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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934,
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.
Commission file number 1-10706
Comerica Incorporated
Comerica Tower at Detroit Center
500 Woodward Avenue
Detroit, Michigan 48226
1-800-521-1190
Incorporated in the State
of Delaware, IRS Employer Identification No. 38-1998421.
Securities registered pursuant to Section 12(b) of the Act:
- - Common Stock, $5 par value
- - Rights to acquire Series D
Preferred Stock, no par value
- - Preferred Stock Series E, $50.00 liquidation preference per share
These securities are registered on the New York Stock Exchange.
Securities registered pursuant to Section 12(g) of the Act:
- - 10 1/8 percent Subordinated
Debentures due in 1998
- - 9 3/4 percent Subordinated
Notes due 1999
- - 7 1/4 percent Subordinated
Notes due in 2007
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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.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, nor will it be contained in the definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K as.
At March 23, 1998, the registrant's common stock, $5 par value, held by
nonaffiliates had an aggregate market value of $10,516,786,140 based on the
closing price on the New York Stock Exchange on that date of $105.00 per share
and 100,159,868 shares of common stock held by nonaffiliates. For purposes of
this Form 10-K only, it has been assumed that all common shares held by the
Trust Department of Comerica for Comerica's employee plans and by the
registrant's directors and executive officers are held by affiliates.
At March 23, 1997, the registrant had outstanding 104,838,086 shares of its
common stock, $5 par value.
DOCUMENTS INCORPORATED
BY REFERENCE:
1. Parts I and II:
Items 1-8--Annual Report to Shareholders for the year ended December 31, 1997.
2. Part III:
Items 10-13--Proxy Statement for the Annual Meeting of Shareholders to be held
May 15, 1998.
PART I
ITEM 1. BUSINESS
GENERAL
Comerica Incorporated ("Comerica" or the "Corporation") is a registered bank
holding company incorporated under the laws of the State of Delaware,
headquartered in Detroit, Michigan. Based on assets as of December 31, 1997, it
was the 25th largest bank holding company in the United States and the largest
bank holding company headquartered in Michigan in terms of both total assets and
total deposits. Comerica was formed in 1973 to acquire the outstanding common
stock of Comerica Bank (formerly Comerica Bank-Detroit), one of Michigan's
oldest banks ("Comerica Bank"). Since that time, Comerica has acquired financial
institutions in California, Texas and Florida, and, in 1997, Comerica formed
Comerica Bank-Mexico, S.A. As of December 31, 1997, Comerica owned directly or
indirectly all the outstanding common stock of six banking and thirty-two
non-banking subsidiaries. At December 31, 1997, Comerica had total assets of
approximately $36.3 billion, total deposits of approximately $22.6 billion,
total loans (net of unearned income) of approximately $28.9 billion and common
shareholders' equity of approximately $2.5 billion.
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BUSINESS STRATEGY
Comerica has strategically aligned its operations into three major lines of
business: the Business Bank, the Individual Bank and the Investment Bank. The
Business Bank is comprised of middle market lending, asset based lending, large
corporate banking and international financial services. This line of business
meets the needs of medium-size businesses, multinational corporations and
governmental entities by offering various products and services, including
commercial loans and lines of credit, deposits, cash management, capital market
products, international trade finance, letters of credit, foreign exchange
management services and loan syndication services.
The Individual Bank includes consumer lending, consumer deposit gathering,
mortgage loan origination and servicing, small business banking (annual sales
under $5 million) and private banking. This line of business offers a variety of
consumer products, including deposit accounts, direct and indirect installment
loans, credit cards, home equity lines of credit and residential mortgage loans.
In addition, a full range of financial services is provided to small businesses
and municipalities. Private lending and personal trust services are also
provided to meet the personal financial needs of affluent individuals (as
defined by individual net income or wealth).
The Investment Bank is responsible for the sale of mutual fund and annuity
products, as well as life, disability and long-term care insurance products.
This line of business also offers institutional trust products, retirement
services and provides investment management and advisory services, investment
banking and discount securities brokerage services.
The core businesses are tailored to each of Comerica's four primary geographic
markets: Michigan, Texas, California and Florida.
Phase III of Direction 2000
In 1996, Comerica finalized the design of Direction 2000, the strategic effort
to prepare the organization for the new millennium. Following Comerica's 1995
organization of its business units into the Business, Individual and Investment
Banks, and the subsequent alignment and consolidation of back-office areas,
Comerica in 1996 identified which business lines it believed were best managed
on a local basis and a national basis, and realigned its support functions to
optimally link them to business strategies and corporate objectives. In the
third and final phase of this effort, Comerica employees systematically reviewed
all functions of the organization. Their objectives were to determine first, if
the work was absolutely necessary, and second, if they were doing the work in
the most efficient way possible. Comerica's goal was to improve customer
service, increase efficiency, enhance revenue and position Comerica to achieve
its financial objectives. Comerica employees identified myriad ways to serve
customers better, including simplifying the referral and delivery of its
services, empowering colleagues with additional authority and reducing their
clerical responsibilities. In addition to reducing overhead costs and enhancing
revenues, the results of Phase III are expected to support future investments in
growth businesses, geographic expansion, marketing, technology and talent.
By the end of the fourth quarter of 1997, Comerica had implemented approximately
eighty percent of Phase III of Direction 2000. Comerica expects Phase III of
Direction 2000, when fully implemented by the first quarter of 1998, to reduce
overhead costs and increase revenues on an
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annualized pre-tax basis by $110 million. The full annual effect of the Phase
III implementation will not be realized until 1999. Several factors, however,
such as an economic downturn, changes in monetary or governmental policies or
changes in interest rates could cause the actual results to differ materially
from these forward-looking projections.
Shareholder Value
On January 15, 1998, the board of directors of Comerica declared a three-for-two
split of Comerica's common stock to be effected in the form of a 50% stock
dividend payable on April 1, 1998. The Board of Directors has authorized the
repurchase of up to 27 million shares (or 40.5 million shares on a post-split
basis) of Comerica's common stock for general corporate purposes, acquisitions
and employee benefit plans. At December 31, 1997, Comerica had repurchased 12.2
million shares (or 18.3 million shares on a post-split basis) under this
program, reflecting its commitment to optimize its capital position and focus on
shareholder value. The share repurchase activity is beneficial to shareholders
who sell their shares by providing additional liquidity to the marketplace and
allowing for the efficient redistribution of ownership. For shareholders who
remain, the repurchase activity leverages ownership through a smaller base of
common shares over which earnings are spread.
SUPERVISION AND REGULATION
Banks, bank holding companies and financial institutions are highly regulated at
both the state and federal level. As a bank holding company, Comerica is subject
to supervision and regulation by the Federal Reserve Board ("FRB") under the
Bank Holding Company Act of 1956, as amended (the "Act"). Under the Act, the
Corporation is prohibited from engaging in activities other than those of
banking or of managing or controlling banks or from acquiring or retaining
direct or indirect ownership or control of voting shares of any company which is
not a bank or bank holding company unless the activities engaged in by the
Corporation or the company whose voting shares are acquired by the Corporation
are activities which, generally, the FRB determines to be so closely related to
the business of banking as to be a proper incident thereto.
Comerica Bank is chartered by the State of Michigan and is supervised and
regulated by the Financial Institutions Bureau of the State of Michigan.
Comerica Bank-Texas is chartered by the State of Texas and is supervised and
regulated by the Texas Department of Banking. Comerica Bank-Midwest, N.A. and
Comerica Bank-Ann Arbor, N.A. are chartered under federal law and subject to
supervision and regulation by the Office of the Comptroller of the Currency
("OCC"). Comerica Bank-California is chartered by the State of California and is
supervised and regulated by the California State Banking Department. Comerica
Bank & Trust, FSB is chartered under federal law and subject to supervision and
regulation by the Office of Thrift Supervision. Comerica Bank, Comerica Bank-Ann
Arbor, N.A. and Comerica Bank-Midwest, N.A. are members of the Federal Reserve
System ("FRS"). Comerica Bank-Mexico, S.A. is chartered under the laws of Mexico
and is supervised and regulated by the Ministry of Finance and Public Credit,
the Bank of Mexico and the Mexican National Banking Commission. State member
banks are also regulated by the FRB and state non-member banks are also
regulated by the Federal Deposit Insurance Corporation ("FDIC"). The deposits of
all the banks are insured by the Bank Insurance Fund ("BIF") of the FDIC
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to the extent provided by law, except that the deposits of Comerica Bank &
Trust, FSB are insured by the FDIC's Savings Association Insurance Fund (SAIF).
The FRB supervises non-banking activities conducted by companies owned by
Comerica and Comerica Bank and the OCC supervises non-banking activities
conducted by companies owned by Comerica Bank-Ann-Arbor, N.A. In addition,
Comerica's non-banking subsidiaries are subject to supervision and regulation by
various state and federal agencies, including, but not limited to, the National
Association of Securities Dealers, Inc. (in the case of Comerica Securities,
Inc.) and the Department of Insurance of the State of Michigan (in the case of
Comerica Insurance, Inc.).
Set forth below are summaries of selected laws and regulations applicable to
Comerica and its subsidiaries. The summaries are not complete and are qualified
in their entirety by references to the particular statutes and regulations. A
change in applicable law or regulation could have a material effect on the
business of Comerica.
Interstate Banking and Branching
Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Act"), a bank holding company became able to acquire banks
in states other than its home state, beginning September 29, 1995, without
regard to the permissibility of such acquisition under state law, but subject to
any state requirement that the bank has been organized and operating for a
minimum period of time, not to exceed five years, and the requirement that the
bank holding company, prior to or following the proposed acquisition, controls
no more than ten percent of the total amount of deposits of insured depository
institutions in the United States and no more than thirty percent of such
deposits in that state (or such amount as established by state law).
The Interstate Act also authorizes banks to merge across state lines, thereby
creating interstate branching. This provision, which was effective June 1, 1997,
allowed each state, prior to the effective date, the opportunity to opt out of
this provision, thereby prohibiting interstate branching in that state. Of those
states in which Comerica's banking subsidiaries are located, only Texas has
elected to "opt out" of the interstate branching provisions. The Texas "opt-out"
expires in September 1999. Furthermore, under the Interstate Act, a bank is now
able to open new branches in a state in which it does not already have banking
operations if such state enacts a law permitting such de novo branching.
Since the provision permitting interstate bank acquisitions became effective,
Comerica has had enhanced opportunities to acquire banks in any state subject to
approval by the appropriate federal and state regulatory agencies. Under the
Interstate Act, Comerica has the opportunity to consolidate its affiliate banks
(other than Comerica Bank-Texas, which is subject to the Texas "opt out"
provisions) to create one bank with branches in more than one state, or to
establish branches in different states, subject to any state "opt-in" and
"opt-out" provisions.
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Dividends
Comerica is a legal entity separate and distinct from its banking and other
subsidiaries. Most of Comerica's revenues result from dividends paid to it by
its bank subsidiaries. There are statutory and regulatory requirements
applicable to the payment of dividends by subsidiary banks to Comerica as well
as by Comerica to its shareholders.
Each state bank subsidiary that is a member of the FRS and each national banking
association is required by federal law to obtain the prior approval of the FRB
or the OCC, as the case may be, for the declaration and payment of dividends, if
the total of all dividends declared by the board of directors of such bank in
any year will exceed the total of (i) such bank's retained net income (as
defined and interpreted by regulation) for that year plus (ii) the retained net
income (as defined and interpreted by regulation) for the preceding two years,
less any required transfers to surplus. In addition, these banks may only pay
dividends to the extent that retained net profits (including the portion
transferred to surplus) exceed bad debts (as defined by regulation). Further,
federal regulatory agencies can prohibit a banking institution or bank holding
company from engaging in unsafe and unsound business practices and could
prohibit the payment of dividends if such payment could be deemed an unsafe and
unsound banking practice. In addition, Comerica's state bank subsidiaries that
are not members of the FRS are also subject to limitations under state law
regarding the amount of earnings that may be paid out as dividends. Comerica
Bank & Trust, FSB is subject to limitations under federal law regarding the
payment of dividends.
At January 1, 1998, Comerica's subsidiary banks, without obtaining prior
governmental approvals, could declare aggregate dividends of approximately $361
million from retained net profits of the preceding two years, plus an amount
approximately equal to the net profits (as measured under current regulations),
if any, earned for the period from January 1, 1998 through the date of
declaration. Comerica's subsidiary banks paid dividends of $354 million in 1997,
$322 million in 1996 and $184 million in 1995.
Source of Strength
According to Federal Reserve Board Policy, bank holding companies are expected
to act as a source of strength to each subsidiary bank and to commit resources
to support each subsidiary bank. This support may be required at times when a
bank holding company may not be able to provide such support. Similarly, under
the cross-guarantee provisions of the Federal Deposit Insurance Act, in the
event of a loss suffered or anticipated by the FDIC (either as a result of the
default of a banking or thrift subsidiary or related to FDIC assistance provided
to a subsidiary in danger of default) one of the other banking subsidiaries may
be assessed for the FDIC's loss, subject to certain exceptions.
FDICIA
FDICIA substantially revised the bank regulatory and funding provisions of the
Federal Deposit Insurance Act and made revisions to several other federal
banking statutes. Among other things,
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FDICIA requires the federal banking agencies to take "prompt corrective action"
in respect of depository institutions that do not meet minimum capital
requirements. FDICIA establishes five capital tiers: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized." A depository institution's capital tier will
depend upon where its capital levels are in relation to various relevant capital
measures, which, among others, include a Tier 1 and total risk-based capital
measure and a leverage ratio capital measure, and certain other factors.
Regulations establishing the specific capital tiers provide that, for an
institution to be well capitalized it must have a total risk-based capital ratio
of at least 10 percent, a Tier 1 risk-based capital ratio of at least 6 percent,
a Tier 1 leverage ratio of at least 5 percent and not be subject to any specific
capital order or directive. For an institution to be adequately capitalized it
must have a total risk-based capital ratio of at least 8 percent, a Tier 1
risk-based capital ratio of at least 4 percent and a Tier 1 leverage ratio of at
least 4 percent (and in some cases 3 percent). Under certain circumstances, the
appropriate banking agency may treat a well capitalized, adequately capitalized
or undercapitalized institution as if the institution were in the next lower
capital category. As of December 31, 1997, each of the banking subsidiaries of
Comerica were considered to be well capitalized.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
limitations on growth and certain activities and are required to submit an
acceptable capital restoration plan. The federal banking agencies may not accept
a capital plan without determining, among other things, that the plan is based
on realistic assumptions and is likely to succeed in restoring the depository
institution's capital. In addition, for a capital restoration plan to be
acceptable, the depository institution's parent holding company must guarantee
for a specific time period that the institution will comply with such capital
restoration plan. The aggregate liability of the parent holding company under
the guaranty is limited to the lesser of (i) an amount equal to 5 percent of the
depository institution's total assets at the time it became undercapitalized,
and (ii) the amount that is necessary (or would have been necessary) to bring
the institution into compliance with all capital standards applicable with
respect to such institution as of the time it fails to comply with the plan. If
a depository institution fails to submit or implement an acceptable plan, it is
treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions are subject to a number
of requirements and restrictions, including orders to sell sufficient voting
stock to become adequately capitalized, requirements to reduce total assets,
restrictions on interest rates, deposits and asset growth and orders to improve
management cessation of receipt of deposits from correspondent banks. Critically
undercapitalized institutions are subject to the appointment of a receiver or
conservator.
Under FDICIA, the FDIC is permitted to provide financial assistance to an
insured bank before appointment of a conservator or receiver only if (i) such
assistance would be the least costly method of meeting the FDIC's insurance
obligations, (ii) grounds for appointment of a conservator or a
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receiver exist or are likely to exist in the future, (iii) it is unlikely that
the bank can meet all capital standards without assistance and (iv) the bank's
management has been competent, has complied with applicable laws, regulations,
rules and supervisory directives and has not engaged in any insider dealing,
speculative practice or other abusive activity.
FDICIA also contains a variety of other provisions that may affect the
operations of depository institutions including new reporting requirements,
regulatory standards for real estate lending, "truth in savings" provisions, the
requirement that a depository institution give 90 days prior notice to customers
and regulatory authorities before closing any branch and a prohibition on the
acceptance or renewal of brokered deposits by depository institutions that are
not well capitalized or are adequately capitalized and have not received a
waiver from the FDIC. Under regulations relating to the brokered deposit
prohibition, Comerica's United States subsidiary banks are all well-capitalized
and may accept brokered deposits without restriction.
FDIC Insurance Assessments
Comerica's subsidiary banks are subject to FDIC deposit insurance assessments.
On January 1, 1994, a permanent risk-based deposit premium assessment system
became effective under which each depository institution is placed in one of
nine assessment categories based on certain capital and supervisory measures.
The deposit insurance assessment schedule published by the FDIC for the
assessment period commencing January 1, 1998, maintained the nine categories but
provided for major reductions in the assessment rates for institutions insured
by BIF. These reductions occurred because the balance in BIF has reached or
surpassed the "designated reserve ratio" set by law for the balance in the fund
to maintain with respect to BIF-insured deposits. The FDIC has continued these
reduced assessment levels. For similar reasons, SAIF has reduced the assessment
rates for institutions insured by SAIF. As a result of these reduced rates,
highly-rated banks (including Comerica's banking subsidiaries) have experienced
significant reductions in deposit insurance costs.
The Corporation's FDIC expenses decreased significantly by $5 million, or 63
percent, in 1997, primarily due to a one time $5 million OAKAR deposit charge in
1996. The new rate schedule, which continues to determine assessments based on a
bank's risk-based capital levels, virtually eliminated each subsidiary bank's
BIF annual deposit insurance premium. As of the beginning of 1997, each
subsidiary bank's deposit insurance assessment rate is predicated upon the level
of insurance premiums necessary to maintain bank insurance fund ratio at a level
of 1.25 percent of insured deposits, plus an amount equal to interest due on the
Financing Corporation bonds issued during the savings and loan crisis. In 1998,
deposit insurance expense will approximate $3 million based on current deposit
levels and current deposit assessment rates.
Enforcement Powers of Federal Banking Agencies
The FRB and other federal banking agencies have broad enforcement powers,
including the power to terminate deposit insurance, impose substantial fines and
other civil and criminal penalties and appoint a conservator or receiver.
Failure to comply with applicable laws, regulations and
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supervisory agreements could subject Comerica or its banking subsidiaries, as
well as officers and directors of these organizations, to administrative
sanctions and potentially substantial civil penalties.
COMPETITION
Banking is a highly competitive business. The Michigan banking subsidiary of the
Corporation competes primarily with Detroit and outstate Michigan banks for
loans, deposits and trust accounts. Through its offices in Arizona, California,
Colorado, Florida, Indiana, Illinois, Nevada, Ohio and Texas, Comerica competes
with other financial institutions for various types of loans. Through its
Florida subsidiary, Comerica competes with many companies, including financial
institutions, for trust business.
At year-end 1997, Comerica was the largest bank holding company headquartered in
Michigan in terms of total assets and deposits. Based on the Interstate Act as
described above, the Corporation believes that the level of competition in all
geographic markets will increase in the future. Comerica's banking subsidiaries
also face competition from other financial intermediaries, including savings and
loan associations, consumer finance companies, leasing companies and credit
unions.
EMPLOYEES
As of December 31, 1997, Comerica and its subsidiaries had 8,834 full-time and
2,043 part-time employees.
ITEM 2. PROPERTIES
The executive offices of the Corporation are located in the Comerica Tower at
Detroit Center, 500 Woodward Ave., Detroit, Michigan 48226. Comerica and its
subsidiaries occupy 15 floors of the building, which is leased through Comerica
Bank from an unaffiliated third party. This lease extends through January 2007.
As of December 31, 1997, Comerica Bank operated 271 offices within the State of
Michigan, of which 208 were owned and 63 were leased. Four other banking
affiliates operate 97 offices in California, Florida, and Texas. The affiliates
own 33 of their offices and lease 64 offices. One banking affiliate also
operates from leased space in Toledo, Ohio.
The Corporation owns an operations and check processing center in Livonia,
Michigan, a ten-story building in the central business district of Detroit that
houses certain departments of the Corporation and Comerica Bank and a building
in Auburn Hills, Michigan, used mainly for consumer lending functions.
In 1983, Comerica entered into a sale/leaseback agreement with an unaffiliated
party covering an operations center which was built in Auburn Hills, Michigan,
and now is occupied by various departments of the Corporation and Comerica Bank.
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ITEM 3. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are parties to litigation and claims
arising in the normal course of their activities. Although the amount of
ultimate liability, if any, with respect to such matters cannot be determined
with reasonable certainty, management, after consultation with legal counsel,
believes that the litigation and claims, some of which are substantial, will not
have a materially adverse effect on the Corporation's consolidated financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to shareholders in the fourth quarter of 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of Comerica Incorporated is traded on the New York Stock
Exchange (NYSE Trading Symbol: CMA). At March 23, 1998, there were approximately
16,434 holders of the Corporation's common stock. On January 15, 1998, the board
of directors of Comerica declared a three-for-two stock split of the
Corporation's common stock to be effected in the form of a 50% stock dividend
payable on April 1, 1998. The stock prices and dividend information contained in
this table have been adjusted to give effect to the stock split.
Quarterly cash dividends were declared during 1997 and 1996, totaling $1.16 and
$1.01 per common share per year, respectively. The following table sets forth,
for the periods indicated, the high and low sale prices per share of the
Corporation's common stock as reported on the NYSE Composite Transactions Tape
for all quarters of 1997 and 1996.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Dividend Dividend*
Quarter High Low Per Share Yield
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Fourth $ 61.875 $ 50.167 $ 0.29 2.1%
Third 53.250 45.042 0.29 2.4
Second 46.750 35.917 0.29 2.8
First 42.083 34.167 0.29 3.0
1996
Fourth $ 39.583 $ 33.500 $ 0.26 2.8%
Third 36.000 26.750 0.26 3.3
Second 29.917 26.833 0.26 3.7
First 27.917 24.166 0.23 3.5
</TABLE>
* Dividend yield is calculated by annualizing the quarterly dividend per
share and dividing by an average of the high and low price in the quarter.
ITEM 6. SELECTED FINANCIAL DATA
The response to this item is included on page 19 of the Corporation's Annual
Report to Shareholders for the year ended December 31, 1997, which page is
hereby incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The response to this item is included under the caption "Financial Review and
Report" on pages 20
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through 33 of the Corporation's Annual Report to Shareholders for the year ended
December 31, 1997, which pages are hereby incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The response to this item is included on pages 33 through 36 of the
Corporation's Annual Report to Shareholders for the year ended December 31,
1997, which pages are hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included on pages 37 through 65 of the
Corporation's Annual Report to Shareholders for the year ended December 31,
1997, which pages are hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item will be included under the sections captioned
"Election of Directors" and "Executive Officers of the Corporation" of the
Corporation's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 15, 1998, which sections are hereby incorporated
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item will be included under the sections captioned
"Compensation of Directors" and "Compensation of Executive Officers" of the
Corporation's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 15, 1998, which sections are hereby incorporated
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item will be included under the sections captioned
"Security Ownership of Certain Beneficial Owners" and "Security Ownership of
Management" of the Corporation's definitive Proxy Statement relating to the
Annual Meeting of Shareholders to be held on May 15, 1998, which are hereby
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item will be included under the sections captioned
"Transactions of Directors and Executive Officers with the Corporation" and
"Election of Directors - Information about Nominees and Incumbent Directors" of
the Corporation's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 15, 1998, which sections are hereby incorporated
by reference.
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Comerica Incorporated and Subsidiaries
FORM 10-K CROSS-REFERENCE INDEX
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Certain information required to be included in this Form 10-K is included in the
1997 Annual Report to Shareholders or in the 1998 Proxy Statement used in
connection with the 1998 annual meeting of shareholders to be held on May 15,
1998.
The following cross-reference index shows the page location in the 1997 Annual
Report or the section of the 1998 Proxy Statement of only that information which
is to be incorporated by reference into this Form 10-K.
All other sections of the 1997 Annual Report or the 1998 Proxy Statement are not
required in this Form 10-K and should not be considered a part
thereof.
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<TABLE>
<CAPTION>
Page Number of 1997
Annual Report or Section
of 1998 Proxy Statement
PART I
<S><C>
ITEM 1. Business............................................................................Included herein
ITEM 2. Properties..........................................................................Included herein
ITEM 3. Legal Proceedings...................................................................Included herein
ITEM 4. Submission of Matters to a Vote of Security Holders -- no matters were
voted upon by security holders in the fourth quarter of 1997.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Security Holder Matters...........Included herein
ITEM 6. Selected Financial Data..........................................................................19
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations...............................................................................20-36
ITEM 8. Financial Statements and Supplementary Data:
Comerica Incorporated and Subsidiaries
Consolidated Balance Sheets..................................................................37
Consolidated Statements of Income............................................................38
Consolidated Statements of Changes in Shareholders' Equity...................................39
Consolidated Statements of Cash Flows........................................................40
Notes to Consolidated Financial Statements.......................................................41
Report of Management.............................................................................60
Report of Independent Auditors...................................................................60
Statistical Disclosure by Bank Holding Companies:
Analysis of Net Interest Income - Fully Taxable Equivalent ......................................21
Rate-Volume Analysis - Fully Taxable Equivalent..................................................22
Analysis of the Allowance for Loan Losses........................................................24
Analysis of Investment Securities and Loans......................................................28
Allocation of the Allowance for Loan Losses......................................................29
Loan Maturities and Interest Rate Sensitivity....................................................29
Mexican Cross-Border Risk........................................................................29
Maturity Distribution of Domestic Certificates of Deposit of $100,000 and Over..................30
Analysis of Investment Securities Portfolio - Fully Taxable Equivalent...........................31
Summary of Nonperforming Assets and Past Due Loans...............................................31
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant........................Election of Directors and
Executive Officers of the Corporation
ITEM 11. Executive Compensation...............................................Compensation of Directors and
Compensation of Executive Officers
</TABLE>
13
<PAGE> 14
<TABLE>
<S><C>
ITEM 12. Security Ownership of Certain Beneficial Owners and Management..............................Security Ownership
of Certain Beneficial Owners and Security
Ownership of Management
ITEM 13. Certain Relationships and Related Transactions.................................................Transactions of
Directors and Executive
Officers with the Corporation and
Election of Directors- Information about
Nominees and Incumbent Directors.
</TABLE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements: The financial statements that
are filed as part of this report are listed under
Item 8 in the Form 10-K Cross-reference Index on
page 13.
2. All of the schedules for which provision is made in
the applicable accounting regulations of the
Securities and Exchange Commission are either not
required under the related instruction, the
required information is contained elsewhere in the
Form 10-K, or the schedules are inapplicable and
therefore have been omitted.
Exhibits:
Exhibit Document Number*
3.1 Restated Certificate of Incorporation of Comerica
Incorporated, as amended**
3.2 Amended and restated bylaws of Comerica
Incorporated**
4 Rights Agreement between Comerica Incorporated and
Comerica Bank***
10.1+ Comerica Incorporated 1997 Long-Term Incentive Plan**
10.2+ Comerica Incorporated Management Incentive
Plan, 1997**
10.3+ Comerica Incorporated Director Fee Deferral Plan**
10.4+ Benefit Equalization Plan for Employees of
Comerica Incorporated**
10.5+ Comerica Incorporated's Directors Retirement Plan****
14
<PAGE> 15
10.6+ Manufacturers National Corporation's 1987 and 1989
Stock Option Plans for Key Employees****
10.7+ Manufacturers National Corporation's Executive
Incentive Plan****
10.8+ Manufacturers National Corporation's Key Employee
Retention Plan****
10.9+ Form of Employment Agreement (Exec. Off)
10.10+ Form of Director Indemnification Agreement between
Comerica Incorporated and its directors**
10.11+ Employment Continuation Agreement with
Eugene A. Miller****
10.12+ Severance Agreement with Michael T. Monahan ******
10.13+ Management Continuation Agreement with
Ralph W. Babb Jr.******
10.14+ Employment Agreement with Ralph W. Babb Jr.******
10.15+ Comerica Incorporated Deferred Compensation Plan,
1997 Amendment and Restatement**
10.17+ Form of Comerica Incorporated Senior Officer
Severance Plan between registrant and listed
officers, January 1, 1997**
11 Statement regarding Computation of Per Share
Earnings*****
13 Required portions of Registrant's 1997 Annual
Report to Shareholders
21 Subsidiaries of the Corporation
23 Consent of Ernst & Young LLP
27.1 1997 Financial Data Schedule (EDGAR version only)
27.2 1997 Restated Quarterly Financial Data Schedules
(EDGAR version only)
27.3 1996 Financial Data Schedules (EDGAR version only)
27.4 1995 Financial Data Schedules (EDGAR version only)
(b) No reports on Form 8-K were filed by the Corporation
during the last quarter of 1997.
