Comerica (NYSE:CMA) is a banking and financial services company based in Dallas, TX. It holds $59.25 billion in assets, $42.16 billion in loans, and $39.67 billion in deposits. The company has over 9,000 employees and over 440 banking offices. Comerica delivers financial services in four primary geographic markets: Michigan/Midwest, California/West, Texas, and Florida. It also has substantial operations in Arizona, as well as branches in Canada and Mexico.
Net interest income constituted roughly 60% of its revenues in 2009, while service charges on deposits, fiduciary income, and other non-interest sources represented the remainder. Comerica was negatively impacted by the 2008 financial crisis and elected to participate in the U.S. Treasury TARP Capital Purchase Program beginning in November 2008 by selling $2.25 billion in preferred stock to the Treasury. It left the program in March 2010 by repurchasing the preferred shares with a combination of cash from retained earnings and the proceeds from issuing $880 million in new common stock. The company relocated its headquarters to Dallas, Texas in 2009 to position itself in a more central location relative to its fastest-growing business regions and due to comparatively strong economic performance in the region. Comerica was founded in 1849 in Michigan, where the majority of its branches are still located.
Comerica is a large regional bank. As a bank, its business model fundamentally consists of accepting deposits and using this money to provide loans at higher rates than it pays to its depositors, while attempting to minimize the proportion of loan funds lost to default. The difference between the weighted averages of the two rates is called the net interest margin or "loan spread," and was responsible for about 60% of Comerica's 2009 revenues. The company also provides a variety of other services, including advisory and financial management solutions, to business, institutional, and high net worth clients, and earns additional profits from service charges on customer accounts. As a regional entity, Comerica operates primarily in Michigan, Texas, California, Florida, and Arizona.
Elon Farnsworth founded the company in Detroit, Michigan in 1849. It changed its name several times, survived the Great Depression, and in 1953 merged with several other regional banks. In 1982, it changed its name to Comerica Incorporated and began operations in Florida. The next year, it acquired Michigan rival Bank of the Commonwealth. Comerica began operations in Texas in 1988 by acquiring Grand Bancshares, and California in 1991 with Plaza Commerce Bancorp and InBancshares. The next year, it merged with Manufacturers National Corporation, and sold the Illinois operations it had acquired in 1996. Comerica sold its credit card division in 2000 and acquired Imperial Bank in California the next year. In 2007, Comerica relocated to Dallas, citing increased growth in the South and Southwest. However, the majority of its employees still work in Michigan, and 232 of its branches and 42% of its deposits are located there.
At the end of 2009, Comerica reported interest income of $1.57 billion and total income of $17 million. However, it reported a loss of $118 million attributable to common stock while issuing $134 million in dividends on $2.25 billion in preferred stock held by the United States Treasury under its TARP Capital Purchase Program since November 2008. Comerica had elected to continue with this program through June 30th, 2010, but announced in March, 2010 that it had repaid the bailout money with a combination of cash and the issuance of $880 million in additional common stock, ensuring that future profits are attributable to its common shareholders. $1.1 billion was provisioned for loan losses in 2009, up $396 million from the previous year, of which about one third was from Comerica's commercial real estate business, reflecting continuing weakness in that sector as of 2009. In 2009, Comerica held $59.25 billion in assets, with $42.16 billion in loans and $39.67 billion in deposits.
As of 2009, Comerica had a tier 1 capital ratio of 12.46% and a tangible common equity ratio of 7.99%. These ratios place it in the second quartile relative to its stated peers (see "Competition" below), and are generally regarded as healthy.
By strategic unit:
Comerica decreased discretionary spending and reduced full time equivalent staff levels by about 850, or 8%, and reduced salaries in 2009 as part of a cost control initiative that saved roughly $101 million in non-interest expenses. It also added ten new banking centers in Texas, California, and Arizona. Moving forward, the company's chief corporate initiatives include reducing exposure to commercial real estate in order to improve credit quality, increasing loan spreads through continuation of its loan optimization program, and continuing to increase deposits, control non-interest expenses, and improve its tier 1 capital ratio. Comerica also plans to continue its expansion, especially in the West and Midwest. Its primary business areas -- Florida, Texas, California, and Arizona -- are expected to account for over 50% of U.S. population growth through 2030.
