Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS
GENERAL
Comerica Incorporated ("Comerica" or the "Corporation") is a registered bank holding company incorporated under the laws of the State of Delaware, headquartered in Detroit, Michigan, and was formed in 1973 to acquire the outstanding common stock of Comerica Bank (formerly Comerica Bank-Detroit), a Michigan banking corporation ("Comerica Bank"). As of December 31, 1994, Comerica owned directly or indirectly all the outstanding common stock (except for directors' qualifying shares, where applicable) of seven banking and forty-nine non-banking subsidiaries. At December 31, 1994, Comerica had total assets of approximately $33.4 billion, total deposits of approximately $22.4 billion, total loans (net of unearned income) of approximately $22.2 billion, and shareholders' equity of approximately $2.4 billion. At December 31, 1994, Comerica was the second largest bank holding company headquartered in Michigan in terms of both total assets and total deposits.
BUSINESS STRATEGY
Comerica's business strategy focuses on five core businesses in four geographic markets. Those businesses are corporate banking, consumer banking, private banking, institutional trust and investment management, and international finance and trade services. Corporate banking incorporates highly specialized units servicing a full range of company sizes with both credit and non-credit products. Consumer banking provides deposit, credit and fee-based products to individuals needing financial services but whose income or wealth do not make them prospects for private banking services. Private banking is oriented to servicing the financial needs of the affluent market as defined by individual net income or wealth. Institutional trust and investment management activities involve providing companies, municipalities and other entities a wide spectrum of investment management products and trust products such as master trust, master custody, and corporate trust services, as well as administering and serving as trustee for employee benefit plans. International finance and trade services offer importers and exporters trade financing, letters of credit,
FORM 10-K: COMERICA INCORPORATED AND SUBSIDIARIES
foreign exchange and international customhouse brokerage and freight forwarding products. The core businesses are tailored to each of Comerica's four primary geographic markets: the Midwest (currently Michigan and Illinois), Texas, California and Florida. The Midwest is the only market in which all five core businesses are currently pursued. In California and Texas the primary focus is on corporate banking and private banking activities. In Florida the primary focus is on private banking.
ACQUISITIONS AND JOINT VENTURE
On September 8, 1993, Comerica, Pacific Western Bancshares, Inc., a Delaware Corporation and bank holding company ("PAC WEST"), Pacific Western Bank, a California state chartered bank and wholly owned subsidiary of PAC WEST ("PWB"), and Comerica California Incorporated, a California corporation, bank holding company and wholly owned subsidiary of the Corporation ("COM CAL"), entered into an Agreement and Plan of Reorganization and Merger providing for, among other things, the merger of COM CAL into PAC WEST with PAC WEST being the surviving corporation under the charter and bylaws of COM CAL and the name "Comerica California Incorporated." The merger of COM CAL into PAC WEST was completed on March 30, 1994 and was accounted for as a purchase. PAC WEST shareholders received common stock of the Corporation valued at approximately $121 million. At December 31, 1993, PAC WEST had assets of approximately $1 billion. PWB merged into Comerica Bank-California on June 30, 1994. On April 4, 1994, Comerica, Michigan National Corporation, a Michigan corporation and a bank holding company ("MNC"), Lockwood Banc Group, Inc., a Michigan corporation, wholly owned subsidiary of MNC and a registered bank holding company ("Lockwood") and Lockwood National Bank of Houston, a national banking association and wholly owned subsidiary of Lockwood ("LNB") entered into a Stock Purchase Agreement whereby Comerica purchased from MNC all of the issued and outstanding stock of Lockwood and LNB. The purchase was completed on August 4, 1994 for a purchase price of approximately $44 million in cash. At June 30, 1994, Lockwood had assets of approximately $318 million. Comerica contributed the stock of LNB to Comerica Texas Incorporated its wholly owned bank holding company in Texas. LNB merged into Comerica Bank-Texas on December 16, 1994. On October 4, 1994, Comerica, University Bank & Trust Company, a California bank ("UBT") and Comerica Interim Incorporated, a California corporation and wholly owned subsidiary of Comerica ("Interim") entered into an Agreement and Plan of Reorganization and Merger providing for, among other things, the merger of UBT into Interim with UBT being the surviving corporation. Subsequent to the merger of UBT into Interim, UBT may, at the Corporation's election, be merged into a subsidiary of the Corporation. UBT shareholders will receive approximately 2.7 million shares of Comerica common stock. The transaction is subject to regulatory approval and is expected to be completed in the spring of 1995. As of December 31, 1994, UBT had total assets of approximately $460 million. On November, 2, 1994, Comerica and Munder Capital Management, Inc., a Delaware corporation and registered investment adviser located in the Detroit, Michigan metropolitan area ("Munder"), entered into a Joint Venture Agreement providing for the combination of the investment advisory businesses of Munder and two investment advisory subsidiaries of Comerica: Woodbridge Capital Management, Inc. ("Woodbridge") and World Asset Management, Inc. ("World"). As of December 31, 1994, the joint venture became effective with the formation of a partnership, Munder Capital Management, that succeeded to the investment advisory businesses of Munder, Woodbridge, and World. Munder now holds a majority interest in Munder Capital Management, and Comerica holds a minority interest.
SUPERVISION AND REGULATION
Banks, bank holding companies and financial institutions are highly regulated at both the state and federal level. As a bank holding company, Comerica is subject to supervision and regulation by the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended (the "Act"). Under the Act, the Corporation is prohibited, with certain exceptions, from acquiring or retaining direct or indirect ownership or control of voting shares of any company which is not a bank or bank holding company and from engaging in activities other than those of banking or of managing or controlling banks, other than subsidiary companies and activities which the Federal Reserve Board determines to be so closely related to the business of banking as to be a proper incident thereto. Comerica Bank is chartered by the State of Michigan and is supervised and regulated by the Financial Institutions Bureau of the State of Michigan. Comerica Bank-Texas is chartered by the State of Texas and is supervised and regulated by the Texas Department of Banking. Comerica Bank-Midwest, N.A. and Comerica Bank-Ann Arbor, N.A. are chartered under federal law and subject to supervision and regulation by the Office of the Comptroller of the Currency. Comerica Bank-California is chartered and regulated by the State of California. Comerica Bank & Trust, FSB is chartered under federal law and subject to supervision and regulation by the Office of Thrift Supervision. Comerica Bank-Illinois is chartered by the State of Illinois and is regulated by the State of Illinois Commissioner of Banks and Trust Companies. Comerica Bank, Comerica Bank-Illinois, Comerica
FORM 10-K: COMERICA INCORPORATED AND SUBSIDIARIES
Bank-Midwest, N.A. and Comerica Bank-Ann Arbor, N.A. are members of the Federal Reserve System. State member banks are also regulated by the Federal Reserve Bank and state non-member banks are also regulated by the Federal Deposit Insurance Corporation. The deposits of all the banks, except for Comerica Bank & Trust, FSB, are insured by the Bank Insurance Fund (the "BIF") of the Federal Deposit Insurance Corporation to the extent provided by law. The deposits of Comerica Bank & Trust, FSB, are insured by the Savings Association Insurance Fund to the extent provided by law. Comerica is a legal entity separate and distinct from its banking and other subsidiaries. Most of Comerica's revenues result from dividends paid to it by its bank subsidiaries. There are statutory and regulatory requirements applicable to the payment of dividends by subsidiary banks to Comerica as well as by Comerica to its shareholders.
INTERSTATE BANKING AND BRANCHING
On September 29, 1994, the Riegle/Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") was signed into law. This Interstate Act effectively permits nationwide banking. The Interstate Act provides that one year after enactment, adequately capitalized and adequately managed bank holding companies may acquire banks in any state, even in those jurisdictions that currently bar acquisitions by out-of-state institutions, subject to deposit concentration limits. The deposit concentration limits provide that regulatory approval by the Federal Reserve Board may not be granted for a proposed interstate acquisition if after the acquisition, the acquiror on a consolidated basis would control more than 10 percent of the total deposits nationwide or would control more than 30 percent of deposits in the state where the acquiring institution is located. The deposit concentration state limit does not apply for initial acquisitions in a state and in every case, may be waived by the state regulatory authority. Interstate acquisitions are subject to compliance with the Community Reinvestment Act ("CRA"). States are permitted to impose age requirements not to exceed five years on target banks for interstate acquisitions. States are not allowed to opt-out of interstate banking. Branching between states may be accomplished either by merging separate banks located in different states into one legal entity, or by establishing de novo branches in another state. Consolidation of banks is not permitted until June 1, 1997 provided that the state has not passed legislation "opting-out" of interstate branching. If a state opts-out prior to June 1, 1997, then banks located in that state may not participate in interstate branching. Interstate branching is also subject to a 30 percent statewide deposit concentration limit on a consolidated basis, and a 10 percent nationwide deposit concentration limit. The laws of the host state regarding community reinvestment, fair lending, consumer protection (including usury limits) and establishment of branches shall apply to the interstate branches. De novo branching by an out-of-state bank is not permitted unless the host state expressly permits de novo branching by banks from out-of-state. The establishment of an initial de novo branch in a state is subject to the same conditions as apply to initial acquisition of a bank in the host state other than the deposit concentration limits. Effective one year after enactment, the Interstate Act permits bank subsidiaries of a bank holding company to act as agents for affiliated depository institutions in receiving deposits, renewing time deposits, closing loans, servicing loans and receiving payments on loans and other obligations. A bank acting as agent for an affiliate shall not be considered a branch of the affiliate. Any agency relationship between affiliates must be on terms that are consistent with safe and sound banking practices. The authority for an agency relationship for receiving deposits includes the taking of deposits for an existing account but is not meant to include the opening or origination of new deposit accounts. Subject to certain conditions, insured saving associations which were affiliated with banks as of June 1, 1994, may act as agents for such banks. An affiliate bank or saving association may not conduct any activity as an agent which such institution is prohibited from conducting as principal. If an interstate bank decides to close a branch located in a low- or moderate-income area, it must comply with additional branch closing notice requirements. The appropriate regulatory agency is authorized to consult with community organizations to explore options to maintain banking services in the affected community where the branch is to be closed. To ensure that interstate branching does not result in taking deposits without regard to a community's credit needs, the regulatory agencies are directed to implement regulations prohibiting interstate branches from being used as "deposit production offices." The regulations to implement its provisions are due by June 1, 1997. The regulations must include a provision to the effect that if loans made by an interstate branch are less than fifty percent of the average of all depository institutions in the state, then the regulator must review the loan portfolio of the branch. If the regulator determines that the branch is not meeting the credit needs of the community, it has the authority to close the branch and to prohibit the bank from opening new branches in that state.
FORM 10-K: COMERICA INCORPORATED AND SUBSIDIARIES
When the interstate banking provisions become effective in one year, Comerica will have enhanced opportunities to acquire banks in any state subject to approval by the appropriate federal and state regulatory agencies. When the interstate branching provisions become effective in June 1997, Comerica will have the opportunity to consolidate its affiliate banks to create one legal entity with branches in more than one state should management decide to do so, or to establish branches in different states, subject to any state opt-out provisions. The agency authority permitting Comerica affiliate banks to act as agents for each other in accepting deposits or servicing loans should make it more convenient for customers of one Comerica bank to transact their banking business at a Comerica affiliate in another state provided that operations are in place to facilitate these out of state transactions.
DIVIDENDS
Each state bank subsidiary that is a member of the Federal Reserve System and each national banking association is required by federal law to obtain the prior approval of the Federal Reserve Board or the Office of the Comptroller of the Currency, as the case may be, for the declaration and payment of dividends if the total of all dividends declared by the board of directors of such bank in any year will exceed the total of (i) such bank's net profits (as defined and interpreted by regulation) for that year plus (ii) the retained net profits (as defined and interpreted by regulation) for the preceding two years, less any required transfers to surplus. In addition, these banks may only pay dividends to the extent that retained net profits (including the portion transferred to surplus) exceed bad debts (as defined by regulation). Under the foregoing dividend restrictions, at January 1, 1995 Comerica's subsidiary banks, without obtaining governmental approvals, could declare aggregate dividends of approximately $153 million from retained net profits of the preceding two years, plus an amount approximately equal to the net profits (as measured under current regulations), if any, earned for the period from January 1, 1995 through the date of declaration. Dividends paid to Comerica by its subsidiary banks amounted to $293 million in 1994 and $311 million in 1993.
FIRREA
Recent banking legislation, including the Financial Institutions Reform and Recovery and Enforcement Act of 1989 ("FIRREA") and the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), has broadened the regulatory powers of the federal bank regulatory agencies. Under FIRREA, a depository institution insured by the Federal Deposit Insurance Corporation (the "FDIC") can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution, or (ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution "in danger of default." "Default" is defined generally as the appointment of a conservator or receiver and "in danger of default" is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance.
FDICIA
In December 1991, FDICIA was enacted, substantially revising the bank regulatory and funding provisions of the Federal Deposit Insurance Act and making revisions to several other federal banking statutes. Among other things, FDICIA requires the federal banking agencies to take "prompt corrective action" in respect of depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital tiers: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." A depository institution's capital tier will depend upon where its capital levels are in relation to various relevant capital measures, which will include a risk-based capital measure and a leverage ratio capital measure, and certain other factors. Regulations establishing the specific capital tiers provide that, for an institution to be well capitalized it must have a total risk-based capital ratio of at least 10 percent, a Tier 1 risk-based capital ratio of at least 6 percent, a Tier 1 leverage ratio of at least 5 percent, and not be subject to any specific capital order or directive. For an institution to be adequately capitalized it must have a total risk-based capital ratio of at least 8 percent, a Tier 1 risk-based capital ratio of at least 4 percent, and a Tier 1 leverage ratio of at least 4 percent (and in some cases 3 percent). Under these regulations, the banking subsidiaries of Comerica would be considered to be well capitalized as of December 31, 1994. FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are
FORM 10-K: COMERICA INCORPORATED AND SUBSIDIARIES
subject to growth limitations and are required to submit a capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. In addition, for a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company under the guaranty is limited to the lesser of (i) an amount equal to 5 percent of the depository institution's total assets at the time it became undercapitalized, and (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator. Under FDICIA, the FDIC is permitted to provide financial assistance to an insured bank before appointment of a conservator or receiver only if (i) such assistance would be the least costly method of meeting the FDIC's insurance obligations, (ii) grounds for appointment of a conservator or a receiver exist or are likely to exist, (iii) it is unlikely that the bank can meet all capital standards without assistance and (iv) the bank's management has been competent, has complied with applicable laws, regulations, rules and supervisory directives and has not engaged in any insider dealing, speculative practice or other abusive activity. FDICIA directs that each federal banking agency prescribe standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value for publicly traded shares and other standards as they deem appropriate. Because such standards have been proposed but not yet finalized, management is unable to assess their impact. FDICIA also contains a variety of other provisions that may affect the operations of depository institutions including new reporting requirements, regulatory standards for real estate lending, "truth in savings" provisions, the requirement that a depository institution give 90 days prior notice to customers and regulatory authorities before closing any branch and a prohibition on the acceptance or renewal of brokered deposits by depository institutions that are not well capitalized or are adequately capitalized and have not received a waiver from the FDIC. Under regulations relating to the brokered deposit prohibition, Comerica Bank is well capitalized and may accept brokered deposits without restriction.
FDIC INSURANCE ASSESSMENTS
Comerica's subsidiary banks are subject to FDIC deposit insurance assessments. On January 1, 1994, a permanent risk-based deposit premium assessment system became effective under which each depository institution is placed in one of nine assessment categories based on certain capital and supervisory measures. The assessment rates under the system range from 0.23 percent to 0.31 percent of domestic deposits depending upon the assessment category into which the insured institution is placed. Based on the current FDIC proposal, it is probable that such assessments will decrease in the future. Any decrease in assessments could have a positive impact on Comerica's results of operations.
COMPETITION
Banking is a highly competitive business. The Michigan banking subsidiary of the Corporation competes primarily with Detroit and outstate Michigan banks for loans, deposits and trust accounts. Through its offices in Arizona, California, Colorado, Florida, Indiana, Illinois, Ohio and Texas, Comerica competes with other financial institutions for various types of loans. Through its Florida subsidiary, Comerica competes with many companies, including financial institutions, for trust business. At year-end 1994, Comerica Incorporated was the second largest bank holding company located in Michigan in terms of total assets and deposits. Based on the Interstate Act as described above, the Corporation believes that the level of competition in all geographic markets will increase in the future. Comerica's banking subsidiaries also face competition from other financial intermediaries, including savings and loan associations, consumer finance companies, leasing companies and credit unions.
EMPLOYEES
As of December 31, 1994, Comerica and its subsidiaries had 11,239 full-time and 2,259 part-time employees.
FORM 10-K: COMERICA INCORPORATED AND SUBSIDIARIES
ITEM 2.



ITEM 2. PROPERTIES
The executive offices of the Corporation are located in the Comerica Tower at Detroit Center in Detroit, Michigan. Comerica and its subsidiaries occupies 15 floors of the building, which it leases through Comerica Bank from an unaffiliated third party. This lease extends through January 2007. As of December 31, 1994, Comerica Bank operated 310 offices within the State of Michigan, of which 228 were owned and 82 were leased. Seven other banking affiliates operate 146 offices in California, Florida, Illinois and Texas. The affiliates own 58 of their offices and lease 88 offices. One banking affiliate also operates from leased space in Toledo, Ohio. In addition, the Corporation owns an operations and check processing center in Livonia, Michigan, a ten-story building in the central business district of Detroit that houses certain departments of the Corporation and Comerica Bank, and a four-story building in Auburn Hills, Michigan, that houses a mortgage subsidiary of Comerica Bank and certain other departments of the Corporation and Comerica Bank. In 1983, Comerica entered into a sale/leaseback agreement with an unaffiliated party covering an operations center which was built in Auburn Hills, Michigan, and now is occupied by various departments of the Corporation and Comerica Bank.
ITEM 5.



ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Comerica Incorporated is traded on the New York Stock Exchange (NYSE Trading Symbol: CMA). At January 31, 1995, there were approximately 16,472 holders of the Corporation's common stock. Quarterly cash dividends were declared during 1994 and 1993 totaling $1.24 and $1.07 per common share per year, respectively. The following table sets forth, for the periods indicated, the high and low sale prices per share of the Corporation's common stock as reported on the NYSE Composite Transactions Tape for all quarters of 1994 and 1993. All of the prices are adjusted for the January 4, 1993 two-for-one stock split.
* 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.
FORM 10-K CROSS-REFERENCE INDEX: COMERICA INCORPORATED AND SUBSIDIARIES
Certain information required to be included in Form 10-K is also included in the 1994 Annual Report to Shareholders or in the 1995 Proxy Statement used in connection with the 1995 annual meeting of shareholders to be held on May 19, 1995. The following cross-reference index shows the page location in the 1994 Annual Report or the section of the 1995 Proxy Statement of only that information which is to be incorporated by referenced into Form 10-K. All other sections of the 1994 Annual Report or the 1995 Proxy Statement are not required in Form 10-K and should not be considered a part thereof.
FORM 10-K CROSS-REFERENCE INDEX: COMERICA INCORPORATED AND SUBSIDIARIES
* This copy of the 1994 Annual Report and Form 10-K does not include any exhibits. Copies of the listed exhibits will be furnished to shareholders upon request. Requests should be directed to Comerica Incorporated, Corporate Secretary, 500 Woodward Avenue, Detroit, Michigan 48226-3391.
** Incorporated by reference from Registrant's Annual Report on Form 10-K for the year ended December 31, 1987--Commission File Number 0-7269.
*** Incorporated by reference from Registrant's Annual Report on Form 10-K for the year ended December 31, 1991--Commission File Number 0-7269.
**** Incorporated by reference from Registrant's Annual Report on Form 10-K for the year ended December 31, 1992--Commission File Number 0-7269.
***** Incorporated by reference from Registrant's Annual Report on Form 10-K for the year ended December 31, 1989--Commission File Number 0-7269.
****** Incorporated by reference from Registrant's Annual Report on Form 10-K for the year ended December 31, 1993--Commission File Number 0-7269.
FORM 10-K: COMERICA INCORPORATED AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized in the City of Detroit, State of Michigan on the 17th day of March, 1995.
COMERICA INCORPORATED
Eugene A. Miller Eugene A. Miller Chairman and Chief Executive Officer
Paul H. Martzowka Paul H. Martzowka Executive Vice President and Chief Financial Officer
Arthur W. Hermann Arthur W. Hermann Senior Vice President and Controller (Chief Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities indicated on March 17, 1995.
BY DIRECTORS
E. Paul Casey
James F. Cordes
J. Philip DiNapoli
Max M. Fisher
John D. Lewis
Patricia Shontz Longe, Ph.D.
Wayne B. Lyon
Gerald V. MacDonald
Eugene A. Miller
Michael T. Monahan
Alfred A. Piergallini
Alan E. Schwartz
Howard F. Sims
EXHIBIT INDEX