<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 June 30, 2000
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 July 31, 2000: 156,496,000 shares
<PAGE> 2
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
Comerica Incorporated and Subsidiaries
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(In thousands, except share data) 2000 1999 1999
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,743,552 $ 1,201,990 $ 1,535,721
Short-term investments 257,106 612,959 85,182
Investment securities available
for sale 2,657,916 2,739,464 2,345,236
Commercial loans 22,263,002 20,654,658 19,647,781
International loans 2,612,539 2,573,003 2,629,303
Real estate construction loans 2,046,117 1,709,261 1,377,101
Commercial mortgage loans 5,060,847 4,774,052 4,536,512
Residential mortgage loans 827,545 870,029 903,189
Consumer loans 1,399,801 1,350,725 1,800,840
Lease financing 791,550 761,550 671,525
----------- ----------- -----------
Total loans 35,001,401 32,693,278 31,566,251
Less allowance for credit losses (520,582) (476,470) (460,397)
----------- ----------- -----------
Net loans 34,480,819 32,216,808 31,105,854
Premises and equipment 317,601 330,728 345,298
Customers' liability on acceptances
outstanding 23,964 43,810 15,164
Accrued income and other assets 1,584,520 1,507,573 1,518,032
----------- ----------- -----------
TOTAL ASSETS $41,065,478 $38,653,332 $36,950,487
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits $ 6,794,918 $ 6,136,038 $ 6,515,942
Interest-bearing deposits 18,518,091 17,155,365 15,837,640
----------- ----------- -----------
Total deposits 25,313,009 23,291,403 22,353,582
Federal funds purchased and
securities sold under
agreements to repurchase 1,524,198 1,332,397 2,833,235
Other borrowed funds 1,826,838 1,435,634 912,330
Acceptances outstanding 23,964 43,810 15,164
Accrued expenses and other
liabilities 468,377 495,587 357,712
Medium- and long-term debt 8,214,808 8,579,857 7,231,275
----------- ----------- -----------
Total liabilities 37,371,194 35,178,688 33,703,298
Nonredeemable preferred stock
- $50 stated value:
Authorized - 5,000,000 shares
Issued - 5,000,000 shares at
6/30/00, 12/31/99 and 6/30/99 250,000 250,000 250,000
Common stock - $5 par value:
Authorized - 325,000,000 shares
Issued-157,233,107 shares at
6/30/00, 12/31/99 and 6/30/99 786,166 786,166 786,166
Capital surplus 37,103 35,092 31,946
Accumulated nonowner changes in equity (35,245) (31,702) (26,058)
Retained earnings 2,704,088 2,485,204 2,271,378
Deferred compensation (4,390) (2,955) (4,107)
Less cost of common stock in
treasury- 761,318 shares at
6/30/00, 715,496 shares at
12/31/99 and 942,715 shares
at 6/30/99 (43,438) (47,161) (62,136)
----------- ----------- -----------
Total shareholders' equity 3,694,284 3,474,644 3,247,189
----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $41,065,478 $38,653,332 $36,950,487
=========== =========== ===========
</TABLE>
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
Comerica Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- -------------------------------
(In thousands, except per share data) 2000 1999 2000 1999
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $752,057 $600,325 $1,445,897 $1,186,687
Interest on investment securities:
Taxable 44,566 37,906 92,369 77,623
Exempt from federal income tax 748 1,261 1,551 2,636
-------- -------- ---------- ----------
Total interest on investment
securities 45,314 39,167 93,920 80,259
Interest on short-term investments 5,167 2,009 22,586 3,990
-------- -------- ---------- ----------
Total interest income 802,538 641,501 1,562,403 1,270,936
INTEREST EXPENSE
Interest on deposits 186,219 139,807 355,390 289,481
Interest on short-term borrowings 64,792 43,406 117,251 88,778
Interest on medium- and long-term debt 127,538 96,283 257,490 180,714
Net interest rate swap (income)/expense 9,156 (17,637) 12,496 (36,511)
-------- -------- ---------- ----------
Total interest expense 387,705 261,859 742,627 522,462
-------- -------- ---------- ----------
Net interest income 414,833 379,642 819,776 748,474
Provision for credit losses 34,000 28,000 89,000 48,000
-------- -------- ---------- ----------
Net interest income after
provision for credit losses 380,833 351,642 730,776 700,474
NONINTEREST INCOME
Fiduciary and investment management
income 76,875 59,839 155,903 114,782
Service charges on deposit accounts 45,466 42,520 89,358 84,218
Commercial lending fees 11,430 11,315 22,645 21,211
Letter of credit fees 11,175 9,020 21,869 17,511
Securities gains 1,110 690 1,363 1,892
Other noninterest income 53,614 71,267 129,229 111,931
-------- -------- ---------- ----------
Total noninterest income 199,670 194,651 420,367 351,545
NONINTEREST EXPENSES
Salaries and employee benefits 164,999 162,567 333,000 315,050
Net occupancy expense 24,108 23,975 49,062 47,069
Equipment expense 14,611 15,442 29,685 30,293
Outside processing fee expense 12,363 12,341 24,695 25,195
Other noninterest expenses 79,782 74,555 155,444 134,687
-------- -------- ---------- ----------
Total noninterest expenses 295,863 288,880 591,886 552,294
-------- -------- ---------- ----------
Income before income taxes 284,640 257,413 559,257 499,725
Provision for income taxes 99,089 90,031 195,990 173,231
-------- -------- ---------- ----------
