Add
CMA to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| CMA > SEC Filings for CMA > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
Forward-Looking Statements
This report includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Any statements in this report that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Words such as "anticipates," "believes," "feels," "expects," "estimates," "seeks," "strives," "plans," "intends," "outlook," "forecast," "position," "target," "mission," "assume," "achievable," "potential," "strategy," "goal," "aspiration," "outcome," "continue," "remain," "maintain," "trend," "objective" and variations of such words and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "might," "can," "may" or similar expressions, as they relate to the Corporation or its management, are intended to identify forward-looking statements. These forward-looking statements are predicated on the beliefs and assumptions of the Corporation's management based on information known to the Corporation's management as of the date of this report and do not purport to speak as of any other date. Forward-looking statements may include descriptions of plans and objectives of the Corporation's management for future or past operations, products or services, and forecasts of the Corporation's revenue, earnings or other measures of economic performance, including statements of profitability, business segments and subsidiaries, estimates of credit trends and global stability. Such statements reflect the view of the Corporation's management as of this date with respect to future events and are subject to risks and uncertainties. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, the Corporation's actual results could differ materially from those discussed. Factors that could cause or contribute to such differences are further economic downturns, changes in the pace of an economic recovery and related changes in employment levels, changes in real estate values, fuel prices, energy costs or other events that could affect customer income levels or general economic conditions, changes related to the headquarters relocation or to its underlying assumptions, the effects of recently enacted legislation, such as the Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009, and actions taken by the U.S. Department of Treasury, the Board of Governors of the Federal Reserve System, the Texas Department of Banking and the Federal Deposit Insurance Corporation, the effects of war and other armed conflicts or acts of terrorism, the effects of natural disasters including, but not limited to, hurricanes, tornadoes, earthquakes, fires, droughts and floods, the disruption of private or public utilities, the implementation of the Corporation's strategies and business models, management's ability to maintain and expand customer relationships, changes in customer borrowing, repayment, investment and deposit practices, management's ability to retain key officers and employees, changes in the accounting treatment of any particular item, the impact of regulatory examinations, declines or other changes in the businesses or industries in which the Corporation has a concentration of loans, including, but not limited to, the automotive production industry and the real estate business lines, the anticipated performance of any new banking centers, the entry of new competitors in the Corporation's markets, changes in the level of fee income, changes in applicable laws and regulations, including those concerning taxes, banking, securities and insurance, changes in trade, monetary and fiscal policies, including the interest rate policies of the Board of Governors of the Federal Reserve System, fluctuations in inflation or interest rates, changes in general economic, political or industry conditions and related credit and market conditions, the interdependence of financial service companies and adverse conditions in the stock market. The Corporation cautions that the foregoing list of factors is not exclusive. For discussion of factors that may cause actual results to differ from expectations, please refer to our filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made. The Corporation does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made. For any forward-looking statements made in this report, the Corporation claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Results of Operations
Net income for the three months ended March 31, 2009 was $9 million, a decrease of $100 million, or 91 percent, from $109 million reported for the three months ended March 31, 2008. The decrease in net income in the first quarter 2009 from the comparable prior year quarter reflected a $92 million decline in net interest income and a $39 million increase in the provision for credit losses ($44 million increase in the provision for loan losses and a $5 million decrease in the provision for credit losses on lending-related commitments), partially offset by a $29 million decline in salaries expense. The net loss applicable to common stock was $24 million for the first quarter 2009 after preferred dividends of $33 million, compared to net income applicable to common stock of $109 million in the same period a year ago. Quarterly diluted net income per common share decreased to a net loss of $0.16 in the first quarter 2009, compared to net income of $0.73 in the same period a year ago.
2009 Outlook
† Management expects to focus on new and expanding existing relationships. Management expects subdued loan demand in light of the rapidly contracting domestic economy.
† Management expects the net interest margin to expand during the remainder of the year with improved loan pricing and the runoff of higher-cost time deposits and debt. The target federal funds and short-term LIBOR rates are expected to remain flat for the remainder of 2009.
† Based on no significant further deterioration of the economic environment, management expects net credit-related charge-offs for full-year 2009 to be $650 million to $700 million. The provision for credit losses is expected to exceed net charge-offs.
† Management expects a mid-single digit decrease in full-year 2009 noninterest expenses, compared to full-year 2008, due to control of discretionary expenses and workforce.
