1
EXHIBIT 13
TABLE 1: SELECTED FINANCIAL DATA
Year Ended December 31
(dollar amounts in millions, except per share data) 1995 1994 1993 1992 1991
------ ------ ------ ----- ------
EARNINGS SUMMARY
Total interest income $2,614 $2,092 $1,783 $1,933 $2,268
Net interest income 1,300 1,230 1,134 1,121 1,050
Provision for loan losses 87 56 69 111 105
Securities gains 12 3 2 6 5
Noninterest income
(excluding securities gains) 487 447 447 393 370
Merger, integration and restructuring charge -- 7 22 128 --
Noninterest expenses (excluding merger,
integration and restructuring charge) 1,086 1,035 1,003 952 935
Net income 413 387 341 240 280
PER SHARE OF COMMON STOCK
Net income $3.54 $3.28 $2.85 $1.99 $2.41
Cash dividends declared 1.37 1.24 1.07 0.96 0.92
Common shareholders' equity 22.75 20.46 18.99 17.38 16.30
Market value 40.00 24.38 26.63 32.00 26.88
YEAR-END BALANCES
Total assets $35,470 $33,430 $30,295 $27,556 $28,989
Total earning assets 32,051 30,606 27,852 25,131 26,594
Total loans 24,442 22,209 19,100 18,215 17,269
Total deposits 23,167 22,432 20,950 21,200 21,142
Total borrowings 9,319 8,303 6,861 3,963 5,522
Medium- and long-term debt 4,644 4,098 1,461 741 306
Common shareholders' equity 2,608 2,392 2,182 2,058 1,898
DAILY AVERAGE BALANCES
Total assets $34,129 $31,451 $27,236 $26,510 $26,365
Total earning assets 31,537 29,038 25,012 24,510 24,374
Total loans 23,561 20,211 18,307 17,447 16,622
Total deposits 21,655 21,325 20,721 20,913 20,785
Total borrowings 9,639 7,527 4,105 3,275 3,380
Medium- and long-term debt 4,510 2,708 1,087 414 323
Common shareholders' equity 2,511 2,313 2,136 1,957 1,741
RATIOS
Return on average assets 1.21% 1.23% 1.25% 0.91% 1.06%
Return on average common shareholders' equity 16.46 16.74 15.94 12.10 15.90
Efficiency ratio 60.09 61.28 63.68 69.61 63.88
Dividend payout ratio 38.30 37.47 36.82 45.51 33.73
Common shareholders' equity as
a percent of average assets 7.36 7.35 7.84 7.38 6.60
14
2
1995 HIGHLIGHTS
REPORTED RECORD EARNINGS
- - Increased net income $26 million to $413 million, or $3.54 per share.
FOCUSED ON PERFORMANCE
- - Earned 16.46 percent on average common shareholders' equity.
- - Returned 1.21 percent on average assets.
SUSTAINED GROWTH
- - Grew average total assets 9 percent to $34.1 billion.
- - Reached $23.6 billion in average total loans, a 17 percent increase.
- - Increased average shareholders' equity $198 million to $2.5 billion.
ENHANCED SHAREHOLDERS' RETURN
- - Raised the quarterly cash dividend 9 percent to $0.35 per share.
- - Declared annual cash dividends of $1.37 per share.
COMPLETED STRATEGIC ACQUISITIONS
- - Acquired University Bank & Trust (University), a $490 million
California bank, for $69 million of common stock.
- - Acquired the $200 million QuestStar Bank, N.A., located in Texas,
for $25 million in cash.
- - Acquired the $1.2 billion Metrobank in California for $125 million of
common stock.
[RETURN ON ASSETS GRAPH]
EARNINGS PERFORMANCE
NET INTEREST INCOME
Net interest income, on a fully taxable equivalent (FTE) basis, is the
difference between interest earned on assets, including certain yield-related
fees, and interest paid on liabilities and reflects adjustments made to the
yields on tax-exempt assets in order to analyze tax-exempt income and fully
taxable income on a comparable basis. Net interest income (FTE) comprised 72.6
percent of net revenues, compared to 73.6 percent in 1994 and 72.1 percent in
1993.
Net interest income (FTE) rose 5 percent to $1,321 million in 1995,
primarily due to a 9 percent increase in average earning assets, which was
concentrated in commercial loans. Average total loans represented 75 percent of
average earning assets in 1995, compared to 70 percent in 1994. Growth in
interest income was partially offset by the utilization of higher costing
wholesale funds to support loan growth, as well as a shift by customers toward
higher-priced time deposits. Average purchased funds increased 28 percent in
1995 to $9.6 billion.
[NET INTEREST INCOME GRAPH]
The net interest margin for 1995 declined 13 basis points to 4.19 percent
from 4.32 percent last year, principally due to competition in asset pricing and
continued compression in rate spreads caused by higher funding costs. In
addition, significant loan growth coupled with runoff in investment securities
and temporary investments shifted the balance sheet structure to an asset
sensitive position for most of 1995. As a result, a reduction in the prime rate
in the second half of the year caused further compression in loan and deposit
spreads as rates on deposit products remained relatively unchanged due to market
competition.
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TABLE 2: ANALYSIS OF NET INTEREST INCOME--FTE
1995
--------------------------------
Average Average
(dollar amounts in millions) Balance Interest Rate
------- -------- ----
Commercial loans $11,302 $989 8.75%
International loans 1,257 89 7.06
Real estate construction loans 541 52 9.52
Commercial mortgage loans 3,157 297 9.40
Residential mortgage loans 2,450 191 7.80
Consumer loans 4,569 461 10.10
Lease financing 285 19 6.65
------- ------ ------
Total loans (1) 23,561 2,098 8.90
Investment securities available for sale (2) 2,833 186 6.50
Taxable securities 4,393 287 6.52
Securities exempt from federal income taxes 399 41 10.43
------- ------ ------
Total investment securities held
to maturity 4,792 328 6.85
Interest-bearing deposits with banks 126 8 6.39
Federal funds sold and securities purchased
under agreements to resell 124 7 5.97
Trading account securities 5 -- 6.51
Loans held for sale 96 8 7.75
------- ------ ------
Total earning assets 31,537 2,635 8.35
Cash and due from banks 1,500
Allowance for loan losses (340)
Accrued income and other assets 1,432
-------
Total assets $34,129
=======
NOW accounts $1,744 29 1.67
Money market deposit accounts 4,667 188 4.03
Savings deposits 2,277 48 2.14
Certificates of deposit 6,358 344 5.41
Foreign office deposits (3) 1,842 112 6.07
------- ------ ------
Total interest-bearing deposits 16,888 721 4.27
Federal funds purchased and securities
sold under agreements to repurchase 2,816 166 5.88
Other borrowed funds 2,313 136 5.87
Medium- and long-term debt 4,510 289 6.41
Other (4) -- 2 --
------- ------ ------
Total interest-bearing sources 26,527 1,314 4.95
Noninterest-bearing deposits 4,767
Accrued expenses and other liabilities 324
Common shareholders' equity 2,511
------- ------ ------
Total liabilities and shareholders' equity $34,129
=======
Net interest income/Rate spread (FTE) $1,321 3.40
======
FTE adjustment (5) $ 21
======
Impact of net noninterest-bearing
sources of funds 0.79
----
Net interest margin (as a percent of
average earning assets) (FTE) 4.19%
====
1994
--------------------------------
Average Average
(dollar amounts in millions) Balance Interest Rate
------- -------- ----
Commercial loans $ 9,598 $ 709 7.38%
International loans 1,107 62 5.58
Real estate construction loans 403 32 7.85
Commercial mortgage loans 2,916 248 8.52
Residential mortgage loans 2,175 162 7.46
Consumer loans 3,795 358 9.44
Lease financing 217 14 6.48
------- ------ -----
Total loans (1) 20,211 1,585 7.84
Investment securities available for sale (2) 3,044 168 5.50
Taxable securities 4,498 276 6.15
Securities exempt from federal income taxes 462 49 10.51
------- ------ -----
Total investment securities held
to maturity 4,960 325 6.55
Interest-bearing deposits with banks 552 22 3.96
Federal funds sold and securities purchased
under agreements to resell 116 5 4.06
Trading account securities 5 -- 1.67
Loans held for sale 150 11 7.31
------- ------ -----
Total earning assets 29,038 2,116 7.28
Cash and due from banks 1,532
Allowance for loan losses (322)
Accrued income and other assets 1,203
------- ------ -----
Total assets $31,451
=======
NOW accounts $ 1,805 30 1.66
Money market deposit accounts 4,787 143 2.99
Savings deposits 2,536 53 2.08
Certificates of deposit 5,681 239 4.21
Foreign office deposits (3) 1,816 78 4.28
------- ------ -----
Total interest-bearing deposits 16,625 543 3.26
Federal funds purchased and securities
sold under agreements to repurchase 2,817 121 4.31
Other borrowed funds 2,002 79 3.92
Medium- and long-term debt 2,708 148 5.46
Other (4) -- (29) --
------- ------ -----
Total interest-bearing sources 24,152 862 3.57
Noninterest-bearing deposits 4,700
Accrued expenses and other liabilities 286
Common shareholders' equity 2,313
------- ------ -----
Total liabilities and shareholders' equity $31,451
=======
Net interest income/Rate spread (FTE) $1,254 3.71
======
FTE adjustment (5) $ 24
======
Impact of net noninterest-bearing
sources of funds 0.61
-----
Net interest margin (as a percent of
average earning assets) (FTE) 4.32%
=====
1993
--------------------------------
Average Average
(dollar amounts in millions) Balance Interest Rate
------- -------- ----
Commercial loans $ 8,473 $ 556 6.56%
International loans 897 45 5.04
Real estate construction loans 441 29 6.63
Commercial mortgage loans 2,629 213 8.10
Residential mortgage loans 1,979 169 8.57
Consumer loans 3,697 369 9.98
Lease financing 191 14 7.34
------- ------ -----
Total loans (1) 18,307 1,395 7.62
Investment securities available for sale (2) n/a n/a n/a
Taxable securities 4,893 305 6.23
Securities exempt from federal income taxes 619 64 10.25
------- ------ -----
Total investment securities held
to maturity 5,512 369 6.70
Interest-bearing deposits with banks 814 28 3.41
Federal funds sold and securities purchased
under agreements to resell 135 4 2.99
Trading account securities 12 1 6.76
Loans held for sale 232 15 6.38
------- ------ -----
Total earning assets 25,012 1,812 7.25
Cash and due from banks 1,490
Allowance for loan losses (311)
Accrued income and other assets 1,045
-------
Total assets $27,236
=======
NOW accounts $1,657 37 2.23
Money market deposit accounts 4,723 129 2.73
Savings deposits 2,494 67 2.67
Certificates of deposit 6,161 254 4.13
Foreign office deposits (3) 1,306 43 3.29
------- ------ -----
Total interest-bearing deposits 16,341 530 3.24
Federal funds purchased and securities
sold under agreements to repurchase 1,586 47 3.01
Other borrowed funds 1,432 41 2.88
Medium- and long-term debt 1,087 63 5.77
Other (4) -- (32) --
------- ------ -----
Total interest-bearing sources 20,446 649 3.18
Noninterest-bearing deposits 4,380
Accrued expenses and other liabilities 274
Common shareholders' equity 2,136
------- ------ -----
Total liabilities and shareholders' equity $27,236
=======
Net interest income/Rate spread (FTE) $1,163 4.07
======
FTE adjustment (5) $ 29
======
Impact of net noninterest-bearing
sources of funds 0.58
-----
Net interest margin (as a percent of
average earning assets) (FTE) 4.65%
=====
(1) Nonaccrual loans are included in average balances reported and are used to
calculate rates.
(2) Average investment securities available for sale were primarily taxable.
(3) Includes substantially all deposits by foreign depositors; deposits are in
excess of $100,000.
(4) Net interest rate swap (income)/expense. If swap (income)/expense were
allocated, average rates on total loans would have been 8.84% in 1995, 7.75% in
1994 and 7.42% in 1993; average rates on medium- and long-term debt would have
been 6.14% in 1995, 5.10% in 1994 and 5.94% in 1993.
(5) The FTE adjustment is computed using a federal income tax rate of 35%.
n/a Not applicable
16
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The Corporation implemented various asset and liability management
strategies in 1995 to minimize exposure to net interest margin risk, which
represents the potential reduction in net interest income that may result from
rate spread compression between, for example, prime and market rates or core
deposit and money market rates. Such strategies included permitting investment
securities and temporary investments to run off in order to facilitate growth in
higher-yielding loans and shifting from federal funds purchased to short- and
medium-term debt issuances to lengthen the maturity of funding sources.
Off-balance sheet interest rate swaps were also entered into during the second
half of the year to effectively fix high yields on certain variable rate loans
and reduce interest expense associated with certain fixed rate liabilities.
Refer to page 28 of this financial review for additional information regarding
the Corporation's asset and liability management policies.
TABLE 3: RATE-VOLUME ANALYSIS--FTE
1995 / 1994 1994 / 1993
---------------------------------- ---------------------------------
Increase Increase
Increase (Decrease) Net Increase (Decrease) Net
(Decrease) Due to Increase (Decrease) Due to Increase
(in millions) Due to Rate Volume* (Decrease) Due to Rate Volume* (Decrease)
----------- --------- ---------- ----------- ---------- ----------
Interest income (FTE)
Commercial loans $131 $149 $280 $ 70 $ 83 $153
International loans 16 11 27 5 12 17
Real estate construction loans 7 13 20 6 (3) 3
Commercial mortgage loans 26 23 49 11 24 35
Residential mortgage loans 7 22 29 (22) 15 (7)
Consumer loans 25 78 103 (20) 9 (11)
Lease financing -- 5 5 (2) 2 --
---- ---- ---- ---- ---- ----
Total loans 212 301 513 48 142 190
Investment securities available for sale 31 (13) 18 (27) 195 168
Taxable securities 17 (6) 11 (5) (24) (29)
Securities exempt from federal income taxes (1) (7) (8) 2 (17) (15)
---- ---- ---- ---- ---- ----
Total investment securities held to maturity 16 (13) 3 (3) (41) (44)
Interest-bearing deposits with banks 13 (27) (14) 4 (10) (6)
Federal funds sold and securities
purchased under agreements to resell 2 -- 2 2 (1) 1
Trading account securities -- -- -- (1) -- (1)
Loans held for sale 1 (4) (3) 2 (6) (4)
---- ---- ---- ---- ---- ----
Total interest income (FTE) 275 244 519 25 279 304
Interest expense
NOW accounts -- (1) (1) (10) 3 (7)
Money market deposit accounts 50 (5) 45 12 2 14
Savings deposits 1 (6) (5) (15) 1 (14)
Certificates of deposit 68 37 105 5 (20) (15)
Foreign office deposits 32 2 34 13 22 35
---- ---- ---- ---- ---- ----
Total interest-bearing deposits 151 27 178 5 8 13
Federal funds purchased and securities
sold under agreements to repurchase 45 -- 45 21 53 74
Other borrowed funds 39 18 57 15 23 38
Medium- and long-term debt 26 115 141 (3) 88 85
Other (1) 31 -- 31 3 -- 3
---- ---- ---- ---- ---- ----
Total interest expense 292 160 452 41 172 213
---- ---- ---- ---- ---- ----
Net interest income (FTE) $(17) $ 84 $ 67 $(16) $107 $ 91
==== ==== ==== ==== ==== ====
* Rate/volume variances are allocated to variances due to volume.
(1) Net interest rate swap income.
17
5
In 1994, net interest income (FTE) increased 8 percent over 1993,
benefiting from strong growth in average earning assets, primarily commercial
and consumer loans. However, the net interest margin for 1994 declined 33 basis
points from 1993. Compression in the margin reflected narrower rate spreads
between average earning assets and average interest-bearing liabilities. The
Corporation's balance sheet structure was also in a slightly liability
sensitive position during this period.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents management's assessment of possible
losses inherent in the Corporation's loan portfolio and is determined based on
the application of projected loss ratios to risk-rated loans, both individually
and by category. Projected loss ratios incorporate factors such as recent loan
loss experience, current economic conditions and trends, geographic dispersion
of borrowers, trends with respect to past due and nonaccrual amounts, risk
characteristics of various categories and concentrations of loans, and transfer
risks. The provision for loan losses reflects management's evaluation of the
adequacy of the allowance for loan losses. This evaluation is performed on a
quarterly basis.
The provision for loan losses was $87 million in 1995, compared to $56
million in 1994 and $69 million in 1993. The increase in the provision in 1995
primarily reflects higher net charge-offs related to consumer loans. The rise
in consumer loan net charge-offs largely resulted from significant portfolio
growth as customers responded to bankcard promotions begun in the third quarter
of 1994. Management took steps early in 1995 to reduce potential losses in the
consumer loan portfolio by tightening the credit criteria used for bankcard
marketing purposes. In late 1995, the Corporation sold $333 million of the
bankcard portfolio. Net charge-offs related to the sold portfolio accounted for
$27 million of the $28 million increase in total net charge-offs during the
year.
Total net charge-offs increased to $76 million in 1995, compared to $48
million and $78 million in 1994 and 1993, respectively. The ratio of net loans
charged-off to average total loans, while still historically low, increased to
0.32 percent in 1995 from 0.24 percent in 1994. Commercial loan net charge-offs
as a percentage of average commercial loans was 0.12 percent for 1995, compared
to 0.10 percent in 1994. Consumer loan net charge-offs as a percentage of
average consumer loans was 1.31 percent and 0.69 percent for 1995 and 1994,
respectively.
[NET LOANS CHARGED OFF TO AVERAGE LOANS GRAPH]
At December 31, 1995, the allowance for loan losses was $341 million,
an increase of $15 million since year-end 1994. Due to the magnitude of loan
growth during 1995, the allowance as a percentage of total loans declined
slightly to 1.40 percent from 1.47 percent at December 31, 1994. However, the
allowance as a percentage of total nonperforming assets increased to 209
percent at December 31, 1995 from 160 percent at year-end 1994. The Corporation
adopted Statement of Financial Accounting Standard (SFAS) Nos. 114 and 118
regarding the accounting for impaired loans in the first quarter of 1995
without impact to the consolidated financial statements.
An estimated allocation of the allowance for loan losses is provided in
Table 8 on page 24. The increase in the allowance allocated to consumer loans
primarily reflects a higher level of past due bankcard accounts similar to that
experienced by the industry as a whole.
NONINTEREST INCOME
Year Ended December 31
(in millions) 1995 1994 1993
- --------------------------- ---- ---- ----
Income from fiduciary activities $125 $122 $122
Service charges on deposit accounts 130 124 120
Customhouse broker fees 36 41 40
Revolving credit fees 36 24 23
Securities gains 12 3 2
Other 160 136 142
---- ---- ----
Total noninterest income $499 $450 $449
==== ==== ====
Noninterest income grew $49 million, or 11 percent, to $499 million in
1995, compared to $450 million and $449 million in 1994 and 1993, respectively.
After adjusting for acquisitions, noninterest income rose $37 million, or 8
percent, in 1995.
18
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Table 4: ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
Year Ended December 31
(dollar amounts in millions) 1995 1994 1993 1992 1991
- -------------------------------- ---- ---- ---- ---- ----
Balance at beginning of period $ 326 $ 299 $ 308 $ 279 $ 265
Allowance of institutions and loans purchased/sold 4 19 -- 17 6
Loans charged off
Domestic
Commercial 33 25 36 47 47
Real estate construction 3 1 1 4 8
Commercial mortgage 8 17 20 8 9
Residential mortgage 2 -- 1 1 2
Consumer 73 40 52 60 59
Lease financing -- -- -- 1 1
----- ----- ----- ----- -----
Total loans charged off 119 83 110 121 126
Recoveries
Domestic
Commercial 19 15 18 9 15
Real estate construction 3 -- -- 1 --
Commercial mortgage 8 5 2 1 2
Residential mortgage -- -- -- 1 1
Consumer 13 14 12 10 9
International -- 1 -- -- 2
----- ----- ----- ----- -----
Total recoveries 43 35 32 22 29
----- ----- ----- ----- -----
Net loans Charged Off 76 48 78 99 97
Provision for loan losses 87 56 69 111 105
----- ----- ----- ----- -----
Balance at end of period $ 341 $ 326 $ 299 $ 308 $ 279
===== ===== ===== ===== =====
Ratio of allowance for loan losses to total loans
at end of period 1.40% 1.47% 1.56% 1.69% 1.62%
Ratio of net loans charged off during the period
to average loans outstanding during the period 0.32% 0.24% 0.43% 0.57% 0.58%
Income from fiduciary activities increased $3 million, or 3 percent, in
1995, while remaining flat in 1994. Fiduciary income was positively impacted in
1995 by a $7 million, or 11 percent, increase in personal trust fees due to an
expanded customer base and improved market values of assets under management
resulting from strong market performance. Total trust assets under management
increased to $91 billion at December 31, 1995 from $77 billion at year-end 1994.
Discretionary funds, which represent trust assets over which the Corporation has
investment management authority, decreased $5 billion to $22 billion from $27
billion in 1994. This decline resulted primarily from the transfer of investment
management authority over a number of institutional trust assets to Munder
Capital Management (Munder), the investment advisory firm in which the
Corporation acquired a minority interest in December 1994.
Service charges on deposit accounts rose $6 million, or 5 percent, in 1995,
compared to an increase of $4 million, or 3 percent, in 1994. Excluding the
impact of acquisitions, service charges were up 2 percent in 1995. This growth
represents the net result of fee increases on retail accounts and a decrease in
commercial account fees as the Corporation passed on to corporate customers the
savings realized from a reduction in FDIC insurance expense in the third
quarter.
Customhouse broker fees were down $5 million in 1995 after increasing
moderately last year, principally reflecting a decline in transaction volumes
resulting from mid-year 1994 branch sales.
