1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-10706 Comerica Incorporated (Exact name of registrant as specified in its charter) Delaware 38-1998421 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Comerica Tower at Detroit Center Detroit, Michigan 48226 (Address of principal executive offices) (Zip Code) (313) 222-3300 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. $5 par value common stock: outstanding as of July 31, 2000: 156,496,000 shares
2 PART I. FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS Comerica Incorporated and Subsidiaries <TABLE> <CAPTION> June 30, December 31, June 30, (In thousands, except share data) 2000 1999 1999 ----------- ----------- ----------- <S> <C> <C> <C> ASSETS Cash and due from banks $ 1,743,552 $ 1,201,990 $ 1,535,721 Short-term investments 257,106 612,959 85,182 Investment securities available for sale 2,657,916 2,739,464 2,345,236 Commercial loans 22,263,002 20,654,658 19,647,781 International loans 2,612,539 2,573,003 2,629,303 Real estate construction loans 2,046,117 1,709,261 1,377,101 Commercial mortgage loans 5,060,847 4,774,052 4,536,512 Residential mortgage loans 827,545 870,029 903,189 Consumer loans 1,399,801 1,350,725 1,800,840 Lease financing 791,550 761,550 671,525 ----------- ----------- ----------- Total loans 35,001,401 32,693,278 31,566,251 Less allowance for credit losses (520,582) (476,470) (460,397) ----------- ----------- ----------- Net loans 34,480,819 32,216,808 31,105,854 Premises and equipment 317,601 330,728 345,298 Customers' liability on acceptances outstanding 23,964 43,810 15,164 Accrued income and other assets 1,584,520 1,507,573 1,518,032 ----------- ----------- ----------- TOTAL ASSETS $41,065,478 $38,653,332 $36,950,487 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest-bearing deposits $ 6,794,918 $ 6,136,038 $ 6,515,942 Interest-bearing deposits 18,518,091 17,155,365 15,837,640 ----------- ----------- ----------- Total deposits 25,313,009 23,291,403 22,353,582 Federal funds purchased and securities sold under agreements to repurchase 1,524,198 1,332,397 2,833,235 Other borrowed funds 1,826,838 1,435,634 912,330 Acceptances outstanding 23,964 43,810 15,164 Accrued expenses and other liabilities 468,377 495,587 357,712 Medium- and long-term debt 8,214,808 8,579,857 7,231,275 ----------- ----------- ----------- Total liabilities 37,371,194 35,178,688 33,703,298 Nonredeemable preferred stock - $50 stated value: Authorized - 5,000,000 shares Issued - 5,000,000 shares at 6/30/00, 12/31/99 and 6/30/99 250,000 250,000 250,000 Common stock - $5 par value: Authorized - 325,000,000 shares Issued-157,233,107 shares at 6/30/00, 12/31/99 and 6/30/99 786,166 786,166 786,166 Capital surplus 37,103 35,092 31,946 Accumulated nonowner changes in equity (35,245) (31,702) (26,058) Retained earnings 2,704,088 2,485,204 2,271,378 Deferred compensation (4,390) (2,955) (4,107) Less cost of common stock in treasury- 761,318 shares at 6/30/00, 715,496 shares at 12/31/99 and 942,715 shares at 6/30/99 (43,438) (47,161) (62,136) ----------- ----------- ----------- Total shareholders' equity 3,694,284 3,474,644 3,247,189 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $41,065,478 $38,653,332 $36,950,487 =========== =========== =========== </TABLE>
3 CONSOLIDATED STATEMENTS OF INCOME Comerica Incorporated and Subsidiaries <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30 June 30 --------------------------- ------------------------------- (In thousands, except per share data) 2000 1999 2000 1999 -------- -------- ---------- ---------- <S> <C> <C> <C> <C> INTEREST INCOME Interest and fees on loans $752,057 $600,325 $1,445,897 $1,186,687 Interest on investment securities: Taxable 44,566 37,906 92,369 77,623 Exempt from federal income tax 748 1,261 1,551 2,636 -------- -------- ---------- ---------- Total interest on investment securities 45,314 39,167 93,920 80,259 Interest on short-term investments 5,167 2,009 22,586 3,990 -------- -------- ---------- ---------- Total interest income 802,538 641,501 1,562,403 1,270,936 INTEREST EXPENSE Interest on deposits 186,219 139,807 355,390 289,481 Interest on short-term borrowings 64,792 43,406 117,251 88,778 Interest on medium- and long-term debt 127,538 96,283 257,490 180,714 Net interest rate swap (income)/expense 9,156 (17,637) 12,496 (36,511) -------- -------- ---------- ---------- Total interest expense 387,705 261,859 742,627 522,462 -------- -------- ---------- ---------- Net interest income 414,833 379,642 819,776 748,474 Provision for credit losses 34,000 28,000 89,000 48,000 -------- -------- ---------- ---------- Net interest income after provision for credit losses 380,833 351,642 730,776 700,474 NONINTEREST INCOME Fiduciary and investment management income 76,875 59,839 155,903 114,782 Service charges on deposit accounts 45,466 42,520 89,358 84,218 Commercial lending fees 11,430 11,315 22,645 21,211 Letter of credit fees 11,175 9,020 21,869 17,511 Securities gains 1,110 690 1,363 1,892 Other noninterest income 53,614 71,267 129,229 111,931 -------- -------- ---------- ---------- Total noninterest income 199,670 194,651 420,367 351,545 NONINTEREST EXPENSES Salaries and employee benefits 164,999 162,567 333,000 315,050 Net occupancy expense 24,108 23,975 49,062 47,069 Equipment expense 14,611 15,442 29,685 30,293 Outside processing fee expense 12,363 12,341 24,695 25,195 Other noninterest expenses 79,782 74,555 155,444 134,687 -------- -------- ---------- ---------- Total noninterest expenses 295,863 288,880 591,886 552,294 -------- -------- ---------- ---------- Income before income taxes 284,640 257,413 559,257 499,725 Provision for income taxes 99,089 90,031 195,990 173,231 -------- -------- ---------- ---------- NET INCOME $185,551 $167,382 $ 363,267 $ 326,494 ======== ======== ========== ========== Net income applicable to common stock $181,276 $163,107 $ 354,717 $ 317,944 ======== ======== ========== ========== Basic net income per common share $ 1.16 $ 1.04 $ 2.27 $ 2.04 Diluted net income per common share $ 1.15 $ 1.03 $ 2.25 $ 2.01 Cash dividends declared on common stock $ 62,451 $ 56,181 $ 124,970 $ 112,330 Dividends per common share $ 0.40 $ 0.36 $ 0.80 $ 0.72 </TABLE>
