<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10706
Comerica Incorporated
(Exact name of registrant as specified in its charter)
Delaware 38-1998421
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Comerica Tower at Detroit Center
Detroit, Michigan
48226
(Address of principal executive offices)
(Zip Code)
(313) 222-3300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
$5 par value common stock:
outstanding as of April 30, 1999: 156,237,000 shares
<PAGE>
<PAGE> 2
PART I. FINANCIAL INFORMATION
<TABLE>
CONSOLIDATED BALANCE SHEETS
Comerica Incorporated and Subsidiaries
<CAPTION>
March 31, December 31, March 31,
(In thousands, except share data) 1999 1998 1998
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,489,205 $ 1,773,100 $ 1,883,135
Short-term investments 84,275 109,640 2,234,243
Investment securities available
for sale 2,484,883 2,712,165 3,744,532
Commercial loans 19,361,893 19,086,541 16,498,894
International loans 2,677,582 2,713,259 2,084,372
Real estate construction loans 1,165,498 1,079,614 912,100
Commercial mortgage loans 4,361,292 4,179,271 3,696,455
Residential mortgage loans 975,321 1,037,941 1,462,667
Consumer loans 1,800,993 1,861,630 2,000,608
Lease financing 639,966 646,607 554,017
----------- ----------- -----------
Total loans 30,982,545 30,604,863 27,209,113
Less allowance for credit losses (452,936) (452,409) (429,648)
----------- ----------- -----------
Net loans 30,529,609 30,152,454 26,779,465
Premises and equipment 347,479 352,650 362,905
Customers' liability on acceptances
outstanding 11,374 12,335 12,081
Accrued income and other assets 1,500,717 1,488,487 1,475,990
----------- ----------- -----------
TOTAL ASSETS $36,447,542 $36,600,831 $36,492,351
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits $ 6,701,698 $ 6,999,337 $ 6,211,420
Interest-bearing deposits 15,883,633 17,313,796 16,981,882
----------- ----------- -----------
Total deposits 22,585,331 24,313,133 23,193,302
Federal funds purchased and
securities sold under
agreements to repurchase 3,144,172 3,108,985 2,387,061
Other borrowed funds 389,594 471,168 914,094
Acceptances outstanding 11,374 12,335 12,081
Accrued expenses and other
liabilities 426,480 366,338 422,111
Medium- and long-term debt 6,731,749 5,282,259 6,736,815
----------- ----------- -----------
Total liabilities 33,288,700 33,554,218 33,665,464
Nonredeemable preferred stock
- $50 stated value:
Authorized - 5,000,000 shares
Issued - 5,000,000 shares at
3/31/99, 12/31/98 and 3/31/98 250,000 250,000 250,000
Common stock - $5 par value:
Authorized - 325,000,000 shares
Issued-157,233,107 shares at
3/31/99, 157,233,088 shares at
12/31/98 and 157,188,873 shares
at 3/31/98 786,166 786,165 785,944
Capital surplus 30,729 24,649 12,906
Accumulated nonowner changes
in equity (3,917) (6,455) 4,425
Retained earnings 2,168,145 2,086,589 1,814,056
Deferred compensation (4,591) (5,202) (1,570)
Less cost of common stock in
treasury- 1,026,993 shares at
03/31/99, 1,351,997 shares at
12/31/98 and 578,661 shares
at 3/31/98 (67,690) (89,133) (38,874)
----------- ----------- -----------
Total shareholders' equity 3,158,842 3,046,613 2,826,887
----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $36,447,542 $36,600,831 $36,492,351
=========== =========== ===========
/TABLE
<PAGE>
<PAGE> 3
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
Comerica Incorporated and Subsidiaries
<CAPTION>
Three Months Ended
March 31
--------------------
(In thousands, except per share data) 1999 1998
-------- --------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $586,362 $606,990
Interest on investment securities:
Taxable 39,717 62,306
Exempt from federal income tax 1,375 2,093
-------- --------
Total interest on investment
securities 41,092 64,399
Interest on short-term investments 1,981 2,472
-------- --------
Total interest income 629,435 673,861
INTEREST EXPENSE
Interest on deposits 149,674 167,137
Interest on short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 39,951 30,597
Other borrowed funds 5,421 13,249
Interest on medium- and long-term debt 84,431 109,828
Net interest rate swap income (18,874) (12,558)
-------- --------
Total interest expense 260,603 308,253
-------- --------
Net interest income 368,832 365,608
Provision for credit losses 20,000 28,000
-------- --------
Net interest income after
provision for credit losses 348,832 337,608
NONINTEREST INCOME
Fiduciary and investment management
income 54,943 40,735
Service charges on deposit accounts 41,698 38,450
Commercial lending fees 9,896 8,130
Securities gains/(losses) 1,202 (150)
Other noninterest income 49,155 47,687
-------- --------
Total noninterest income 156,894 134,852
NONINTEREST EXPENSES
Salaries and employee benefits 152,483 134,767
Net occupancy expense 23,094 22,761
Equipment expense 14,851 15,124
Outside processing fee expense 12,854 9,736
Other noninterest expenses 60,132 67,485
-------- --------
Total noninterest expenses 263,414 249,873
-------- --------
Income before income taxes 242,312 222,587
Provision for income taxes 83,200 78,204
-------- --------
NET INCOME $159,112 $144,383
======== ========
Net income applicable to common stock $154,837 $140,108
======== ========
Basic net income per common share $ 0.99 $ 0.89
Diluted net income per common share $ 0.98 $ 0.88
Cash dividends declared on common stock $ 56,149 $ 50,173
Dividends per common share $ 0.36 $ 0.32
</TABLE>
<PAGE>
<PAGE> 4
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Comerica Incorporated and Subsidiaries
<CAPTION>
Nonredeem- Accumulated
able Nonowner Total
Preferred Common Capital Changes Retained Deferred Treasury Shareholders'
(in thousands) Stock Stock Surplus in Equity Earnings Compensation Stock Equity
--------- --------- --------- ---------- ---------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1998 $250,000 $784,077 $ - $ (1,937) $1,731,419 $ (1,783) $ - $2,761,776
Net income for 1998 - - - - 144,383 - - 144,383
Nonowner changes in equity,
net of tax - - - 6,362 - - - 6,362
Net income and nonowner
changes in equity - - - - - - - 150,745
Cash dividends declared:
Preferred stock - - - - (4,275) - - (4,275)
Common stock - - - - (50,173) - - (50,173)
Purchase of 729,450 shares
of common stock - - - - - - (48,847) (48,847)
Purchase and retirement of
60,000 shares of common
stock - (300) (3,182) - - - - (3,482)
Net issuance of common stock
under employee stock plans - 2,167 16,088 - (7,298) - 9,973 20,930
Amortization of deferred
compensation - - - - - 213 - 213
-------- -------- --------- --------- ---------- --------- --------- ----------
BALANCES AT MARCH 31, 1998 $250,000 $785,944 $ 12,906 $ 4,425 $1,814,056 $ (1,570) $ (38,874) $2,826,887
======== ======== ========= ========= ========== ========= ========= ==========
BALANCES AT JANUARY 1, 1999 $250,000 $786,165 $ 24,649 $ (6,455) $2,086,589 $ (5,202) $ (89,133) $3,046,613
Net income for 1999 - - - - 159,112 - - 159,112
Nonowner changes in equity,
net of tax - - - 2,538 - - - 2,538
Net income and nonowner