Revolving credit fee income rose $12 million, or 47 percent, in 1995,
compared to an increase of $1 million, or 8 percent, in 1994. Excluding the
effects of acquisitions, revolving credit fees increased 41 percent. The higher
fees were primarily due to significant growth in the bankcard portfolio. Also
contributing to the increase was the development of new merchant relationships
which resulted in the generation of additional merchant and bankcard interchange
fee income.
Securities gains increased $9 million in 1995, representing primarily gains
of $11 million on the sale of Brady bonds (Latin American debt secured by U.S.
Government securities) and U.S. Government agency securities.
19
7
Other noninterest income grew $24 million, or 17 percent, in 1995 after
declining $6 million in 1994. Excluding the impact of acquisitions, other
noninterest income rose 15 percent. This increase was primarily due to income
received from Munder totaling $8 million in 1995 and management's continued
emphasis on revenue growth through sales of nontraditional bank products such as
life insurance, annuities, and mutual funds. Commissions and fees related to
these products increased $4 million, or 43 percent, in 1995 from $9 million last
year. The Corporation adopted SFAS No. 122, "Accounting for Mortgage Servicing
Rights," in 1995 without significant impact to the consolidated financial
statements.
[NONINTEREST INCOME GRAPH]
No significant nonrecurring items were included in other noninterest income
in 1995. In 1994, other noninterest income included a $7 million gain on bulk
sales of originated mortgage servicing rights and $7 million in gains on
international loan sales. Significant nonrecurring items reflected in other
noninterest income in 1993 included a $24 million gain on the sale of land.
NONINTEREST EXPENSES
Year Ended December 31
(in millions) 1995 1994 1993
- ---------------------- ---- ---- ----
Salaries $ 466 $ 455 $ 434
Employee Benefits 96 94 95
----- ----- -----
Total salaries and
employee benefits 562 549 529
Net occupancy expense 99 99 96
Equipment expense 68 68 62
FDIC insurance expense 24 44 44
Telecommunications expense 29 27 21
Merger, integration and
restructuring expense -- 7 22
Other 304 248 251
----- ----- -----
Total noninterest expenses $1,086 $1,042 $1,025
===== ===== =====
Noninterest expenses increased 4 percent to $1,086 million in 1995,
compared to $1,042 million in 1994 and $1,025 million in 1993. Excluding the
effect of acquisitions, noninterest expenses increased $10 million, or 1
percent, in 1995.
Total salaries expense increased $11 million, or 3 percent, in 1995 versus
$21 million, or 5 percent, in 1994. Excluding the effect of acquisitions,
salaries declined slightly during the year reflecting a modest decline in staff
levels and further reductions in overtime hours and temporary help. The number
of full-time equivalent employees decreased 201 from year-end 1994, even with
the addition of 273 employees from 1995 acquisitions. SFAS No. 123, "Accounting
for Stock-Based Compensation," was issued by the Financial Accounting Standards
Board (FASB) and is effective for 1996 financial statements. The Corporation
will not adopt the recognition provisions of SFAS No. 123, but will continue
accounting for stock options in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted by the
new standard.
Employee benefits expense rose $2 million, or 2 percent, in 1995 after
declining slightly in 1994. After adjusting for acquisitions, employee benefits
remained relatively flat from year to year.
Net occupancy and equipment expenses, on a combined basis, were unchanged
after increasing $9 million last year, as costs acquired from acquisitions were
offset by declines in repair and maintenance expense and property taxes from
branch consolidations.
The Federal Deposit Insurance Corporation (FDIC) adopted a new assessment
rate schedule for Bank Insurance Fund (BIF) members in the third quarter of
1995. The new rate schedule, which continues to determine assessments based on a
bank's risk-based capital levels, reduced each subsidiary bank's annual BIF
deposit insurance premium for 1995 from 23.0 cents to 4.0 cents per $100 of
insured domestic deposits. The lower rate translated into a $20 million savings
in FDIC insurance expense for the Corporation in 1995. In the fourth quarter of
1995, the FDIC voted to lower 1996 deposit insurance premiums to the legal
annual minimum of $2,000 for well-capitalized banks. Consolidated FDIC insurance
expense for 1996 is expected to be significantly lower since each subsidiary
bank qualifies for this premium reduction. In addition, Congress is considering
passing legislation that will require the FDIC to refund to banks any amount in
the BIF that exceeds the required reserve ratio of 1.25 percent of insured
deposits.
20
8
[NONINTEREST EXPENSES GRAPH]
In 1996, the Corporation may be subject to a one-time assessment levied on
banks with thrift deposits in order to recapitalize the Savings Association
Insurance Fund (SAIF). Based on current proposals, the Corporation's assessment
would range from $5 million to $8 million. Congress may also require banks to
contribute 2.5 cents per $100 of insured deposits to help pay a large portion of
the annual interest due on the Financing Corporation bonds issued during the
savings and loan crises. This proposal, if passed, would cost the Corporation
approximately $5 million annually on a pretax basis over the next 20 years.
Other noninterest expenses rose $56 million in 1995, compared to a slight
decrease in 1994. Included in other noninterest expenses is a $16 million loss
on the sale of a portion of the bankcard loan portfolio. Excluding acquisitions
and the loss on the sale of bankcard loans, other noninterest expenses rose $20
million, or 8 percent. Contributing to the rise in other noninterest expenses
was a $7 million increase in bankcard fee expense from the issuance of
additional bankcards during special promotions begun in 1994. Net amortization
of intangible assets, excluding purchased mortgage servicing rights, increased
$4 million, of which $2 million represents goodwill amortization related to 1995
acquisitions.
The Corporation's efficiency ratio, defined as total noninterest expenses
divided by the sum of net interest income (FTE) and noninterest income,
excluding net securities gains, improved to 60.09 percent in 1995, compared to
61.28 percent in 1994 and 63.68 percent in 1993.
INCOME TAXES
The provision for income taxes was $212 million in 1995, compared to $195
million in 1994 and $148 million in 1993. The effective tax rate, computed by
dividing the provision for income taxes by income before income taxes, increased
to 33.9 percent for 1995 from 33.5 percent in 1994 and 30.3 percent in 1993. The
increase in the effective tax rate over prior years reflects relatively lower
levels of tax-exempt interest income.
STRATEGIC LINES OF BUSINESS
The Corporation has strategically aligned its operations into three major
lines of business: the Business Bank, the Individual Bank, and the Investment
Bank. Table 5 on page 22 presents the financial results of these business lines
for the years ended December 31, 1995 and 1994.
Lines of business results are produced by the Corporation's internal
management accounting system. This system measures financial results based on
the internal organizational structure of the Corporation; therefore, the
information presented is not necessarily comparable with similar information for
any other financial institution. The management accounting system assigns
balance sheet and income statement items to each line of business using certain
methodologies which are constantly being refined. For comparability purposes,
both 1995 and 1994 amounts are based on methodologies in effect at December 31,
1995. These methodologies, which are briefly summarized in the following
paragraph, may be modified as management accounting systems are enhanced and
changes occur in the organizational structure or product lines.
The Corporation's internal funds transfer pricing system records cost of
funds or credit for funds using a combination of a matched maturity funding
concept for certain assets and liabilities and a pooled funding concept for
others. The loan loss provision is assigned based on actual loan loss experience
adjusted for loan growth. Noninterest income and expenses directly attributable
to a line of business are assigned to that business. Direct expenses incurred by
areas whose services support the overall Corporation are allocated to the
business lines as follows: product processing expenditures are allocated based
on standard unit costs applied to actual volume measurements; administrative
expenses are allocated based on estimated time expended; and corporate overhead
is assigned based on the ratio of a line of business's noninterest expenses to
total noninterest expenses incurred by all business lines. Common equity is
allocated based on credit, operational, and business risks.
21
9
Table 5: STRATEGIC LINES OF BUSINESS FINANCIAL RESULTS
Business Bank Individual Bank Investment Bank*
---------------- ------------------- ------------------
(dollar amounts in millions) 1995 1994 1995 1994 1995 1994
---------------- ------------------- ------------------
EARNINGS SUMMARY
Net interest income (FTE) $ 518 $ 428 $ 759 $ 671 $ (2) $ 1
Provision for loan losses 34 32 72 43 n/a n/a
Noninterest income 204 198 255 223 30 26
Noninterest expenses 341 325 658 642 27 26
Provision for income taxes 125 97 99 75 -- --
Net income 222 172 185 134 1 1
SELECTED AVERAGE BALANCES
Assets $15,357 $12,762 $ 9,481 $ 8,849 $ 10 $ 22
Loans 14,594 12,061 8,746 7,939 n/a n/a
Deposits 2,867 2,713 16,551 16,478 n/a n/a
Common equity 847 701 848 763 3 3
STATISTICAL DATA
Return on average assets 1.45% 1.35% 0.78% 0.59% 5.70% 4.40%
Return on average equity 26.27 24.54 21.83 17.51 19.00 32.30
Efficiency ratio 47.89 52.50 64.83 71.30 96.91 94.40
Other Total
---------------- -------------------
(dollar amounts in millions) 1995 1994 1995 1994
---------------- -------------------
EARNINGS SUMMARY
Net interest income (FTE) $ 46 $ 154 $ 1,321 $ 1,254
Provision for loan losses (19) (19) 87 56
Noninterest income 10 3 499 450
Noninterest expenses 60 49 1,086 1,042
Provision for income taxes 10 47 234 219
Net income 5 80 413 387
SELECTED AVERAGE BALANCES
Assets $9,281 $9,818 $34,129 $31,451
Loans 221 211 23,561 20,211
Deposits 2,237 2,134 21,655 21,325
Common equity 813 846 2,511 2,313
STATISTICAL DATA
Return on average assets 0.03% 0.82% 1.21% 1.23%
Return on average equity 0.63 9.49 16.46 16.74
Efficiency ratio 116.69 32.75 60.09 61.28
* Revenues and associated expenses resulting from Investment Bank activities are
distributed to the business line which manages the customer relationship.
n/a Not applicable
The following discussion provides information about each line of business,
along with an explanation of factors impacting 1995 performance.
The BUSINESS BANK is comprised of middle market lending, large corporate
banking, international financial services, customhouse brokerage services, and
institutional trust. This line of business meets the needs of medium-size
businesses, multinational corporations, and governmental entities by offering
various products and services, including commercial loans and lines of credit,
deposits, cash management, corporate and institutional trust, international
trade finance, letters of credit and foreign exchange management services.
Net income increased $50 million, or 29 percent, in 1995, principally
due to additional net interest income resulting from 21 percent average loan
growth, which was concentrated in middle market commercial loans.
The INDIVIDUAL BANK includes consumer lending, consumer deposit gathering,
mortgage loan origination and servicing, small business banking, and private
banking. This line of business offers a variety of consumer products, including
deposit accounts, direct and indirect installment loans, credit cards, home
equity lines of credit, and residential mortgage loans. In addition, a full
range of financial services are provided to local companies with annual sales
under $5 million, area merchants and municipalities. Private lending and
personal trust services are also provided to meet the personal financial needs
of affluent individuals (as defined by individual net income or wealth).
Net income increased $51 million, or 38 percent, in 1995, due to higher
levels of net interest income in consumer lending and increased rate spreads for
small business banking. A wider interest margin also benefited net interest
income as the consumer portfolio became more weighted toward higher-yielding
bankcard loans and the spread between consumer deposit rates and market rates
expanded. The rise in net interest income was partially offset by an increase
in the provision for loan losses related to credit card loans.
The INVESTMENT BANK is responsible for the sales of mutual fund and annuity
products, as well as life, disability, and long-term care insurance products.
This line of business also offers capital market products, manages loan
syndications and provides investment management and advisory services,
investment banking, and discount securities brokerage services.
Net income remained flat from 1994 to 1995 as costs were incurred to
develop the products and services offered by these emerging businesses. For
example, the Corporation established a partnership with an investment management
and advisory firm in December 1994 and made recent acquisitions within the
insurance and investment banking industries. Future revenue growth and improved
profitability are expected as management continues to focus on providing high
quality investment services in an efficient manner.
The OTHER category includes the income and expense impact of cash and loan
loss reserves not assigned to specific business lines, miscellaneous other items
of a corporate nature, and certain direct expenses not allocated to business
lines. The Corporation's securities portfolio and asset and liability management
activities are also reflected in these amounts.
Net income declined $75 million, or 94 percent, in 1995 due to interest
margin compression. Loan growth in the Business Bank and Individual Bank, which
exceeded core deposit growth, was partially funded by short-term, rate-
sensitive liabilities. Margin compression resulted as interest rates rose during
the first half of the year. Such volatility in the interest rate environment is
absorbed in the Other category.
22
10
Table 6: ANALYSIS OF INVESTMENT SECURITIES AND LOANS
December 31
(in millions) 1995 1994 1993 1992 1991
- ---------------------- ---- ---- ---- ---- ----
Investment securities available for sale
U.S. Government and agency securities $ 6,038 $ 2,674 $ 2,164 $ n/a $ n/a
State and municipal securities 371 -- -- n/a n/a
Other securities 450 232 158 n/a n/a
------- ------- ------- ------- -------
Total investment securities available for sale 6,859 2,906 2,322 n/a n/a
Investment securities held to maturity
U.S. Government and agency securities -- 4,462 3,232 3,824 3,542
State and municipal securities -- 422 513 693 889
Other securities -- 86 233 646 1,275
------- ------- ------- ------- -------
Total investment securities held to maturity -- 4,970 3,978 5,163 5,706
------- ------- ------- ------- -------
Total investment securities $ 6,859 $ 7,876 $ 6,300 $ 5,163 $ 5,706
======= ======= ======= ======= =======
Commercial loans $12,041 $10,634 $ 9,087 $ 8,213 $ 7,568
International loans
Government and official institutions 6 18 143 156 156
Banks and other financial institutions 583 660 671 323 148
Other 796 517 322 257 245
------- ------- ------- ------- -------
Total international loans 1,385 1,195 1,136 736 549
Real estate construction loans 641 414 437 471 521
Commercial mortgage loans 3,254 3,056 2,700 2,666 2,315
Residential mortgage loans 2,221 2,436 1,857 2,126 2,462
Consumer loans 4,570 4,215 3,674 3,836 3,654
Lease financing 330 259 209 167 200
------- ------- ------- ------- -------
Total loans $24,442 $22,209 $19,100 $18,215 $17,269
======= ======= ======= ======= =======
n/a Not applicable
BALANCE SHEET AND CAPITAL FUNDS ANALYSIS
Total assets were $35.5 billion at year-end 1995, representing a $2.0 billion
increase from December 31, 1994. On an average basis, total assets increased to
$34.1 billion in 1995 from $31.5 billion in 1994. This increase was funded
primarily by purchased funds, which rose on average $2.1 billion.
EARNING ASSETS
The average balance of domestic commercial loans, which is comprised of
commercial and commercial mortgage loans, increased $1.9 billion, or 16
percent, from 1994. Real estate construction loans also rose on average $138
million, or 34 percent, in 1995. This growth, along with an increase of
approximately 11 percent in commercial loan commitments to extend credit, is
attributable to effective marketing efforts, strong customer relationships and
continued economic strength in the commercial loan markets.
Average international loans increased $150 million, consisting largely
of loans originated to facilitate trade with limited cross-border risk. The
Corporation's cross-border exposure to any one country has not exceeded 0.75
percent of assets from 1993 to 1995.
Average residential mortgage loans increased $275 million, primarily due
to the acquisition of University and the origination of over $200 million of
residential mortgages late in 1994 which were retained in the loan portfolio.
Average consumer loans rose $774 million representing increases in all consumer
loan categories. Average bankcard loans rose $440 million, while average
installment and revolving credit loans increased $274 million and $60 million,
respectively. The bankcard portfolio continued to grow as a result of
promotional campaigns for bankcard products begun last year. In late 1995, the
Corporation sold $333 million of the bankcard portfolio. Increases in average
installment loans reflect continued expansion in California and Texas markets
related to marine and recreational vehicle loan products, as well as growth in
fixed rate home equity loans. Average revolving credit loan growth resulted from
efforts to encourage customers to activate current unsecured check credit
products.
Average investment securities declined to $7.6 billion in 1995, compared
to $8.0 billion in 1994, reflecting sales and runoff of securities primarily to
fund growth in higher-yielding loans. Average U.S. Government and agency
securities decreased $248 million, while average state and municipal securities
and average other securities declined $63 million and
23
11
TABLE 7: LOAN MATURITIES AND INTEREST RATE SENSITIVITY
After One
December 31, 1995 Within But Within After
(in millions) One Year* Five Years Five Years Total
- --------------------- --------- ---------- ---------- -----
Commercial loans $8,937 $2,523 $581 $12,041
Commercial mortgage loans 920 1,851 483 3,254
International loans 1,270 114 1 1,385
Real estate construction loans 386 210 45 641
------- ------ ------ -------
Total $11,513 $4,698 $1,110 $17,321
======= ====== ====== =======
Loans maturing after one year
Predetermined interest rates $2,149 $654
Floating interest rates 2,549 456
------ ------
Total $4,698 $1,110
====== ======
* Includes demand loans, loans having no stated repayment schedule or maturity,
and overdrafts.
TABLE 8: ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
1995 1994 1993
--------------------- --------------------- ---------------------
Percent Percent Percent
December 31 Allocated of Total Allocated of Total Allocated of Total
(dollar amounts in millions) Allowance Loans Allowance Loans Allowance Loans
- ---------------------------- --------------------- --------------------- ---------------------
Domestic
Commercial $118 49% $119 48% $123 48%
Real estate construction 5 3 6 2 4 2
Commercial mortgage 33 13 35 14 26 14
Residential mortgage 2 9 2 11 3 10
Consumer 84 19 60 19 60 19
Lease Financing 1 1 1 1 1 1
International 2 6 3 5 18 6
Unallocated 96 -- 100 -- 64 --
---- --- ---- --- ---- ---
Total $341 100% $326 100% $299 100%
==== === ==== === ==== ===
1992 1991
--------------------- --------------------
Percent Percent
December 31 Allocated of Total Allocated of Total
(dollar amounts in millions) Allowance Loans Allowance Loans
- ---------------------------- --------------------- ---------------------
Domestic
Commercial $120 45% $81 44%
Real estate construction 9 2 12 3
Commercial mortgage 37 15 20 14
Residential mortgage 6 12 1 14
Consumer 59 21 55 21
Lease Financing 2 1 2 1
International 39 4 54 3
Unallocated 36 -- 54 --
---- --- ---- ---
Total $308 100% $279 100%
==== === ==== ===
$46 million, respectively. The Corporation has shifted away from purchasing
on-balance sheet securities to balance interest rate sensitivity and preserve
net interest margin to purchasing off-balance sheet interest rate swaps that
accomplish the same objective. The decline in U.S. Government and agency
securities principally resulted from paydowns, while the tax-exempt portfolio of
state and municipal securities continued to decrease as reduced tax advantages
for these types of securities deterred additional investment. Other securities
consist primarily of collateralized mortgage obligations (CMOs) and Brady bonds.
The decline in other securities during the year was mainly a result of calls,
maturities and payments received on CMOs.
All held to maturity securities were redesignated to the available for
sale category in December 1995 in accordance with the one-time provisions issued
in conjunction with the FASB's Special Report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities." This reclassification will increase the Corporation's flexibility
in managing interest rate risk and liquidity needs. At the date of transfer the
amortized cost of the held to maturity securities was $4.6 billion. The
after-tax net unrealized holding gain or loss on available for sale securities
is reported as a separate component of shareholders' equity and totaled a $4
million loss in 1995 and a $55 million loss in 1994. $6 million of the 1995 net
unrealized loss resulted from the redesignation of held to maturity securities.
OTHER EARNING ASSETS
Short-term investments in interest-bearing deposits with banks, federal funds
sold, and securities purchased under agreements to resell provide a range of
maturities under one year to supplement corporate liquidity. Interest-bearing
deposits with banks are investments with banks in developed countries or foreign
banks' international banking facilities
24
12
located in the United States. Federal funds sold provide a vehicle to control
the reserve position and serve correspondent banks, as well as offer earnings
opportunities. As a result of the emphasis on higher-yielding loans, short-
term investments declined on average $418 million during 1995.
Loans held for sale totaled $512 million in 1995 compared to $92
million in 1994. The year-end 1995 balance includes the receivable established
as a result of the 1995 sale of a portion of the bankcard portfolio having a
fair value of $320 million. This transaction was subsequently settled in early
1996.
TABLE 9: MATURITY DISTRIBUTION OF DOMESTIC CERTIFICATES OF DEPOSIT OF $100,000
AND OVER
December 31
(in millions) 1995
- ----------------- ----
Three months or less $1,143
Over three months to six months 307
Over six months to twelve months 291
Over twelve months 229
------
Total $1,970
======
DEPOSITS AND BORROWED FUNDS
Total deposits rose to $23.2 billion at December 31, 1995, a 3 percent increase
from the prior year. Excluding the impact of acquisitions, deposits would have
increased less than 1 percent, reflecting the continued trend of interest-
sensitive customers investing in higher-yielding deposit alternatives,
including mutual funds. Total deposits increased less than 2 percent during
1994, excluding acquisitions.
The average mix of deposits also reflected the consumer's desire for
higher deposit interest rates. As interest rates rose during the year, average
certificates of deposits increased $677 million while more liquid savings and
money market deposit accounts declined on average $379 million. Foreign office
deposits also decreased slightly to $2.1 billion from $2.4 billion at December
31, 1994.
As the deposit base remained relatively flat, greater reliance on
medium- and long-term debt provided the necessary funding to support expanding
loan volumes. The interest rates associated with medium-term notes create a
funding source with maturities ranging from nine months to 15 years and
durations that are similar to deposit liabilities. Long-term subordinated
notes help maintain the bank's total capital ratio at the level that qualifies
for the lowest FDIC risk-based insurance premium and supports acquisition
activity. The Corporation issued $150 million of long-term notes during the
year. Medium-term borrowings increased $400 million, representing the net
result of the issuance of $2.7 billion and the maturity of $2.3 billion of
notes during 1995. Further information on the Corporation's medium- and long-
term debt is included in Note 9 to the consolidated financial statements on
page 41.