4 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Comerica Incorporated and Subsidiaries <TABLE> <CAPTION> Nonredeem- Accumulated able Nonowner Total Preferred Common Capital Changes Retained Deferred Treasury Shareholders' (in thousands) Stock Stock Surplus in Equity Earnings Compensation Stock Equity --------- --------- --------- ---------- ---------- ------------ --------- ------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> BALANCES AT JANUARY 1, 1999 $250,000 $786,165 $ 24,649 $ (6,455) $2,086,589 $ (5,202) $ (89,133) $3,046,613 Net income for 1999 - - - - 326,494 - - 326,494 Nonowner changes in equity, net of tax - - - (19,603) - - - (19,603) ---------- Net income and nonowner changes in equity - - - - - - - 306,891 Cash dividends declared: Preferred stock - - - - (8,550) - - (8,550) Common stock - - - - (112,330) - - (112,330) Purchase of 44,082 shares of common stock - - - - - - (2,885) (2,885) Net issuance of common stock under employee stock plans - 1 7,297 - (20,825) (44) 29,882 16,311 Amortization of deferred compensation - - - - - 1,139 - 1,139 -------- -------- --------- --------- ---------- --------- --------- ---------- BALANCES AT JUNE 30, 1999 $250,000 $786,166 $ 31,946 $ (26,058) $2,271,378 $ (4,107) $ (62,136) $3,247,189 ======== ======== ========= ========= ========== ========= ========= ========== BALANCES AT JANUARY 1, 2000 $250,000 $786,166 $ 35,092 $ (31,702) $2,485,204 $ (2,955) $ (47,161) $3,474,644 Net income for 2000 - - - - 363,267 - - 363,267 Nonowner changes in equity, net of tax - - - (3,543) - - - (3,543) ---------- Net income and nonowner changes in equity - - - - - - - 359,724 Cash dividends declared: Preferred stock - - - - (8,550) - - (8,550) Common stock - - - - (124,970) - - (124,970) Purchase of 331,362 shares of common stock - - - - - - (13,112) (13,112) Net issuance of common stock under employee stock plans - - 2,011 - (10,863) (2,681) 16,835 5,302 Amortization of deferred compensation - - - - - 1,246 - 1,246 -------- -------- --------- --------- ---------- --------- --------- ---------- BALANCES AT JUNE 30, 2000 $250,000 $786,166 $ 37,103 $ (35,245) $2,704,088 $ (4,390) $ (43,438) $3,694,284 ======== ======== ========= ========= ========== ========= ========= ========== </TABLE>
5 CONSOLIDATED STATEMENTS OF CASH FLOWS Comerica Incorporated and Subsidiaries <TABLE> <CAPTION> Six Months Ended June 30 ------------------------------------ (in thousands) 2000 1999 ------------ ----------- <S> <C> <C> OPERATING ACTIVITIES: Net income $ 363,267 $ 326,494 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 89,000 48,000 Depreciation 27,631 28,340 Net increase in trading account securities (54,562) (1,031) Net decrease in assets held for sale 13,136 24,705 Net increase in accrued income receivable (20,891) (27,023) Net decrease in accrued expenses (59,447) (2,083) Net amortization of intangibles 17,935 16,937 Other, net (26,762) (22,964) ----------- ----------- Total adjustments (13,960) 64,881 ----------- ----------- Net cash provided by operating activities 349,307 391,375 INVESTING ACTIVITIES: Net increase in interest-bearing deposits with banks (209) (13,484) Net (increase) decrease in federal funds sold and securities purchased under agreements to resell (59,273) 14,268 Proceeds from sale of investment securities available for sale 9,086 3,539 Proceeds from maturity of investment securities available for sale 236,424 418,262 Purchases of investment securities available for sale (175,936) (82,769) Net increase in loans (2,353,011) (1,001,400) Fixed assets, net (14,504) (20,988) Net (increase) decrease in customers' liability on acceptances outstanding 19,846 (2,829) Net cash provided by acquisitions/sales 445,274 -- ----------- ----------- Net cash used in investing activities (1,892,303) (685,401) FINANCING ACTIVITIES: Net increase (decrease) in deposits 2,021,606 (1,959,551) Net increase in short-term borrowings 583,005 165,412 Net increase (decrease) in acceptances outstanding (19,846) 2,829 Proceeds from issuance of medium- and long-term debt 3,590,873 3,525,000 Repayments and purchases of medium- and long-term debt (3,955,922) (1,575,984) Proceeds from issuance of common stock and other capital transactions 5,302 16,355 Purchase of common stock for treasury (13,112) (2,885) Dividends paid (127,348) (114,529) ----------- ----------- Net cash provided by financing activities 2,084,558 56,647 ----------- ----------- Net increase (decrease) in cash and due from banks 541,562 (237,379) Cash and due from banks at beginning of year 1,201,990 1,773,100 ----------- ----------- Cash and due from banks at end of period $ 1,743,552 $ 1,535,721 =========== =========== Interest paid $ 732,294 $ 525,878 =========== =========== Income taxes paid $ 204,500 $ 148,621 =========== =========== Noncash investing and financing activities: Loan transfers to other real estate $ 3,266 $ 3,643 =========== =========== </TABLE>
6 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 1 - Basis of Presentation and Accounting Policies The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. Certain items in prior periods have been reclassified to conform to the current presentation. For further information, refer to the consolidated financial statements and footnotes thereto included in the annual report of Comerica Incorporated and Subsidiaries (the "Corporation") on Form 10-K for the year ended December 31, 1999. The Corporation may use derivative financial instruments, including foreign exchange contracts, to manage the Corporation's exposure to interest rate and foreign currency risks. These instruments are treated as hedges, and accounted for on an accrual basis, since there is a high correlation with the on-balance sheet instrument being hedged. If this correlation ceases to exist, the existing unrealized gain or loss is amortized over the remaining term of the instrument, and future changes in fair value are accounted for on a mark-to-market basis. Derivative financial instruments executed as a service to customers are accounted for on a mark-to-market basis. For further information, refer to the Accounting Policies footnote in the Corporation's 1999 annual report.