Net Interest Income
Net interest income was $384 million for the three months ended March 31, 2009, a decrease of $92 million, compared to $476 million for the same period in 2008. The decrease in net interest income in the first quarter 2009, compared to the same period in 2008, resulted primarily from the reduced contribution of noninterest-bearing funds in a significantly lower rate environment, a competitive environment for deposit pricing, one less day in the first quarter 2009 and the impact of a higher level of nonaccrual loans, partially offset by growth in earning assets. The rate-volume analysis in Table I of this financial review details the components of the change in net interest income on a fully taxable equivalent (FTE) basis for the three months ended March 31, 2009, compared to the same period in the prior year. On a FTE basis, net interest income decreased $91 million to $386 million for the three months ended March 31, 2009, from $477 million for the comparable period in 2008. Average earning assets increased $2.2 billion, or four percent, to $61.8 billion in the first quarter 2009, compared to the first quarter 2008, primarily due to a $2.9 billion, or 40 percent, increase in average investment securities available-for-sale and a $1.8 billion increase in average interest-bearing deposits with the Federal Reserve Bank, partially offset by a $2.3 billion, or four percent, decrease in average loans to $49.6 billion in the first quarter 2009. The net interest margin (FTE) for the three months ended March 31, 2009 was 2.53 percent, compared to 3.22 percent for the comparable period in 2008. The decrease in the net interest margin (FTE) resulted primarily from the reasons cited for the decline in net interest income discussed above, and as a result of the change in the mix of interest bearing sources of funds. In addition, the net interest margin was reduced by approximately seven basis points in the first quarter 2009 as a result of $1.8 billion of average balances deposited with the Federal Reserve Bank.
Net interest income and net interest margin are impacted by the operations of
the Corporation's Financial Services Division. Financial Services Division
customers deposit large balances (primarily noninterest-bearing) and the
Corporation pays certain expenses on behalf of such customers ("customer
services" included in "noninterest expenses" on the consolidated statements of
income) and/or makes low-rate loans to such customers (included in "net interest
income" on the consolidated statements of income). Footnote (1) to Table I of
this financial review displays average Financial Services Division loans and
deposits, with related interest income/expense and average rates. Footnote
(2) to Table I of this financial review displays the impact of Financial
Services Division loans (primarily low-rate) on net interest margin (assuming
the loans were funded by Financial Services Division noninterest-bearing
deposits), which was a decrease of one basis point and three basis points in the
three month periods ended March 31, 2009 and 2008, respectively.
For further discussion of the effects of market rates on net interest income, refer to "Item 3. Quantitative and Qualitative Disclosures about Market Risk" in Part I of this financial review.
Management expects the net interest margin to expand during the remainder of the year with improved loan pricing and the runoff of higher-cost time deposits and debt. The target federal funds and short-term LIBOR rates are expected to remain flat for the remainder of 2009.
Table I - Quarterly Analysis of Net Interest Income & Rate/Volume - Fully
Taxable Equivalent (FTE)
Three Months Ended
March 31, 2009 March 31, 2008
Average Average Average Average
(dollar amounts in
millions) Balance Interest Rate Balance Interest Rate
Commercial loans (1) (2) $ 27,180 $ 228 3.39 % $ 29,178 $ 429 5.93 %
Real estate construction
loans 4,510 33 2.99 4,811 71 5.92
Commercial mortgage loans 10,431 109 4.22 10,142 159 6.29
Residential mortgage loans 1,846 26 5.66 1,916 29 6.01
Consumer loans 2,574 24 3.79 2,449 37 6.02
Lease financing 1,300 9 2.82 1,347 11 3.22
International loans 1,715 16 3.85 2,009 30 6.01
Business loan swap income - 8 - - 5 -
Total loans (2) 49,556 453 3.70 51,852 771 5.98
Auction-rate securities
available-for-sale 1,108 5 1.71 - - -
Other investment securities
available-for-sale 9,018 105 4.82 7,222 88 4.93
Total investment securities
available-for-sale 10,126 110 4.46 7,222 88 4.93
Federal funds sold and
securities purchased under
agreements to resell 57 - 0.32 80 1 3.28
Interest-bearing deposits
with banks 1,848 1 0.23 19 - 2.79
Other short-term
investments 165 1 1.67 345 4 4.43
Total earning assets 61,752 565 3.71 59,518 864 5.84
Cash and due from banks 950 1,240
Allowance for loan losses (832 ) (596 )
Accrued income and other
assets 4,867 3,765
Total assets $ 66,737 $ 63,927
Money market and NOW