NET INCOME $185,551 $167,382 $ 363,267 $ 326,494
======== ======== ========== ==========
Net income applicable to common stock $181,276 $163,107 $ 354,717 $ 317,944
======== ======== ========== ==========
Basic net income per common share $ 1.16 $ 1.04 $ 2.27 $ 2.04
Diluted net income per common share $ 1.15 $ 1.03 $ 2.25 $ 2.01
Cash dividends declared on common stock $ 62,451 $ 56,181 $ 124,970 $ 112,330
Dividends per common share $ 0.40 $ 0.36 $ 0.80 $ 0.72
</TABLE>
<PAGE> 4
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Comerica Incorporated and Subsidiaries
<TABLE>
<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, 1999 $250,000 $786,165 $ 24,649 $ (6,455) $2,086,589 $ (5,202) $ (89,133) $3,046,613
Net income for 1999 - - - - 326,494 - - 326,494
Nonowner changes in equity,
net of tax - - - (19,603) - - - (19,603)
----------
Net income and nonowner
changes in equity - - - - - - - 306,891
Cash dividends declared:
Preferred stock - - - - (8,550) - - (8,550)
Common stock - - - - (112,330) - - (112,330)
Purchase of 44,082 shares
of common stock - - - - - - (2,885) (2,885)
Net issuance of common stock
under employee stock plans - 1 7,297 - (20,825) (44) 29,882 16,311
Amortization of deferred
compensation - - - - - 1,139 - 1,139
-------- -------- --------- --------- ---------- --------- --------- ----------
BALANCES AT JUNE 30, 1999 $250,000 $786,166 $ 31,946 $ (26,058) $2,271,378 $ (4,107) $ (62,136) $3,247,189
======== ======== ========= ========= ========== ========= ========= ==========
BALANCES AT JANUARY 1, 2000 $250,000 $786,166 $ 35,092 $ (31,702) $2,485,204 $ (2,955) $ (47,161) $3,474,644
Net income for 2000 - - - - 363,267 - - 363,267
Nonowner changes in equity,
net of tax - - - (3,543) - - - (3,543)
----------
Net income and nonowner
changes in equity - - - - - - - 359,724
Cash dividends declared:
Preferred stock - - - - (8,550) - - (8,550)
Common stock - - - - (124,970) - - (124,970)
Purchase of 331,362 shares
of common stock - - - - - - (13,112) (13,112)
Net issuance of common stock
under employee stock plans - - 2,011 - (10,863) (2,681) 16,835 5,302
Amortization of deferred
compensation - - - - - 1,246 - 1,246
-------- -------- --------- --------- ---------- --------- --------- ----------
BALANCES AT JUNE 30, 2000 $250,000 $786,166 $ 37,103 $ (35,245) $2,704,088 $ (4,390) $ (43,438) $3,694,284
======== ======== ========= ========= ========== ========= ========= ==========
</TABLE>
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Comerica Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Six Months Ended
June 30
------------------------------------
(in thousands) 2000 1999
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 363,267 $ 326,494
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses 89,000 48,000
Depreciation 27,631 28,340
Net increase in trading account securities (54,562) (1,031)
Net decrease in assets held for sale 13,136 24,705
Net increase in accrued income receivable (20,891) (27,023)
Net decrease in accrued expenses (59,447) (2,083)
Net amortization of intangibles 17,935 16,937
Other, net (26,762) (22,964)
----------- -----------
Total adjustments (13,960) 64,881
----------- -----------
Net cash provided by
operating activities 349,307 391,375
INVESTING ACTIVITIES:
Net increase in interest-bearing deposits
with banks (209) (13,484)
Net (increase) decrease in federal funds sold and
securities purchased under agreements
to resell (59,273) 14,268
Proceeds from sale of investment securities
available for sale 9,086 3,539
Proceeds from maturity of investment
securities available for sale 236,424 418,262
Purchases of investment securities
available for sale (175,936) (82,769)
Net increase in loans (2,353,011) (1,001,400)
Fixed assets, net (14,504) (20,988)
Net (increase) decrease in customers' liability
on acceptances outstanding 19,846 (2,829)
Net cash provided by acquisitions/sales 445,274 --
----------- -----------
Net cash used in investing activities (1,892,303) (685,401)
FINANCING ACTIVITIES:
Net increase (decrease) in deposits 2,021,606 (1,959,551)
Net increase in short-term borrowings 583,005 165,412
Net increase (decrease) in acceptances
outstanding (19,846) 2,829
Proceeds from issuance of medium- and
long-term debt 3,590,873 3,525,000
Repayments and purchases of medium- and
long-term debt (3,955,922) (1,575,984)
Proceeds from issuance of common stock
and other capital transactions 5,302 16,355
Purchase of common stock for treasury (13,112) (2,885)
Dividends paid (127,348) (114,529)
----------- -----------
Net cash provided by
financing activities 2,084,558 56,647
----------- -----------
Net increase (decrease) in cash and due
from banks 541,562 (237,379)
Cash and due from banks at beginning of year 1,201,990 1,773,100
----------- -----------
Cash and due from banks at end of period $ 1,743,552 $ 1,535,721
=========== ===========
Interest paid $ 732,294 $ 525,878
=========== ===========
Income taxes paid $ 204,500 $ 148,621
=========== ===========
Noncash investing and financing activities:
Loan transfers to other real estate $ 3,266 $ 3,643
=========== ===========
</TABLE>
<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 six months ended June 30, 2000, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. 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, 1999.