7 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 1 - Basis of Presentation and Accounting Policies (continued) In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement will require the Corporation to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in accumulated nonowner changes in equity until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. In June 1999, the FASB issued Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133." Statement 137 amended the required effective date of Statement 133, requiring adoption of Statement 133 in years beginning after June 15, 2000. In June 2000, the FASB issued Statement No. 138, "Accounting for Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133." Statement 138 addressed a limited number of implementation issues that required specific amendments to Statement 133. The Corporation expects to adopt Statement 133, as amended, effective January 1, 2001. The Corporation is in the process of assessing what the effect of Statement 133 will be on the earnings and financial position of the Corporation. Note 2 - Investment Securities At June 30, 2000, investment securities having a carrying value of $1.7 billion were pledged where permitted or required by law to secure liabilities and public and other deposits, including deposits of the State of Michigan of $53 million.
8 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 3 - Allowance for Credit Losses The following analyzes the changes in the allowance for credit losses included in the consolidated balance sheets: <TABLE> <CAPTION> (in thousands) 2000 1999 --------- --------- <S> <C> <C> Balance at January 1 $ 476,470 $ 452,409 Charge-offs (53,055) (52,127) Recoveries 8,207 12,089 --------- --------- Net charge-offs (44,848) (40,038) Provision for credit losses 89,000 48,000 Foreign currency translation adjustment (40) 26 --------- --------- Balance at June 30 $ 520,582 $ 460,397 ========= ========= </TABLE> Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," considers a loan impaired when it is probable that interest and principal payments will not be made in accordance with the contractual terms of the loan agreement. Consistent with this definition, all nonaccrual and reduced-rate loans (with the exception of residential mortgage and consumer loans) are impaired. Impaired loans averaged $194 million and $186 million for the quarter and six months ended June 30, 2000, compared to $137 million and $134 million for the comparable periods last year. The following are period-end balances: <TABLE> <CAPTION> (in thousands) June 30, 2000 December 31, 1999 ------------- ----------------- <S> <C> <C> Total impaired loans $217,591 $159,165 Impaired loans requiring an allowance 215,302 155,828 Impairment allowance 60,060 51,753 </TABLE> Those impaired loans not requiring an allowance represent loans for which the fair value exceeded the recorded investment in the loan.
9 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 4 - Medium- and Long-term Debt Medium- and long-term debt consisted of the following at June 30, 2000 and December 31, 1999: <TABLE> <CAPTION> (in thousands) June 30, 2000 December 31, 1999 ------------- ----------------- <S> <C> <C> Parent Company 7.25% subordinated notes due 2007 $ 157,982 $ 158,543 Subsidiaries Subordinated notes: 7.25% subordinated notes due 2007 198,602 198,502 7.875% subordinated notes due 2026 172,784 173,217 8.375% subordinated notes due 2024 155,180 155,287 7.25% subordinated notes due 2002 149,639 149,561 6.875% subordinated notes due 2008 103,502 103,729 7.125% subordinated notes due 2013 154,661 154,834 6.00% subordinated notes due 2008 248,123 248,010 ---------- ---------- Total subordinated notes 1,182,491 1,183,140 Medium-term notes: Floating rate based on Treasury indices 37,000 37,000 Floating rate based on Prime indices 121,000 1,224,993 Floating rate based on LIBOR indices 6,702,419 5,762,320 Fixed rate notes with interest rate of 6.65% - 199,944 ---------- ---------- Total medium-term notes 6,860,419 7,224,257 Notes payable 13,916 13,917 ---------- ---------- Total subsidiaries 8,056,826 8,421,314 ---------- ---------- Total medium- and long-term debt $8,214,808 $8,579,857 ========== ========== </TABLE> Note 5 - Income Taxes The provision for income taxes is computed by applying statutory federal income tax rates to income before income taxes as reported in the financial statements after deducting non-taxable items, principally income on bank-owned life insurance and interest income on state and municipal securities. State and foreign taxes are then added to the federal provision.
10 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Off-Balance Sheet Derivatives and Foreign Exchange Contracts <TABLE> <CAPTION> June 30, 2000 December 31, 1999 ------------------------------ ------------------------------ Notional/ Notional/ Contract Unrealized Fair Contract Unrealized Fair Amount Gains Losses Value Amount Gains Losses Value (in millions) (1) (2) (3) (1) (2) (3) ------------------------------ ------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Risk Management Interest rate contracts: Caps and floors purchased $ 10 $ - $ - $ - $ - $ - $ - $ - Swaps 10,391 28 (178) (150) 8,518 17 (172) (155) Foreign exchange contracts: Spot, forward and options 915 7 (3) 4 1,098 33 (23) 10 Swaps 115 - (10) (10) 115 - (5) (5) ------- ---- ----- ----- ------- ---- ----- ----- Total risk management 11,431 35 (191) (156) 9,731 50 (200) (150) Customer-Initiated and Other Interest rate contracts: Caps and floors written 207 - (1) (1) 166 - (1) (1) Caps and floors purchased 186 - - - 141 1 - 1 Swaps 291 3 (3) - 256 2 (2) - Foreign exchange contracts: Spot, forward and options 1,257 23 (18) 5 579 14 (11) 3 Swaps 50 2 - 2 - - - - ------- ---- ----- ----- ------- ---- ----- ----- Total customer-initiated and other 1,991 28 (22) 6 1,142 17 (14) 3 ------- ---- ----- ----- ------- ---- ----- ----- Total derivatives and foreign exchange contracts $13,422 $ 63 $(213) $(150) $10,873 $ 67 $(214) $(147) ======= ==== ===== ===== ======= ==== ===== ===== </TABLE> (1) Notional or contract amounts, which represent the extent of involvement in the derivatives market, are generally used to determine the contractual cash flows required in accordance with the terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts subject to credit or market risk and are not reflected in the consolidated balance sheets. (2) Represents credit risk, which is measured as the cost to replace, at current market rates, contracts in a profitable position. Credit risk is calculated before consideration is given to bilateral collateral agreements or master netting arrangements that effectively reduce credit risk. (3) The fair values of derivatives and foreign exchange contracts generally represent the estimated amounts the Corporation would receive or pay to terminate or otherwise settle the contracts at the balance sheet date. The fair values of customer-initiated and other derivatives and foreign exchange contracts are reflected in the consolidated balance sheets. Futures contracts are subject to daily cash settlements; therefore, the fair value of these instruments is zero.