** Filed as the same exhibit number to Registrant's
Annual Report on form 10-K for the year ended
December 31, 1996, and incorporated herein by
reference.
*** A report was filed on Form 8-K dated June 18, 1996,
regarding the Registrant's Rights Agreement with
Comerica Bank.
**** Incorporated by reference from Registrant's Annual
Report on Form 10-K for the year ended December 31,
1992 -- Commission File Number 0-7269.
***** Incorporated by reference from Note 11 on page 47 of
Registrant's Annual Report to Shareholders attached
hereto as Exhibit 13.
****** Incorporated by reference from Registrant's Annual
Report on Form 10-K for the year ended December 31,
1995--Commission File Number 1-10706.
+ Management compensation plan.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) 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 in the City of Detroit,
State of Michigan on the 20th day of March, 1998.
COMERICA INCORPORATED
/s/ Eugene A. Miller
- -----------------------------------------------------
Eugene A. Miller
Chairman and Chief Executive Officer
/s/ Ralph W. Babb Jr.
- -----------------------------------------------------
Ralph W. Babb Jr.
Executive Vice President and Chief Financial Officer
/s/ Marvin J. Elenbaas
- -----------------------------------------------------
Marvin J. Elenbaas
Senior Vice President and Controller
(Chief Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities indicated on March
20, 1998.
BY DIRECTORS
/s/ E. Paul Casey
- -----------------------------------------------------
E. Paul Casey
/s/ James F. Cordes
- -----------------------------------------------------
James F. Cordes
/s/ J. Philip DiNapoli
- -----------------------------------------------------
J. Philip DiNapoli
/s/ Max M. Fisher
- -----------------------------------------------------
Max M. Fisher
16
<PAGE> 17
/s/ John D. Lewis
- -----------------------------------------------------
John D. Lewis
/s/ Patricia Shontz Longe
- -----------------------------------------------------
Patricia Shontz Longe, Ph.D.
/s/ Wayne B. Lyon
- -----------------------------------------------------
Wayne B. Lyon
/s/ Gerald V. MacDonald
- -----------------------------------------------------
Gerald V. MacDonald
/s/ Eugene A. Miller
- -----------------------------------------------------
Eugene A. Miller
/s/ Michael T. Monahan
- -----------------------------------------------------
Michael T. Monahan
/s/ Alfred A. Piergallini
- -----------------------------------------------------
Alfred A. Piergallini
/s/ Howard F. Sims
- -----------------------------------------------------
Howard F. Sims
/s/ Martin D. Walker
- -----------------------------------------------------
Martin D. Walker
17
<PAGE> 18
Exhibit Index
-------------
Exhibit
No. Description
- ------- -----------
10.9 Employment Agreement (Exec. Off)
13 Required portions of Registrant's 1997 Annual
Report to Shareholders
21 Subsidiaries of Registrant
23 Consent of Independent Auditors
27.1 1997 Financial Data Schedule (EDGAR version only)
27.2 1997 Restated Quarterly Financial Data Schedules (EDGAR
version only)
27.3 1996 Restated Financial Data Schedules (EDGAR version only)
27.4 1995 Restated Financial Data Schedules (EDGAR version only)
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT (EXEC. OFF.)
AGREEMENT, dated as of the ___ day of _____________, 1997, by and between
COMERICA INCORPORATED, a Delaware corporation (the "Company") and name
(caps)(the "Executive") who resides at street, city/state/zip.
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threat ened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first date
during the Agreement Period (as defined in Section 1(b)) on which a Change of
Control(as defined in Section 2) occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the Executive's
employment with the Company is terminated prior to the date on which the Change
of Control occurs, and if it is reasonably demonstrated by the Executive that
such termination of employment (i) was at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control or (ii)
otherwise arose in connection with or anticipation of a Change of Control, then
for all purposes of this Agreement the "Effective Date" shall mean the date im
mediately prior to the date of such termination of employment.
(b) The "Agreement Period" shall mean the period commencing on the date
hereof and ending on the third anniversary of the date hereof; provided,
however, that commencing on the date one year after the date hereof, and on each
annual anniversary of such date (such date and each annual anniversary thereof
shall be hereinafter referred to as the "Renewal Date"), unless previously
terminated, the Agreement Period shall be automatically extended so as to
terminate three years from such Renewal Date, unless at least 60 days prior to
the Renewal Date the Company shall give notice to the Executive that the
Agreement Period shall not be so extended.
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<PAGE> 2
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corpora tion pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of of fice occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
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<PAGE> 3
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, un less, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or sub
stantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation result ing from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination, and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive
in its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the last day of the thirtieth
consecutive month following such date (the "Employment Period").
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<PAGE> 4
4. Terms of Employment. (a) Position and Duties. (i) During the Employment
Period, (A) the Executive's position (including status, offices, titles and
reporting requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant of those
held, exercised and assigned at any time during the 120-day period immediately
preceding the Effective Date and (B) the Executive's services shall be performed
at the location where the Executive was employed immediately preceding the
Effective Date or any office or location less than 60 miles from such location.
(ii) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at edu cational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
(ii) Annual Bonus. In addition to Annual Base Salary,
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<PAGE> 5
the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal
to the Executive's highest bonus under the Company's Management Incentive Plan,
Long-Term Incentive Plan and/or business unit incentive plan (or any predecessor
or successor plan to any thereof) as applicable, for the last three full fiscal
years prior to the Effective Date (annualized in the event that the Executive
was not employed by the Company for the whole of such fiscal year) (the "Recent
Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of
the third month of the fiscal year next following the fiscal year for which the
Annual Bonus is awarded, unless the Executive shall elect to defer the receipt
of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
120-day period immediately preceding the Effective Date or if more favorable to
the Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in accordance with the most favorable policies, practices and
procedures of the
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<PAGE> 6
Company and its affiliated companies in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120- day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of
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<PAGE> 7
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliated companies (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief
Executive Officer of the Company which specifically identifies the manner
in which the Board or Chief Executive Officer believes that the Executive
has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in clauses (i) or (ii) above, and specifying the
particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles
and reporting require ments), authority, duties or responsibilities as
contemplated
-7-
<PAGE> 8
by Section 4(a) of this Agreement, or any other action by the Company
which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions
of Section 4(b) of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is remedied by
the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at any office
or location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the
Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be com municated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
-8-
<PAGE> 9
(e) Date of Termination. "Date of Termination" means (i) if the Executive's
employment is terminated by the Company for Cause, or by the Executive for Good
Reason, the date of receipt of the Notice of Termination or any later date
specified therein, as the case may be, (ii) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other Than
for Cause, Death or Disability. If, during the Employment Period, the Company
shall terminate the Executive's employment other than for Cause or Disability or
the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, (2) the
product of (x) the higher of (I) the Recent Annual Bonus and (II) the
Annual Bonus paid or payable, including any bonus or portion thereof
which has been earned but deferred (and annualized for any fiscal year
consisting of less than twelve full months or during which the
Executive was employed for less than twelve full months), for the most
recently completed fiscal year during the Employment Period, if any
(such higher amount being referred to as the "Highest Annual Bonus")
and (y) a fraction, the numerator of which is the number of days in
the current fiscal year through the Date of Termination, and the
denominator of which is 365 and (3) any compensation previously
deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid (the sum of the amounts described in
clauses (1), (2), and (3) shall be hereinafter referred to as the
"Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the sum
of (x) the Executive's Annual Base Salary and (y) the Highest Annual
Bonus; and
C. an amount equal to the excess of (a) the actuarial equivalent
of the benefit under the Company's qualified defined benefit
retirement plan (the "Retirement Plan") (utilizing actuarial
assumptions no less favorable to the Executive than those in effect
under the Company's Retirement Plan immediately prior to the
Effective Date), and any excess or supplemental retirement plan in
which
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<PAGE> 10
the Executive participates (together, the "SERP") which the
Executive would receive if the Executive's employment continued for
three years after the Date of Termination assuming for this purpose
that (x) all accrued benefits are fully vested, (y) the Executive is
three years older and (z) the Executive is credited with three more
years of service, and, assuming that the Executive's compensation in
each of the three years is that required by Section 4(b)(i) and
Section 4(b)(ii), over (b) the actuarial equivalent of the Executive's
actual benefit (paid or payable), if any, under the Retirement Plan
and the SERP as of the Date of Termination;
(ii) for three years after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(iv) of this Agreement if
the Executive's employment had not been terminated or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies and
their families, provided, however, that if the Executive becomes reemployed
with another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility. For
purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to have
remained employed until three years after the Date of Termination and to
have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies (such other amounts
and benefits shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than
-10-
<PAGE> 11
for payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(b) shall include, without limitation, and
the Executive's estate and/or beneficiaries shall be entitled to receive,
benefits at least equal to the most favorable benefits provided by the Company
and affiliated companies to the estates and beneficiaries of peer executives of
the Company and such affiliated companies under such plans, programs, practices
and policies relating to death benefits, if any, as in effect with respect to
other peer executives and their beneficiaries at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Company and its affiliated companies to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its affiliated companies and their families.
(d) Cause, Etc.; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
-11-
<PAGE> 12
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and such amounts shall
not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus, in each case, interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary not withstanding and except
as set forth below, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 9) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest
-12-
<PAGE> 13
and penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 9(a), if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the
greatest amount (the "Reduced Amount") that could be paid to the Executive such
that the receipt of Payments would not give rise to any Excise Tax, then no
Gross-Up Payment shall be made to the Executive and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations required
to be made under this Section 9, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Ernst & Young LLP
or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing
-13-
<PAGE> 14
of such claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following the date on
which it gives such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with
-14-
<PAGE> 15
respect to which such contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Company's control of the contest shall
be limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
-15-
<PAGE> 16
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
name
street
city/state/zip
-16-
<PAGE> 17
If to the Company:
Comerica Incorporated
Comerica Tower at Detroit Center
500 Woodward Avenue, 33rd Floor
Detroit, Michigan 48226
Attention: Executive Vice President
and General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise
be provided under any other written agreement between the Executive and the
Company, the employment of the Executive by the Company is "at will" and,
subject to Section 1(a) hereof, prior to the Effective Date, the Executive's
employment and/or this Agreement may be terminated by either the Executive or
the Company at any time prior to the Effective Date, in which case the Executive
shall have no further rights under this Agreement. From and after the Effective
Date this Agreement shall supersede any other agreement between the parties with
respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
-17-
<PAGE> 18
______________________________________
name (caps)
COMERICA INCORPORATED
By____________________________________
-18-
<PAGE> 19
NAME OF EMPLOYEES WHO ARE
PARTICIPANTS TO
COMERICA INCORPORATED
EMPLOYMENT AGREEMENT (EXEC. OFF.)
LEWIS, J.
FULTON, J.
JOHNSON, T.
GREENE, D.
HAGGERTY, J.
MARCINELLI, R.
MILLER, E.
STEPHENS, D.
BERAN, J.
BUTTIGIEG III, J.
COLLISTER, R.
ESHELMAN, G.
GUMMER, C.
MADISON, G.
TALBOTT, F.
-19-
<PAGE> 1
EXHIBIT 13
Financial Review
and Reports
1997 Financial
Highlights 20
Earnings
Performance 20
Strategic Lines
of Business 26
Balance Sheet
and Capital Funds
Analysis 28
Asset Quality 30
Asset and
Liability Management 32
Consolidated
Financial Statements 37
Notes to Consolidated
Financial Statements 41
Report of Management 60
Report of
Independent Auditors 60
Historical Review 61
18 Comerica Incorporated
<PAGE> 2
TABLE 1: SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31
(dollar amounts in millions, except per share data) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS SUMMARY
Total interest income $ 2,648 $ 2,563 $ 2,614 $ 2,092 $ 1,783
Net interest income 1,443 1,412 1,300 1,230 1,134
Provision for loan losses 146 114 87 56 69
Securities gains 6 14 12 3 2
Noninterest income
(excluding securities gains) 522 493 487 447 447
Restructuring charge -- 90 -- 7 22
Noninterest expenses
(excluding restructuring charge) 1,008 1,069 1,086 1,035 1,003
Net income 530 417 413 387 341
PER SHARE OF COMMON STOCK
Basic net income* $ 3.24 $ 2.41 $ 2.38 $ 2.20 $ 1.92
Diluted net income* 3.19 2.38 2.37 2.19 1.90
Cash dividends declared 1.15 1.01 0.91 0.83 0.71
Common shareholders' equity 16.02 14.70 15.17 13.64 12.66
Market value 60.17 34.92 26.67 16.25 17.75
YEAR-END BALANCES
Total assets $ 36,292 $ 34,206 $ 35,470 $ 33,430 $30,295
Total earning assets 33,104 31,110 32,051 30,606 27,852
Total loans 28,895 26,207 24,442 22,209 19,100
Total deposits 22,586 22,367 23,167 22,432 20,950
Total borrowings 10,479 8,731 9,319 8,303 6,861
Medium- and long-term debt 7,286 4,242 4,644 4,098 1,461
Common shareholders' equity 2,512 2,366 2,608 2,392 2,182
DAILY AVERAGE BALANCES
Total assets $ 34,869 $ 34,195 $ 34,129 $ 31,451 $27,236
Total earning assets 32,025 31,370 31,537 29,038 25,012
Total loans 27,209 25,352 23,561 20,211 18,307
Total deposits 21,946 22,258 21,655 21,325 20,721
Total borrowings 9,798 8,850 9,639 7,527 4,105
Medium- and long-term debt 5,980 4,745 4,510 2,708 1,087
Common shareholders' equity 2,408 2,554 2,511 2,313 2,136
RATIOS
Return on average assets 1.52% 1.22% 1.21% 1.23% 1.25%
Return on average common shareholders' equity 21.32 15.98 16.46 16.74 15.94
Efficiency ratio 51.05 60.36 60.09 61.28 63.68
Dividend payout ratio 36 42 38 38 37
Common shareholders' equity as
a percent of average assets 6.91 7.47 7.36 7.35 7.84
EXCLUDING 1996 RESTRUCTURING CHARGE
Net income $ 477
Basic net income per share of common stock 2.77
Diluted net income per share of common stock 2.73
Return on average assets 1.40%
Return on average common shareholders' equity 18.33
Efficiency ratio 55.67
Dividend payout ratio 37
</TABLE>
================================================================================
*Net income per share in this annual report is calculated in accordance with
FASB Statement 128, "Earnings Per Share." All prior period amounts have been
restated.
Comerica Incorporated 19
<PAGE> 3
1997 FINANCIAL HIGHLIGHTS
FOCUSED ON PERFORMANCE
- - Earned 21.32 percent on average common shareholders' equity, compared to
15.98 percent (18.33 percent excluding the restructuring charge) in 1996.
- - Returned 1.52 percent on average assets, compared to 1.22 percent (1.40
percent excluding the restructuring charge) in 1996.
REPORTED RECORD EARNINGS
- - Reported net income of $530 million, or $3.19 per share, compared with
$417 million, or $2.38 per share (excluding the restructuring charge, net
income increased $53 million from $477 million, or $2.73 per share) in
1996.
- - On January 15, 1998, the Corporation declared a three-for-two stock split
to be effected in the form of a stock dividend on April 1, 1998. All per
share amounts have been adjusted to reflect the split.
SUSTAINED GROWTH
- - Grew average total assets slightly to $35 billion (increased 4 percent
excluding the sale of Comerica Bank-Illinois).
- - Reached $21 billion in average non-consumer loans, a 12 percent increase
(15 percent increase excluding the sale of Comerica Bank-Illinois).
- - Averaged $22 billion in total deposits, in both 1997 and 1996 (1 percent
increase excluding the sale of Comerica Bank-Illinois).
- - Maintained average shareholders' equity of $2.7 billion.
ENHANCED SHAREHOLDERS' RETURN
- - Repurchased 3.6 million shares (or 5.4 million shares on a post-split
basis) in 1997.
- - Raised the quarterly cash dividend 12 percent to $0.29 per share.
- - Declared annual cash dividends of $1.15 per share.
IMPLEMENTED KEY STRATEGIES
- - Sold the bond indenture services business and recorded a $23 million
pre-tax gain.
- - Maintained revenue momentum while implementing
Phase III of Direction 2000.
RETURN ON AVERAGE ASSETS
(in percentages)
[BAR GRAPH]
<TABLE>
<CAPTION>
93 94 95 96 97
<S> <C> <C> <C> <C> <C>
Comerica
Excluding restructuring charge
Industry average
(based on 50 largest U.S.
bank holding companies)
</TABLE>
EARNINGS PERFORMANCE
NET INTEREST INCOME
Net interest income, on a fully taxable equivalent (FTE) basis, is the
difference between interest earned on assets, including certain yield related
fees, and interest paid on liabilities. Adjustments are made to the yields on
tax-exempt assets in order to present tax-exempt income and fully taxable
income on a comparable basis. Net interest income (FTE) comprised 73 percent of
net revenues, compared to 74 percent in 1996 and 73 percent in 1995.
NET INTEREST INCOME
[BAR GRAPH]
<TABLE>
<CAPTION>
93 94 95 96 97
<S> <C> <C> <C> <C> <C>
Net Interest Income (FTE)
(in millions)
Net Interest Margin (FTE)
(percent of earning assets)
</TABLE>
20 Comerica Incorporated
<PAGE> 4
TABLE 2: ANALYSIS OF NET INTEREST INCOME-FULLY TAXABLE EQUIVALENT
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------
Average Average Average Average
(dollar amounts in millions) Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial loans $14,234 $ 1,174 8.25% $12,686 $1,041 8.21%
International loans 1,953 138 7.07 1,541 102 6.64
Real estate construction loans 866 81 9.38 707 65 9.22
Commercial mortgage loans 3,547 322 9.08 3,483 324 9.29
Residential mortgage loans 1,676 133 7.90 1,960 153 7.83
Consumer loans 4,486 440 9.81 4,624 457 9.88
Lease financing 447 33 7.48 351 24 6.82
- ---------------------------------------------------------------------------------------------------------------
Total loans (1) 27,209 2,321 8.53 25,352 2,166 8.54
Taxable securities 4,490 309 6.84 5,528 371 6.63
Securities exempt from federal income taxes 197 18 9.32 295 28 9.96
- ---------------------------------------------------------------------------------------------------------------
Total investment securities 4,687 327 6.94 5,823 399 6.79
Short-term investments 129 9 6.59 195 13 6.23
- ---------------------------------------------------------------------------------------------------------------
Total earning assets 32,025 2,657 8.29 31,370 2,578 8.20
Cash and due from banks 1,686 1,576
Allowance for loan losses (402) (361)
Accrued income and other assets 1,560 1,610
- ---------------------------------------------------------------------------------------------------------------
Total assets $34,869 $34,195
================================================================================================================
Money market and NOW accounts $ 6,926 232 3.35 $ 6,913 231 3.33
Savings deposits 1,701 34 2.02 2,026 44 2.18
Certificates of deposit 6,699 361 5.39 6,887 365 5.30
Foreign office deposits (2) 805 46 5.68 843 46 5.46
- ---------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 16,131 673 4.17 16,669 686 4.11
Federal funds purchased and securities
sold under agreements to repurchase 2,017 111 5.49 2,106 112 5.31
Other borrowed funds 1,801 98 5.45 1,999 107 5.36
Medium- and long-term debt 5,980 374 6.26 4,745 295 6.22
Other (3) -- (51) -- -- (49) --
- ---------------------------------------------------------------------------------------------------------------
Total interest-bearing sources 25,929 1,205 4.65 25,519 1,151 4.51
Noninterest-bearing deposits 5,815 5,589
Accrued expenses and other liabilities 467 400
Preferred stock 250 133
Common shareholders' equity 2,408 2,554
- ---------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $34,869 $34,195
======= =======
Net interest income/rate spread (FTE) $ 1,452 3.64 $ 1,427 3.69
======== =======
FTE adjustment (4) $ 9 $ 15
Impact of net noninterest-bearing ======== =======
sources of funds 0.89 0.85
- ---------------------------------------------------------------------------------------------------------------
Net interest margin (as a percent of
average earning assets) (FTE) 4.53% 4.54%
===============================================================================================================
<CAPTION>
1995
- --------------------------------------------------------------------------------------
Average Average
(dollar amounts in millions) Balance Interest Rate
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial loans $11,302 $ 989 8.75%
International loans 1,257 89 7.06
Real estate construction loans 541 52 9.52
Commercial mortgage loans 3,157 297 9.40
Residential mortgage loans 2,450 191 7.80
Consumer loans 4,569 461 10.10
Lease financing 285 19 6.65
- --------------------------------------------------------------------------------------
Total loans (1) 23,561 2,098 8.90
Taxable securities 7,226 473 6.52
Securities exempt from federal income taxes 399 41 10.43
- --------------------------------------------------------------------------------------
Total investment securities 7,625 514 6.72
Short-term investments 351 23 6.61
- --------------------------------------------------------------------------------------
Total earning assets 31,537 2,635 8.35
Cash and due from banks 1,500
Allowance for loan losses (340)
Accrued income and other assets 1,432
- --------------------------------------------------------------------------------------
Total assets $34,129
======================================================================================
Money market and NOW accounts $ 6,411 217 3.39
Savings deposits 2,277 48 2.14
Certificates of deposit 6,358 344 5.41
Foreign office deposits (2) 1,842 112 6.07
- --------------------------------------------------------------------------------------
Total interest-bearing deposits 16,888 721 4.27
Federal funds purchased and securities
sold under agreements to repurchase 2,816 166 5.88
Other borrowed funds 2,313 136 5.87
Medium- and long-term debt 4,510 289 6.41
Other (3) -- 2 --
- --------------------------------------------------------------------------------------
Total interest-bearing sources 26,527 1,314 4.95
Noninterest-bearing deposits 4,767
Accrued expenses and other liabilities 324
Preferred stock --
Common shareholders' equity 2,511
- --------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $34,129
=======
Net interest income/rate spread (FTE) $1,321 3.40
======
FTE adjustment (4) $ 21
Impact of net noninterest-bearing ======
sources of funds 0.79
- --------------------------------------------------------------------------------------
Net interest margin (as a percent of
average earning assets) (FTE) 4.19%
======================================================================================
</TABLE>
(1) Nonaccrual loans are included in average balances reported and are used to
calculate rates.
(2) Includes substantially all deposits by foreign depositors; deposits are in
excess of $100,000.
(3) Net interest rate swap (income)/expense. If swap (income)/expense were
allocated, average rates on total loans would have been 8.63% in 1997, 8.66% in
1996 and 8.84% in 1995; average rates on medium- and long-term debt would have
been 5.85% in 1997, 5.80% in 1996 and 6.14% in 1995.
(4) The FTE adjustment is computed using a federal income tax rate of 35%.
Comerica Incorporated 21
<PAGE> 5
Net interest income (FTE) rose 2 percent to $1,452 million in 1997. This
increase was due primarily to a 2 percent increase in average earning assets,
which was concentrated in commercial loans. The significant increase in
commercial loans was offset by consumer loan runoff and sales and runoff of
investment securities.
Net interest margin for 1997 declined slightly to 4.53 percent from 4.54
percent last year. Comerica (the "Corporation") experienced higher funding
costs in 1997 as a result of a greater reliance on purchased funds in the mix
of interest-bearing liabilities. This was offset by a favorable shift in
earning assets to higher spread loans funded by the sales
and runoff of lower yielding investment securities.
TABLE 3: RATE-VOLUME ANALYSIS-FULLY TAXABLE EQUIVALENT
<TABLE>
<CAPTION>
1997 / 1996 1996 / 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Increase Increase Net Increase Increase Net
(Decrease) (Decrease) Increase (Decrease) (Decrease) Increase
(in millions) Due to Rate Due to Volume* (Decrease) Due to Rate Due to Volume* (Decrease)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income (FTE)
Commercial loans $ 5 $128 $ 133 $ (62) $ 114 $ 52
International loans 7 29 36 (6) 19 13
Real estate construction loans 1 15 16 (2) 15 13
Commercial mortgage loans (7) 5 (2) (3) 30 27
Residential mortgage loans 2 (22) (20) 1 (39) (38)
Consumer loans (3) (14) (17) (10) 6 (4)
Lease financing 2 7 9 -- 5 5
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans 7 148 155 (82) 150 68
Taxable securities 10 (72) (62) 12 (114) (102)
Securities exempt from federal income taxes (1) (9) (10) (3) (10) (13)
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 9 (81) (72) 9 (124) (115)
Short-term investments 1 (5) (4) (1) (9) (10)
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income (FTE) 17 62 79 (74) 17 (57)
Interest expense
Money market and NOW accounts 1 -- 1 (3) 17 14
Savings deposits (3) (7) (10) 1 (5) (4)
Certificates of deposit 6 (10) (4) (7) 28 21
Foreign office deposits 2 (2) -- (11) (55) (66)
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6 (19) (13) (20) (15) (35)
Federal funds purchased and securities
sold under agreements to repurchase 4 (5) (1) (16) (38) (54)
Other borrowed funds 2 (11) (9) (12) (17) (29)
Medium- and long-term debt 2 77 79 (9) 15 6
Other (1) (2) -- (2) (51) -- (51)
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 12 42 54 (108) (55) (163)
----------------------------------------------------------------------------------------------------------------------------------
Net interest income (FTE) $ 5 $ 20 $ 25 $ 34 $ 72 $ 106
===================================================================================================================================
</TABLE>
*Rate/volume variances are allocated to variances due to volume.
(1) Net interest rate swap income.
22 Comerica Incorporated
<PAGE> 6
The Corporation implemented various asset and liability management strategies
in 1997 to minimize exposure to net interest margin risk, which represents the
potential reduction in net interest income that may result from rate spread
compression between, for example, prime and market rates or core deposit and
money market rates. Such strategies included permitting investment securities
to run off in order to facilitate growth in higher yielding loans. Off-balance
sheet interest rate swaps were also entered into during the year to effectively
fix the high yields on certain variable rate loans and alter the interest rate
characteristics of debt issued throughout the year. Refer to page 32 of this
financial review for additional information regarding the Corporation's asset
and liability management policies.
In 1996, net interest income (FTE) increased 8 percent over 1995, benefiting
from strong growth in average earning assets, primarily commercial loans. The
net interest margin for 1996 increased 35 basis points from 1995, principally
due to a favorable shift in the mix of earning assets. The Corporation
primarily funded the growth in higher yielding loans with sales of thin margin,
floating rate investment securities and runoff of fixed rate investment
securities. This shifted the structure of the balance sheet, placing a greater
emphasis on higher spread loans and reducing the reliance on investment
securities.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents management's assessment of possible
losses inherent in the Corporation's loan portfolio and is determined based on
the application of projected loss ratios to risk-rated loans, both individually
and by category. Projected loss ratios incorporate factors such as recent loan
loss experience, current economic conditions and trends, geographic dispersion
of borrowers, trends with respect to past due and nonaccrual amounts, risk
characteristics of various categories and concentrations of loans and transfer
risks. However, there can be no assurance that the actual loss ratios will not
vary from those projected. The provision for loan losses reflects management's
evaluation of the adequacy of the allowance for loan losses. This evaluation is
performed on a quarterly basis.
The provision for loan losses was $146 million in 1997, compared to $114
million in 1996 and $87 million in 1995. The provision increase in 1997
primarily reflected loan growth and management's intention to increase reserve
ratios.
Total net charge-offs increased to $89 million in 1997, compared to $85 million
and $76 million in 1996 and 1995, respectively. The ratio of net loans
charged off to average total loans was 0.33 percent in both 1997 and 1996.
Commercial loan net charge-offs as a percentage of average commercial loans
were 0.10 percent and 0.12 percent for 1997 and 1996, respectively. Consumer
loan net charge-offs as a percentage of average consumer loans were 1.79
percent and 1.57 percent for 1997 and 1996, respectively.
At December 31, 1997, the allowance for loan losses was $424 million, an
increase of $57 million since year-end 1996. The allowance as a percentage of
total loans increased to 1.47 percent from 1.40 percent at December 31, 1996.
The allowance as a percentage of total nonperforming assets increased
significantly to 413 percent at December 31, 1997, from 263 percent at year-end
1996.
An estimated allocation of the allowance for loan losses is provided in Table 9
on page 29. The allocations are made for analytical purposes. The total
allowance is available to absorb losses from any segment of the portfolio.
NET LOANS CHARGED OFF
TO AVERAGE LOANS
(in percentages)
[BAR GRAPH]
<TABLE>
<CAPTION>
93 94 95 96 97
<S> <C> <C> <C> <C> <C>
Comerica
Industry average
(based on 50 largest U.S.
bank holding companies)
</TABLE>
Comerica Incorporated 23
<PAGE> 7
TABLE 4: ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Year Ended December 31
(dollar amounts in millions) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $367 $341 $326 $299 $308
Allowance of institutions and loans purchased/sold -- (3) 4 19 --
Loans charged off
Domestic
Commercial 33 33 33 25 36
Real estate construction 1 1 3 1 1
Commercial mortgage 4 5 8 17 20
Residential mortgage -- 1 2 -- 1
Consumer 92 86 73 40 52
International 1 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Total loans charged off 131 126 119 83 110
Recoveries
Domestic
Commercial 19 18 19 15 18
Real estate construction 1 1 3 -- --
Commercial mortgage 10 9 8 5 2
Consumer 12 13 13 14 12
International -- -- -- 1 --
- -------------------------------------------------------------------------------------------------------------------------
Total recoveries 42 41 43 35 32
- -------------------------------------------------------------------------------------------------------------------------
Net loans charged off 89 85 76 48 78
Provision for loan losses 146 114 87 56 69
- -------------------------------------------------------------------------------------------------------------------------
Balance at end of period $424 $367 $341 $326 $299
=========================================================================================================================
Ratio of allowance for loan losses to total loans
at end of period 1.47% 1.40% 1.40% 1.47% 1.56%
Ratio of net loans charged off during the period
to average loans outstanding during the period 0.33% 0.33% 0.32% 0.24% 0.43%
=========================================================================================================================
</TABLE>
NONINTEREST INCOME
<TABLE>
<CAPTION>
Year Ended December 31
(in millions) 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Income from fiduciary activities $147 $126 $119
Service charges on deposit accounts 141 140 130
Revolving credit fees 20 23 36
Securities gains 6 14 12
Other 191 186 160
- ---------------------------------------------------------------------------
Subtotal 505 489 457
Bond indenture income 23 7 6
Customhouse broker fees -- 11 36
- ---------------------------------------------------------------------------
Total noninterest income $528 $507 $499
===========================================================================
</TABLE>
Noninterest income increased $21 million, or 4 percent, to $528 million in 1997,
compared to $507 million and $499 million in 1996 and 1995, respectively. After
adjusting for divestitures, securities gains and the large nonrecurring items
discussed below, noninterest income rose $53 million, or 12 percent, in 1997.
Income from fiduciary activities increased $14 million, or 10 percent, in 1997,
compared to an increase of $8 million, or 7 percent, in 1996. The increase in
1997 reflects a significant increase in both personal trust and institutional
trust income due to an expanded customer base and market performance of assets
under management. Total trust assets under management increased to $117 billion
at December 31, 1997, from $107 billion at year-end 1996. Discretionary funds,
which represent trust assets over which the Corporation has investment
management authority, increased $4 billion to $30 billion from $26 billion in
1996. This increase resulted primarily from increases in the institutional
trust category.
Service charges on deposit accounts rose $1 million, or 1 percent, in 1997
compared to an increase of $10 million, or 8 percent, in 1996. This increase is
net of a $3 million reduction in service charges resulting from the divestiture
of the Illinois subsidiary in 1996. The majority of the 1997 increase related to
revisions of the commercial account fee structure, growth in demand deposit
activity and lower earnings credit allowances.
24 Comerica Incorporated
<PAGE> 8
NONINTEREST INCOME
(in millions)
[BAR GRAPH]
<TABLE>
<CAPTION>
93 94 95 96 97
<S> <C> <C> <C> <C> <C>
</TABLE>
Customhouse brokerage fees decreased $11 million in 1997, due to the sale of
John V. Carr & Son, Inc. in the second quarter of 1996.
Revolving credit fee income decreased $3 million, or 14 percent, in 1997
compared to a $13 million, or 37 percent decrease in 1996. The lower fees in
1997 were primarily due to the transfer of fees and associated costs to a
merchant services joint venture in early 1996.
Income from securities gains/(losses) decreased $8 million between 1997 and
1996, primarily representing decreases in gains on the sale of Latin American
debt (principally Brady bonds) and U.S. government agency securities.
Other noninterest income grew $28 million, or 15 percent, in 1997. Excluding the
impact of divestitures and large nonrecurring items in both periods, other
noninterest income rose 17 percent. Accounting for the majority of this increase
were higher levels of security trading and commercial fee income, as well as the
implementation of new retail fees. Other noninterest income also increased due
to management's continued emphasis on revenue growth through sales of
nontraditional bank products. Commissions and fees related to these products
increased $3 million, or 19 percent, in 1997 from $20 million in 1996.
Significant nonrecurring items in other noninterest income include a $23 million
gain on the sale of the Corporation's bond indentures services business in 1997.
Significant nonrecurring items in 1996 include a $13 million gain on the
transfer of merchant services to a joint venture, $9 million of interest on a
state tax refund and a $6 million gain on the sale of Comerica Bank-Illinois;
offset by a $9 million write-off related to the sale of John V. Carr & Son, Inc.
There were no significant nonrecurring items included in other noninterest
income in 1995.
NONINTEREST EXPENSES
<TABLE>
<CAPTION>
Year Ended December 31
(in millions) 1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries $464 $475 $466
Employee benefits 75 86 96
- ------------------------------------------------------------------------
Total salaries and
employee benefits 539 561 562
Net occupancy expense 89 99 99
Equipment expense 62 69 68
FDIC insurance expense 3 8 24
Telecommunications expense 28 29 29
Other 287 303 304
- ------------------------------------------------------------------------
Subtotal 1,008 1,069 1,086
Restructuring charge -- 90 --
- ------------------------------------------------------------------------
Total noninterest expenses $1,008 $1,159 $1,086
========================================================================
</TABLE>
Noninterest expenses decreased 13 percent to $1,008 million in 1997 (decreased 6
percent from $1,069 million, excluding the 1996 restructuring charge), compared
to $1,159 million in 1996 and $1,086 million in 1995. Excluding the effect of
divestitures and the large nonrecurring items discussed later, noninterest
expenses remained essentially unchanged in 1997.
A pre-tax restructuring charge of $90 million was recorded in 1996 in connection
with a major program to improve efficiency, revenue and customer service. The
charge included $48 million for termination benefits, $21 million for occupancy
and equipment write-offs and $21 million for other costs. Estimated annual
benefits of $110 million (cost savings of $85 million and revenue enhancements
of $25 million) are anticipated from the program. Projected completion of the
implementation plan is the end of the first quarter of 1998, so a substantial
portion of the estimated benefits will not impact annual results until 1998, and
full annual realization is not expected until 1999. As a result of the program,
1,890 employee positions, about 15 percent of total positions at year-end 1996,
were identified to be eliminated by the end of Direction 2000. As of December
31, 1997, all but approximately 300 of the positions have been eliminated.
Reinvestment opportunities during the implementation phase have created 300
new positions. Implementation of the major components of the program are
progressing as anticipated. During 1997, $61 million of termination benefits,
occupancy and equipment write-offs and other costs were incurred and charged
against the restructuring reserve. Additional information regarding the
Corporation's restructuring reserve can be found in Note 15 on page 50.
Total salaries expense decreased $11 million, or 2 percent, in 1997 versus an
increase of $9 million, or 2 percent, in 1996. Excluding the effect of
divestitures, salaries increased slightly during the year reflecting increased
incentives tied to performance and annual merit increases. The number of
full-time equivalent employees decreased 1,078, or 10 percent, from year-end
1996, excluding divestitures.
Comerica Incorporated 25
<PAGE> 9
NONINTEREST EXPENSES
(in millions)
[BAR GRAPH]
<TABLE>
<CAPTION>
93 94 95 96 97
<S> <C> <C> <C> <C> <C>
Restructuring charge
</TABLE>
Employee benefits expense decreased $11 million, or 12 percent, in 1997 versus
an increase of $10 million, or 10 percent, in 1996. After adjusting for
divestitures, employee benefits decreased 7 percent, largely due to the
reduction in full-time equivalent staff levels.
Net occupancy and equipment expenses, on a combined basis, decreased $17
million, or 10 percent, in 1997 versus virtually no change in 1996. After
adjusting for divestitures, net occupancy and equipment expenses declined 6
percent.
The Federal Deposit Insurance Corporation (FDIC) expenses decreased
significantly, by $5 million, or 63 percent, in 1997, and $16 million, or 66
percent, in 1996, primarily due to the FDIC adopting a new assessment rate
schedule for Bank Insurance Fund (BIF) members in the third quarter of 1995.
The new rate schedule, which continues to determine assessments based on a
bank's risk-based capital levels, virtually eliminated each bank's 1996 BIF
annual deposit insurance premium. Beginning in 1997, each subsidiary bank's
deposit insurance assessment rate is predicated upon the level of insurance
premiums necessary to maintain the bank insurance fund ratio at a level of 1.25
percent of insured deposits, plus an amount representing interest due on the
Financing Corporation bonds issued during the savings and loan crisis. The BIF
rate reduction described above translated into a $21 million reduction in FDIC
insurance expense for the Corporation in 1996. Offsetting this savings in 1996
was a one-time charge of $5 million, representing the Corporation's portion of
an assessment levied on banks with Savings Association Insurance Fund (SAIF)
insured deposits in order to recapitalize the SAIF. Deposit insurance expense
will approximate $3 million in 1998 based on current deposit levels and current
deposit assessment rates.
Other noninterest expenses decreased $16 million in 1997, compared to a $1
million decrease in 1996. Included in other noninterest expenses in 1997 were $5
million of incremental litigation accruals. Other noninterest expenses in 1997,
1996 and 1995, included losses of $2 million, $18 million and $15 million
(excluding $1 million of costs to sell), respectively, on the sale of a portion
of the bankcard portfolio. Loss-sharing provisions in the sales agreement expose
the Corporation to maximum losses of $50 million over the first 42 months
following the sale (December 1995). Loss rates in 1996 and 1997 exceeded
estimates, resulting in the additional charge for projected losses. Excluding
divestitures and the above large nonrecurring items, other noninterest expenses
increased $3 million, or less than 1 percent. The minimal increase reflects
management's continued efforts to control expenses.
The Corporation's efficiency ratio is defined as total noninterest expenses
divided by the sum of net interest revenue (FTE) and noninterest income,
excluding securities gains/(losses). The ratio was 51.05 percent in 1997,
compared to 60.36 percent in 1996 (55.67 percent excluding the restructuring
charge) and 60.09 percent in 1995.
INCOME TAXES
The provision for income taxes was $287 million in 1997, compared to $229
million in 1996 and $213 million in 1995. The effective tax rate, computed
by dividing the provision for income taxes by income before taxes, was 35.0
percent for 1997, compared to 35.4 percent in 1996 and 33.9 percent in 1995.
The decrease in the effective tax over the prior year reflects greater levels
of low-income housing credits.
STRATEGIC LINES OF BUSINESS
The Corporation has strategically aligned its operations into three major lines
of business: the Business Bank, the Individual Bank and the Investment Bank.
Table 5 on page 27 presents the financial results of these business lines
for the years ended December 31, 1997 and 1996.
Lines of business results are produced by the Corporation's internal management
accounting system. This system measures financial results based on the
internal organizational structure of the Corporation; therefore, the information
presented is not necessarily comparable with similar information for any other
financial institution. The management accounting system assigns balance sheet
and income statement items to each line of business using certain methodologies
which are constantly being refined. For comparability purposes, both 1997 and
1996 amounts are based on methodologies in effect at December 31, 1997. These
methodologies, which are briefly summarized in the following paragraph, may
be modified as management accounting systems are enhanced and changes occur in
the organizational structure or product lines.
The Corporation's internal funds transfer pricing system records cost of funds
or credit for funds using a combination of matched maturity funding for certain
assets and liabilities and a blended rate based on various maturities for the
remaining assets and liabilities. The loan loss provision is assigned based on
the amount necessary to maintain an allowance for loan losses adequate for that
line of business. Noninterest income and expenses directly attributable to a
line of business are assigned to that business. Direct expenses incurred by
areas whose services support the overall Corporation are allocated to the
business lines as follows: Product processing expenditures are allocated based
on standard unit costs applied to actual volume measurements; administrative
expenses are allocated based on estimated time expended; and corporate over-
head is assigned based on the ratio of a line of business' noninter-
26 Comerica Incorporated
<PAGE> 10
TABLE 5: STRATEGIC LINES OF BUSINESS FINANCIAL RESULTS
<TABLE>
<CAPTION>
Business Bank Individual Bank Investment Bank* Other Total
- --------------------------------------------------------------------------------------------------------------------------
(dollar amounts in millions) 1997 1996 1997 1996 1997 1996 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings Summary
Net interest income (FTE) $ 653 $ 621 $ 759 $ 776 $ (2) $ (1) $ 42 $ 31 $ 1,452 $ 1,427
Provision for loan losses (11) 2 82 109 n/a n/a 75 3 146 114
Noninterest income 129 122 268 277 107 94 24 14 528 507
Noninterest expenses 298 293 602 655 101 95 7 116 1,008 1,159
Provision for income taxes 180 163 120 102 1 (1) (5) (20) 296 244
Net income (loss) 315 285 223 187 3 (1) (11) (54) 530 417
Selected Average Balances
Assets $19,781 $17,397 $9,644 $9,881 $ 27 $22 $5,417 $6,895 $34,869 $34,195
Loans 18,172 16,156 9,042 9,201 -- -- (5) (5) 27,209 25,352
Deposits 3,911 3,914 17,084 17,262 40 48 911 1,034 21,946 22,258
Common equity 1,057 941 774 707 23 17 554 889 2,408 2,554
Statistical Data
Return on average assets 1.59% 1.64% 1.24% 1.04% 4.21% (1.78)% (0.09)% (0.49)% 1.52% 1.22%
Return on
average common equity 29.85 30.24 28.76 26.45 12.62 (7.34) (1.90) (5.98) 21.32 15.98
Efficiency ratio 38.27 39.58 58.55 62.12 n/m n/m n/m n/m 51.05 60.36
==========================================================================================================================
</TABLE>
*Included in noninterest expenses are fees internally transferred to other
lines of business for referrals to the Investment Bank. If excluded, Investment
Bank net income would have been $6 million and $2 million and return on average
common equity would have been 27.89% and 11.01%, in 1997 and 1996,
respectively.
n/m Not meaningful
n/a Not applicable
est expenses to total noninterest expenses incurred by all business lines.
Common equity is allocated based on credit, operational and business risks.
The following discussion provides information about each line of business,
along with an explanation of factors impacting 1997 performance. Overall
comparability of results is impacted because of the inclusion of the results of
Comerica Bank-Illinois for the first seven months of 1996.
The Business Bank is comprised of middle market lending, asset-based lending,
large corporate banking and international financial services. This line of
business meets the needs of medium-size businesses, multinational corporations
and governmental entities by offering various products and services, including
commercial loans and lines of credit, deposits, cash management, capital market
products, international trade finance, letters of credit, foreign exchange
management services and loan syndication services.
Net income increased $30 million, or 11 percent, in 1997, principally due to
additional net interest income resulting from 12 percent average loan growth,
and a lower provision for loan losses.
The Individual Bank includes consumer lending, consumer deposit gathering,
mortgage loan origination and servicing, small business banking (annual sales
under $5 million) and private banking. This line of business offers a variety
of consumer products, including deposit accounts, direct and indirect
installment loans, credit cards, home equity lines of credit and residential
mortgage loans. In addition, a full range of financial services is provided to
small businesses and municipalities. Private lending and personal trust
services are also provided to meet the personal financial needs of affluent
individuals (as defined by individual net income or wealth).
Net income increased $36 million, or 19 percent, in 1997, principally due to
lower noninterest expenses resulting from the sale of the Corporation's
Illinois subsidiary, a one-time loss on a bankcard portfolio sale and a
one-time SAIF assessment charge for thrift bailout in 1996. Lower net interest
income and noninterest income are offset by a lower provision for loan losses.
Noninterest income in 1996 includes a $13 million gain on the sale of the
merchant services business.
The Investment Bank is responsible for the sale of mutual fund and annuity
products, as well as life, disability and long-term care insurance products.
This line of business also offers institutional trust products, retirement
services and provides investment management and advisory services, investment
banking and discount securities brokerage services.
Net income increased $4 million in 1997, principally due to higher levels of
institutional trust and discount brokerage fees.
The Other category includes divested business lines, the income and expense
impact of cash and loan loss reserves not assigned to specific business lines,
miscellaneous other items of a corporate nature and certain direct expenses not
allocated to business lines. The Corporation's securities portfolio and asset
and liability management activities are also reflected in these amounts.
Noninterest income for 1997 includes a $23 million gain on the sale of the
Corporation's bond indenture services business. Noninterest expenses in 1996
include a $90 million restructuring charge.
Comerica Incorporated 27
<PAGE> 11
TABLE 6: ANALYSIS OF INVESTMENT SECURITIES AND LOANS
<TABLE>
<CAPTION>
December 31
(in millions) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment securities available for sale
U.S. government and agency securities $ 3,239 $ 3,968 $ 6,038 $2,674 $ 2,164
State and municipal securities 170 228 371 -- --
Other securities 597 604 450 232 158
- -----------------------------------------------------------------------------------------------------------------------------
Total investment securities available for sale 4,006 4,800 6,859 2,906 2,322
Investment securities held to maturity
U.S. government and agency securities -- -- -- 4,462 3,232
State and municipal securities -- -- -- 422 513
Other securities -- -- -- 86 233
- -----------------------------------------------------------------------------------------------------------------------------
Total investment securities held to maturity -- -- -- 4,970 3,978
- -----------------------------------------------------------------------------------------------------------------------------
Total investment securities $ 4,006 $ 4,800 $ 6,859 $ 7,876 $ 6,300
=============================================================================================================================
Commercial loans $15,805 $13,520 $12,041 $10,634 $ 9,087
International loans
Government and official institutions 6 11 6 18 143
Banks and other financial institutions 339 323 583 660 671
Other 1,740 1,372 796 517 322
- -----------------------------------------------------------------------------------------------------------------------------
Total international loans 2,085 1,706 1,385 1,195 1,136
Real estate construction loans 941 751 641 414 437
Commercial mortgage loans 3,634 3,446 3,254 3,056 2,700
Residential mortgage loans 1,565 1,744 2,221 2,436 1,857
Consumer loans 4,348 4,634 4,570 4,215 3,674
Lease fnancing 517 406 330 259 209
- -----------------------------------------------------------------------------------------------------------------------------
Total loans $28,895 $26,207 $24,442 $22,209 $19,100
=============================================================================================================================
</TABLE>
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
on Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The statement establishes standards
for the way public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. The statement is effective for fiscal years
beginning after December 15, 1997, but need not be applied to interim financial
statements in the initial year of application. Subsequent adoption of SFAS No.
131 will not have a material impact to the Corporation.
BALANCE SHEET AND CAPITAL FUNDS ANALYSIS
Total assets were $36.3 billion at year-end 1997, representing a $2.1 billion
increase from $34.2 billion on December 31, 1996. On an average basis, total
assets remained relatively flat with $34.9 billion in 1997, compared to $34.2
billion in 1996.
EARNING ASSETS
Total earning assets were $33.1 billion at year-end 1997, representing a $2.0
billion increase from $31.1 billion at December 31, 1996. On an average
basis, total earning assets were $32.0 billion in 1997, compared to $31.4
billion in 1996.
The average balance of domestic commercial loans, which is comprised of
commercial and commercial mortgage loans, increased $1.6 billion, or 10
percent, from 1996. Real estate construction loans also rose an average $159
million, or 22 percent, in 1997. The commercial portfolio, especially small
business and middle market loans, continues to grow in all the Corporation's
markets. This growth, along with an increase of approximately 30 percent in
commercial loan commitments to extend credit, is attributable to effective
marketing efforts, strong customer relationships and continued economic
strength in the commercial loan markets.
Average international loans increased $412 million, consisting largely of loans
originated to facilitate trade with limited cross-border risk. The growth also
reflects the increasing global activity of the Corporation's traditional
customer base. Risk management practices in international lending include
structuring bilateral arrangements or participating in bank facilities which
secure repayment from sources external to the borrower's country. Accordingly,
such international outstandings are excluded from cross-border risk of that
country. Mexican cross-border risk of $414 million, or 1.14 percent of assets,
was the only country exposure exceeding 1.00 percent of assets at December 31,
1997. There were no countries with exposure between 0.75 percent and 1.00
percent of total assets at year-end 1997. Table 7 on page 29 provides
additional information on the Corporation's Mexican cross-border risk.
28 Comerica Incorporated
<PAGE> 12
TABLE 7: MEXICAN CROSS-BORDER RISK
<TABLE>
<CAPTION>
December 31
(in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Governments and official institutions $ 41 $192 $142
Banks and other financial institutions 78 26 42
Commercial and industrial 295 50 32
- --------------------------------------------------------------------------------
Total $414 $268 $216
================================================================================
</TABLE>
TABLE 8: LOAN MATURITIES AND INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
After One
December 31, 1997 Within But Within After
(in millions) One Year* Five Years Five Years Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial loans $12,059 $ 3,043 $ 703 $15,805
Commercial mortgage loans 1,281 1,701 652 3,634
International loans 1,993 90 2 2,085
Real estate construction loans 650 213 78 941
- -----------------------------------------------------------------------------------------
Total $15,983 $ 5,047 $ 1,435 $22,465
=========================================================================================
Loans maturing after one year
Predetermined interest rates $ 2,064 $ 863
Floating interest rates 2,983 572
- -----------------------------------------------------------------------------------------
Total $ 5,047 $ 1,435
=========================================================================================
</TABLE>
* Includes demand loans, loans having no stated repayment schedule or maturity
and overdrafts.
TABLE 9: ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
December 31 Allocated of Total Allocated of Total Allocated of Total Allocated of Total Allocated of Total
(dollar amounts in millions) Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic
Commercial $ 94 55% $ 98 52% $118 49% $119 48% $123 48%
Real estate construction 7 3 6 3 5 3 6 2 4 2
Commercial mortgage 18 13 27 13 33 13 35 14 26 14
Residential mortgage 1 5 2 7 2 9 2 11 3 10
Consumer 116 15 120 18 84 19 60 19 60 19
Lease financing 1 2 1 1 1 1 1 1 1 1
International 5 7 3 6 2 6 3 5 18 6
Unallocated 182 -- 110 -- 96 -- 100 -- 64 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total $424 100% $367 100% $341 100% $326 100% $299 100%
====================================================================================================================================
</TABLE>
Average residential mortgage loans decreased $284 million primarily due to
management's decision to sell the majority of mortgage originations. Average
consumer loans, comprised of installment, revolving credit and bankcard loans,
declined $138 million. Average installment loan balances decreased $106 million,
while average revolving credit loans decreased $39 million. Average bankcard
loans were relatively unchanged during the period.
Average investment securities declined to $4.7 billion in 1997, compared to $5.8
billion in 1996, reflecting sales and runoff of securities primarily to fund
growth in higher-yielding loans and to divest lower earning variable rate
assets. Average U.S. government and agency securities decreased $1.2 billion and
average state and municipal securities decreased $97 million, while average
other securities increased $194 million. The Corporation shifted away from
purchasing on-balance sheet securities to balance interest rate sensitivity and
preserve net interest margin to purchasing off-balance sheet interest rate swaps
that accomplish the same interest risk reduction objective. The decline in U.S.
government and agency securities principally resulted from sales and paydowns,
while the tax-
Comerica Incorporated 29
<PAGE> 13
exempt portfolio of state and municipal securities continued to decrease as
reduced tax advantages for these types of securities deterred additional
investment. Other securities consist primarily of collateralized mortgage
obligations (CMOs), Brady bonds and Eurobonds. The increase in other securities
during the year was largely a result of Eurobonds.
OTHER EARNING ASSETS
Short-term investments in interest-bearing deposits with banks, federal funds
sold and securities purchased under agreements to resell provide a range of
maturities under one year to supplement corporate liquidity. Interest-bearing
deposits with banks are investments with banks in developed countries or foreign
banks' international banking facilities located in the United States. Federal
funds sold provide a vehicle to control the reserve position and serve
correspondent banks, as well as offer supplemental earnings opportunities. As a
result of the emphasis on higher-yielding loans, short-term investments declined
on average $37 million during 1997.
Loans held for sale totaled $41 million at the end of 1997, up slightly from $38
million in 1996.
TABLE 10: MATURITY DISTRIBUTION OF DOMESTIC CERTIFICATES OF DEPOSIT OF $100,000
AND OVER
<TABLE>
<CAPTION>
December 31
(in millions) 1997
- ----------------------------------------------------------
<S> <C>
Three months or less $1,380
Over three months to six months 395
Over six months to twelve months 350
Over twelve months 171
- ----------------------------------------------------------
Total $2,296
==========================================================
</TABLE>
DEPOSITS AND BORROWED FUNDS
Average deposits declined $312 million, or 1 percent, from 1996. Excluding the
impact of divestitures, deposits increased 1 percent.
Average demand deposits grew $226 million, or 4 percent, from 1996, largely due
to the growth in related commercial loan business. Average certificates of
deposit decreased $188 million, or 3 percent, from 1996.
With deposit balances declining slightly, there was increased reliance on
medium-term debt (both domestic and European), and long-term debt to provide the
necessary funding to support expanding loan volumes. Medium-term debt provides
the Corporation a funding source with maturities ranging from one month to 15
years and durations that are similar to deposit liabilities. Long-term
subordinated notes help maintain the bank's total capital ratio at the level
that qualifies for the lowest FDIC risk-based insurance premium and allow the
Corporation to take advantage of acquisition activity. Medium-term debt
increased $2.8 billion representing the net result of the issuance of $5.4
billion and the maturity of $2.6 billion of notes during 1997. Long-term debt
increased $200 million from the issuance of subordinated notes during 1997.
Further information on the Corporation's medium- and long-term debt is included
in Note 9 of the consolidated financial statements on page 46.
CAPITAL
Shareholders' equity was $2.8 billion at December 31, 1997. During the year, the
Corporation authorized the repurchase of up to 12 million shares (or 18 million
shares on a post-split basis) of Comerica common stock. Coupled with other
authorizations to acquire shares, Comerica repurchased 4 million shares equaling
more than $242 million of capital during 1997. At December 31, 1997, the
Corporation had remaining authorization to purchase 15 million shares (or 22
million shares on a post-split basis) of common stock.
The remaining change in capital is the net effect of increases in capital from
retained earnings of $332 million, $36 million of common stock for employee
stock plans and a change of $21 million in nonowner equity, principally a change
in value of available for sale securities.
The Corporation declared common dividends totaling $181 million on net income
applicable to common stock of $513 million, representing a dividend payout ratio
of 36 percent. The payout ratio in 1996 was 42 percent (37 percent excluding the
after-tax impact of the restructuring charge). The Corporation has targeted a
payout ratio of between 30 to 40 percent, although this target is constantly
reassessed by the board of directors in light of changing market and industry
conditions.
On January 15, 1998, the Corporation's board of directors declared a
three-for-two stock split, effected in the form of a 50 percent stock dividend
to be paid April 1, 1998, as well as increased the quarterly cash dividend 10
percent to $0.32 per share.
At December 31, 1997, the Corporation and all of its banking subsidiaries
exceeded the capital ratios required for an institution to be considered "well
capitalized" by the standards developed under the Federal Deposit Insurance
Corporation Improvement Act of 1991. See Note 17 of the consolidated financial
statements on page 51 for the capital ratios.
ASSET QUALITY
NONPERFORMING ASSETS
The Corporation's policies regarding nonaccrual loans reflect the importance of
identifying troubled loans early. Consumer loans are directly charged off no
later than 180 days past due,
NONPERFORMING ASSETS TO
LOANS AND OTHER REAL ESTATE
(in percentages)
[BAR GRAPH]
<TABLE>
<CAPTION>
93 94 95 96 97
<S> <C> <C> <C> <C> <C>
Comerica
Industry average
(based on 50 largest U.S.
bank holding companies)
</TABLE>
30 Comerica Incorporated
<PAGE> 14
TABLE 11: ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO-FULLY TAXABLE EQUIVALENT
<TABLE>
<CAPTION>
Maturity+
--------------------------------------------------------------------- Weighted
Within 1 Year 1 - 5 Years 5 - 10 Years After 10 Years Total Average
December 31, 1997 --------------------------------------------------------------------------------------- Maturity
(dollar amounts in millions) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Yrs./Mos.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale
U.S. Treasury $ 46 6.09% $ 27 5.54% $ -- --% $ -- --% $ 73 5.90% 1/1
U.S. government
and agency 125 7.08 194 7.10 185 7.02 2,662 6.57 3,166 6.65 10/8
State and municipal
securities 43 5.90 87 6.41 32 6.23 8 6.40 170 6.25 3/3
Other bonds, notes
and debentures 108 9.36 177 7.71 127 7.43 84 8.85 496 8.19 6/3
Federal Reserve
Bank stock and
other investments* -- -- -- -- 2 -- 99 -- 101 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment
securities available
for sale $322 7.55% $485 7.08% $ 346 7.10% $2,853 6.64% $4,006 6.81% 9/8
====================================================================================================================================
</TABLE>
* Balances are excluded in the calculation of total yield.
+ Based on final contractual maturity.
TABLE 12: SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS
<TABLE>
<CAPTION>
December 31
(dollar amounts in millions) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming assets
Nonaccrual loans
Commercial loans $ 59 $ 72 $ 87 $ 89 $ 71
International loans 1 -- -- -- --
Real estate construction loans 3 3 7 17 19
Real estate mortgage loans (principally commercial) 15 28 37 56 64
- -----------------------------------------------------------------------------------------------
Total nonaccrual loans 78 103 131 162 154
Reduced-rate loans 8 8 3 2 5
- -----------------------------------------------------------------------------------------------
Total nonperforming loans 86 111 134 164 159
Other real estate 17 29 29 40 50
- -----------------------------------------------------------------------------------------------
Total nonperforming assets $103 $140 $163 $204 $209
===============================================================================================
Nonperforming loans as a percentage of total loans 0.30% 0.42% 0.55% 0.74% 0.83%
Nonperforming assets as a percentage of total loans
and other real estate 0.36% 0.53% 0.67% 0.92% 1.09%
Allowance for loan losses as a percentage of total
nonperforming assets 413% 263% 209% 160% 143%
Loans past due 90 days--domestic $ 53 $ 52 $ 57 $ 39 $ 46
===============================================================================================
</TABLE>
or earlier if deemed uncollectible. Loans other than consumer are generally
placed on nonaccrual status when management determines that principal or
interest may not be fully collectible, but no later than when the loan is 90
days past due on principal or interest unless it is fully collateralized and in
the process of collection. Loan amounts in excess of probable future cash
collections are charged off at the time the loan is placed on nonaccrual status
to an amount that represents management's assessment of the ultimate
collectibility of the loan.
Interest previously accrued but not collected on nonaccrual loans is charged
against current income. Income on such loans is then recognized only to the
extent that cash is received and where the future collection of principal is
probable.
Nonperforming assets as a percent of total loans and other real estate
were 0.36 percent and 0.53 percent at year-end 1997 and 1996, respectively. This
decline reflects the continued improvement in the quality of the loan portfolio,
favorable economic conditions in the Corporation's markets, and other real
estate sales.
Comerica Incorporated 31
<PAGE> 15
Nonaccrual loans at December 31, 1997, decreased 24 percent to $78 million from
year-end 1996.
The nonaccrual loan table below indicates the percentage of nonaccrual loan
value to original contractual value and demonstrates the conservative and prompt
nature of the corporate charge-off and payment application policy.
Other real estate owned (ORE) declined significantly to $17 million, as two
large sales more than offset ORE additions.
NONACCRUAL LOANS
<TABLE>
<CAPTION>
December 31
(dollar amounts in millions) 1997 1996
- --------------------------------------------------------
<S> <C> <C>
Carrying value $ 78 $103
Contractual value 119 147
Carrying value as a percentage
of contractual value 66% 70%
=======================================================
</TABLE>
CONCENTRATION OF CREDIT
Loans to companies and individuals involved with the automotive industry,
including suppliers, manufacturers and dealers, represented the largest
significant industry concentration at December 31, 1997. These loans totaled
$4.3 billion, or 15 percent of total loans at December 31, 1997, and included
floor plan loans to automobile dealers of $1,408 million and $1,209 million at
December 31, 1997 and 1996, respectively. All other industry concentrations
individually represented less than 5 percent of total loans at year-end 1997.
Automotive industry loans at year-end 1996 totaled approximately $4.3 billion,
or 16 percent, of total loans.
The Corporation has successfully operated in the Michigan economy in spite of a
loan concentration and several downturns in the auto industry. There were no
automotive industry-related loans larger than $6 million on nonaccrual status as
of year-end 1997. In addition, there were no significant automotive
industry-related charge-offs during the year.
COMMERCIAL REAL ESTATE LENDING
The real estate construction loan portfolio contains loans made to long-time
customers in local markets with satisfactory project completion experience. The
portfolio has approximately 922 loans, of which 72 percent have balances of less
than $1 million. The largest real estate construction loan has a balance of
approximately $28 million.
The commercial mortgage loan portfolio, 45 percent of which relates to
owner-occupied properties, also consists of loans to long-time customers. Of the
approximately 7,229 loans in the portfolio, 89 percent have balances under $1
million and the largest loan has a balance of approximately $28 million.
Additionally, the Corporation's policy requires a 75 percent or less
loan-to-value (LTV) ratio for all commercial mortgage and real estate
construction loans. This policy is within bank regulatory limits.
The geographic distribution of the real estate construction and commercial
mortgage loan portfolios is also an important determinant in evaluating credit
risk. The following table indicates the diversification of the portfolios
throughout the markets served by the Corporation.
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
December 31, 1997 Real Estate Commercial
(in millions) Construction Mortgage
- ------------------------------------------------------------------------------
<S> <C> <C>
Michigan $396 $2,189
California 160 565
Texas 303 375
Florida 19 150
Other 63 355
- ------------------------------------------------------------------------------
Total $941 $3,634
==============================================================================
</TABLE>
ASSET AND LIABILITY MANAGEMENT
The Corporation has a material exposure to interest rate risk, which it actively
manages. The principle objective of asset and liability management is to
maximize net interest income while operating within acceptable limits
established for interest rate risk and maintaining adequate levels of funding
and liquidity. The Corporation utilizes various on- and off-balance sheet
financial instruments to manage the extent to which net interest income may be
affected by fluctuations in interest rates. Corporate policies and risk limits
pertaining to asset and liability management activities are established by the
Asset Liability Policy Committee (ALPC) and approved by the board of directors.
Adherence to these policies is governed by the ALPC, which is comprised of
executive and senior management from various areas of the Corporation, including
finance, lending, investments and deposit gathering, who meet regularly to
execute asset and liability management strategies.
INTEREST RATE SENSITIVITY
Interest rate risk arises in the normal course of business due to differences in
the repricing and maturity characteristics of assets and liabilities. Since no
single measurement system satisfies all management objectives, a combination of
techniques are used to manage interest rate risk, including simulation analysis,
asset and liability repricing schedules and duration of equity. The results of
these interest rate risk measurement systems are reviewed regularly by the ALPC.
Net interest income is frequently evaluated under various balance sheet and
interest rate scenarios. The results of this analysis provide the information
needed to assess the proper balance sheet structure. An unexpected change in the
pace of economic activity, whether domestically or internationally, could
translate into a materially different interest rate environment than currently
expected. A process is maintained where management evaluates "base" net interest
income under what is believed to be the most likely balance sheet structure and
interest rate environment. This "base" net interest income is then evaluated
against interest rate scenarios that are taken up and down 200 basis points from
the most likely rate environment. In addition, adjustments to asset prepayment
levels, yield curves and overall balance sheet mix and growth
32 Comerica Incorporated
<PAGE> 16
assumptions are made to be consistent with each interest rate environment. These
assumptions are inherently uncertain and, as a result, the model cannot
precisely predict the impact of higher or lower interest rates on net interest
income. Actual results may differ from simulated results due to timing,
magnitude and frequency of interest rate changes and changes in market
conditions and management strategies, among other factors. Derivative financial
instruments and other financial instruments used for purposes other than trading
are included in this analysis. The measurement of risk exposure at year-end 1997
for a 200-basis-point decline in short-term interest rates identified
approximately $35 million of net interest income at risk during 1998. If
short-term interest rates rise 200 basis points, the Corporation would have
approximately $22 million of net interest income at risk. Year-end 1996 net
interest income at risk was measured at $9 million and $15 million,
respectively, for a 200-basis-point decline and rise in interest rates. The
change in exposure is the result of differences in the economic scenarios in the
shocked environments, and therefore differences in the timing and magnitude of
rate changes. Further, yield curve differences create faster amortization on
certain loans, securities and interest rate swaps in the 1997 rate shock.
Corporate policy limits adverse change to no more than 5 percent of management's
most likely net interest income forecast. In either case, the Corporation is
within the policy guideline.
While most assets and liabilities reprice either at maturity or in accordance
with their contractual terms, several balance sheet components demonstrate
characteristics that require adjustments to more accurately reflect repricing
and cash flow behavior. Assumptions based on historical pricing relationships
and anticipated market reactions are made to certain core deposit categories to
reflect the elasticity of the changes in the related interest rates relative to
changes in market interest rates. In addition, estimates are made concerning
early loan and security repayments. Prepayment assumptions are based on the
expertise of portfolio managers along with input from financial markets.
Consideration is given to current and future interest rate levels. While
management recognizes the limited ability of a traditional gap schedule to
accurately portray interest rate risk, adjustments are made to provide a more
accurate picture of the Corporation's interest rate risk profile. This
additional interest rate risk measurement tool provides a directional outlook on
the impact of changes in interest rates.
As market rates approach expected turning points, management adjusts the
interest rate sensitivity of the Corporation. This sensitivity is measured as a
percentage of earning assets. The operating range for interest rate sensitivity,
on an elasticity-adjusted basis, is between an asset sensitive position of 10
percent of earning assets and a liability sensitive position of 10 percent of
earning assets.
The table on page 34 shows the interest sensitivity gap as of year-end 1997 and
1996. The report reflects the contractual repricing and payment schedules of
assets and liabilities, including an estimate of all early loan and security
repayments which adds $1.0 billion of rate sensitivity to the 1997 year-end gap.
In addition, the schedule identifies the adjustment for the price elasticity on
certain core deposits.
RISK MANAGEMENT DERIVATIVE FINANCIAL INSTRUMENTS AND FOREIGN EXCHANGE CONTRACTS
RISK MANAGEMENT NOTIONAL ACTIVITY
<TABLE>
<CAPTION>
Interest Foreign
Rate Exchange
(in millions) Contracts Contracts Totals
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balances at December 31, 1995 $ 6,119 $ 279 $ 6,398
Additions 4,026 4,762 8,788
Maturities/amortizations (1,925) (4,559) (6,484)
- ------------------------------------------------------------------------------------
Balances at December 31, 1996 $ 8,220 $ 482 $ 8,702
Additions 3,857 5,715 9,572
Maturities/amortizations (3,510) (5,598) (9,108)
- ------------------------------------------------------------------------------------
Balances at December 31, 1997 $ 8,567 $ 599 $ 9,166
====================================================================================
</TABLE>
The Corporation remained modestly asset sensitive throughout 1997, as asset
sensitivity generated by continued investment security amortization was offset
by a shortening in the average maturity of the certificate of deposit portfolio.
The Corporation had a one-year asset sensitive gap of $1,156 million, or 3
percent of earning assets, as of December 31, 1997. This compares to a $547
million asset sensitive gap, or 2 percent of earning assets, on December 31,
1996. Management anticipates material growth in asset sensitivity throughout
1998, and will continue to look at both on- and off-balance sheet alternatives
to hedge this increased asset sensitivity and achieve the desired interest rate
risk profile for the Corporation.
The Corporation utilizes interest rate swaps predominantly as asset and
liability management tools with the overall objectives of managing the
sensitivity of net interest income to changes in interest rates. To accomplish
this objective, interest rate swaps are used primarily to modify the interest
rate characteristics of certain assets and liabilities (e.g., 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 assists management in achieving interest rate
risk objectives.
At December 31, 1997 and 1996, the notional amount of risk management interest
rate swaps totaled $8,515 million and $8,015 million, respectively. The fair
value of risk management interest rate swaps at December 31, 1997, was a
positive $123 million, compared to a negative $55 million at December 31, 1996.
For the year ended December 31, 1997, risk management interest rate swaps
generated $52 million in net interest income, compared to $49 million in net
interest income for the year ended December 31, 1996. These off-balance sheet
instruments represented 74 percent and 82 percent of total derivative financial
instruments and foreign exchange contracts, including commitments, at year-end
1997 and 1996, respectively.
Table 14 on page 35 summarizes the expected maturity distribution of the
notional amount of risk management interest rate swaps and provides the weighted
average interest rates associated with amounts to be received or paid as of
December 31, 1997. The swaps have been grouped by the assets and liabilities to
which they have been designated.
Comerica Incorporated 33
<PAGE> 17
TABLE 13: SCHEDULE OF RATE SENSITIVE ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
Interest Sensitivity Period Interest Sensitivity Period
- ------------------------------------------------------------------------------------------------------------------------------------
Within Over Within Over
(dollar amounts in millions) One Year One Year Total One Year One Year Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ -- $ 1,927 $ 1,927 $ -- $ 1,902 $ 1,902
Short-term investments 196 7 203 98 5 103
Investment securities 1,223 2,783 4,006 1,428 3,372 4,800
Commercial loans
(including lease financing) 14,742 1,580 16,322 12,489 1,437 13,926
International loans 2,085 -- 2,085 1,706 -- 1,706
Real estate related loans 3,907 2,233 6,140 3,662 2,279 5,941
Consumer loans 2,100 2,248 4,348 2,201 2,433 4,634
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans 22,834 6,061 28,895 20,058 6,149 26,207
Other assets 742 519 1,261 615 579 1,194
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 24,995 $ 11,297 $ 36,292 $22,199 $ 12,007 $ 34,206
===================================================================================================================================
LIABILITIES
Deposits
Noninterest-bearing $ 459 $ 6,302 $ 6,761 $ 570 $ 6,143 $ 6,713
Savings -- 1,601 1,601 -- 1,770 1,770
Money market and NOW 5,570 1,724 7,294 5,351 1,631 6,982
Certificates of deposit 5,562 1,059 6,621 5,056 1,550 6,606
Foreign office 309 -- 309 295 1 296
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 11,900 10,686 22,586 11,272 11,095 22,367
Short-term borrowings 3,193 -- 3,193 4,489 -- 4,489
Medium- and long-term debt 5,961 1,325 7,286 2,842 1,400 4,242
Other liabilities 149 316 465 177 315 492
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 21,203 12,327 33,530 18,780 12,810 31,590
Shareholders' equity (1) 2,763 2,762 (23) 2,639 2,616
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 21,202 $ 15,090 $ 36,292 $18,757 $ 15,449 $ 34,206
===================================================================================================================================
Sesitivity impact of interest rate swaps $ (4,377) $ 4,377 -- $(4,676) $ 4,676 --
Sensitivity impact of unsettled swap
and security purchases -- -- -- (43) 43 --
- -----------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap (584) 584 -- (1,277) 1,277 --
Gap as a percentage of earning assets (2)% 2% -- (4)% 4% --
Sensitivity impact from elasticity adjustments (1) 1,740 (1,740) -- 1,824 (1,824) --
- -----------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap with elasticity adjustments $ 1,156 $ (1,156) -- $ 547 $ (547) --
Gap as a percentage of earning assets 3% (3)% -- 2% (2)% --
===================================================================================================================================
</TABLE>
(1) Elasticity adjustments for NOW, savings and money market deposit accounts
are based on historical pricing relationships dating back to 1985 as well as
expected future pricing relationships.
34 Comerica Incorporated
<PAGE> 18
TABLE 14: REMAINING EXPECTED MATURITY OF RISK MANAGEMENT INTEREST RATE SWAPS
<TABLE>
<CAPTION>
2003- Dec.31
(amounts in millions) 1998 1999 2000 2001 2002 2026 Total 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
VARIABLE RATE ASSET DESIGNATION:
Receive fixed swaps
Generic $ -- $ -- $ 700 $ -- $ -- $ -- $ 700 $ --
Amortizing 100 -- -- -- -- -- 100 184
Index amortizing 1,054 1,054 736 300 235 125 3,504 5,014
Weighted average: (1)
Receive rate 6.27% 6.36% 6.33% 6.42% 6.49% 6.22% 6.33% 6.11%
Pay rate 5.88% 5.88% 5.91% 5.86% 5.93% 5.99% 5.90% 5.56%
Floating/floating
swaps(3) $ -- $ -- $ 55 $ -- $ -- $ -- $ 55 $ 25
- ----------------------------------------------------------------------------------------------------------------------------
FIXED RATE ASSET DESIGNATION:
Pay fixed swaps
Generic $ -- $ 2 $ -- $ -- $ -- $ -- $ 2 $ 2
Index amortizing 5 3 9 -- -- -- 17 40
Weighted average:(1)
Receive rate 5.97% 5.95% 5.97% --% --% --% 5.97% 5.60%
Pay rate 5.34% 6.70% 5.34% --% --% --% 5.85% 5.35%
- ----------------------------------------------------------------------------------------------------------------------------
MEDIUM-AND LONG-TERM
DEBT DESIGNATION:
Generic receive
fixed swaps $ 950 $ -- $ 200 $ -- $ 150 $ 900 $ 2,200 $ 2,350
Weighted average:(1)
Receive rate 5.97% --% 6.91% --% 7.37% 7.66% 6.84% 6.62%
Pay rate 5.75% --% 5.88% --% 5.85% 5.89% 5.83% 5.53%
Floating/floating
swaps $ 1,900 $ -- $ 37 $ -- $ -- $ -- $ 1,937 $ 400
Weighted average:(2)
Receive rate 5.73% --% 5.92% --% --% --% 5.73% 5.32%
Pay rate 5.77% --% 5.77% --% --% --% 5.77% 5.39%
- ----------------------------------------------------------------------------------------------------------------------------
Total notional amount $ 4,009 $ 1,059 $ 1,737 $ 300 $ 385 $1,025 $ 8,515 $ 8,015
============================================================================================================================
</TABLE>
(1) Variable rates paid or received are based primarily on one-month and
three-month LIBOR rates paid or received at December 31, 1997.
(2) Variable rates paid are based on LIBOR at December 31, 1997, while variable
rates received are based on prime.
(3) Variable rate paid was 5.85%, based on LIBOR at December 31, 1997, while
variable rate received represents the return on a principal only total
return swap. This return is based on principal paydowns of the referenced
security as well as changes in market value.
Comerica Incorporated 35
<PAGE> 19
In addition to interest rate swaps, the Corporation employs various other types
of off-balance sheet derivative and foreign exchange contracts to mitigate
exposures to interest rate and foreign currency risks associated with specific
assets and liabilities (e.g., loans or deposits denominated in foreign
currencies, mortgages held for sale and originated mortgage servicing rights).
Such instruments include interest rate caps and floors, purchased put options,
foreign exchange forward contracts, foreign exchange generic swap agreements
and cross-currency swaps. The aggregate notional amounts of these risk
management derivative and foreign exchange contracts at December 31, 1997 and
1996, were $651 million and $687 million, respectively.
In 1997, the FASB issued a revised Exposure Draft on accounting for derivative
and similar financial instruments and for hedging activities. This Exposure
Draft would introduce significant volatility in earnings and could affect how
the Corporation balances interest rate sensitivity in the future. Management
has expressed concern to the FASB of the potential adverse impact on managing
interest rate risk and earnings from this Exposure Draft. Further information
regarding risk management derivative financial instruments and foreign currency
exchange contracts is provided in Notes 1, 8, 9 and 18 to the consolidated
financial statements.
LIQUIDITY
Liquidity is the ability to meet financial obligations through the maturity or
sale of existing assets or acquisition of additional funds. Liquidity
requirements are satisfied with various funding sources, including a $7.5
billion medium-term note program which allows the Michigan, California and
Texas banks to issue debt between one month and 15 years. The Michigan bank has
an additional $2 billion European note program. At year-end 1997, unissued debt
related to the two programs totaled $3.1 billion. In addition, liquid assets
totaled $6.1 billion, at December 31, 1997. The Corporation also had available
$1.1 billion from a collateralized borrowing account with the Federal Reserve
Bank at year-end 1997. Purchased funds at December 31, 1997, excluding
certificates of deposit with maturities beyond one year and medium- and
long-term debt, approximated $5.6 billion.
Another source of liquidity for the parent company is dividends from its
subsidiaries. As discussed in Note 17 to the consolidated financial statements
on page 51, subsidiary banks are subject to regulation and may be limited in
their ability to pay dividends or transfer funds to the holding company. During
1998, the subsidiary banks can pay dividends up to $361 million plus current
net profits without prior regulatory approval. One measure of current parent
company liquidity is investment in subsidiaries, as a percent of shareholders'
equity. An amount over 100 percent represents the reliance on subsidiary
dividends to repay liabilities. As of December 31, 1997, the ratio was 109
percent.
CUSTOMER INITIATED AND OTHER DERIVATIVE FINANCIAL
INSTRUMENTS AND FOREIGN EXCHANGE CONTRACTS
On a limited basis, the Corporation writes interest rate caps and enters into
foreign exchange contracts and interest rate swaps to accommodate the needs of
customers requesting
CUSTOMER INITIATED AND OTHER NOTIONAL ACTIVITY
<TABLE>
<CAPTION>
Interest Foreign
Rate Exchange
(in millions) Contracts Contracts Totals
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balances at December 31, 1995 $ 363 $ 320 $ 683
Additions 237 37,571 37,808
Maturities/amortizations (210) (37,247) (37,457)
- -------------------------------------------------------------------------------
Balances at December 31, 1996 $ 390 $ 644 $ 1,034
Additions 464 43,462 43,926
Maturities/amortizations (358) (42,269) (42,627)
- -------------------------------------------------------------------------------
Balances at December 31, 1997 $ 496 $ 1,837 $ 2,333
===============================================================================
</TABLE>
such services. At December 31, 1997 and 1996, customer-initiated activity
represented 20 percent and 11 percent, respectively, of total derivative and
foreign exchange contracts, including commitments. Refer to Note 18 to the
consolidated financial statements on page 51 for further information regarding
customer-initiated and other derivative financial instruments and foreign
exchange contracts.
OTHER MATTERS
In February, 1997, the FASB issued Statement on Financial Accounting Standards
(SFAS) No. 128 on "Earnings Per Share." The statement changes the computation,
presentation and disclosure requirements for earnings per share and is
effective for the 1997 financial statements. The Corporation has adopted the
statement and all prior period earnings per share presented have been restated
in accordance with the new disclosure requirements.
The Corporation recognizes the need to manage its operations so that year 2000
software failures, miscalculations or errors will not adversely impact its
business. The Corporation, with the assistance of outside consultants, is
working to identify, evaluate, implement and test changes to computer systems
and applications necessary to achieve a year 2000 date conversion with no
impact on customers or disruption to business operations. The Corporation
expects to conclude remediation of the majority of its systems by the end of
1998, with completion of the remaining systems in the first half of 1999.
Testing, which is ongoing, will be completed on these last systems in the
second half of 1999. The Corporation projects the amount of year 2000 expense
to be in the range of $25-$30 million, of which approximately 25 percent was
expensed in 1996 and 1997. The problem caused by the year 2000 creates risk
for the Corporation from unforeseen problems in its own computer systems and
from third parties such as customers or vendors. Such failures of the
Corporation and/or third parties' computer systems could have a material impact
on the Corporation's ability to conduct its business.
Forward looking statements in this annual report to shareholders are based on
current expectations and/or the assumptions made in the earnings simulation
analyses, but numerous factors could cause variances in these projections, and
their underlying assumptions, such as changes in interest rates, year 2000
expenses and changes in industries where the Corporation has a concentration in
loans.