changes in equity - - - - - - - 161,650
Cash dividends declared:
Preferred stock - - - - (4,275) - - (4,275)
Common stock - - - - (56,149) - - (56,149)
Purchase of 43,992 shares
of common stock - - - - - - (2,885) (2,885)
Net issuance of common stock
under employee stock plans - 1 6,080 - (17,132) 34 24,328 13,311
Amortization of deferred
compensation - - - - - 577 - 577
-------- -------- --------- --------- ---------- --------- --------- ----------
BALANCES AT MARCH 31, 1999 $250,000 $786,166 $ 30,729 $ (3,917) $2,168,145 $ (4,591) $ (67,690) $3,158,842
======== ======== ========= ========= ========== ========= ========= ==========
/TABLE
<PAGE>
<PAGE> 5
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Comerica Incorporated and Subsidiaries
<CAPTION>
Three Months Ended
March 31
---------------------------
(in thousands) 1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 159,112 $ 144,383
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses 20,000 28,000
Depreciation 14,193 14,115
Restructuring charge - (7,775)
Net (increase) decrease in trading
account securities (1,827) 5,038
Net (increase) decrease in assets held
for sale 26,225 (28,665)
Net (increase) decrease in accrued income
receivable (22,307) 16,985
Net increase in accrued expenses 56,088 332
Net amortization of intangibles 8,477 6,731
Other, net (1,900) (241,992)
------------ ------------
Total adjustments 98,949 (207,231)
------------ ------------
Net cash provided by (used in)
operating activities 258,061 (62,848)
INVESTING ACTIVITIES:
Net increase in interest-bearing deposits
with banks (583) (352)
Net decrease in federal funds sold and
securities purchased under agreements
to resell 1,550 55,630
Proceeds from sale of investment securities
available for sale 2,849 17,193
Proceeds from maturity of investment
securities available for sale 235,613 239,364
Purchases of investment securities
available for sale (6,785) (7,103)
Net increase in loans (other
than purchased loans) (397,155) (365,180)
Purchase of loans - (1,115)
Fixed assets, net (9,022) (4,461)
Net decrease in customers' liability on
acceptances outstanding 961 6,311
------------ ------------
Net cash used in investing
activities (172,572) (59,713)
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (1,727,802) 606,985
Net increase (decrease) in short-term
borrowings (46,387) 108,254
Net decrease in acceptances outstanding (961) (6,311)
Proceeds from issuance of medium- and
long-term debt 2,250,000 800,000
Repayments and purchases of medium- and
long-term debt (800,510) (1,349,572)
Proceeds from issuance of common stock
and other capital transactions 13,277 20,930
Purchase of common stock for treasury
and retirement (2,885) (52,329)
Dividends paid (54,116) (49,348)
------------ ------------
Net cash provided by (used in)
financing activities (369,384) 78,609
------------ ------------
Net decrease in cash and due from banks (283,895) (43,952)
Cash and due from banks at beginning of year 1,773,100 1,927,087
------------ ------------
Cash and due from banks at end of period $ 1,489,205 $ 1,883,135
============ ============
Interest paid $ 260,974 $ 356,163
============ ============
Income taxes paid $ 645 $ 233
============ ============
Noncash investing and financing activities:
Loan transfers to assets held for sale $ - $ 2,029,727
Loan transfers to other real estate 297 1,284
============ ============
/TABLE
<PAGE>
<PAGE> 6
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 1 - Basis of Presentation and Accounting Policies
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, the statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1999, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1999. Certain items in prior periods have been
reclassified to conform to the current presentation. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the annual report of Comerica Incorporated and
Subsidiaries (the "Corporation") on Form 10-K for the year ended December
31, 1998.
Assets and liabilities denominated in foreign currencies are
translated to U.S. dollars using applicable rates of exchange. Gains and
losses from the translation of the net assets of non-U.S. subsidiaries,
together with related hedges and tax effects, are reported in accumulated
nonowner changes in equity within shareholders' equity.
The Corporation may use derivative financial instruments, including
foreign exchange contracts, to manage the Corporation's exposure to
interest rate and foreign currency risks. These instruments are treated
as hedges, and accounted for on an accrual basis, since there is a high
correlation with the on-balance sheet instrument being hedged. If this
correlation ceases to exist, the existing unrealized gain or loss is
amortized over the remaining term of the instrument, and future changes in
fair value are accounted for on a mark-to-market basis. Derivative
financial instruments executed as a service to customers are accounted for
<PAGE>
<PAGE> 7
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 1 - Basis of Presentation and Accounting Policies (continued)
on a mark-to-market basis. For further information, refer to the
Accounting Policies footnote in the Corporation's 1998 annual report.
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is required to be adopted in years beginning after June
15, 1999. The Statement permits early adoption as of the beginning of any
fiscal quarter. The Corporation expects to adopt the new Statement
effective January 1, 2000. The Statement will require the Corporation to
recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in
fair value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item
is recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings. The
Corporation has not yet determined what the effect of Statement 133 will
be on the earnings and financial position of the Corporation.
Note 2 - Investment Securities
At March 31, 1999, investment securities having a carrying value of
$1.7 billion were pledged where permitted or required by law to secure
liabilities and public and other deposits, including deposits of the State
of Michigan of $18 million.
<PAGE>
<PAGE> 8
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 3 - Allowance for Credit Losses
The following analyzes the changes in the allowance for credit
losses included in the consolidated balance sheets:
<TABLE>
<CAPTION>
1999 1998
(in thousands) --------- ---------
<S> <C> <C>
Balance at January 1 $ 452,409 $ 424,147
Charge offs (24,710) (32,838)
Recoveries 5,229 10,339
--------- ---------
Net charge offs (19,481) (22,499)
Provision for credit losses 20,000 28,000
Foreign currency translation
adjustment 8 -
--------- ---------
Balance at March 31 $ 452,936 $ 429,648
========= =========
</TABLE>
Statement of Financial Accounting Standards (SFAS) No. 114,
"Accounting by Creditors for Impairment of a Loan," considers a loan
impaired when it is probable that interest and principal payments will not
be made in accordance with the contractual terms of the loan agreement.