CAPITAL
Shareholders' equity totaled $2.6 billion at December 31, 1995, a 9 percent
increase from $2.4 billion at year-end 1994. The increased equity represents
primarily earnings retention of $255 million, treasury shares totaling $77
million issued for acquisitions, $11 million of common stock issued for
employee stock plans, and a change of $51 million in unrealized losses on
available for sale securities. These items were partially offset by the
repurchase of 1.4 million shares into treasury and the purchase and retirement
of 4.2 million shares relating to the Metrobank acquisition.
The Corporation's capital ratios exceeded the minimum levels prescribed
by the Federal Reserve Board, as shown in the following table.
CAPITAL RATIOS
December 31
(dollar amounts in millions) 1995 1994
- ---------------------------- ---- ----
Tier 1 (core) capital
Shareholders' equity $ 2,608 $ 2,392
Less: Goodwill and other
disallowed intangibles 250 214
Less: Unrealized gains and (losses) (4) (55)
------- -------
Total tier 1 capital $ 2,362 $ 2,233
------- -------
Tier 2 (supplemental) capital
Qualifying subordinated debt $ 767 $ 648
Eligible allowance for loan losses 341 326
------- -------
Total tier 2 capital $ 1,108 $ 974
------- -------
Total capital $ 3,470 $ 3,207
======= =======
Assets
Risk-weighted assets (net) $30,969 $27,466
Average quarterly assets (net) $34,381 $32,197
Risk-based ratios
Tier 1 (minimum-4.0%) 7.63% 8.13%
Total (minimum-8.0%) 11.21% 11.68%
Tier 1 leverage (minimum-3.0%) 6.87% 6.93%
At December 31, 1995, all of the Corporation's banking subsidiaries
exceeded the minimum ratios required of a "well capitalized" institution as
defined in the final rule under the Federal Deposit Insurance Corporation
Improvement Act of 1991.
The common dividend payout ratio was 38.3 percent in 1995, compared to
37.5 percent in 1994. The board of directors currently targets a payout ratio
of 30 to 40 percent, but will continue to reassess this target in light of
changing market and industry conditions.
25
13
TABLE 10: ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO--FTE
Maturity+
---------------------------------------------------------------------------------
December 31, 1995 Within 1 Year 1-5 Years 5-10 Years After 10 Years
---------------- ----------------- ---------------- ----------------
(dollar amounts in millions) Amount Yield Amount Yield Amount Yield Amount Yield
- ---------------------------- ------ ----- ------ ----- ------ ----- ------ -----
Available for sale
U.S. Treasury $ 68 5.94% $ 45 6.73% $ -- --% $ -- --%
U.S. Government
and agency 21 6.58 439 6.68 236 7.29 5,229 6.54
State and municipal
securities 64 11.05 208 10.31 74 10.03 25 10.55
Other bonds, notes
and debentures 60 14.33 119 7.47 50 8.37 156 7.08
Federal Reserve
Bank stock and
other investments* -- -- -- -- -- -- -- --
---- ----- ---- ---- ---- ---- ------ ----
Total investment
securities available
for sale $213 9.91% $811 7.73% $360 8.01% $5,410 6.58%
==== ===== ==== ==== ==== ==== ====== ====
Total
December 31, 1995 ----------------- Weighted Average
(dollar amounts in millions) Amount Yield Maturity Yrs./Mos.
- ---------------------------- ------ ----- ------------------
Available for sale
U.S. Treasury $ 113 6.26% 1 / 1
U.S. Government
and agency 5,925 6.58 14 / 3
State and municipal
securities 371 10.40 3 / 11
Other bonds, notes
and debentures 385 8.50 11 / 2
Federal Reserve
Bank stock and
other investments* 65 -- --
------ ---- --------
Total investment
securities available
for sale $6,859 6.90% 12 / 10
====== ==== ========
* Balances are excluded in the calculation of total yield.
+ Based on final contractual maturity.
TABLE 11: SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS
December 31
(dollar amounts in millions) 1995 1994 1993 1992 1991
- ----------------------------------- ---- ---- ---- ---- ----
Nonperforming assets
Nonaccrual loans
Commercial loans $ 87 $ 89 $ 71 $ 75 $ 62
International loans -- -- -- -- --
Real estate construction loans 7 17 19 28 47
Real estate mortgage loans (principally commercial) 37 56 64 120 101
-------- -------- -------- -------- --------
Total nonaccrual loans 131 162 154 223 210
Reduced-rate loans 3 2 5 1 --
-------- -------- -------- -------- --------
Total nonperforming loans 134 164 159 224 210
Other real estate 29 40 50 49 46
-------- -------- -------- -------- --------
Total nonperforming assets $ 163 $ 204 $ 209 $ 273 $ 256
======== ======== ======== ======== ========
Nonperforming loans as a percentage of total loans 0.55% 0.74% 0.83% 1.23% 1.22%
Nonperforming assets as a percentage of total loans
and other real estate 0.67% 0.92% 1.09% 1.50% 1.48%
Allowance for loan losses as a percentage of total
nonperforming assets 209% 160% 143% 113% 109%
Loans past due 90 days-domestic $ 57 $ 39 $ 46 $ 100 $ 54
26
14
ASSET QUALITY
NONPERFORMING ASSETS
The Corporation's accounting and classification policies regarding nonaccrual
loans reflect the importance of recognizing troubled loans early. Consumer
loans are directly charged off no later than 180 days past due, or earlier if
deemed uncollectible. Loans other than consumer are placed on nonaccrual status
when management determines that principal or interest may not be fully
collectible, but no later than when the loan is 90 days past due on principal
or interest unless it is fully collateralized and in the process of collection.
Loan amounts in excess of probable future cash collections are charged off at
the time the loan is placed on nonaccrual status to an amount that represents
management's assessment of the ultimate collectibility of the loan. Interest
previously accrued but not collected on nonaccrual loans is charged against
current income. Income on such loans is then recognized only to the extent that
cash is received and where the future collection of principal is probable.
[NONPERFORMING ASSETS TO LOANS AND OTHER REAL ESTATE GRAPH]
Nonperforming assets as a percent of total loans and other real estate
was 0.67 percent and 0.92 percent at year-end 1995 and 1994, respectively. This
decline reflects the continued improvement in the quality of the loan portfolio
and favorable economic conditions in the Corporation's markets. Nonaccrual
loans at December 31, 1995 decreased 19 percent to $131 million from year-end
1994. The following table indicates the percentage of nonaccrual loan value to
original contractual value and demonstrates the conservative and prompt nature
of the corporate charge-off policy.
NONACCRUAL LOANS
December 31
(dollar amounts in millions) 1995 1994
- ------------------------------ ---- ----
Carrying value $131 $162
Contractual value $181 $221
Carrying value as a percentage
of contractual value 72% 73%
Other real estate owned (ORE) declined to $29 million as sales and
write-downs of properties exceeded ORE additions. Only one property over $2
million was added during 1995.
In addition to the nonaccrual loans and the loans past due 90 days or
more at December 31, 1995, there were loans totaling $254 million where
possible financial problems of borrowers caused management to have serious
doubts as to the ability of such borrowers to comply with the present
contractual repayment terms. These loans are specifically considered in
management's evaluation of the adequacy of the allowance for loan losses.
CONCENTRATION OF CREDIT
Loans to companies and individuals involved with the automotive industry,
including suppliers, manufacturers and dealers, represented the largest
significant industry concentration at December 31, 1995. These loans totaled
$4.5 billion, or 18 percent of total loans at December 31, 1995, and included
floor plan loans to automobile dealers of $1,083 million and $986 million at
December 31, 1995 and 1994, respectively. All other industry concentrations
individually represented less than 5 percent of total loans at year-end 1995.
Automotive industry loans at year-end 1994 totaled approximately $3.6 billion,
or 16 percent of total loans.
The Corporation has successfully operated in the Michigan economy in
spite of a loan concentration and several downturns in the auto industry. There
were no automotive industry-related loans larger than $7 million on nonaccrual
status as of year-end 1995. In addition, there were no significant automotive
industry-related charge-offs during the year.
COMMERCIAL REAL ESTATE LENDING
The real estate construction loan portfolio contains loans made to longtime
customers in local markets with satisfactory project completion experience. The
portfolio has approximately 856 loans, of which 80 percent have balances of
less than $1 million. The largest real estate construction loan has a balance
of approximately $10 million.
The commercial mortgage loan portfolio, 46 percent of which relates to
owner-occupied properties, also consists of loans to longtime customers. Of the
approximately 7,705 loans in the portfolio, 91 percent have balances under $1
million, and the largest loan is less than $28 million. Additionally, the
Corporation's policy requires a 75 percent or less loan-to-value (LTV) ratio
for all commercial mortgage and real estate construction loans. This policy is
well within the regulatory limits.
27
15
The geographic distribution of the real estate construction and
commercial mortgage loan portfolios is also an important determinant in
evaluating credit risk. The following table indicates the diversification of
the portfolios throughout the markets served by the Corporation.
GEOGRAPHIC DISTRIBUTION
December 31, 1995 Real Estate Commercial
(in millions) Construction Mortgage
- ----------------- ------------ ----------
Michigan $ 221 $ 2,089
California 154 369
Texas 194 325
Illinois 4 156
Florida 32 82
Other 36 233
-------- ----------
Total $ 641 $ 3,254
======== ==========
ASSET AND LIABILITY MANAGEMENT
The principal objective of asset and liability management is to maximize net
interest income while operating within acceptable limits established for
interest rate risk and maintaining adequate levels of funding and liquidity.
The Corporation utilizes various on- and off-balance sheet financial
instruments to minimize the extent to which net interest income may be affected
by fluctuations in interest rates. Corporate policies and risk limits
pertaining to asset and liability management activities are established by the
Asset Liability Policy Committee (ALPC) and approved by the board of directors.
Adherence to these policies is governed by the ALPC, which is comprised of
executive and senior management from various areas of the Corporation,
including finance, lending, investments, and deposit gathering, who meet
regularly to execute asset and liability management strategies.
INTEREST RATE SENSITIVITY
Interest rate risk arises in the normal course of business due to differences
in the repricing and maturity characteristics of rate sensitive assets and
liabilities. Since no single measurement system satisfies all management
objectives, a combination of techniques are used to manage interest rate risk,
including simulation analysis, asset and liability repricing schedules and
duration of equity. The results of these interest rate risk measurement systems
are reviewed regularly by the ALPC.
Net interest income is frequently evaluated under various balance sheet
and interest rate scenarios. The results of this analysis provide the
information needed to assess the proper balance sheet structure. An unexpected
change in the pace of economic activity, whether domestically or
internationally, could translate into a materially different interest rate
environment than currently expected. A process is maintained where management
evaluates "base" net interest income under what is believed to be the most
likely balance sheet structure and interest rate environment. This "base" net
interest income is then evaluated against interest rate scenarios that are
gradually taken up and down 200 basis points from the most likely rate
environment. In addition, adjustments to asset prepayment levels, yield curves,
and overall balance sheet mix and growth assumptions are made to be consistent
with each interest rate environment. The measurement of risk exposure at
year-end 1995 for a 200 basis point decline in short-term interest rates
identified approximately $20 million of net interest income at risk during
1996. If short-term interest rates rise 200 basis points, net interest income
could potentially decrease $36 million. The negative impact on net interest
income in both interest rate scenarios results from considering the effect of
changes in volume and core deposit elasticities, as well as rate changes.
Corporate policy limits adverse change to no more than 5 percent of
management's most likely net interest income forecast. In either case, the
Corporation is within the policy guideline.
While most assets and liabilities reprice either at maturity or in
accordance with contractual terms, several balance sheet components demonstrate
characteristics that require adjustments to more accurately reflect repricing
and cash flow behavior. Assumptions based on historical pricing relationships
and anticipated market reactions are made to certain core deposit categories to
reflect the elasticity of the changes in the related interest rates relative to
the changes in market interest rates. In addition, estimates are made
concerning early loan and security repayments. Prepayment assumptions are based
on the expertise of portfolio managers along with input from financial markets.
Consideration is given to current and future interest rate levels. While
management recognizes the limited ability of a traditional gap schedule to
accurately portray interest rate risk, adjustments are made to provide a more
accurate picture of the Corporation's interest rate risk profile. This
additional interest rate risk measurement tool provides a directional outlook
on the impact of changes in interest rates.
As market rates approach expected turning points, management adjusts
the interest rate sensitivity of the Corporation. This sensitivity is measured
as a percentage of earning assets. The operating range for interest rate
sensitivity, before elasticity adjustments, is between an asset sensitive
position of 5 percent of earning assets and a liability sensitive position of
10 percent of earning assets. However, the elasticity adjustment made to core
deposits adds asset sensitivity to the balance sheet. Accordingly, on an
elasticity adjusted basis, the operating range allows for an asset sensitive
position of 10 percent of earning assets and a liability sensitive position of
5 percent of earning assets.
The table on page 29 shows the interest sensitivity gap as of year-end
1995 and 1994. The report reflects the contractual repricing and payment
schedules of assets and liabilities, including an estimate of all early loan
and security repayments
28
16
TABLE 12: SCHEDULE OF RATE SENSITIVE ASSETS AND LIABILITIES
December 31, 1995 December 31, 1994
Interest Sensitivity Period Interest Sensitivity Period
------------------------------- -------------------------------
Within Over Within Over
(dollar amounts in millions) One Year One Year Total One Year One Year Total
- --------------------------- -------- ------- ----- -------- -------- -----
ASSETS
Cash and due from banks $ -- $ 2,028 $ 2,028 $ -- $ 1,823 $ 1,823
Short-term investments 736 14 750 487 34 521
Investment securities 2,678 4,181 6,859 3,173 4,703 7,876
Commercial loans
(including lease financing) 11,050 1,321 12,371 9,225 1,667 10,892
International loans 1,385 -- 1,385 1,182 13 1,195
Real estate related loans 3,611 2,505 6,116 3,748 2,159 5,907
Consumer loans 2,591 1,979 4,570 2,206 2,009 4,215
-------- -------- -------- ------- ------- --------
Total loans 18,637 5,805 24,442 16,361 5,848 22,209
Other assets 711 680 1,391 313 688 1,001
-------- -------- -------- ------- ------- --------
Total assets $ 22,762 $ 12,708 $ 35,470 $20,334 $13,096 $33,430
======== ======== ======== ======= ======= ========
LIABILITIES
Deposits
Noninterest-bearing $ 521 $ 5,059 $ 5,580 $ 470 $ 4,787 $ 5,257
NOW -- 1,770 1,770 57 1,777 1,834
Savings -- 2,204 2,204 -- 2,432 2,432
Money market 4,798 -- 4,798 4,565 -- 4,565
Certificates of deposit 5,289 1,400 6,689 4,494 1,417 5,911
Foreign office 2,125 1 2,126 2,433 -- 2,433
-------- -------- -------- ------- ------- --------
Total deposits 12,733 10,434 23,167 12,019 10,413 22,432
Short-term borrowings 4,674 -- 4,674 4,206 -- 4,206
Medium- and long-term debt 3,044 1,600 4,644 3,248 850 4,098
Other liabilities 62 315 377 (13) 315 302
-------- -------- -------- ------- ------- --------
Total liabilities 20,513 12,349 32,862 19,460 11,578 31,038
Shareholders' equity (4) 2,612 2,608 (55) 2,447 2,392
-------- -------- -------- ------- ------- --------
Total liabilities and shareholders' equity $20,509 $ 14,961 $ 35,470 $19,405 $14,025 $33,430
======== ======== ======== ======= ======= ========
Sensitivity impact of interest rate swaps $(3,875) $ 3,875 -- $(2,578) $ 2,578 --
-------- -------- -------- ------- ------- --------
Interest sensitivity gap (1,622) 1,622 -- (1,649) 1,649 --
Gap as a percentage of earning assets (5)% 5% -- (5)% 5% --
Sensitivity impact from elasticity adjustments (1) 1,407 (1,407) -- 1,258 (1,258) --
-------- -------- -------- ------- ------- --------
Interest sensitivity gap with elasticity adjustments $ (215) $ 215 -- $ (391) $ 391 --
Gap as a percentage of earning assets (1)% 1% -- (1)% 1% --
======== ======== ======== ======= ======= ========
(1) Elasticity adjustments for NOW, savings and money market deposit accounts
are based on historical pricing relationships dating back to 1985 as well as
expected future pricing relationships.
29
17
which adds $1.4 billion of rate sensitivity to the 1995 year-end gap. In
addition, the schedule identifies the adjustment for the price elasticity on
certain core deposits.
The Corporation was asset sensitive for much of the first three quarters of
1995, and management anticipates material growth in asset sensitivity
throughout 1996. Initiatives to reduce this gap position, which began in the
third quarter, resulted in a one-year liability sensitive gap of $215 million,
or 1 percent of earning assets, as of December 31, 1995. This compares to a
$391 million liability sensitive gap, or 1 percent of earning assets, on
December 31, 1994. Management will continue to look at both on- and
off-balance sheet alternatives in the near term to manage the expected increase
in asset sensitivity and achieve the desired interest rate risk profile for the
Corporation.
RISK MANAGEMENT DERIVATIVE FINANCIAL INSTRUMENTS AND FOREIGN EXCHANGE CONTRACTS
RISK MANAGEMENT NOTIONAL ACTIVITY
Interest Foreign
Rate Exchange
(in millions) Contracts Contracts Totals
- ------------------ --------- --------- ------
Balances at December 31, 1993 $ 3,923 $ 86 $ 4,009
Additions 2,075 1,642 3,717
Maturities/amortizations (2,107) (1,605) (3,712)
------- ------- -------
Balances at December 31, 1994 $ 3,891 $ 123 $ 4,014
Additions 3,673 3,160 6,833
Maturities/amortizations (1,445) (3,004) (4,449)
------- ------- -------
Balances at December 31, 1995 $ 6,119 $ 279 $ 6,398
======= ======= =======
Note: The Corporation did not terminate any of the above risk management
derivative or foreign exchange contracts prior to maturity in 1995 and 1994.
Therefore, no deferred gains or losses associated with such events were
recorded in the consolidated balance sheets at December 31, 1995 and 1994.
At December 31, 1995 and 1994, the notional amount of risk management
interest rate swaps totaled $5,925 million and $3,643 million, respectively. The
fair value of risk management interest rate swaps at December 31, 1995 was a
positive $68 million, compared to a negative $234 million at December 31, 1994.
These off-balance sheet instruments represented 83 percent and 74 percent of
total derivative financial instruments and foreign exchange contracts, including
commitments, at year-end 1995 and 1994, respectively.
Interest rate swaps are utilized predominantly as asset and liability
management tools with the overall objective of managing the sensitivity of net
interest income to fluctuations in interest rates. To accomplish this objective,
interest rate swaps are used 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). This strategy permits the achievement of an optimal match
between the rate maturities of assets and their funding sources and, in the
process, reduces the exposure of net interest income to interest rate risk. For
the year ended December 31, 1995, risk management interest rate swaps generated
$2 million of net interest expense, compared to contributions of $29 million and
$32 million of net interest income for the years ended December 31, 1994 and
1993, respectively. Net interest expense resulted in 1995 due to rising interest
rates in 1994 and early 1995.
Table 13 summarizes the expected maturity distribution of the notional
amount of risk management interest rate swaps and provides the weighted average
interest rates associated with amounts to be received or paid as of December 31,
1995. The swaps have been grouped by the assets and liabilities to which they
have been designated.
The notional amounts of generic interest rate swaps do not change over the
life of the contract, while the notional amounts of non-indexed amortizing swaps
generally decline on a straight-line basis until the stated maturity. Basis
swaps are interest rate swaps in which both payment streams are based on
variable rates (e.g., prime or Treasury bill rates and LIBOR). Index amortizing
swaps are interest rate swaps whose notional amount decreases at a rate that
varies with the level of a specified index in accordance with a predetermined
schedule. The notional amounts of these swaps are indexed to short-term interest
rates and generally decline more rapidly as interest rates fall and more slowly
as interest rates rise. As of December 31, 1995, index amortizing swaps had an
average expected life of approximately 2.4 years with a stated maturity that
averaged 4.5 years.
In addition to interest rate swaps, the Corporation employs various other
types of off-balance sheet derivative and foreign exchange contracts to mitigate
exposures to interest rate and foreign currency risks associated with specific
assets and liabilities (e.g., loans or deposits denominated in foreign
currencies, mortgages held for sale, and originated mortgage servicing rights).
Such instruments include interest rate caps and floors, purchased put options,
foreign exchange forward contracts, foreign exchange generic swap agreements,
and cross-currency swaps. The aggregate notional amounts of these risk
management derivative and foreign exchange contracts at December 31, 1995 and
1994, were $473 million and $371 million, respectively. Further information
regarding risk management derivative financial instruments and foreign exchange
contracts is provided in Notes 8, 9 and 17 to the consolidated financial
statements.
LIQUIDITY
Liquidity is the ability to meet financial obligations through the maturity or
sale of existing assets or acquisition of additional funds. Liquidity
requirements are satisfied with various funding sources, including a $4.5
billion medium-term note program which allows the Michigan and Illinois banks
to issue senior debt with maturities ranging between nine months and 15 years.