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 on a mark-to-market basis. For further information,
refer to the Accounting Policies footnote in the Corporation's 1999 annual
report.
<PAGE> 7
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 1 - Basis of Presentation and Accounting Policies (continued)
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." 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 accumulated
nonowner changes in equity 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.
In June 1999, the FASB issued Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133." Statement 137 amended the required effective date of
Statement 133, requiring adoption of Statement 133 in years beginning after June
15, 2000.
In June 2000, the FASB issued Statement No. 138, "Accounting for
Derivative Instruments and Hedging Activities-an amendment of FASB Statement No.
133." Statement 138 addressed a limited number of implementation issues that
required specific amendments to Statement 133. The Corporation expects to adopt
Statement 133, as amended, effective January 1, 2001. The Corporation is in the
process of assessing what the effect of Statement 133 will be on the earnings
and financial position of the Corporation.
Note 2 - Investment Securities
At June 30, 2000, 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
$53 million.
<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>
(in thousands) 2000 1999
--------- ---------
<S> <C> <C>
Balance at January 1 $ 476,470 $ 452,409
Charge-offs (53,055) (52,127)
Recoveries 8,207 12,089
--------- ---------
Net charge-offs (44,848) (40,038)
Provision for credit losses 89,000 48,000
Foreign currency translation
adjustment (40) 26
--------- ---------
Balance at June 30 $ 520,582 $ 460,397
========= =========
</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
$194 million and $186 million for the quarter and six months ended June 30,
2000, compared to $137 million and $134 million for the comparable periods last
year. The following are period-end balances:
<TABLE>
<CAPTION>
(in thousands) June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Total impaired loans $217,591 $159,165
Impaired loans requiring
an allowance 215,302 155,828
Impairment allowance 60,060 51,753
</TABLE>
Those impaired loans not requiring an allowance represent loans for which the
fair value exceeded the recorded investment in the loan.
<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 June 30, 2000
and December 31, 1999:
<TABLE>
<CAPTION>
(in thousands) June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Parent Company
7.25% subordinated notes due 2007 $ 157,982 $ 158,543
Subsidiaries
Subordinated notes:
7.25% subordinated notes due 2007 198,602 198,502
7.875% subordinated notes due 2026 172,784 173,217
8.375% subordinated notes due 2024 155,180 155,287
7.25% subordinated notes due 2002 149,639 149,561
6.875% subordinated notes due 2008 103,502 103,729
7.125% subordinated notes due 2013 154,661 154,834
6.00% subordinated notes due 2008 248,123 248,010
---------- ----------
Total subordinated notes 1,182,491 1,183,140
Medium-term notes:
Floating rate based on Treasury
indices 37,000 37,000
Floating rate based on Prime indices 121,000 1,224,993
Floating rate based on LIBOR indices 6,702,419 5,762,320
Fixed rate notes with interest rate
of 6.65% - 199,944
---------- ----------
Total medium-term notes 6,860,419 7,224,257
Notes payable 13,916 13,917
---------- ----------
Total subsidiaries 8,056,826 8,421,314
---------- ----------
Total medium- and long-term debt $8,214,808 $8,579,857
========== ==========
</TABLE>
Note 5 - Income Taxes
The provision for income taxes is computed by applying statutory
federal income tax rates to income before income taxes as reported in the
financial statements after deducting non-taxable items, principally income on
bank-owned life insurance and interest income on state and municipal securities.
State and foreign taxes are then added to the federal provision.
<PAGE> 10
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 6 - Off-Balance Sheet Derivatives and Foreign Exchange Contracts
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------------------------ ------------------------------
Notional/ Notional/
Contract Unrealized Fair Contract Unrealized Fair
Amount Gains Losses Value Amount Gains Losses Value
(in millions) (1) (2) (3) (1) (2) (3)
------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Risk Management
Interest rate contracts:
Caps and floors purchased $ 10 $ - $ - $ - $ - $ - $ - $ -
Swaps 10,391 28 (178) (150) 8,518 17 (172) (155)
Foreign exchange contracts:
Spot, forward and options 915 7 (3) 4 1,098 33 (23) 10
Swaps 115 - (10) (10) 115 - (5) (5)
------- ---- ----- ----- ------- ---- ----- -----
Total risk management 11,431 35 (191) (156) 9,731 50 (200) (150)
Customer-Initiated and Other
Interest rate contracts:
Caps and floors written 207 - (1) (1) 166 - (1) (1)
Caps and floors purchased 186 - - - 141 1 - 1
Swaps 291 3 (3) - 256 2 (2) -
Foreign exchange contracts:
Spot, forward and options 1,257 23 (18) 5 579 14 (11) 3
Swaps 50 2 - 2 - - - -
------- ---- ----- ----- ------- ---- ----- -----
Total customer-initiated
and other 1,991 28 (22) 6 1,142 17 (14) 3
------- ---- ----- ----- ------- ---- ----- -----
Total derivatives and
foreign exchange contracts $13,422 $ 63 $(213) $(150) $10,873 $ 67 $(214) $(147)
======= ==== ===== ===== ======= ==== ===== =====
</TABLE>
(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.
