefits 131,704 134,715 Net occupancy expense 24,578 24,359 Equipment expense 16,197 14,486 FDIC insurance expense 10,709 11,972 Other noninterest expenses 68,518 66,903 -------- -------- Total noninterest expenses 251,706 252,435 -------- -------- Income before income taxes 135,530 117,145 Provision for income taxes 44,667 34,020 -------- -------- NET INCOME $ 90,863 $ 83,125 ======== ======== Net income applicable to common stock $ 90,863 $ 83,083 ======== ======== NET INCOME PER SHARE: Primary $.79 $.69 Fully diluted $.79 $.69 Primary average shares 115,464 120,014 Cash dividends declared $31,931 $29,677 Dividends per share $.28 $.255
4 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Comerica Incorporated and Subsidiaries
Redeemable Unrealized Total Preferred Common Capital Gains/ Retained Treasury Shareholders' (in thousands) Stock Stock Surplus (Losses) Earnings Stock Equity --------- --------- --------- ---------- ----------- -------- ------------ BALANCES AT JANUARY 1, 1993 $ 37,605 $ 291,725 $ 516,290 $ - $ 1,205,788 $ (4,917) $ 2,046,491 Pooling-of- interests adjustments - 17,494 21,807 - 33,290 (23,945) 48,646 -------- --------- --------- ---------- ----------- ---------- ----------- BALANCES AT JANUARY 1, 1993, AS RESTATED 37,605 309,219 538,097 - 1,239,078 (28,862) 2,095,137 Net income for 1993 - - - - 83,125 - 83,125 Cash dividends declared: Preferred stock - - - - (42) - (42) Common stock - - - - (29,677) - (29,677) Issuance of common stock under employee stock plans and for conversion of debentures - 3,048 1,276 - (1,744) 3,155 5,735 Stock split - 287,579 - - (287,579) - - Amortization of deferred compensation - - 170 - - - 170 Redemption of preferred stock (37,605) - - - (4,174) - (41,779) -------- --------- --------- ---------- ----------- ---------- ----------- BALANCES AT MARCH 31, 1993 $ - $ 599,846 $ 539,543 $ - $ 998,987 $ (25,707) $ 2,112,669 -------- --------- --------- ---------- ----------- ---------- ----------- BALANCES AT JANUARY 1, 1994 $ - $ 596,473 $ 524,186 $ 27,473 $ 1,155,280 $(121,754) $ 2,181,658 Net income for 1994 - - - - 90,863 - 90,863 Cash dividends declared on common stock - - - - (31,931) - (31,931) Purchase of 981,700 shares of common stock - - - - - (26,330) (26,330) Issuance of common stock: Employee stock plans - - 178 - (707) 1,340 811 Acquisition of Pacific Western - - - - (3,858) 125,221 121,363 Amortization of deferred compensation - - 159 - - - 159 Change in unrealized gains/ (losses) on investment securities available for sale - - - (18,725) - - (18,725) -------- --------- --------- ---------- ----------- --------- ----------- BALANCES AT MARCH 31, 1994 $ - $ 596,473 $ 524,523 $ 8,748 $ 1,209,647 $ (21,523) $ 2,317,868 ======== ========= ========= ========== =========== ========== ===========
5 CONSOLIDATED STATEMENTS OF CASH FLOWS Comerica Incorporated and Subsidiaries (in thousands)
Three Months Ended March 31 ------------------------------- 1994 1993 OPERATING ACTIVITIES: ------------ ------------ Net income $ 90,863 $ 83,125 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 15,000 22,000 Depreciation 14,215 13,377 Net (increase) decrease in trading account securities (2,168) 106,520 Net decrease in mortgages held for sale 135,850 62,842 Net increase in accrued income receivable (13,827) (4,654) Net increase in accrued expenses 62,138 49,043 Net amortization of intangibles 6,557 8,462 Other, net 5,066 57,868 ------------ ------------ Total adjustments 222,831 315,458 ------------ ------------ Net cash provided by operating activities 313,694 398,583 INVESTING ACTIVITIES: Net decrease in interest-bearing deposits with banks 234,866 475,129 Net decrease in federal funds sold and securities purchased under agreements to resell 970,748 52,950 Proceeds from maturity of investment securities available for sale 131,797 - Purchases of investment securities available for sale (1,002,000) - Proceeds from maturity of investment securities held to maturity 655,278 635,506 Purchase of investment securities held to maturity (1,800,860) (928,587) Net (increase) decrease in loans (other than purchased loans) (236,522) 148,660 Purchase of loans (206,723) (7,988) Fixed assets, net (16,168) (10,779) Net (increase) decrease in customers' liability on acceptances outstanding 2,883 (10,686) Net cash provided by acquisition 79,076 - ------------ ------------ Net cash provided by (used in) investing activities (1,187,625) 354,205 FINANCING ACTIVITIES: Net decrease in deposits (102,749) (334,708) Net increase (decrease) in short-term borrowings 598,428 (242,449) Net increase (decrease) in acceptances outstanding (2,883) 10,686 Proceeds from issuance of long-term debt 500,000 175,000 Repayments and purchases of long-term debt (75,078) (13,125) Proceeds from issuance of common stock and other capital transactions 970 5,905 Purchase of common stock for treasury (26,330) - Redemption of preferred stock - (41,779) Dividends paid (32,176) (31,059) ------------ ------------ Net cash provided by (used in) financing activities 860,182 (471,529) ------------ ------------ Net increase in cash and due from banks (13,749) 281,259 Cash and due from banks at beginning of year 1,600,695 1,579,742 ------------ ------------ Cash and due from banks at end of period $ 1,586,946 $ 1,861,001 ============ ============ Interest paid $ 159,842 $ 159,021 ============ ============ Income taxes paid $ 75 $ 40 ============ ============ Noncash investing and financing activities: Loan transfers to other real estate $ 1,629 $ 4,135 ============ ============ Conversion of debentures to equity $ - $ 623 ============ ============ Treasury stock issued for acquisition $ 121,363 $ - ============ ============
6 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 1 - Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1994 are not necessarily indicative of the results that may be expected for the year ended December 31, 1994. For further information, refer to the consolidated financial statements and footnotes thereto included in the Comerica Incorporated and Subsidiaries' annual report on Form 10-K for the year ended December 31, 1993. Note 2 - Investment Securities At March 31, 1994 investment securities having a carrying value of $5,277,443,000 were pledged where permitted or required by law to secure liabilities and public and other deposits including deposits of the State of Michigan of $29,176,000. 7 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 3 - Allowance for Loan Losses The following analyzes the changes in the allowance for loan losses included in the consolidated balance sheets: 1994 1993 --------- --------- Balance at January 1 $ 298,685 $ 308,007 Allowance acquired 16,517 - Loans charged off (18,203) (27,402) Recoveries on loans previously charged off 7,587 7,859 --------- --------- Net loans charged off (10,616) (19,543) Provision for loan losses 15,000 22,000 --------- --------- Balance at March 31 $ 319,586 $ 310,464 ========= ========= Note 4 - Long-term Debt Long-term debt consisted of the following at March 31, 1994 and December 31, 1993:
March 31, 1994 Dec. 31, 1993 -------------- ----------------- 9.75% equity subordinated notes due 1999 $ 74,534 $ 74,511 10.125% subordinated debentures due 1998 74,661 74,641 ---------- ---------- Total Parent Company 149,195 149,152 7.25% subordinated notes due 2002 148,659 148,619 Medium-term fixed rate notes bearing interest at rates ranging from 3.28% to 5.95% and maturing on dates ranging from 1994 through 1997 1,329,183 904,285 6.875% subordinated notes due 2008 98,932 98,913 7.125% subordinated notes due 2013 147,807 147,779 FDIC subordinated note due 1994 to 1995 8,978 8,941 Notes payable bearing interest at rates ranging from 6.29% to 13% and maturing on dates ranging from 1994 through 1996 2,724 2,867 ---------- ---------- Total Subsidiaries 1,736,283 1,311,404 ---------- ---------- Total Comerica Incorporated $1,885,478 $1,460,556 ========== ==========
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 - Derivatives Derivative financial instruments are contracts whose value is derived from the value of underlying interest rate, foreign exchange, or equity instruments (or related indices). The notional, or contractual, amounts of these instruments express the extent of involvement the Corporation has in each particular instrument. The Corporation utilizes derivatives, primarily interest rate swaps, to manage interest rate and currency risk exposures related to specified groups of assets and liabilities, as well as to accommodate the needs of its customers. The Corporation's use of derivatives takes place predominantly in the interest rate market, and involves the use of forwards, futures, swaps, caps, floors, and options. The notional amounts of the Corporation's off-balance sheet derivative instrument portfolio is shown below: March 31, December 31, (in millions) 1994 1993 --------- ------------ Interest rate contracts Swaps $ 4,160 $ 3,634 Futures and forwards 40 65 Options written 282 283 Options purchased 156 56 ------- ------- Total interest rate contracts 4,638 4,038 Foreign exchange rate contracts Swaps 18 - Spot, forwards, and futures 633 356 ------- ------- Total exchange rate contracts 651 356 Total derivatives contracts $ 5,289 $ 4,394 ======= ======= The notional amounts used to express the extent of the Corporation's involvement in derivatives are not indicative of the potential for gain or loss on such positions. Likewise, notional amounts do not represent the credit or market risks of the positions held, estimated as the cost required to replace the transaction. The Corporation evaluates the creditworthiness of all off-balance sheet counterparties adhering to the same standards used in other credit transactions. At March 31, 1994, and December 31, 1993, replacement costs of outstanding off-balance sheet derivatives approximated $176 million and $114 million, respectively. 9 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Derivatives (Continued) Unrealized gains and losses on interest rate derivative products at March 31, 1994 and December 31, 1993 are summarized as follows: March 31, December 31, (in thousands) 1994 1993 --------- ------------ Unrealized gains $ 24,019 $ 65,371 Unrealized losses (97,838) (20,838) -------- -------- Net unrealized gain (loss) $(73,819) $ 44,533 ======== ======== Summary information with respect to the Corporation's off-balance sheet interest rate derivative activity follows:
Three Months Ended Year Ended March 31, December 31, (in millions) 1994 1993 ----------- ------------ Notional balance at beginning of period $ 4,038 $ 2,728 Additions 1,650 2,402 Maturities/Amortizations (1,050) (1,092) Terminations - - ------- ------- Notional balance at end of period $ 4,638 $ 4,038 ======= =======
Interest rate swap agreements involve the exchange of fixed and floating rate interest payments based on an underlying notional amount, and constitute a major portion of the Corporation's derivative portfolio. The Corporation utilizes swaps as an end-user to manage risk; therefore, net interest income is recognized as it accrues. At March 31, 1994, interest rate swaps generated $15 million of net interest income, compared to $7 million for the same period in 1993, and $32 million for all of 1993. 10 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Derivatives (Continued) The table below summarizes the expected maturities and weighted average interest rates to be paid and received on the Corporation's interest rate swap portfolio as of March 31, 1994. Remaining Maturity of Interest Rate Swaps:
Notional Average Average (in millions) Amount Pay Rate Receive Rate -------- -------- ------------ 1994 $1,429 3.86% 4.83% 1995 $1,200 3.93% 4.56% 1996 $451 4.01% 5.44% 1997 $447 3.47% 5.70% 1998 $175 3.45% 5.21% 1999-2013 $458 3.63% 6.66%
11 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Comerica Incorporated reported net income of $91 million for the three months ended March 31, 1994, an increase of 9 percent compared to $83 million reported for the same period in 1993. On a per share basis, net income was $0.79 for the first quarter of 1994, compared to $0.69 for the first quarter of 1993. Return on average common shareholders' equity was 16.68 percent, and return on average assets was 1.22 percent for the first three months of 1994, versus 16.10 percent and 1.26 percent, respectively, for the same period in 1993. Acquisitions On March 30, 1994 the Corporation completed the acquisition of the $1 billion Pacific Western Bancshares in San Jose, California for $121 million of common stock (4,567,974 shares), in a transaction accounted for as a purchase. On April 4, 1994 the Corporation entered into an Agreement and Plan of Merger with the $331 million Lockwood Banc Group Inc. in Houston, Texas for the acquisition of Lockwood by Comerica for approximately $44 million in cash. Consummation of the acquisition, subject to regulatory and shareholder approval, is expected in the fourth quarter of 1994, and is anticipated to be accounted for as a purchase. Net Interest Income Net interest income for the first quarter of 1994, on a fully taxable equivalent (FTE) basis, increased by $7 million, or 2 percent, versus the comparable period a year earlier. Net interest income growth was principally attributable to an increase in average earning assets, and partially offset by a lower net interest margin compared to the first quarter of 1993. Total average earning assets increased by 13 percent, led by increases in the investment securities and loan portfolios. Within average earning assets, however, the relative mix shifted away from loans and short-term assets towards a greater concentration of securities, which 12 were added to reduce the Corporation's asset sensitivity. The net interest margin fell 44 basis points, from 4.77 to 4.33, as the change in the mix of earning assets towards lower-yielding securities coupled with the repricing of assets in a declining rate environment to reduce the rate spread. Components of the change in net interest income (FTE) due to variations in interest rates and changes in volume are shown in Table I, the Rate-Volume Analysis. Provision for Loan Losses The provision for loan losses was $15 million in the first quarter of 1994 versus $22 million in the first quarter of 1993. The provision is predicated upon maintaining an adequate allowance for loan losses, which is further discussed under the section entitled "Financial Condition". Continued improvement in overall credit quality, as evidenced by fewer net charge-offs, led the Corporation to reduce the provision from the first quarter of 1993. Noninterest Income Noninterest income for the three months ended March 31, 1994 rose $2 million to $112 million, a 2 percent increase over the same period in 1994. Income from fiduciary activities increased $2 million, or 7 percent, over the first quarter of 1993. The increase was concentrated in Personal Trust fees, which benefited from a revised fee structure, as well as market appreciation of managed assets. Service charges on deposit accounts decreased by $1 million, or 4 percent, in response to higher earnings credit allowances used in the calculation of fees on commercial accounts as compared to the first quarter of 1993. Other noninterest income increased $1 million, or 3 percent over the first three months of 1993, benefiting from a $3 million gain on the sale of mortgage servicing rights in the first quarter of 1994, and a $2 million decrease in the amortization of purchased mortgage servicing rights (PMSRs) over the same period in 1993, reflecting lower levels of mortgage prepayments. 13
TABLE I - QUARTERLY ANALYSIS OF NET INTEREST INCOME & RATE/VOLUME (FTE) Three Months Ended ------------------------------------------------------------- March 31, 1994 March 31, 1993 ----------------------------- ----------------------------- Average Average Average Average (in millions) Balance Interest Rate Balance Interest Rate - - ---------------------------------------------------------------------------------------------- Loans $19,108 $ 344 7.27% $17,788 $ 343 7.78% Investment securities 7,112 104 5.90 5,274 100 7.55 Other earning assets 1,377 14 3.94 1,329 12 3.87 - - ---------------------------------------------------------------------------------------------- Total earning assets 27,597 462 6.75 24,391 455 7.52 Interest-bearing deposits 16,196 119 2.97 16,630 140 3.42 Short-term borrowings 4,968 24 1.98 2,652 12 1.86 Long-term debt 1,688 22 5.28 831 13 6.27 - - ---------------------------------------------------------------------------------------------- Total interest-bearing sources $22,852 165 2.92 $20,113 165 3.33 ----------------- ----------------- Net interest income/ Rate spread (FTE) $ 297 3.83 $ 290 4.19 ====== ====== FTE adjustment $ 6 $ 8 ====== ====== Impact of net noninterest-bearing sources of funds 0.50 0.58 - - ---------------------------------------------------------------------------------------------- Net interest margin as a percent of average earning assets (FTE) 4.33% 4.77% ============================================================================================== Increase Increase (Decrease) (Decrease) Net Due to Due to Increase Rate Volume* (Decrease) ---------- ---------- ---------- (in millions) Loans $ (16) $ 17 $ 1 Investment securities (19) 24 5 Other earning assets (1) 2 1 ------------------------------ Total earning assets (36) 43 7 Interest-bearing deposits (16) (5) (21) Short-term borrowings (6) 18 12 Long-term debt (2) 11 9 ------------------------------ Total interest-bearing sources (24) 24 - ------------------------------ Net interest income/Rate spread (FTE) $ (12) $ 19 $ 7 ============================== * Rate/Volume variances are allocated to variances due to volume. /TABLE 14 Noninterest Expenses Noninterest expenses totaled $252 million for the first quarter of 1994, a $1 million decrease from the same period in 1993. First quarter salaries and employee benefits expenses fell $3 million, or 