Comerica is "strategically aligned into three major business segments: The Business Bank, The Retail Bank, and Wealth & Institutional Management." Its business banking operations are further subdivided into "Small Business" and "Corporate" services, depending on whether the client company has annual revenue exceeding $10 million. Comerica's business bank is its largest by revenue and its most profitable, although Wealth & Institutional Management has slightly higher margins. The company also maintains a finance division that is responsible for its securities portfolio, its liquidity and capital needs, managing interest rate and foreign exchange risk, and handling internal funds transfer pricing and hedging. This division suffered substantial losses in 2009. A category of other operations, relating primarily to discontinued operations as well as corporate and structural matters, also lost money. The below income proportions are stated with respect to net income before preferred dividends, which amounted to $17 million, rather than income attributable to common shareholders, which was a loss of $118 million due to preferred dividends required by the Capital Purchase Program.
The company's personal finance segment includes banking services such as checking accounts, savings and money market accounts, ATMs and debit cards, certificates of deposit, and additional services including wire orders and safe deposit boxes. Comerica is an FDIC member, which means customer deposits are insured to $250,000 per customer by the FDIC, a federal government entity. FDIC membership requires payment of risk-based "assessments" (premiums) to the FDIC  and also allows the federal government to force corrective action, including a change of management, if a bank is at significant risk of insolvency. The bank also offers various types of personal loans and credit cards, as well as personal brokerage services including IRAs and educational savings plans. The company also sells life, health, and property insurance.
In 2009, the personal finance segment lost $48 million, which amounts to -282% of the $17 million in income the company generated in that year.
Comerica's small business services include basic business accounts, loans, credit cards, and online banking offerings similar to those in its personal finance segment, as well as lines of credit and cash management solutions. Additionally, Comerica provides business services such as payroll, direct deposit, employee retirement accounts and insurance offerings, as well as products for international business, such as letters of credit and foreign exchange services.
For larger firms, Comerica provides a broader range of specialized services in lending, leasing, treasury management, industry-specific advising, correspondent banking, mortgage banking, and mergers and acquisitions. Mergers and acquisitions are handled by Comerica's subsidiary W.Y. Campbell and Company. Comerica also provides services in international finance, risk management, insurance, trusts and institutional investments, retirement plans, and capital markets. Some capital markets areas are handled by its subsidiary Comerica Securities. Comerica's largest market for corporate services is in Michigan.
In 2009, the business banking segment made $147 million, which amounts to 865% of the $17 million in income the company generated in that year.
Comerica's institutional and wealth management services focus on the needs of high net worth individuals and families, as well as large foundations and institutions. These offerings include integrated wealth and estate planning, private banking, trust services, brokerage services, portfolio management, asset management accounts, and insurance.
In 2009, the institutional and wealth management segment made $43 million, which amounts to 252% of the $17 million in income the company generated in that year.
The finance division is an internal group responsible for Comerica's securities portfolio, its liquidity and capital needs, managing interest rate and foreign exchange risk, and handling internal funds transfer pricing and hedging. It handles only internal needs, and has no contact with customers.
In 2009, the finance division lost $110 million, which amounts to -647% of the $17 million in income the company generated that year.
"Other business," as defined by Comerica's 2009 annual report, refers to "discontinued operations, the income and expense impact of equity and cash, tax benefits not assigned to specific business segments and miscellaneous other expenses of a corporate nature."
In 2009, this category was responsible for a loss of $15 million, which amounts to -88% of the $17 million in income the company generated that year.
Comerica was founded in Michigan and is headquartered in Texas. The company has 232 banking centers in Michigan, 98 in California, 90 in Texas, 16 in Arizona, and 10 in Florida. These are the primary states in which it operates. Internationally, Comerica has operations in Monterrey, Mexico; Windsor, Canada; and Toronto, Canada. It classifies its geographic markets into Midwest, Western, Texas, Florida, Other Markets, International, and Finance and Other Businesses categories. Revenue estimates by geographic region are not available, but the 2009 annual report does include regional income, cited below.
Decreasing home values, the credit crisis, and the ensuing global recession resulted in weakened loan demand through the end of 2009, which was still continuing at that time. Average loans in 2009 amounted to $46.2 billion, which is $5.6 billion less than in 2008. This decrease was most significant in the international and western business regions, and least significant in Texas. Comerica's provisions for loan losses also increased by $396 million, to $1.1 billion, during this time, and net interest income decreased by $248 million, to $1.6 billion. Average deposits decreased by $1.9 billion, to $40.1 billion. This largely resulted from $3.9 billion in withdrawals from money market accounts, NOW deposits ("Negotiable Order of Withdrawal": interest-bearing accounts on which checks may be written), and other time deposits, which were partially offset by $2.3 billion in deposits to non-interest-bearing accounts. Lower inventory levels among business clients were also a contributing factor in reducing financing needs and demand for other business services. Declines in the market values of personal and institutional trusts reduced management fees on those assets. Reductions in retail and investment activity, respectively, diminished card fees and brokerage income.