<PAGE> 11
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 due to
differences in the repricing and maturity characteristics of interest-earning
assets and interest-bearing liabilities. This gap in the balance sheet structure
reflects the sensitivity of the Corporation's net interest income to a change in
interest rates. Foreign exchange rate risk arises from changes in the value of
certain assets and liabilities denominated in foreign currencies. The
Corporation employs on-balance sheet instruments such as investment securities,
as well as off-balance sheet derivative financial instruments and foreign
exchange contracts, to manage exposure to these and other risks, including
liquidity risk.
As an end-user, the Corporation mainly accesses the interest rate
markets to obtain off-balance sheet derivative instruments for use principally
in connection with asset and liability management activities. The Corporation
principally utilizes interest rate swaps with the objective of mitigating
adverse impacts to net interest income from changes in interest rates. To
accomplish this objective, the Corporation uses interest rate swaps primarily 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 Corporation also uses various other types of off-balance sheet
financial instruments to mitigate interest rate and foreign currency risks
associated with specific assets or liabilities, which are reflected in the table
above. Such instruments include interest rate caps and floors, foreign exchange
forward contracts, and foreign exchange cross-currency swaps.
<PAGE> 12
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 6 - Off-Balance Sheet Derivatives and Foreign Exchange Contracts
(continued)
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 June 30,
2000. The swaps are grouped by the assets or liabilities to which they have been
designated.
At June 30, 2000 and December 31, 1999, the notional amounts of
commitments to purchase and sell U.S. Treasury and municipal bond securities
related to the Corporation's trading account totaled $64 million and $4 million,
respectively. These commitments, which are similar in nature to forward
contracts, are not reflected in the preceding table due to the immaterial impact
they have on the financial statements.
Customer-Initiated and Other
The Corporation earns additional income by executing various
transactions, primarily foreign exchange contracts and interest rate caps,
floors and swaps to accommodate the needs of customers requesting such services.
The Corporation minimizes market risk arising from customer-initiated foreign
exchange contracts by entering into offsetting transactions. Average fair values
and income from customer-initiated and other foreign exchange contracts were not
material for the six-month period ended June 30, 2000 and for the year ended
December 31, 1999.
Customer-initiated interest rate caps, floors and swaps 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 six-month period ended June 30,
2000 and for the year ended December 31, 1999.
<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 Risk Management Interest Rate Swaps:
2005- Dec. 31,
(dollar amounts in millions) 2000 2001 2002 2003 2004 2026 Total 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Variable rate asset
designation:
Receive fixed swaps
Generic $ - $3,250 $2,850 $1,950 $ - $ - $ 8,050 $6,800
Index amortizing 124 - - - - - 124 149
Weighted average: (1)
Receive rate 5.53% 5.68% 7.14% 10.08% -% -% 7.24% 6.36%
Pay rate 6.65% 6.63% 8.18% 9.46% -% -% 7.85% 6.71%
Fixed rate asset designation:
Pay fixed swaps
Generic $ 5 $ - $ - $ - $ - $ - $ 5 $ 13
Index amortizing 6 - - - - - 6 7
Amortizing - - 2 - - - 2 2
Weighted average: (1)
Receive rate 6.33% -% 5.97% -% -% -% 6.29% 6.37%
Pay rate 5.65% -% 6.05% -% -% -% 5.70% 5.93%
Fixed rate deposit designation:
Generic receive fixed swaps $ 38 $ 632 $ 72 $ - $ - $ - $ 742 $ 10
Weighted average:(1)
Receive rate 5.56% 7.26% 7.59% -% -% -% 7.20% 5.16%
Pay rate 5.84% 6.62% 6.65% -% -% -% 6.58% 5.01%
Medium- and long-term debt
designation:
Generic receive fixed swaps $ - $ - $ 150 $ - $ - $1,150 $ 1,300 $1,500
Weighted average: (1)
Receive rate -% -% 7.37% -% -% 6.79% 6.85% 6.86%
Pay rate -% -% 6.51% -% -% 6.56% 6.55% 5.95%
Floating/floating swaps $ 37 $ 125 $ - $ - $ - $ - $ 162 $ 37
Weighted average: (2)
Receive rate 6.34% 6.57% -% -% -% -% 6.52% 5.93%
Pay rate 6.03% 6.63% -% -% -% -% 6.55% 6.19%
Total notional amount $ 210 $4,007 $3,074 $1,950 $ - $1,150 $10,391 $8,518
</TABLE>
--------------------------------------------------------------------------------
(1) Variable rates are based on LIBOR, CDOR or prime rates paid or received at
June 30, 2000.