Consistent with this definition, all nonaccrual and reduced-rate loans
(with the exception of residential mortgage and consumer loans) are
impaired. Impaired loans averaged $131 million for the quarter ended
March 31, 1999, compared to $68 million for the comparable period last
year. The following are period-end balances:
<TABLE>
<CAPTION>
(in thousands) March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Total impaired loans $138,529 $101,417
Impaired loans requiring
an allowance 124,438 87,494
Impairment allowance 38,951 21,951
</TABLE>
Those impaired loans not requiring an allowance represent loans for which
the fair value exceeded the recorded investment in the loan.
<PAGE>
<PAGE> 9
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 4 - Medium- and Long-term Debt
Medium- and long-term debt consisted of the following at March 31,
1999 and December 31, 1998:
<TABLE>
<CAPTION>
(in thousands) March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Parent Company
9.75% subordinated notes due 1999 $ 74,992 $ 74,970
7.25% subordinated notes due 2007 159,392 159,669
---------- ----------
Total parent company 234,384 234,639
Subsidiaries
Subordinated notes:
7.25% subordinated notes due 2007 198,351 198,301
7.875% subordinated notes due 2026 173,872 174,086
8.375% subordinated notes due 2024 155,449 155,502
7.25% subordinated notes due 2002 149,442 149,404
6.875% subordinated notes due 2008 104,073 104,186
7.125% subordinated notes due 2013 155,095 155,181
6.00% subordinated notes due 2008 247,834 247,798
---------- ----------
Total subordinated notes 1,184,116 1,184,458
Medium-term notes:
Floating rate based on Treasury
indices 37,000 37,000
Floating rate based on Prime indices 749,986 -
Floating rate based on LIBOR indices 4,312,144 3,612,076
Fixed rate notes with interest rate
of 6.65% 199,843 199,810
---------- ----------
Total medium-term notes 5,298,973 3,848,886
Notes payable 14,276 14,276
---------- ----------
Total subsidiaries 6,497,365 5,047,620
---------- ----------
Total medium- and long-term
debt $6,731,749 $5,282,259
========== ==========
/TABLE
<PAGE>
<PAGE> 10
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 5 - Income Taxes
The provision for income taxes is computed by applying statutory
federal income tax rates to income before income taxes as reported in the
financial statements after deducting non-taxable items, principally
interest income on state and municipal securities. State and foreign
taxes are then added to the federal provision.
<PAGE>
<PAGE> 11
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 6 - Off-Balance Sheet Derivatives and Foreign Exchange Contracts
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
------------------------------ ------------------------------
Notional/ Notional/
Contract Unrealized Fair Contract Unrealized Fair
(in millions) Amount Gains Losses Value Amount Gains Losses Value
(1) (2) (3) (1) (2) (3)
------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Risk Management
Interest rate contracts
Swaps (4) $ 6,370 $102 $ (15) $ 87 $ 6,869 $152 $ (6) $ 146
Caps and floors
purchased - - - - 15 - - -
Foreign exchange contracts
Spot and forward 858 11 (11) - 782 32 (29) 3
Swaps 117 3 - 3 131 12 - 12
------- ---- ----- ----- ------- ---- ----- -----
Total risk management 7,345 116 (26) 90 7,797 196 (35) 161
Customer Initiated and
Other
Interest rate contracts
Caps and floors written 247 - - - 241 - (1) (1)
Caps and floors
purchased 174 - - - 176 1 - 1
Swaps 260 5 (4) 1 264 7 (6) 1
Foreign exchange contracts
Spot, forward
and options 613 26 (20) 6 673 20 (13) 7
------- ---- ----- ----- ------- ---- ----- -----
Total customer initiated
and other 1,294 31 (24) 7 1,354 28 (20) 8
------- ---- ----- ----- ------- ---- ----- -----
Total derivatives and
foreign exchange
contracts $ 8,639 $147 $ (50) $ 97 $ 9,151 $224 $ (55) $ 169
======= ==== ===== ===== ======= ==== ===== =====
(1) Notional or contract amounts, which represent the extent of involvement in the derivatives
market, are generally used to determine the contractual cash flows required in accordance with the
terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts
subject to credit or market risk and are not reflected in the consolidated balance sheets.
(2) Represents credit risk, which is measured as the cost to replace, at current market rates,
contracts in a profitable position. Credit risk is calculated before consideration is given to
bilateral collateral agreements or master netting arrangements that effectively reduce credit risk.
(3) The fair values of derivatives and foreign exchange contracts generally represent the estimated
amounts the Corporation would receive or pay to terminate or otherwise settle the contracts at the
balance sheet date. The fair values of customer initiated and other derivatives and foreign
exchange contracts are reflected in the consolidated balance sheets. Futures contracts are subject
to daily cash settlements; therefore, the fair value of these instruments is zero.
(4) Includes index amortizing swaps with a notional amount of $231 million and $2,180 million at
March 31, 1999 and December 31, 1998, respectively. These swaps had net unrealized gains of less
than $1 million at March 31, 1999, versus $15 million at December 31, 1998. As of March 31, 1999,
index amortizing swaps had an average expected life of approximately 1 year with a stated maturity
that averaged 1 year.
</TABLE>
<PAGE>
<PAGE> 12
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 6 - Off-Balance Sheet Derivatives and Foreign Exchange Contracts
(continued)
Risk Management
- ---------------
Interest rate risk arises in the normal course of business to the
extent there is a difference between the repricing and maturity
characteristics of interest-earning assets and interest-bearing
liabilities. This gap in the balance sheet structure reflects the
sensitivity of the Corporation's net interest income to a change in
interest rates. Foreign exchange rate risk arises from changes in the
value of certain assets and liabilities denominated in foreign currencies.
The Corporation employs on-balance sheet instruments such as investment
securities, as well as off-balance sheet derivative financial instruments
and foreign exchange contracts, to manage exposure to these and other
risks, including liquidity risk.
As an end-user, the Corporation mainly accesses the interest rate
markets to obtain off-balance sheet derivatives instruments for use
principally in connection with asset and liability management activities.
The Corporation principally utilizes interest rate swaps with the
objective of managing the sensitivity of net interest income to interest
rate fluctuations. To accomplish this objective, the Corporation
primarily uses interest rate swaps to modify the interest rate
characteristics of certain assets and liabilities (for example, from a
floating rate to a fixed rate, a fixed rate to a floating rate or from one
floating rate index to another). Management believes this strategy
achieves an optimal match between the rate maturities of assets and their
funding sources which, in turn, reduces the overall exposure of net
interest income to interest rate risk, although there can be no assurance
that such a strategy will be successful.
The following table summarizes the expected maturity distribution of
the notional amount of interest rate swaps used for risk management
purposes. The table also indicates the weighted average interest rates
associated with amounts to be received or paid on interest rate swap
agreements as of March 31, 1999. The swaps are grouped by the assets or
liabilities to which they have been designated.
