-----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, PyHPpa+Nq0Hd+hM4S/8opJcWvSAOuXAnrmJXS7Cl6uRr7i5BjlJpFkx4EpRwErTZ vLiV2hBBqo54QVAVfCa9Rg== 0000028412-96-000010.txt : 19960517 0000028412-96-000010.hdr.sgml : 19960517 ACCESSION NUMBER: 0000028412-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMERICA INC /NEW/ CENTRAL INDEX KEY: 0000028412 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [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: 96566760 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 March 31, 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 April 30, 1996: 116,667,000 shares 2 PART I. FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS Comerica Incorporated and Subsidiaries
March 31, December 31, March 31, (In thousands, except share data) 1996 1995 1995 ----------- ------------ ----------- ASSETS Cash and due from banks $ 1,230,251 $ 2,028,375 $ 1,628,359 Interest-bearing deposits with banks 3,069 23,568 180,710 Federal funds sold and securities purchased under agreements to resell 99,994 203,798 68,200 Trading account securities 9,106 10,668 2,287 Loans held for sale 79,962 511,562 49,300 Investment securities available for sale 6,715,161 6,859,310 2,951,025 Investment securities held to maturity (estimated fair value of $4,830,368 at 3/31/95) - - 4,971,778 ----------- ----------- ----------- Total investment securities 6,715,161 6,859,310 7,922,803 Commercial loans 12,783,170 12,041,009 11,160,791 International loans 1,483,900 1,384,814 1,134,541 Real estate construction loans 673,026 641,432 471,488 Commercial mortgage loans 3,562,550 3,254,041 3,174,989 Residential mortgage loans 2,099,874 2,221,359 2,499,519 Consumer loans 4,615,139 4,570,015 4,389,978 Lease financing 331,201 329,608 265,458 ----------- ----------- ----------- Total loans 25,548,860 24,442,278 23,096,764 Less allowance for loan losses (357,248) (341,344) (335,272) ----------- ----------- ----------- Net loans 25,191,612 24,100,934 22,761,492 Premises and equipment 464,708 455,002 460,137 Customers' liability on acceptances outstanding 74,263 21,135 43,730 Accrued income and other assets 1,155,355 1,255,522 991,927 ----------- ----------- ----------- TOTAL ASSETS $35,023,481 $35,469,874 $34,108,945 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits (noninterest- bearing) $ 5,790,068 $ 5,579,536 $ 4,956,262 Interest-bearing deposits 16,125,602 15,461,213 15,102,206 Deposits in foreign offices 994,908 2,126,466 1,857,864 ----------- ----------- ----------- Total deposits 22,910,578 23,167,215 21,916,332 Federal funds purchased and securities sold under agreements to repurchase 2,343,001 3,206,612 3,347,116 Other borrowed funds 1,830,038 1,467,550 2,100,976 Acceptances outstanding 74,263 21,135 43,730 Accrued expenses and other liabilities 408,372 355,219 314,945 Medium- and long-term debt 4,745,805 4,644,416 3,873,123 ----------- ----------- ----------- Total liabilities 32,312,057 32,862,147 31,596,222 Common stock - $5 par value: Authorized - 250,000,000 shares Issued-119,294,531 shares at 3/31/96 and 3/31/95 and 115,094,531 shares at 12/31/95 596,473 575,473 596,473 Capital surplus 510,985 408,644 526,465 Unrealized gains and losses on investment securities available for sale (29,722) (4,141) (31,327) Retained earnings 1,703,403 1,640,980 1,451,929 Less cost of common stock in treasury-1,776,564 shares at 3/31/96, 490,704 shares at 12/31/95 and 1,129,549 shares at 3/31/95 (69,715) (13,229) (30,817) ----------- ----------- ----------- Total shareholders' equity 2,711,424 2,607,727 2,512,723 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $35,023,481 $35,469,874 $34,108,945 =========== =========== =========== /TABLE 3 CONSOLIDATED STATEMENTS OF INCOME Comerica Incorporated and Subsidiaries
Three Months Ended March 31 -------------------- (In thousands, except per share data) 1996 1995 -------- -------- INTEREST INCOME Interest and fees on loans $536,878 $489,743 Interest on investment securities: Taxable 108,321 118,991 Exempt from federal income tax 5,328 6,770 -------- -------- Total interest on investment securities 113,649 125,761 Trading account interest 75 51 Interest on federal funds sold and securities purchased under agreements to resell 1,744 728 Interest on time deposits with banks 118 4,200 Interest on loans held for sale 1,966 1,139 -------- -------- Total interest income 654,430 621,622 INTEREST EXPENSE Interest on deposits 180,890 171,825 Interest on