The Michigan bank can issue up to an additional
30
18
TABLE 13: REMAINING EXPECTED MATURITY OF RISK MANAGEMENT INTEREST RATE SWAPS
2001- Dec. 31
(amounts in millions) 1996 1997 1998 1999 2000 2014 Total 1994
- --------------------- ---- ---- ---- ---- ---- ----- ----- -------
VARIABLE RATE ASSET DESIGNATION:
Receive fixed swaps
Generic $ 50 $ -- $ -- $ -- $ -- $ -- $ 50 $ 50
Amortizing 16 84 100 -- -- -- 200 297
Index amortizing 868 1,373 484 343 288 332 3,688 1,936
Weighted average: (1)
Receive rate 6.20% 5.64% 6.14% 6.43% 5.91% 6.63% 6.02% 5.38%
Pay rate 5.82% 5.88% 5.84% 5.81% 5.76% 5.76% 5.84% 5.78%
------- ------- ----- ----- ----- ------ ------ ------
FIXED RATE ASSET DESIGNATION:
Generic pay fixed swaps $ 35 $ -- $ -- $ 2 $ -- $ -- $ 37 $ 185
Weighted average: (1)
Receive rate 5.77% --% --% 5.62% --% --% 5.76% 5.91%
Pay rate 7.05% --% --% 8.73% --% --% 7.14% 7.43%
------- ------- ----- ----- ----- ------ ------ ------
MEDIUM- AND LONG-TERM
DEBT DESIGNATION:
Generic receive fixed swaps $ 625 $ 50 $ -- $ -- $ -- $ 700 $1,375 $ 675
Weighted average: (1)
Receive rate 6.12% 9.35% --% --% --% 7.65% 7.01% 7.37%
Pay rate 5.75% 6.01% --% --% --% 5.82% 5.80% 5.73%
Generic pay fixed swaps $ 25 $ -- $ -- $ -- $ -- $ -- $ 25 $ 25
Weighted average: (1)
Receive rate 5.70% --% --% --% --% --% 5.70% 6.89%
Pay rate 8.28% --% --% --% --% --% 8.28% 8.28%
Basis swaps $ 550 $ -- $ -- $ -- $ -- $ -- $ 550 $ 475
Weighted average: (2)
Receive rate 5.76% --% --% --% --% --% 5.76% 6.01%
Pay rate 5.75% --% --% --% --% --% 5.75% 5.80%
------- ------- ----- ----- ----- ------ ------ ------
Total notional amount $ 2,169 $ 1,507 $ 584 $ 345 $ 288 $1,032 $5,925 $3,643
======= ======= ===== ===== ===== ====== ====== ======
(1) Variable rates paid or received are based primarily on one-month and three-
month LIBOR rates paid or received at December 31, 1995.
(2) Variable rates paid are based on LIBOR at December 31, 1995 while variable
rates received are based on prime.
31
19
$1 billion of short-term senior notes. At year-end 1995, unissued debt related
to the two programs totaled $1.4 billion. The board of directors has approved
two new funding sources, not yet implemented, which will allow the subsidiary
banks to issue as much as $9.5 billion of senior notes. These new programs
will replace the $4.5 billion medium-term note program. Liquid assets totaled
$9.6 billion at December 31, 1995. An additional $1.4 billion was available
from a collateralized borrowing account with the Federal Reserve Bank and
purchased funds, excluding certificates of deposit with maturities beyond one
year, approximated $8.5 billion at year-end 1995.
Another source of liquidity for the parent company is dividends from
its subsidiaries. As discussed in Note 16 to the consolidated financial
statements on page 44, subsidiary banks are subject to regulation and may be
limited in their ability to pay dividends or transfer funds to the holding
company. During 1996, the subsidiary banks can pay dividends of up to $279
million plus current net profits without prior regulatory approval. At December
31, 1995, total parent company assets, excluding the investment in
subsidiaries, were 63 percent of total liabilities.
CUSTOMER INITIATED AND OTHER DERIVATIVE FINANCIAL INSTRUMENTS AND FOREIGN
EXCHANGE CONTRACTS
CUSTOMER INITIATED AND OTHER NOTIONAL ACTIVITY
Interest Foreign
Rate Exchange
(in millions) Contracts Contracts Totals
- ---------------- --------- --------- ------
Balances at December 31, 1993 $ 114 $ 224 $ 338
Additions 262 44,679 44,941
Maturities/amortizations (32) (44,400) (44,432)
Terminations (16) -- (16)
----- -------- --------
Balances at December 31, 1994 $ 328 $ 503 $ 831
Additions 375 32,642 33,017
Maturities/amortizations (290) (32,825) (33,115)
Terminations (50) -- (50)
----- -------- --------
Balances at December 31, 1995 $ 363 $ 320 $ 683
===== ======== ========
On a limited basis, the Corporation writes interest rate caps and enters into
foreign exchange contracts and interest rate swaps to accommodate the needs of
customers requesting such services. At December 31, 1995 and 1994, customer
initiated activity represented 10 percent and 17 percent, respectively, of
total derivative and foreign exchange contracts, including commitments. Refer
to Note 17 to the consolidated financial statements on page 44 for further
information regarding customer initiated and other derivative financial
instruments and foreign exchange contracts.
OTHER MATTERS
As disclosed in Note 18 to the consolidated financial statements on page 47, a
lawsuit was filed on July 24, 1990, by the State of Michigan against a
subsidiary bank involving hazardous waste issues. The Corporation's motion for
summary judgment was granted, and the State of Michigan has filed an appeal
which is still pending. Management believes that even if the summary judgment
is not upheld on appeal, the results of this action will not have a materially
adverse effect on the Corporation's consolidated financial position. However,
depending upon the amount of ultimate liability, if any, and the consolidated
results of operations in the year of final resolution, the legal action may
have a materially adverse effect on the consolidated results of operations in
that year.
32
20
CONSOLIDATED BALANCE SHEETS: COMERICA INCORPORATED AND SUBSIDIARIES
December 31
(in thousands, except share data) 1995 1994
- --------------------------------- ----------- ------------
ASSETS
Cash and due from banks $ 2,028,375 $ 1,822,313
Interest-bearing deposits with banks 23,568 378,873
Federal funds sold and securities purchased under agreements to resell 203,798 46,000
Trading account securities 10,668 4,332
Loans held for sale 511,562 91,547
Investment securities available for sale 6,859,310 2,906,296
Investment securities held to maturity
(estimated fair value of $4,659,317 in 1994) -- 4,970,165
---------- ----------
Total investment securities 6,859,310 7,876,461
Commercial loans 12,041,009 10,633,808
International loans 1,384,814 1,195,328
Real estate construction loans 641,432 413,987
Commercial mortgage loans 3,254,041 3,056,337
Residential mortgage loans 2,221,359 2,436,445
Consumer loans 4,570,015 4,214,716
Lease financing 329,608 258,625
---------- ----------
Total loans 24,442,278 22,209,246
Less allowance for loan losses (341,344) (326,195)
---------- ----------
Net loans 24,100,934 21,883,051
Premises and equipment 455,002 437,757
Customers' liability on acceptances outstanding 21,135 33,632
Accrued income and other assets 1,255,522 855,936
----------- -----------
Total assets $35,469,874 $33,429,902
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits (noninterest-bearing) $ 5,579,536 $ 5,257,396
Interest-bearing deposits 15,461,213 14,741,438
Deposits in foreign offices 2,126,466 2,433,482
---------- ----------
Total deposits 23,167,215 22,432,316
Federal funds purchased and securities sold
under agreements to repurchase 3,206,612 2,594,189
Other borrowed funds 1,467,550 1,611,219
Acceptances outstanding 21,135 33,632
Accrued expenses and other liabilities 355,219 268,823
Medium- and long-term debt 4,644,416 4,097,943
---------- ----------
Total liabilities 32,862,147 31,038,122
Common stock--$5 par value
Authorized--250,000,000 shares
Issued--115,094,531 shares in 1995 and 119,294,531 shares in 1994 575,473 596,473
Capital surplus 408,644 525,052
Unrealized gains and losses on investment securities available for sale (4,141) (55,039)
Retained earnings 1,640,980 1,390,405
Less cost of common stock in treasury--490,704 shares
in 1995 and 2,382,333 shares in 1994 (13,229) (65,111)
----------- ----------
Total shareholders' equity 2,607,727 2,391,780
----------- -----------
Total liabilities and shareholders' equity $35,469,874 $33,429,902
=========== ===========
See notes to consolidated financial statements.
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21
CONSOLIDATED STATEMENTS OF INCOME: COMERICA INCORPORATED AND SUBSIDIARIES
Year Ended December 31
(in thousands, except per share data) 1995 1994 1993
- ------------------------------------- ---------- ---------- ----------
INTEREST INCOME
Interest and fees on loans $2,090,854 $1,577,329 $1,388,169
Interest on investment securities
Taxable 473,759 446,307 307,354
Exempt from federal income tax 26,189 30,645 40,124
---------- ---------- ----------
Total interest on investment securities 499,948 476,952 347,478
Trading account interest 227 70 640
Interest on federal funds sold and securities
purchased under agreements to resell 7,402 4,717 4,050
Interest on time deposits with banks 8,032 21,858 27,744
Interest on loans held for sale 7,461 10,998 14,772
---------- ---------- ----------
Total interest income 2,613,924 2,091,924 1,782,853
INTEREST EXPENSE
Interest on deposits 721,475 542,727 529,802
Interest on short-term borrowings
Federal funds purchased and securities
sold under agreements to repurchase 165,544 121,390 47,817
Other borrowed funds 135,667 78,546 41,216
Interest on medium- and long-term debt 288,990 147,942 62,719
Net interest rate swap (income) / expense 2,365 (28,808) (32,239)
---------- ---------- ----------
Total interest expense 1,314,041 861,797 649,315
---------- ---------- ----------
Net interest income 1,299,883 1,230,127 1,133,538
Provision for loan losses 86,500 56,000 69,000
---------- ---------- ----------
Net interest income after provision for
loan losses 1,213,383 1,174,127 1,064,538
NONINTEREST INCOME
Income from fiduciary activities 125,038 121,755 122,280
Service charges on deposit accounts 130,249 123,626 120,125
Customhouse broker fees 36,086 40,662 39,926
Revolving credit fees 36,248 24,743 22,880
Securities gains 11,748 3,461 1,978
Other noninterest income 159,356 135,943 142,486
---------- ---------- ----------
Total noninterest income 498,725 450,190 449,675
NONINTEREST EXPENSES
Salaries and employee benefits 562,159 548,607 528,658
Net occupancy expense 98,945 98,885 95,736
Equipment expense 67,872 67,319 62,401
FDIC insurance expense 23,817 44,276 44,593
Telecommunications expense 29,644 27,304 20,788
Merger, integration and restructuring charge -- 7,000 22,000
Other noninterest expenses 303,977 248,831 251,462
---------- ---------- ----------
Total noninterest expenses 1,086,414 1,042,222 1,025,638
---------- ---------- ----------
Income before income taxes 625,694 582,095 488,575
Provision for income taxes 212,328 194,853 147,937
---------- ---------- ----------
Net Income $ 413,366 $ 387,242 $ 340,638
========== ========== ==========
Net income applicable to common stock $ 413,366 $ 387,242 $ 340,596
========== ========== ==========
Net income per common share $3.54 $3.28 $2.85
Average common and common equivalent shares 116,894 118,160 119,569
Cash dividends declared on common stock $158,309 $145,098 $125,411
Dividends per common share $1.37 $1.24 $1.07
See notes to consolidated financial statements.
34
22
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY: COMERICA
INCORPORATED AND SUBSIDIARIES
Redeemable Unrealized Total
Preferred Common Capital Gains Retained Treasury Shareholders'
(in thousands, except share data) Stock Stock Surplus and (Losses) Earnings Stock Equity
- --------------------------------- ---------- -------- --------- ------------ ---------- --------- -------------
BALANCES AT JANUARY 1, 1993 $ 37,605 $309,219 $538,097 $ -- $1,239,078 $ (28,862) $2,095,137
Net income for 1993 -- -- -- -- 340,638 -- 340,638
Cash dividends declared
Preferred stock -- -- -- -- (42) -- (42)
Common stock -- -- -- -- (125,411) -- (125,411)
Purchase of 4,720,117 shares
of common stock -- -- -- -- -- (128,848) (128,848)
Retirement of treasury stock -- (4,105) (17,730) -- (505) 22,340 --
Issuance of common stock under
employee stock plans and
for conversion of
debentures -- 3,780 3,118 -- (6,725) 13,616 13,789
Stock split -- 287,579 -- -- (287,579) -- --
Amortization of deferred
compensation -- -- 701 -- -- -- 701
Redemption of preferred stock (37,605) -- -- -- (4,174) -- (41,779)
Adjustment for change
in accounting method,
net of income taxes -- -- -- 27,473 -- -- 27,473
---------- -------- -------- -------- ---------- ---------- ----------
BALANCES AT DECEMBER 31, 1993 $ -- $596,473 $524,186 $ 27,473 $1,155,280 $(121,754) $2,181,658
Net income for 1994 -- -- -- -- 387,242 -- 387,242
Cash dividends declared
on common stock -- -- -- -- (145,098) -- (145,098)
Purchase of 2,810,564 shares
of common stock -- -- -- -- -- (76,280) (76,280)
Issuance of common stock:
Employee stock plans -- -- 373 -- (3,161) 7,702 4,914
Acquisition of
Pacific Western -- -- -- -- (3,858) 125,221 121,363
Amortization of deferred
compensation -- -- 493 -- -- -- 493
Change in unrealized
gains/(losses) on investment
securities available
for sale -- -- -- (82,512) -- -- (82,512)
---------- -------- -------- -------- ---------- ---------- ----------
BALANCES AT DECEMBER 31, 1994 $ -- $596,473 $525,052 $(55,039) $1,390,405 $ (65,111) $2,391,780
Net income for 1995 -- -- -- -- 413,366 -- 413,366
Cash dividends declared
on common stock -- -- -- -- (158,309) -- (158,309)
Purchase of 1,405,500
shares of common stock -- -- -- -- -- (38,725) (38,725)
Purchase and retirement
of 4,200,000 shares
of common stock -- (21,000) (118,931) -- -- -- (139,931)
Issuance of common stock:
Employee stock plans -- -- 227 -- (4,482) 14,957 10,702
Acquisitions -- -- 1,450 -- -- 75,650 77,100
Amortization of deferred
compensation -- -- 846 -- -- -- 846
Change in unrealized
gains/(losses) on
investment
securities available
for sale -- -- -- 50,898 -- -- 50,898
---------- -------- -------- -------- ---------- ---------- ----------
BALANCES AT DECEMBER 31, 1995 $ -- $575,473 $408,644 $ (4,141) $1,640,980 $ (13,229) $2,607,727
========== ======== ======== ======== ========== ========== ==========
( ) Indicates deduction.
See notes to consolidated financial statements.
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23
CONSOLIDATED STATEMENTS OF CASH FLOWS: COMERICA INCORPORATED AND SUBSIDIARIES
Year Ended December 31
(in thousands) 1995 1994 1993
- ---------------------- ------- ------- ------
OPERATING ACTIVITIES
Net income $ 413,366 $ 387,242 $ 340,638
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for loan losses 86,500 56,000 69,000
Depreciation 64,014 59,819 54,473
Net (increase) decrease in trading account securities (6,336) (732) 105,779
Net (increase) decrease in loans held for sale (420,015) 239,120 (95,955)
Net increase in accrued income receivable (26,749) (43,495) (2,888)
Net increase (decrease) in accrued expenses 96,645 (31,845) 15,967
Net amortization of intangibles 29,016 25,597 21,205
Funding for employee benefit plans (200,000) (59,719) (100,000)
Other, net (184,813) 72,004 (10,346)
----------- ---------- ----------
Total adjustments (561,738) 316,749 57,235
----------- ---------- ----------
Net cash provided by (used in) operating activities (148,372) 703,991 397,873
INVESTING ACTIVITIES
Net decrease in interest-bearing deposits with banks 363,870 647,600 295,042
Net (increase) decrease in federal funds sold and securities
purchased under agreements to resell (122,498) 1,045,789 (1,005,157)
Proceeds from sale of investment securities available for sale 103,531 3,001 --
Proceeds from maturity of investment securities available for sale 837,412 565,445 --
Purchases of investment securities available for sale (211,222) (1,150,178) --
Proceeds from maturity of investment securities held to maturity 788,620 1,429,966 3,316,794
Purchases of investment securities held to maturity (223,579) (2,197,840) (4,320,627)
Net increase in loans (other than loans purchased) (1,908,266) (2,224,057) (927,971)
Purchase of loans (48,349) (257,043) (23,868)
Fixed assets, net (62,334) (78,454) (79,305)
Net (increase) decrease in customers' liability on acceptances outstanding 13,097 4,580 (12,548)
Net cash provided by acquisitions 19,224 58,626 --
----------- ---------- ----------
Net cash used in investing activities (450,494) (2,152,565) (2,757,640)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 130,276 304,768 (249,639)
Net increase (decrease) in short-term borrowings 468,754 (1,056,522) 2,178,890
Net increase (decrease) in acceptances outstanding (13,097) (4,580) 12,548
Proceeds from issuance of medium- and long-term debt 2,960,000 3,550,000 1,005,000
Repayments and purchases of medium- and long-term debt (2,418,171) (912,613) (280,541)
Proceeds from issuance of common stock and other capital transactions 11,548 5,407 9,395
Purchase of common stock for treasury and retirement (178,656) (76,280) (128,848)
Redemption of preferred stock -- -- (41,779)
Dividends paid (155,726) (139,988) (124,306)
----------- ---------- ----------
Net cash provided by financing activities 804,928 1,670,192 2,380,720
----------- ---------- ----------
Net increase in cash and due from banks 206,062 221,618 20,953
Cash and due from banks at beginning of year 1,822,313 1,600,695 1,579,742
----------- ---------- ----------
Cash and due from banks at end of year $ 2,028,375 $1,822,313 $1,600,695
=========== ========== ==========
Interest paid $ 1,274,101 $ 862,563 $ 665,297
=========== ========== ==========
Income taxes paid $ 180,134 $ 171,851 $ 109,557
=========== ========== ==========
Noncash investing and financing activities
Loan transfers to other real estate $ 23,908 $ 26,598 $ 38,955
=========== ========== ==========
Conversion of debentures to equity $ -- $ -- $ 5,095
=========== ========== ==========
Treasury stock issued for acquisitions $ 77,100 $ 121,363 $ --
=========== ========== ==========
Loan transfers to investment securities $ -- $ 91,538 $ --
=========== ========== ==========
See notes to consolidated financial statements.
36
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS: COMERICA INCORPORATED AND
SUBSIDIARIES
1. ACCOUNTING POLICIES
ORGANIZATION
Comerica Incorporated is a registered bank holding company headquartered in
Detroit, Michigan. The Corporation's principal lines of business are the
Business Bank, the Individual Bank and the Investment Bank. The core businesses
are tailored to each of the Corporation's four primary geographic markets: the
Midwest (currently Michigan and Illinois), Texas, California and Florida.
The accounting and reporting policies of Comerica Incorporated and its
subsidiaries conform to generally accepted accounting principles and prevailing
practices within the banking industry. Management makes estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying footnotes. Actual results could differ from these estimates.
The following is a summary of the more significant accounting and
reporting policies.
CONSOLIDATION
The consolidated financial statements include the accounts of the Corporation
and its subsidiaries after elimination of all significant intercompany
accounts and transactions. Prior years' financial statements are reclassified
to conform with current financial statement presentation.
The historical consolidated financial statements have been restated to
include the accounts and results of operations for acquisitions accounted for
as pooling-of-interests combinations. For acquisitions of subsidiary banks
using the purchase method of accounting, the assets acquired and liabilities
assumed have been adjusted to fair market values at the date of acquisition,
and the resulting net discount or premium is being accreted or amortized into
income over the remaining lives of the relevant assets and liabilities.
Goodwill representing the excess of cost over the net book value of
identifiable assets acquired is amortized on a straight-line basis over periods
ranging from 10 to 30 years. Core deposit intangible assets are amortized on an
accelerated method over 10 years.
LOANS HELD FOR SALE
Loans, normally mortgages, held for sale are carried at the lower of
cost or market. Market value is determined in the aggregate.
SECURITIES
Investment securities held to maturity are those securities which management
has the ability and positive intent to hold to maturity. Investment securities
held to maturity are stated at cost, adjusted for amortization of premium and
accretion of discount.
Investment securities that fail to meet the ability and positive intent
criteria are accounted for as securities available for sale, and stated at fair
value with unrealized gains and losses, net of income taxes, reported as a
component of shareholders' equity.
Trading account securities are carried at market value. Realized and
unrealized gains or losses on trading securities are included in noninterest
income.
Gains or losses on the sale of securities are computed based on the
adjusted cost of the specific security.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation, computed on the straight-line
method, is charged to operations over the estimated useful lives of the
properties. Leasehold improvements are amortized over the terms of their
respective leases or the estimated useful lives of the improvements, whichever
is shorter.
ALLOWANCE FOR LOAN LOSSES
The allowance is maintained at a level adequate to absorb losses inherent in
the loan portfolio. Management determines the adequacy of the allowance by
applying projected loss ratios to the risk ratings of loans both individually
and by category. The projected loss ratios incorporate such factors as
recent loss experience, current economic conditions, the risk characteristics
of the various categories and concentrations of loans, transfer risk and other
pertinent factors. Loans which are deemed uncollectible are charged off and
deducted from the allowance. The provision for loan losses and recoveries on
loans previously charged off are added to the allowance.
NONPERFORMING ASSETS
Nonperforming assets are comprised of loans for which the accrual of interest
has been discontinued, loans for which the terms have been renegotiated to less
than market rates due to a serious weakening of the borrower's financial
condition, and other real estate which has been acquired primarily through
foreclosure and is awaiting disposition.
Consumer loans are generally not placed on nonaccrual status and are
directly charged off no later than 180 days past due, or earlier if deemed
uncollectible. Loans other than consumer are generally placed on nonaccrual
status when principal or interest is past due 90 days or more and/or when, in
the opinion of management, full collection of principal or interest is
unlikely. At the time a loan is placed on nonaccrual status, interest
previously accrued but not collected is charged against current income. Income
on such loans is then recognized only to the extent that cash is received and
where future collection of principal is probable.
Other real estate acquired is carried at the lower of cost or fair
value, minus estimated costs to sell. When the property is acquired through
foreclosure, any excess of the related loan balance over fair value is charged
to the allowance for loan losses. Subsequent write-downs, operating expenses,
and losses upon sale, if any, are charged to noninterest expenses.
37
25
PENSION COSTS
Pension costs are charged to salaries and employee benefits expense and
funded consistent with the requirements of federal law and regulations.
POSTRETIREMENT BENEFITS
Postretirement benefits are recognized in the financial statements
during the employee's active service period.
DERIVATIVE FINANCIAL INSTRUMENTS AND
FOREIGN EXCHANGE CONTRACTS
Interest rate and foreign exchange swaps, interest rate caps and
floors, and futures and forward contracts may be used to manage the
Corporation's exposure to interest rate and foreign currency risks. These
instruments, with the exception of futures and forwards, are accounted for on
an accrual basis. Net interest income or expense, including premiums paid or
received, is recognized over the life of the contract and reported as an
adjustment to interest expense. Realized gains and losses on futures and
forwards are generally deferred and amortized over the life of the contract as
an adjustment to net interest income. Gains or losses on early termination of
risk management derivative financial instruments are deferred and amortized as
an adjustment to the yields of the related assets or liabilities over their
remaining contractual life. If the designated asset or liability matures, or is
disposed of or extinguished, any unrealized gains or losses on the related
derivative instrument are recognized currently and reported as an adjustment to
interest expense.
Foreign exchange futures and forward contracts, foreign currency
options, interest rate caps, and interest rate swap agreements executed as a
service to customers are accounted for on a mark-to-market basis. As a result,
the fair values of these instruments are recorded in the consolidated balance
sheet with both realized and unrealized gains and losses recognized currently
in noninterest income.
INCOME TAXES
Provisions for income taxes are based on amounts reported in the
statements of income (after exclusion of nontaxable income such as interest on
state and municipal securities) and include deferred income taxes on temporary
differences between the tax basis and financial reporting basis of assets and
liabilities.
STATEMENTS OF CASH FLOWS
For the purpose of presentation in the statements of cash flows, cash
and cash equivalents are defined as those amounts included in the balance sheet
caption, "Cash and due from banks."
LOAN ORIGINATION FEES AND COSTS
Loan origination and commitment fees are deferred and recognized over
the life of the related loan or over the commitment period as a yield
adjustment. Loan fees on unused commitments and fees related to loans sold are
recognized currently as other noninterest income.
2. ACQUISITIONS
During the years ended December 31, 1995, 1994 and 1993 Comerica made
the following acquisitions:
Transactions accounted for as purchases:
FMV of FMV of
Assets Liabilities Purchase Intangibles
(in millions) Acquired Assumed Price Recorded
- ------------- -------- ----------- -------- ------------
During 1995
University Bank & Trust $ 491 $422 $ 69 $36
QuestStar Bank, N.A. 218 193 25 13
During 1994
Pacific Western Bancshares 1,029 908 121 70
Lockwood Banc Group 332 288 44 27
Transactions accounted for using the pooling-of-interests method:
Common
Shares Issued
-------------
During 1993
NorthPark National Corporation 2,677,706
Sugar Creek National Bank 892,976
The Corporation completed the following acquisition in January of 1996:
Purchase
(in millions) Asset Size Price Method
- ------------- ---------- --------- --------
Metrobank $1,200 $125 Purchase
3. INVESTMENT SECURITIES
Information concerning investment securities as shown
in the consolidated balance sheets of the Corporation was
as follows:
Gross Gross
Unrealized Unrealized Estimated
(in thousands) Cost Gains Losses Fair Value
- -------------- ----------- ---------- ---------- ----------
December 31, 1995
U.S. Government and
agency securities $6,052,184 $41,585 $55,429 $6,038,340
State and municipal
securities 353,612 17,618 389 370,841
Other securities 459,887 12,682 22,440 450,129
---------- ------- ------- ----------
Total securities
available for sale $6,865,683 $71,885 $78,258 $6,859,310
========== ======= ======= ==========
Gross unrealized gains and losses were $13 million and $98 million,
respectively, at December 31, 1994 for securities available for sale. The
available for sale portfolio at December 31, 1994 was primarily U.S. Government
and agency securities.
38
26
Gross Gross
Unrealized Unrealized Estimated
(in thousands) Cost Gains Losses Fair Value
- -------------- ---------- ---------- ---------- ----------
December 31, 1994
U.S. Government and
agency securities $4,461,592 $ 5,538 $328,757 $4,138,373
State and municipal
securities 421,975 15,820 2,192 435,603
Other securities 86,598 308 1,565 85,341
---------- ------- -------- ----------
Total securities
held to maturity $4,970,165 $21,666 $332,514 $4,659,317
========== ======= ======== ==========
The cost and estimated fair values of debt securities by contractual
maturity were as follows (securities with multiple maturity dates are
classified in the period of final maturity). Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
December 31, 1995 Estimated
(in thousands) Cost Fair Value
- ----------------- ---------- ------------
Contractual maturity
Within one year $ 194,253 $ 194,744
Over one year to five years 365,760 378,079
Over five years to ten years 129,750 133,383
Over ten years 95,548 87,895
---------- ----------
Sub-total securities 785,311 794,101
Mortgage-backed securities 6,015,119 5,999,952
Equity and other non-debt securities 65,253 65,257
---------- ----------
Total securities
available for sale $6,865,683 $6,859,310
========== ==========
Sales and calls of investment securities available for sale and calls
of investment securities held to maturity resulted in realized gains and losses
as follows:
Year Ended December 31 Available for Sale Held to Maturity
- ---------------------- ------------------ ----------------
(in thousands) 1995 1994 1995 1994
- --------------- --------- ------- ----- -----
Securities gains $11,729 $2,557 $456 $926
Securities losses (350) -- (87) (22)
------- ------ ---- ----
Total $11,379 $2,557 $369 $904
======= ====== ==== ====
Assets, principally securities, carried at approximately $5.2 billion at
December 31, 1995, were pledged to secure public deposits (including State of
Michigan deposits of $33 million at December 31, 1995), and for other purposes
as required by law.
All held to maturity securities were redesignated to the available for
sale category in December 1995 in accordance with the one-time provisions issued
in conjunction with the FASB's Special Report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities." At the date of transfer the amortized cost of the held to maturity
securities was $4.6 billion. The net unrealized loss related to the redesignated
securities totaled $9 million.
4. NONPERFORMING ASSETS
The following table summarizes nonperforming assets and loans which are
contractually past due 90 days or more as to interest or principal payments.
Nonperforming assets consist of nonaccrual loans, reduced-rate loans and other
real estate. Nonaccrual loans are those on which interest is not being
recognized. Reduced-rate loans are those on which interest has been renegotiated
to lower than market rates because of the weakened financial condition of the
borrower.
Nonaccrual and reduced-rate loans are included in loans on the consolidated
balance sheet.
December 31
(in thousands) 1995 1994
- -------------- ------ --------
Nonaccrual loans
Commercial loans $ 87,195 $ 88,514
International loans -- --
Real estate construction loans 6,578 16,941
Real estate mortgage loans
(principally commercial) 36,630 56,268
--------- ---------
Total 130,403 161,723
Reduced-rate loans 3,244 2,299
--------- ---------
Total nonperforming loans 133,647 164,022
Other real estate 29,384 40,462
--------- ---------
Total nonperforming assets $ 163,031 $ 204,484
========= =========
Loans past due 90 days $ 57,134 $ 39,161
========= =========
Gross interest income that would
have been recorded had the
nonaccrual and reduced-rate
loans performed in accordance
with original terms $ 18,925 $ 17,406
========= =========
Interest income recognized $ 3,427 $ 3,325
========= =========
SFAS NO. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118, was adopted January 1, 1995. The statements consider a
loan impaired when it is probable that payment of interest and principal will
not be made in accordance with the contractual terms of the loan agreement.
Consistent with this definition, all nonaccrual and reduced-rate loans (with the
exception of residential mortgage and consumer loans) are impaired. The adoption
of these accounting standards had no effect on the financial position or results
of operations of the Corporation.
Impaired loans averaged $148 million for the year ended December 31, 1995.
Of the $135 million period-end impaired loans, approximately $89 million
required an impairment allowance of $27 million in accordance with SFAS No. 114.
The remaining impaired loan balance represents loans for which the fair value
exceeded the recorded investment in the loan. Fifty-nine percent of the total
impaired loans are evaluated based on fair value of related collateral.
Remaining loan impairment is based on the present value of expected future cash
flows discounted at the loan's effective interest rate.
39
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5. ALLOWANCE FOR LOAN LOSSES
An analysis of changes in the allowance for loan losses follows:
(in thousands) 1995 1994 1993
- -------------- --------- -------- --------
Balance at January 1 $326,195 $298,685 $308,007
Allowance of institutions and
loans purchased/sold 4,668 19,467 --
Loans charged off (119,028) (83,086) (110,504)
Recoveries on loans previously
charged off 43,009 35,129 32,182
-------- ------- -------
Net loans charged off (76,019) (47,957) (78,322)
Provision for loan losses 86,500 56,000 69,000
-------- ------- -------
Balance at December 31 $341,344 $326,195 $298,685
======== ======= =======
As a percent of total loans 1.40% 1.47% 1.56%
======== ======= =======
6. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Concentrations of both on-balance sheet and off-balance sheet credit risk are
controlled and monitored as part of the Corporation's credit policies. The
Corporation is a regional bank holding company with a geographic concentration
of its on-balance sheet and off-balance sheet activities centered in Michigan.
In addition, the Corporation has an industry concentration with the automotive
industry, which includes manufacturers and their finance subsidiaries,
suppliers, dealers and company executives.
At December 31, 1995 and 1994, the Corporation's exposure from loan
commitments and guarantees to companies related to the automotive industry
totaled $8.0 billion and $6.4 billion, respectively. Additionally, the
Corporation's commercial real estate loans, including commercial mortgages and
construction loans, totaled $3.9 billion in 1995 and $3.5 billion in 1994.
Approximately $1.8 billion of the Corporation's commercial real estate loans at
December 31, 1995 involved mortgages on owner-occupied properties. Those
borrowers are involved in business activities other than real estate, and the
sources of repayment are not dependent on the performance of the real estate
market.
7. PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31 by major category follows:
(in thousands) 1995 1994
- -------------- ---------- ----------
Land $ 61,144 $ 59,142
Buildings and improvements 402,569 372,988
Furniture and equipment 479,099 453,131
--------- --------
Total cost 942,812 885,261
Less accumulated depreciation and amortization (487,810) (447,504)
--------- --------
Net book value $ 455,002 $ 437,757
========== =========
Other noninterest income for 1993 includes a $24 million gain on the
sale of land adjacent to an operations center.
Rental expense for leased properties and equipment amounted to $44
million in 1995 and 1994, and $42 million in 1993. Future minimum lease rentals
under noncancelable operating lease obligations are as follows:
(in thousands)
- --------------
1996 $ 39,632
1997 34,293
1998 31,369
1999 29,057
2000 25,122
2001 and later 157,829
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of", was adopted in 1995. The statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used. The adoption of this standard had no significant effect on the
financial position or results of operations of the Corporation.
8. SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to four days from the transaction date. Other
borrowed funds, consisting of commercial paper, borrowed securities, term
federal funds purchased, short-term notes and treasury tax and loan deposits,
generally mature within one to 120 days from the transaction date. The
Corporation entered into an interest rate swap contract that converts $100
million of short-term notes from 5.65% to the three-month London Interbank
Offered Rate (LIBOR) (5.69% at December 31, 1995). The following is a summary
of short-term borrowings for the two years ended December 31, 1995:
Federal Funds Purchased
and Securities Sold Other
Under Agreements Borrowed
(in thousands) to Repurchase Funds
- -------------- ----------------------- --------
December 31, 1995
Amount outstanding at year-end $3,206,612 $1,467,550
Weighted average interest rate at year-end 5.39% 5.18%
December 31, 1994
Amount outstanding at year-end $2,594,189 $1,611,219
Weighted average interest rate at year-end 5.64% 4.96%
At December 31, 1995, the parent company had available additional
credit totaling $100 million under a line of credit agreement, all of which was
unused. Under the current agreement, the line will expire in April of 1999.
40
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9. MEDIUM- AND LONG-TERM DEBT
Medium- and long-term debt consisted of the following at December 31:
(in thousands) 1995 1994
- -------------- ---- ----
Parent Company
7.25% subordinated notes due 2007 $ 148,584 $ --
9.75% subordinated notes due 1999 74,692 74,601
10.125% subordinated debentures due 1998 74,800 74,721
---------- ----------
Total parent company 298,076 149,322
Subsidiaries
Subordinated notes:
8.375% subordinated notes due 2024 147,782 147,709
7.25% subordinated notes due 2002 148,931 148,777
6.875% subordinated notes due 2008 99,066 98,990
7.125% subordinated notes due 2013 148,000 147,890
FDIC subordinated note -- 4,500
---------- ----------
Total subordinated notes 543,779 547,866
Medium-term notes:
Floating rate based on Treasury bill indices 1,099,701 2,849,205
Floating rate based on Prime indices 550,000 299,988
Floating rate based on LIBOR indices 624,937 25,000
Fixed rate notes with interest rates ranging
from 5.65% to 7.50% 1,523,433 224,610
---------- ----------
Total medium-term notes 3,798,071 3,398,803
Notes payable maturing on dates ranging
from 1996 through 2015 4,490 1,952
---------- ----------
Total subsidiaries 4,346,340 3,948,621
---------- ----------
Total medium- and long-term debt $4,644,416 $4,097,943
========== ==========
Concurrent with the issuance of certain of the medium- and long-term
debt presented above, the Corporation entered into interest rate swap agreements
to convert the stated rate of the debt to the effective rate identified in the
following table.
Principal
Amount Rate in
of Debt Effect at
(in thousands) Converted Effective Rate 12/31/95
- --------------- --------- -------------- ---------
Parent Company
7.25% subordinated notes $150,000 6-month LIBOR 5.56%
9.75% subordinated notes 50,000 3-month LIBOR 5.69
Subsidiaries
Subordinated notes:
8.375% subordinated notes 150,000 6-month LIBOR 5.56
7.25% subordinated notes 150,000 6-month LIBOR 5.56
6.875% subordinated notes 100,000 6-month LIBOR 5.56
7.125% subordinated notes 150,000 6-month LIBOR 5.56
Medium-term notes:
Floating rate based on Prime
indices 550,000 3-month LIBOR 5.69
5.65%, 5.70%, 5.85%, 6.45%
and 7.50% fixed rate notes 525,000 3-month LIBOR 5.69
5.95% fixed rate note 150,000 5.63% 5.63
All subordinated notes and debentures, with maturities greater than one
year, qualify as tier 2 capital.
Under established medium-term senior bank note programs, certain of the
Corporation's bank subsidiaries may offer an aggregate principal amount of up to
$4.5 billion. The notes can be issued as fixed or floating rate notes and with
terms from nine months to 15 years. The interest rate on the floating rate
medium-term notes based on LIBOR ranged from three-month LIBOR minus 0.13% to
three-month LIBOR minus 0.10%. The notes are due in 1996. The interest rates on
the floating rate medium-term notes based on the bank prime rate (8.50% at
December 31, 1995) ranged from prime minus 2.90% to prime minus 2.85% for notes
maturing in 1996. The interest rates on the floating medium-term notes based on
the three-month U.S. Treasury Bill bond equivalent rate (5.05% at December 31,
1995) ranged from the rate plus 0.17% to the rate plus 0.30% for notes maturing
from 1996 to 1997. The maturities of the fixed rate notes range from 1996 to
2000. The medium-term notes do not qualify as tier 2 capital and are not insured
by the FDIC. The board of directors approved two funding programs, not yet
implemented, which will allow the bank subsidiaries to issue up to $9.5 billion
of senior notes. These new programs will replace the $4.5 billion medium-term
senior bank note program currently in place. The principal maturities of medium-
and long-term debt are as follows:
(in thousands)
- --------------
1996 $2,648,691
1997 749,041
1998 274,437
1999 74,635
2000 199,770
2001 and later 697,842
10. SHAREHOLDERS' EQUITY
The board of directors has authorized the repurchase of up to 8.9 million shares
of Comerica Incorporated common stock for general corporate purposes,
acquisitions and employee benefit plans. At December 31, 1995, 4.5 million
shares had been repurchased. In January of 1996, the Corporation issued 4.4
million shares to shareholders of Metrobank, in exchange for their outstanding
stock.
The redeemable preferred stock was redeemed on January 4, 1993 for $42
million.
At December 31, 1995, the Corporation had reserved 5.4 million shares of
common stock for issuance to employees under the Corporation's profit sharing
and long-term incentive plans.
41
29
11. NET INCOME PER COMMON SHARE
Primary net income per common share is computed by dividing adjusted
net income by the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding during the period. Common stock
equivalents consist of common stock issuable under the assumed exercise of
stock options granted under the Corporation's stock plans, using the treasury
stock method. Fully diluted net income per share of common stock is computed by
assuming conversion of common stock equivalents and convertible subordinated
notes after eliminating the related after-tax interest expense. A computation
of earnings per share follows:
Year Ended December 31
(in thousands, except per share data) 1995 1994 1993
- ------------------------------------- ---- ---- ----
Primary
Average shares outstanding 115,797 117,264 118,461
Common stock equivalent
Net effect of the assumed
exercise of stock options 1,097 896 1,108
-------- -------- --------
Primary average shares 116,894 118,160 119,569
======== ======== ========
Net income $413,366 $387,242 $340,638
Less preferred stock dividends -- -- 42
-------- -------- --------
Income applicable to common stock $413,366 $387,242 $340,596
======== ======== ========
Primary net income per share $3.54 $3.28 $2.85
Fully diluted
Average shares outstanding 115,797 117,264 118,461
Common stock equivalents
Net effect of the assumed
exercise of stock options 1,783 899 1,109
Average shares reserved for
conversion of convertible debt -- -- 166
-------- -------- --------
Fully diluted average shares 117,580 118,163 119,736
======== ======== ========
Net income $413,366 $387,242 $340,638
Less preferred stock dividends -- -- 42
-------- -------- --------
Income applicable to common stock 413,366 387,242 340,596
Interest on convertible debt less
related income tax effect -- -- 86
-------- -------- --------
Net income applicable to
common stock excluding above
interest (net of income tax effect) $413,366 $387,242 $340,682
======== ======== ========
Fully diluted net income per share $3.52 $3.28 $2.85
======== ======== ========
12. LONG-TERM INCENTIVE PLAN
The Corporation has long-term incentive plans under which it has awarded
both shares of restricted stock to key executive officers and stock options to
key executive and senior officers of the Corporation and its subsidiaries. The
exercise price of the stock options is equal to the fair market value at the
time the options are granted and the options may have restrictions regarding
exercisability. The maturity of each option is determined at the date of grant;
however, no options may be exercised later than ten years from the date of
grant. The Corporation accounts for employee stock-based compensation awards in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees."
Number Exercise Price Range
------ -----------------------
Outstanding--December 31, 1992 3,271,570 $ 8.71 -- $ 31.06
Granted 754,740 32.38
Cancelled (139,943) 11.40 -- 32.38
Exercised (445,094) 8.71 -- 29.75
Expired --
--------- ------ --- -------
Outstanding--December 31, 1993 3,441,273 8.71 -- 32.38
Granted 887,350 27.00 -- 28.50
Cancelled (92,877) 14.75 -- 32.38
Exercised (247,726) 8.71 -- 29.75
Expired --
--------- ------ --- -------
Outstanding--December 31, 1994 3,988,020 8.71 -- 32.38
Granted 1,106,180 27.88 -- 31.50
Cancelled (220,741) 27.00 -- 32.38
Exercised (514,247) 8.71 -- 32.38
Expired --
Acquisition of
University Bank & Trust 153,119 13.23 -- 21.02
--------- ------ --- -------
Outstanding--December 31, 1995 4,512,331 $ 9.37 -- $32.38
========= ====== === =======
Exercisable--December 31, 1995 2,333,723
Available for grant--
December 31, 1995 30,820
13. EMPLOYEE BENEFIT PLANS
The Corporation has either defined benefit or defined contribution pension plans
in effect for substantially all full-time employees. Staff expense includes
income of $1.0 million in 1995, income of $2.3 million in 1994 and expense of
$2.4 million in 1993 for defined benefit plans and expense of $243 thousand in
1995, $387 thousand in 1994 and $866 thousand in 1993 for defined contribution
plans. Benefits under the defined benefit pension plan are based primarily on
years of service and the levels of compensation during the five highest paid
consecutive calendar years occurring during the last ten years before
retirement. The plan's assets primarily consist of U.S. Government and agency
securities, corporate bonds and notes, equity securities and units of certain
collective investment funds administered by Comerica Bank.
Contributions under the defined contribution plans are made at the
discretion of the governing board and are intended to provide not only for
benefits attributed to service to date but also for those expected to be earned
in the future.
Net periodic pension cost consisted of the following:
(in thousands) 1995 1994 1993
- -------------- ---- ---- ----
Service cost--benefits earned
during the period $ 8,857 $ 9,273 $11,101
Interest cost on projected
benefit obligation 29,231 27,043 28,541
Actual return on plan assets (93,650) 15,323 (44,094)
Net amortization and (deferral) 54,585 (53,926) 6,811
------- ------- -------
Net pension (income) expense $ (977) $ (2,287) $ 2,359
======= ======= =======
42
30
The following table sets forth the funded status of the defined benefit
pension plans and amounts recognized on the Corporation's balance sheet:
December 31
(in thousands) 1995 1994
-------- --------
Accumulated benefit obligation
Vested $336,411 $269,889
Nonvested 16,970 13,753
-------- --------
Accumulated benefit obligation 353,381 283,642
Effect of projected future compensation levels 71,597 51,974
-------- --------
Projected benefit obligation 424,978 335,616
Plan assets at fair value 466,845 395,365
-------- --------
Plan assets in excess of projected benefit obligation 41,867 59,749
Unrecognized net gain due to past experience
different from that assumed and effects of
changes in assumptions (13,397) (27,422)
Unrecognized net assets being amortized
over 15 years (25,026) (29,859)
-------- --------
Prepaid pension $ 3,444 $ 2,468
======== ========
Actuarial assumptions were as follows:
1995 1994 1993
----- ---- ------
Discount rate used in determining
projected benefit obligation 7.5% 8.5% 7.5%
Rate of increase in compensation levels 5% 5% 5%
Long-term rate of return on assets 8% 8% 8%-8.75%
The Corporation adopted SFAS No. 106, "Employer's Accounting for
Postretirement Benefits Other Than Pensions" in 1993. This statement mandates
the accrual of the cost of providing postretirement benefits during the active
service period of the employee. The Corporation's previous practice was to
expense these benefits when paid. The Corporation's plan continues
postretirement health care and life insurance benefits for retirees as of
December 31, 1992, provides a phase-out for employees over 50 as of that date,
and substantially reduces all benefits for remaining employees. The Corporation
has funded the plan with a company-owned life insurance contract purchased in
1995.
Net periodic postretirement benefit cost included the following
components:
(in thousands) 1995 1994 1993
------- -------- -------
Service cost $ 383 $ 467 $ 335
Interest cost on accumulated
postretirement benefit obligation 6,652 6,698 7,234
Return on plan assets (2,453) -- --
Amortization of transition obligation 4,628 4,628 4,534
Net amortization and (deferral) (1,511) -- --
------- ------- -------
Net periodic postretirement
benefit cost $ 7,699 $11,793 $12,103
======= ======= =======
The following table sets forth the status of the postretirement plan at
December 31:
(in thousands) 1995 1994
-------- --------
Retirees $ 68,477 $ 74,338
Other fully eligible plan participants 4,568 3,897
Other active plan participants 4,993 5,598
-------- ---------
Total accumulated postretirement
benefit obligation 78,038 83,833
Plan assets at fair value 77,453 --
-------- ---------
Funded status (585) (83,833)
Unrecognized net gain (12,110) (8,394)
Unrecognized transition obligation 78,360 82,988
-------- ---------
Postretirement benefit prepaid (liability) $ 65,665 $ (9,239)
======== =========
Actuarial assumptions were as follows:
1995 1994 1993
----- ------ ------
Discount rate used in determining
accumulated postretirement
benefit obligation 7.5% 8.5% 7.5%
Long-term rate of return on assets 6.7% -- --
A 12 percent health care cost trend rate was projected for 1995, and is
assumed to decrease gradually to 6 percent by 2002, remaining constant
thereafter. Increasing each health care rate by one percentage point would
increase the accumulated postretirement benefit obligation by $6 million at
December 31, 1995 and the aggregate of the service and interest cost components
by $490 thousand for the year ended December 31, 1995.
14. INCOME TAXES
The current and deferred components of income taxes were as follows:
(in thousands) 1995 1994 1993
-------- -------- ---------
Currently payable
Federal $192,899 $176,322 $129,220
State, local and foreign 8,610 6,676 4,143
-------- -------- --------
201,509 182,998 133,363
Deferred federal, state and local 10,819 11,855 14,574
-------- -------- --------
Total $212,328 $194,853 $147,937
======== ======== ========
There were $4.1 million, $1.2 million and $0.7 million of income taxes
provided on securities transactions in 1995, 1994 and 1993, respectively.
The principal components of deferred tax (assets) liabilities at December
31 were as follows:
(in thousands) 1995 1994
-------- --------
Allowance for loan losses $(99,660) $(99,305)
Lease financing transactions 96,735 83,268
Allowance for depreciation 11,017 8,221
Deferred loan origination fees and costs (13,604) (14,268)
Investment securities available for sale (2,242) (29,605)
Employee benefits (8,514) (3,405)
Other temporary differences, net (23,728) (23,512)
--------- ---------
Total $(39,996) $(78,606)
========= =========
43
31
The provision for federal income taxes is less than that computed by
applying the federal statutory rate of 35 percent for the reasons in the
following analysis:
(in thousands) 1995 1994 1993
-------- -------- ---------
Tax based on statutory rate $218,993 $203,733 $171,001
Effect of tax-exempt interest income (12,538) (16,153) (18,145)
Other 5,873 7,273 (4,919)
-------- -------- ---------
Provision for income taxes $212,328 $194,853 $147,937
======== ======== =========
15. TRANSACTIONS WITH RELATED PARTIES
The Corporation's bank subsidiaries have had, and expect to have in the future,
transactions with the Corporation's directors and their affiliates. Such
transactions were made in the ordinary course of business and included
extensions of credit, all of which were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the same time
for comparable transactions with other customers and did not, in management's
opinion, involve more than normal risk of collectibility or present other
unfavorable features. The aggregate amount of loans attributable to persons who
were related parties at December 31, 1995, approximated $114 million at the
beginning and $105 million at the end of 1995. During 1995, new loans to
related parties aggregated $63 million and repayments totaled $72 million.
16. DIVIDENDS DECLARED BY BANKING SUBSIDIARIES
Banking regulations limit the transfer of assets in the form of dividends,
loans or advances from the bank subsidiaries to the Corporation. Under the most
restrictive of these regulations, the aggregate amount of dividends which can
be paid to the Corporation without obtaining prior approval from bank
regulatory agencies approximated $279 million at January 1, 1996 plus current
years earnings. Substantially all the assets of the Corporation's subsidiaries
are restricted from transfer to the Corporation in the form of loans or
advances.
Dividends paid to the Corporation by its banking subsidiaries amounted to
$184 million in 1995, $293 million in 1994, and $311 million in 1993.
17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Corporation enters into various
off-balance sheet transactions involving derivative financial instruments,
foreign exchange contracts, and credit-related financial instruments to manage
exposure to fluctuations in interest rate, foreign currency and other market
risks and to meet the financing needs of customers. These financial instruments
involve, to varying degrees, elements of credit and market risk in excess of
the amount reflected in the consolidated balance sheets.
Credit risk is the possible loss that may occur in the event of
nonperformance by the counterparty to a financial instrument. The Corporation
attempts to minimize credit risk arising from off-balance sheet financial
instruments by evaluating the creditworthiness of each counterparty adhering to
the same credit approval process used for traditional lending activities.
Counterparty risk limits and monitoring procedures have also been established
to facilitate the management of credit risk. Collateral is obtained, if deemed
necessary, based on the results of management's credit evaluation. Collateral
varies but may include cash, investment securities, accounts receivable,
inventory, property, plant and equipment, or real estate.
Derivative financial instruments and foreign exchange contracts are traded
over an organized exchange or negotiated over-the-counter. Credit risk
associated with exchange-traded contracts is typically assumed by the organized
exchange. Over-the-counter contracts are tailored to meet the needs of the
counterparties involved and, therefore, contain a greater degree of credit risk
and liquidity risk than exchange-traded contracts which have standardized terms
and readily available price information. The Corporation reduces exposure to
credit and liquidity risks from over-the-counter derivative and foreign
exchange contracts by conducting such transactions with investment-grade
domestic and foreign investment banks or commercial banks.
Market risk is the potential loss that may result from movements in
interest or foreign currency rates which cause an unfavorable change in the
value of a financial instrument. The Corporation manages this risk by
establishing counterparty and monetary exposure limits and monitoring
compliance with those limits. Market risk arising from derivative and foreign
exchange positions entered into on behalf of customers is reflected in the
consolidated financial statements and may be mitigated by entering into
offsetting transactions. Market risk inherent in off-balance sheet derivative
and foreign exchange contracts held or issued for risk management purposes is
generally offset by changes in the value of rate sensitive on-balance sheet
assets or liabilities. Termination of derivative contracts, other than by a
counterparty, is unlikely as a particular instrument can be offset by entering
into an opposite-effect derivative product to facilitate risk management
strategies.
DERIVATIVE FINANCIAL INSTRUMENTS AND
FOREIGN EXCHANGE CONTRACTS
The Corporation, as an end-user, employs a variety of off-balance sheet
financial instruments for risk management purposes. Activity related to these
instruments is centered predominantly in the interest rate markets and mainly
involves interest rate swaps. Various other types of instruments are also used
to manage exposures to market risks, including interest rate caps and floors,
foreign exchange forward contracts, and foreign exchange swap agreements. Refer
to the section entitled "Risk Management Derivative Financial Instruments and
Foreign Exchange Contracts" in Management's Discussion and Analysis on page 30
for further information about the Corporation's objectives for using such
instruments.
The following table presents the composition of off-balance sheet
derivative financial instruments and foreign exchange contracts, excluding
commitments, held or issued for risk management purposes at December 31, 1995
and 1994.
44
32
Notional/
Contract Unrealized Unrealized Fair
(in millions) Amount Gains Losses Value
--------- ---------- ---------- -----
December 31, 1995
Risk management
Interest rate contracts:
Swaps $5,925 $ 88 $ (20) $ 68
Options, caps and
floors purchased 40 19 (21) (2)
Caps written 154 -- -- --
------ ---- ----- -----
Total interest rate
contracts 6,119 107 (41) 66
Foreign exchange
contracts:
Spot and forwards 229 2 (1) 1
Swaps 50 8 -- 8
------ ---- ----- -----
Total foreign
exchange contracts 279 10 (1) 9
------ ---- ----- -----
Total risk management $6,398 $117 $ (42) $ 75
====== ==== ===== =====
December 31, 1994
Risk management
Interest rate contracts:
Swaps $3,643 $ 4 $(238) $(234)
Caps purchased 50 -- -- --
Caps written 198 -- (1) (1)
------ ---- ----- -----
Total interest rate
contracts 3,891 4 (239) (235)
Foreign exchange
contracts:
Spot and forwards 98 -- (1) (1)
Swaps 25 -- -- --
------ ---- ----- -----
Total foreign
exchange contracts 123 -- (1) (1)
------ ---- ----- -----
Total risk management $4,014 $ 4 $(240) $(236)
====== ==== ===== =====
Notional amounts, which represent the extent of involvement in the
derivatives market, are generally used to determine the contractual cash flows
required in accordance with the terms of the agreement. These amounts are
typically not exchanged, significantly exceed amounts subject to credit or
market risk, and are not reflected in the consolidated balance sheets.
Credit risk, which excludes the effects of any collateral or netting
arrangements, is measured as the cost to replace, at current market rates,
contracts in a profitable position. The amount of this exposure is represented
by the gross unrealized gains on derivative and foreign exchange contracts. At
December 31, 1995 and 1994, bilateral collateral agreements with counterparties
covered 82 percent and 77 percent, respectively, of the notional amount of
interest rate derivative contracts. These agreements are instrumental in
reducing credit risk because they provide for the exchange of marketable
investment securities to secure amounts due on contracts in an unrealized gain
position. In addition, as of December 31, 1995, master netting arrangements
were established with all interest rate swap counterparties and certain foreign
exchange counterparties. These arrangements effectively reduce credit risk by
permitting settlement, on a net basis, of contracts entered into with the same
counterparty. The Corporation has not experienced any credit losses associated
with derivative or foreign exchange contracts.
On a limited scale, fee income is earned from entering into various
transactions, principally foreign exchange contracts and interest rate caps, at
the request of customers. The Corporation does not speculate in derivative
financial instruments for the purpose of profiting in the short-term from
favorable movements in market rates.
Fair values for customer initiated and other derivative and foreign
exchange contracts represent the net unrealized gains or losses on such
contracts and are recorded in the consolidated balance sheets. Changes in fair
value are recognized in the consolidated income statements. For both years
ended December 31, 1995 and 1994, unrealized gains and unrealized losses on
customer initiated and other foreign exchange contracts averaged $6 million and
$5 million, respectively. These contracts also generated $7 million and $5
million of noninterest income for the years ended December 31, 1995 and 1994,
respectively. Average positive and negative fair values and income related to
customer initiated and other interest rate contracts were not material for both
1995 and 1994.
The following table presents the composition of off-balance sheet
derivative financial instruments and foreign exchange contracts held or issued
in connection with customer initiated and other activities at December 31, 1995
and 1994.
Notional/
Contract Unrealized Unrealized Fair
(in millions) Amount Gains Losses Value
---------- ---------- ---------- -----
December 31, 1995
Customer initiated and other
interest rate contracts:
Caps written $360 $ -- $-- $--
Swaps 3 -- -- --
---- ---- --- ---
Total interest rate
contracts 363 -- -- --
Foreign exchange
contracts:
Spot, forward, futures
and options 320 5 (5) --
---- ---- --- ---
Total customer
initiated and other $683 $ 5 $(5) $--
==== ==== === ===
December 31, 1994
Customer initiated and other
interest rate contracts:
Caps written $321 $ -- $(1) $(1)
Swaps 7 -- -- --
---- ---- --- ---
Total interest rate
contracts 328 -- (1) (1)
Foreign exchange
contracts:
Spot, forward, futures
and options 503 5 (4) 1
---- ---- --- ---
Total customer
initiated and other $831 $ 5 $(5) $--
==== ==== === ===
45
33
Detailed discussions of each class of derivative financial instrument and
foreign exchange contract held or issued by the Corporation for both risk
management and customer initiated and other activities are provided below.
Interest Rate Swaps
Interest rate swaps are agreements in which two parties periodically exchange
fixed cash payments for variable payments based on a designated market rate or
index (or variable payments based on two different rates or indices for basis
swaps), applied to a specified notional amount until a stated maturity. The
Corporation's swap agreements are structured such that all variable payments
are based primarily on one-month and three-month LIBOR. These instruments are
negotiated over-the-counter and are subject to credit risk, market risk and
liquidity risk.
Interest Rate Options, Including Caps and Floors
Option contracts grant the option holder the right to buy or sell an underlying
financial instrument for a predetermined price before the contract expires.
Interest rate caps and floors are option-based contracts which entitle the
buyer to receive cash payments based on the difference between a designated
reference rate and the strike price, applied to a notional amount. Written
options, primarily caps, expose the Corporation to market risk but not credit
risk. A fee is received at inception for assuming the risk of unfavorable
changes in interest rates. Purchased options contain both credit and market
risk; however, market risk is limited to the fee paid. Options are either
exchange-traded or negotiated over-the-counter. All interest rate caps and
floors are over-the-counter agreements.
Foreign Exchange Contracts
The Corporation uses foreign exchange rate swaps, including generic receive
variable swaps and cross-currency swaps, for risk management purposes. Generic
receive variable swaps involve payment, in a foreign currency, of the
difference between a contractually fixed exchange rate and an average exchange
rate determined at settlement, applied to a notional amount. Cross-currency
swaps involve the exchange of both interest and principal amounts in two
different currencies. Other foreign exchange contracts such as futures,
forwards, and options are primarily entered into as a service to customers and
to offset market risk arising from such positions. Futures and forward
contracts require the delivery or receipt of foreign currency at a specified
date and exchange rate. Foreign currency options allow the holder to purchase
or sell a foreign currency at a specified date and price. Foreign exchange
futures are exchange-traded, while forwards, swaps, and most options are
negotiated over-the-counter. Foreign exchange contracts expose the Corporation
to both market risk and credit risk.
Commitments
The Corporation also enters into commitments to purchase or sell earning assets
for risk management purposes. These transactions, which are similar in nature
to forward contracts, did not have a material impact on the consolidated
financial statements for the years ended December 31, 1995 and 1994.
Commitments to purchase investment securities with settlement terms of up to 60
days are executed to secure certain rates on primarily U.S. Government and
agency securities. No such commitments were outstanding at year-end 1995 and
1994. Commitments to purchase and sell municipal bond securities totaled $30
million and $1 million at December 31, 1995 and 1994, respectively. At December
31, 1995 and 1994, $147 million and $77 million, respectively, of commitments
with settlement terms of up to 120 days had been initiated to reduce interest
rate risk on fixed rate residential mortgage loans originated or held for sale.
Outstanding commitments expose the Corporation to both credit risk and market
risk.
Available credit lines on fixed rate credit card and check product
accounts, which have characteristics similar to option contracts, totaled $2.0
billion and $1.9 billion at December 31, 1995 and 1994, respectively. These
commitments expose the Corporation to the risk of a reduction in net interest
income as interest rates increase. Market risk exposure arising from fixed rate
revolving credit commitments is very limited, however, since it is unlikely
that a significant number of customers with these accounts will simultaneously
borrow up to their maximum available credit lines. Additional information
concerning unused commitments to extend credit is provided in the
"Credit-Related Financial Instruments" section below.
CREDIT-RELATED FINANCIAL INSTRUMENTS
The Corporation issues off-balance sheet financial instruments in
connection with commercial and consumer lending activities. Credit risk
associated with these instruments is represented by the contractual amounts
indicated in the following table.
(in millions) 1995 1994
------- --------
Unused commitments to extend credit $18,622 $16,955
Standby letters of credit and financial guarantees 1,925 1,487
Commercial letters of credit 167 509
Unused Commitments to Extend Credit
Commitments to extend credit are legally binding agreements to lend to a
customer, provided there is no violation of any condition established in the
contract. These commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many commitments
expire without being drawn upon, the total contractual amount of commitments
does not necessarily represent future cash requirements of the Corporation.
Total unused commitments to extend credit at December 31, 1995 and 1994,
included $4 billion and $5 billion, respectively, of variable and fixed rate
revolving credit commitments. Other unused loan commitments, primarily variable
rate, totaled $15 billion at December 31, 1995 and $12 billion at December 31,
1994.
46
34
Standby and Commercial Letters of Credit and
Financial Guarantees
Standby and commercial letters of credit and financial guarantees represent
conditional obligations of the Corporation which guarantee the performance of a
customer to a third party. Standby letters of credit and financial guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions. Long-term
standby letters of credit and financial guarantees, which generally extend for
five or more years and expire in decreasing amounts through the year 2010, were
$758 million and $683 million at December 31, 1995 and 1994, respectively. The
remaining standby letters of credit and financial guarantees, which mature
within one year, totaled $1,167 million and $804 million at December 31, 1995
and 1994, respectively. Commercial letters of credit are issued to finance
foreign or domestic trade transactions.
18. CONTINGENT LIABILITIES
The State of Michigan filed a lawsuit in District Court on July 24, 1990,
against a subsidiary bank and certain former officers, directors and
shareholders of a lending customer seeking recovery of amounts expended by the
State (past and future) to clean up hazardous waste at two former plant sites,
compensation for damages to natural resources, civil penalties for claimed
violation of State Acts and attorney's fees. Plaintiff seeks cleanup costs and
damages and has expressed the opinion that the claim will be well in excess of
$30 million. In January 1993, the court granted the bank's motion for summary
judgment and denied the Attorney General's motion for summary judgment. The
Attorney General has filed an appeal to the Sixth Circuit Court of Appeals,
which is still pending.
The Corporation and its subsidiaries are parties to other litigation and
claims arising in the normal course of their activities. Although the amount of
ultimate liability, if any, with respect to such matters cannot be determined,
management, after consultation with legal counsel, believes that the litigation
and claims, some of which are substantial, including the matter described
above, will not have a materially adverse effect on the Corporation's
consolidated financial position.
19. USAGE RESTRICTIONS
Included in cash and due from banks are amounts required to be deposited with
the Federal Reserve Bank. These reserve balances vary, depending on the level
of customer deposits in the Corporation's subsidiary banks. At December 31,
1995 and 1994, the Federal Reserve balances were $575 million and $562 million,
respectively.
20. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
Disclosure of the estimated fair values of financial instruments, which differ
from carrying values, often requires the use of estimates. In cases where
quoted market values are not available, the Corporation uses present value
techniques and other valuation methods to estimate the fair values of its
financial instruments. These valuation methods require considerable judgment,
and the resulting estimates of fair value can be significantly affected by the
assumptions made and methods used. Accordingly, the estimates provided herein
do not necessarily indicate amounts which could be realized in a current
exchange. Furthermore, as the Corporation normally intends to hold the
majority of its financial instruments until maturity, it does not expect to
realize many of the estimated amounts disclosed. The disclosures also do not
include estimated fair value amounts for items which are not defined as
financial instruments, but which have significant value. These include such
items as core deposit intangibles and loan servicing rights, the future
earnings potential of significant customer relationships, and the value of
trust operations and other fee generating businesses. The Corporation does not
believe that it would be practicable to estimate a representational fair value
for these types of items.
The Corporation used the following methods and assumptions:
Cash and short-term investments: The carrying amount approximates the
estimated fair value of these instruments, which consist of cash and due from
banks, interest-bearing deposits with banks, and federal funds sold.
Trading account securities: These securities are carried at quoted market
value or the market value for comparable securities, which represents estimated
fair value.
Loans held for sale: The market value of these loans represents estimated
fair value. The market value is determined on the basis of existing forward
commitments or the market values of similar loans.
Investment securities: The market value of investment securities, which is
based on quoted market values or the market values for comparable securities,
represents estimated fair value.
Domestic commercial loans: These consist of commercial, real estate
construction, commercial mortgage and equipment lease financing loans. The
estimated fair value of the Corporation's variable rate commercial loans is
represented by their carrying value, adjusted by an amount which estimates the
change in fair value caused by changes in the credit quality of borrowers since
the loans were originated. The estimated fair value of fixed rate commercial
loans is calculated by discounting the contractual cash flows of the loans
using year-end origination rates derived from the Treasury yield curve or other
representative bases. The resulting amounts are adjusted to estimate the effect
of changes in the credit quality of borrowers since the loans were originated.
International loans: The estimated fair value of the Corporation's
short-term international loans which consist of trade-related loans, or loans
which have no cross-border risk due to the existence of domestic guarantors or
liquid collateral, is represented by their carrying value, adjusted by an
amount which estimates the effect on fair value of changes in the credit
quality of borrowers or guarantors. The estimated fair value of long-term
international loans is based on the quoted market values of these loans or on
the market values of international loans with similar characteristics.
47
35
Retail loans: This category consists of residential mortgage, consumer and
auto lease financing loans. The estimated fair value of residential mortgage
loans is based on discounted contractual cash flows or market values of similar
loans sold in conjunction with securitized transactions. For consumer loans,
the estimated fair values are calculated by discounting the contractual cash
flows of the loans using rates representative of year-end origination rates.
The resulting amounts are adjusted to estimate the effect of changes in the
credit quality of borrowers since the loans were originated.
Customers' liability on acceptances outstanding: The carrying amount
approximates the estimated fair value.
Deposit liabilities: The estimated fair value of demand deposits,
consisting of checking, savings and certain money market deposit accounts, is
represented by the amounts payable on demand. The carrying amount of deposits
in foreign offices approximates their estimated fair value, while the estimated
fair value of term deposits is calculated by discounting the scheduled cash
flows using the year-end rates offered on these instruments.
Short-term borrowings: The carrying amount of federal funds purchased,
securities sold under agreements to repurchase, and other borrowings
approximates estimated fair value.
Acceptances outstanding: The carrying amount approximates the estimated
fair value.
Medium- and long-term debt: The estimated fair value of the Corporation's
variable rate medium- and long-term debt is represented by their carrying
value. The estimated fair value of the fixed rate medium- and long-term debt
is based on quoted market values. If quoted market values are not available,
the estimated fair value is based on the market values of debt with similar
characteristics.
Derivative financial instruments and foreign exchange contracts: The
estimated fair value of interest rate swaps represents the amount the
Corporation would receive or pay to terminate or otherwise settle the contracts
at the balance sheet date, taking into consideration current unrealized gains
and losses on open contracts. The estimated fair value of foreign exchange
futures and forward contracts and commitments to purchase or sell financial
instruments are based on quoted market prices. The estimated fair value of
interest rate and foreign currency options (including interest rate caps and
floors) are determined using option pricing models.
Credit-related financial instruments: The estimated fair value of unused
commitments to extend credit and standby and commercial letters of credit is
represented by the estimated cost to terminate or otherwise settle the
obligations with the counterparties. This amount is approximated by the fees
currently charged to enter into similar arrangements, considering the remaining
terms of the agreements and any changes in the credit quality of counterparties
since the agreements were entered into. This estimate of fair value does not
take into account the significant value of the customer relationships and the
future earnings potential involved in such arrangements, as the Corporation
does not believe that it would be practicable to estimate a representational
fair value for these items.
The estimated fair values of the Corporation's financial instruments at
December 31, 1995 and 1994 are as follows:
1995 1994
----------------------- -----------------------
Carrying Estimated Carrying Estimated
(in millions) Amount Fair Value Amount Fair Value
- ------------- -------- ----------- ---------- -----------
ASSETS
Cash and short-term
investments $ 2,255 $ 2,255 $ 2,247 $ 2,247
Trading account securities 11 11 4 4
Loans held for sale 512 513 92 92
Investment securities
available for sale 6,859 6,859 2,906 2,906
Investment securities held
to maturity -- -- 4,970 4,659
Commercial loans 12,041 11,957 10,634 10,448
International loans 1,385 1,383 1,195 1,183
Real estate construction
loans 641 637 414 406
Commercial mortgage
loans 3,254 3,233 3,056 2,983
Residential mortgage
loans 2,221 2,261 2,436 2,346
Consumer loans 4,570 4,468 4,215 4,025
Lease financing 330 333 259 251
------- ------ ------ ------
Total loans 24,442 24,272 22,209 21,642
Less allowance for
loan losses (341) -- (326) --
------- ------ ------ ------
Net loans 24,101 24,272 21,883 21,642
Customers' liability on
acceptances outstanding 21 21 34 34
LIABILITIES
Demand deposits
(noninterest-bearing) 5,580 5,580 5,257 5,257
Interest-bearing deposits 15,461 15,487 14,742 14,731
Deposits in foreign offices 2,126 2,126 2,433 2,433
------- ------ ------ ------
Total deposits 23,167 23,193 22,432 22,421
Short-term borrowings 4,674 4,674 4,206 4,206
Acceptances outstanding 21 21 34 34
Medium- and
long-term debt 4,644 4,724 4,098 4,046
OFF-BALANCE SHEET
FINANCIAL INSTRUMENTS
Derivative financial
instruments and foreign
exchange contracts
Risk management:
Unrealized gains -- 117 -- 4
Unrealized losses -- (43) -- (240)
Customer initiated
and other:
Unrealized gains 5 5 5 5
Unrealized losses (5) (5) (5) (5)
Credit-related financial
instruments -- (9) -- (13)
48
36
21. Parent Company Financial Statements
BALANCE SHEETS--Comerica Incorporated
December 31 (in thousands, except share data) 1995 1994
---------- -----------
ASSETS
Cash and due from banks $ 292 $ 2,041
Time deposits with subsidiary bank 130,800 89,600
Investment securities available for sale 13,231 6,946
Investment in subsidiaries, principally banks 2,754,395 2,423,918
Premises and equipment 54,566 58,967
Other assets 49,873 41,931
---------- ----------
Total assets $3,003,157 $2,623,403
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt $ 298,076 $ 149,322
Other borrowed funds 1,101 --
Advances from nonbanking subsidiaries 3,759 7,823
Other liabilities 92,494 74,478
---------- ----------
Total liabilities 395,430 231,623
Common stock--$5 par value
Authorized--250,000,000 shares
Issued--115,094,531 shares in 1995 and 119,294,531 shares in 1994 575,473 596,473
Capital surplus 408,644 525,052
Unrealized gains and losses on investment securities available for sale (4,141) (55,039)
Retained earnings 1,640,980 1,390,405
Less cost of common stock in treasury--490,704 shares
in 1995 and 2,382,333 shares in 1994 (13,229) (65,111)
---------- ----------
Total shareholders' equity 2,607,727 2,391,780
---------- ----------
Total liabilities and shareholders' equity $3,003,157 $2,623,403
========== ==========
STATEMENTS OF INCOME--Comerica Incorporated
Year Ended December 31 (in thousands) 1995 1994 1993
-------- --------- ---------
INCOME
Income from subsidiaries
Dividends from subsidiaries $183,700 $293,390 $312,148
Interest on receivables from subsidiaries -- -- 3,303
Other interest income 7,113 8,127 1,630
Intercompany management fees 293,292 267,123 211,351
Other interest income -- 171 51
Other noninterest income 2,680 779 24,818
-------- -------- --------
Total income 486,785 569,590 553,301
EXPENSES
Interest on commercial paper -- -- 13
Interest on long-term debt 19,948 15,076 18,529
Net interest rate swap income (785) -- --
Interest on advances from subsidiaries 243 198 193
Salaries and employee benefits 127,261 123,924 128,509
Occupancy expense 22,778 18,570 8,515
Equipment expense 25,600 25,649 23,608
Merger, integration and restructuring charge -- 2,363 22,000
Other noninterest expenses 76,319 68,185 60,305
-------- -------- --------
Total expenses 271,364 253,965 261,672
-------- -------- --------
Income before income taxes and equity
in undistributed net income of subsidiaries 215,421 315,625 291,629
Income tax expense (credit) 10,705 7,058 (6,550)
-------- -------- --------
204,716 308,567 298,179
Equity in undistributed net income of
subsidiaries, principally banks 208,650 78,675 42,459
-------- -------- --------
NET INCOME $413,366 $387,242 $340,638
======== ======== ========
49
37
STATEMENTS OF CASH FLOWS--Comerica Incorporated
Year Ended December 31 (in thousands) 1995 1994 1993
--------- --------- ----------
OPERATING ACTIVITIES
Net income $ 413,366 $ 387,242 $ 340,638
Adjustments to reconcile net income to
net cash provided by operating activities
Undistributed earnings of
subsidiaries, principally banks (208,650) (78,675) (42,459)
Depreciation 20,447 19,784 17,658
Merger, integration and restructuring charge (6,078) (12,380) 5,414
Net amortization of intangibles 443 583 1,207
Other, net 15,940 10,480 (21,962)
--------- --------- ----------
Total adjustments (177,898) (60,208) (40,142)
--------- --------- ----------
Net cash provided by operating activities 235,468 327,034 300,496
INVESTING ACTIVITIES
Net decrease in receivables from subsidiaries -- -- 100,000
Net decrease in securities purchased from
bank subsidiary under agreements to resell -- -- 16,538
Proceeds from maturities of investment securities available for sale 499 15,157 --
Purchase of investment securities available for sale (6,097) (22,818) --
Proceeds from maturity of investment securities
held to maturity -- 7,507 33,548
Purchase of investment securities held to maturity -- -- (16,549)
Proceeds from sales of fixed assets and other real estate 3,439 1,638 13,633
Purchases of fixed assets (16,413) (30,226) (58,086)
Net (increase) decrease in bank time deposits (41,200) 7,600 26,400
Capital transactions with subsidiaries (1,400) (97,647) (4,620)
--------- --------- ----------
Net cash provided by (used in) investing activities (61,172) (118,789) 110,864
FINANCING ACTIVITIES
Net increase (decrease) in advances from subsidiaries (4,064) 3,546 (7,464)
Proceeds from issuance of long-term debt 210,000 -- --
Repayments and purchases of long-term debt (59,147) -- (111,008)
Net decrease in short-term borrowings -- -- (8,502)
Proceeds from issuance of common stock
and other capital transactions 11,548 5,407 9,395
Purchase of common stock for treasury and retirement (178,656) (76,280) (128,848)
Redemption of preferred stock -- -- (41,779)
Dividends paid (155,726) (139,988) (124,306)
--------- --------- ----------
Net cash used in financing activities (176,045) (207,315) (412,512)
--------- --------- ----------
Net increase (decrease) in cash on deposit at bank subsidiary (1,749) 930 (1,152)
Cash on deposit at bank subsidiary at beginning of year 2,041 1,111 2,263
--------- --------- ----------
Cash on deposit at bank subsidiary at end of year $ 292 $ 2,041 $ 1,111
========= ========= ==========
Interest paid $ 15,623 $ 15,104 $ 18,652
========= ========= ==========
Income taxes recovered $ 3,275 $ 4,743 $ 12,191
========= ========= ==========
Noncash investing and financing activities
Conversion of debentures to equity $ -- $ -- $ 5,095
========= ========= ==========
Treasury stock issued for acquisition $ 77,100 $ 121,363 $ --
========= ========= ==========
50
38
22. Summary of Quarterly Financial Information
The following quarterly information is unaudited. However, in the opinion of
management, the information furnished reflects all adjustments which are
necessary for the fair presentation of the results of operations for the
periods presented.
1995
-------------------------------------------------
(in thousands, Fourth Third Second First
except per share data) Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Interest income $670,632 $661,678 $659,992 $621,622
Interest expense 329,610 338,354 336,941 309,136
Net interest income 341,022 323,324 323,051 312,486
Provision for loan losses 33,000 26,000 15,500 12,000
Securities gains 10,960 516 71 201
Noninterest income
(excluding securities gains) 129,605 123,873 118,361 115,138
Noninterest expenses 288,445 261,171 272,582 264,216
Net income 106,510 105,302 101,532 100,022
Net income per share $0.92 $0.91 $0.86 $0.85
1994
-------------------------------------------------
(in thousands, Fourth Third Second First
except per share data) Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Interest income $581,538 $540,934 $514,057 $455,395
Interest expense 269,255 227,935 199,503 165,104
Net interest income 312,283 312,999 314,554 290,291
Provision for loan losses 12,000 14,000 15,000 15,000
Securities gains 1,098 1,581 358 424
Noninterest income
(excluding securities gains) 116,803 110,578 110,754 108,594
Noninterest expenses 274,245 258,636 260,562 248,779
Net income 96,597 100,604 99,178 90,863
Net income per share $0.82 $0.84 $0.83 $0.79
51
39
Report of Management
Management is responsible for the accompanying financial statements and all
other financial information in this Annual Report. The financial statements
have been prepared in conformity with generally accepted accounting principles
and include amounts which of necessity are based on management's best estimates
and judgments and give due consideration to materiality. The other financial
information herein is consistent with that in the financial statements.
In meeting its responsibility for the reliability of the financial
statements, management develops and maintains systems of internal accounting
controls. These controls are designed to provide reasonable assurance that
assets are safeguarded and transactions are executed and recorded in accordance
with management's authorization. The concept of reasonable assurance is based
on the recognition that the cost of internal accounting control systems should
not exceed the related benefits. The systems of control are continually
monitored by the internal auditors whose work is closely coordinated with and
supplements in many instances the work of independent auditors.
The financial statements have been audited by independent auditors Ernst &
Young LLP. Their role is to render an independent professional opinion on
management's financial statements based upon performance of procedures they
deem appropriate under generally accepted auditing standards.
The Corporation's Board of Directors oversees management's internal
control and financial reporting responsibilities through its Audit Committee as
well as various other committees. The Audit Committee, which consists of
directors who are not officers or employees of the Corporation, meets
periodically with management and internal and independent auditors to assure
that they and the Committee are carrying out their responsibilities and to
review auditing, internal control and financial reporting matters.
/s/ EUGENE A. MILLER
Eugene A. Miller
Chairman and Chief Executive Officer
/s/ RALPH W. BABB JR.
Ralph W. Babb Jr.
Executive Vice President and Chief Financial Officer
/s/ ARTHUR W. HERMANN
Arthur W. Hermann
Senior Vice President and Controller
Report of Independent Auditors
Board of Directors,
Comerica Incorporated
We have audited the accompanying consolidated balance sheets of Comerica
Incorporated and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Comerica
Incorporated and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Detroit, Michigan
January 16, 1996
52
40
Historical Review-Average Balance Sheets: Comerica Incorporated and
Subsidiaries
Consolidated Financial Information
(in millions) 1995 1994 1993 1992 1991
- ---------------------------------- ------- ------- ------- ------- -------
Assets
Cash and due from banks $ 1,500 $ 1,532 $ 1,490 $ 1,322 $ 1,201
Interest-bearing deposits with banks 126 552 814 1,017 1,413
Federal funds sold and securities
purchased under agreements to resell 124 116 135 399 454
Trading account securities 5 5 12 78 53
Loans held for sale 96 150 232 196 92
Investment securities 7,625 8,004 5,512 5,373 5,740
Commercial loans 11,302 9,598 8,473 7,753 7,359
International loans 1,257 1,107 897 710 501
Real estate construction loans 541 403 441 503 530
Commercial mortgage loans 3,157 2,916 2,629 2,368 2,190
Residential mortgage loans 2,450 2,175 1,979 2,297 2,438
Consumer loans 4,569 3,795 3,697 3,625 3,427
Lease financing 285 217 191 191 177
------- ------- ------- ------- -------
Total loans 23,561 20,211 18,307 17,447 16,622
Less allowance for loan losses (340) (322) (311) (291) (275)
------- ------- ------- ------- -------
Net loans 23,221 19,889 17,996 17,156 16,347
Accrued income and other assets 1,432 1,203 1,045 969 1,065
------- ------- ------- ------- -------
Total assets $34,129 $31,451 $27,236 $26,510 $26,365
======= ======= ======= ======= =======
Liabilities and Shareholders' Equity
Demand deposits (noninterest-bearing) $ 4,767 $ 4,700 $ 4,380 $ 3,796 $ 3,417
Interest-bearing deposits 15,046 14,809 15,035 15,449 15,933
Deposits in foreign offices 1,842 1,816 1,306 1,668 1,435
------- ------- ------- ------- -------
Total deposits 21,655 21,325 20,721 20,913 20,785
Federal funds purchased and securities sold
under agreements to repurchase 2,816 2,817 1,586 1,553 1,530
Other borrowed funds 2,313 2,002 1,432 1,308 1,527
Accrued expenses and other liabilities 324 286 274 327 421
Medium- and long-term debt 4,510 2,708 1,087 414 323
------- ------- ------- ------- -------
Total liabilities 31,618 29,138 25,100 24,515 24,586
Shareholders' equity 2,511 2,313 2,136 1,995 1,779
------- ------- ------- ------- -------
Total liabilities and shareholders' equity $34,129 $31,451 $27,236 $26,510 $26,365
======= ======= ======= ======= =======
53
41
Historical Review-Statements of Income: Comerica Incorporated and Subsidiaries
Consolidated Financial Information
(in millions, except per share data) 1995 1994 1993 1992 1991
- ------------------------------------ -------- -------- -------- -------- --------
Interest Income
Interest and fees on loans $ 2,091 $ 1,577 $ 1,388 $ 1,445 $ 1,634
Interest on investment securities
Taxable 474 446 307 356 437
Exempt from federal income tax 26 31 40 55 62
-------- -------- -------- -------- --------
Total interest on investment securities 500 477 347 411 499
Trading account interest -- -- 1 3 3
Interest on federal funds sold and securities
purchased under agreements to resell 7 5 4 15 25
Interest on time deposits with banks 8 22 28 45 99
Interest on loans held for sale 8 11 15 14 8
-------- -------- -------- -------- --------
Total interest income 2,614 2,092 1,783 1,933 2,268
Interest Expense
Interest on deposits 721 543 530 707 1,033
Interest on short-term borrowings
Federal funds purchased and securities
sold under agreements to repurchase 166 121 47 53 86
Other borrowed funds 136 79 41 46 86
Interest on medium- and long-term debt 289 148 63 30 28
Net interest rate swap (income) / expense 2 (29) (32) (24) (15)
-------- -------- -------- -------- --------
Total interest expense 1,314 862 649 812 1,218
-------- -------- -------- -------- --------
Net interest income 1,300 1,230 1,134 1,121 1,050
Provision for loan losses 87 56 69 111 105
-------- -------- -------- -------- --------
Net interest income after provision for loan losses 1,213 1,174 1,065 1,010 945
Noninterest Income
Income from fiduciary activities 125 122 122 114 105
Service charges on deposit accounts 130 124 120 113 103
Customhouse broker fees 36 41 40 38 36
Revolving credit fees 36 24 23 22 22
Securities gains 12 3 2 6 5
Other noninterest income 160 136 142 106 104
-------- -------- -------- -------- --------
Total noninterest income 499 450 449 399 375
Noninterest Expenses
Salaries and employee benefits 562 549 529 516 500
Net occupancy expense 99 99 96 86 83
Equipment expense 68 68 62 57 54
FDIC insurance expense 24 44 44 45 41
Telecommunications expense 29 27 21 17 16
Merger, integration and restructuring charge -- 7 22 128 --
Other noninterest expenses 304 248 251 231 241
-------- -------- -------- -------- --------
Total noninterest expenses 1,086 1,042 1,025 1,080 935
-------- -------- -------- -------- --------
Income before income taxes 626 582 489 329 385
Provision for income taxes 213 195 148 89 105
-------- -------- -------- -------- --------
Net Income $ 413 $ 387 $ 341 $ 240 $ 280
======== ======== ======== ======== ========
Net income applicable to common stock $ 413 $ 387 $ 341 $ 237 $ 277
======== ======== ======== ======== ========
Net income per common share $3.54 $3.28 $2.85 $1.99 $2.41
Average common and common equivalent
shares (in thousands) 116,894 118,160 119,569 119,113 114,713
Cash dividends declared on common stock $158 $145 $125 $108 $93
Dividends per common share $1.37 $1.24 $1.07 $0.96 $0.92
54
42
Historical Review-Statistical Data: Comerica Incorporated and Subsidiaries
Consolidated Financial Information 1995 1994 1993 1992 1991
- ---------------------------------- ------- ------- ------- ------- -------
Average Rates (Fully Taxable Equivalent Basis)
Interest-bearing deposits with banks 6.39% 3.96% 3.41% 4.43% 7.01%
Federal funds sold and securities purchased
under agreements to resell 5.97 4.06 2.99 3.67 5.58
Trading account securities 6.51 1.67 6.76 3.99 6.75
Loans held for sale 7.75 7.31 6.38 7.34 8.66
Investment securities available for sale 6.50 5.50 n/a n/a n/a
Investment securities held to maturity 6.85 6.55 6.70 8.16 9.25
------- ------- ------- ------- -------
Total investment securities 6.67 6.15 6.70 8.16 9.25
Commercial loans 8.75 7.38 6.56 6.98 9.01
International loans 7.06 5.58 5.04 5.70 8.14
Real estate construction loans 9.52 7.85 6.63 7.00 8.69
Commercial mortgage loans 9.40 8.52 8.10 8.54 9.99
Residential mortgage loans 7.80 7.46 8.57 9.53 10.01
Consumer loans 10.10 9.44 9.98 11.03 12.10
Lease financing 6.65 6.48 7.34 8.89 9.66
------- ------- ------- ------- -------
Total loans 8.90 7.84 7.62 8.34 9.89
------- ------- ------- ------- -------
Interest income as a percent of earning assets 8.35 7.28 7.25 8.04 9.48
Domestic deposits 4.05 3.14 3.24 4.13 5.93
Deposits in foreign offices 6.07 4.28 3.29 4.11 6.14
------- ------- ------- ------- -------
Total interest-bearing deposits 4.27 3.26 3.24 4.13 5.95
Federal funds purchased and securities sold
under agreements to repurchase 5.88 4.31 3.01 3.44 5.60
Other borrowed funds 5.87 3.92 2.88 3.52 5.68
Medium- and long-term debt 6.41 5.46 5.77 7.18 8.56
------- ------- ------- ------- -------
Interest expense as a percent of
interest-bearing sources 4.95 3.57 3.18 3.98 5.87
------- ------- ------- ------- -------
Interest rate spread 3.40 3.71 4.07 4.06 3.61
Impact of net noninterest-bearing
sources of funds 0.79 0.61 0.58 0.67 0.88
------- ------- ------- ------- -------
Net interest margin as percent of
earning assets 4.19 4.32 4.65 4.73 4.49
Return on Average Common
Shareholders' Equity 16.46 16.74 15.94 12.10 15.90
Return on Average Assets 1.21 1.23 1.25 0.91 1.06
Efficiency Ratio 60.09 61.28 63.68 69.61 63.88
Per Share Data
Book value at year-end $22.75 $20.46 $18.99 $17.38 $16.30
Market value at year-end 40.00 24.38 26.63 32.00 26.88
Market value--high and low for year 43-24 31-24 35-25 33-26 27-14
Other Data
Number of banking offices 395 398 385 427 412
Number of employees (full-time equivalent) 12,876 13,077 12,670 13,322 13,836
55
43
OFFICERS AND DIRECTORS: COMERICA INCORPORATED
Management Policy
Committee
EUGENE A. MILLER
Chairman and Chief Executive Officer,
Comerica Incorporated and Comerica Bank
Mr. Miller joined Comerica in 1955 when it was known as The Detroit Bank. He
rose to chairman, president and chief executive officer of Comerica
Incorporated and Comerica Bank prior to the 1992 merger of Comerica
Incorporated and Manufacturers National Corporation. Mr. Miller served as
president and chief operating officer of Comerica Incorporated and chairman and
chief executive officer of Comerica Bank following the merger. He became
chairman and chief executive officer of Comerica Incorporated in July 1993.