<PAGE>
<PAGE> 13
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 6 - Off-Balance Sheet Derivatives and Foreign Exchange Contracts
(continued)
<TABLE>
<CAPTION>
Remaining Expected Maturity of Interest Rate Swaps:
(dollar amounts 2004- Dec. 31,
in millions) 1999 2000 2001 2002 2003 2026 Total 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Variable rate asset
designation:
Receive fixed swaps
Generic $ - $ 700 $3,250 $1,200 $ - $ - $5,150 $3,950
Index amortizing 71 151 - - - - 222 2,169
Weighted average: (1)
Receive rate 5.82% 6.33% 5.68% 6.16% -% -% 5.89% 6.01%
Pay rate 4.96% 4.99% 5.00% 5.67% -% -% 5.15% 5.30%
Fixed rate asset
designation:
Pay fixed swaps
Generic $ 2 $ - $ - $ - $ - $ - $ 2 $ 2
Index amortizing 2 7 - - - - 9 11
Weighted average: (1)
Receive rate 5.02% 4.94% -% -% -% -% 4.97% 5.54%
Pay rate 6.88% 5.34% -% -% -% -% 5.90% 5.88%
Medium- and long-term
debt designation:
Generic receive
fixed swaps $ - $ 200 $ - $ 150 $ - $ 600 $ 950 $ 700
Weighted average: (1)
Receive rate -% 6.91% -% 7.37% -% 6.96% 7.01% 7.33%
Pay rate -% 5.02% -% 5.16% -% 5.03% 5.05% 5.28%
Floating/floating
swaps $ - $ 37 $ - $ - $ - $ - $ 37 $ 37
Weighted average: (2)
Receive rate -% 4.98% -% -% -% -% 4.98% 4.98%
Pay rate -% 4.63% -% -% -% -% 4.63% 5.19%
Total notional amount $ 75 $1,095 $3,250 $1,350 $ - $ 600 $6,370 $6,869
(1) Variable rates are based on LIBOR rates paid or received at March 31, 1999.
(2) Variable rates paid are based on LIBOR at March 31, 1999, while variable rates received
are based on prime.
/TABLE
<PAGE>
<PAGE> 14
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 6 - Off-Balance Sheet Derivatives and Foreign Exchange Contracts
(continued)
During the first quarter of 1999, the Corporation terminated a
portion of its portfolio of index amortizing interest rate swaps. The
notional amount of these swaps totaled $1,376 million. The gain resulting
from early termination was deferred and is being amortized over the
remaining expected life of the terminated swaps.
The Corporation also uses various other types of off-balance sheet
financial instruments to manage interest rate and foreign currency risks
associated with specific assets or liabilities, including interest rate
caps and floors, forward and futures interest and foreign exchange rate
contracts, and foreign exchange rate swaps, which are reflected in the
table above. At March 31, 1999 and December 31, 1998, the notional
amounts of commitments to purchase and sell U.S. Treasury and municipal
bond securities related to the Corporation's trading account totaled $28
million and $17 million, respectively. These commitments, which are
similar in nature to forward contracts, are not reflected in the above
table due to the immaterial impact they have on the financial statements.
Customer Initiated and Other
- ----------------------------
The Corporation earns additional income by executing various
transactions, primarily foreign exchange contracts, interest rate caps and
floors and forward rate agreements, at the request of customers. The
Corporation minimizes market risk arising from customer initiated foreign
exchange contracts and forward rate agreements by entering into offsetting
transactions. Average fair values and income from customer initiated and
other foreign exchange contracts were not material for the three-month
period ended March 31, 1999 and for the year ended December 31, 1998.
Customer initiated interest rate caps and floors generally are not
offset by other on- or off-balance sheet financial instruments; however,
the Corporation has established authority limits for engaging in these
transactions in order to minimize risk exposure. As a result, average
fair values and income from this activity were not material for the three-
month period ended March 31, 1999 and for the year ended December 31,
1998.
<PAGE> 15
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 6 - Off-Balance Sheet Derivatives and Foreign Exchange Contracts
(continued)
Available credit lines on fixed rate credit card and check product
accounts, which expose the Corporation to the risk of a reduction in net
interest income as rates increase, totaled approximately $1.4 billion at
March 31, 1999 and $1.6 billion at December 31, 1998. Management believes
that market risk exposure arising from these revolving credit commitments
is very limited, however, since it is unlikely that a significant number
of customers with these accounts will simultaneously borrow up to their
maximum available credit lines.
Off-Balance Sheet Derivative and Foreign Exchange Activity
- ----------------------------------------------------------
The following table provides a reconciliation of the beginning and
ending notional amounts for interest rate derivatives and foreign exchange
contracts.
<TABLE>
<CAPTION>
Customer Initiated
Risk Management and Other
--------------------- ---------------------
Interest Foreign Interest Foreign
Rate Exchange Rate Exchange
(in millions) Contracts Contracts Contracts Contracts
--------------------- ---------------------
<S> <C> <C> <C> <C>
Balances at December 31, 1998 $ 6,884 $ 913 $ 681 $ 673
Additions 1,450 2,102 24 2,976
Maturities/amortizations (588) (2,040) (24) (3,036)
Terminations (1,376) - - -
------- ------- ------ -------
Balances at March 31, 1999 $ 6,370 $ 975 $ 681 $ 613
======= ======= ====== =======
</TABLE>
Additional information regarding the nature, terms and
associated risks of the above off-balance sheet derivatives and foreign
exchange contracts, along with information on derivative accounting
policies, can be found in the Corporation's 1998 annual report on page 37
and in Notes 1 and 18 to the consolidated financial statements.
<PAGE>
<PAGE> 16
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 7 - Business Segment Information
The Corporation has strategically aligned its operations into three
major lines of business: the Business Bank, the Individual Bank and the
Investment Bank. These lines of business are differentiated based on the
products and services provided. In addition to the three major lines of
business, the Finance Division is also reported as a segment. 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; information
presented is not necessarily comparable with any other financial
institution. Lines of business/segment financial results for the three
months ended March 31, 1999 and 1998 are presented below. For a
description of the business activities of each line of business and the
methodologies which form the basis for these results, refer to note 22 to
the consolidated financial statements.
<TABLE>
<CAPTION>
Three Months Ended March 31
(dollar amounts Business Individual Investment
in millions) Bank Bank Bank*
1999 1998 1999** 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Average assets $25,180 $21,626 $6,914 $9,267 $ 29 $ 35
Total revenues
(FTE) 239 208 234 253 31 28
Net income 75 86 57 55 - 2
Return on average
assets 1.19% 1.60% 1.27% 1.21% 1.76% 22.25%
Return on average
common equity 20.00% 27.49% 32.80% 26.55% 5.28% 31.09%
Finance Other Total
1999 1998 1999 1998 1999 1998
Average assets $ 3,971 $ 4,505 $ (11) $ 475 $36,083 $35,908
Total revenues
(FTE) 13 13 10 - 527 502
Net income 8 7 19 (6) 159 144
Return on average
assets 0.24% 0.24% N/M N/M 1.76% 1.61%
Return on average
common equity 9.39% 8.92% N/M N/M 21.90% 22.09%
* Net income was reduced by charges for fees internally transferred to
other lines of business for referrals to the Investment Bank. If
excluded, Investment Bank net income would have been $2 million and $3
million, and return on average common equity would have been 21.67% and
47.30%, in 1999 and 1998, respectively.