11 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Off-Balance Sheet Derivatives and Foreign Exchange Contracts (continued) Risk Management Interest rate risk arises in the normal course of business due to differences in the repricing and maturity characteristics of interest-earning assets and interest-bearing liabilities. This gap in the balance sheet structure reflects the sensitivity of the Corporation's net interest income to a change in interest rates. Foreign exchange rate risk arises from changes in the value of certain assets and liabilities denominated in foreign currencies. The Corporation employs on-balance sheet instruments such as investment securities, as well as off-balance sheet derivative financial instruments and foreign exchange contracts, to manage exposure to these and other risks, including liquidity risk. As an end-user, the Corporation mainly accesses the interest rate markets to obtain off-balance sheet derivative instruments for use principally in connection with asset and liability management activities. The Corporation principally utilizes interest rate swaps with the objective of mitigating adverse impacts to net interest income from changes in interest rates. To accomplish this objective, the Corporation uses interest rate swaps primarily to modify the interest rate characteristics of certain assets and liabilities (for example, from a floating rate to a fixed rate, a fixed rate to a floating rate or from one floating rate index to another). Management believes this strategy achieves an optimal match between the rate maturities of assets and their funding sources which, in turn, reduces the overall exposure of net interest income to interest rate risk, although there can be no assurance that such a strategy will be successful. The Corporation also uses various other types of off-balance sheet financial instruments to mitigate interest rate and foreign currency risks associated with specific assets or liabilities, which are reflected in the table above. Such instruments include interest rate caps and floors, foreign exchange forward contracts, and foreign exchange cross-currency swaps.
12 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Off-Balance Sheet Derivatives and Foreign Exchange Contracts (continued) The following table summarizes the expected maturity distribution of the notional amount of interest rate swaps used for risk management purposes. The table also indicates the weighted average interest rates associated with amounts to be received or paid on interest rate swap agreements as of June 30, 2000. The swaps are grouped by the assets or liabilities to which they have been designated. At June 30, 2000 and December 31, 1999, the notional amounts of commitments to purchase and sell U.S. Treasury and municipal bond securities related to the Corporation's trading account totaled $64 million and $4 million, respectively. These commitments, which are similar in nature to forward contracts, are not reflected in the preceding table due to the immaterial impact they have on the financial statements. Customer-Initiated and Other The Corporation earns additional income by executing various transactions, primarily foreign exchange contracts and interest rate caps, floors and swaps to accommodate the needs of customers requesting such services. The Corporation minimizes market risk arising from customer-initiated foreign exchange contracts by entering into offsetting transactions. Average fair values and income from customer-initiated and other foreign exchange contracts were not material for the six-month period ended June 30, 2000 and for the year ended December 31, 1999. Customer-initiated interest rate caps, floors and swaps generally are not offset by other on- or off-balance sheet financial instruments; however, the Corporation has established authority limits for engaging in these transactions in order to minimize risk exposure. As a result, average fair values and income from this activity were not material for the six-month period ended June 30, 2000 and for the year ended December 31, 1999.
13 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Off-Balance Sheet Derivatives and Foreign Exchange Contracts (continued) <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------------------- Remaining Expected Maturity of Risk Management Interest Rate Swaps: 2005- Dec. 31, (dollar amounts in millions) 2000 2001 2002 2003 2004 2026 Total 1999 - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Variable rate asset designation: Receive fixed swaps Generic $ - $3,250 $2,850 $1,950 $ - $ - $ 8,050 $6,800 Index amortizing 124 - - - - - 124 149 Weighted average: (1) Receive rate 5.53% 5.68% 7.14% 10.08% -% -% 7.24% 6.36% Pay rate 6.65% 6.63% 8.18% 9.46% -% -% 7.85% 6.71% Fixed rate asset designation: Pay fixed swaps Generic $ 5 $ - $ - $ - $ - $ - $ 5 $ 13 Index amortizing 6 - - - - - 6 7 Amortizing - - 2 - - - 2 2 Weighted average: (1) Receive rate 6.33% -% 5.97% -% -% -% 6.29% 6.37% Pay rate 5.65% -% 6.05% -% -% -% 5.70% 5.93% Fixed rate deposit designation: Generic receive fixed swaps $ 38 $ 632 $ 72 $ - $ - $ - $ 742 $ 10 Weighted average:(1) Receive rate 5.56% 7.26% 7.59% -% -% -% 7.20% 5.16% Pay rate 5.84% 6.62% 6.65% -% -% -% 6.58% 5.01% Medium- and long-term debt designation: Generic receive fixed swaps $ - $ - $ 150 $ - $ - $1,150 $ 1,300 $1,500 Weighted average: (1) Receive rate -% -% 7.37% -% -% 6.79% 6.85% 6.86% Pay rate -% -% 6.51% -% -% 6.56% 6.55% 5.95% Floating/floating swaps $ 37 $ 125 $ - $ - $ - $ - $ 162 $ 37 Weighted average: (2) Receive rate 6.34% 6.57% -% -% -% -% 6.52% 5.93% Pay rate 6.03% 6.63% -% -% -% -% 6.55% 6.19% Total notional amount $ 210 $4,007 $3,074 $1,950 $ - $1,150 $10,391 $8,518 </TABLE> - -------------------------------------------------------------------------------- (1) Variable rates are based on LIBOR, CDOR or prime rates paid or received at June 30, 2000. (2) Variable rates paid are based on LIBOR at June 30, 2000, while variable rates received are based on the two-year Constant Treasury Maturity Rate and the three month Treasury bill rate in effect at June 30, 2000. - --------------------------------------------------------------------------------