36 Comerica Incorporated
<PAGE> 20
CONSOLIDATED BALANCE SHEETS
COMERICA INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31
(in thousands, except share data) 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,927,087 $ 1,901,760
Short-term investments 202,957 103,607
Investment securities available for sale 4,005,962 4,800,034
Commercial loans 15,805,549 13,520,246
International loans 2,085,090 1,706,388
Real estate construction loans 940,910 750,760
Commercial mortgage loans 3,633,785 3,445,562
Residential mortgage loans 1,565,445 1,743,876
Consumer loans 4,347,665 4,634,258
Lease financing 516,600 405,618
- --------------------------------------------------------------------------------------------------------------------------------
Total loans 28,895,044 26,206,708
Less allowance for loan losses (424,147) (367,165)
- --------------------------------------------------------------------------------------------------------------------------------
Net loans 28,470,897 25,839,543
Premises and equipment 380,157 407,663
Customers' liability on acceptances outstanding 18,392 33,102
Accrued income and other assets 1,286,946 1,120,362
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $ 36,292,398 $ 34,206,071
================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits (noninterest-bearing) $ 6,761,202 $ 6,712,985
Interest-bearing deposits 15,825,115 15,654,188
- --------------------------------------------------------------------------------------------------------------------------------
Total deposits 22,586,317 22,367,173
Federal funds purchased and securities sold
under agreements to repurchase 592,860 1,395,540
Other borrowed funds 2,600,041 3,093,651
Acceptances outstanding 18,392 33,102
Accrued expenses and other liabilities 446,625 459,267
Medium- and long-term debt 7,286,387 4,241,769
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 33,530,622 31,590,502
Nonredeemable preferred stock-$50 stated value
Authorized-5,000,000 shares
Issued-5,000,000 shares in 1997 and 1996 250,000 250,000
Common stock-$5 par value
Authorized-250,000,000 shares
Issued- 156,815,367 shares in 1997 and 107,297,345 shares in 1996 784,077 536,487
Capital surplus -- --
Unrealized gains and losses on investment securities available for sale (1,937) (22,789)
Retained earnings 1,731,419 1,854,116
Deferred compensation (1,783) (2,245)
- --------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 2,761,776 2,615,569
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 36,292,398 $ 34,206,071
================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
Comerica Incorporated 37
<PAGE> 21
CONSOLIDATED STATEMENTS OF INCOME
COMERICA INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31
(in thousands, except per share data) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,317,844 $ 2,160,981 $ 2,090,854
Interest on investment securities
Taxable 310,399 372,331 473,759
Exempt from federal income tax 10,797 17,443 26,189
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest on investment securities 321,196 389,774 499,948
Interest on short-term investments 8,363 12,025 23,122
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income 2,647,403 2,562,780 2,613,924
INTEREST EXPENSE
Interest on deposits 673,265 685,539 721,475
Interest on short-term borrowings
Federal funds purchased and securities
sold under agreements to repurchase 110,752 111,729 165,544
Other borrowed funds 98,258 107,155 135,667
Interest on medium- and long-term debt 374,022 294,990 288,990
Net interest rate swap (income)/expense (51,670) (48,911) 2,365
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,204,627 1,150,502 1,314,041
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,442,776 1,412,278 1,299,883
Provision for loan losses 146,000 114,000 86,500
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,296,776 1,298,278 1,213,383
NONINTEREST INCOME
Income from fiduciary activities 147,336 133,482 125,038
Service charges on deposit accounts 141,078 140,436 130,249
Customhouse broker fees -- 10,764 36,086
Revolving credit fees 19,439 22,670 36,248
Securities gains 5,695 13,588 11,748
Other noninterest income 214,404 186,014 159,356
- -----------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 527,952 506,954 498,725
NONINTEREST EXPENSES
Salaries and employee benefits 538,926 560,784 562,159
Net occupancy expense 89,380 99,211 98,945
Equipment expense 61,759 68,827 67,872
FDIC insurance expense 3,029 8,139 23,817
Telecommunications expense 28,010 29,092 29,644
Restructuring charge -- 90,000 --
Other noninterest expenses 286,882 302,973 303,977
- -----------------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 1,007,986 1,159,026 1,086,414
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 816,742 646,206 625,694
Provision for income taxes 286,266 229,045 212,328
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 530,476 $ 417,161 $ 413,366
===================================================================================================================================
Net income applicable to common stock $ 513,376 $ 408,136 $ 413,366
===================================================================================================================================
Basic net income per common share $3.24 $2.41 $2.38
Diluted net income per common share 3.19 2.38 2.37
Cash dividends declared on common stock $ 181,272 $ 170,067 $ 158,309
Dividends per common share $1.15 $1.01 $0.91
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
38 Comerica Incorporated
<PAGE> 22
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMERICA INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
Non- Unrealized Gains
redeemable and (Losses) on
Preferred Common Capital Investment Securities Retained Deferred
(in thousands, except share data) Stock Stock Surplus Available for Sale Earnings Compensation
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1995 $ -- $596,473 $526,838 $ (55,039) $1,390,405 $(1,786)
Net income for 1995 -- -- -- -- 413,366 --
Nonowner changes in equity:
Unrealized holding gains/(losses) arising
during the period -- -- -- 90,053 -- --
Less: Reclassification adjustment for
gains/(losses) included in net income -- -- -- 11,748 -- --
Nonowner changes in equity before ---------
income taxes -- -- -- 78,305 -- --
Provision for income taxes related to
nonowner changes in equity -- -- -- 27,407 -- --
---------
Nonowner changes in equity, net of tax -- -- -- 50,898 -- --
Net income and nonowner changes in equity -- -- -- -- -- --
Cash dividends declared on common stock -- -- -- -- (158,309) --
Purchase of 1,405,500 shares of
common stock -- -- -- -- -- --
Purchase and retirement of 4,200,000
shares of common stock -- (21,000) (118,931) -- -- --
Issuance of common stock for:
Employee stock plans -- -- 1,261 -- (4,482) (1,034)
Acquisitions -- -- 1,450 -- -- --
Amortization of deferred compensation -- -- -- -- -- 846
- -------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1995 $ -- $575,473 $410,618 $ (4,141) $1,640,980 $(1,974)
Net income for 1996 -- -- -- -- 417,161 --
Nonowner changes in equity:
Unrealized holding gains/(losses) arising
during the period -- -- -- (15,101) -- --
Less: Reclassification adjustment for
gains/(losses) included in net income -- -- -- 13,588 -- --
Nonowner changes in equity before ---------
income taxes -- -- -- (28,689) -- --
Provision for income taxes related to
nonowner changes in equity -- -- -- (10,041) -- --
---------
Nonowner changes in equity, net of tax -- -- -- (18,648) -- --
Net income and nonowner changes in equity -- -- -- -- -- --
Issuance of preferred stock 250,000 -- (3,256) -- -- --
Cash dividends declared:
Preferred stock -- -- -- -- (9,025) --
Common stock -- -- -- -- (170,067) --
Purchase and retirement of 12,176,496
shares of common stock -- (60,883) (519,924) -- (5,065) --
Issuance of common stock for:
Employee stock plans -- 897 14,090 -- (20,076) (1,197)
Acquisitions -- 21,000 98,472 -- 208 --
Amortization of deferred compensation -- -- -- -- -- 926
- -------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996 $250,000 $536,487 $ -- $ (22,789) $1,854,116 $(2,245)
Net income for 1997 -- -- -- -- 530,476 --
Nonowner changes in equity:
Unrealized holding gains/(losses) arising
during the period -- -- -- 37,775 -- --
Less: Reclassification adjustment for
gains/(losses) included in net income -- -- -- 5,695 -- --
Nonowner changes in equity before ---------
income taxes -- -- -- 32,080 -- --
Provision for income taxes related to
nonowner changes in equity -- -- -- 11,228 -- --
---------
Nonowner changes in equity, net of tax -- -- -- 20,852 -- --
Net income and nonowner changes in equity -- -- -- -- -- --
Cash dividends declared:
Preferred stock -- -- -- -- (17,100) --
Common stock -- -- -- -- (181,273) --
Purchase and retirement of 3,618,479
shares of common stock -- (18,092) (30,750) -- (193,450) --
Issuance of common stock under
Employee stock plans -- 4,323 30,750 -- 9 (531)
Amortization of deferred compensation -- -- -- -- -- 993
Stock split (three-for-two) -- 261,359 -- -- (261,359) --
- -------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1997 $250,000 $ 784,077 $ -- $ (1,937) $1,731,419 $(1,783)
===============================================================================================================================
<CAPTION>
Total
Treasury Shareholders'
(in thousands, except share data) Stock Equity
- ------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCES AT JANUARY 1, 1995 $(65,111) $2,391,780
Net income for 1995 -- 413,366
Nonowner changes in equity:
Unrealized holding gains/(losses) arising
during the period -- 90,053
Less: Reclassification adjustment for
gains/(losses) included in net income -- 11,748
Nonowner changes in equity before ----------
income taxes -- 78,305
Provision for income taxes related to
nonowner changes in equity -- 27,407
----------
Nonowner changes in equity, net of tax -- 50,898
----------
Net income and nonowner changes in equity -- 464,264
Cash dividends declared on common stock -- (158,309)
Purchase of 1,405,500 shares of
common stock (38,725) (38,725)
Purchase and retirement of 4,200,000
shares of common stock -- (139,931)
Issuance of common stock for:
Employee stock plans 14,957 10,702
Acquisitions 75,650 77,100
Amortization of deferred compensation -- 846
- ------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1995 $(13,229) $2,607,727
Net income for 1996 -- 417,161
Nonowner changes in equity:
Unrealized holding gains/(losses) arising
during the period -- (15,101)
Less: Reclassification adjustment for
gains/(losses) included in net income -- 13,588
Nonowner changes in equity before ----------
income taxes -- (28,689)
Provision for income taxes related to
nonowner changes in equity -- (10,041)
----------
Nonowner changes in equity, net of tax -- (18,648)
----------
Net income and nonowner changes in equity -- 398,513
Issuance of preferred stock -- 246,744
Cash dividends declared:
Preferred stock -- (9,025)
Common stock -- (170,067)
Purchase and retirement of 12,176,496
shares of common stock (36,324) (622,196)
Issuance of common stock for:
Employee stock plans 40,295 34,009
Acquisitions 9,258 128,938
Amortization of deferred compensation -- 926
- ------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996 $ -- $2,615,569
Net income for 1997 -- 530,476
Nonowner changes in equity:
Unrealized holding gains/(losses) arising
during the period -- 37,775
Less: Reclassification adjustment for
gains/(losses) included in net income -- 5,695
Nonowner changes in equity before ----------
income taxes -- 32,080
Provision for income taxes related to
nonowner changes in equity -- 11,228
----------
Nonowner changes in equity, net of tax -- 20,852
----------
Net income and nonowner changes in equity -- 551,328
Cash dividends declared:
Preferred stock -- (17,100)
Common stock -- (181,273)
Purchase and retirement of 3,618,479
shares of common stock -- (242,292)
Issuance of common stock under
Employee stock plans -- 34,551
Amortization of deferred compensation -- 993
Stock split (three-for-two) -- --
- ------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1997 $ -- $2,761,776
==========================================================================================
</TABLE>
( ) Indicates deduction.
See notes to consolidated financial statements.
Comerica Incorporated 39
<PAGE> 23
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMERICA INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 530,476 $ 417,161 $ 413,366
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for loan losses 146,000 114,000 86,500
Depreciation 58,529 66,776 64,014
Restructuring charge (61,237) 90,000 (6,127)
Net (increase) decrease in trading account securities (3,093) 4,659 (6,336)
Net (increase) decrease in loans held for sale (2,666) 473,493 (420,015)
Net (increase) decrease in accrued income receivable (23,730) 924 (26,749)
Net increase (decrease) in accrued expenses 54,330 (39,720) 96,645
Net amortization of intangibles 28,375 30,803 29,016
Funding for employee benefit plans -- (25,000) (200,000)
Other, net (121,519) 187,438 (178,874)
- -------------------------------------------------------------------------------------------------------------------------------
Total adjustments 74,989 903,373 (561,926)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 605,465 1,320,534 (148,560)
INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing deposits with banks 24,010 (3,705) 363,870
Net (increase) decrease in federal funds sold and securities
purchased under agreements to resell (117,601) 4,898 (122,498)
Proceeds from sale of investment securities available for sale 238,506 1,211,250 103,531
Proceeds from maturity of investment securities available for sale 1,456,447 1,531,012 837,412
Purchases of investment securities available for sale (924,509) (643,796) (211,222)
Proceeds from maturity of investment securities held to maturity -- -- 788,620
Purchases of investment securities held to maturity -- -- (223,579)
Net increase in loans (other than loans purchased) (2,615,226) (1,852,199) (1,908,266)
Purchase of loans (162,128) (77,805) (48,349)
Fixed assets, net (31,023) (46,038) (62,334)
Net (increase) decrease in customers' liability on acceptances outstanding 14,710 (12,341) 13,097
Net cash provided by acquisitions/sales -- 200,459 19,224
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (2,116,814) 311,735 (450,494)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 219,144 (825,859) 130,276
Net increase (decrease) in short-term borrowings (1,296,290) (129,056) 468,754
Net increase (decrease) in acceptances outstanding (14,710) 12,341 (13,097)
Proceeds from issuance of medium- and long-term debt 5,600,000 2,251,000 2,960,000
Repayments and purchases of medium- and long-term debt (2,555,382) (2,553,650) (2,418,171)
Proceeds from issuance of preferred stock -- 246,744 --
Proceeds from issuance of common stock 22,584 35,206 11,736
Purchase of common stock for treasury and retirement (243,258) (622,196) (178,656)
Dividends paid (195,412) (173,414) (155,726)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,536,676 (1,758,884) 805,116
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and due from banks 25,327 (126,615) 206,062
Cash and due from banks at beginning of year 1,901,760 2,028,375 1,822,313
- -------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 1,927,087 $ 1,901,760 $ 2,028,375
===============================================================================================================================
Interest paid $ 1,161,812 $ 1,201,146 $ 1,274,101
===============================================================================================================================
Income taxes paid $ 266,428 $ 212,530 $ 180,134
===============================================================================================================================
Noncash investing and financing activities
Loan transfers to other real estate $ 7,076 $ 10,534 $ 23,908
===============================================================================================================================
Stock issued for acquisitions $ -- $ 128,938 $ 77,100
===============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
40 Comerica Incorporated
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMERICA INCORPORATED AND SUBSIDIARIES
1
ACCOUNTING POLICIES
ORGANIZATION
Comerica Incorporated is a registered bank holding company
headquartered in Detroit, Michigan. The Corporation's principal lines of
business are the Business Bank, the Individual Bank and the Investment Bank.
The core businesses are tailored to each of the Corporation's four primary
geographic markets: Michigan, Texas, California and Florida.
The accounting and reporting policies of Comerica Incorporated and its
subsidiaries conform to generally accepted accounting principles and prevailing
practices within the banking industry. Management makes estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying footnotes. Actual results could differ from these estimates.
The following is a summary of the more significant accounting and
reporting policies.
CONSOLIDATION
The consolidated financial statements include the accounts of the
Corporation and its subsidiaries after elimination of all significant
intercompany accounts and transactions. Prior years' financial statements are
reclassified to conform with current financial statement presentation.
For acquisitions accounted for as pooling-of-interests combinations,
the historical consolidated financial statements are restated to include the
accounts and results of operations. For acquisitions using the purchase method
of accounting, the assets acquired and liabilities assumed are adjusted to fair
market values at the date of acquisition, and the resulting net discount or
premium is accreted or amortized into income over the remaining lives of the
relevant assets and liabilities. Goodwill representing the excess of cost over
the net book value of identifiable assets acquired is amortized on a
straight-line basis over periods ranging from 10 to 30 years (weighted average
of 17 years). Core deposit intangible assets are amortized on an accelerated
method over 10 years.
LOANS HELD FOR SALE
Loans held for sale, normally mortgages, are carried at the lower of
cost or market. Market value is determined in the aggregate.
SECURITIES
Investment securities held to maturity are those securities which
management has the ability and positive intent to hold to maturity. Investment
securities held to maturity are stated at cost, adjusted for amortization of
premium and accretion of discount.
Investment securities that fail to meet the ability and positive intent
criteria are accounted for as securities available for sale, and stated at fair
value with unrealized gains and losses, net of income taxes, reported as a
component of shareholders' equity.
Trading account securities are carried at market value. Realized and
unrealized gains or losses on trading securities are included in noninterest
income.
Gains or losses on the sale of securities are computed based on the
adjusted cost of the specific security.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation, computed on the straight-line
method, is charged to operations over the estimated useful lives of the
properties. Leasehold improvements are amortized over the terms of their
respective leases or the estimated useful lives of the improvements, whichever
is shorter.
ALLOWANCE FOR LOAN LOSSES
The allowance is maintained at a level adequate to absorb losses
inherent in the loan portfolio. Management determines the adequacy of the
allowance 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 loss experience, current economic conditions, the risk
characteristics of the various categories and concentrations of loans, transfer
risk and other pertinent factors. However, there can be no assurance that the
actual loss ratios will not vary from those projected. Loans which are deemed
uncollectible are charged off and deducted from the allowance. The provision
for loan losses and recoveries on loans previously charged off are added to the
allowance.
NONPERFORMING ASSETS
Nonperforming assets are comprised of loans for which the accrual of
interest has been discontinued, loans for which the terms have been
renegotiated to less than market rates due to a serious weakening of the
borrower's financial condition and other real estate which has been acquired
primarily through foreclosure and is awaiting disposition.
Consumer loans are generally not placed on nonaccrual status and are
directly charged off no later than 180 days past due, or earlier if deemed
uncollectible. Loans other than consumer are generally placed on nonaccrual
status when principal or interest is past due 90 days or more and/or when, in
the opinion of management, full collection of principal or interest is
unlikely. At the time a loan is placed on nonaccrual status, interest
previously accrued but not collected is charged against current income. Income
on such loans is then recognized only to the extent that cash is received and
where future collection of principal is probable.
Comerica Incorporated 41
<PAGE> 25
1
ACCOUNTING POLICIES (CONTINUED)
Other real estate acquired is carried at the lower of cost or fair value, minus
estimated costs to sell. When the property is acquired through foreclosure, any
excess of the related loan balance over fair value is charged to the allowance
for loan losses. Subsequent write-downs, operating expenses and losses upon
sale, if any, are charged to noninterest expenses.
STOCK-BASED COMPENSATION
In 1996, the Corporation adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." Under the provisions of this statement, the Corporation elected
to continue to apply Accounting Principles Board (APB) opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
measuring and recognizing compensation expense for its stock-based compensation
plans, and to disclose the pro forma effect of applying the fair value method
contained in SFAS No. 123. Information on the Corporation's stock-based
compensation plans is included in Note 12.
PENSION COSTS
Pension costs are charged to salaries and employee benefits expense and funded
consistent with the requirements of federal law and regulations.
POSTRETIREMENT BENEFITS
Postretirement benefits are recognized in the financial statements during the
employee's active service period.
DERIVATIVE FINANCIAL INSTRUMENTS AND
FOREIGN EXCHANGE CONTRACTS
Interest rate and foreign exchange swaps, interest rate caps and floors, and
futures and forward contracts may be used to manage the Corporation's exposure
to interest rate and foreign currency risks. These instruments, with the
exception of futures and forwards, are accounted for on an accrual basis since
there is a high correlation with the on-balance sheet instrument being hedged.
If this correlation ceases to exist, the existing unrealized gain or loss is
amortized over the remaining term of the instrument, and future changes in fair
value are accounted for in other income or expense. Net interest income or
expense, including premiums paid or received, is recognized over the life of
the contract and reported as an adjustment to interest expense. Realized gains
and losses on futures and forwards are generally deferred and amortized over
the life of the contract as an adjustment to net interest income. Gains or
losses on early termination of risk management derivative financial instruments
are deferred and amortized as an adjustment to the yields of the related assets
or liabilities over their remaining contractual life. If the designated asset
or liability matures, or is disposed of or extinguished, any unrealized gains
or losses on the related derivative instrument are recognized currently and
reported as an adjustment to interest expense.
Foreign exchange futures and forward contracts, foreign currency options,
interest rate caps and interest rate swap agreements executed as a service to
customers are accounted for on a fair value basis. As a result, the fair values
of these instruments are recorded in the consolidated balance sheet with both
realized and unrealized gains and losses recognized currently in noninterest
income.
INCOME TAXES
Provisions for income taxes are based on amounts reported in the statements of
income (after exclusion of nontaxable income such as interest on state and
municipal securities) and include deferred income taxes on temporary
differences between the tax basis and financial reporting basis of assets and
liabilities.
STATEMENTS OF CASH FLOWS
For the purpose of presentation in the statements of cash flows, cash and cash
equivalents are defined as those amounts included in the balance sheet caption,
"Cash and due from banks."
LOAN ORIGINATION FEES AND COSTS
Loan origination and commitment fees are deferred and recognized over the life
of the related loan or over the commitment period as a yield adjustment. Loan
fees on unused commitments and fees related to loans sold are recognized
currently as other noninterest income.
NONOWNER CHANGES IN EQUITY
In 1997, the Corporation adopted SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for the reporting and display of
net income and nonowner changes in equity and its components in a full set of
general-purpose financial statements. The Corporation has elected to
present information regarding this statement in the Consolidated Statements of
Changes in Shareholders' Equity on page 39. The caption "Net income and
nonowner changes in equity,"represents total comprehensive income as defined in
the statement.
2
ACQUISITIONS
During the years ended December 31, 1996 and 1995, Comerica made the following
acquisitions, which were accounted for as purchases:
<TABLE>
<CAPTION>
FMV of FMV of
Assets Liabilities Purchase Intangibles
(in millions) Acquired Assumed Price Recorded
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
During 1996
Metrobank $1,083 $1,020 $125 $62
During 1995
University Bank & Trust 456 422 69 35
QuestStar Bank, N.A. 205 193 25 13
=====================================================================
</TABLE>
42 Comerica Incorporated
<PAGE> 26
3
INVESTMENT SECURITIES
Information concerning investment securities as shown in the consolidated
balance sheets of the Corporation was as follows:
<TABLE>
<CAPTION> Gross Gross
Unrealized Unrealized Estimated
(in thousands) Cost Gains Losses Fair Value
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997
U.S. government and
agency securities $3,239,423 $24,223 $24,994 $3,238,652
State and municipal
securities 164,394 5,902 244 170,052
Other securities 603,176 7,584 13,502 597,258
---------------------------------------------------------------------------
Total securities
available for sale $4,006,993 $37,709 $38,740 $4,005,962
===========================================================================
December 31, 1996
U.S. government and
agency securities $4,011,022 $22,702 $65,375 $3,968,349
State and municipal
securities 220,173 7,866 196 227,843
Other securities 603,873 654 685 603,842
---------------------------------------------------------------------------
Total securities
available for sale $4,835,068 $31,222 $66,256 $4,800,034
===========================================================================
</TABLE>
The cost and estimated fair values of debt securities by contractual maturity
were as follows (securities with multiple maturity dates are classified in the
period of final maturity). Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1997 Estimated
(in thousands) Cost Fair Value
- -----------------------------------------------------------------------
<S> <C> <C>
Contractual maturity
Within one year $ 205,857 $ 206,165
Over one year to
five years 284,387 283,331
Over five years to
ten years 162,991 159,140
Over ten years 61,554 66,350
- -----------------------------------------------------------------------
Subtotal securities 714,789 714,986
Mortgage-backed
securities 3,190,530 3,189,879
Equity and other
nondebt securities 101,674 101,097
- -----------------------------------------------------------------------
Total securities
available for sale $ 4,006,993 $ 4,005,962
=======================================================================
</TABLE>
Sales and calls of investment securities available for sale resulted in
realized gains and losses as follows:
<TABLE>
<CAPTION>
Year Ended December 31
(in thousands) 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Securities gains $ 8,890 $ 14,945
Securities losses (3,195) (1,357)
- ----------------------------------------------------------------------
Total $ 5,695 $ 13,588
======================================================================
</TABLE>
Assets, principally securities, carried at approximately $2.7 billion at
December 31, 1997, were pledged to secure public deposits (including State of
Michigan deposits of $40 million at December 31, 1997) and for other purposes
as required by law.
All held to maturity securities were redesignated to the available for sale
category in December 1995 in accordance with the one-time provisions issued in
conjunction with the FASB's Special Report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities." At the date of transfer the amortized cost of the held to maturity
securities was $4.6 billion. The net unrealized loss related to the
redesignated securities totaled $9 million.
Comerica Incorporated 43
<PAGE> 27
4
NONPERFORMING ASSETS
The following table summarizes nonperforming assets and loans which are
contractually past due 90 days or more as to interest or principal payments.
Nonperforming assets consist of nonaccrual loans, reduced-rate loans and other
real estate. Nonaccrual loans are those on which interest is not being
recognized. Reduced-rate loans are those on which interest has been
renegotiated to lower than market rates because of the weakened financial
condition of the borrower.
Nonaccrual and reduced-rate loans are included in loans on the consolidated
balance sheet.
<TABLE>
<CAPTION>
December 31
(in thousands) 1997 1996
- --------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans
Commercial loans $ 58,914 $ 71,991
International loans 1,000 --
Real estate construction loans 3,438 3,576
Commercial mortgage loans 11,088 22,567
Residential mortgage loans 3,719 5,160
- --------------------------------------------------------------------
Total 78,159 103,294
Reduced-rate loans 7,583 8,009
- --------------------------------------------------------------------
Total nonperforming loans 85,742 111,303
Other real estate 17,046 28,398
- --------------------------------------------------------------------
Total nonperforming assets $102,788 $139,701
====================================================================
Loans past due 90 days $ 52,805 $ 51,748
====================================================================
Gross interest income that would
have been recorded had the
nonaccrual and reduced-rate
loans performed in accordance
with original terms $ 10,088 $ 11,119
====================================================================
Interest income recognized $ 2,399 $ 2,681
====================================================================
</TABLE>
A loan is impaired when it is probable that payment of interest and principal
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.
<TABLE>
<CAPTION>
December 31
(in thousands) 1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Average impaired loans for the year $73,502 $114,253 $148,087
Total period-end impaired loans 70,470 98,050 135,034
Period-end impaired loans
requiring an allowance 60,376 59,960 89,209
Impairment allowance 20,358 19,528 26,578
================================================================
</TABLE>
Those impaired loans not requiring an allowance represent loans for which the
fair value exceeded the recorded investment in the loan. Sixty-four percent of
the total impaired loans at December 31, 1997, are evaluated based on fair
value of related collateral. Remaining loan impairment is based on the present
value of expected future cash flows discounted at the loan's effective interest
rate.
5
ALLOWANCE FOR LOAN LOSSES
An analysis of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
-----------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 367,165 $ 341,344 $ 326,195
Allowance of institutions and
loans purchased/sold -- (3,630) 4,668
Loans charged off (131,140) (125,912) (119,028)
Recoveries on loans previously
charged off 42,122 41,363 43,009
-----------------------------------------------------------------
Net loans charged off (89,018) (84,549) (76,019)
Provision for loan losses 146,000 114,000 86,500
-----------------------------------------------------------------
Balance at December 31 $ 424,147 $ 367,165 $ 341,344
=================================================================
As a percent of total loans 1.47% 1.40% 1.40%
=================================================================
</TABLE>
44 Comerica Incorporated
<PAGE> 28
6
SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Concentrations of both on-balance sheet and off-balance sheet credit risk are
controlled and monitored as part of credit policies. The Corporation is a
regional bank holding company with a geographic concentration of its on-balance
sheet and off-balance sheet activities centered in Michigan. In addition, the
Corporation has an industry concentration with the automotive industry, which
includes manufacturers and their finance subsidiaries, suppliers, dealers and
company executives.
At December 31, 1997 and 1996, exposure from loan commitments and guarantees to
companies related to the automotive industry totaled $8.3 billion and $8.2
billion, respectively. Additionally, commercial real estate loans, including
commercial mortgages and construction loans, totaled $4.6 billion in 1997 and
$4.2 billion in 1996. Approximately $2.0 billion of commercial real estate
loans at December 31, 1997, involved mortgages on owner-occupied properties.
Those borrowers are involved in business activities other than real estate, and
the sources of repayment are not dependent on the performance of the real
estate market.
7
PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31 by major category follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
---------------------------------------------------------------------
<S> <C> <C>
Land $ 52,934 $ 54,635
Buildings and improvements 353,308 366,618
Furniture and equipment 344,681 436,133
---------------------------------------------------------------------
Total cost 750,923 857,386
Less accumulated depreciation and amortization (370,766) (449,723)
---------------------------------------------------------------------
Net book value $ 380,157 $ 407,663
=====================================================================
</TABLE>
Rental expense for leased properties and equipment amounted to $41 million in
1997 and $44 million in 1996 and 1995. Future minimum lease rentals under
noncancelable operating lease obligations are as follows:
<TABLE>
<CAPTION>
(in thousands)
------------------------
<S> <C>
1998 $ 41,189
1999 38,379
2000 35,429
2001 31,649
2002 26,333
2003 and later 117,813
========================
</TABLE>
8
SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to four days from the transaction date. Other
borrowed funds, consisting of commercial paper, borrowed securities, term
federal funds purchased, short-term notes and treasury tax and loan deposits,
generally mature within one to 120 days from the transaction date. The
following is a summary of short-term borrowings at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Federal Funds Purchased
and Securities Sold Other
Under Agreements Borrowed
(in thousands) to Repurchase Funds
-----------------------------------------------------------------------------
<S> <C> <C>
December 31, 1997
Amount outstanding at year-end $ 592,860 $2,600,041
Weighted average interest rate at year-end 5.26% 5.30%
December 31, 1996
Amount outstanding at year-end $1,395,540 $3,093,651
Weighted average interest rate at year-end 5.80% 5.14%
============================================================================
</TABLE>
The 1996 amounts outstanding include $700 million of short-term notes. The
Corporation entered into interest rate swap contracts that converted the rates
paid on notes from the bank prime rate minus 2.96% and the one-month London
Interbank Offered Rate (LIBOR) (5.29% and 5.53% at December 31, 1996,
respectively) to a three-month LIBOR (5.56% at December 31, 1996) based rate.
At December 31, 1997, the parent company had available additional credit
totaling $100 million under a line of credit agreement, all of which was
unused. Under the current agreement the line will expire in April of 2000.
Comerica Incorporated 45
<PAGE> 29
9
MEDIUM- AND LONG-TERM DEBT
Medium- and long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Parent Company
7.25% subordinated notes due 2007 $ 148,509 $ 148,548
9.75% subordinated notes due 1999 74,877 74,782
10.125% subordinated debentures due 1998 74,965 74,880
- -------------------------------------------------------------------------------------------------
Total parent company 298,351 298,210
Subsidiaries
Subordinated notes:
7.25% subordinated notes due 2007 198,100 --
8.375% subordinated notes due 2024 147,938 147,860
7.25% subordinated notes due 2002 149,246 149,089
6.875% subordinated notes due 2008 99,220 99,143
7.125% subordinated notes due 2013 148,224 148,112
7.875% subordinated notes due 2026 146,914 146,814
- -------------------------------------------------------------------------------------------------
Total subordinated notes 889,642 691,018
Medium-term notes:
Floating rate based on LIBOR indices 2,811,793 1,448,947
Floating rate based on Treasury bill indices 487,000 399,955
Floating rate based on Prime indices 1,100,007 --
Floating rate based on Federal Funds indices 349,998 --
Fixed rate notes with interest rates ranging
from 5.75% to 6.875% 1,349,596 1,399,040
- -------------------------------------------------------------------------------------------------
Total medium-term notes 6,098,394 3,247,942
Notes payable -- 4,599
- -------------------------------------------------------------------------------------------------
Total subsidiaries 6,988,036 3,943,559
- -------------------------------------------------------------------------------------------------
Total medium- and long-term debt $7,286,387 $4,241,769
=================================================================================================
</TABLE>
Concurrent with the issuance of certain of the medium- and long-term debt
presented above, the Corporation entered into interest rate swap agreements to
convert the stated rate of the debt to a rate based on the indices identified
in the following table:
<TABLE>
<CAPTION>
Principal
Amount Base
of Debt Rate at
(in thousands) Converted Base Rate 12/31/97
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Parent Company
7.25% subordinated notes $ 150,000 6-month LIBOR 5.91%
9.75% subordinated notes 50,000 3-month LIBOR 5.91
- -----------------------------------------------------------------------
Subsidiaries
Subordinated notes:
7.25% subordinated notes 200,000 6-month LIBOR 5.91
8.375% subordinated notes 150,000 6-month LIBOR 5.91
7.25% subordinated notes 150,000 6-month LIBOR 5.91
6.875% subordinated notes 100,000 6-month LIBOR 5.91
7.125% subordinated notes 150,000 6-month LIBOR 5.91
7.875% subordinated notes 150,000 6-month LIBOR 5.91
Medium-term notes:
Floating rate based on
LIBOR indices 600,000 1-month LIBOR 5.94
1,895,000 3-month LIBOR 5.91
Fixed rate notes with interest
rates ranging from 5.80%
to 6.65% 100,000 1-month LIBOR 5.94
1,050,000 3-month LIBOR 5.91
=======================================================================
</TABLE>
All subordinated notes and debentures with maturities greater than one year
qualify as Tier 2 capital.
The Corporation currently has two medium-term note programs: a senior note
program and a European note program. Under these programs, certain of the bank
subsidiaries may offer an aggregate principal amount of up to $9.5 billion. The
notes can be issued as fixed or floating rate notes and with terms from one
month to 15 years. The interest rates on the floating rate medium-term notes
based on LIBOR ranged from three-month LIBOR minus 0.14% to three-month LIBOR
plus 0.10%. The notes are due from 1998 to 2002. The interest rates on the
floating rate medium-term notes based on U.S. Treasury indices ranged from the
three-month U.S. Treasury bill bond equivalent rate plus 0.54% to the two-year
Constant Treasury Maturity Rate plus 0.01%. The notes are due from 1998 to
2000. The interest rates on the floating rate medium-term notes based on prime
ranged from prime minus 2.87% to prime minus 2.82% and are due in 1998.
The interest rates on the floating rate medium-term notes based on the federal
funds rate ranged from the federal funds rate plus 0.055% to the federal funds
rate plus 0.0625% and are also due in 1998. The maturities of the fixed rate
notes range from 1998 to 2000. The medium-term notes do not qualify as Tier 2
capital and are not insured by the FDIC. The principal maturities of medium-
and long-term debt are as follows:
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------
<S> <C>
1998 $5,273,441
1999 73,636
2000 265,744
2001 298,958
2002 482,135
2003 and later 892,473
==========================================
</TABLE>
46 Comerica Incorporated
<PAGE> 30
10
SHAREHOLDERS' EQUITY
The board of directors has authorized the repurchase of up to 27 million shares
(or 40.5 million shares on a post-split basis) of Comerica Incorporated common
stock for general corporate purposes, acquisitions and employee benefit plans.
At December 31, 1997, 12.2 million shares (or 18.3 million shares on a
post-split basis) had been repurchased under this program.
At December 31, 1997, the Corporation had reserved 7.7 million shares of common
stock for issuance to employees and directors under the long-term incentive
plans.
In January 1998, the Corporation declared a three-for-two stock split, effected
in the form of a 50 percent stock dividend to be paid April 1, 1998. All per
share data included in the consolidated financial statements and in the related
notes thereto have been retroactively adjusted to reflect the split.
During 1996, the Corporation issued 5 million shares of Fixed/Adjustable Rate
Noncumulative Preferred Stock, Series E, with a stated value of $50 per share.
Dividends are payable quarterly, at a rate of 6.84% per annum through July 1,
2001. Thereafter, the rate will be equal to 0.625% plus an effective rate, but
not less than 7.34% nor greater than 13.34%. The effective rate will be equal
to the highest of the Treasury Bill Rate, the Ten Year Constant Treasury
Maturity Rate and the Thirty Year Constant Treasury Maturity Rate
(as defined in the prospectus). The Corporation, at its option, may redeem all
or part of the outstanding shares on or after July 1, 2001.
11
NET INCOME PER COMMON SHARE
SFAS No. 128, "Earnings per Share," was adopted in 1997. The statement
simplifies the standards for computing earnings per share. Basic net income per
common share is computed by dividing net income applicable to common stock by
the weighted average number of shares of common stock outstanding during the
period. Diluted net income per common share is computed by dividing net income
applicable to common stock by the weighted average number of shares, nonvested
stock and dilutive common stock equivalents outstanding during the period.
Common stock equivalents consist of common stock issuable under the assumed
exercise of stock options granted under the Corporation's stock plans, using
the treasury stock method. A computation of earnings per share follows:
<TABLE>
<Capiton>
Year Ended December 31
(in thousands, except per share data) 1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Basic
Average shares outstanding 158,333 169,076 173,532
====================================================================
Net income $530,476 $417,161 $413,366
Less preferred stock dividends 17,100 9,025 --
- --------------------------------------------------------------------
Net income applicable to
common stock $513,376 $408,136 $413,366
====================================================================
Basic net income per share $3.24 $2.41 $2.38
Diluted
Average shares outstanding 158,333 169,076 173,532
Nonvested stock 204 195 163
Common stock equivalents
Net effect of the assumed
exercise of stock options 2,503 1,956 1,070
- --------------------------------------------------------------------
Diluted average shares 161,040 171,227 174,765
====================================================================
Net income $530,476 $417,161 $413,366
Less preferred stock dividends 17,100 9,025 --
- --------------------------------------------------------------------
Net income applicable to
common stock $513,376 $408,136 $413,366
====================================================================
Diluted net income per share $3.19 $2.38 $2.37
====================================================================
</TABLE>
Comerica Incorporated 47
<PAGE> 31
12
LONG-TERM INCENTIVE PLANS
The Corporation has long-term incentive plans under which it has awarded both
shares of restricted stock to key executive officers and stock options to
executive officers, directors and key personnel of the Corporation and its
subsidiaries. The exercise price of the stock options is equal to the fair
market value at the time the options are granted and the options may have
restrictions regarding exercisability. The maturity of each option is
determined at the date of grant; however, no options may be exercised later
than ten years from the date of grant. The Corporation adopted the
disclosure-only option under SFAS No. 123, "Accounting for Stock-Based
Compensation," as of December 31, 1996. If the recognition provisions of
the new statement had been adopted as of the beginning of 1997, the effect on
1997 net income would have been immaterial.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Average per Share
Exercise Market
Number Price Price
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding--December 31, 1994 5,982,030 $15.42 $16.25
Granted 1,659,270 18.64 18.64
Cancelled (331,112) 19.43 21.25
Exercised (771,370) 10.74 21.04
Expired --
Acquisition of
University Bank & Trust 229,679 10.70 18.33
- -----------------------------------------------------------------------------------------
Outstanding--December 31, 1995 6,768,497 $16.39 $26.67
Granted 1,894,143 25.61 25.61
Cancelled (321,119) 18.95 28.95
Exercised (1,775,613) 12.78 29.34
Expired --
Acquisition of Metrobank 595,718 8.49 26.42
- -----------------------------------------------------------------------------------------
Outstanding--December 31, 1996 7,161,626 $18.95 $34.92
Granted 1,994,182 40.28 40.28
Cancelled (266,295) 26.00 43.07
Exercised (1,252,170) 15.93 44.81
Expired --
- -----------------------------------------------------------------------------------------
Outstanding--December 31, 1997 7,637,343 $24.77 $60.17
=========================================================================================
Exercisable--December 31, 1997 3,599,513
Available for grant--
December 31, 1997 98,393
=========================================================================================
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Exercisable
- -------------------------------------------------------------------------------
Outstanding
Average Average
Exercise Average Exercise Exercise
Price Range Shares Life (a) Price Shares Price
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 7.66 - $10.29 772,229 2.4 $ 9.57 772,229 $ 9.57
10.37 - 18.00 953,303 5.3 16.65 722,615 16.22
18.59 - 18.75 1,161,279 7.2 18.59 521,637 18.59
19.00 - 25.17 1,205,404 4.9 20.79 1,173,154 20.75
25.42 - 40.09 1,688,751 8.2 26.29 409,278 26.05
40.25 - 52.67 1,856,377 9.2 40.33 600 40.25
- -------------------------------------------------------------------------------
Total 7,637,343 6.8 $24.77 3,599,513 $17.73
===============================================================================
</TABLE>
(a) Average contractual life remaining in years.
48 Comerica Incorporated
<PAGE> 32
13
EMPLOYEE BENEFIT PLANS
The Corporation has a defined benefit pension plan in effect for substantially
all full-time employees. Staff expense includes income of $0.3 million in 1997,
$1.4 million in 1996 and $1.0 million in 1995 for the plan. Benefits under the
plan are based primarily on years of service and the levels of compensation
during the five highest paid consecutive calendar years occurring during the
last ten years before retirement. The plan's assets primarily consist of units
of certain collective investment funds administered by Munder Capital
Management, equity securities, U.S. government and agency securities and
corporate bonds and notes.
Net periodic pension cost/(income) consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost--benefits earned
during the period $ 12,400 $ 11,675 $ 8,857
Interest cost on projected
benefit obligation 33,823 31,572 29,231
Actual return on plan assets (89,528) (62,710) (93,650)
Net amortization and (deferral) 43,006 18,072 54,585
- -----------------------------------------------------------------------------
Net pension income $ (299) $ (1,391) $ (977)
=============================================================================
</TABLE>
The following table sets forth the funded status of the defined benefit
pension plans and amounts recognized on the Corporation's balance sheet:
<TABLE>
<CAPTION>
December 31
(in thousands) 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation
Vested $411,688 $367,376
Nonvested 17,797 16,483
- ----------------------------------------------------------------------------------------
Accumulated benefit obligation 429,485 383,859
Effect of projected future compensation levels 95,844 78,917
- ----------------------------------------------------------------------------------------
Projected benefit obligation 525,329 462,776
Plan assets at fair value 585,215 515,164
- ----------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 59,886 52,388
Unrecognized net gain due to past experience
different from that assumed and effects of
changes in assumptions (25,790) (17,672)
Unrecognized net assets being amortized
over 15 years (15,358) (20,191)
- ----------------------------------------------------------------------------------------
Prepaid pension $ 18,738 $ 14,525
========================================================================================
</TABLE>
Actuarial assumptions were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate used in determining
projected benefit obligation 7% 7.5% 7.5%
Rate of increase in compensation levels 5% 5% 5%
Long-term rate of return on assets 9% 9% 8%
======================================================================================
</TABLE>
The Corporation has a savings ("401(k)") plan which is a defined contribution
plan. All of the Corporation's salaried and regular part-time employees are
eligible to participate in the plan. The Corporation makes matching
contributions based on a declining percentage of employee contributions
(currently, maximum per employee is $1,000) as well as a performance-based
matching contribution based on the Corporation's financial performance. Staff
expense includes expense of $9.7 million in 1997, $10.4 million in 1996 and
$7.1 million in 1995 for the plan.
The Corporation's postretirement benefits plan continues postretirement health
care and life insurance benefits for retirees as of December 31, 1992, provides
a phase-out for employees over 50 as of that date and substantially reduces
all benefits for remaining employees. The Corporation has funded the plan with
a company-owned life insurance contract purchased in 1995.
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 273 $ 402 $ 383
Interest cost on accumulated
postretirement benefit obligation 5,710 5,597 6,652
Return on plan assets (7,941) (3,094) (2,453)
Amortization of transition obligation 4,628 4,628 4,628
Net amortization and (deferral) 2,472 (2,488) (1,511)
- ----------------------------------------------------------------------------------------
Net periodic postretirement
benefit cost $ 5,142 $ 5,045 $ 7,699
========================================================================================
</TABLE>
The following table sets forth the status of the postretirement plan at
December 31:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Retirees $72,175 $65,711
Other fully eligible plan participants 5,543 4,910
Other active plan participants 3,866 5,799
- ----------------------------------------------------------------------
Total accumulated postretirement
benefit obligation 81,584 76,420
Plan assets at fair value 86,727 80,547
- ----------------------------------------------------------------------
Funded status 5,143 4,127
Unrecognized net gain (8,294) (11,800)
Unrecognized transition obligation 69,105 73,733
- ----------------------------------------------------------------------
Prepaid postretirement benefit $65,954 $66,060
======================================================================
</TABLE>
Actuarial assumptions were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate used in determining
accumulated postretirement
benefit obligation 7% 7.5% 7.5%
Long-term rate of return on assets 6.7% 6.7% 6.7%
=============================================================================================
</TABLE>
A 7 percent health care cost trend rate was projected for 1997 and is assumed
to decrease gradually to 5 percent by 1999, remaining constant thereafter.
Increasing each health care rate by one percentage point would increase the
accumulated postretirement benefit obligation by $6 million at December 31,
1997, and the aggregate of the service and interest cost components by $384
thousand for the year ended December 31, 1997.
Comerica Incorporated 49
<PAGE> 33
14
INCOME TAXES
The current and deferred components of income taxes were as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable
Federal $239,680 $225,863 $192,899
Foreign 30,723 5,912 1,015
State and local 15,584 11,039 7,595
- -----------------------------------------------------------------------
285,987 242,814 201,509
Deferred federal, state and local 279 (13,769) 10,819
- -----------------------------------------------------------------------
Total $286,266 $229,045 $212,328
=======================================================================
</TABLE>
There were $2.0 million, $4.8 million and $4.1 million of income taxes provided
on securities transactions in 1997, 1996 and 1995, respectively.
The principal components of deferred tax (assets) liabilities at December 31
were as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C>
Allowance for loan losses $(132,990) $(116,816)
Lease financing transactions 122,127 105,805
Allowance for depreciation 15,567 18,972
Deferred loan origination fees and costs (20,088) (11,408)
Investment securities available for sale (149) (11,562)
Employee benefits (7,625) (3,132)
Restructuring charge (10,150) (15,178)
Other temporary differences, net (34,440) (35,825)
- ------------------------------------------------------------------------
Total $ (67,748) $ (69,144)
========================================================================
</TABLE>
The provision for income taxes differs from that computed by applying the
federal statutory rate of 35 percent for the reasons in the following analysis:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax based on federal statutory rate $285,860 $226,172 $218,993
Effect of tax-exempt interest income (5,687) (8,842) (12,538)
Other 6,093 11,715 5,873
- -------------------------------------------------------------------------------------
Provision for income taxes $286,266 $229,045 $212,328
=====================================================================================
</TABLE>
15
RESTRUCTURING
The Corporation recorded a restructuring charge of $90 million in 1996 in
connection with a program to improve efficiency, revenue and customer service.
The charge only includes direct and incremental costs associated with the
program. The following table provides details on the restructuring-related
reserve as of December 31:
<TABLE>
<CAPTION>
Occupancy
Employee and
(in thousands) Termination Equipment Other Total
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at 12/31/96 $48,000 $21,000 $21,000 $90,000
Activity (38,000) (10,000) (13,000) (61,000)
---------------------------------------------------------------
Balances at 12/31/97 $10,000 $11,000 $ 8,000 $29,000
===============================================================
</TABLE>
Termination benefits primarily include severance payments. The occupancy and
equipment portion consists of lease termination costs, space consolidation and
estimated losses on the disposal of vacated properties. Other charges consist
primarily of the project costs incurred during the assessment phase of the
program.
16
TRANSACTIONS WITH RELATED PARTIES
The bank subsidiaries have had, and expect to have in the future, transactions
with the Corporation's directors and their affiliates. Such transactions were
made in the ordinary course of business and included extensions of credit, all
of which were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the same time for comparable
transactions with other customers and did not, in management's opinion, involve
more than normal risk of collectibility or present other unfavorable features.
The aggregate amount of loans attributable to persons who were related parties
at December 31, 1997, approximated $138 million at the beginning and $226
million at the end of 1997. During 1997, new loans to related parties
aggregated $124 million and repayments totaled $36 million.
50 Comerica Incorporated
<PAGE> 34
17
REGULATORY CAPITAL AND BANKING SUBSIDIARIES
Banking regulations limit the transfer of assets in the form
of dividends, loans or advances from the bank subsidiaries
to the Corporation. Under the most restrictive of these regulations, the
aggregate amount of dividends which can be paid to the Corporation without
obtaining prior approval from bank regulatory agencies approximated $361
million at January 1, 1998, plus current year's earnings. Substantially all the
assets of the Corporation's subsidiaries are restricted from transfer to the
Corporation in the form of loans or advances.
Dividends paid to the Corporation by its banking subsidiaries amounted to $354
million in 1997, $322 million in 1996 and $184 million in 1995.
The Corporation and its banking subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies. Quantitative
measures established by regulation to ensure capital adequacy require the
maintenance of minimum amounts and ratios of Tier 1 and total capital (as
defined in the regulations) to average and risk-weighted assets. At December
31, 1997, the Corporation and all of its banking subsidiaries exceeded the
ratios required for an institution to be considered "well capitalized" (total
capital ratio greater than 10 percent). The following is a summary of the
capital position of the Corporation and its significant banking subsidiaries:
<TABLE>
<CAPTION>
Comerica Inc. Comerica Comerica Bank- Comerica Bank-
(in thousands) (Consolidated) Bank Texas California
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997
Tier 1 capital $2,513,820 $2,037,217 $325,394 $329,963
Total capital 3,961,243 3,243,206 359,674 370,531
Tier 1 capital to average assets
(minimum-3.0%) 7.09% 7.15% 8.92% 9.07%
Tier 1 capital to risk-weighted assets
(minimum-4.0%) 7.07 6.85 9.59 9.20
Total capital to risk-weighted assets
(minimum-8.0%) 11.14 10.90 10.60 10.33
December 31, 1996
Tier 1 capital $2,366,342 $1,930,830 $275,895 $282,108
Total capital 3,617,961 2,914,832 309,627 319,109
Tier 1 capital to average assets
(minimum-3.0%) 7.07% 7.23% 8.42% 7.40%
Tier 1 capital to risk-weighted assets
(minimum-4.0%) 7.18 7.12 9.49 8.95
Total capital to risk-weighted assets
(minimum-8.0%) 10.99 10.75 10.65 10.12
=====================================================================================================================
</TABLE>
18
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Corporation enters into various
off-balance sheet transactions involving derivative financial instruments,
foreign exchange contracts and credit-related financial instruments to manage
exposure to fluctuations in interest rate, foreign currency and other market
risks and to meet the financing needs of customers. These financial instruments
involve, to varying degrees, elements of credit and market risk in excess of
the amount reflected in the consolidated balance sheets.
Credit risk is the possible loss that may occur in the event of nonperformance
by the counterparty to a financial instrument. The Corporation attempts to
minimize credit risk arising from off-balance sheet financial instruments by
evaluating the creditworthiness of each counterparty adhering to the same
credit approval process used for traditional lending activities. Counterparty
risk limits and monitoring procedures have also been established to facilitate
the management of credit risk. Collateral is obtained, if deemed necessary,
based on the results of management's credit evaluation. Collateral varies, but
may include cash, investment securities, accounts receivable, inventory,
property, plant and equipment or real estate.
Derivative financial instruments and foreign exchange contracts are traded over
an organized exchange or negotiated over-the-counter. Credit risk associated
with exchange-traded contracts is typically assumed by the organized exchange.
Over-the-counter contracts are tailored to meet the needs of the counterparties
involved and, therefore, contain a greater degree of credit risk and liquidity
risk than exchange-traded contracts which have standardized terms and readily
available
Comerica Incorporated 51
<PAGE> 35
18
FINANCIAL INSTRUMENTS WITH OFF-BALANCE
SHEET RISK (CONTINUED)
price information. The Corporation reduces exposure to credit and liquidity
risks from over-the-counter derivative and foreign exchange contracts by
conducting such transactions with investment-grade domestic and foreign
investment banks or commercial banks.
Market risk is the potential loss that may result from movements in interest or
foreign currency rates which cause an unfavorable change in the value of a
financial instrument. The Corporation manages this risk by establishing
counterparty and monetary exposure limits and monitoring compliance with those
limits. Market risk arising from derivative and foreign exchange positions
entered into on behalf of customers is reflected in the consolidated financial
statements and may be mitigated by entering into offsetting transactions.
Market risk inherent in off-balance sheet derivative and foreign exchange
contracts held or issued for risk management purposes is generally offset by
changes in the value of rate sensitive on-balance sheet assets or liabilities.
Termination of derivative contracts, other than by a counterparty, is unlikely
as a particular instrument can be offset by entering into an opposite-effect
derivative product to facilitate risk management strategies.
DERIVATIVE FINANCIAL INSTRUMENTS AND
FOREIGN EXCHANGE CONTRACTS
The Corporation, as an end-user, employs a variety of off-balance sheet
financial instruments for risk management purposes. Activity related to these
instruments is centered predominantly in the interest rate markets and mainly
involves interest rate swaps. Various other types of instruments are also used
to manage exposures to market risks, including interest rate caps and floors,
total return swaps, foreign exchange forward contracts and foreign exchange
swap agreements. Refer to the section entitled "Risk Management Derivative
Financial Instruments and Foreign Exchange Contracts" in the financial review
on page 33 for further information about the Corporation's objectives for using
such instruments.
The following table presents the composition of off-balance sheet derivative
financial instruments and foreign exchange contracts, excluding commitments,
held or issued for risk management purposes at December 31, 1997 and 1996.
Notional 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.
<TABLE>
<CAPTION>
Notional/
Contract Unrealized Unrealized Fair
(in millions) Amount Gains Losses Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997
Risk management
Interest rate contracts:
Swaps $8,515 $137 $(14) $123
Options, caps and
floors purchased 52 -- -- --
Caps written -- -- -- --
- ------------------------------------------------------------------------------------------------
Total interest rate
contracts 8,567 137 (14) 123
Foreign exchange
contracts:
Spot and forwards 445 12 (9) 3
Swaps 154 5 -- 5
- ------------------------------------------------------------------------------------------------
Total foreign
exchange contracts 599 17 (9) 8
- ------------------------------------------------------------------------------------------------
Total risk management $9,166 $154 $(23) $131
================================================================================================
December 31, 1996
Risk management
Interest rate contracts:
Swaps $8,015 $ 42 $(97) $ (55)
Options, caps and
floors purchased 53 -- -- --
Caps written 152 -- -- --
- ------------------------------------------------------------------------------------------------
Total interest rate
contracts 8,220 42 (97) (55)
Foreign exchange
contracts:
Spot and forwards 444 26 (4) 22
Swaps 38 -- (1) (1)
- ------------------------------------------------------------------------------------------------
Total foreign
exchange contracts 482 26 (5) 21
- ------------------------------------------------------------------------------------------------
Total risk management $8,702 $68 $(102) $ (34)
================================================================================================
</TABLE>
Credit risk, which excludes the effects of any collateral or netting
arrangements, is measured as the cost to replace, at current market rates,
contracts in a profitable position. The amount of this exposure is represented
by the gross unrealized gains on derivative and foreign exchange contracts.
Bilateral collateral agreements with counterparties covered 93 percent of the
notional amount of interest rate derivative contracts at December 31, 1997 and
1996. These agreements reduce credit risk by providing for the exchange of
marketable investment securities to secure amounts due on contracts in an
unrealized gain position. In addition, at December 31, 1997, master netting
arrangements had been established with all interest rate swap counterparties
and certain foreign exchange counterparties. These arrangements effectively
reduce credit risk by permitting settlement, on a net basis, of contracts
entered into with the same counterparty. The Corporation has not experienced
any credit losses associated with derivative or foreign exchange contracts.
52 Comerica Incorporated
<PAGE> 36
18
FINANCIAL INSTRUMENTS WITH OFF-BALANCE
SHEET RISK (CONTINUED)
On a limited scale, fee income is earned from entering into various
transactions, principally foreign exchange contracts and interest rate caps, at
the request of customers. The Corporation does not speculate in derivative
financial instruments for the purpose of profiting in the short-term from
favorable movements in market rates.
Fair values for customer-initiated and other derivative and foreign exchange
contracts represent the net unrealized gains or losses on such contracts and
are recorded in the consolidated balance sheets. Changes in fair value are
recognized in the consolidated income statements. For the year ended December
31, 1997, unrealized gains and unrealized losses on customer-initiated and
other foreign exchange contracts averaged $23 million and $18 million,
respectively. For the year ended December 31, 1996, unrealized gains and
unrealized losses averaged $10 million and $9 million, respectively. These
contracts also generated $7 million of noninterest income for both years ended
December 31, 1997 and 1996. Average positive and negative fair values and
income related to customer-initiated and other interest rate contracts were not
material for 1997 and 1996.
The following table presents the composition of off-balance sheet derivative
financial instruments and foreign exchange contracts held or issued in
connection with customer-initiated and other activities at December 31, 1997
and 1996.
<TABLE>
<CAPTION>
Notional/
Contract Unrealized Unrealized Fair
(in millions) Amount Gains Losses Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997
Customer-initiated and other
Interest rate contracts:
Caps written $ 314 $-- $ -- $--
Floors purchased 32 -- -- --
Swaps 150 6 (6) --
- -----------------------------------------------------------------------------
Total interest rate
contracts 496 6 (6) --
Foreign exchange
contracts:
Spot, forwards, futures
and options 1,837 37 (33) 4
- -----------------------------------------------------------------------------
Total customer-
initiated and other $2,333 $43 $(39) $ 4
=============================================================================
December 31, 1996
Customer-initiated and other
Interest rate contracts:
Caps written $ 358 $-- $ -- $--
Floors purchased 2 -- -- --
Swaps 30 5 (5) --
- -----------------------------------------------------------------------------
Total interest rate
contracts 390 5 (5) --
Foreign exchange
contracts:
Spot, forwards, futures
and options 644 19 (18) 1
- -----------------------------------------------------------------------------
Total customer-
initiated and other $1,034 $24 $(23) $ 1
=============================================================================
</TABLE>
Detailed discussions of each class of derivative financial instrument and
foreign exchange contract held or issued by the Corporation for both risk
management and customer-initiated and other activities are provided below.
INTEREST RATE SWAPS
Interest rate swaps are agreements in which two parties periodically exchange
fixed cash payments for variable payments based on a designated market rate or
index (or variable payments based on two different rates or indices for basis
swaps), applied to a specified notional amount until a stated maturity. In some
cases, the payments may be based on the change in the value of an underlying
security. The Corporation's swap agreements are structured such that variable
payments are primarily based on one-month and three-month LIBOR. These
instruments are principally negotiated over-the-counter and are subject to
credit risk, market risk and liquidity risk.
INTEREST RATE OPTIONS, INCLUDING CAPS AND FLOORS
Option contracts grant the option holder the right to buy or sell an underlying
financial instrument for a predetermined price before the contract expires.
Interest rate caps and floors are option-based contracts which entitle the
buyer to receive cash payments based on the difference between a designated
reference rate and the strike price, applied to a notional amount. Written
options, primarily caps, expose the Corporation to market risk but not credit
risk. A fee is received at inception for assuming the risk of unfavorable
changes in interest rates. Purchased options contain both credit and market
risk; however, market risk is limited to the fee paid. Options are either
exchange-traded or negotiated over-the-counter. All interest rate caps and
floors are over-the-counter agreements.
FOREIGN EXCHANGE CONTRACTS
The Corporation uses foreign exchange rate swaps, including generic receive
variable swaps and cross-currency swaps, for risk management purposes. Generic
receive variable swaps involve payment, in a foreign currency, of the
difference between a contractually fixed exchange rate and an average exchange
rate determined at settlement, applied to a notional amount. Cross-currency
swaps involve the exchange of both interest and principal amounts in two
different currencies. Other foreign exchange contracts such as futures,
forwards and options are primarily entered into as a service to customers and
to offset market risk arising from such positions. Futures and forward
contracts require the delivery or receipt of foreign currency at a specified
date and exchange rate. Foreign currency options allow the holder to purchase
or sell a foreign currency at a specified date and price. Foreign exchange
futures are exchange-traded, while forwards, swaps and most options are
negotiated over-the-counter. Foreign exchange contracts expose the Corporation
to both market risk and credit risk.
Comerica Incorporated 53
<PAGE> 37
18
FINANCIAL INSTRUMENTS WITH OFF-BALANCE
SHEET RISK (CONTINUED)
COMMITMENTS
The Corporation also enters into commitments to purchase or sell earning assets
for risk management purposes. These transactions, which are similar in nature
to forward contracts, did not have a material impact on the consolidated
financial statements for the years ended December 31, 1997 and 1996.
