<PAGE> 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
<PAGE>
<PAGE> 2
PART I. FINANCIAL INFORMATION
<TABLE>
CONSOLIDATED BALANCE SHEETS
Comerica Incorporated and Subsidiaries
<CAPTION>
March 31, December 31, March 31,
(In thousands, except share data) 1996 1995 1995
----------- ------------ -----------
<S> <C> <C> <C>
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
<PAGE>
<PAGE> 3
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
Comerica Incorporated and Subsidiaries
<CAPTION>
Three Months Ended
March 31
--------------------
(In thousands, except per share data) 1996 1995
-------- --------
<S> <C> <C>
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
</TABLE>
<PAGE>
<PAGE> 4
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Comerica Incorporated and Subsidiaries
<CAPTION>
Unrealized Total
Common Capital Gains/ Retained Treasury Shareholders'
(in thousands) Stock Surplus (Losses) Earnings Stock Equity
--------- --------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
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
========= ========= ========= =========== ========== ===========
</TABLE>
<PAGE>
<PAGE> 5
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Comerica Incorporated and Subsidiaries
<CAPTION>
Three Months Ended
March 31
---------------------------
(in thousands) 1996 1995
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE> <PAGE>
<PAGE> 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:
<TABLE>
<CAPTION>
1996 1995
(in thousands) --------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
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.
<PAGE>
<PAGE> 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:
<TABLE>
<CAPTION>
(in thousands) March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
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
========== ==========
</TABLE>
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.
<PAGE>
<PAGE> 8
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 6 - Off-Balance-Sheet Derivatives and Foreign Exchange Contracts
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
<PAGE>
<PAGE> 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.
<PAGE>
<PAGE> 10
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 6 - Off-Balance-Sheet Derivatives and Foreign Exchange Contracts
(Continued)
<TABLE>
<CAPTION>
Remaining Expected Maturity of Interest Rate Swaps:
(dollar amounts 2001- Dec. 31,
in millions) 1996 1997 1998 1999 2000 2014 Total 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
<PAGE>
<PAGE> 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.
<TABLE>
<CAPTION>
Customer Initiated
Risk Management and Other
Interest Foreign Interest Foreign
Rate Exchange Rate Exchange
(in millions) Contracts Contracts Contracts Contracts
<S> <C> <C> <C> <C>
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
======= ===== ===== =======
</TABLE>
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.<PAGE>
<PAGE> 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
<PAGE>
<PAGE> 13
<TABLE>
TABLE I - QUARTERLY ANALYSIS OF NET INTEREST INCOME & RATE/VOLUME (FTE)
<CAPTION>
Three Months Ended
-------------------------------------------------------------
March 31, 1996 March 31, 1995
----------------------------- -----------------------------
Average Average Average Average
(in millions) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
<PAGE>
<PAGE> 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.
<PAGE>
<PAGE> 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.
<PAGE>
<PAGE> 16
Nonperforming assets increased 12 percent since December 31, 1995,
principally as a result of the Metrobank acquisition, and were categorized
as follows:
<TABLE>
<CAPTION>
(in thousands) March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
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
========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- ------------
<S> <C> <C>
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
</TABLE>
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.
<PAGE>
<PAGE> 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.<PAGE>
<PAGE> 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<PAGE>
<PAGE> 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<PAGE>
<PAGE> 1
Exhibit (11) - Statement Re: Computation of Earnings Per Share
<TABLE>
COMPUTATION OF EARNINGS PER SHARE
Comerica Incorporated and Subsidiaries
<CAPTION>
(In thousands, except per share data)
Three Months Ended
March 31
-------------------
1996 1995
-------- -------
<S> <C> <C>
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
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,230,251
<INT-BEARING-DEPOSITS> 3,069
<FED-FUNDS-SOLD> 99,994
<TRADING-ASSETS> 9,106
<INVESTMENTS-HELD-FOR-SALE> 6,715,161
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 25,548,860
<ALLOWANCE> 357,248
<TOTAL-ASSETS> 35,023,481
<DEPOSITS> 22,910,578
<SHORT-TERM> 4,173,039
<LIABILITIES-OTHER> 408,372
<LONG-TERM> 4,745,805
<COMMON> 596,473
0
0
<OTHER-SE> 2,114,951
<TOTAL-LIABILITIES-AND-EQUITY> 35,023,481
<INTEREST-LOAN> 536,878
<INTEREST-INVEST> 113,649
<INTEREST-OTHER> 3,903
<INTEREST-TOTAL> 654,430
<INTEREST-DEPOSIT> 180,890
<INTEREST-EXPENSE> 305,169
<INTEREST-INCOME-NET> 349,261
<LOAN-LOSSES> 28,500
<SECURITIES-GAINS> 360
<EXPENSE-OTHER> 278,975
<INCOME-PRETAX> 179,214
<INCOME-PRE-EXTRAORDINARY> 116,606
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,606
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
<YIELD-ACTUAL> 4.38
<LOANS-NON> 137,574
<LOANS-PAST> 60,383
<LOANS-TROUBLED> 7,260
<LOANS-PROBLEM> 361,472
<ALLOWANCE-OPEN> 341,344
<CHARGE-OFFS> 30,061
<RECOVERIES> 7,095
<ALLOWANCE-CLOSE> 357,248
<ALLOWANCE-DOMESTIC> 259,862
<ALLOWANCE-FOREIGN> 2,587
<ALLOWANCE-UNALLOCATED> 94,799
</TABLE>
