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Description of Registrant's Securities
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
The following description of Comerica Incorporated's Common Stock is a summary and does not purport to be complete. It is subject to and qualified in its entirety by reference to Comerica's Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation") and Amended and Restated Bylaws (the “Bylaws”), each of which are incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this Exhibit 4.2 is a part. We encourage you to read the Articles of Incorporation, the Bylaws and the applicable provisions of Delaware General Corporation Law for additional information.
Authorized Capital Stock
Comerica’s authorized capital stock consists of 325,000,000 shares of common stock, par value $5.00 per share ("Common Stock"), and 10,000,000 shares of preferred stock, without par value. As of December 31, 2020, Comerica has issued 4,000 shares of preferred stock as 5.625% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A (the "Series A preferred stock").
Subject to applicable regulatory requirements, holders comerica stock dividends Common Stock are entitled to receive dividends when, as and if declared by the Comerica board of directors out of any funds legally available for dividends. Comerica pays dividends on Common Stock only if it has paid or provided for all dividends on any outstanding class or series of Comerica preferred stock (including the Series A preferred stock and any other class or series of Comerica preferred stock that it may authorize in the future), and, in the case of any cumulative Comerica preferred stock, all prior periods.
Holders of Common Stock are also entitled, upon the comerica stock dividends of Comerica, and after claims of creditors and preferences of Comerica preferred stock, and any other class or series of Comerica preferred stock outstanding at the time of liquidation, to receive pro rata the net assets of Comerica.
Holders of Common Stock are entitled to one vote for each share that they hold and are vested with all of the voting power except as the Comerica board of directors has provided, or may provide in the future, with respect to Series A preferred stock or any other class or series of Comerica preferred stock that it may authorize in the future. Common Stock does not have cumulative voting rights. In an election of directors where the number of nominees does not exceed the number of directors to be elected, each director must receive the vote of the majority of the votes cast with respect to that director. If a director does not receive the vote of the majority of the votes cast and no successor has been elected at such meeting, the director will promptly tender his or her resignation to the Board.
Applicable Anti-Takeover Law
Delaware General Corporation Law section 203 prohibits a Delaware corporation from engaging in a “business combination” (as comerica stock dividends in the Delaware General Corporation Law) with a person owning 15% or more of a corporation’s voting stock for three years following the time that person becomes a 15% stockholder, with certain exceptions. Comerica has not opted out of § 203 and is therefore governed by the default terms of this provision of the Delaware General Corporation Law.
The Change in Bank Control Act of 1978, as amended, prohibits a person or group of persons from acquiring “control” of a bank holding company unless the Federal Reserve Board has been notified and has not objected to the transaction. Under a rebuttable presumption established by the Federal Reserve Board, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as Comerica, would, under the circumstances set forth in the presumption, constitute acquisition of control of the bank holding company.
In addition, a company is required to obtain the approval of the Federal Reserve Board under the Bank Holding Company Act of 1956 before acquiring 25% (5% in the case of an acquiror that is a bank holding company) or more of any class of
outstanding voting stock of a bank holding company, or otherwise obtaining control or a “controlling influence” over that bank holding company.
Common Stock is listed on the New York Stock Exchange under the symbol “CMA.”
Other Rights and Preferences
Shares of Common Stock are not redeemable and have no subscription, conversion or preemptive rights. The outstanding shares of Common Stock are fully paid and non-assessable.
The Transfer Agent and Registrar for Common Stock is Computershare, P.O. Box 505000, Louisville, KY 40233-5000.
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Recap from December’s Picks
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On a price return basis, our Safest Dividend Yields Model Portfolio (+4.2%)outperformed the S&P 500 (+3.0%) by 1.2% from December 23, 2020 through January 19, 2021. On a total return basis, the Model Portfolio (+4.7%) outperformed the S&P 500 (3.0%) by 1.7% over the same time. The best performing large cap stock was up 18% and the best performing small cap stock was up 14%. Overall, 7 out of the 20 Safest Dividend Yield stocks outperformed their respective benchmarks (S&P 500 and Russell 2000) from December 23, 2020 through January 19, 2021.
The best fundamental data comerica stock dividends the world, proven in The Journal of Financial Economics, drives our research. Our proprietary Robo-Analyst technology scales our forensic accounting expertise (featured in Barron’s) across thousands of stocks to produce an unrivaled database of fundamental data.
This Model Portfolio only includes stocks that earn an Attractive or Very Attractive rating, have positive free cash flow and economic earnings, and offer a dividend yield greater than 3%. Companies with strong free cash flow provide higher quality and safer dividend yields because we know they have the cash to support the dividend. We think this portfolio provides a uniquely well-screened group of stocks that can help clients outperform.
Featured Stock for January: Comerica Inc. (CMA: $57/share)
Comerica Inc. (CMA) is the featured stock in January’s Safest Crbauto online payment Yields Model Portfolio.
Comerica has grown revenue by 2% compounded annually and net operating profit after tax (NOPAT) by 20% compounded annually over the past ten years, per Figure 1. Wealth bank housing loan calculator accounting for the large drop over the trailing twelve months (TTM), TTM NOPAT remains over four times higher than 2009. Comerica’s NOPAT margin increased from 6% in 2009 to 26% TTM, while its invested capital turns improved from 0.33 to 0.36 over the same time. Rising margins and invested capital turns drive Comerica’s return on invested capital (ROIC) from 2% in 2009 to 9% TTM.
The firm’s economic earnings, or the true cash flows of the business, rose from -$535 million in 2009 to $218 million TTM.
Figure 1: NOPAT & Revenue 2014 - TTM
Sources: New Constructs, LLC and company filings
Cash Flow Supports Dividend Payments
Comerica has paid a dividend every year since 1997. The firm increased its dividend payments from $0.83/share in 2015 to $2.72/share in 2020, or 27% compounded annually. The current quarterly dividend, when annualized provides a 4.8% dividend yield.
Comerica’s dividend payment is supported by the firm’s strong free cash flow(FCF). Comerica generated $5.1 billion (65% of current market cap) in FCF while paying $1.1 billion in dividends from 2015 to 2019, per Figure 2.
Figure 2: Comerica’s FCF vs. Dividends Since 2015
Sources: New Constructs, LLC and company filings
Companies with strong FCF provide higher quality dividend yields because we know the firm has the cash to support the dividend. On the other hand, dividends from companies with low or negative FCF cannot be trusted as much because the company may not be able to sustain paying dividends.
CMA Is Undervalued
At its current price of $57/share, CMA has a price-to-economic book value(PEBV) ratio of 0.6. This ratio means the market expects Comerica’s NOPAT to permanently decline by 40%. This expectation seems overly pessimistic given that Comerica has grown NOPAT by 20% compounded annually over the past decade.
Even if Comerica’s margin falls to 20% (average since 1998, compared to 26% TTM) and the firm grows revenue by less than 1% compounded annually over the next decade, the stock is worth $79/share today – a 39% upside. See the math behind this reverse DCF scenario. This scenario results in the firm’s NOPAT falling by 4% compounded annually over the next decade. Should the firm do better, the potential upside is even greater.
Critical Details Found in Financial Filings By Our Robo-Analyst Technology
Fact: we provide superior fundamental data and earnings models – unrivaled in the world.
Proof: Core Earnings: New Data & Evidence, forthcoming in The Journal of Financial Economics.
Below are specifics on the adjustments we make based on Robo-Analyst findings in Comerica’s 10-Qs and 10-K:
Income Statement: we made $384 million of adjustments with a net effect of removing $22 million in non-operating income (<1% of revenue). See all adjustments made to Comerica’s income statement here.
Balance Five points bank gi ne we made $3.1 billion of adjustments to calculate invested capital with a net increase of $1.5 billion. The most notable adjustment was $776 million (11% of reported net assets) related to goodwill. See all adjustments to Comerica’s balance sheet here.