Commitments to purchase investment securities are executed to secure certain
rates on primarily U.S. government and agency securities. No such commitments
were outstanding at year-end 1997, while $50 million were outstanding at
year-end 1996. Commitments to purchase and sell U.S. Treasury and municipal
bond securities related to the Corporation's trading account totaled $2 million
and $18 million at December 31, 1997 and 1996, respectively. At December 31,
1997 and 1996, $30 million and $23 million, respectively, of commitments with
settlement terms of up to 120 days had been initiated to reduce interest rate
risk on fixed rate residential mortgage loans originated or held for sale.
Outstanding commitments expose the Corporation to both credit risk and market
risk.
Available credit lines on fixed rate credit card and check product accounts,
which have characteristics similar to option contracts, totaled $1.8 billion
and $2.0 billion at December 31, 1997 and 1996, respectively. These commitments
expose the Corporation to the risk of a reduction in net interest income as
interest rates increase. Market risk exposure arising from fixed rate 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. Additional information concerning
unused commitments to extend credit is provided in the "Credit-Related
Financial Instruments" section below.
CREDIT-RELATED FINANCIAL INSTRUMENTS
The Corporation issues off-balance sheet financial instruments in connection
with commercial and consumer lending activities.
Credit risk associated with these instruments is represented by the contractual
amounts indicated in the following table:
<TABLE>
<CAPTION>
(in millions) 1997 1996
- --------------------------------------------------------------------
<S> <C> <C>
Unused commitments to extend credit $27,528 $22,118
Standby letters of credit and financial guarantees 3,088 2,684
Commercial letters of credit 449 335
====================================================================
</TABLE>
UNUSED COMMITMENTS TO EXTEND CREDIT
Commitments to extend credit are legally binding agreements to lend to a
customer, provided there is no violation of any condition established in the
contract. These commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many commitments
expire without being drawn upon, the total contractual amount of commitments
does not necessarily represent future cash requirements of the Corporation.
Total unused commitments to extend credit at December 31, 1997 and 1996,
included $4 billion of variable and fixed rate revolving credit commitments.
Other unused loan commitments, primarily variable rate, totaled $24 billion at
December 31, 1997, and $18 billion at December 31, 1996.
STANDBY AND COMMERCIAL LETTERS OF CREDIT AND
FINANCIAL GUARANTEES
Standby and commercial letters of credit and financial guarantees represent
conditional obligations of the Corporation which guarantee the performance of a
customer to a third party. Standby letters of credit and financial guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions. Long-term
standby letters of credit and financial guarantees, defined as those maturing
beyond one year, expire in decreasing amounts through the year 2012, and were
$1,309 million and $1,192 million at December 31, 1997 and 1996, respectively.
The remaining standby letters of credit and financial guarantees, which mature
within one year, totaled $1,779 million and $1,492 million at December 31, 1997
and 1996, respectively. Commercial letters of credit are issued to finance
foreign or domestic trade transactions.
19
CONTINGENT LIABILITIES
The Corporation and its subsidiaries are parties to litigation and claims
arising in the normal course of their activities. Although the amount of
ultimate liability, if any, with respect to such matters cannot be determined
with reasonable certainty, management, after consultation with legal counsel,
believes that the litigation and claims, some of which are substantial, will
not have a materially adverse effect on the Corporation's consolidated
financial position or results of operations.
54 Comerica Incorporated
<PAGE> 38
20
USAGE RESTRICTIONS
Included in cash and due from banks are amounts required to be deposited with
the Federal Reserve Bank. These reserve balances vary, depending on the level
of customer deposits in the Corporation's subsidiary banks. At December 31,
1997 and 1996, the Federal Reserve balances were $587 million and $534 million,
respectively.
21
ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
Disclosure of the estimated fair values of financial instruments, which differ
from carrying values, often requires the use of estimates. In cases where
quoted market values are not available, the Corporation uses present value
techniques and other valuation methods to estimate the fair values of its
financial instruments. These valuation methods require considerable judgment,
and the resulting estimates of fair value can be significantly affected by the
assumptions made and methods used. Accordingly, the estimates provided herein
do not necessarily indicate amounts which could be realized in a current
exchange. Furthermore, as the Corporation normally intends to hold the majority
of its financial instruments until maturity, it does not expect to realize many
of the estimated amounts disclosed. The disclosures also do not include
estimated fair value amounts for items which are not defined as financial
instruments, but which have significant value. These include such items as core
deposit intangibles, the future earnings potential of significant customer
relationships and the value of trust operations and other fee generating
businesses. The Corporation does not believe that it would be practicable to
estimate a representational fair value for these types of items.
The Corporation used the following methods and assumptions:
Cash and short-term investments: The carrying amount approximates the estimated
fair value of these instruments, which consist of cash and due from banks,
interest-bearing deposits with banks and federal funds sold.
Trading account securities: These securities are carried at quoted market value
or the market value for comparable securities, which represents estimated fair
value.
Loans held for sale: The market value of these loans represents estimated fair
value. The market value is determined on the basis of existing forward
commitments or the market values of similar loans.
Investment securities: The market value of investment securities, which is
based on quoted market values or the market values for comparable securities,
represents estimated fair value.
Domestic commercial loans: These consist of commercial, real estate
construction, commercial mortgage and equipment lease financing loans. The
estimated fair value of the Corporation's variable rate commercial loans is
represented by their carrying value, adjusted by an amount which estimates the
change in fair value caused by changes in the credit quality of borrowers since
the loans were originated. The estimated fair value of fixed rate commercial
loans is calculated by discounting the contractual cash flows of the loans
using year-end origination rates derived from the Treasury yield curve or other
representative bases. The resulting amounts are adjusted to estimate the effect
of changes in the credit quality of borrowers since the loans were originated.
International loans: The estimated fair value of the Corporation's short-term
international loans which consist of trade-related loans, or loans which have
no cross-border risk due to the existence of domestic guarantors or liquid
collateral, is represented by their carrying value, adjusted by an amount which
estimates the effect on fair value of changes in the credit quality of
borrowers or guarantors. The estimated fair value of long-term international
loans is based on the quoted market values of these loans or on the market
values of international loans with similar characteristics.
Retail loans: This category consists of residential mortgage, consumer and auto
lease financing loans. The estimated fair value of residential mortgage loans
is based on discounted contractual cash flows or market values of similar loans
sold in conjunction with securitized transactions. For consumer loans, the
estimated fair values are calculated by discounting the contractual cash flows
of the loans using rates representative of year-end origination rates. The
resulting amounts are adjusted to estimate the effect of changes in the credit
quality of borrowers since the loans were originated.
Customers' liability on acceptances outstanding: The carrying amount
approximates the estimated fair value.
Loan servicing rights: The estimated fair value represents those servicing
rights recorded under SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." Fair value is computed
using discounted cash flow analyses, using interest rates and prepayment speed
assumptions currently quoted for comparable instruments.
Comerica Incorporated 55
<PAGE> 39
21
ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Deposit liabilities: The estimated fair value of demand deposits, consisting of
checking, savings and certain money market deposit accounts, is represented by
the amounts payable on demand. The carrying amount of deposits in foreign
offices approximates their estimated fair value, while the estimated fair value
of term deposits is calculated by discounting the scheduled cash flows using
the year-end rates offered on these instruments.
Short-term borrowings: The carrying amount of federal funds purchased,
securities sold under agreements to repurchase and other borrowings
approximates estimated fair value.
Acceptances outstanding: The carrying amount approximates the estimated fair
value.
Medium- and long-term debt: The estimated fair value of the Corporation's
variable rate medium- and long-term debt is represented by its carrying value.
The estimated fair value of the fixed rate medium- and long-term debt is based
on quoted market values. If quoted market values are not available, the
estimated fair value is based on the market values of debt with similar
characteristics.
Derivative financial instruments and foreign exchange contracts: The estimated
fair value of interest rate swaps represents the amount the Corporation would
receive or pay to terminate or otherwise settle the contracts at the balance
sheet date, taking into consideration current unrealized gains and losses on
open contracts. The estimated fair value of foreign exchange futures and
forward contracts and commitments to purchase or sell financial instruments are
based on quoted market prices. The estimated fair value of interest rate and
foreign currency options (including interest rate caps and floors) are
determined using option pricing models.
Credit-related financial instruments: The estimated fair value of unused
commitments to extend credit and standby and commercial letters of credit is
represented by the estimated cost to terminate or otherwise settle the
obligations with the counterparties. This amount is approximated by the fees
currently charged to enter into similar arrangements, considering the remaining
terms of the agreements and any changes in the credit quality of counterparties
since the agreements were entered into. This estimate of fair value does not
take into account the significant value of the customer relationships and the
future earnings potential involved in such arrangements as the Corporation does
not believe that it would be practicable to estimate a representational fair
value for these items.
The estimated fair values of the Corporation's financial instruments at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
(in millions) Amount Fair Value Amount Fair Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and short-term
investments $ 2,080 $ 2,080 $ 1,961 $ 1,961
Trading account securities 9 9 6 6
Loans held for sale 41 41 38 38
Investment securities
available for sale 4,006 4,006 4,800 4,800
Commercial loans 15,805 15,743 13,520 13,445
International loans 2,085 2,080 1,706 1,704
Real estate construction
loans 941 933 751 744
Commercial mortgage
loans 3,634 3,617 3,446 3,413
Residential mortgage
loans 1,565 1,608 1,744 1,771
Consumer loans 4,348 4,231 4,634 4,498
Lease financing 517 518 406 406
- -----------------------------------------------------------------------------------------------------------
Total loans 28,895 28,730 26,207 25,981
Less allowance for
loan losses (424) -- (367) --
- -----------------------------------------------------------------------------------------------------------
Net loans 28,471 28,730 25,840 25,981
Customers' liability on
acceptances outstanding 18 18 33 33
Loan servicing rights 28 31 23 25
LIABILITIES
Demand deposits
(noninterest-bearing) 6,761 6,761 6,713 6,713
Interest-bearing deposits 15,825 15,840 15,654 15,664
- -----------------------------------------------------------------------------------------------------------
Total deposits 22,586 22,601 22,367 22,377
Short-term borrowings 3,193 3,193 4,489 4,489
Acceptances outstanding 18 18 33 33
Medium- and
long-term debt 7,286 7,395 4,242 4,268
OFF-BALANCE SHEET
FINANCIAL INSTRUMENTS
Derivative financial
instruments and foreign
exchange contracts
Risk management:
Unrealized gains -- 154 -- 68
Unrealized losses -- (23) -- (102)
Customer-initiated
and other:
Unrealized gains 43 43 24 24
Unrealized losses (39) (39) (23) (23)
Credit-related financial
instruments -- (13) -- (10)
===========================================================================================================
</TABLE>
56 Comerica Incorporated
<PAGE> 40
22
PARENT COMPANY FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BALANCE SHEETS--Comerica Incorporated
December 31 (in thousands, except share data) 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 372 $ 263
Time deposits with subsidiary bank 80,400 105,700
Investment securities available for sale 20,822 17,074
Investment in subsidiaries, principally banks 3,017,058 2,829,906
Receivables from subsidiaries 375 --
Premises and equipment 6,566 53,347
Other assets 39,634 31,345
- --------------------------------------------------------------------------------------------------------------
Total assets $ 3,165,227 $ 3,037,635
==============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt $ 298,351 $ 298,210
Other borrowed funds -- 842
Advances from nonbanking subsidiaries 4,054 236
Other liabilities 101,046 122,778
- --------------------------------------------------------------------------------------------------------------
Total liabilities 403,451 422,066
Nonredeemable preferred stock--$50 stated value
Authorized--5,000,000 shares
Issued--5,000,000 shares in 1997 and 1996 250,000 250,000
Common stock--$5 par value
Authorized--250,000,000 shares
Issued--156,815,367 shares in 1997 and 107,297,345 shares in 1996 784,077 536,487
Capital surplus -- --
Unrealized gains and losses on investment securities available for sale (1,937) (22,789)
Retained earnings 1,731,419 1,854,116
Deferred compensation (1,783) (2,245)
- --------------------------------------------------------------------------------------------------------------
Total shareholders' equity 2,761,776 2,615,569
- --------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 3,165,227 $ 3,037,635
==============================================================================================================
<CAPTION>
STATEMENTS OF INCOME--Comerica Incorporated
Year Ended December 31 (in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Income from subsidiaries
Dividends from subsidiaries $ 353,500 $ 322,000 $ 183,700
Other interest income 3,626 3,372 7,113
Intercompany management fees 166,952 264,368 293,292
Other interest income 559 1,773 --
Other noninterest income 2,070 5,278 2,680
- --------------------------------------------------------------------------------------------------------------
Total income 526,707 596,791 486,785
EXPENSES
Interest on long-term debt and other borrowed funds 26,129 26,328 19,948
Net interest rate swap income (2,818) (2,794) (785)
Interest on advances from subsidiaries 18 86 243
Salaries and employee benefits 65,766 123,271 127,261
Occupancy expense 9,373 22,483 22,778
Equipment expense 2,053 24,806 25,600
Restructuring charge -- 27,000 --
Other noninterest expenses 54,244 63,224 76,319
- --------------------------------------------------------------------------------------------------------------
Total expenses 154,765 284,404 271,364
- --------------------------------------------------------------------------------------------------------------
Income before income taxes and equity
in undistributed net income of subsidiaries 371,942 312,387 215,421
Income tax expense (credit) 6,111 (1,931) 10,705
- --------------------------------------------------------------------------------------------------------------
365,831 314,318 204,716
Equity in undistributed net income of
subsidiaries, principally banks 164,645 102,843 208,650
- --------------------------------------------------------------------------------------------------------------
NET INCOME $ 530,476 $ 417,161 $ 413,366
==============================================================================================================
</TABLE>
Comerica Incorporated 57
<PAGE> 41
22
PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS--Comerica Incorporated
Year Ended December 31 (in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 530,476 $ 417,161 $ 413,366
Adjustments to reconcile net income to
net cash provided by operating activities
Undistributed earnings of
subsidiaries, principally banks (164,645) (102,843) (208,650)
Depreciation 1,800 20,595 20,447
Restructuring charge (20,992) 27,000 (6,078)
Other, net 20,928 23,091 16,694
- -------------------------------------------------------------------------------------------------------------------------
Total adjustments (162,909) (32,157) (177,587)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 367,567 385,004 235,779
INVESTING ACTIVITIES
Purchase of investment securities available for sale (4,092) (4,820) (6,097)
Proceeds from sale of investment securities available for sale 427 -- --
Proceeds from sales of fixed assets and other real estate 28,958 603 3,439
Purchases of fixed assets (1,424) (20,345) (16,413)
Net (increase) decrease in bank time deposits 25,300 25,100 (41,200)
Net (increase) in receivables from subsidiaries (375) -- --
Capital transactions with subsidiaries (3,283) 131,871 (1,400)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 45,511 132,409 (61,671)
FINANCING ACTIVITIES
Net increase (decrease) in advances from subsidiaries 3,818 (3,523) (4,064)
Proceeds from issuance of long-term debt -- -- 210,000
Repayments and purchases of long-term debt 141 (259) (59,147)
Net decrease in short-term borrowings (842) -- --
Proceeds from issuance of preferred stock -- 246,744 --
Proceeds from issuance of common stock 22,584 35,206 11,736
Purchase of common stock for treasury and retirement (243,258) (622,196) (178,656)
Dividends paid (195,412) (173,414) (155,726)
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (412,969) (517,442) (175,857)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash on deposit at bank subsidiary 109 (29) (1,749)
Cash on deposit at bank subsidiary at beginning of year 263 292 2,041
- -------------------------------------------------------------------------------------------------------------------------
Cash on deposit at bank subsidiary at end of year $ 372 $ 263 $ 292
=========================================================================================================================
Interest paid $ 25,799 $ 25,942 $ 15,623
=========================================================================================================================
Income taxes recovered (paid) $ (1,145) $ 11,150 $ 3,275
=========================================================================================================================
Noncash investing and financing activities
Stock issued for acquisitions $ -- $ 128,938 $ 77,100
=========================================================================================================================
</TABLE>
The preceding parent company financial statements reflect the sale of the
Corporation's information services, transaction processing and operations
services departments to a subsidiary, Comerica Bank, on January 1, 1997.
58 Comerica Incorporated
<PAGE> 42
23
SUMMARY OF QUARTERLY FINANCIAL INFORMATION
The following quarterly information is unaudited. However,
in the opinion of management, the information relects all adjustments which are
necessary for the fair presentation of the results of operations for the periods
presented.
<TABLE>
<CAPTION>
1997
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, Fourth Third Second First
except per share data) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 682,163 $ 674,671 $ 663,326 $ 627,243
Interest expense 316,281 313,090 299,798 275,458
Net interest income 365,882 361,581 363,528 351,785
Provision for loan losses 37,000 34,000 34,000 41,000
Securities gains/(losses) 5,836 1,096 (1,359) 122
Noninterest income
(excluding securities gains) 134,928 135,251 122,806 129,272
Noninterest expenses 257,368 252,622 249,259 248,737
Net income 139,927 137,067 129,710 123,772
Basic net income per share $ 0.86 $ 0.84 $ 0.79 $ 0.75
Diluted net income per share 0.85 0.83 0.78 0.74
<CAPTION>
1996
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, Fourth Third Second First
except per share data) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 632,737 $ 633,421 $ 642,192 $ 654,430
Interest expense 279,476 280,154 285,703 305,169
Net interest income 353,261 353,267 356,489 349,261
Provision for loan losses 32,000 28,500 25,000 28,500
Securities gains/(losses) 10,194 (276) 3,310 360
Noninterest income
(excluding securities gains) 122,214 116,604 117,480 137,068
Restructuring charge 90,000 -- -- --
Noninterest expenses
(excluding restructuring charge) 266,220 253,635 270,196 278,975
Net income 60,816 121,518 118,221 116,606
Basic net income per share $ 0.35 $ 0.71 $ 0.68 $ 0.66
Diluted net income per share 0.35 0.70 0.67 0.66
====================================================================================================================================
</TABLE>
Comerica Incorporated 59
<PAGE> 43
REPORT OF MANAGEMENT
Management is responsible for the accompanying financial statements and all
other financial information in this Annual Report. The financial statements have
been prepared in conformity with generally accepted accounting principles and
include amounts which of necessity are based on management's best estimates and
judgments and give due consideration to materiality. The other financial
information herein is consistent with that in the financial statements.
In meeting its responsibility for the reliability of the financial statements,
management develops and maintains systems of internal accounting controls. These
controls are designed to provide reasonable assurance that assets are
safeguarded and transactions are executed and recorded in accordance with
management's authorization. The concept of reasonable assurance is based on the
recognition that the cost of internal accounting control systems should not
exceed the related benefits. The systems of control are continually monitored by
the internal auditors whose work is closely coordinated with and supplements in
many instances the work of independent auditors.
The financial statements have been audited by independent auditors Ernst & Young
LLP. Their role is to render an independent professional opinion on management's
financial statements based upon performance of procedures they deem appropriate
under generally accepted auditing standards.
The Corporation's Board of Directors oversees management's internal control and
financial reporting responsibilities through its Audit Committee as well as
various other committees. The Audit Committee, which consists of directors who
are not officers or employees of the Corporation, meets periodically with
management and internal and independent auditors to assure that they and the
Committee are carrying out their responsibilities, and to review auditing,
internal control and financial reporting matters.
Eugene A. Miller
Chairman and Chief Executive Officer
Ralph W. Babb Jr.
Executive Vice President and Chief Financial Officer
Marvin J. Elenbaas
First Vice President and Controller
REPORT OF INDEPENDENT AUDITORS
Board of Directors,
Comerica Incorporated
We have audited the accompanying consolidated balance sheets of Comerica
Incorporated and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Comerica
Incorporated and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
Detroit, Michigan
January 20, 1998
60 Comerica Incorporated
<PAGE> 44
HISTORICAL REVIEW-AVERAGE BALANCE SHEETS
COMERICA INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Financial Information
(in millions) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,686 $ 1,576 $ 1,500 $ 1,532 $ 1,490
Short-term investments 129 195 351 823 1,193
Investment securities 4,687 5,823 7,625 8,004 5,512
Commercial loans 14,234 12,686 11,302 9,598 8,473
International loans 1,953 1,541 1,257 1,107 897
Real estate construction loans 866 707 541 403 441
Commercial mortgage loans 3,547 3,483 3,157 2,916 2,629
Residential mortgage loans 1,676 1,960 2,450 2,175 1,979
Consumer loans 4,486 4,624 4,569 3,795 3,697
Lease financing 447 351 285 217 191
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans 27,209 25,352 23,561 20,211 18,307
Less allowance for loan losses (402) (361) (340) (322) (311)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans 26,807 24,991 23,221 19,889 17,996
Accrued income and other assets 1,560 1,610 1,432 1,203 1,045
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 34,869 $ 34,195 $34,129 $31,451 $ 27,236
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits (noninterest-bearing) $ 5,815 $ 5,589 $ 4,767 $ 4,700 $ 4,380
Interest-bearing deposits 15,326 15,826 15,046 14,809 15,035
Deposits in foreign offices 805 843 1,842 1,816 1,306
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 21,946 22,258 21,655 21,325 20,721
Federal funds purchased and securities sold
under agreements to repurchase 2,017 2,106 2,816 2,817 1,586
Other borrowed funds 1,801 1,999 2,313 2,002 1,432
Accrued expenses and other liabilities 467 400 324 286 274
Medium- and long-term debt 5,980 4,745 4,510 2,708 1,087
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 32,211 31,508 31,618 29,138 25,100
Shareholders' equity 2,658 2,687 2,511 2,313 2,136
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 34,869 $ 34,195 $34,129 $31,451 $ 27,236
====================================================================================================================================
</TABLE>
Comerica Incorporated 61
<PAGE> 45
HISTORICAL REVIEW-STATEMENTS OF INCOME
COMERICA INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Financial Information
(in millions, except per share data) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,318 $ 2,161 $2,091 $1,577 $ 1,388
Interest on investment securities
Taxable 310 372 474 446 307
Exempt from federal income tax 11 18 26 31 40
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest on investment securities 321 390 500 477 347
Interest on short-term investments 9 12 23 38 48
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 2,648 2,563 2,614 2,092 1,783
INTEREST EXPENSE
Interest on deposits 673 686 721 543 530
Interest on short-term borrowings
Federal funds purchased and securities
sold under agreements to repurchase 111 112 166 121 47
Other borrowed funds 98 107 136 79 41
Interest on medium- and long-term debt 374 295 289 148 63
Net interest rate swap (income)/expense (51) (49) 2 (29) (32)
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,205 1,151 1,314 862 649
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,443 1,412 1,300 1,230 1,134
Provision for loan losses 146 114 87 56 69
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,297 1,298 1,213 1,174 1,065
NONINTEREST INCOME
Income from fiduciary activities 147 133 125 122 122
Service charges on deposit accounts 141 140 130 124 120
Customhouse broker fees -- 11 36 41 40
Revolving credit fees 20 23 36 24 23
Securities gains 6 14 12 3 2
Other noninterest income 214 186 160 136 142
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 528 507 499 450 449
NONINTEREST EXPENSES
Salaries and employee benefits 539 561 562 549 529
Net occupancy expense 89 99 99 99 96
Equipment expense 62 69 68 68 62
FDIC insurance expense 3 8 24 44 44
Telecommunications expense 28 29 29 27 21
Restructuring charge -- 90 -- 7 22
Other noninterest expenses 287 303 304 248 251
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 1,008 1,159 1,086 1,042 1,025
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 817 646 626 582 489
Provision for income taxes 287 229 213 195 148
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 530 $ 417 $ 413 $ 387 $ 341
====================================================================================================================================
Net income applicable to common stock $ 513 $ 408 $ 413 $ 387 $ 341
====================================================================================================================================
Basic net income per common share $ 3.24 $ 2.41 $ 2.38 $ 2.20 $ 1.92
Diluted net income per common share 3.19 2.38 2.37 2.19 1.90
Cash dividends declared on common stock $ 181 $ 170 $ 158 $ 145 $ 125
Dividends per common share $ 1.15 $ 1.01 $ 0.91 $ 0.83 $ 0.71
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
62 Comerica Incorporated
<PAGE> 46
HISTORICAL REVIEW-STATISTICAL DATA
COMERICA INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Financial Information 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE RATES (FULLY TAXABLE EQUIVALENT BASIS)
Short-term investments 6.59% 6.23% 6.61% 4.57% 3.97%
Investment securities 6.94 6.79 6.72 6.15 6.70
Commercial loans 8.25 8.21 8.75 7.38 6.56
International loans 7.07 6.64 7.06 5.58 5.04
Real estate construction loans 9.38 9.22 9.52 7.85 6.63
Commercial mortgage loans 9.08 9.29 9.40 8.52 8.10
Residential mortgage loans 7.90 7.83 7.80 7.46 8.57
Consumer loans 9.81 9.88 10.10 9.44 9.98
Lease financing 7.48 6.82 6.65 6.48 7.34
- ------------------------------------------------------------------------------------------------------------------------
Total loans 8.53 8.54 8.90 7.84 7.62
- ------------------------------------------------------------------------------------------------------------------------
Interest income as a percent of earning assets 8.29 8.20 8.35 7.28 7.25
Domestic deposits 4.09 4.04 4.05 3.14 3.24
Deposits in foreign offices 5.68 5.46 6.07 4.28 3.29
- ------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 4.17 4.11 4.27 3.26 3.24
Federal funds purchased and securities sold
under agreements to repurchase 5.49 5.31 5.88 4.31 3.01
Other borrowed funds 5.45 5.36 5.87 3.92 2.88
Medium- and long-term debt 6.26 6.22 6.41 5.46 5.77
- ------------------------------------------------------------------------------------------------------------------------
Interest expense as a percent of
interest-bearing sources 4.65 4.51 4.95 3.57 3.18
- ------------------------------------------------------------------------------------------------------------------------
Interest rate spread 3.64 3.69 3.40 3.71 4.07
Impact of net noninterest-bearing
sources of funds 0.89 0.85 0.79 0.61 0.58
- ------------------------------------------------------------------------------------------------------------------------
Net interest margin as a percent of
earning assets 4.53 4.54 4.19 4.32 4.65
RETURN ON AVERAGE COMMON
SHAREHOLDERS' EQUITY 21.32 15.98 16.46 16.74 15.94
RETURN ON AVERAGE ASSETS 1.52 1.22 1.21 1.23 1.25
EFFICIENCY RATIO 51.05 60.36 60.09 61.28 63.68
PER SHARE DATA
Book value at year-end $16.02 $ 14.70 $ 15.17 $ 13.64 $ 12.66
Market value at year-end 60.17 34.92 26.67 16.25 17.75
Market value--high and low for year 62-34 39-24 29-16 21-16 23-17
OTHER DATA
Number of banking offices 350 358 395 398 385
Number of employees (full-time equivalent) 9,960 11,079 12,876 13,077 12,670
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Comerica Incorporated 63
<PAGE> 47
ECONOMIC OUTLOOK FOR 1998
Much will be said about the past seven years of American prosperity. But even
more notable will be the date next year when this current period of
wealth-building pierces the all- time record economic expansion of 106
consecutive months achieved between 1961 and 1969.
By the end of the first quarter of 1999, the current business expansion will
have extended beyond all others known in U.S. economic history. Comerica's
finest forecasting tool, the Recession Watch Index, assigns a 70 percent
probability to achieving record longevity for this economic cycle.
This economic expansion has durability:
- - Real Gross Domestic Product (GDP) growth rates continue to exceed broadly
measured inflation rates.
- - Productivity gains remain impressive, due to robust capital goods outlays
by businesses.
- - Federal spending growth rates have decelerated sharply, lowering the
annual budget deficits.
- - Embracing freer trade has strengthened the dollar and
lowered costs and prices.
- - Financial markets grow stronger with disinflation and engender more
prudent behavior.
- - Major regions of the U.S. economy, which have under-
performed heretofore, are now accelerating.
Nevertheless, these factors are likely to detract from growth prospects through
1998:
- - Households entered 1998 rather fully extended with regard to credit
burdens.
- - Decelerating economies of our trading partners, particularly in Asia, will
clip U.S. exports.
- - New waves of company downsizings will lead to slower employment and income
gains.
COMPARABLE ECONOMIC HISTORY
Many observers have been startled by the coexistence of declining inflation
rates and falling unemployment rates in the United States over the past two
years. This blessed event is no coincidence. It is not accidental that strong
business spending on computers and new productivity-augmenting plants and
equipment are raising productivity throughout the private sector of the U.S.
economy. It is no accident that the sharp reduction in the U.S. budget deficit
coincides with the newfound spending restraint exercised by Washington over the
past six years. Since fiscal year 1993, the average growth in federal spending
has been 3 percent, and the incremental growth last year was only 2.7 percent.
Together, higher productivity and reduced rates of issuance of new federal debt
cause inflation and interest rates to move lower at the same time real GDP and
employment move higher. Furthermore, lower inflation improves the quality of
profits and the purchasing power of household income.
The past three years of economic prosperity in the U.S. are reminiscent of the
very positive economic developments from the decades that preceded 1900. A
century ago, the U.S. was the world's showcase for productivity gains and
industrial innovation. Consequently, the U.S. ran huge trade deficits and
attracted monumental amounts of capital from abroad--direct investments from
Europe and elsewhere. A similar scenario has unfolded today.
ANOTHER GOOD YEAR
Average annual GDP growth for the past seven-year expansion has been 2.7
percent. For 1998, we are forecasting real economic growth at 3.0 percent, down
from 3.8 percent in 1997. Although slower real GDP growth implies some 200,000
fewer auto and truck sales and a slightly less robust housing year,
deceleration on the goods side of the economy will be matched by further
deceleration in inflation and borrowing costs.
We predict 1998 through the first quarter 1999 to be recession-free, with
inflation and unemployment rates reaching their lowest points for the current
business cycle expansion. The Federal Reserve Board will have little reason to
loosen or tighten monetary policy, so it is likely that short-term interest
rates will remain largely unchanged during the year. The implosion of some
Asian financial markets and deceleration of most economies in
non-English-speaking nations across the globe suggest considerably tougher
sledding for U.S. exports in the year ahead. Because export growth had been a
mainstay of economic growth in the U.S. over the past three years, the loss of
export strength will slow real GDP in 1998 and possibly give rise to
protectionist sentiment.
<TABLE>
<CAPTION>
1998 forecast 1997 actual
-----------------------------------------------------
<S> <C> <C>
GDP growth 3.0% 3.8%
Inflation (CPI) 1.7% 2.3%
Vehicle sales 14.7 14.9
(cars/light trucks) million units million units
Federal funds rate 5.5% 5.5%
Unemployment rate 4.7% 4.9%
Current account deficit $170 billion $151 billion
-----------------------------------------------------
</TABLE>
BEYOND 1998
The U.S. economy is doing well because fiscal and monetary policies have become
more disciplined, especially since 1994. The greatest threats to domestic
economic health over the next several years stem chiefly from the possible
imposition of government regulations that have not been cost-justified.
Specifically, there is no scientific consensus as to whether the earth is
cooling, warming or staying within the normal temperature ranges of the past
several centuries. Whatever environmental threats emerge, they are best handled
by economic systems that are free, market-oriented, rich and growing wealthier.
Wealth and innovation serve as the facilitators for a cleaner, safer
environment. The key to continued prosperity beyond 1998 will be the avoidance
of myopic policies that sacrifice economic growth on the political altar of
income redistribution.
64 Comerica Incorporated
<PAGE> 48
INTEREST RATE FORECASTS
<TABLE>
<CAPTION>
1 Month
Fed Prime 3 Month Commercial Treasury Bills
Funds Rate LIBOR Paper 3 Month 6 Months 1 Year
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2nd Quarter 1998 5.50% 8.50% 5.80% 5.75% 5.15% 5.25% 5.30%
3rd Quarter 1998 5.50 8.50 5.90 5.85 5.20 5.30 5.35
4th Quarter 1998 5.50 8.50 6.10 6.05 5.25 5.35 5.40
1st Quarter 1999 5.50 8.50 6.30 6.25 5.35 5.45 5.50
- ---------------------------------------------------------------------------------------
<CAPTION>
Treasury Notes Treasury Bonds Corp Aaa A Utility
2 Year 3 Year 5 Year 10 Year 30 Year Bonds Bonds
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2nd Quarter 1998 5.40% 5.45% 5.60% 5.85% 6.00% 7.30% 7.40%
3rd Quarter 1998 5.45 5.50 5.70 5.80 6.10 7.40 7.50
4th Quarter 1998 5.50 5.60 5.90 6.10 6.30 7.60 7.70
1st Quarter 1999 5.60 5.70 6.00 6.25 6.50 7.80 7.90
- ---------------------------------------------------------------------------------------
<CAPTION>
Home Federal Reserve Annualized Percent Changes
Mortgage Rates Trade-Weighted Real GDP
FHLMC Dollar Index GDP Deflator CPI
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2nd Quarter 1998 7.20% 110.0% 2.8% 1.5% 1.8%
3rd Quarter 1998 7.30 110.0 3.0 1.6 1.8
4th Quarter 1998 7.50 108.0 3.0 1.8 2.2
1st Quarter 1999 7.70 105.0 3.0 2.2 2.4
- ---------------------------------------------------------------------------------------
</TABLE>
COMERICA MARKETS
An eighth consecutive year of general economic expansion in 1998 should
generate ample growth within Comerica's principal markets of Michigan,
California, Texas and Florida.
MICHIGAN
Housing prices and unemployment rates speak volumes to the growth trajectory of
Michigan's economy over the past few years. For a second straight year,
Michigan's average increase in home prices led the nation with an appreciation
of 7.2 percent, versus 4.5 percent for the U.S. Michigan's unemployment rate
averaged nearly one full percentage point below the U.S. average of 4.9
percent. Motor vehicle output expanded 2.5 percent in 1997, with Michigan truck
production up nearly 6 percent. Perhaps the greatest challenge confronting the
Michigan economy in 1998 will be its severe labor constraints. In 1997,
shortages of skilled labor, particularly in the building trades, reduced the
volume of new housing activity from 1996 levels. The likelihood of continued
low inflation and financing rates in 1998 will augment affordability of
automobiles and contribute to state growth.
CALIFORNIA
No state made greater economic progress in 1997 than California. An
illustration of this is the decline of unemployment rates from 7.1 to 6.2
percent between the third quarters of 1996 and 1997. New housing permit
activity rose 23 percent in California during 1997, versus 9 percent for the
nation, and average housing prices appreciated by 4.7 percent, compared with
4.5 percent for the U.S. California total employment grew 2.7 percent, far
outstripping the 1.8 percent average for all states. Continued economic
expansion and business profitability during 1998 is strongly suggested by the
1997 performance of California-based stocks, which rose nearly 50 percent.
California's greatest challenge will be reduced exports to Pacific Asia. This
will be partially offset by the burgeoning volume of import business related to
the stronger dollar and lower costs of outsourced labor and materials as inputs
to businesses.
TEXAS
As long as the U.S. economy continues to expand in 1998, the economy of Texas
should be able to run ahead by approximately 0.5 percent. This implies 3 to 3.5
percent growth in real gross state product in 1998. Employment growth in 1997,
at 2.5 percent, exceeded the U.S. average of 1.8 percent, with strong
performance in the business-service jobs sector. Improvement in the Mexican
economy and resultant growth in trade flows were especially significant forces
in the expansion of the state's economy last year. Texas-based stocks
experienced one of the more dynamic gains of any state in 1997, up nearly 70
percent. This strong equity performance often foreshadows business expansion,
profitability and employment gains in the subsequent year. The chief threat
would be another period of weakness or readjustment in the Mexican economy, due
to rising inflation and remedial monetary policies.
FLORIDA
Florida hit its stride in 1997, besting the national average unemployment rate
(4.8 percent versus 4.9 percent) and far outperforming the U.S. average with
respect to housing permit activity (up 22 percent versus 9 percent) and overall
job growth (3.5 percent versus 1.8 percent). South Florida, which once acted as
the senior partner in growth, is now sharing that role with the booming
central, northern and panhandle regions. Florida is now the fourth most
populous state, with the fastest population growth among the top four from
1990-96. The state's population growth between 1990-96 doubled the U.S. rate.
Florida's chief economic challenges in 1998 include decelerating Latin American
economies, the stronger dollar's impact on tourism and continued downsizing in
military staffing and budgets. Otherwise, population and business gains will
guarantee a diversified and balanced-growth economy.
David L. Littmann and William T. Wilson, Ph.D
Comerica Economics Department
Comerica Incorporated 65
<PAGE> 49
SHAREHOLDER INFORMATION
STOCK
Comerica's stock trades on the New York Stock Exchange (NYSE) under the symbol
CMA.
SHAREHOLDER ASSISTANCE
Inquiries related to shareholder records, change of name, address or ownership
of stock, and lost or stolen stock certificates should be directed to the
transfer agent and registrar:
Norwest Shareowner Services
P.O. Box 64854
St. Paul, Minnesota 55164-0854
1-800-468-9716
ELIMINATION OF DUPLICATE MATERIALS
If you receive duplicate mailings at one address, you may have multiple
shareholder accounts. You can consolidate your multiple accounts into a single,
more convenient account by contacting the transfer agent shown above. In
addition, if more than one member of your household is receiving shareholder
materials, you can eliminate the duplicate mailings by contacting the transfer
agent.
DIVIDEND REINVESTMENT PLAN
Comerica offers a dividend reinvestment plan which permits
participating shareholders of record to reinvest dividends in Comerica common
stock without paying brokerage commissions or service charges. Participating
shareholders also may invest up to $3,000 in additional funds each quarter for
the purchase of additional shares. A brochure describing the plan in detail and
an authorization form can be requested from the transfer agent shown above.
DIVIDEND DIRECT DEPOSIT
Common shareholders of Comerica may have their dividends deposited into their
savings or checking account at any bank that is a member of the National
Automated Clearing House (ACH) system. Information describing this service and
an authorization form can be requested from the transfer agent shown above.
DIVIDEND PAYMENTS
Subject to approval of the board of directors, dividends customarily are paid
on Comerica's common stock on or about April 1, July 1, October 1 and January
1.
ANNUAL MEETING
The Annual Meeting of Shareholders of Comerica Incorporated will be held on
Friday, May 15, 1998, at 9:30 a.m. in the Renaissance Conference Center, Level
2, Tower 300 of the Renaissance Center, Detroit, Michigan.
FORM 10-K
A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-K, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, MAY BE OBTAINED WITHOUT CHARGE UPON WRITTEN
REQUEST TO THE SECRETARY OF THE CORPORATION AT THE ADDRESS LISTED UNDER
CORPORATE INFORMATION.
STOCK PRICES, DIVIDENDS AND YIELDS
(adjusted for stock split)
<TABLE>
<CAPTION>
Dividend Dividend*
Quarter High Low Per Share Yield
------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Fourth $61.875 $50.167 $0.29 2.1%
Third 53.250 45.042 0.29 2.4
Second 46.750 35.917 0.29 2.8
First 42.083 34.167 0.29 3.0
------------------------------------------------------
1996
Fourth $39.583 $33.500 $0.26 2.8%
Third 36.000 26.750 0.26 3.3
Second 29.917 26.833 0.26 3.7
First 27.917 24.166 0.23 3.5
------------------------------------------------------
</TABLE>
* Dividend yield is calculated by annualizing the quarterly dividend per share
and dividing by an average of the high and low price in the quarter.
At January 31, 1998, there were approximately 16,306
holders of record of the Corporation's common stock.
CORPORATE INFORMATION
Comerica Incorporated
Comerica Tower at Detroit Center, MC 3391
500 Woodward Avenue
Detroit, Michigan 48226
1-800-521-1190
Internet: www.comerica.com
PRODUCT INFORMATION CENTER
If you have any questions about Comerica's products and
services, please contact our Product Information Center at
1-800-292-1300.
COMMUNITY REINVESTMENT ACT (CRA) PERFORMANCE
Comerica is committed to meeting the credit needs of the communities it serves.
Following are the most recent CRA
ratings for Comerica subsidiaries:
Comerica Bank (Michigan) Outstanding
Comerica Bank-Texas Outstanding
Comerica Bank & Trust, FSB (Florida) Outstanding
Comerica Bank-California Satisfactory
Comerica Bank-Midwest Satisfactory
EQUAL EMPLOYMENT OPPORTUNITY
Comerica is committed to its affirmative action program and practices which
ensure uniform treatment of employees without regard to race, creed, color,
age, national origin, religion, handicap, marital status, veteran status,
weight, height or sex.
INVESTOR CONTACT
Allison T. McFerren
313-222-6317
MEDIA CONTACT
Sharon R. McMurray
313-222-4881
66 Comerica Incorporated
<PAGE> 50
IN MEMORY
Stanley R. Pijanowski III
Assistant Vice President
and Branch Manager
James L. Isom
Retail Service Representative
<PAGE> 51
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL
<TABLE>
<CAPTION>
PAGE
NUMBER GRAPHIC MATERIAL
------ ----------------
<S> <C>
20 Bar graph depicting the Corporation's return on average assets (in percentages) from
1993 to 1997 compared to an industry average comprised of the 50 largest U.S. bank
holding companies.
<CAPTION>
1993 1994 1995 1996 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Comerica 1.25 1.23 1.21 1.22 1.52
Excluding Restructuring Charge 1.40
Industry Average 1.15 1.11 1.12 1.26 1.31
20 Bar graph depicting the Corporation's net interest income-FTE
(in millions), with a line showing net interest margin-FTE
(percent of earning assets), from 1993 to 1997.
<CAPTION>
1993 1994 1995 1996 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income(FTE) 1,163 1,254 1,321 1,427 1,452
Net Interest Margin (FTE) 4.65 4.32 4.19 4.54 4.53
23 Bar graph depicting the Corporation's net loans charged off to
average loans (in percentages) from 1993 to 1997 compared to an
industry average comprised of the 50 largest U.S. bank holding
companies.
<CAPTION>
1993 1994 1995 1996 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Comerica 0.43 0.24 0.32 0.33 0.33
Industry Average 0.96 0.51 0.53 0.51 0.56
25 Bar graph depicting the Corporation's noninterest income (in millions) from 1993
to 1997.
<CAPTION>
1993 1994 1995 1996 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
449 450 499 507 528
26 Bar graph depicting the Corporation's noninterest expenses (in millions) from 1993
to 1997.
<CAPTION>
1993 1994 1995 1996 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Excluding Restructuring Charge 1,025 1,042 1,086 1,069 1,008
Restructuring Charge 90
30 Bar graph depicting the Corporation's nonperforming assets to loans and other real
estate (in percentages) from 1993 to 1997 compared to an industry average comprised
of the 50 largest U.S. bank holding companies.
<CAPTION>
1993 1994 1995 1996 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Comerica 1.09 0.92 0.67 0.53 0.36
Industry Average 2.81 1.67 1.23 0.79 0.71
</TABLE>
<PAGE> 1
EXHIBIT 21
Subsidiaries of Registrant
Name State or
- ---- Jurisdiction of
Incorporation or
Organization
----------------
Comerica Investment Services, Inc. Michigan
Comerica Capital Markets Corporation Michigan
Comerica Insurance Services, Inc. Michigan
Comerica Insurance Group, Inc. Michigan
Comerica Securities, Inc. Michigan
Wilson, Kemp & Associates, Inc. Michigan
WAM Holdings, Inc. Delaware
Comerica AutoLease, Inc. Michigan
VRB Corp. Michigan
Comerica International Corporation U.S.
Comerica International (Canada), Limited Ontario, Canada
Comerica International (Canada) Properties, Limited Ontario, Canada
Comerica Trust Company of Bermuda, Ltd. Bermuda
Comerica Holdings Incorporated Delaware
CMT Holdings, Inc. Texas
Comerica Merchant Services, Inc. Delaware
Interstate Select Insurance Services, Inc. California
Comerica Acceptance Corporation Michigan
Comerica Assurance Ltd Bermuda
Comerica Corporate Services Incorporated Michigan
Comerica Insurance Company Arizona
Comerica Properties Corporation Michigan
Professional Life Underwriters Services, Inc. Michigan
Comerica Trade Services Limited Hong Kong
Comerica Leasing Corporation Michigan
Comerica Management Co., Inc. Michigan
Munder UK, LLC Delaware
Comerica Networking, Inc. Michigan
Comerica England Branch England
Viyella Finance Bermuda
Comerica London Branch England
Comerica UK Branch England
Comerica West Incorporated Delaware
Comerica Bank-Mexico, S.A. Michigan
ComericaBank-California California
Comerica Bank-Texas Texas
Comerica Bank & Trust, F.S.B. Florida
Comerica Bank-Midwest, N.A. Ohio
Comerica Bank-Ann Arbor, N.A. Michigan
Comerica Bank-Canada Canada
<PAGE> 1
[LETTERHEAD OF ERNST & YOUNG]
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
listed below, of our report on the consolidated financial statements of
Comerica Incorporated and subsidiaries dated January 20, 1998, included in
this Annual Report on Form 10-K for the year ended December 31, 1997:
Registration Statement No. 33-42485 on Form S-8 dated August 29, 1991
Registration Statement No. 33-45500 on Form S-8 dated February 11, 1992
Registration Statement No. 33-49964 on Form S-8 dated July 23, 1992
Registration Statement No. 33-49966 on Form S-8 dated July 23, 1992
Registration Statement No. 33-53220 on Form S-8 dated October 13, 1992
Registration Statement No. 33-53222 on Form S-8 dated October 13, 1992
Registration Statement No. 33-58823 on Form S-8 dated April 26, 1995
Registration Statement No. 33-58837 on Form S-8 dated April 26, 1995
Registration Statement No. 33-58841 on Form S-8 dated April 26, 1995
Registration Statement No. 33-65457 on Form S-8 dated December 29, 1995
Registration Statement No. 33-65459 on Form S-8 dated December 29, 1995
Registration Statement No. 333-00839 on Form S-8 dated February 9,1996
Registration Statement No. 333-24569 on Form S-8 dated April 4, 1997
Registration Statement No. 333-24567 on Form S-8 dated April 4, 1997
Registration Statement No. 333-24565 on Form S-8 dated April 4, 1997
Registration Statement No. 333-24555 on Form S-8 dated April 4, 1997
Registration Statement No. 333-37061 on Form S-8 dated October 2, 1997
Ernst & Young LLP
March 20, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 1997 FORM 10K 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> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,927,087
<INT-BEARING-DEPOSITS> 3,319
<FED-FUNDS-SOLD> 149,801
<TRADING-ASSETS> 9,102
<INVESTMENTS-HELD-FOR-SALE> 4,005,962
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 28,895,044
<ALLOWANCE> 424,147
<TOTAL-ASSETS> 36,292,398
<DEPOSITS> 22,586,317
<SHORT-TERM> 3,192,901
<LIABILITIES-OTHER> 465,017
<LONG-TERM> 7,286,387
0
250,000
<COMMON> 784,077
<OTHER-SE> 1,727,699
<TOTAL-LIABILITIES-AND-EQUITY> 36,292,398
<INTEREST-LOAN> 2,317,844
<INTEREST-INVEST> 321,196
<INTEREST-OTHER> 8,363
<INTEREST-TOTAL> 2,647,403
<INTEREST-DEPOSIT> 673,265
<INTEREST-EXPENSE> 1,204,627
<INTEREST-INCOME-NET> 1,442,776
<LOAN-LOSSES> 146,000
<SECURITIES-GAINS> 5,695
<EXPENSE-OTHER> 1,007,986
<INCOME-PRETAX> 816,742
<INCOME-PRE-EXTRAORDINARY> 530,476
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 530,476
<EPS-PRIMARY> 3.24
<EPS-DILUTED> 3.19
<YIELD-ACTUAL> 4.53
<LOANS-NON> 78,159
<LOANS-PAST> 52,805
<LOANS-TROUBLED> 7,583
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 367,165
<CHARGE-OFFS> 131,140
<RECOVERIES> 42,122
<ALLOWANCE-CLOSE> 424,147
<ALLOWANCE-DOMESTIC> 238,229
<ALLOWANCE-FOREIGN> 3,310
<ALLOWANCE-UNALLOCATED> 182,608
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THESE SCHEDULES CONTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 1997, JUNE 1997 AND MARCH 1997 FORM 10Q'S FOR COMERICA INCORPORATED
AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 1,886,293 1,949,851 1,703,871
<INT-BEARING-DEPOSITS> 3,148 8,016 66,847
<FED-FUNDS-SOLD> 41,358 124,800 53,650
<TRADING-ASSETS> 5,718 6,123 6,319
<INVESTMENTS-HELD-FOR-SALE> 4,716,940 4,808,231 4,798,923
<INVESTMENTS-CARRYING> 0 0 0
<INVESTMENTS-MARKET> 0 0 0
<LOANS> 28,095,992 27,724,738 27,049,687
<ALLOWANCE> 412,582 404,525 391,418
<TOTAL-ASSETS> 35,904,883 35,854,303 34,867,708
<DEPOSITS> 22,058,304 22,676,541 22,147,799
<SHORT-TERM> 4,090,942 4,034,566 4,163,981
<LIABILITIES-OTHER> 395,834 404,485 494,408
<LONG-TERM> 6,615,449 6,070,543 5,492,082
0 0 0
250,000 250,000 250,000
<COMMON> 526,198 528,102 529,306
<OTHER-SE> 1,968,156 1,890,066 1,790,132
<TOTAL-LIABILITIES-AND-EQUITY> 35,904,883 35,854,303 34,867,708
<INTEREST-LOAN> 1,714,211 1,124,013 545,572
<INTEREST-INVEST> 244,760 162,009 79,538
<INTEREST-OTHER> 6,269 4,547 2,133
<INTEREST-TOTAL> 1,965,240 1,290,569 627,243
<INTEREST-DEPOSIT> 502,664 329,471 159,666
<INTEREST-EXPENSE> 888,346 575,256 275,458
<INTEREST-INCOME-NET> 1,076,894 715,313 351,785
<LOAN-LOSSES> 109,000 75,000 41,000
<SECURITIES-GAINS> (141) (1,237) 122
<EXPENSE-OTHER> 750,618 497,996 248,737
<INCOME-PRETAX> 604,464 393,158 191,442
<INCOME-PRE-EXTRAORDINARY> 390,549 253,482 123,772
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 390,549 253,482 123,772
<EPS-PRIMARY> 2.38 1.54 0.75
<EPS-DILUTED> 2.34 1.52 0.74
<YIELD-ACTUAL> 4.55 4.58 4.59
<LOANS-NON> 94,557 57,159 60,645
<LOANS-PAST> 52,003 53,620 54,860
<LOANS-TROUBLED> 10,702 9,889 8,785
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 367,165 367,165 367,165
<CHARGE-OFFS> 93,462 59,537 28,476
<RECOVERIES> 29,879 21,897 11,729
<ALLOWANCE-CLOSE> 412,582 404,525 391,418
<ALLOWANCE-DOMESTIC> 235,178 228,954 265,742
<ALLOWANCE-FOREIGN> 2,757 2,921 2,805
<ALLOWANCE-UNALLOCATED> 174,647 172,650 122,871
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THESE SCHEDULES CONTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 1996 FORM 10K AND THE SEPTEMBER 1996, JUNE 1996 AND MARCH 1996
FORM 10-Q'S FOR COMERICA INCORPORATED AND SUBSIDIARIES AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 SEP-30-1996 JUN-30-1996 MAR-31-1996
<CASH> 1,901,760 1,825,035 1,677,375 1,230,251
<INT-BEARING-DEPOSITS> 27,329 17,694 228,589 3,069
<FED-FUNDS-SOLD> 32,200 663,300 442,850 99,994
<TRADING-ASSETS> 6,009 4,192 5,032 9,106
<INVESTMENTS-HELD-FOR-SALE> 4,800,034 5,181,562 5,590,562 6,715,161
<INVESTMENTS-CARRYING> 0 0 0 0
<INVESTMENTS-MARKET> 0 0 0 0
<LOANS> 26,206,708 25,367,321 26,028,957 25,548,860
<ALLOWANCE> 367,165 357,456 364,601 357,248
<TOTAL-ASSETS> 34,206,071 34,341,746 35,386,127 35,023,481
<DEPOSITS> 22,367,173 21,863,049 22,948,339 22,910,578
<SHORT-TERM> 4,489,191 4,961,773 4,145,656 4,173,039
<LIABILITIES-OTHER> 492,369 426,005 380,908 408,372
<LONG-TERM> 4,241,769 4,491,981 5,045,054 4,745,805
0 0 0 0
250,000 250,000 250,000 0
<COMMON> 536,487 537,014 596,473 596,473
<OTHER-SE> 1,829,082 1,811,924 2,019,697 2,114,951
<TOTAL-LIABILITIES-AND-EQUITY> 34,206,071 34,341,746 35,386,127 35,023,481
<INTEREST-LOAN> 2,160,981 1,617,898 1,077,801 536,878
<INTEREST-INVEST> 389,774 302,087 212,004 113,649
<INTEREST-OTHER> 12,025 10,058 6,817 3,903
<INTEREST-TOTAL> 2,562,780 1,930,043 1,296,622 654,430
<INTEREST-DEPOSIT> 685,539 520,378 352,817 180,890
<INTEREST-EXPENSE> 1,150,502 871,026 590,872 305,169
<INTEREST-INCOME-NET> 1,412,278 1,059,017 705,750 349,261
<LOAN-LOSSES> 114,000 82,000 53,500 28,500
<SECURITIES-GAINS> 13,588 3,394 3,670 360
<EXPENSE-OTHER> 1,159,026 802,806 549,171 278,975
<INCOME-PRETAX> 646,206 548,757 361,297 179,214
<INCOME-PRE-EXTRAORDINARY> 417,161 356,345 234,827 116,606
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 417,161 356,345 234,827 116,606
<EPS-PRIMARY> 2.41 2.05 1.34 0.66
<EPS-DILUTED> 2.38 2.02 1.33 0.66
<YIELD-ACTUAL> 4.54 4.52 4.47 4.38
<LOANS-NON> 103,294 94,016 118,367 137,574
<LOANS-PAST> 51,748 50,084 60,102 60,383
<LOANS-TROUBLED> 8,009 7,555 7,203 7,260
<LOANS-PROBLEM> 0 343,956 394,354 361,472
<ALLOWANCE-OPEN> 341,344 341,344 341,344 341,344
<CHARGE-OFFS> 125,912 90,654 57,950 30,061
<RECOVERIES> 41,363 28,396 17,337 7,095
<ALLOWANCE-CLOSE> 367,165 357,456 364,601 357,248
<ALLOWANCE-DOMESTIC> 255,409 271,031 278,817 259,862
<ALLOWANCE-FOREIGN> 2,062 2,064 2,416 2,587
<ALLOWANCE-UNALLOCATED> 109,694 84,361 83,368 94,799
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
1995 FORM 10K FOR COMERICA INCORPORATED AND SUBSIDIARIES AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,028,375
<INT-BEARING-DEPOSITS> 23,568
<FED-FUNDS-SOLD> 203,798
<TRADING-ASSETS> 10,668
<INVESTMENTS-HELD-FOR-SALE> 6,859,310
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 24,442,278
<ALLOWANCE> 341,344
<TOTAL-ASSETS> 35,469,874
<DEPOSITS> 23,167,215
<SHORT-TERM> 4,674,162
<LIABILITIES-OTHER> 355,219
<LONG-TERM> 4,644,416
0
0
<COMMON> 575,473
<OTHER-SE> 2,032,254
<TOTAL-LIABILITIES-AND-EQUITY> 35,469,874
<INTEREST-LOAN> 2,090,854
<INTEREST-INVEST> 499,948
<INTEREST-OTHER> 23,122
<INTEREST-TOTAL> 2,613,924
<INTEREST-DEPOSIT> 721,475
<INTEREST-EXPENSE> 1,314,041
<INTEREST-INCOME-NET> 1,299,883
<LOAN-LOSSES> 86,500
<SECURITIES-GAINS> 11,748
<EXPENSE-OTHER> 1,086,414
<INCOME-PRETAX> 625,694
<INCOME-PRE-EXTRAORDINARY> 413,366
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 413,366
<EPS-PRIMARY> 2.38
<EPS-DILUTED> 2.37
<YIELD-ACTUAL> 4.19
<LOANS-NON> 130,403
<LOANS-PAST> 57,134
<LOANS-TROUBLED> 3,244
<LOANS-PROBLEM> 254,295
<ALLOWANCE-OPEN> 326,195
<CHARGE-OFFS> 119,028
<RECOVERIES> 43,009
<ALLOWANCE-CLOSE> 341,344
<ALLOWANCE-DOMESTIC> 243,165
<ALLOWANCE-FOREIGN> 2,173
<ALLOWANCE-UNALLOCATED> 96,006
</TABLE>