(2) Variable rates paid are based on LIBOR at June 30, 2000, while variable
rates received are based on the two-year Constant Treasury Maturity Rate
and the three month Treasury bill rate in effect at June 30, 2000.
--------------------------------------------------------------------------------
<PAGE> 14
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 6 - Off-Balance Sheet Derivatives and Foreign Exchange Contracts
(continued)
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, 1999 $ 8,518 $ 1,213 $ 563 $ 579
Additions 2,843 6,558 148 21,131
Maturities/amortizations (960) (6,741) (27) (20,403)
------- ------- ----- --------
Balances at June 30, 2000 $10,401 $ 1,030 $ 684 $ 1,307
======= ======= ===== ========
</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 1999 annual report on page 38 and in Notes 1 and 18 to the
consolidated financial statements.
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 six months ended June 30, 2000 and 1999 are presented
below.
<PAGE> 15
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
Note 7 - Business Segment Information (continued)
<TABLE>
<CAPTION>
Six Months Ended June 30
Business Individual Investment
Bank Bank Bank*
-----------------------------------------------------------------------------
(dollar amounts
in millions) 2000 1999 2000 1999 2000 1999
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average assets $28,501 $25,486 $6,909 $6,975 $ 363 $ 238
Total revenues (FTE) 561 503 548 492 132 89
Net income 208 182 170 124 17 6
Return on average
assets 1.46% 1.43% 1.84% 1.38% 8.68% 4.97%
Return on average
common equity 20.94% 23.94% 46.49% 35.43% 12.87% 6.14%
<CAPTION>
Finance Other Total
-----------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average assets $ 4,040 $ 3,866 $ (103) $ (210) $39,710 $36,355
Total revenues (FTE) (9) 20 10 (1) 1,242 1,103
Net income (7) 12 (25) 2 363 326
Return on average
assets (0.09)% 0.18% N/M N/M 1.83% 1.80%
Return on average
common equity (3.75)% 7.01% N/M N/M 21.41% 21.99%
</TABLE>
* 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 $22 million and $10 million, and
return on average common equity would have been 17.06% and 10.79%, in 2000
and 1999, respectively.
N/M - Not Meaningful
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 in the Corporation's 1999 annual report. The
financial results for Munder Capital Management, the Corporation's investment
advisory subsidiary, are included in results of the Investment Bank. Prior to
2000, the financial results for Munder were included in the Other category. For
comparability purposes, 1999 results for the Investment Bank and the Other
category have been restated to reflect this change in the organizational
structure of the Corporation.
<PAGE> 16
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 six months ended
June 30, 2000 and 1999. Net income and nonowner changes in equity for the three
months ended June 30, 2000 and 1999, totaled $193 million and $145 million,
respectively.
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------
(in thousands) 2000 1999
-------- --------
<S> <C> <C>
Net unrealized gains (losses) on
investment securities available for sale:
Balance at beginning of year $(32,717) $ (7,688)
Net unrealized holding gains (losses)
arising during the period 558 (28,769)
Less: Reclassification adjustment for
gains (losses) included in net income 1,110 1,892
-------- --------
Change in net unrealized gains (losses)
before income taxes (552) (30,661)
Provision for income taxes (193) (11,231)
-------- --------
Change in net unrealized gains (losses)
on investment securities available
for sale, net of tax (359) (19,430)
-------- --------
Balance at June 30 $(33,076) $(27,118)
Accumulated foreign currency translation
adjustment:
Balance at beginning of year $ 1,015 $ 1,233
Net translation gains (losses) arising
during the period (3,184) (173)
Less: Reclassification adjustment for
gains (losses) included in net income - -
-------- --------
Change in translation adjustment before
income taxes (3,184) (173)
Provision for income taxes - -
-------- --------
Change in foreign currency translation
adjustment, net of tax (3,184) (173)
-------- --------
Balance at June 30 $ (2,169) $ 1,060
-------- --------
Total accumulated nonowner changes in
equity, net of taxes, at June 30 $(35,245) $(26,058)
======== ========
</TABLE>
<PAGE> 17
ITEM 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
Net income for the quarter ended June 30, 2000, was $186 million, up
$19 million, or 11 percent, from $167 million reported for the second quarter of
1999. Diluted net income per share increased 12 percent to $1.15 from $1.03 a
year ago. Return on average common shareholders' equity was 21.47 percent and
return on average assets was 1.85 percent, compared to 22.08 percent and 1.83
percent, respectively, for the comparable quarter last year.
Net income for the first six months of 2000 was $2.25 per share or
$363 million, compared to $2.01 or $326 million for the same period in 1999,
increases of 12 percent and 11 percent, respectively. Return on average common
shareholders' equity was 21.41 percent and return on average assets was 1.83
percent for the first six months of 2000, compared to 21.99 percent and 1.80
percent, respectively, for the first six months of 1999.