Valuation: we made $1.4 billion of adjustments with a net effect of decreasing shareholder value by $219 million. The largest adjustment to shareholder value was $576 million in overfunded pensions. This adjustment represents 7% of Comerica’s market value. See all adjustments to Comerica’s valuation here.
This article originally published on January 28, 2021.
Disclosure: David Trainer, Kyle Guske II, Alex Sword, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.
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Comerica, Inc. CMA
Comerica Incorporated, incorporated on November 13, 1972, is a financial services company. The Company's principal activity is lending to and accepting deposits from businesses and individuals. The Company's segments include the Business Bank, the Retail Bank, Wealth Management, Finance and Other. The Business Bank serves middle market businesses, multinational corporations and governmental entities by offering various products and services, including commercial loans and lines of credit, deposits, cash management, capital market products, international trade finance, letters of credit, foreign exchange management services and loan syndication services. The Retail Bank includes small comerica stock dividends banking and personal financial services, consisting of consumer lending, consumer deposit gathering and mortgage loan origination. In addition to usa holidays 2020 range of financial services provided to small business customers, this business segment offers a range of consumer products, comerica stock dividends deposit accounts, installment loans, credit cards, student loans, home equity lines of credit and residential mortgage loans.
The Wealth Management segment offers products and services consisting of fiduciary services, private banking, retirement services, investment management and advisory services, investment banking and brokerage services. This business segment also offers the sale of annuity products, as well as life, disability and long-term care insurance products. The Finance segment includes the Company's securities portfolio and asset and liability management activities. The Company operates in geographic markets, including Texas, California, and Michigan, as well as in Arizona and Florida, with select businesses operating in several other states, and in Canada and Mexico.
The Company offers a range of loans, including commercial loans, real estate construction loans, commercial mortgage loans, lease financing, international loans and residential mortgage loans. Its commercial real estate loans comprise real estate construction loans and commercial mortgage loans. Real estate construction loans primarily include loans in the commercial real estate business line, which generally serves commercial real estate developers. Its commercial mortgage loans include commercial real estate business line and other business lines. Its international loans include banks and other financial institutions, and commercial and industrial loans. Its consumer loans include home equity and other consumer loans. As of December 31, 2016, the Company had total loans of approximately $49.1 billion.
The Company offers commercial loans to various business lines, including general middle market, national dealer services, energy, technology and life sciences, environmental services and entertainment. National dealer services primarily provides floor plan inventory financing to auto dealerships. Its energy business line is engaged in three divisions of the oil and gas business: exploration and production (E&P), midstream and energy services. The technology and life sciences business line serves two divisions: private equity and venture capital firms, referred to as equity fund services, and companies that are typically owned by venture-capital firms, where equity is invested to create products and build companies. Mortgage banker finance provides short-term and revolving lines of credit to independent mortgage banking companies.
The Company's investing activities include investment securities available-for-sale and investment securities held-to-maturity. The Company's investment securities available-for-sale include the United States treasury and the other United States Government agency securities, residential mortgage-backed securities, state and municipal securities and equity and other non-debt securities. The equity and other non-debt securities include auction-rate preferred securities and, money market and other mutual funds. The investment securities held to maturity include residential mortgage-backed securities. As of December 31, 2016, the Company's total investment securities were $12.4 billion.
Sources of Funds
The Company's sources of funds include deposits and other short-term investments. The Company's deposits include noninterest-bearing deposits, money market and interest-bearing checking deposits, savings deposits, customer certificates of deposit and foreign office time deposits. Its Short-term borrowings primarily include federal funds purchased, short-term Federal Home Loan Bank (FHLB) advances, and securities sold under agreements to repurchase. Interest-bearing deposits with banks primarily include deposits with the Federal Reserve Board (FRB) and also include deposits with banks in developed countries or international banking facilities of foreign banks located in the United States. Other short-term investments include federal funds sold, trading securities and loans held-for-sale. As of December 31, 2016, the Company had total deposits of approximately $59 billion.
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Dividend History for Comerica, Inc. (CMA)