MICHAEL T. MONAHAN
President,
Comerica Incorporated and Comerica Bank
Mr. Monahan began his banking career in 1960 with Manufacturers Bank. He rose
to president and chief operating officer of Manufacturers National Corporation
and Manufacturers Bank, N.A. prior to the merger with Comerica. He served as
president and chief operating officer of Comerica Bank following the merger and
in 1993 became president of Comerica Incorporated.
JOHN D. LEWIS
Vice Chairman,
Comerica Incorporated and Comerica Bank
Mr. Lewis joined Comerica in 1970. He has held a variety of leadership
positions in the Corporation. Mr. Lewis served as executive vice president of
Comerica Incorporated following the 1992 merger. In 1994 he was named vice
chairman of the Corporation and in 1995 also was named vice chairman of
Comerica Bank.
RALPH W. BABB JR.
Executive Vice President
and Chief Financial Officer,
Comerica Incorporated
Mr. Babb joined Comerica as chief financial officer in 1995. He previously was
vice chairman of Mercantile Bancorporation, Inc.
JOHN R. BERAN
Executive Vice President
and Chief Information Officer,
Comerica Incorporated
Mr. Beran joined Comerica as chief information officer in 1995. He previously
was president and chief executive officer of Money Access Service.
JOSEPH J. BUTTIGIEG III
Executive Vice President,
Comerica Bank
Mr. Buttigieg began his banking career with Manufacturers Bank in 1971. He was
named officer-in-charge of Comerica Bank's Global Banking Division in 1995.
RICHARD A. COLLISTER
Executive Vice President,
Comerica Incorporated and Comerica Bank
Mr. Collister joined Comerica as executive vice president in charge of Human
Resources in 1992. In 1995 he also was named officer-in-charge of Corporate
Staff. Previously, he held executive positions in human resources for Merrill
Lynch and Chase Manhattan Bank.
GEORGE C. ESHELMAN
Executive Vice President,
Comerica Incorporated
Mr. Eshelman has served as executive vice president in charge of Comerica
Investment Services since 1994. He joined Comerica in 1978.
CHARLES L. GUMMER
President and Chief Executive Officer,
Comerica Bank-Texas
Mr. Gummer began his banking career with Comerica in 1970. He has been
president and chief executive officer of Comerica's Texas subsidiary since
1989.
FENTON R. TALBOTT
Executive Vice President, Community Banking,
Comerica Bank
Mr. Talbott joined Comerica in 1996 and is responsible for branch and small
business activities in Michigan. Previously, he held executive positions with
American Express, The First Boston Corporation, Bank of America and Citicorp.
EXECUTIVE OFFICERS
JUDITH C. LALKA DART
Executive Vice President,
General Counsel and Corporate Secretary
Ms. Dart has served as executive vice president, general counsel and corporate
secretary since 1992. She joined Comerica in 1985.
DOUGLAS W. FIEDLER
President and Chief Executive Officer,
Comerica Bank & Trust, FSB
Mr. Fiedler has been president and chief executive officer of Comerica's
Florida subsidiary, Comerica Bank & Trust, FSB, since 1993. He joined Comerica
in 1973.
J. MICHAEL FULTON
President and Chief Executive Officer,
Comerica Bank-California
Mr. Fulton has served as president and chief executive officer of Comerica's
California subsidiary since 1993. He joined Comerica in 1971.
JOHN R. HAGGERTY
President and Chief Executive Officer,
Comerica Mortgage Corporation
Mr. Haggerty joined Comerica in 1994 as president and chief executive officer
of Comerica Mortgage Corporation. He directs the mortgage operations of
Comerica's subsidiaries in Michigan, Texas, California, Illinois and Florida.
ARTHUR W. HERMANN
Senior Vice President and Controller,
Comerica Incorporated
Mr. Hermann has been senior vice president and controller since 1992. He joined
Comerica in 1976.
THOMAS R. JOHNSON
Executive Vice President
and Chief Credit Officer,
Comerica Incorporated
Mr. Johnson became executive vice president and chief credit officer in 1992.
He began his banking career with Comerica in 1968.
56
44
OFFICERS AND DIRECTORS: COMERICA INCORPORATED
RONALD P. MARCINELLI
Executive Vice President,
Comerica Bank
Mr. Marcinelli was named executive vice president and officer-in-charge of
Corporate Banking and Institutional Trust in 1995. He joined Comerica in 1972.
DAVID B. STEPHENS
Executive Vice President,
Comerica Bank
Mr. Stephens has served as executive vice president in charge of the Private
Banking Division since 1994. He joined Comerica in 1991.
JAMES R. TIETJEN
Senior Vice President and General Auditor,
Comerica Incorporated
Mr. Tietjen was named senior vice president and general auditor in 1995. He
joined Comerica in 1989.
DAVID C. WHITE
President and Chief Executive Officer,
Comerica Bank-Illinois
Mr. White has been president and chief executive officer of Comerica's Illinois
subsidiary since 1992. He began his banking career in 1970 with Manufacturers
Bank.
COMERICA INCORPORATED
BOARD OF DIRECTORS
E. PAUL CASEY
Chairman and Managing General Partner
Metapoint Partners
JAMES F. CORDES
Executive Vice President
The Coastal Corporation
J. PHILIP DINAPOLI
Attorney
J. Philip DiNapoli Offices
MAX M. FISHER
Investor
JOHN D. LEWIS
Vice Chairman
Comerica Incorporated
and Comerica Bank
PATRICIA SHONTZ LONGE, Ph.D.
Economist; Senior Partner
The Longe Company
WAYNE B. LYON
President and Chief Operating Officer
Masco Corporation
GERALD V. MACDONALD
Retired Chairman
and Chief Executive Officer
Comerica Incorporated
EUGENE A. MILLER
Chairman and Chief Executive Officer
Comerica Incorporated
and Comerica Bank
MICHAEL T. MONAHAN
President
Comerica Incorporated
and Comerica Bank
ALFRED A. PIERGALLINI
President and Chief Executive Officer
Gerber Products Company
ALAN E. SCHWARTZ
Partner
Honigman Miller Schwartz and Cohn
HOWARD F. SIMS
Chairman
Sims-Varner & Associates
57
45
OFFICERS AND DIRECTORS: COMERICA INCORPORATED AND SUBSIDIARIES
COMERICA BANK (MICHIGAN)
DIRECTORS
LILLIAN BAUDER, PH.D.
President and Chief Executive Officer
Cranbrook Educational Community
E.L. COX
Retired Chief Executive Officer
Michigan Mutual/Amerisure Companies
Accident Fund of Michigan
ROGER FRIDHOLM
President
St. Clair Group
TODD W. HERRICK
President and Chief Executive Officer
Tecumseh Products Company
DAVID BAKER LEWIS
Chairman
Lewis, White & Clay, P.C.
JOHN D. LEWIS
Vice Chairman
Comerica Incorporated
and Comerica Bank
EUGENE A. MILLER
Chairman and Chief Executive Officer
Comerica Incorporated
and Comerica Bank
MICHAEL T. MONAHAN
President
Comerica Incorporated
and Comerica Bank
JOHN W. PORTER
Chief Executive Officer
Urban Education Alliance, Inc.
HEINZ C. PRECHTER
Chairman and Founder
ASC Incorporated
RICHARD D. ROHR
Managing Partner
Bodman, Longley & Dahling
ROBERT S. TAUBMAN
President and Chief Executive Officer
The Taubman Company, Inc.
ALFRED H. TAYLOR JR.
Retired Chairman
and Chief Executive Officer
Kresge Foundation
WILLIAM P. VITITOE
Chairman, President
and Chief Executive Officer
Washington Energy Company
MARTIN D. WALKER
Chairman and Chief Executive Officer
M.A. Hanna Company
GAIL L. WARDEN
President and Chief Executive Officer
Henry Ford Health System
COMERICA BANK-TEXAS
CHARLES L. GUMMER
President and Chief Executive Officer
DIRECTORS
CARROLL BAIRD
Executive Consultant
Mrs Baird's Bakeries, Inc.
C. DEWITT BROWN JR.
President and Chief Executive Officer
Dee Brown Masonry
JAMES F. CORDES
Executive Vice President
The Coastal Corporation
THOMAS M. DUNNING
Chairman
Dunning Benefit Corporation
RUBEN E. ESQUIVEL
Vice President,
Community and Corporate Relations
The University of Texas
Southwestern Medical Center
JOSEPH R. GOYNE
Vice Chairman
Comerica Bank-Texas
CHARLES L. GUMMER
President and Chief Executive Officer
Comerica Bank-Texas
REV. ZAN W. HOLMES JR.
Senior Pastor
St. Luke Community
United Methodist Church
MARY A. JORDAN, PH.D.
President
Jordan-DeLaurenti, Inc.
JAKE KAMIN
Chairman, South Texas Advisory Board
Comerica Bank-Texas
W. THOMAS MCQUAID
President
Performance Properties Corporation
RAYMOND D. NASHER
Chairman of the Board of Directors
Comerica Bank-Texas
Chairman
The Nasher Company
CALVIN E. PERSON
Owner
Calvin Person & Associates
BOONE POWELL JR.
President and Chief Executive Officer
Baylor University Medical Center
BILL J. PRIEST, PH.D.
Chancellor Emeritus
Dallas County Community
College District
THOMAS J. TIERNEY
Chairman of the Board
Corporate Communications Center, Inc.
COMERICA BANK-CALIFORNIA
J. MICHAEL FULTON
President and Chief Executive Officer
DIRECTORS
THEODORE J. BIAGINI
Attorney
Hopkins & Carley
PHILLIP R. BOYCE
Investor
JACK C. CARSTEN
Principal
Technology Investments
LEO E. CHAVEZ
Chancellor
Foothill-DeAnza
Community College District
JACK W. CONNER
Chairman
Comerica Bank-California
J. PHILIP DINAPOLI
Attorney
J. Philip DiNapoli Offices
58
46
OFFICERS AND DIRECTORS: COMERICA INCORPORATED AND SUBSIDIARIES
BRUCE C. EDWARDS
President
March Development Company
J. MICHAEL FULTON
President and Chief Executive Officer
Comerica Bank-California
DREW GIBSON
Chairman and Chief Executive Officer
Gibson Speno Companies
WALTER T. KACZMAREK
Northern California Regional President
and Chief Operating Officer
Comerica Bank-California
ELINOR WEISS MANSFIELD
Attorney
WALTER J. MCCARTHY JR.
Retired Chairman
and Chief Executive Officer
The Detroit Edison Company
LINDA R. MEIER
Chairman of the Board
Stanford University Hospital
LOWELL W. MORSE
Chairman of the Board
Cypress Ventures, Inc.
JOSEPH P. PARISI
President
Therma Corporation
EDWARD P. ROSKI JR.
President
Majestic Realty Company
CARL J. SCHMITT
Retired Chairman
and Chief Executive Officer
University Bank & Trust
LEWIS N. WOLFF
Chairman and Chief Executive Officer
Wolff Sesnon Buttery
COMERICA BANK-ILLINOIS
DAVID C. WHITE
President and Chief Executive Officer
DIRECTORS
THOMAS F. CAREY
Attorney at Law
Carey, Filter, White & Boland
ROBERT E. HUGHES
Retired Chairman
Affiliated Banc Group, Inc.
WILLIAM C. MITCHELL
Retired Chairman
Lake Shore Bancorp
FRANK H. RESNIK
Vice Chairman
Medline Industries, Inc.
DAVID C. WHITE
President and Chief Executive Officer
Comerica Bank-Illinois
ROBERT J. ZAHORIK
Private Investor
COMERICA BANK & TRUST, FSB
(FLORIDA)
DOUGLAS W. FIEDLER
President and Chief Executive Officer
DIRECTORS
ARTHUR R. BRADLEY
Retired Chairman
and Chief Executive Officer
Comerica Bank & Trust, FSB
NANCY H. CANARY
Partner
Thompson, Hine and Flory
E. PAUL CASEY
Chairman and Managing General Partner
Metapoint Partners
JOHN F. DALY
Retired Vice Chairman
Johnson Controls
DOUGLAS W. FIEDLER
President and Chief Executive Officer
Comerica Bank & Trust, FSB
DON B. DEAN
Retired President and Chief Executive Officer
Manufacturers Bank & Trust of Florida
PATRICIA SHONTZ LONGE, PH.D.
Economist; Senior Partner
The Longe Company
DONALD R. MANDICH
Retired Chairman
and Chief Executive Officer
Comerica Incorporated
BILL T. SMITH JR., ESQ.
Attorney
Bill T. Smith Jr., P.A.
DAVID B. STEPHENS
Executive Vice President
Comerica Bank
59
47
COMERICA INCORPORATED AND SUBSIDIARIES
COMERICA BANK (MICHIGAN)
COMERICA BANK-CALIFORNIA
COMERICA BANK-TEXAS
COMERICA BANK-ILLINOIS
COMERICA BANK & TRUST, FSB (FLORIDA)
COMERICA ACCEPTANCE CORPORATION
Generates consumer loans through dealers in several states.
COMERICA BANK-ANN ARBOR, N.A.
A cash management and holding company for certain investment subsidiaries.
COMERICA BANK-MIDWEST, N.A.
Specializes in revolving credit loans; based in Toledo, Ohio.
COMERICA COMMUNITY
DEVELOPMENT CORPORATION
A non-conventional financial resource for housing rehabilitation and small
business enterprise in Comerica's Michigan markets.
COMERICA LEASING CORPORATION
Provides equipment leasing and financing services for businesses throughout the
United States.
COMERICA MORTGAGE CORPORATION
Offers residential real estate financing for new mortgages and servicing of
existing mortgages owned by Comerica Bank and other investors.
COMERICA TRUST COMPANY OF
BERMUDA, LTD.
Offers trust services for captive insurance companies and offshore mutual
funds.
JOHN V. CARR & SON, INC.
Provides customhouse brokerage and freight forwarding services from offices in
12 states and the Canadian provinces of Ontario and Quebec.
COMERICA INVESTMENT SERVICES, INC.
Parent company for Comerica's investment-related businesses.
COMERICA INSURANCE SERVICES
Provides retail and commercial insurance consulting, sales and product
management services.
COMERICA INSURANCE SERVICES
CORPORATION
Offers life, disability, and long-term care insurance and annuities through
retail distribution.
PROFESSIONAL LIFE UNDERWRITERS
SERVICES, INC. (PLUS)
Provides life insurance, annuities and disability insurance products to
independent insurance agents.
COMERICA CAPITAL MARKETS CORPORATION
Provides investment banking services to Fortune 500 companies and middle-market
firms.
W.Y. CAMPBELL & COMPANY
Provides a wide array of investment banking services.
COMERICA SECURITIES, INC.
A full service broker-dealer that offers stocks, bonds, mutual funds and
annuities to individual investors, along with public finance services.
WILSON, KEMP & ASSOCIATES, INC.
Offers individualized investment portfolio management services to customers in
the Midwest and Florida.
PARTNERSHIP INTEREST:
MUNDER CAPITAL MANAGEMENT
An independent investment advisory firm.
60
48
SHAREHOLDER INFORMATION
Stock
Comerica's stock trades on the New York Stock Exchange (NYSE) under the
symbol CMA.
SHAREHOLDER ASSISTANCE
Inquiries related to shareholder records, change of name, address or ownership
of stock, and lost or stolen stock certificates should be directed to the
transfer agent and registrar:
Norwest Bank Minnesota, N.A.
P.O. Box 738
South St. Paul, Minnesota 55075-0738
800-468-9716
ELIMINATION OF DUPLICATE MATERIALS
If you receive duplicate mailings at one address, you may have multiple
shareholder accounts. You can consolidate your multiple accounts into a single,
more convenient account by contacting the transfer agent shown above. In
addition, if more than one member of your household is receiving shareholder
materials, you can eliminate the duplicate mailings by contacting the transfer
agent.
DIVIDEND REINVESTMENT PLAN
Comerica offers a dividend reinvestment plan which permits participating
shareholders of record to reinvest dividends in Comerica common stock without
paying brokerage commissions or service charges. Participating shareholders
also may invest up to $3,000 in additional funds each quarter for the purchase
of additional shares. A brochure describing the plan in detail and an
authorization form can be requested from the transfer agent shown above.
DIVIDEND DIRECT DEPOSIT
Common shareholders of Comerica may have their dividends deposited into their
savings or checking account at any bank that is a member of the National
Automated Clearing House (ACH) system. Information describing this service and
an authorization form can be requested from the transfer agent shown above.
DIVIDEND PAYMENTS
Subject to approval of the board of directors, dividends customarily are paid
on Comerica's common stock on or about April 1, July 1, October 1 and January
1.
ANNUAL MEETING
The Annual Meeting of Shareholders of Comerica Incorporated will be held on
Friday, May 17, 1996, at 9:30 a.m. in the Renaissance Conference Center, Level
2, Tower 300 of the Renaissance Center, Detroit, Michigan.
FORM 10-K
A copy of the Corporation's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission, may be obtained without charge upon written
request to the Secretary of the Corporation.
STOCK PRICES, DIVIDENDS AND YIELDS
Dividend Dividend*
Quarter High Low Per Share Yield
- ------- ------- ------- --------- ---------
1995
Fourth $42.750 $33.625 $.35 3.7%
Third 36.750 31.875 .35 4.1
Second 33.125 27.250 .35 4.6
First 28.375 24.125 .32 4.9
1994
Fourth $28.250 $24.125 $.32 4.9%
Third 31.250 27.750 .32 4.3
Second 30.875 25.125 .32 4.6
First 28.250 25.250 .28 4.2
* Dividend yield is calculated by annualizing the quarterly dividend per share
and dividing by an average of the high and low price in the quarter.
At January 31, 1996, there were approximately 17,457 holders of record of the
Corporation's common stock.
CORPORATE INFORMATION
Comerica Incorporated
Comerica Tower at Detroit Center
Detroit, Michigan 48226
313-222-3300
Internet: http://www.comerica.com
Community Reinvestment Act (CRA) Performance
Comerica is committed to meeting the credit needs of the communities it serves.
Following are the most recent CRA ratings for Comerica subsidiaries:
Comerica Bank (Michigan) Outstanding
Comerica Bank-Texas Outstanding
Comerica Bank-Illinois Outstanding
Comerica Bank & Trust, FSB (Florida) Outstanding
Comerica Bank-California Satisfactory
Comerica Bank-Midwest Satisfactory
EQUAL EMPLOYMENT OPPORTUNITY
Comerica is committed to its affirmative action program and practices which
ensure uniform treatment of employees without regard to race, creed, color,
age, national origin, religion, handicap, marital status, veteran status,
weight, height or sex.
INVESTOR CONTACT
Allison T. McFerren
313-222-6317
MEDIA CONTACT
Sharon R. McMurray
313-222-4881
49
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL
PAGE
NUMBER GRAPHIC MATERIAL
15 Bar graph depicting the Corporation's return on assets (in percentages)
from 1991 to 1995 compared to an industry average.
1991 1992 1993 1994 1995
-----------------------------------------------------------------
Comerica 1.06 0.91 1.25 1.23 1.21
Excluding Restructuring Charge 1.25
Industry Average 0.47 0.83 1.15 1.11 1.12
15 Bar graph depicting the Corporation's net interest income - FTE (in millions), with
a line showing net interest margin - FTE (percent of earning assets), from 1991 to
1995.
1991 1992 1993 1994 1995
------------------------------------------------------------------
Net Interest Income (FTE) 1,093 1,159 1,163 1,254 1,321
Net Interest Margin (FTE) 4.49 4.73 4.65 4.32 4.19
18 Bar graph depicting the Corporation's net loans charged off to average loans (in
percentages) from 1991 to 1995 compared to an industry average.
1991 1992 1993 1994 1995
-------------------------------------------------------------------
Comerica 0.58 0.57 0.43 0.24 0.32
Industry Average 1.85 1.42 0.96 0.51 0.53
20 Bar graph depicting the Corporation's noninterest income (in millions) from
1991 to 1995.
1991 1992 1993 1994 1995
-------------------------------------------------------------------
375 399 449 450 499
21 Bar graph depicting the Corporation's noninterest expenses (in millions) from
1991 to 1995.
1991 1992 1993 1994 1995
-------------------------------------------------------------------
935 1,080 1,025 1,042 1,086
27 Bar graph depicting the Corporation's nonperforming assets to loans and other
real estate (in percentages) from 1991 to 1995 compared to an industry average.
1991 1992 1993 1994 1995
-------------------------------------------------------------------
Comerica 1.48 1.50 1.09 0.92 0.67
Industry Average 5.30 4.62 2.81 1.67 1.23