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 June 30, 2000. On a FTE basis, net interest income was $416
million for the three months ended June 30, 2000, an increase of $35 million, or
nine percent, from the comparable quarter in 1999. The increase in net interest
income was primarily due to a 13 percent increase in average corporate loans and
an increase in average common shareholders' equity. The net interest margin for
the three months ended June 30, 2000, was 4.48 percent, a decrease of five basis
points from 4.53 percent for the second quarter of 1999. Excluding the
divestiture of consumer loans in the first quarter of 2000, net interest income
increased $46 million or 12 percent and the net interest margin increased one
basis point in the second quarter 2000, when compared to the same period a year
ago. The net interest margin benefitted from an increase in the impact of
noninterest-bearing sources of funds. This was offset by a reduction in net
<PAGE> 18
interest rate swap income and a greater reliance on medium- and long-term debt
in the mix of interest-bearing liabilities. With core deposit balances growing
at rates slower than earning assets, a greater reliance on purchased funds is
expected, which will gradually reduce the margin.
Table II provides an analysis of net interest income for the first six
months of 2000. On a FTE basis, net interest income for the six months ended
June 30, 2000, was $822 million compared to $751 million for the same period in
1999. This increase is primarily attributed to the factors cited in the
quarterly discussion. The net interest margin for the six months ended June 30,
2000, was 4.48 percent compared to 4.52 percent for the same period in 1999.
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 exposure to interest rate risk, management attempts to
evaluate the effect of movements in interest rates on net interest income by
regularly performing interest sensitivity gap and earnings simulation analyses.
At June 30, 2000, the Corporation was in an asset sensitive position of $249
million (on an elasticity adjusted basis), or one 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 June 30, 2000, for a 200 basis point decline in
short-term interest rates identified approximately $31 million, or two percent,
of forecasted net interest income at risk during the next 12 months. If
short-term interest rates rise 200 basis points, forecasted net interest income
at risk would be approximately $12 million, or one percent. The results of these
simulations are within established corporate policy guidelines.
<PAGE> 19
TABLE I - QUARTERLY ANALYSIS OF NET INTEREST INCOME & RATE/VOLUME (FTE)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------
June 30, 2000 June 30, 1999
----------------------------- -----------------------------
Average Average Average Average
(dollar amounts in millions) Balance Interest Rate Balance Interest Rate
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $34,323 $753 8.82% $31,208 $601 7.72%
Investment securities 2,616 46 6.82 2,397 40 6.63
Other earning assets 274 5 7.65 112 2 7.23
-------------------------------------------------------------------------------------------------
Total earning assets 37,213 804 8.67 33,717 643 7.64
Interest-bearing deposits 17,706 186 4.23 15,930 140 3.52
Short-term borrowings 4,072 65 6.40 3,646 44 4.77
Medium- and long-term debt 7,867 128 6.51 7,193 96 5.37
Net interest rate swap (income)/
expense (1) - 9 - - (18) -
-------------------------------------------------------------------------------------------------
Total interest-bearing
sources $29,645 388 5.26 $26,769 262 3.92
-------------- ---------------
Net interest income/
Rate spread (FTE) $416 3.41 $381 3.72
==== ====
FTE adjustment $ 1 $ 1
==== ====
Impact of net noninterest-bearing
sources of funds 1.07 0.81
-------------------------------------------------------------------------------------------------
Net interest margin as a percent of
average earning assets (FTE) 4.48% 4.53%
=================================================================================================
</TABLE>
(1) After allocation of the income or expense generated by interest rate swaps
for the three months ended June 30, 2000, to the related assets and liabilities,
the average yield on total loans was 8.68 percent as of June 30, 2000, compared
to 7.88 percent a year ago. The average cost of funds for interest-bearing
deposits was 4.22 percent as of June 30, 2000. The average cost of funds for
medium- and long-term debt was 6.43 percent as of June 30, 2000, compared to
5.08 percent a year earlier.
<TABLE>
<CAPTION>
Increase Increase
(Decrease) (Decrease) Net
Due to Due to Increase
(in millions) Rate Volume* (Decrease)
---------- ---------- ----------
<S> <C> <C> <C>
Loans $83 $69 $152
Investment securities 2 4 6
Other earning assets - 3 3
-------------------------
Total earning assets 85 76 161
Interest-bearing deposits 20 26 46
Short-term borrowings 15 6 21
Medium- and long-term debt 21 11 32
Net interest rate swap
(income)/expense 27 - 27
-------------------------
Total interest-bearing sources 83 43 126
-------------------------
Net interest income/Rate spread (FTE) $ 2 $33 $ 35
=========================
</TABLE>
* Rate/Volume variances are allocated to variances due to volume.