** Financial results for the Individual Bank compared to 1998 were
affected by the sale of the mortgage servicing business and $2.0
billion of indirect consumer loans and non-relationship credit card
receivables in the second quarter of 1998.
N/M = Not Meaningful
</TABLE>
<PAGE> 17
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 8 - Nonowner Changes in Equity
Nonowner changes in equity include the change in unrealized gains
and losses on investment securities available for sale and the change in
the accumulated foreign currency translation adjustment. The Consolidated
Statements of Changes in Shareholders' Equity include only the combined,
net of tax, nonowner changes in equity. The following presents
reconciliations of the components of accumulated nonowner changes in
equity for the quarter ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended
--------------------
1999 1998
-------- --------
<S> <C> <C>
(in thousands)
Net unrealized gains (losses) on
investment securities available for sale:
Balance at beginning of year $(7,688) $ (970)
Net unrealized holding gains (losses)
arising during the period 5,946 11,565
Less: Reclassification adjustment for
gains (losses) included in net income 1,202 (150)
------- -------
Change in net unrealized gains (losses)
before income taxes 4,744 11,715
Provision for income taxes 1,349 4,436
------- -------
Change in net unrealized gains (losses)
on investment securities available
for sale, net of tax 3,395 7,279
------- -------
Balance at March 31 $(4,293) $ 6,309
Accumulated foreign currency translation
adjustment:
Balance at beginning of year $ 1,233 $ (967)
Net translation gains (losses) arising
during the period (857) (917)
Less: Reclassification adjustment for
gains (losses) included in net income - -
------- -------
Change in translation adjustment before
income taxes (857) (917)
Provision for income taxes - -
------- -------
Change in foreign currency translation
adjustment, net of tax (857) (917)
------- -------
Balance at March 31 $ 376 $(1,884)
------- -------
Total accumulated nonowner changes in
equity, net of taxes, at March 31 $(3,917) $ 4,425
======= =======
/TABLE
<PAGE>
<PAGE> 18
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
-------------------
Results of Operations
- ---------------------
Net income for the quarter ended March 31, 1999, was $159 million,
up $15 million, or 10 percent, from $144 million reported for the first
quarter of 1998. Diluted net income per share increased 11 percent to
$0.98 from $0.88 a year ago. Return on average common shareholders'
equity was 21.90 percent and return on average assets was 1.76 percent,
compared to 22.09 percent and 1.61 percent, respectively, for the
comparable quarter last year.
Net Interest Income
- -------------------
The rate-volume analysis in Table I details the components of the
change in net interest income on a fully taxable equivalent (FTE) basis
for the quarter ended March 31, 1999. On a FTE basis, net interest income
was $370 million for the three months ended March 31, 1999, an increase of
$2 million from the comparable quarter in 1998. Net interest income and
the net interest margin were both affected by the sale of $2.0 billion of
indirect consumer loans and non-relationship credit card receivables in
the second quarter of 1998. Excluding the impact of the consumer sale,
net interest income would have increased 6 percent, primarily due to a 19
percent increase in average commercial loans. The net interest margin for
the three months ended March 31, 1999, was 4.51 percent, an increase of 1
basis point from 4.50 percent for the first quarter of 1998.
Interest rate swaps permit management to control the sensitivity of
net interest income to fluctuations in interest rates in a manner similar
to on-balance sheet investment securities but without significant impact
to capital or liquidity. These instruments are designated against certain
assets and liabilities, therefore, their impact on net interest income is
generally offset by and should be considered in relation to the level of
net interest income generated by the related on-balance sheet assets and
liabilities.
In addition to using interest rate swaps and other off-balance sheet
instruments to control the Corporation's exposure to interest rate risk,
<PAGE>
<PAGE> 19
management attempts to monitor the effect of movements in interest rates
on net interest income by regularly performing interest sensitivity gap
and earnings simulation analyses. At March 31, 1999, the Corporation was
in an asset sensitive position of $2.3 billion (on an elasticity adjusted
basis), or 7 percent of earning assets. The earnings simulation analysis
performed at the end of the quarter reflects changes to both interest
rates and loan, investment and deposit volumes. The measurement of risk
exposure at March 31, 1999, for a 200 basis point decline in short-term
interest rates identified approximately $16 million, or 0.99 percent, of
net interest income at risk during the next 12 months. If short-term
interest rates rise 200 basis points, net interest income would be
enhanced by approximately $14 million, or 0.92 percent. The results of
these simulations are within established corporate policy guidelines.
Provision for Credit Losses
- ---------------------------
The provision for credit losses for the first quarter of 1999 was
$20 million, a decrease of $8 million from the first quarter of 1998. The
Corporation establishes this provision to maintain an adequate allowance
for credit losses, which is discussed in the section entitled "Allowance
for Credit Losses and Nonperforming Assets."
Noninterest Income
- ------------------
Noninterest income was $157 million for the three months ended March
31, 1999, an increase of $22 million, or 16 percent over the same period
in 1998. First quarter 1999 noninterest income reflects the consolidated
financial results of Munder Capital Management, an investment advisory
subsidiary in which a majority interest was obtained during July, 1998.
The Corporation's minority interest in Munder in prior periods was
accounted for under the equity method. Excluding the effect of
acquisitions, divestitures, and securities gains/(losses) in both periods,
noninterest income increased 10 percent in the first quarter of 1999
compared to the first quarter of 1998. Accounting for the majority of
this increase were higher levels of fiduciary income, service charges and
commercial lending fee income.