deposits (1) $ 12,334 19 0.63 $ 15,341 79 2.06
Savings deposits 1,278 1 0.18 1,359 2 0.64
Customer certificates of
deposit 8,856 58 2.67 8,286 84 4.07
Total interest-bearing core
deposits 22,468 78 1.41 24,986 165 2.65
Other time deposits 6,280 46 3.01 7,257 77 4.28
Foreign office time
deposits 670 1 0.42 1,197 11 3.81
Total interest-bearing
deposits 29,418 125 1.73 33,440 253 3.05
Short-term borrowings 2,362 2 0.29 3,497 29 3.28
Medium- and long-term debt 14,924 52 1.40 9,856 105 4.27
Total interest-bearing
sources 46,704 179 1.55 46,793 387 3.32
Noninterest-bearing
deposits (1) 11,364 10,622
Accrued expenses and other
liabilities 1,514 1,320
Total shareholders' equity 7,155 5,192
Total liabilities and
shareholders' equity $ 66,737 $ 63,927
Net interest income/rate
spread (FTE) $ 386 2.16 $ 477 2.52
FTE adjustment $ 2 $ 1
Impact of net
noninterest-bearing sources
of funds 0.37 0.70
Net interest margin (as a
percentage of average
earning assets) (FTE) (2) 2.53 % 3.22 %
(1) FSD balances included
above:
Loans (primarily low-rate) $ 212 $ 1 1.97 % $ 802 $ 2 1.12 %
Interest-bearing deposits 617 1 0.61 1,094 8 2.77
Noninterest-bearing
deposits 1,269 1,894
(2) Impact of FSD loans
(primarily low-rate) on the
following:
Commercial loans (0.01 )% (0.13 )%
Total loans (0.01 ) (0.08 )
Net interest margin (FTE)
(assuming loans were funded
by noninterest-bearing
deposits) (0.01 ) (0.03 )
|
Table I - Quarterly Analysis of Net Interest Income & Rate/Volume - Fully Taxable Equivalent (FTE) (continued)
Three Months Ended
March 31, 2009/March 31, 2008
Increase Increase Net
(Decrease) (Decrease) Increase
(in millions) Due to Rate Due to Volume* (Decrease)
Loans $ (299 ) $ (19 ) $ (318 )
Investment securities available-for-sale (4 ) 26 22
Federal funds sold and securites purchased
under agreements to repurchase (1 ) - (1 )
Interest-bearing deposits with banks - 1 1
Other short-term investments (1 ) (2 ) (3 )
Total earning assets (305 ) 6 (299 )
Interest-bearing deposits (119 ) (9 ) (128 )
Short-term borrowings (26 ) (1 ) (27 )
Medium- and long-term debt (71 ) 18 (53 )
Total interest-bearing sources (216 ) 8 (208 )
Net interest income/rate spread (FTE) $ (89 ) $ (2 ) $ (91 )
|
* Rate/Volume variances are allocated to variances due to volume.
Provision for Credit Losses
The provision for loan losses was $203 million for the first quarter 2009, compared to $159 million for the same period in 2008. The Corporation establishes this provision to maintain an adequate allowance for loan losses, which is discussed under the "Credit Risk" subheading in the section entitled "Risk Management" of this financial review. The $44 million increase in the provision for loan losses in the three-months ended March 31, 2009, when compared to the same period in 2008, resulted primarily from challenges in the Middle Market (primarily Midwest market), Global Corporate and Private Banking loan portfolios, as well as the Michigan residential real estate development industry. Although the provision attributable to the California residential real estate development industry declined in the first quarter 2009 when compared to the same period in the prior year, it remained a significant component of the provision for loan losses. National growth was hampered by turmoil in the financial markets, declining home values and global recession. California lagged national growth primarily due to severe weakness in the state's residential real estate sector. Evidence of real estate weakness in California included the 40 percent decline in median sales prices of existing single-family homes in the 12 months ending in February 2009, and the 43 percent decline in building permits in 2008 from 2007. Michigan continued to contract for a fifth consecutive year. The average Michigan Business Activity index compiled by the Corporation for the first two months of 2009 declined 16 percent when compared to the full-year 2008. The Michigan Business Activity index represents nine different measures of Michigan economic activity compiled by the Corporation. The sharp decline in car sales nationally, the restructuring in the auto sector and the recession nationally were major factors holding back the Michigan economy. A wide variety of economic reports consistently showed that Texas continued to outperform the nation in 2008 and early 2009, though growth is slowing. Texas has experienced a much more modest retrenchment in homebuilding than in most other states and also has benefitted from an ongoing influx of people and businesses from other parts of the country. A recent downturn in energy production and weakness in the state's huge export sector suggests that Texas will outperform the nation by a smaller margin in 2009. Forward-looking indicators suggest that recent trends in economic conditions in the Corporation's primary markets are likely to continue until the national economy bottoms out and begins expanding.
The provision for credit losses on lending-related commitments was a negative provision of $1 million in the first quarter 2009, compared to a provision of $4 million for the comparable period in 2008. The Corporation establishes this provision to maintain an adequate allowance to cover probable credit losses inherent in lending-related commitments. The $5 million decrease for the three months ended March 31, 2009, when compared to the same period in 2008, was primarily the result of a decline in volume of both standby letters of credit and unused commitments.
Based on no significant further deterioration of the economic environment, management expects net credit-related charge-offs for full-year 2009 to be $650 million to $700 million. The provision for credit losses is expected to exceed net charge-offs.
Noninterest Income
Noninterest income was $223 million for the three months ended March 31, 2009, a decrease of $14 million, or six percent, compared to $237 million for the same period in 2008. The decrease in noninterest income in the first quarter 2009, compared to the first quarter 2008, was primarily due to decreases in fiduciary income ($10 million), net securities gains ($9 million) and various other fee categories, partially offset by a $24 million gain in the first quarter 2009 on the termination of certain structured lease transactions. Net securities gains in the first quarter 2009 included $8 million of gains on the sale of mortgage-backed securities and $5 million of gains on the redemption of $100 million par value of auction-rate securities, while net securities gains in the first quarter 2008 included a $21 million gain on the sale of Visa shares.
Noninterest Expenses
Noninterest expenses were $397 million for the three months ended March 31, 2009, a decrease of $6 million, or two percent, from $403 million for the comparable period in 2008. The decrease in noninterest expenses in the first quarter 2009, compared to the first quarter 2008, reflected decreases in salaries expense ($29 million), customer services expense ($6 million) and provision for credit losses on lending-related commitments ($5 million), partially offset by increases in Federal Deposit Insurance Corporation (FDIC) insurance expense ($13 million), pension expense ($11 million) and litigation and operational losses ($10 million). The $10 million increase in litigation and operational losses resulted primarily from the first quarter 2008 reversal of a $13 million Visa loss sharing arrangement expense. As detailed in the table below, total salaries expense decreased $29 million, or 14 percent, in the three months ended March 31, 2009, compared to the same period in 2008, primarily due to decreases in incentives ($19 million) and share-based compensation ($9 million). Also contributing to the decline in salaries expense, was a decrease of approximately 950 full-time equivalent staff, or nine percent, from March 31, 2008 to March 31, 2009. Share-based compensation expense reflected $4 million and $9 million in the first quarter 2009 and 2008, respectively, from the portion of the annual award of restricted stock which must be expensed when granted.
The following table summarizes the various components of salaries and employee benefits expense.
Three Months Ended
March 31,
(in millions) 2009 2008
Salaries
Salaries - regular $147 $151
Severance 5 2
Incentives 13 32
Deferred compensation plan costs (5) (5)
Share-based compensation 11 20
Total salaries 171 200
Employee benefits
Pension expense 16 5
Other employee benefits 39 42
Total employee benefits 55 47
Total salaries and employee benefits $226 $247
|
Management expects a mid-single digit decrease in full-year 2009 noninterest expenses, compared to full-year 2008, due to control of discretionary expenses and workforce.
Provision for Income Taxes
The provision for income taxes for the first quarter 2009 was a negative provision of $1 million, compared to a provision of $41 million for the same period a year ago. The effective tax rate was a negative 21 percent and positive 27 percent for the first quarter 2009 and 2008, respectively. The lower effective tax rate in 2009 reflected the impact of the same level of permanent differences and credits on lower pre-tax income, as well as, a $24 million non-taxable gain on the termination of certain structured lease transactions and related adjustmentsto deferred taxes in the first quarter 2009.
Business Segments
The Corporation's operations are strategically aligned into three major business segments: the Business Bank, the Retail Bank, and Wealth & Institutional Management. These business segments are differentiated based on the products and services provided. In addition to the three major business segments, the Finance Division is also reported as a segment. The Other category includes discontinued operations and items not directly associated with these business segments or the Finance Division. Note 15 to the consolidated financial statements presents financial results of these business segments for the three months ended March 31, 2009 and 2008. For a description of the business activities of each business segment and the methodologies which form the basis for these results, refer to Note 15 to these consolidated financial statements and Note 25 to the consolidated financial statements in the Corporation's 2008 Annual Report.
The following table presents net income (loss) by business segment.
Three Months Ended March 31,
(dollar amounts in millions) 2009 2008
Business Bank $ 56 91 % $ 62 51 %
. . .
|
|
|