14 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 6 - Off-Balance Sheet Derivatives and Foreign Exchange Contracts (continued) Off-Balance Sheet Derivative and Foreign Exchange Activity - ---------------------------------------------------------- The following table provides a reconciliation of the beginning and ending notional amounts for interest rate derivatives and foreign exchange contracts. <TABLE> <CAPTION> Customer-Initiated Risk Management and Other --------------------- --------------------- Interest Foreign Interest Foreign Rate Exchange Rate Exchange (in millions) Contracts Contracts Contracts Contracts --------------------- --------------------- <S> <C> <C> <C> <C> Balances at December 31, 1999 $ 8,518 $ 1,213 $ 563 $ 579 Additions 2,843 6,558 148 21,131 Maturities/amortizations (960) (6,741) (27) (20,403) ------- ------- ----- -------- Balances at June 30, 2000 $10,401 $ 1,030 $ 684 $ 1,307 ======= ======= ===== ======== </TABLE> Additional information regarding the nature, terms and associated risks of the above off-balance sheet derivatives and foreign exchange contracts, along with information on derivative accounting policies, can be found in the Corporation's 1999 annual report on page 38 and in Notes 1 and 18 to the consolidated financial statements. Note 7 - Business Segment Information The Corporation has strategically aligned its operations into three major lines of business: the Business Bank, the Individual Bank and the Investment Bank. These lines of business are differentiated based on the products and services provided. In addition to the three major lines of business, the Finance Division is also reported as a segment. Lines of business results are produced by the Corporation's internal management accounting system. This system measures financial results based on the internal organizational structure of the Corporation; information presented is not necessarily comparable with any other financial institution. Lines of business/segment financial results for the six months ended June 30, 2000 and 1999 are presented below.
15 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 7 - Business Segment Information (continued) <TABLE> <CAPTION> Six Months Ended June 30 Business Individual Investment Bank Bank Bank* - ----------------------------------------------------------------------------- (dollar amounts in millions) 2000 1999 2000 1999 2000 1999 - ----------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Average assets $28,501 $25,486 $6,909 $6,975 $ 363 $ 238 Total revenues (FTE) 561 503 548 492 132 89 Net income 208 182 170 124 17 6 Return on average assets 1.46% 1.43% 1.84% 1.38% 8.68% 4.97% Return on average common equity 20.94% 23.94% 46.49% 35.43% 12.87% 6.14% <CAPTION> Finance Other Total - ----------------------------------------------------------------------------- 2000 1999 2000 1999 2000 1999 - ----------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Average assets $ 4,040 $ 3,866 $ (103) $ (210) $39,710 $36,355 Total revenues (FTE) (9) 20 10 (1) 1,242 1,103 Net income (7) 12 (25) 2 363 326 Return on average assets (0.09)% 0.18% N/M N/M 1.83% 1.80% Return on average common equity (3.75)% 7.01% N/M N/M 21.41% 21.99% </TABLE> * Net income was reduced by charges for fees internally transferred to other lines of business for referrals to the Investment Bank. If excluded, Investment Bank net income would have been $22 million and $10 million, and return on average common equity would have been 17.06% and 10.79%, in 2000 and 1999, respectively. N/M - Not Meaningful For a description of the business activities of each line of business and the methodologies which form the basis for these results, refer to Note 22 to the consolidated financial statements in the Corporation's 1999 annual report. The financial results for Munder Capital Management, the Corporation's investment advisory subsidiary, are included in results of the Investment Bank. Prior to 2000, the financial results for Munder were included in the Other category. For comparability purposes, 1999 results for the Investment Bank and the Other category have been restated to reflect this change in the organizational structure of the Corporation.
16 Notes to Consolidated Financial Statements Comerica Incorporated and Subsidiaries Note 8 - Nonowner Changes in Equity Nonowner changes in equity include the change in unrealized gains and losses on investment securities available for sale and the change in the accumulated foreign currency translation adjustment. The Consolidated Statements of Changes in Shareholders' Equity include only the combined, net of tax, nonowner changes in equity. The following presents reconciliations of the components of accumulated nonowner changes in equity for the six months ended June 30, 2000 and 1999. Net income and nonowner changes in equity for the three months ended June 30, 2000 and 1999, totaled $193 million and $145 million, respectively. <TABLE> <CAPTION> Six Months Ended June 30 -------------------- (in thousands) 2000 1999 -------- -------- <S> <C> <C> Net unrealized gains (losses) on investment securities available for sale: Balance at beginning of year $(32,717) $ (7,688) Net unrealized holding gains (losses) arising during the period 558 (28,769) Less: Reclassification adjustment for gains (losses) included in net income 1,110 1,892 -------- -------- Change in net unrealized gains (losses) before income taxes (552) (30,661) Provision for income taxes (193) (11,231) -------- -------- Change in net unrealized gains (losses) on investment securities available for sale, net of tax (359) (19,430) -------- -------- Balance at June 30 $(33,076) $(27,118) Accumulated foreign currency translation adjustment: Balance at beginning of year $ 1,015 $ 1,233 Net translation gains (losses) arising during the period (3,184) (173) Less: Reclassification adjustment for gains (losses) included in net income - - -------- -------- Change in translation adjustment before income taxes (3,184) (173) Provision for income taxes - - -------- -------- Change in foreign currency translation adjustment, net of tax (3,184) (173) -------- -------- Balance at June 30 $ (2,169) $ 1,060 -------- -------- Total accumulated nonowner changes in equity, net of taxes, at June 30 $(35,245) $(26,058) ======== ======== </TABLE>
17 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Net income for the quarter ended June 30, 2000, was $186 million, up $19 million, or 11 percent, from $167 million reported for the second quarter of 1999. Diluted net income per share increased 12 percent to $1.15 from $1.03 a year ago. Return on average common shareholders' equity was 21.47 percent and return on average assets was 1.85 percent, compared to 22.08 percent and 1.83 percent, respectively, for the comparable quarter last year. Net income for the first six months of 2000 was $2.25 per share or $363 million, compared to $2.01 or $326 million for the same period in 1999, increases of 12 percent and 11 percent, respectively. Return on average common shareholders' equity was 21.41 percent and return on average assets was 1.83 percent for the first six months of 2000, compared to 21.99 percent and 1.80 percent, respectively, for the first six months of 1999. Net Interest Income The rate-volume analysis in Table I details the components of the change in net interest income on a fully taxable equivalent (FTE) basis for the quarter ended June 30, 2000. On a FTE basis, net interest income was $416 million for the three months ended June 30, 2000, an increase of $35 million, or nine percent, from the comparable quarter in 1999. The increase in net interest income was primarily due to a 13 percent increase in average corporate loans and an increase in average common shareholders' equity. The net interest margin for the three months ended June 30, 2000, was 4.48 percent, a decrease of five basis points from 4.53 percent for the second quarter of 1999. Excluding the divestiture of consumer loans in the first quarter of 2000, net interest income increased $46 million or 12 percent and the net interest margin increased one basis point in the second quarter 2000, when compared to the same period a year ago. The net interest margin benefitted from an increase in the impact of noninterest-bearing sources of funds. This was offset by a reduction in net
18 interest rate swap income and a greater reliance on medium- and long-term debt in the mix of interest-bearing liabilities. With core deposit balances growing at rates slower than earning assets, a greater reliance on purchased funds is expected, which will gradually reduce the margin. Table II provides an analysis of net interest income for the first six months of 2000. On a FTE basis, net interest income for the six months ended June 30, 2000, was $822 million compared to $751 million for the same period in 1999. This increase is primarily attributed to the factors cited in the quarterly discussion. The net interest margin for the six months ended June 30, 2000, was 4.48 percent compared to 4.52 percent for the same period in 1999. Interest rate swaps permit management to control the sensitivity of net interest income to fluctuations in interest rates in a manner similar to on- balance sheet investment securities but without significant impact to capital or liquidity. These instruments are designated against certain assets and liabilities, therefore, their impact on net interest income is generally offset by and should be considered in relation to the level of net interest income generated by the related on-balance sheet assets and liabilities. In addition to using interest rate swaps and other off-balance sheet instruments to control exposure to interest rate risk, management attempts to evaluate the effect of movements in interest rates on net interest income by regularly performing interest sensitivity gap and earnings simulation analyses. At June 30, 2000, the Corporation was in an asset sensitive position of $249 million (on an elasticity adjusted basis), or one percent of earning assets. The earnings simulation analysis performed at the end of the quarter reflects changes to both interest rates and loan, investment and deposit volumes. The measurement of risk exposure at June 30, 2000, for a 200 basis point decline in short-term interest rates identified approximately $31 million, or two percent, of forecasted net interest income at risk during the next 12 months. If short-term interest rates rise 200 basis points, forecasted net interest income at risk would be approximately $12 million, or one percent. The results of these simulations are within established corporate policy guidelines.
19 TABLE I - QUARTERLY ANALYSIS OF NET INTEREST INCOME & RATE/VOLUME (FTE) <TABLE> <CAPTION> Three Months Ended ------------------------------------------------------------- June 30, 2000 June 30, 1999 ----------------------------- ----------------------------- Average Average Average Average (dollar amounts in millions) Balance Interest Rate Balance Interest Rate - ------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Loans $34,323 $753 8.82% $31,208 $601 7.72% Investment securities 2,616 46 6.82 2,397 40 6.63 Other earning assets 274 5 7.65 112 2 7.23 - ------------------------------------------------------------------------------------------------- Total earning assets 37,213 804 8.67 33,717 643 7.64 Interest-bearing deposits 17,706 186 4.23 15,930 140 3.52 Short-term borrowings 4,072 65 6.40 3,646 44 4.77 Medium- and long-term debt 7,867 128 6.51 7,193 96 5.37 Net interest rate swap (income)/ expense (1) - 9 - - (18) - - ------------------------------------------------------------------------------------------------- Total interest-bearing sources $29,645 388 5.26 $26,769 262 3.92 -------------- --------------- Net interest income/ Rate spread (FTE) $416 3.41 $381 3.72 ==== ==== FTE adjustment $ 1 $ 1 ==== ==== Impact of net noninterest-bearing sources of funds 1.07 0.81 - ------------------------------------------------------------------------------------------------- Net interest margin as a percent of average earning assets (FTE) 4.48% 4.53% ================================================================================================= </TABLE> (1) After allocation of the income or expense generated by interest rate swaps for the three months ended June 30, 2000, to the related assets and liabilities, the average yield on total loans was 8.68 percent as of June 30, 2000, compared to 7.88 percent a year ago. The average cost of funds for interest-bearing deposits was 4.22 percent as of June 30, 2000. The average cost of funds for medium- and long-term debt was 6.43 percent as of June 30, 2000, compared to 5.08 percent a year earlier. <TABLE> <CAPTION> Increase Increase (Decrease) (Decrease) Net Due to Due to Increase (in millions) Rate Volume* (Decrease) ---------- ---------- ---------- <S> <C> <C> <C> Loans $83 $69 $152 Investment securities 2 4 6 Other earning assets - 3 3 ------------------------- Total earning assets 85 76 161 Interest-bearing deposits 20 26 46 Short-term borrowings 15 6 21 Medium- and long-term debt 21 11 32 Net interest rate swap (income)/expense 27 - 27 ------------------------- Total interest-bearing sources 83 43 126 ------------------------- Net interest income/Rate spread (FTE) $ 2 $33 $ 35 ========================= </TABLE> * Rate/Volume variances are allocated to variances due to volume.
20 TABLE II - YEAR-TO-DATE ANALYSIS OF NET INTEREST INCOME & RATE/VOLUME (FTE) <TABLE> <CAPTION> Six Months Ended ------------------------------------------------------------- June 30, 2000 June 30, 1999 ----------------------------- ----------------------------- Average Average Average Average (dollar amounts in millions) Balance Interest Rate Balance Interest Rate - -------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Loans $33,765 $1,447 8.61% $30,896 $1,188 7.75% Investment securities 2,644 95 7.00 2,471 82 6.59 Other earning assets 406 23 11.18 106 4 7.69 - -------------------------------------------------------------------------------------------------- Total earning assets 36,815 1,565 8.53 33,473 1,274 7.66 Interest-bearing deposits 17,414 355 4.10 16,211 290 3.60 Short-term borrowings 3,777 117 6.24 3,707 89 4.83 Medium- and long-term debt 8,155 258 6.34 6,651 181 5.47 Net interest rate swap (income)/ expense (1) - 13 - - (37) - - -------------------------------------------------------------------------------------------------- Total interest-bearing sources $29,346 743 5.09 $26,569 523 3.96 ---------------- ----------------- Net interest income/ Rate spread (FTE) $ 822 3.44 $ 751 3.70 ====== ====== FTE adjustment $ 2 $ 3 ====== ====== Impact of net noninterest-bearing sources of funds 1.04 0.82 - -------------------------------------------------------------------------------------------------- Net interest margin as a percent of average earning assets (FTE) 4.48% 4.52% ================================================================================================== </TABLE> (1) After allocation of the income or expense generated by interest rate swaps for the six months ended June 30, 2000, to the related assets and liabilities, the average yield on total loans was 8.51 percent as of June 30, 2000, compared to 7.93 percent a year ago. The average cost of funds for medium- and long-term debt was 6.23 percent as of June 30, 2000, compared to 5.19 percent as of June 30, 1999. <TABLE> <CAPTION> Increase Increase (Decrease) (Decrease) Net Due to Due to Increase (in millions) Rate Volume* (Decrease) ---------- ---------- ---------- <S> <C> <C> <C> Loans $136 $123 $259 Investment securities 7 6 13 Other earning assets 1 18 19 -------------------------- Total earning assets 144 147 291 Interest-bearing deposits 31 34 65 Short-term borrowings 27 1 28 Medium- and long-term debt 29 48 77 Net interest rate swap (income)/expense 50 - 50 -------------------------- Total interest-bearing sources 137 83 220 -------------------------- Net interest income/Rate spread (FTE) $ 7 $ 64 $ 71 ========================== </TABLE> * Rate/Volume variances are allocated to variances due to volume.
21 Provision for Credit Losses The provision for credit losses was $34 million for the second quarter of 2000, compared to $28 million for the same period in 1999. The provision for the first six months of 2000 was $89 million compared to $48 million for the same period in 1999. The Corporation establishes this provision to maintain an adequate allowance for credit losses, which is discussed in the section entitled "Allowance for Credit Losses and Nonperforming Assets." Noninterest Income Noninterest income was $200 million for the three months ended June 30, 2000, an increase of $5 million, or three percent, over the same period in 1999. Noninterest income in the second quarter 2000 included a non-recurring gain of $6 million from the demutualization of an insurance carrier. Included in second quarter 1999 noninterest income was a $21 million gain on the sale of Comerica's ownership in an ATM network provider. Excluding the effect of these large nonrecurring items, as well as divestures in both periods, noninterest income increased 14 percent in the second quarter 2000, compared to the second quarter of 1999, primarily due to strong investment advisory fee growth at Munder Capital Management. For the first six months of 2000, noninterest income was $420 million, an increase of $69 million, or 20 percent, from the first six months of 1999. In addition to the nonrecurring items identified in the quarterly discussion, noninterest income for the first six months of 2000 also included a gain of approximately $30 million on the sale of $457 million of revolving check credit and bankcard loans in the first quarter. The increase in year-to-date noninterest income after excluding nonrecurring items was primarily attributable to the growth in investment advisory fee income cited above. Noninterest Expenses Noninterest expenses were $296 million for the second quarter ended June 30, 2000, an increase of $7 million, or two percent, from the second quarter of 1999. Included in noninterest expenses for the second quarter were contributions
22 to Comerica's charitable foundation of $6 million in 2000 and $5 million in 1999. For the first six months of 2000, noninterest expenses were $592 million, an increase of $40 million, or seven percent, from the first six months of 1999. Salaries and benefits expense, due to annual merit increases and higher levels of revenue related-incentives, were the primary reasons for the increase in expenses. Provision for Income Taxes The provision for income taxes for the second quarter of 2000 totaled $99 million, an increase of 10 percent compared to $90 million reported for the same period a year ago. The provision for the first six months of 2000 was $196 million compared to $173 million for the same period in 1999. The effective tax rate was 35 percent for the second quarter and the first six months of 2000 and 1999. Financial Condition Total assets were $41.1 billion at June 30, 2000, compared with $37.0 billion at June 30, 1999. The Corporation has continued to generate growth in corporate loans in 2000. Since December 31, 1999, domestic commercial loans have increased $1.6 billion, or eight percent, real estate construction loans have increased $337 million, or 20 percent, and commercial mortgage loans have increased $287 million, or six percent. Short-term investments decreased $356 million from year-end 1999, due primarily to the sale of bankcard and revolving check credit loans in the first quarter 2000, which were classified as held for sale at December 31, 1999. Total liabilities increased $2.2 billion, or six percent, since December 31, 1999 to $37.4 billion. Total deposits increased to $25.3 billion at June 30, 2000 from $23.3 billion at December 31, 1999. Total short-term borrowings increased $583 million since year-end 1999 while medium- and long-term debt decreased $365 million, or four percent.
23 Allowance for Credit Losses and Nonperforming Assets The allowance for credit losses represents management's assessment of probable losses inherent in the Corporation's loan portfolio, including all binding commitments to lend. The allowance provides for probable losses that have been identified with specific customer relationships and for probable losses believed to be inherent but that have not been specifically identified. The Corporation allocates the allowance for credit losses to each loan category based on a defined methodology which has been in use, without material change, for several years. Internal risk ratings are assigned to each corporate loan at the time of approval and are subject to subsequent periodic reviews by the senior management of the Credit Policy Group. Corporate loans are defined as those belonging to the commercial, international, real estate construction, commercial mortgage and lease financing categories. A detailed credit quality review is performed quarterly on large corporate loans which have deteriorated below certain levels of credit risk. A specific portion of the allowance is allocated to such loans based upon this review. The portion of the allowance allocated to the remaining corporate loans is determined by applying projected loss ratios to each risk rating based on numerous factors identified below. The portion of the allowance allocated to consumer loans is determined by applying projected loss ratios to various segments of the loan portfolio. Projected loss ratios incorporate factors such as recent charge-off experience, current economic conditions and trends, geographic dispersion of borrowers, and trends with respect to past due and nonaccrual amounts. The allocated reserve was $296 million at June 30, 2000 an increase of $25 million from year-end 1999. This increase was attributable to an increase in the specific portion of the allowance for corporate loans with deteriorated credit risk at June 30, 2000. Actual loss ratios experienced in the future could vary from those projected. This uncertainty occurs because other factors affecting the determination of probable losses inherent in the loan portfolio may exist which are not necessarily captured by the application of historical loss ratios. To ensure a higher degree of confidence, an unallocated allowance is also
24 maintained. The unallocated portion of the loss reserve reflects management's view that the reserve should have a margin that recognizes the imprecision underlying the process of estimating expected credit losses. Determination of the probable losses inherent in the portfolio, which are not necessarily captured by the allocated methodology discussed above, involves the exercise of judgement. Factors which were considered in the evaluation of the adequacy of the Corporation's unallocated reserve include portfolio exposures to the healthcare, high technology and energy industries, customers engaged in sub-prime lending, as well as Indonesian and Latin American transfer risks and the risk associated with new customer relationships. The unallocated allowance was $225 million at June 30, 2000, an increase of $20 million from December 31, l999. This increase in the unallocated allowance was primarily due to increases in loan balances to healthcare customers and risk assigned to the energy sector due to the volatility of energy prices. Management also considers industry norms and the expectations from rating agencies and banking regulators in determining the adequacy of the allowance. The total allowance, including the unallocated amount, is available to absorb losses from any segment of the portfolio. At June 30, 2000, the allowance for credit losses was $521 million, an increase of $44 million since December 31, 1999. The allowance as a percentage of total loans was 1.49 percent, compared to 1.46 percent at December 31, 1999. As a percentage of nonperforming assets, the allowance was 219 percent at June 30, 2000, versus 262 percent at year-end 1999. Net charge-offs for the second quarter of 2000 were $16 million, or 0.19 percent of average total loans, compared with $21 million, or 0.26 percent, for the year-earlier quarter. Net charge-offs for the first six months of 2000 were $45 million, or 0.27 percent of average total loans, compared to $40 million, or 0.26 percent, for the same period last year. An analysis of the allowance for credit losses is presented in Note 5 to the year-end 1999 consolidated financial statements.
25 Nonperforming assets increased $55 million, or 30 percent, since December 31, 1999, and were categorized as follows: <TABLE> <CAPTION> June 30, December 31, (in thousands) 2000 1999 ------------ ----------- <S> <C> <C> Nonaccrual loans: Commercial $ 178,862 $ 110,606 International 25,242 44,046 Real estate construction 248 249 Commercial mortgage 16,728 9,620 Residential mortgage 505 572 ------------ ---------- Total nonaccrual loans 221,585 165,093 Reduced-rate loans 5,806 7,347 ------------ ---------- Total nonperforming loans 227,391 172,440 Other real estate 10,089 9,595 ------------ ---------- Total nonperforming assets $ 237,480 $ 182,035 ============ ========== Loans past due 90 days or more $ 38,701 $ 47,676 ============ ========== </TABLE> Nonperforming assets as a percentage of total loans and other real estate were 0.68 percent at June 30, 2000 and 0.56 percent at December 31, 1999. Capital Common shareholders' equity increased $223 million from December 31, 1999 to June 30, 2000, excluding nonowner changes in equity. The increase was primarily due to the retention of $230 million in earnings and a $5 million increase related to employee stock plan activity, offset by a $13 million decrease in equity from stock repurchase activity. Capital ratios exceed minimum regulatory requirements as follows: <TABLE> <CAPTION> June 30, December 31, 2000 1999 --------- ----------- <S> <C> <C> Leverage ratio (3.00 - minimum) 8.40% 8.39% Tier 1 risk-based capital ratio (4.0 - minimum) 6.82 6.95 Total risk-based capital ratio (8.0 - minimum) 10.42 10.72 </TABLE>
26 At June 30, 2000, the capital ratios of all the Corporation's banking subsidiaries exceeded the minimum ratios required of "well capitalized" institutions as defined in the final rule under FDICIA. Other Matters This report includes forward-looking statements based on management's current expectations and/or the assumptions made in the earnings simulation analysis. Numerous factors could cause variances in these projections, and their underlying assumptions, such as changes in interest rates, the industries where the Corporation has a concentration of loans, changes in the level of fee income, the impact of the Internet on banking, the entry of new competitors into the banking industry as a result of the enactment of the Gramm-Leach-Bliley Act of 1999, changing economic conditions and continuing consolidations in the banking industry.
27 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits (11) Statement re: Computation of Earnings Per Share (27) Financial Data Schedule (b) Reports on Form 8-K The Corporation did not file any reports on Form 8-K during the three months ended June 30, 2000.
28 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COMERICA INCORPORATED -------------------------------------- (Registrant) /s/Ralph W. Babb Jr. -------------------------------------- Ralph W. Babb Jr. Vice Chairman and Chief Financial Officer (Principal Financial Officer) /s/Marvin J. Elenbaas -------------------------------------- Marvin J. Elenbaas Senior Vice President and Controller (Principal Accounting Officer) Date: August 11, 2000
29 Exhibit Index ------------- <TABLE> <CAPTION> Exhibit No. Description - ----------- ----------- <S> <C> (11) Statement re: Computation of Earnings Per Share (27) Financial Data Schedule </TABLE>