<PAGE> 20
TABLE II - YEAR-TO-DATE ANALYSIS OF NET INTEREST INCOME & RATE/VOLUME (FTE)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------------------------------
June 30, 2000 June 30, 1999
----------------------------- -----------------------------
Average Average Average Average
(dollar amounts in millions) Balance Interest Rate Balance Interest Rate
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $33,765 $1,447 8.61% $30,896 $1,188 7.75%
Investment securities 2,644 95 7.00 2,471 82 6.59
Other earning assets 406 23 11.18 106 4 7.69
--------------------------------------------------------------------------------------------------
Total earning assets 36,815 1,565 8.53 33,473 1,274 7.66
Interest-bearing deposits 17,414 355 4.10 16,211 290 3.60
Short-term borrowings 3,777 117 6.24 3,707 89 4.83
Medium- and long-term debt 8,155 258 6.34 6,651 181 5.47
Net interest rate swap (income)/
expense (1) - 13 - - (37) -
--------------------------------------------------------------------------------------------------
Total interest-bearing
sources $29,346 743 5.09 $26,569 523 3.96
---------------- -----------------
Net interest income/
Rate spread (FTE) $ 822 3.44 $ 751 3.70
====== ======
FTE adjustment $ 2 $ 3
====== ======
Impact of net noninterest-bearing
sources of funds 1.04 0.82
--------------------------------------------------------------------------------------------------
Net interest margin as a percent of
average earning assets (FTE) 4.48% 4.52%
==================================================================================================
</TABLE>
(1) After allocation of the income or expense generated by interest rate swaps
for the six months ended June 30, 2000, to the related assets and liabilities,
the average yield on total loans was 8.51 percent as of June 30, 2000, compared
to 7.93 percent a year ago. The average cost of funds for medium- and long-term
debt was 6.23 percent as of June 30, 2000, compared to 5.19 percent as of June
30, 1999.
<TABLE>
<CAPTION>
Increase Increase
(Decrease) (Decrease) Net
Due to Due to Increase
(in millions) Rate Volume* (Decrease)
---------- ---------- ----------
<S> <C> <C> <C>
Loans $136 $123 $259
Investment securities 7 6 13
Other earning assets 1 18 19
--------------------------
Total earning assets 144 147 291
Interest-bearing deposits 31 34 65
Short-term borrowings 27 1 28
Medium- and long-term debt 29 48 77
Net interest rate swap
(income)/expense 50 - 50
--------------------------
Total interest-bearing sources 137 83 220
--------------------------
Net interest income/Rate spread (FTE) $ 7 $ 64 $ 71
==========================
</TABLE>
* Rate/Volume variances are allocated to variances due to volume.
<PAGE> 21
Provision for Credit Losses
The provision for credit losses was $34 million for the second quarter
of 2000, compared to $28 million for the same period in 1999. The provision for
the first six months of 2000 was $89 million compared to $48 million for the
same period in 1999. 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 $200 million for the three months ended June
30, 2000, an increase of $5 million, or three percent, over the same period in
1999. Noninterest income in the second quarter 2000 included a non-recurring
gain of $6 million from the demutualization of an insurance carrier. Included in
second quarter 1999 noninterest income was a $21 million gain on the sale of
Comerica's ownership in an ATM network provider. Excluding the effect of these
large nonrecurring items, as well as divestures in both periods, noninterest
income increased 14 percent in the second quarter 2000, compared to the second
quarter of 1999, primarily due to strong investment advisory fee growth at
Munder Capital Management. For the first six months of 2000, noninterest income
was $420 million, an increase of $69 million, or 20 percent, from the first six
months of 1999. In addition to the nonrecurring items identified in the
quarterly discussion, noninterest income for the first six months of 2000 also
included a gain of approximately $30 million on the sale of $457 million of
revolving check credit and bankcard loans in the first quarter. The increase in
year-to-date noninterest income after excluding nonrecurring items was primarily
attributable to the growth in investment advisory fee income cited above.
Noninterest Expenses
Noninterest expenses were $296 million for the second quarter ended
June 30, 2000, an increase of $7 million, or two percent, from the second
quarter of 1999. Included in noninterest expenses for the second quarter were
contributions
<PAGE> 22
to Comerica's charitable foundation of $6 million in 2000 and $5 million in
1999. For the first six months of 2000, noninterest expenses were $592 million,
an increase of $40 million, or seven percent, from the first six months of 1999.
Salaries and benefits expense, due to annual merit increases and higher levels
of revenue related-incentives, were the primary reasons for the increase in
expenses.
Provision for Income Taxes
The provision for income taxes for the second quarter of 2000 totaled
$99 million, an increase of 10 percent compared to $90 million reported for the
same period a year ago. The provision for the first six months of 2000 was $196
million compared to $173 million for the same period in 1999. The effective tax
rate was 35 percent for the second quarter and the first six months of 2000 and
1999.
Financial Condition
Total assets were $41.1 billion at June 30, 2000, compared with $37.0
billion at June 30, 1999. The Corporation has continued to generate growth in
corporate loans in 2000. Since December 31, 1999, domestic commercial loans have
increased $1.6 billion, or eight percent, real estate construction loans have
increased $337 million, or 20 percent, and commercial mortgage loans have
increased $287 million, or six percent. Short-term investments decreased $356
million from year-end 1999, due primarily to the sale of bankcard and revolving
check credit loans in the first quarter 2000, which were classified as held for
sale at December 31, 1999.
Total liabilities increased $2.2 billion, or six percent, since
December 31, 1999 to $37.4 billion. Total deposits increased to $25.3 billion at
June 30, 2000 from $23.3 billion at December 31, 1999. Total short-term
borrowings increased $583 million since year-end 1999 while medium- and
long-term debt decreased $365 million, or four percent.
<PAGE> 23
Allowance for Credit Losses and Nonperforming Assets
The allowance for credit losses represents management's assessment of
probable losses inherent in the Corporation's loan portfolio, including all
binding commitments to lend. The allowance provides for probable losses that
have been identified with specific customer relationships and for probable
losses believed to be inherent but that have not been specifically identified.