<PAGE>
<PAGE> 20<TABLE>
TABLE I - QUARTERLY ANALYSIS OF NET INTEREST INCOME & RATE/VOLUME (FTE)
<CAPTION>
Three Months Ended
-------------------------------------------------------------
March 31, 1999 March 31, 1998
----------------------------- -----------------------------
Average Average Average Average
(in millions) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $30,581 $587 7.77% $28,921 $608 8.50%
Investment securities 2,546 42 6.55 3,848 66 6.84
Short-term investments 99 2 8.21 168 2 5.97
- ----------------------------------------------------------------------------------------------
Total earning assets 33,226 631 7.68 32,937 676 8.30
Interest-bearing deposits 16,494 150 3.68 16,303 167 4.16
Short-term borrowings 3,769 45 4.88 3,206 44 5.55
Medium- and long-term debt 6,103 85 5.59 7,155 110 6.21
Net interest rate swap (income)/
expense (1) - (19) - - (13) -
- ----------------------------------------------------------------------------------------------
Total interest-bearing
sources $26,366 261 4.00 $26,664 308 4.68
----------------- -----------------
Net interest income/
Rate spread (FTE) $370 3.68 $368 3.62
====== ======
FTE adjustment $1 $2
====== ======
Impact of net noninterest-
bearing sources of funds 0.83 0.88
- ----------------------------------------------------------------------------------------------
Net interest margin as a percent
of average earning assets (FTE) 4.51% 4.50%
==============================================================================================
(1) After allocation of the income or expense generated by interest rate swaps for the three
months ended March 31, 1999, to the related assets and liabilities, the average yield on total
loans was 7.97 percent as of March 31, 1999, compared to 8.59 percent a year ago. The average cost
of funds for medium- and long-term debt was 5.33 percent as of March 31, 1999, compared to 5.77
percent a year earlier.
Increase Increase
(Decrease) (Decrease) Net
Due to Due to Increase
Rate Volume* (Decrease)
---------- ---------- ----------
(in millions)
Loans $ (38) $ 17 $ (21)
Investment securities (2) (22) (24)
Short-terming assets 1 (1) -
------------------------------
Total earning assets (39) (6) (45)
Interest-bearing deposits (18) 1 (17)
Short-term borrowings (6) 7 1
Medium- and long-term debt (11) (14) (25)
Net interest rate swap (income)/expense (6) - (6)
------------------------------
Total interest-bearing sources (41) (6) (47)
------------------------------
Net interest income/Rate spread (FTE) $ 2 $ - $ 2
==============================
* Rate/Volume variances are allocated to variances due to volume.
/TABLE
<PAGE>
<PAGE> 21
Noninterest Expenses
- --------------------
Noninterest expenses were $263 million for the first quarter ended
March 31, 1999, an increase of $13 million, or 5 percent, from the first
quarter of 1998. Salaries and employee benefits increased $18 million, or
13 percent, in the first quarter of 1999 from the comparable period in
1998, primarily from merit increases and the consolidation of Munder
Capital Management. Excluding the effect of acquisitions and divestitures
in both periods, noninterest expenses increased 4 percent in the first
quarter of 1999, compared to the first quarter of 1998.
Provision for Income Taxes
- --------------------------
The provision for income taxes for the first quarter of 1999 totaled
$83 million, an increase of 6 percent compared to $78 million reported for
the same period a year ago. The effective tax rate was 34 percent for the
first quarter of 1999 and 35 percent for the comparable period in 1998.
Financial Condition
- -------------------
Total assets were $36.4 billion at March 31, 1999, compared with
$36.6 billion at December 31, 1998. The Corporation has continued to
generate commercial loan growth in 1999. Since December 31, 1998,
commercial loans have increased $275 million and commercial mortgage loans
have increased $182 million, or 4 percent. The increase in commercial
loans was partially funded by runoff of investment securities, which
declined $227 million, or 8 percent, since December 31, 1998.
Total liabilities decreased $266 million, or less than 1 percent, to
$33.3 billion since December 31, 1998. Total deposits decreased $1.7
billion, or 7 percent, since year-end 1998. This decline was offset by an
increase in medium- and long-term debt of $1.4 billion, or 27 percent.
<PAGE>
<PAGE> 22
Allowance for Credit Losses and Nonperforming Assets
- ----------------------------------------------------
The allowance for credit losses represent management's assessment of
possible losses inherent in the Corporation's on- and off-balance sheet
credit portfolio. The amount attributable to the off-balance sheet credit
portfolio is not material. The Corporation allocates the allowance for
credit losses to each loan category based on a defined methodology, which
has been in use, without material change, for several years. First, an
internal risk rating is assigned to each commercial loan. Included in
that risk rating is management's assessment of the potential failure of a
customer to be adequately prepared for the year 2000, but only in those
instances where management has significant information indicating a
customer may not be adequately prepared (for more information on year
2000, see the section entitled "Other Matters"). Management then assigns
a projected loss ratio to each risk rating based on numerous factors
identified below. A detailed credit quality review is performed quarterly
on certain commercial loans which have deteriorated below certain levels
of credit risk, resulting in an allocation of a specific portion of the
allowance to such loans. The portion of the allowance allocated to
consumer loans is determined by applying projected loss ratios to various
segments of the loan portfolio. 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, actual loss ratios
experienced in the future could vary from those projected. This
uncertainty occurs because a loan's performance depends not only on
economic factors but also other factors unique to each customer. In
addition, the significant diversity in size of corporate loans means that
even if the projected number of loans deteriorate, the dollar exposure
could significantly vary from estimated amounts. Furthermore, for many
economic events which have occurred, the impact on individual customers
may be, as yet, unknown. Such events include, for example, international
<PAGE> 23
instability, including Asia and Latin America; recent instability in oil
prices; and volatility in the high-tech sector of the economy. To ensure
adequacy to a higher degree of confidence, an unallocated allowance is
maintained. The unallocated allowance was $198 million at March 31, 1999.
Management also considers industry norms and the expectations from rating
agencies and banking regulators in determining the adequacy of the
allowance. The total allowance, including the unallocated amount, is
available to absorb losses from any segment of the portfolio.
At March 31, 1999, the allowance for credit losses was $453 million,
an increase of $1 million since December 31, 1998. The allowance as a
percentage of total loans decreased to 1.46 percent, compared to 1.48
percent at December 31, 1998. As a percentage of nonperforming assets,
the allowance decreased from 375 percent at year-end 1998 to 283 percent
at March 31, 1999.
Net charge-offs for the first quarter of 1999 were $19 million, or
0.25 percent of average total loans, compared with $22 million, or 0.31
percent, for the year-earlier quarter. An analysis of the allowance for
credit losses is presented in note 5 to the consolidated financial
statements.
Nonperforming assets increased $39 million, or 33 percent, since
December 31, 1998, and were categorized as follows:
<TABLE>
<CAPTION>
(in thousands) March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Nonaccrual loans:
Commercial $ 85,019 $ 77,175
International 53,613 20,350
Real estate construction 256 452
Commercial mortgage 6,621 6,788
Residential mortgage 1,817 3,468
--------- ---------
Total nonaccrual loans 147,326 108,233
Reduced-rate loans 7,466 7,464
--------- ---------
Total nonperforming loans 154,792 115,697
Other real estate 5,352 4,956
--------- ---------
Total nonperforming
assets $ 160,144 $ 120,653
========= =========
Loans past due 90 days or
more $ 42,469 $ 40,209
========= =========
</TABLE>
<PAGE>
<PAGE> 24
Nonperforming assets as a percentage of total loans and other real
estate at March 31, 1999 and December 31, 1998, were 0.52 percent and 0.39
percent, respectively.
Capital
- -------
Common shareholders' equity was up $110 million from December 31,
1998 to March 31, 1999, excluding nonowner changes in equity. The
increase was primarily due to the retention of $99 million in earnings and
a $13 million increase related to employee stock option activity.
Capital ratios exceed minimum regulatory requirements as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Leverage ratio (3.00 - minimum) 7.87% 7.68%
Tier 1 risk-based capital
ratio (4.0 - minimum) 6.38 6.26
Total risk-based capital
ratio (8.0 - minimum) 10.31 10.28
</TABLE>
At March 31, 1999, the capital ratios of all the Corporation's
banking subsidiaries exceeded the minimum ratios required of "well
capitalized" institutions as defined in the final rule under FDICIA.
Other Matters
- -------------
The Corporation initiated a company-wide project to prepare its
computer systems, applications and infrastructure for year 2000 readiness.
The following discussion of the implications of the year 2000 issue for
the Corporation contains numerous forward-looking statements based on
inherently uncertain information. The cost of the project and the planned
date to complete the internal year 2000 modifications are based on
management's best estimates, derived utilizing a number of assumptions of
future events such as the continued availability of internal and external
resources, including employees, third party modifications and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ.
<PAGE>
<PAGE> 25
In addition, the Corporation places a high degree of reliance on the
computer systems of third parties, such as customers, suppliers, and other
financial and governmental institutions. Although the Corporation is
assessing the readiness of these third parties and has prepared
contingency plans, there can be no guarantee that business-critical third
party vendors or other significant third parties, such as public
utilities, will adequately address their year 2000 issues.
Readiness Preparation
Comerica will be ready to conduct business in the year 2000. The
Corporation established an extensive enterprise-wide and centrally managed
year 2000 program in early 1996. The year 2000 team includes the active
involvement of senior executives as well as seasoned project managers and
business unit liaisons from throughout the company. The Corporation is
evaluating and monitoring the year 2000 readiness of vendors, customers
and third party processors. At Comerica, completing a successful year
2000 program is our top priority so that the arrival of the 21st century
will be a celebration of quality customer service. Many factors can
affect a company's ability to deliver quality services at any given time.
While Comerica will be "ready" to do business in the year 2000, of course
there can be no guarantee that services will be uninterrupted due to the
century date change or otherwise. To minimize customer service
disruptions, the Corporation has implemented a no-vacation policy for the
entire organization from December 27, 1999, through January 31, 2000.
Additional guidelines are being implemented within business units prior-
and post-event as required.
The Corporation's year 2000 program is comprised of numerous
individual projects which address the following broad areas: data
processing systems, telecommunications and data networks, building
facilities and security systems, vendor risk, customer risk, contingency
planning and communications. All mission critical applications and
services were significantly year 2000 ready as of December 31, 1998, with
the remaining systems planned for completion prior to the end of 1999. As
<PAGE>
<PAGE> 26
of March 31, 1999, the Corporation has completed 85 percent of remediation
effort and 75 percent of testing.
The Corporation has a major focus on completing testing for all
components, having in place what is believed to be an extensive testing
methodology, validation and verification process. To alleviate
disruptions due to errors, state of the art data aging and testing tools
are being utilized to validate year 2000 readiness for applications. The
year 2000 program utilizes Comerica's Year 2000 Testing and Clean
Management Guidelines for all components. The Corporation plans to
conduct a complete systems test in the second quarter of 1999 to validate
its findings. Furthermore, the Corporation is documenting contingency
plans for all business critical applications to minimize any disruptions
to customer service caused by year 2000 issues.
The Corporation does not significantly rely on embedded technology
in its critical processes. Embedded technology does control some building
security and operations such as power management, ventilation, and
elevator control. Building facilities are presently being evaluated, and
it is management's plan to confirm year 2000 readiness or replace the
embedded technology by approximately June 30, 1999.
Customers and vendors who have significant relationships with the
Corporation continue to be evaluated to determine their preparation and
readiness for the year 2000. The potential failure of those customers to
be adequately prepared for year 2000 is included in management's credit
and review process used to establish loss reserves. A high level risk
reduction strategy is being implemented to manage and mitigate risks to
our asset/liability position. There can be no guarantee that the
remediation of the systems of the Corporation's vendors or customers will
be completed on a timely basis.
The Corporation relies on suppliers and customers for certain
information processing services, and is addressing year 2000 issues with
both groups. Management has identified critical vendors and inquired as to
their year 2000 readiness plans and status. The Corporation has completed
<PAGE>
<PAGE> 27
written risk assessments on each and has asked those found to pose a
significant risk to demonstrate how risks will be addressed. Measures to
minimize risk are being undertaken with those that appear to pose a
significant risk. There may be certain business-critical third parties,
such as utilities or telecommunication companies, where alternative
arrangements or sources are limited or unavailable.
The Corporation is also reliant on its customers to make the
necessary preparations for year 2000 so that their business operations
will not be interrupted, as an interruption could threaten their ability
to honor financial commitments. The Corporation identified borrowers,
capital market counterparties, funding sources and large depositors having
financial volumes sufficiently large to warrant inquiry as to year 2000
preparation. Written risk assessments have been completed on each.
Customers found to have a significant risk of not being ready for year
2000 are encouraged to make the necessary effort. The Corporation is
undertaking measures to minimize risk with those that appear to pose a
significant risk.
Comerica's senior executives, the board of directors and a project
steering committee regularly review the year 2000 program and its
progress. In addition, the federal and state agencies that regulate the
banking industry regularly monitor our year 2000 program.
Cost
Included in the Corporation's estimate of year 2000 project cost are
internal and external development costs, asset impairment write-offs and
the cost of software and hardware for systems that are not ready, or would
not have been ready by the new century as a result of normal replacement.
The Corporation's current estimate is that year 2000 project cost, both
internal and external, will total approximately $50 million, of which the
Corporation incurred approximately $31 million in 1996, 1997, 1998, and
the first three months of 1999. Of the $31 million incurred to date, $8
million was for capital assets which the Corporation is expensing over
their useful lives. The Corporation will fund the remaining year 2000
<PAGE>
<PAGE> 28
costs yet to be incurred by normal operating cash flow. The project is
staffed with external resources as well as internal staff redeployed from
less time-sensitive assignments. The Corporation does not believe the
redeployment of existing staff will have a material adverse effect on its
business, results of operations or financial position. Approximately $5
million of the remaining cost is for capital assets which will be expensed
over their useful lives. Estimated total project cost could change
further as efforts continue.
Risks
The Corporation has grouped the principal risks associated with the
year 2000 problem into three categories. The first is the risk that the
Corporation does not successfully ready operations for the year 2000. The
Corporation, like other financial institutions, is heavily dependent on
computer systems. The complexity of these systems and dependence on one
another makes it impossible to switch to other systems immediately as
would be required if necessary corrections were not made in advance.
Management believes it will be able to make the necessary corrections in
advance.
Computer failure of third parties may jeopardize the Corporation's
operations, but how seriously depends on the nature and duration of such
failures. The most serious impact on the Corporation's operations from
suppliers would result if basic services such as telecommunications,
electric power suppliers, and services provided by other financial
institutions and governmental agencies were disrupted. Significant public
disclosure of the state of readiness among basic infrastructure and other
suppliers has not generally been available. Although inquiries are
underway, the Corporation does not yet have sufficient information to
estimate the likelihood of significant disruptions among its suppliers.
Operational failures among the Corporation's sources of major
funding, larger borrowers and capital market counterparties could affect
their ability to continue to provide funding or meet obligations when due.
Similar to the situation outlined above with suppliers, public information
has not generally been available. At this time, it is not possible to
<PAGE> 29
accurately estimate the likelihood, or potential impact, of significant
disruptions among the Corporation's funding sources and obligors.
Contingency Plans
The Corporation is developing remediation contingency plans and
business resumption contingency plans specific to the year 2000.
Remediation contingency plans address the actions to be taken if the
current approach to remediating a system is falling behind schedule or
otherwise appears in jeopardy of failing to deliver a year 2000 ready
system when needed. Business resumption contingency plans address the
actions that would be taken if critical business functions can not be
carried out in the normal manner due to system or supplier failure.
The Corporation developed remediation contingency plans with trigger
dates for review and implementation for critical data systems. The
Corporation is also enhancing its existing business resumption plans to
reflect year 2000 issues and is developing plans designed to coordinate
the efforts of its personnel and resources in addressing any year 2000
problems that become known after December 31, 1999.
This report includes forward-looking statements based on
management's current expectations and/or the assumptions made in the
earnings simulation analysis. Numerous factors could cause variances in
these projections, and their underlying assumptions, such as changes in
interest rates, the industries where the Corporation has a concentration
of loans, changes in the level of fee income, year 2000 expenses, economic
conditions and continuing consolidation in the banking industry.
<PAGE>
<PAGE> 30
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
(11) Statement re: Computation of Earnings Per Share
(21) Subsidiaries of Registrant
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Corporation did not file any reports on Form 8-K during the
three months ended March 31, 1999.
<PAGE>
<PAGE> 31
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
COMERICA INCORPORATED
--------------------------------------
(Registrant)
/s/Ralph W. Babb Jr.
-----------------------------------------
Ralph W. Babb Jr.
Vice Chairman of Finance & Administration
and Chief Financial Officer
(Principal Financial Officer)
/s/Marvin J. Elenbaas
-----------------------------------------
Marvin J. Elenbaas
Senior Vice President and Controller
(Chief Accounting Officer)
Date: May 13, 1999<PAGE>
<PAGE> 1
Exhibit (11) - Statement re: Computation of Earnings Per Share
<TABLE>
COMPUTATION OF EARNINGS PER SHARE
Comerica Incorporated and Subsidiaries
<CAPTION>
(In thousands, except per share data)
Three Months Ended
March 31
-------------------
1999 1998
-------- -------
<S> <C> <C>
Basic:
Average shares outstanding 155,857 156,717
Net income $159,112 $144,383
Less preferred stock dividends 4,275 4,275
-------- --------
Net income applicable to common stock $154,837 $140,108
======== ========
Basic net income per share $0.99 $0.89
Diluted
Average shares outstanding 155,857 156,717
Nonvested stock 176 190
Common stock equivalent:
Net effect of the assumed exercise
of stock options 2,401 2,861
-------- --------
Diluted average shares 158,434 159,768
======== ========
Net income $159,112 $144,383
Less preferred stock dividends 4,275 4,275
-------- --------
Net income applicable to common stock $154,837 $140,108
======== ========
Diluted net income per share $0.98 $0.88
</TABLE>
<PAGE>
<PAGE> 1
Exhibit (21) - Subsidiaries of Registrant
<TABLE>
<CAPTION>
State or Jurisdiction
of Incorporation or
Name Organization
<S> <C>
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
WAM Holdings II, Inc. Delaware
Comerica AutoLease, Inc. Michigan
VRB Corp. Michigan
Comerica International Corporation U.S.
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 Company Michigan
Comerica Networking, Inc. Michigan
Comerica Equities Incorporated Delaware
Comerica West Incorporated Delaware
Comerica West Financial Incorporated Delaware
Munder Capital Management Delaware
World Asset Management Delaware
Munder UK, L.L.C. Delaware
Comerica Bank-Mexico, S.A. Mexico
Comerica Bank-California California
Comerica Bank-Texas Texas
Comerica Bank, National Association United States
Comerica Bank-Ann Arbor, N.A. United States
Comerica Bank-Canada Canada
Comerica Bank Michigan
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE MARCH 1999 FORM 10-Q FOR COMERICA INCORPORATED AND SUBSIDIARIES
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,489,205
<INT-BEARING-DEPOSITS> 5,085
<FED-FUNDS-SOLD> 45,697
<TRADING-ASSETS> 8,133
<INVESTMENTS-HELD-FOR-SALE> 2,484,883
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 30,982,545
<ALLOWANCE> 452,936
<TOTAL-ASSETS> 36,447,542
<DEPOSITS> 22,585,331
<SHORT-TERM> 3,533,766
<LIABILITIES-OTHER> 437,854
<LONG-TERM> 6,731,749
<COMMON> 786,166
0
250,000
<OTHER-SE> 2,122,676
<TOTAL-LIABILITIES-AND-EQUITY> 36,447,542
<INTEREST-LOAN> 586,362
<INTEREST-INVEST> 41,092
<INTEREST-OTHER> 1,981
<INTEREST-TOTAL> 629,435
<INTEREST-DEPOSIT> 149,674
<INTEREST-EXPENSE> 260,603
<INTEREST-INCOME-NET> 368,832
<LOAN-LOSSES> 20,000
<SECURITIES-GAINS> 1,202
<EXPENSE-OTHER> 263,414
<INCOME-PRETAX> 242,312
<INCOME-PRE-EXTRAORDINARY> 159,112
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 159,112
<EPS-PRIMARY> 0.99
<EPS-DILUTED> 0.98
<YIELD-ACTUAL> 4.51
<LOANS-NON> 147,326
<LOANS-PAST> 42,469
<LOANS-TROUBLED> 7,466
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 452,409
<CHARGE-OFFS> 24,710
<RECOVERIES> 5,229
<ALLOWANCE-CLOSE> 452,936
<ALLOWANCE-DOMESTIC> 221,370
<ALLOWANCE-FOREIGN> 33,562
<ALLOWANCE-UNALLOCATED> 198,004
</TABLE>