2 percent, in 1994 over 1993 due to staff reductions related to the merger, and decreased levels of temporary staff and contract labor used to complete merger-related systems conversions. Equipment expense for the quarter increased $2 million, or 12 percent, due to increased depreciation related to computer and system upgrades in 1993, and expenses associated with equipment maintenance. Other noninterest expense rose $2 million, or 2 percent, in the first quarter of 1994, reflecting the Corporation's ability to control growth to less than normal inflationary increases. Provision for Income Taxes The provision for income taxes increased $11 million in the first three months of 1994 versus the comparable period in 1993. The Corporation revised its estimated annual tax rate in the third quarter of 1993 to reflect an increase in the federal statutory tax rate from 34% to 35%, affecting comparability between periods. The provision for income taxes differs from taxes calculated at the statutory rate, principally from tax-exempt income on state and municipal securities. Financial Condition Total assets at March 31, 1994 increased $1.9 billion to $32.2 billion, a 6 percent increase since December 31, 1993. Earning assets increased by 7 percent, or $1.9 billion, led by increases in both the investment securities and loan portfolios, which were partially offset by declines in federal funds sold. Investment securities rose $2.2 billion since year-end 1993, largely related to increased purchases of mortgage-backed Government Agency securities, which offer superior credit quality, and relatively attractive yields. 15 The $1.0 billion increase in the loan portfolio was concentrated in commercial and residential mortgage loans, which increased $364 million and $305 million, respectively, since year-end 1993, due principally to the Pacific Western acquisition, and the purchase of two residential mortgage loan portfolios during the quarter. Liabilities increased by $1.7 billion, or 6 percent, since December 31, 1993. For the first quarter of 1994, total deposits increased by $671 million, due to the Pacific Western acquisition. Short-term borrowings increased by $596 million since December 31, 1993. Within short-term borrowings, federal funds purchased increased by $1.4 billion, while other borrowed funds fell $798 million, due primarily to large decreases in treasury, tax and loan borrowings from the U.S. Government. The Corporation's long-term debt increased $425 million since year-end 1993, due primarily to the issuance of $500 million of medium- term notes. This increase was partially offset by the maturation of $75 million of medium-term notes. An analysis of long-term debt is contained in the notes to the consolidated financial statements. Allowance for Loan Losses The allowance for loan losses at March 31, 1994 was $320 million, an increase of $21 million since December 31, 1993. As a percent of total loans, the allowance was 1.59 percent at March 31, 1994, compared to 1.56 percent at December 31, 1993. Net charge-offs were $11 million for the first quarter of 1994, and $20 million for the comparable 1993 period. An analysis of the allowance for loan losses is contained in the notes to the consolidated financial statements. Management determines the adequacy of the allowance for loan losses by applying projected loss ratios to the risk-ratings of loans both individually, and by category. The projected loss ratios incorporated a variety of factors such as recent loss experience, current economic conditions, trends in past due and nonaccrual amounts, risk characteristics of the various categories and concentrations of loans, and other factors. 16 Nonperforming assets have increased since December 31, 1993, and were categorized as follows: (in thousands) March 31, 1994 December 31, 1993 -------------- ----------------- Nonaccrual loans Commercial loans $ 83,078 $ 71,268 International loans 215 215 Real estate construction loans 17,459 18,748 Commercial and residential real estate loans 90,376 63,688 --------- --------- Total 191,128 153,919 Reduced-rate loans 2,189 5,057 --------- --------- Total nonperforming loans 193,317 158,976 Other real estate 57,296 50,174 --------- --------- Total nonperforming assets $ 250,613 $ 209,150 ========= ========= Loans past due 90 days $ 46,827 $ 45,880 ========= ========= Excluding the Pacific Western acquisition, nonperforming assets would have declined by $10 million since year-end 1993. Nonperforming assets as a percentage of total loans and other real estate at March 31, 1994 and December 31, 1993 were 1.24 percent and 1.09 percent, respectively. Capital Shareholder's equity increased $136 million from December 31, 1993 to March 31, 1994, principally through the retention of earnings, and the issuance of $121 million of treasury stock in connection with the Pacific Western acquisition. The increase was partially offset by $26 million of stock repurchases (981,700 shares), related to the Pacific Western acquisition and for reissuance under employee stock plans, and a $19 million decrease in unrealized gains on investment securities available for sale. Capital ratios continue to comfortably exceed regulatory minimums and were as follows: March 31, December 31, 1994 1993 ------------- ------------ Minimum leverage ratio (3.00 - minimum) 7.11% 7.04% Tier 1 risk-based capital (4.0 - minimum) 8.26 8.21 Total risk-based capital (8.0 - minimum) 11.59 11.58 17 At March 31, 1994, the capital ratios of all of the Corporation's banking subsidiaries exceeded the minimum ratios required of a "well capitalized" institution as defined in the final rule under FDICIA. Other Matters As disclosed in Part I, Item 3 of Form 10-K for the year ended December 31, 1993, the State of Michigan filed on July 24, 1990 a lawsuit against Manufacturers Bank, N.A. (which was merged with and into Comerica Bank in September, 1992) seeking to impose strict, joint, and several liabilities upon Manufacturers Bank pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), the Resource Conservation and Recovery Act, and the Michigan Water Resources Commission Act. Plaintiff alleged that Manufacturers Bank was an operator of certain facilities which have environmental problems and that Manufacturers Bank had indicia of ownership under CERCLA. The facilities involved were actually owned and operated by Auto Specialties Manufacturing Company ("AUSCO"), now in bankruptcy. Plaintiff seeks cleanup costs and damages and has expressed the opinion that the claim will be well in excess of $30,000,000. On January 12, 1993, the United States District Court for the Western District of Michigan granted Manufacturers Bank its motion for summary judgment. The Attorney General has appealed the Court's order for summary judgement. Comerica's management believes that this action will not have a materially adverse effect on Comerica's consolidated financial position, although it may, depending upon the amount of ultimate liability, if any, and the consolidated results of operations in the year of final resolution, have a materially adverse effect on the consolidated results of operation in that year. 18 PART II ITEM 6. Exhibits (a) Exhibits 11. Statements re: computation of earnings per share (b) Reports on Form 8-K None 19 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COMERICA, INCORPORATED -------------------------------------- (Registrant) /s/Paul H. Martzowka -------------------------------------- Paul H. Martzowka Executive Vice President and Chief Financial Officer (Principal Financial Officer) /s/Arthur W. Hermann -------------------------------------- Arthur W. Hermann Senior Vice President and Controller (Principal Accounting Officer) Date: May 11, 1994 EX-11 2 THIS IS EXHIBIT 11 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 ------------------- 1994 1993 -------- ------- Primary: Average shares outstanding 114,571 118,664 Common stock equivalent: Net effect of the assumed exercise of stock options 893 1,350 -------- -------- Primary average shares 115,464 120,014 ======== ======== Net income $ 90,863 $ 83,125 Less preferred stock dividends - 42 -------- -------- Income applicable to common stock $ 90,863 $ 83,083 ======== ======== Primary net income per share $0.79 $0.69 Fully diluted: Average shares outstanding 114,571 118,664 Common stock equivalents: Net effect of the assumed exercise of stock options 893 1,414 Average shares reserved for conversion of convertible debt - 486 -------- -------- Fully diluted average shares 115,464 120,564 ======== ======== Net income $ 90,863 $ 83,125 Less preferred stock dividends - 42 -------- -------- Income applicable to common stock $ 90,863 $ 83,083 Interest on convertible debt less related income tax effect - 69 -------- -------- Net income applicable to common stock excluding above interest (net of income tax effect) $ 90,863 $ 83,152 ======== ======== Fully diluted net income per share $0.79 $0.69
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