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. Internal risk ratings are assigned to each corporate loan at
the time of approval and are subject to subsequent periodic reviews by the
senior management of the Credit Policy Group. Corporate loans are defined as
those belonging to the commercial, international, real estate construction,
commercial mortgage and lease financing categories. A detailed credit quality
review is performed quarterly on large corporate loans which have deteriorated
below certain levels of credit risk. A specific portion of the allowance is
allocated to such loans based upon this review. The portion of the allowance
allocated to the remaining corporate loans is determined by applying projected
loss ratios to each risk rating based on numerous factors identified below. 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 charge-off experience, current
economic conditions and trends, geographic dispersion of borrowers, and trends
with respect to past due and nonaccrual amounts. The allocated reserve was $296
million at June 30, 2000 an increase of $25 million from year-end 1999. This
increase was attributable to an increase in the specific portion of the
allowance for corporate loans with deteriorated credit risk at June 30, 2000.
Actual loss ratios experienced in the future could vary from those
projected. This uncertainty occurs because other factors affecting the
determination of probable losses inherent in the loan portfolio may exist which
are not necessarily captured by the application of historical loss ratios. To
ensure a higher degree of confidence, an unallocated allowance is also
<PAGE> 24
maintained. The unallocated portion of the loss reserve reflects management's
view that the reserve should have a margin that recognizes the imprecision
underlying the process of estimating expected credit losses. Determination of
the probable losses inherent in the portfolio, which are not necessarily
captured by the allocated methodology discussed above, involves the exercise of
judgement. Factors which were considered in the evaluation of the adequacy of
the Corporation's unallocated reserve include portfolio exposures to the
healthcare, high technology and energy industries, customers engaged in
sub-prime lending, as well as Indonesian and Latin American transfer risks and
the risk associated with new customer relationships. The unallocated allowance
was $225 million at June 30, 2000, an increase of $20 million from December 31,
l999. This increase in the unallocated allowance was primarily due to increases
in loan balances to healthcare customers and risk assigned to the energy sector
due to the volatility of energy prices.
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 June 30, 2000, the allowance for credit losses was $521 million, an
increase of $44 million since December 31, 1999. The allowance as a percentage
of total loans was 1.49 percent, compared to 1.46 percent at December 31, 1999.
As a percentage of nonperforming assets, the allowance was 219 percent at June
30, 2000, versus 262 percent at year-end 1999.
Net charge-offs for the second quarter of 2000 were $16 million, or
0.19 percent of average total loans, compared with $21 million, or 0.26 percent,
for the year-earlier quarter. Net charge-offs for the first six months of 2000
were $45 million, or 0.27 percent of average total loans, compared to $40
million, or 0.26 percent, for the same period last year. An analysis of the
allowance for credit losses is presented in Note 5 to the year-end 1999
consolidated financial statements.
<PAGE> 25
Nonperforming assets increased $55 million, or 30 percent, since
December 31, 1999, and were categorized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
(in thousands) 2000 1999
------------ -----------
<S> <C> <C>
Nonaccrual loans:
Commercial $ 178,862 $ 110,606
International 25,242 44,046
Real estate construction 248 249
Commercial mortgage 16,728 9,620
Residential mortgage 505 572
------------ ----------
Total nonaccrual loans 221,585 165,093
Reduced-rate loans 5,806 7,347
------------ ----------
Total nonperforming
loans 227,391 172,440
Other real estate 10,089 9,595
------------ ----------
Total nonperforming
assets $ 237,480 $ 182,035
============ ==========
Loans past due 90 days or more $ 38,701 $ 47,676
============ ==========
</TABLE>
Nonperforming assets as a percentage of total loans and other real
estate were 0.68 percent at June 30, 2000 and 0.56 percent at December 31, 1999.
Capital
Common shareholders' equity increased $223 million from December 31,
1999 to June 30, 2000, excluding nonowner changes in equity. The increase was
primarily due to the retention of $230 million in earnings and a $5 million
increase related to employee stock plan activity, offset by a $13 million
decrease in equity from stock repurchase activity.
Capital ratios exceed minimum regulatory requirements as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- -----------
<S> <C> <C>
Leverage ratio (3.00 - minimum) 8.40% 8.39%
Tier 1 risk-based capital ratio
(4.0 - minimum) 6.82 6.95
Total risk-based capital ratio
(8.0 - minimum) 10.42 10.72
</TABLE>
<PAGE> 26
At June 30, 2000, 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
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, the impact of the Internet on banking, the entry of new competitors into
the banking industry as a result of the enactment of the Gramm-Leach-Bliley Act
of 1999, changing economic conditions and continuing consolidations in the
banking industry.
<PAGE> 27
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement re: Computation of Earnings Per Share
(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 June 30, 2000.
<PAGE> 28
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 and Chief Financial Officer
(Principal Financial Officer)
/s/Marvin J. Elenbaas
--------------------------------------
Marvin J. Elenbaas
Senior Vice President and Controller
(Principal Accounting Officer)
Date: August 11, 2000
<PAGE> 29
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
(11) Statement re: Computation of Earnings Per Share
(27) Financial Data Schedule
</TABLE>