short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 33,196 40,376 Other borrowed funds 29,539 30,401 Interest on medium- and long-term debt 71,250 64,740 Net interest rate swap (income)/expense (9,706) 1,794 -------- -------- Total interest expense 305,169 309,136 -------- -------- Net interest income 349,261 312,486 Provision for loan losses 28,500 12,000 -------- -------- Net interest income after provision for loan losses 320,761 300,486 NONINTEREST INCOME Income from fiduciary activities 33,605 30,741 Service charges on deposit accounts 35,140 31,847 Customhouse broker fees 8,124 9,249 Revolving credit fees 6,924 6,875 Securities gains 360 201 Other noninterest income 53,275 36,426 -------- -------- Total noninterest income 137,428 115,339 NONINTEREST EXPENSES Salaries and employee benefits 145,924 137,107 Net occupancy expense 26,831 24,267 Equipment expense 18,046 17,029 FDIC insurance expense 626 10,845 Telecommunications expense 7,638 7,693 Other noninterest expenses 79,910 67,275 -------- -------- Total noninterest expenses 278,975 264,216 -------- -------- Income before income taxes 179,214 151,609 Provision for income taxes 62,608 51,587 -------- -------- NET INCOME $116,606 $100,022 ======== ======== Net income per share $ 0.98 $ 0.85 Average common and common equivalent shares 119,161 117,364 Cash dividends declared $ 41,239 $ 37,216 Dividends per share $ 0.35 $ 0.32
4 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Comerica Incorporated and Subsidiaries
Unrealized Total Common Capital Gains/ Retained Treasury Shareholders' (in thousands) 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 - - - 100,022 - 100,022 Cash dividends declared - - - (37,216) - (37,216) Purchase of 1,346,600 shares - - - - (36,623) (36,623) Issuance of shares: Employee stock plans - 437 - (1,282) 2,224 1,379 Acquisition of University Bank and Trust - 704 - - 68,693 69,397 Amortization of deferred compensation - 272 - - - 272 Change in unrealized gains/(losses) on investment securities available for sale - - 23,712 - - 23,712 --------- --------- --------- ----------- ---------- ------------ BALANCES AT MARCH 31, 1995 $ 596,473 $ 526,465 $ (31,327) $ 1,451,929 $ (30,817) $ 2,512,723 ========= ========= ========= =========== ========== =========== BALANCES AT JANUARY 1, 1996 $ 575,473 $ 408,644 $ (4,141) $ 1,640,980 $ (13,229) $ 2,607,727 Net income for 1996 - - - 116,606 - 116,606 Cash dividends declared - - - (41,239) - (41,239) Purchase of 2,134,924 shares - - - - (86,064) (86,064) Issuance of shares: Employee stock plans - 3,663 - (12,944) 23,933 14,652 Acquisition of Metrobank 21,000 98,472 - - 5,645 125,117 Amortization of deferred compensation - 206 - - - 206 Change in unrealized gains/(losses) on investment securities available for sale - - (25,581) - - (25,581) --------- --------- --------- ----------- ---------- ----------- BALANCES AT MARCH 31, 1996 $ 596,473 $ 510,985 $ (29,722) $ 1,703,403 $ (69,715) $ 2,711,424 ========= ========= ========= =========== ========== ===========
5 CONSOLIDATED STATEMENTS OF CASH FLOWS Comerica Incorporated and Subsidiaries
Three Months Ended March 31 --------------------------- (in thousands) 1996 1995 ------------ ------------ OPERATING ACTIVITIES: Net income $ 116,606 $ 100,022 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 28,500 12,000 Depreciation 16,898 15,284 Net decrease in trading account securities 1,562 2,045 Net decrease in loans held for sale 431,600 42,247 Net (increase) decrease in accrued income receivable 5,412 (17,426) Net increase in accrued expenses 23,363 71,836 Net amortization of intangibles 8,077 7,900 Funding for employee benefit plans - (75,000) Other, net 204,849 (46,470) ------------ ------------ Total adjustments 720,261 12,416 ------------ ------------ Net cash provided by operating activities 836,867 112,438 INVESTING ACTIVITIES: Net decrease in interest-bearing deposits with banks 20,555 198,163 Net decrease in federal funds sold and securities purchased under agreements to resell 173,804 13,100 Proceeds from sale of investment securities available for sale 5,894 8,928 Proceeds from maturity of investment securities available for sale 352,722 89,241 Purchases of investment securities available for sale (29,774) (5,648) Proceeds from maturity of investment securities held to maturity - 157,197 Purchases of investment securities held to maturity - (120,927) Net increase in loans (other than purchased loans) (439,820) (645,568) Purchase of loans (5,463) (18,756) Fixed assets, net (12,718) (20,883) Net increase in customers' liability on acceptances outstanding (53,128) (10,098) Net cash provided by acquisitions 89,023 27,993 ------------ ------------ Net cash provided by (used in) investing activities 101,095 (327,258) FINANCING ACTIVITIES: Net decrease in deposits (1,268,668) (934,724) Net increase (decrease) in short-term borrowings (510,631) 1,242,684 Net increase in acceptances outstanding 53,128 10,098 Proceeds from issuance of medium- and long-term debt 201,000 100,000 Repayments and purchases of medium- and long-term debt (99,611) (324,820) Proceeds from issuance of common stock and other capital transactions 14,858 1,651 Purchase of common stock for treasury (86,064) (36,623) Dividends paid (40,098) (37,400) ------------ ------------ Net cash provided by (used in) financing activities (1,736,086) 20,866 ------------ ------------ Net decrease in cash and due from banks (798,124) (193,954) Cash and due from banks at beginning of year 2,028,375 1,822,313 ------------ ------------ Cash and due from banks at end of period $ 1,230,251 $ 1,628,359 ============ ============ Interest paid $ 316,457 $ 297,703 ============ ============ Income taxes paid $ 848 $ 50,756 ============ ============ Noncash investing and financing activities: Loan transfers to other real estate $ 2,992 $ 3,323 ============ ============ Stock issued for acquisitions $ 125,117 $ 69,397 ============ ============
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 three months ended March 31, 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 March 31, 1996 investment securities having a carrying value of $5.3 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 $42 million. Note 3 - Allowance for Loan Losses The following analyzes the changes in the allowance for loan losses included in the consolidated balance sheets:
1996 1995 (in thousands) --------- --------- Balance at January 1 $ 341,344 $ 326,195 Allowance acquired 10,370 3,260 Loans charged off (30,226) (16,793) Recoveries on loans previously charged off 7,260 10,610 --------- --------- Net loans charged off (22,966) (6,183) Provision for loan losses 28,500 12,000 --------- --------- Balance at March 31 $ 357,248 $ 335,272 ========= =========
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 $137 million for the quarter ended March 31, 1996. Of the $137 million period- end impaired loans, approximately $95 million required an allowance for loan losses of $27 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 March 31, 1996 and December 31, 1995:
(in thousands) March 31, 1996 December 31, 1995 -------------- ----------------- Parent Company 9.75% subordinated notes due 1999 $ 74,714 $ 74,692 10.125% subordinated debentures due 1998 74,821 74,800 7.25% subordinated notes due 2007 148,606 148,584 ---------- ---------- Total parent company 298,141 298,076 Subsidiaries Subordinated notes: 8.375% subordinated notes due 2024 147,801 147,782 7.25% subordinated notes due 2002 148,970 148,931 6.875% subordinated notes due 2008 99,085 99,066 7.125% subordinated notes due 2013 148,028 148,000 ---------- ---------- Total subordinated notes 543,884 543,779 Medium-term notes: Floating rate based on Treasury bill indices 1,099,775 1,099,701 Floating rate based on Prime indices 550,000 550,000 Floating rate based on LIBOR indices 824,960 624,937 Fixed rate notes with interest rates ranging from 5.50% to 6.875% 1,423,605 1,523,433 ---------- ---------- Total medium-term notes 3,898,340 3,798,071 Notes payable maturing on dates ranging from 1996 through 2015 5,440 4,490 ---------- ---------- Total subsidiaries 4,447,664 4,346,340 ---------- ---------- Total medium- and long-term debt $4,745,805 $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
March 31, 1996 December 31, 1995 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) $ 8,513 $ 25 $(116) $ (91) $5,925 $ 88 $ (20) $ 68 Options, caps and floors purchased 67 - - - 40 19 (21) (2) Caps written 153 - - - 154 - - - Foreign exchange contracts Spot and forwards 158 - (1) (1) 229 2 (1) 1 Swaps 47 1 (2) (1) 50 8 - 8 ------- ---- ----- ----- ------ ---- ----- ----- Total risk management 8,938 26 (119) (93) 6,398 117 (42) 75 Customer Initiated and Other Interest rate contracts Caps written 405 - - - 360 - - - Floors purchased 2 - - - - - - - Swaps 1 - - - 3 - - - Foreign exchange contracts Spot, forward, futures and options 734 6 (6) - 320 5 (5) - ------- ---- ----- ----- ------ ---- ----- ----- Total customer initiated and other 1,142 6 (6) - 683 5 (5) - ------- ---- ----- ----- ------ ---- ----- ----- Total derivatives and foreign exchange contracts $10,080 $ 32 $(125) $ (93) $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 $5,480 million and $3,688 million at March 31, 1996 and December 31, 1995, respectively. These swaps had a net unrealized loss of $88 million at March 31, 1996 versus a net unrealized gain of $4 million at December 31, 1995. As of March 31, 1996 index amortizing swaps had an average expected life of approximately 2.94 years with a stated maturity that averaged 5.00 years. /TABLE 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 derivative 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 March 31, 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 March 31, 1996 and December 31, 1995, the notional amounts of commitments to purchase securities totaled $3 million and $16 million, respectively; the notional amounts of commitments to sell securities totaled $5 million and $14 million, respectively; and the notional amounts of commitments to sell mortgage loans totaled $61 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 March 31, 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 Interest Rate Swaps: (dollar amounts 2001- Dec. 31, in millions) 1996 1997 1998 1999 2000 2014 Total 1995 Variable rate asset designation: Receive fixed swaps Generic $ 50 $ - $ - $ - $ - $ - $ 50 $ 50 Amortizing 12 84 100 - - - 196 200 Index Amortizing 774 1,833 1,062 1,056 496 259 5,480 3,688 Weighted average: (1) Receive rate 6.24% 5.83% 6.26% 6.36% 6.10% 6.36% 6.12% 6.02% Pay rate 5.38% 5.43% 5.38% 5.34% 5.42% 5.39% 5.39% 5.84% Fixed rate asset designation: Generic pay fixed swaps $ 35 $ - $ - $ 2 $ - $ - $ 37 $ 37 Weighted average: (1) Receive rate 5.38% -% -% 5.62% -% -% 5.39% 5.76% Pay rate 7.05% -% -% 8.73% -% -% 7.14% 7.14% Medium- and long-term debt designation: Generic receive fixed swaps $ 350 $ 650 $ - $ - $ - $ 700 $1,700 $1,375 Weighted average: (1) Receive rate 5.80% 5.57% -% -% -% 7.65% 6.47% 7.01% Pay rate 5.24% 5.18% -% -% -% 5.52% 5.33% 5.80% Generic pay fixed swaps $ 25 $ - $ - $ - $ - $ - $ 25 $ 25 Weighted average: (1) Receive rate 5.70% -% -% -% -% -% 5.70% 5.70% Pay rate 8.28% -% -% -% -% -% 8.28% 8.28% Floating/Floating $ 725 $ 300 $ - $ - $ - $ - $1,025 $ 550 swaps Weighted average: (2) Receive rate 5.48% 5.29% -% -% -% -% 5.42% 5.76% Pay rate 5.40% 5.14% -% -% -% -% 5.33% 5.75% Total notional amount $1,971 $2,867 $1,162 $1,058 $ 496 $ 959 $8,513 $5,925 (1) Variable rates are based on LIBOR rates paid or received at March 31, 1996. (2) Variable rates paid are based on LIBOR at March 31, 1996, while variable rates received are based on prime or LIBOR. /TABLE 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 three-month period ended March 31, 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 $2.0 billion at both March 31, 1996 and 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 2,838 748 154 8,968 Maturities/amortizations (224) (822) (109) (8,554) Terminations - - - - ------- ----- ----- ------- Balances at March 31, 1996 $ 8,733 $ 205 $ 408 $ 734 ======= ===== ===== =======
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 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 Comerica Incorporated reported net income of $117 million for the quarter ended March 31, 1996, up $17 million, or 17 percent, from $100 million reported for the first quarter of 1995. Net income per share increased 15 percent to $0.98 from $0.85 a year ago. Return on average shareholders' equity was 17.27 percent and return on average assets was 1.33 percent, compared to 16.55 percent and 1.21 percent, respectively, for the comparable quarter last year. 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 $1.0 billion, as well as nonperforming assets of $18 million. Metrobank's results of operations are reflected in the consolidated statement of income for the three months ended March 31, 1996. Net Interest Income The Rate-Volume Analysis in Table I details the components of the change in net interest income (FTE) for the quarter ended March 31, 1996. On a fully taxable equivalent (FTE) basis, net interest income was $354 million for the three months ended March 31, 1996, an increase of $36 million, or 10 percent, over the amount reported for the comparable quarter in 1995. The improvement primarily resulted from acquisitions and continued strong internal loan generation. Average total loans for the first quarter of 1996 increased $2.8 billion, or 12 percent, over the first quarter of 1995, driven primarily by growth in the commercial, commercial mortgage, and consumer loan portfolios. Average commercial loans rose $1.6 billion, or 15 percent, while average commercial mortgage loans grew $400 million, or 13 percent. Growth in the consumer installment loan balance which increased $450 million, or 17 percent, was the primary thrust for the $385 million, or 9 percent, rise in average consumer loans. Partially offsetting the increase in the consumer loans portfolio was a 10 percent decline in average bankcard loans due to the sale of a portion of the portfolio late last year. Average investment securities and temporary investments, particularly bank time deposits, were reduced nearly $1.0 billion, or 12 percent, over the past year to allow a shift in the mix of earning assets toward higher-yielding loans. The net interest margin for the three months ended March 31, 1996, was 4.38 percent, an increase of 7 basis points from 4.31 percent for the fourth quarter of 1995, and 21 basis points from 4.17 percent for the first quarter of 1995. Expansion in the margin over the past year is partially attributable to change in the mix of earning assets toward higher-yielding loan products and the impact of growth in noninterest- bearing sources of funds due to acquisitions. However, new interest- bearing deposits from acquisitions and a shift in deposit preferences toward higher-priced certificates of deposit somewhat offset the increase in the margin. Net income generated by the risk management interest rate swap portfolio resulted in a contribution of 12 basis points to the net interest margin in the first quarter of 1996, compared to a 2 basis-point reduction 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 13 TABLE I - QUARTERLY ANALYSIS OF NET INTEREST INCOME & RATE/VOLUME (FTE)
Three Months Ended ------------------------------------------------------------- March 31, 1996 March 31, 1995 ----------------------------- ----------------------------- Average Average Average Average (in millions) Balance Interest Rate Balance Interest Rate - ---------------------------------------------------------------------------------------------- Loans $25,144 $538 8.60% $22,365 $492 8.89% Investment securities 6,951 117 6.71 7,817 129 6.57 Other earning assets 249 4 6.39 376 6 6.63 - ---------------------------------------------------------------------------------------------- Total earning assets 32,344 659 8.18 30,558 627 8.26 Interest-bearing deposits 17,390 181 4.18 16,781 172 4.15 Short-term borrowings 4,639 63 5.44 4,882 71 5.88 Medium- and long-term debt 4,609 71 6.21 4,033 64 6.49 Net interest rate swap (income)/ expense (1) - (10) - - 2 - - ---------------------------------------------------------------------------------------------- Total interest-bearing sources $26,638 305 4.61 $25,696 309 4.88 ----------------- ----------------- Net interest income/ Rate spread (FTE) $354 3.57 $318 3.38 ====== ====== FTE adjustment $ 4 $ 6 ====== ====== Impact of net noninterest- bearing sources of funds 0.81 0.79 - ---------------------------------------------------------------------------------------------- Net interest margin as a percent of average earning assets (FTE) 4.38% 4.17% ============================================================================================== (1) After allocation of the income or expense generated by interest rate swaps to the three months ended March 31, 1996, to the related assets and liabilities, the average yield on total loans was 8.65 percent as of March 31, 1996, compared to 8.71 percent a year ago. The average cost of funds for medium- and long-term debt was 5.81 percent as of March 31, 1996, compared to 6.15 percent a year earlier. Increase Increase (Decrease) (Decrease) Net Due to Due to Increase Rate Volume* (Decrease) ---------- ---------- ---------- (in millions) Loans $ (13) $ 59 $ 46 Investment securities 4 (16) (12) Other earning assets - (2) (2) ------------------------------ Total earning assets (9) 41 32 Interest-bearing deposits 3 6 9 Short-term borrowings (5) (3) (8) Medium- and long-term debt (2) 9 7 Net interest rate swap (income)/expense (12) - (12) ------------------------------ Total interest-bearing sources (16) 12 (4) ------------------------------ Net interest income/Rate spread (FTE) $ 7 $ 29 $ 36 ============================== * Rate/Volume variances are allocated to variances due to volume. /TABLE 14 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 March 31, 1996, the Corporation was in a liability sensitive position of $713 million (on an elasticity- adjusted basis), or 2 percent of earning assets. The earnings simulation analysis performed for the quarter ended March 31, 1996, indicated forecasted net interest income could potentially increase $5 million, or less than 1 percent, if short-term interest rates decreased 200 basis points or decrease $31 million, or 2 percent, if short-term interest rates rose 200 basis points. These results are within established corporate policy guidelines. Provision for Loan Losses The provision for loan losses for the first quarter of 1996 was $29 million, up $17 million from for the first quarter of 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 $137 million for the three months ended March 31, 1996, an increase of $22 million, or 19 percent, over the same period in 1995. This amount includes certain non-recurring items, reflected in other noninterest income, totaling $13 million related to a gain from selling a majority ownership in the Corporation's merchant credit card processing business to National Data Payment Systems and interest received on a tax refund, net of an adjustment to the carrying value of the Corporation's customhouse brokerage subsidiary in connection with disposal of that business. Excluding the effects of non-recurring items and acquisitions, noninterest income rose $7 million to $122 million for the first quarter of 1996, a 6 percent increase over the corresponding period in 1995. The improvement was primarily attributable to a $3 million increase in personal trust fees due to strong market performance and a rise in service charges on deposit accounts. Noninterest Expenses Noninterest expenses rose 6 percent, or $15 million, to $279 million for the three months ended March 31, 1996. This total includes $6 million in charges related to the Corporation's previously announced internal efficiency improvement program and to reserves for legal matters. Excluding the effects of acquisitions, the reduction in FDIC insurance expense, and the aforementioned charges, noninterest expenses increased less than 2 percent, or $4 million. This nominal increase in noninterest expenses reflects management's efforts to maintain a stable operating expense level. 15 Provision for Income Taxes The provision for income taxes for the first quarter of 1996 totaled $63 million, an increase of 21 percent compared to $52 million reported for the same period a year ago. The effective tax rate increased to 35 percent for the first quarter of 1996 from 34 percent for the first quarter of 1995, as a result of lower tax-exempt income. Financial Condition Total assets were $35.0 billion at March 31, 1996, down $446 million, or 1 percent, since December 31, 1995. This decline was primarily the result of a decrease in non-earning assets. Earning assets grew 1 percent to $32.5 billion since year-end 1995, as $557 million of temporary investments and $144 million of investment securities were allowed to run off to partially fund the $1.1 billion, or 5 percent, increase in loans during the quarter. Acquisitions and solid loan growth continued in the first quarter of 1996 with improvement concentrated in the commercial and commercial mortgage loan categories, which rose $742 million, or 6 percent, and $309 million, or 9 percent, respectively, since December 31, 1995. Total liabilities fell $550 million, or 2 percent, to $32.3 billion since December 31, 1995, primarily due to a $1.1 billion decrease in foreign office deposits and an $864 million reduction in short-term borrowings, particularly federal funds purchased. The overall decline was net of $664 million in interest-bearing 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. At March 31, 1996, the allowance for loan losses was $357 million, an increase of $16 million, or 5 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 declined modestly from 209 percent at year-end 1995 to 196 percent at March 31, 1996. Net charge-offs for the first quarter of 1996 were $23 million, or 0.37 percent of average total loans, compared to $36 million, or 0.59 percent, reported for the fourth quarter of 1995 and $6 million, or 0.11 percent, for the year-earlier quarter. The rise in total net charge-offs over the first quarter last year was primarily the result of unusually low charge-offs in the prior year. An analysis of the allowance for loan losses is presented in the notes to the consolidated financial statements. 16 Nonperforming assets increased 12 percent since December 31, 1995, principally as a result of the Metrobank acquisition, and were categorized as follows:
(in thousands) March 31, 1996 December 31, 1995 -------------- ----------------- Nonaccrual loans: Commercial $ 99,280 $ 87,195 Real estate construction 5,542 6,578 Commercial mortgage 28,740 31,123 Residential mortgage 4,012 5,507 --------- --------- Total nonaccrual loans 137,574 130,403 Reduced-rate loans 7,260 3,244 --------- --------- Total nonperforming loans 144,834 133,647 Other real estate 37,888 29,384 --------- --------- Total nonperforming assets $ 182,722 $ 163,031 ========= ========= Loans past due 90 days or more-domestic $ 60,383 $ 57,134 ========= =========
Nonperforming assets as a percentage of total loans and other real estate at March 31, 1996 and December 31, 1995, were 0.71 percent and 0.67 percent, respectively. Capital Shareholders' equity was up $104 million from December 31, 1995 to March 31, 1996, principally through retention of $75 million in earnings and the issuance of $125 million of common stock in connection with the acquisition of Metrobank in January 1996. Partially offsetting the increase in shareholders' equity was the repurchase of 2.1 million shares of common stock, principally in accordance with previously enacted share buyback programs related to employee stock plans, along with a $26 million increase in unrealized losses on investment securities available for sale. Capital ratios continue to comfortably exceed minimum regulatory requirements as follows:
March 31, December 31, 1996 1995 ------------- ------------ Leverage ratio (3.00 - minimum) 6.99% 6.87% Tier 1 risk-based capital ratio (4.0 - minimum) 7.62 7.63 Total risk-based capital ratio (8.0 - minimum) 11.13 11.21
At March 31, 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. 17 Other Matters In March 1996, the Corporation reached a definitive agreement to sell its $1.4 billion Illinois subsidiary, Comerica Bank-Illinois, for approximately $190 million in cash. The transaction, subject to regulatory approval, is expected to be completed in the third quarter of 1996. In March 1996, the Corporation entered into a definitive agreement to form 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 will provide merchant contracts and multi-state marketing opportunities to the new joint venture, Comerica Merchant Alliance, while NDPS will provide processing, settlement, authorization and marketing support. In April 1996, the Corporation entered into a definitive agreement to sell the business and certain assets of John V. Carr & Son, Inc., the wholly owned customs brokerage and freight forwarding subsidiary of Comerica Bank. The sale is expected to be completed in the second quarter of 1996. 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 operations in that year. 18 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (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/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: May 10, 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 March 31 ------------------- 1996 1995 -------- ------- Primary: Average shares outstanding 117,419 116,612 Common stock equivalent: Net effect of the assumed exercise of stock options 1,742 752 -------- -------- Primary average shares 119,161 117,364 ======== ======== Net income $116,606 $100,022 -------- -------- Primary net income per share $0.98 $0.85 Fully diluted: Average shares outstanding 117,419 116,612 Common stock equivalents: Net effect of the assumed exercise of stock options 1,873 806 -------- -------- Fully diluted average shares 119,292 117,418 ======== ======== Net income $116,606 $100,022 ======== ======== Fully diluted net income per share $0.98 $0.85
EX-27 3
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 1996 FORM 10Q FOR COMERICA INCORPORATED AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1,230,251 3,069 99,994 9,106 6,715,161 0 0 25,548,860 357,248 35,023,481 22,910,578 4,173,039 408,372 4,745,805 596,473 0 0 2,114,951 35,023,481 536,878 113,649 3,903 654,430 180,890 305,169 349,261 28,500 360 278,975 179,214 116,606 0 0 116,606 .98 .98 4.38 137,574 60,383 7,260 361,472 341,344 30,061 7,095 357,248 259,862 2,587 94,799
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