However, securities income increased substantially from 2008 levels -- from $67 million to $243 million, largely due to gains on the sale of $225 million in mortgage-backed government agency securities. Comerica divested itself of these assets "as market conditions were favorable and there was no longer a need to hold a large portfolio of fixed-rate securities to mitigate the impact of potential future rate declines on net interest income."
Comerica currently expects stagnant loan demand, especially from business customers. This is a downward revision of April expectations of single-digit growth in 2010. Business banking is Comerica's largest business unit. Comerica Chairman and CEO Ralph W. Babb was quoted in late July, 2010, saying "We expect subdued loan demand for a while longer. We're seeing a slowing in the economy in general." He stated that Comerica's "[loan pipeline] is at its highest level in more than two years," but that economic uncertainty is hindering growth. Further, while businesses are recovering, many have saved cash and adjusted to limited means during the recession, so upcoming capital purchases are likely to be made with cash instead of debt, especially among larger companies. Meanwhile, high unemployment and consumer saving continue to limit demand for personal loans, and stricter standards and low rates from the government-sponsored enterprises (e.g. Fannie Mae, Freddie Mac) have limited mortgage profitability. These factors also impact the other mid-tier banks with which Comerica competes.
However, credit quality is improving, and Comerica's second-quarter profits rose as more lenders were able to pay back their loans. The company also reduced the size of its reserves for non-performing loans.
The Texas economy performed better than the national average in 2009. However, this was not the case for California -- during the state's budget crisis, the government even resorted to issuing warrants instead of payments, putting pressure on the credit needs of some of Comerica's business customers. The Michigan economy also suffered substantially in 2009, especially due to difficulties in the auto industry. Indeed, the Western and Midwestern markets were responsible for much of 2009's $396 million increase in provisions for loan losses. Arizona performed poorly as well, primarily due to contractions in its construction industry stemming from the collapse of the housing price bubble. Gradual improvement had begun in these markets by December 2009, which Comerica anticipated to continue in measure to national and global recoveries.
As of August, 2010, the Texas economy remains much stronger than the national average and employment in the state is continuing to improve, but metrics of housing, consumer confidence, and petroleum show more mixed results. Personal income, employment, and population are expected to increase by 4.1%, 0.6%, and 1.7%, respectively, the highest of all western and southwestern states. Unemployment was 8.2% in June, compared to the national average of 9.5%. Job growth tends to precede improvement in other economic metrics.
The California economy remained much weaker than the national average as of July, 2010, and job growth was nonexistent after subtracting the temporary jobs created by the 2010 federal census. Unemployment declined to 12.3% due to federal census jobs and discouraged workers, still much higher than the 1national average of 9.5%. Measures of housing construction and real estate sales did show some improvement from 2009 levels, though.
As of July, 2010, the Michigan economy remains much weaker than the national average. Slight gains in heavy industry, such as steel and automobile production, have partially offset weaknesses in housing and consumer spending and moderate job growth is expected if improvement continues in the national economy. However, unemployment is extremely high at 13.1%, second only to Nevada's 14.3%. 
Arizona's economy is also showing some signs of recovery as of June, 2010, though housing continues to provide cause for concern. Corporate and consumer spending are at historically high levels, and new housing starts and personal income have increased. Home prices and employment have stabilized, but neither is increasing at a significant rate. Housing prices in particular represent a sticking point in the state's recovery - nearly 50% of mortgages are "underwater," meaning that the mortgage holder owes more than the home is worth. This is roughly double the national average. Unemployment stood at 9.5% in June and is anticipated to continue declining as recovery proceeds.
The Florida economy depends heavily on tourism and part-time residency, which can magnify the negative effects of national recessions on the state. Accordingly, the July unemployment rate was 11.5%, though this is a continuation of a generally downward trend: unemployment in February was 12.2%. Income loss among those still employed has also been among the highest in the country, with an average of 3.9% in south Florida in particular compared to 1.8% nationwide. Due in large part to high unemployment and income loss, residential construction has declined substantially: May 2010 new home sales were the worst in records going back to 1963, and June's the second worst. Construction in turn is a significant driver of employment, both directly and indirectly. The number of construction jobs in Florida declined to 366,100 in June 2010, down from 631,000 in June 2007. Florida has also been negatively affected by the Deepwater Horizon oil spill, including reduced home prices and an estimated $18.6 billion in lost tourism over the next three years according to the U.S. Travel Association. Overall, the economic outlook for Florida is poor but improving.
Comerica elected to participate in the U.S. Treasury Capital Purchase Program in November 2008 by selling $2.25 billion of non-voting preferred shares at a share price of $1,000 to the Treasury, as well as issuing the Treasury a warrant to purchase 11.5 million shares of Comerica's common stock at $29.40 per share. The preferred shares could be redeemed at $1,000 per share plus any unpaid dividends at any time with the consent of Comerica's banking regulators and the Treasury. They qualified as tier 1 capital, helping to bolster Comerica's tier 1 capital ratio. As of December 31st, 2009, Comerica had 11.5 million shares of common stock on reserve for the warrant in addition to 27.5 million shares for option exercise and share-based compensation.
The preferred shares carried an obligation to pay a dividend of $50 per share through November, 2013 and $90 per share thereafter. This dividend amounted to $134 million in 2009, which in conjunction with $1 million in income allocated to participating securities resulted in a loss of $119 million attributable to common shares in spite of $17 million in income. They also required the consent of the Treasury for "any increase in common dividends declared from the dividend rate in effect at the time of investment (quarterly dividend rate of $0.33 per share for the Corporation) and for any common share repurchases, other than common share repurchases in connection with any benefit plan in the ordinary course of business, until November 2011, unless the preferred shares have been fully redeemed or the U.S. Treasury has transferred all the preferred shares to third parties prior to that date." They also required Comerica to adhere to Treasury restrictions on executive compensation and corporate governance. These restrictions included the inability to deduct executive compensation above $500,000 for tax purposes (Chairman and CEO Ralph W. Babb was paid $985,000 in salary in 2009), as well as provisions involving golden parachutes and the relationship between bonus structure and systemic risk, which are more relevant to investment banks.
In March, 2009, Comerica repaid the Treasury through a combination of cash and the proceeds from the issuance of $880 million in common stock, freeing it from these obligations. As a result, income attributable to common shareholders will more closely match Comerica's net income, and the company will be free to increase dividends if so desired.
As a large regional bank with extensive retail services as well as business offerings, Comerica competes with both regional and national retail banks and regional, middle-market investment banks. Some of its key competitors include:
Selected metrics as of December 31st, 2009:
|Bank||Net Income Attributable|
to Common Shares ($/Yr)
|Assets ($)||Market Cap ($)||Div Yield||Branches||Tier 1 Capital Ratio||Loan Charge-Offs||FTE Employees||Forbes Global|
|Comerica (CMA) ||-118M||59.25B||6.66B||0.9%||447||12.46%||1.88%||9,330||1283|
|Fifth Third Bancorp (FITB) ||511M||113B||9.40B||0.30%||1,309||13.3%||3.20%||20,998||387|
|Huntington Bancshares (HBAN) ||-3.09B||51.56B||3.83B||1.09%||613||12.03%||3.82%||10,272||1474|
|Marshall & Ilsley (MI) ||-858.8M||60.26B||3.61B||0.73%||179||11.11%||4.26%||9,410||1411|
|Northern Trust (NTRS) ||753.1M||82.14B||11.08B||0.53%||95||13.4%||4.52%||12,500||488|
|U.S. Bancorp (USB) ||1.80B||281B||41.94B||0.89%||3,002||9.6%||2.08%||58,229||117|
|Bank of America (BAC) ||-2.2B||2.223T||138.86B||0.27%||6,011||7.81%||3.58%||284,000||3|
According to Comerica's 2010 proxy statement, it considers its peers to be BB&T Corporation, Fifth Third Bancorp, Huntington Bancshares Incorporated, KeyCorp, Marshall & Ilsley Corporation, M&T Bank Corporation, The PNC Financial Services Group, Inc., Regions Financial Corporation, SunTrust Banks, Inc., U.S. Bancorp, and Zions Bancorporation. While some of these firms are competitors (and are mentioned as such above), the others do not share substantial territory with Comerica and are more limited in their interactions with it. Comerica states that its loan charge-off rate, the proportion of lending that is written off as a loss due to default, is lower than that of these peers considered in aggregate.
Other supplementary resources as follows: