-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GCtAvONPflPzfXGfGp+8R0dea/j1/Y//TnJ+OXJjhHoJuSKDLMWCVs0YlDyoduJh Fos/Y1mybHSW3O+fKm9EDQ== 0000950124-00-001741.txt : 20000331 0000950124-00-001741.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950124-00-001741 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMERICA INC /NEW/ CENTRAL INDEX KEY: 0000028412 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 381998421 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10706 FILM NUMBER: 584048 BUSINESS ADDRESS: STREET 1: 411 W LAFAYETTE CITY: DETROIT STATE: MI ZIP: 48226-3509 BUSINESS PHONE: 3132229743 MAIL ADDRESS: STREET 1: 411 W LAFAYETTE CITY: DETROIT STATE: MI ZIP: 48226-3509 FORMER COMPANY: FORMER CONFORMED NAME: DETROITBANK CORP DATE OF NAME CHANGE: 19850311 10-K 1 FORM 10-K 1 Securities and Exchange Commission Washington, DC 20549 Form 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, For the fiscal year ended December 31, 1999. Commission file number 1-10706 Comerica Incorporated Comerica Tower at Detroit Center 500 Woodward Avenue, MC 3391 Detroit, Michigan 48226 1-800-521-1190 Incorporated in the State of Delaware, IRS Employer Identification No. 38-1998421. Securities registered pursuant to Section 12(b) of the Act: - - Common Stock, $5 par value - - Rights to acquire Series D Preferred Stock, no par value - - Preferred Stock Series E, $50.00 liquidation preference per share These securities are registered on the New York Stock Exchange. Securities registered pursuant to Section 12(g) of the Act: - - 9 3/4 percent Subordinated Notes due 1999 - - 7 1/4 percent Subordinated Notes due in 2007 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. 1 2 Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is contained in the definitive proxy statement incorporated by reference in Part III of this Form 10-K. At March 22, 2000, the registrant's common stock, $5 par value, held by nonaffiliates had an aggregate market value of $6,403,836,447 based on the closing price on the New York Stock Exchange on that date of $43.00 per share and 148,926,429 shares of common stock held by nonaffiliates. For purposes of this Form 10-K only, it has been assumed that all common shares Comerica's Trust Department holds for Comerica and Comerica's employee plans, and all common shares the registrant's directors and executive officers hold, are held by affiliates. At March 22, 2000, the registrant had outstanding 157,233,088 shares of its common stock, $5 par value. DOCUMENTS INCORPORATED BY REFERENCE: 1. Parts I and II: Items 1-8--Annual Report to Shareholders for the year ended December 31, 1999. 2. Part III: Items 10-13--Proxy Statement for the Annual Meeting of Shareholders to be held May 19, 2000. PART I 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. Based on assets as of December 31, 1999, it was the 24th largest bank holding company in the United States and the largest bank holding company headquartered in Michigan in terms of both total assets and total deposits. Comerica was formed in 1973 to acquire the outstanding common stock of Comerica Bank (formerly Comerica Bank-Detroit), one of Michigan's oldest banks ("Comerica Bank"). Since that time, Comerica has acquired financial institutions in California, Texas and Florida, and, in 1998 and 1997, Comerica formed Comerica Bank-Canada and Comerica Bank-Mexico, S.A., respectively. As of December 31, 1999, Comerica owned directly or indirectly all the outstanding common stock of seven banking and thirty-one non-banking subsidiaries. At December 31, 1999, Comerica had total assets of approximately $38.7 billion, total deposits of approximately $23.3 billion, total loans (net of unearned income) of approximately $32.7 billion and common shareholders' equity of approximately $3.2 billion. BUSINESS STRATEGY Comerica has strategically aligned its operations into three major lines of business: the Business Bank, the Individual Bank and the Investment Bank. The Business Bank is comprised of middle market lending, asset-based lending, large corporate banking, treasury management and international 2 3 financial services. This line of business meets the needs of medium-size 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 Individual Bank includes consumer lending, consumer deposit gathering, mortgage loan origination and servicing, small business banking (annual sales under $5 million) and private banking. This line of business offers a variety of consumer products, including deposit accounts, direct and indirect installment loans, credit cards, home equity lines of credit and residential mortgage loans. In addition, a full range of financial services is provided to small businesses and municipalities. Private lending and personal trust services are also provided to meet the personal financial needs of affluent individuals (as defined by individual net income or wealth). The Investment Bank is responsible for the sale of mutual fund and annuity products, as well as life, disability and long-term care insurance products. This line of business also offers institutional trust products, retirement services and provides investment management and advisory services, investment banking and discount securities brokerage services. The core businesses are tailored to each of Comerica's four primary geographic markets: Michigan, Texas, California and Florida. In addition to the three major lines of business, the Finance segment is also significant. The Finance segment includes Comerica's securities portfolio and asset and liability management activities. This segment is responsible for managing Comerica's funding, liquidity and capital needs, performing interest sensitivity gap and earnings simulation analysis and executing various strategies to manage Comerica's exposure to interest rate risk. Phase III of Direction 2000 In 1996, Comerica finalized the design of Direction 2000, the strategic effort to prepare the organization for the new millennium. Following Comerica's 1995 organization of its business units into the Business, Individual and Investment Banks, and the subsequent alignment and consolidation of back-office areas, Comerica in 1996 identified which business lines it believed were best managed on a local basis and a national basis, and realigned its support functions to optimally link them to business strategies and corporate objectives. In the third and final phase of this effort, Comerica employees systematically reviewed all functions of the organization. The full effect of the plan was realized in fiscal year 1999. 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 ("FRB") under the Bank Holding Company Act of 1956, as amended (the "Act"). Under the Act, the Corporation historically has been prohibited from engaging in activities other than those of banking or managing or controlling banks, or 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 or of an entity whose activities the FRB determines to be so closely related to banking as to be a proper incident thereto. However, under the Gramm-Leach-Bliley Act of 1999, effective March 11, 2000, 3 4 this prohibition does not apply if the activities engaged in by the Corporation or the company whose voting shares are acquired by the Corporation are activities which, generally, the FRB determines to be financial in nature or incidental to such financial activity, or complementary to a financial activity and do not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally. 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, National Association and Comerica Bank & Trust, National Association are chartered under federal law and subject to supervision and regulation by the Office of the Comptroller of the Currency ("OCC"). Comerica Bank-California is chartered by the State of California and is supervised and regulated by the California State Banking Department. Comerica Bank, Comerica Bank & Trust, National Association and Comerica Bank, National Association are members of the Federal Reserve System ("FRS"). State member banks are also regulated by the FRB, and state non-member banks are also regulated by the Federal Deposit Insurance Corporation ("FDIC"). The deposits of all the foregoing banks are insured by the Bank Insurance Fund ("BIF") of the FDIC to the extent provided by law. Comerica Bank-Mexico, S.A. is chartered under the laws of Mexico and is supervised and regulated by the Ministry of Finance and Public Credit, the Bank of Mexico, and the Mexican National Banking Commission. Comerica Bank-Canada is chartered under the laws of Ontario, Canada and is supervised and regulated by the Office of the Superintendent of Financial Institutions Canada and the Canada Deposit Insurance Corporation. The FRB supervises non-banking activities conducted by companies Comerica and Comerica Bank own and the OCC supervises non-banking activities conducted by companies owned by Comerica Bank & Trust, National Association. In addition, Comerica's non-banking subsidiaries are subject to supervision and regulation by various state and federal agencies, including, but not limited to, the National Association of Securities Dealers, Inc. (in the case of Comerica Securities, Inc.) the Department of Insurance of the State of Michigan (in the case of Comerica Insurance, Inc.), and the Securities and Exchange Commission (in the case of Munder Capital Management). Set forth below are summaries of selected laws and regulations applicable to Comerica and its subsidiaries. The summaries are not complete and are qualified in their entirety by references to the particular statutes and regulations. A change in applicable law or regulation could have a material effect on the business of Comerica. Interstate Banking and Branching Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act"), a bank holding company became able to acquire banks in states other than its home state, beginning September 29, 1995, without regard to the permissibility of such acquisition under state law, but subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company, prior to and following the proposed acquisition, control no more than ten percent of the total amount of deposits of insured depository institutions in the United States and no more than thirty percent of such deposits in that state (or such amount as established by state law). 4 5 The Interstate Act also authorizes banks to merge across state lines, thereby creating interstate branching. All of the states in which Comerica's banking subsidiaries are located allow interstate branching. Furthermore, under the Interstate Act, a bank is now able to open new branches in a state in which it does not already have banking operations if such state enacts a law permitting such de novo branching. Since the provision permitting interstate bank acquisitions became effective, Comerica has had enhanced opportunities to acquire banks in any state subject to approval by the appropriate federal and state regulatory agencies. Under the Interstate Act, Comerica has the opportunity to consolidate its affiliate banks to create one bank with branches in more than one state, or to establish branches in different states, subject to any state "opt-in" and "opt-out" provisions. Financial Modernization Pursuant to the Gramm-Leach-Bliley Act of 1999, effective March 11, 2000, the activities in which a bank holding company (each of the deposit institution subsidiaries of which is well-capitalized and well-managed) may lawfully engage have been expanded to include insurance underwriting, unlimited securities underwriting, travel agent services, real estate development, and merchant banking (the passive investment in equity securities in unlimited amounts). Comerica is currently studying the advisability of undertaking certain of these activities. Dividends Comerica is a legal entity separate and distinct from its banking and other subsidiaries. Most of Comerica's revenues result from dividends its bank subsidiaries pay it. 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. Certain, but not all, of these requirements are discussed below. Each state bank subsidiary that is a member of the FRS and each national banking association is required by federal law to obtain the prior approval of the FRB or the OCC, 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 retained net income (as defined and interpreted by regulation) for that year plus (ii) the retained net income (as defined and interpreted by regulation) for the preceding two years, less any required transfers to surplus. Further, federal regulatory agencies can prohibit a banking institution or bank holding company from engaging in unsafe and unsound business practices and could prohibit the payment of dividends if such payment could be deemed an unsafe and unsound banking practice. In addition, Comerica's state bank subsidiaries that are not members of the FRS are also subject to limitations under state law regarding the amount of earnings that may be paid out as dividends. At January 1, 2000, Comerica's subsidiary banks, without obtaining prior governmental approvals, could declare aggregate dividends of approximately $879 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, 2000 through the date of declaration. Comerica's subsidiary banks paid dividends of $261 million in 1999, $442 million in 1998, and $354 million in 1997. 5 6 Source of Strength According to Federal Reserve Board Policy, bank holding companies are expected to act as a source of strength to each subsidiary bank and to commit resources to support each subsidiary bank. This support may be required at times when a bank holding company may not be able to provide such support. Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance Act, in the event of a loss suffered or anticipated by the FDIC (either as a result of the default of a banking or thrift subsidiary or related to FDIC assistance provided to a subsidiary in danger of default) one of the other banking subsidiaries may be assessed for the FDIC's loss, subject to certain exceptions. FDICIA FDICIA substantially revised the bank regulatory and funding provisions of the Federal Deposit Insurance Act and made 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, among others, include a Tier 1 and total 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 certain circumstances, the appropriate banking agency may treat a well capitalized, adequately capitalized or undercapitalized institution as if the institution were in the next lower capital category. As of December 31, 1999, each of the banking subsidiaries of Comerica were well capitalized under these regulations. 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 subject to limitations on growth and certain activities and are required to submit an acceptable 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 for a specific time period 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 6 7 the plan. If a depository institution fails to submit or implement an acceptable plan, it is treated as if it is significantly undercapitalized. Significantly undercapitalized depository institutions are subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, restrictions on interest rates, deposits and asset growth and orders to improve management 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 in the future, (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 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's United States subsidiary banks are all 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 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 deposit insurance assessment schedule published by the FDIC for the assessment period commencing January 1, 1998, maintained the nine categories but provided for major reductions in the assessment rates for institutions insured by BIF. These reductions occurred because the balance in BIF has reached or surpassed the "designated reserve ratio" set by law for the balance in the fund to maintain with respect to BIF-insured deposits. The FDIC has continued these reduced assessment levels. Enforcement Powers of Federal Banking Agencies The FRB and other federal banking agencies have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties and appoint a conservator or receiver. Failure to comply with applicable laws, regulations and supervisory agreements could subject Comerica or its banking subsidiaries, as well as officers and directors of these organizations, to administrative sanctions and potentially substantial civil penalties. 7 8 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, Connecticut, Florida, Georgia, Indiana, Illinois, Nevada, Ohio and Texas, Comerica competes with other financial institutions for various types of loans. Through its Florida branches, Comerica competes with many companies, including financial institutions, for trust business. At year-end 1999, Comerica was the largest bank holding company headquartered 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, 1999, Comerica and its subsidiaries had 8,997 full-time and 1,845 part-time employees. ITEM 2. PROPERTIES The executive offices of the Corporation are located in the Comerica Tower at Detroit Center, 500 Woodward Ave., Detroit, Michigan 48226. Comerica and its subsidiaries occupy 13 floors of the building, which is leased through Comerica Bank from an unaffiliated third party. This lease extends through January 2007. As of December 31, 1999, Comerica Bank operated 290 offices within the States of Michigan and Florida, of which 180 were owned and 110 were leased. Two other banking affiliates operate 114 offices in California and Texas. The affiliates own 50 of their offices and lease 64 offices. Banking affiliates also operate from leased spaces in Toledo, Ohio; Mexico City, Mexico; and Toronto, Ontario, Canada. 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 building in Auburn Hills, Michigan, used mainly for consumer lending functions. 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. 8 9 ITEM 3. LEGAL PROCEEDINGS The Corporation and its subsidiaries are parties to litigation and claims arising in the normal course of their activities. Although the amount of ultimate liability, if any, with respect to such matters cannot be determined with reasonable certainty, management, after consultation with legal counsel, believes that the litigation and claims, some of which are substantial, will not have a material adverse effect on the Corporation's consolidated financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to shareholders in the fourth quarter of 1999. PART II 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 March 22, 2000, there were approximately 17,511 holders of the Corporation's common stock. The stock prices and dividend information contained in this table have been adjusted to give effect to the stock split effected in the form of a 50% stock dividend paid on April 1, 1998. Quarterly cash dividends were declared during 1999 and 1998, totaling $1.44 and $1.28 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 1999 and 1998.
- ------------------------------------------------------------------------- Dividend Dividend* Quarter High Low Per Share Yield - ------------------------------------------------------------------------- 1999 Fourth $61.38 $44.00 $0.36 2.7% Third 61.63 47.63 0.36 2.6 Second 66.63 57.31 0.36 2.3 First 70.00 58.94 0.36 2.2 1998 Fourth $69.00 $46.50 $0.32 2.2% Third 71.94 51.00 0.32 2.1 Second 73.00 61.94 0.32 1.9 First 72.13 54.33 0.32 2.0
* 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. 9 10 ITEM 6. SELECTED FINANCIAL DATA The response to this item is included on page 21 of the Corporation's Annual Report to Shareholders for the year ended December 31, 1999, which page is hereby incorporated by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The response to this item is included under the caption "Financial Review and Report" on pages 22 through 39 of the Corporation's Annual Report to Shareholders for the year ended December 31, 1999, which pages are hereby incorporated by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The response to this item is included on pages 34 through 38 of the Corporation's Annual Report to Shareholders for the year ended December 31, 1999, which pages are hereby incorporated by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this item is included on pages 40 through 68 of the Corporation's Annual Report to Shareholders for the year ended December 31, 1999, which pages are hereby incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The response to this item will be included under the sections captioned "Information About Nominees and Incumbent Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" of the Corporation's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 19, 2000, which sections are hereby incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION The response to this item will be included under the sections captioned "Compensation of Directors" and "Compensation of Executive Officers" of the Corporation's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 19, 2000, which sections are hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The response to this item will be included under the sections captioned "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" of the Corporation's 10 11 definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 19, 2000, which sections are hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The response to this item will be included under the sections captioned "Transactions of Directors and Executive Officers with Comerica" and "Information about Nominees and Incumbent Directors" of the Corporation's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 19, 2000, which sections are hereby incorporated by reference. 11 12 Comerica Incorporated and Subsidiaries FORM 10-K CROSS-REFERENCE INDEX Certain information required to be included in this Form 10-K is included in the 1999 Annual Report to Shareholders or in the 2000 Proxy Statement used in connection with the 2000 annual meeting of share-holders to be held on May 19, 2000. The following cross-reference index shows the page location in the 1999 Annual Report or the section of the 2000 Proxy Statement of only that information which is to be incorporated by reference into this Form 10-K. All other sections of the 1999 Annual Report or the 2000 Proxy Statement are not required in this Form 10-K and should not be considered a part thereof. Page Number of 1999 Annual Report of Section of 2000 Proxy Statement
PART I ITEM 1. Business....................................................................................... Included herein ITEM 2. Properties..................................................................................... Included herein ITEM 3. Legal Proceedings.............................................................................. Included herein ITEM 4. Submission of Matters to a Vote of Security Holders -- no matters were voted upon by security holders in the fourth quarter of 1999. PART II ITEM 5. Market for Registrant's Common Equity and Related Security Holder Matters.................... Included herein ITEM 6. Selected Financial Data................................................................................... 21 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ................. 22-39 ITEM 8. Financial Statements and Supplementary Data: Comerica Incorporated and Subsidiaries Consolidated Balance Sheets........................................................................... 40 Consolidated Statements of Income.................................................................... 41 Consolidated Statements of Changes in Shareholders' Equity ........................................... 42 Consolidated Statements of Cash Flows................................................................. 43 Notes to Consolidated Financial Statements................................................................ 44 Report of Management...................................................................................... 65 Report of Independent Auditors............................................................................ 65 Statistical Disclosure by Bank Holding Companies: Analysis of Net Interest Income - Fully Taxable Equivalent............................................... 23 Rate-Volume Analysis - Fully Taxable Equivalent........................................................... 24 Analysis of the Allowance for Credit Losses............................................................... 26 Analysis of Investment Securities and Loans............................................................... 29 Allocation of the Allowance for Credit Losses............................................................. 30 Loan Maturities and Interest Rate Sensitivity............................................................. 30 International Cross-Border Risk........................................................................... 30 Maturity Distribution of Domestic Certificates of Deposit of $100,000 and Over............................ 31 Analysis of Investment Securities Portfolio - Fully Taxable Equivalent.................................... 33 Summary of Nonperforming Assets and Past Due Loans........................................................ 33 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - None. PART III ITEM 10. Directors and Executive Officers of the Registrant ... Information About Nominees and Incumbent Directors, Executive Officers of the Corporation and Section 16(a) Beneficial Ownership Reporting Compliance
12 13 ITEM 11. Executive Compensation.......................................................Compensation of Directors and Compensation of Executive Officers ITEM 12. Security Ownership of Certain Beneficial Owners and Management..........................Security Ownership of Certain Beneficial Owners and Security Ownership of Management ITEM 13. Certain Relationships and Related Transactions...............................Transactions of Directors and Executive Officers with Comerica and Information about Nominees and Incumbent Directors
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: 1. Financial Statements: The financial statements that are filed as part of this report are listed under Item 8 in the Form 10-K Cross-Reference Index on page 12. 2. All of the schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are either not required under the related instruction, the required information is contained elsewhere in the Form 10-K, or the schedules are inapplicable and therefore have been omitted. Exhibits: Exhibit Document Number 3.1 Restated Certificate of Incorporation of Comerica Incorporated, as amended(2) 3.2 Amended and restated bylaws of Comerica Incorporated 4 Rights Agreement between Comerica Incorporated and Comerica Bank(4) 10.1+ Comerica Incorporated 1997 Long-Term Incentive Plan(2) 10.2+ Comerica Incorporated Management Incentive Plan, 1997(2) 10.3+ Comerica Incorporated Director Fee Deferral Plan(2) 10.4+ Benefit Equalization Plan for Employees of Comerica Incorporated(2) 10.5+ Comerica Incorporated's Directors Retirement Plan(5) 10.6+ Manufacturers National Corporation's 1987 and 1989 Stock Option Plans for Key Employees(5) 10.7+ Manufacturers National Corporation's Executive Incentive Plan(5) 10.8+ Manufacturers National Corporation's Key Employee Retention Plan(5) 10.9+ Form of Employment Agreement (Exec Off.)(6) 13 14 10.10+ Form of Director Indemnification Agreement between Comerica Incorporated and its directors(2) 10.11+ Employment Continuation Agreement with Eugene A. Miller(5) 10.12+ Supplemental Pension and Retiree Medical Agreement with Ralph W. Babb Jr.(7) 10.13+ Employment Agreement with Ralph W. Babb Jr.(7) 10.14+ Comerica Incorporated Deferred Compensation Plan, 1997 Amendment and Restatement(2) 10.15+ Amended and Restated Comerica Incorporated 1997 Long-Term Incentive Plan, November 19, 1999 10.16+ Amended and Restated Comerica Incorporated Management Incentive Plan, November 19, 1999 10.17+ Form of Comerica Incorporated Senior Officer Severance Plan between registrant and listed officers, January 1, 1997(2) 10.18+ 1999 Comerica Incorporated Deferred Compensation Plan, January 1, 1999 10.19+ 1999 Comerica Incorporated Deferred 3 Year ROE Award Plan, January 1, 1999 10.20+ Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee Directors, January 20, 2000 10.21+ Comerica Incorporated 1999 Discretionary Director Fee Deferral Plan May 21, 1999 10.22+ Comerica Incorporated 1999 Common Stock Director Fee Deferral Plan May 21, 1999 11 Statement regarding Computation of Per Share Earnings(8) 13 Registrant's 1999 Annual Report to Shareholders 21 Subsidiaries of Registrant 23 Consent of Ernst & Young LLP 27 1999 Financial Data Schedule (EDGAR version only) (b) No reports on Form 8-K were filed by the Corporation during the last quarter of 1999. (2) Filed as the same exhibit number to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference. (4) Incorporated by reference from a report filed by Registrant on Form 8-K dated June 18, 1996, regarding the Registrant's Rights Agreement with Comerica Bank. (5) Incorporated by reference from Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 -- Commission File Number 0-7269. 14 15 (6) Incorporated by reference from Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 -- Commission File Number 1-10706. (7) Incorporated by reference from Registrant's Form 10-Q for the quarter ended June 30, 1998 -- Commission File Number 1-1076. (8) Incorporated by reference from Note 12 on page 50 of Registrant's Annual Report to Shareholders attached hereto as Exhibit 13. + Management compensation plan. 15 16 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 29th day of March, 2000. COMERICA INCORPORATED /s/ Eugene A. Miller - ----------------------------------------------- Eugene A. Miller Chairman, President and Chief Executive Officer /s/ Ralph W. Babb Jr. - ----------------------------------------------- Ralph W. Babb Jr. Vice Chairman and Chief Financial Officer /s/ Marvin J. Elenbaas - ----------------------------------------------- Marvin J. Elenbaas 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 the 29th day of March, 2000. BY DIRECTORS /s/ E. Paul Casey - ----------------------------------------------- E. Paul Casey /s/ James F. Cordes - ----------------------------------------------- James F. Cordes /s/ J. Philip DiNapoli - ----------------------------------------------- J. Philip DiNapoli /s/ Max M. Fisher - ----------------------------------------------- Max M. Fisher /s/ John D. Lewis - ----------------------------------------------- John D. Lewis 16 17 /s/ Wayne B. Lyon - ----------------------------------------------- Wayne B. Lyon /s/ Eugene A. Miller - ----------------------------------------------- Eugene A. Miller /s/ Alfred A. Piergallini - ----------------------------------------------- Alfred A. Piergallini /s/ Howard F. Sims - ----------------------------------------------- Howard F. Sims /s/ Martin D. Walker - ----------------------------------------------- Martin D. Walker /s/ Patricia M. Wallington - ----------------------------------------------- Patricia M. Wallington /s/ Kenneth L. Way - ----------------------------------------------- Kenneth L. Way 17 18 Exhibit Index ------------- Exhibit No. Description ----------- ----------- 3.1 Restated Certificate of Incorporation of Comerica Incorporated, as amended(2) 3.2 Amended and restated bylaws of Comerica Incorporated 4 Rights Agreement between Comerica Incorporated and Comerica Bank(4) 10.1+ Comerica Incorporated 1997 Long-Term Incentive Plan(2) 10.2+ Comerica Incorporated Management Incentive Plan, 1997(2) 10.3+ Comerica Incorporated Director Fee Deferral Plan(2) 10.4+ Benefit Equalization Plan for Employees of Comerica Incorporated(2) 10.5+ Comerica Incorporated's Directors Retirement Plan(5) 10.6+ Manufacturers National Corporation's 1987 and 1989 Stock Option Plans for Key Employees(5) 10.7+ Manufacturers National Corporation's Executive Incentive Plan(5) 10.8+ Manufacturers National Corporation's Key Employee Retention Plan(5) 10.9+ Form of Employment Agreement (Exec Off.)(6) 10.10+ Form of Director Indemnification Agreement between Comerica Incorporated and its directors(2) 10.11+ Employment Continuation Agreement with Eugene A. Miller(5) 10.12+ Supplemental Pension and Retiree Medical Agreement with Ralph W. Babb Jr.(7) 10.13+ Employment Agreement with Ralph W. Babb Jr.(7) 10.14+ Comerica Incorporated Deferred Compensation Plan, 1997 Amendment and Restatement(2) 10.15+ Amended and Restated Comerica Incorporated 1997 Long-Term Incentive Plan, November 19, 1999 10.16+ Amended and Restated Comerica Incorporated Management Incentive Plan, November 19, 1999 10.17+ Form of Comerica Incorporated Senior Officer Severance Plan between registrant and listed officers, January 1, 1997(2) 10.18+ 1999 Comerica Incorporated Deferred Compensation Plan, January 1, 1999 10.19+ 1999 Comerica Incorporated Deferred 3 Year ROE Award Plan, January 1, 1999 10.20+ Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee Directors, January 20, 2000 10.21+ Comerica Incorporated 1999 Discretionary Director Fee Deferral Plan May 21, 1999 10.22+ Comerica Incorporated 1999 Common Stock Director Fee Deferral Plan May 21, 1999 11 Statement regarding Computation of Per Share Earnings(8) 13 Registrant's 1999 Annual Report to Shareholders 21 Subsidiaries of Registrant 23 Consent of Ernst & Young LLP 27 1999 Financial Data Schedule (EDGAR version only) (b) No reports on Form 8-K were filed by the Corporation during the last quarter of 1999. (1) This is a conformed copy of the 1999 Form 10-K and does not include exhibits. (2) Filed as the same exhibit number to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference. (4) Incorporated by reference from a report filed by Registrant on Form 8-K dated June 18, 1996, regarding the Registrant's Rights Agreement with Comerica Bank. (5) Incorporated by reference from Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 -- Commission File Number 0-7269. (6) Incorporated by reference from Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 -- Commission File Number 1-10706. (7) Incorporated by reference from Registrant's Form 10-Q for the quarter ended June 30, 1998 -- Commission File Number 1-1076. (8) Incorporated by reference from Note 12 on page 50 of Registrant's Annual Report to Shareholders attached hereto as Exhibit 13. + Management compensation plan. EX-3.2 2 AMENDED AND RESTATED BYLAWS OF COMERICA INC. 1 AS AMENDED AND RESTATED ON MAY 21, 1999 AMENDED AND RESTATED BYLAWS OF COMERICA INCORPORATED ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. SECTION 2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF SHAREHOLDERS SECTION 1. PLACE OF MEETING. All meetings of the shareholders of this Corporation shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. SECTION 2. ANNUAL MEETING OF SHAREHOLDERS. The annual meeting of shareholders shall be held on the third Friday of May of each year, if not a legal holiday, and, if a legal holiday, then on the next secular day following, at 10:00 a.m., or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. At said meeting, shareholders shall elect by a plurality vote the directors to be elected at such meeting, and shall transact such other business as may properly be brought before the meeting. SECTION 3. NOTICE OF MEETING OF SHAREHOLDERS. Written notice of every meeting of shareholders stating the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each shareholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. 2 SECTION 4. LIST OF SHAREHOLDERS ENTITLED TO VOTE. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of shareholders, a complete list of the shareholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareholder who is present. SECTION 5. SPECIAL MEETINGS OF SHAREHOLDERS. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Corporation's certificate of incorporation, may be called by the Chairman of the Board of Directors or, during the absence or disability of the Chairman or while that office is vacant, by the President; and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of shareholders owning, in the aggregate, at least seventy-five percent (75%) in amount of the entire capital stock of the Corporation issued and outstanding and entitled to vote at such special meeting. Such request shall state the purpose or purposes of the proposed meeting. SECTION 6. QUORUM OF SHAREHOLDERS. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business, except as otherwise provided by statute or by the Corporation's certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. SECTION 7. REQUIRED VOTE. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which a different vote is required by statute or by the Corporation's certificate of incorporation. 2 3 SECTION 8. ONE VOTE PER SHARE. Unless otherwise provided in the Corporation's certificate of incorporation or in a certificate filed pursuant to Section 151(g) of the General Corporation Law of Delaware, as amended, each shareholder shall at every meeting of the shareholders be entitled to one vote, in person or by proxy, for each share of the capital stock having voting power held by such shareholder, but no proxy shall be voted after three (3) years from its date, unless the proxy provides for a longer period. SECTION 9. NATURE OF BUSINESS. At any meeting of shareholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors or by any shareholder who complies with the procedures set forth in this Section 9. No business may be transacted at any meeting of shareholders, other than business that is either: (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof); (b) otherwise properly brought before such meeting of shareholders by or at the direction of the Board of Directors (or any duly authorized committee thereof); or (c) in the case of an annual meeting of shareholders, otherwise properly brought before such meeting by any shareholder (i) who is a shareholder of record on the date of the giving of the notice provided for in this Section 9 and on the record date for the determination of shareholders entitled to vote at such annual meeting of shareholders; and (ii) who complies with the notice procedures set forth in this Section 9. Time of Shareholder's Notice. In addition to any other applicable requirements, such as the requirements set forth in Article III, Section 12 of the Corporation's bylaws regarding director candidate nominations, for business to be properly brought before an annual meeting of shareholders by a shareholder, such shareholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a shareholder's notice to the Secretary of the Corporation must be delivered to or mailed and received at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the immediately preceding year's annual meeting of shareholders; provided, however, that in the event that the date of the annual meeting of shareholders is more than thirty (30) days before or more than sixty 60 days after such anniversary date, notice by the shareholder in order to be timely must be so received not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting of shareholders was first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a 3 4 shareholder's notice as described above. For purpose of this Section 9, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service, or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. Notwithstanding anything in the second sentence of the immediately preceding paragraph to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least 100 days prior to the first anniversary of the preceding year's annual meeting, a shareholder's notice required by this bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it is delivered to the Secretary or mailed and received at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. Form of Shareholder's Notice. To be in proper written form, a shareholder's notice to the Secretary of the Corporation must set forth as to each matter such shareholder proposes to bring before the annual meeting of shareholders: (a) a brief description of the business desired to be brought before the annual meeting of shareholders and the reasons for conducting such business at the annual meeting of shareholders; (b) the name and address of such shareholder and beneficial owner, if any, as they appear on the Corporation's books; (c) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such shareholder as of the record date for the meeting (if such date shall then have been made publicly available and shall have occurred); (d) as of the date of such notice, a description of all arrangements or understandings between such shareholder and any other person or persons (including their names) in connection with the proposal of such business by such shareholder and any material interest of such shareholder in such business; (e) any other information which would be required to be disclosed in a proxy statement or other filings required to be made in connection with the solicitation of proxies for the proposal pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder if such shareholder were engaged in such a solicitation; and (f) a representation that such shareholder intends to appear in person or by proxy at the annual meeting of shareholders to bring such business before the meeting. No business shall be conducted at the annual meeting of shareholders except business brought before the annual meeting of shareholders in accordance with the procedures set forth in this Section 9, provided however, that once business has been properly brought before the annual meeting of shareholders in accordance with such procedures, nothing in this Section 9 shall be deemed to preclude discussion by any shareholder of any such business. If the Chairman of an annual meeting of shareholders determines that business was not properly brought before the annual meeting of shareholders in accordance with 4 5 the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. When a meeting is adjourned to another time or place, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken, unless the adjournment is for more than 30 days, or unless after the adjournment a new record date is fixed for the adjourned meeting, in which case notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. At such adjourned meeting at which a quorum is present or represented, any business may be transacted which might have been transacted at the original meeting as originally notified. ARTICLE III DIRECTORS SECTION 1. POWERS. The business of the Corporation shall be managed by or under the direction of its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things which are not by statute or by the Corporation's certificate of incorporation or by these bylaws directed or required to be exercised or done by the shareholders. SECTION 2. LOCATION OF MEETINGS. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. SECTION 3. ORGANIZATION MEETING OF BOARD. The first meeting of each newly elected Board of Directors shall be held at the place of holding the annual meeting of shareholders, and immediately following the same, for the purpose of electing officers and transacting any other business properly brought before it, provided that the organization meeting in any year may be held at a different time and place than that herein provided by a consent of a majority of the directors of such new board. No notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present, unless said meeting is not held at the place of holding and immediately following the annual meeting of shareholders. SECTION 4. REGULAR MEETINGS OF BOARD. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board. SECTION 5. SPECIAL MEETINGS OF BOARD. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors, or, during the absence or disability of the Chairman or while that office is vacant, by the President on one (1) day's notice to each director; and special meetings shall be called by the President or Secretary on like notice on the written request of five or more directors. 5 6 SECTION 6. QUORUM AND REQUIRED VOTE. At all meetings of the Board of Directors a majority of the total number of directors shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Corporation's certificate of incorporation. If a quorum is not present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. SECTION 7. CONSENT OF DIRECTORS IN LIEU OF MEETING. Unless otherwise restricted by the Corporation's certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. SECTION 8. COMMITTEES OF DIRECTORS. (a) General Authority. The Board of Directors may, to the fullest extent permitted by Section 141(c)(2) of the Delaware General Corporation Law as the same may be hereinafter amended from time to time, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not (s)he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, or in these bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters (except as permitted by Delaware General Corporation Law as the same may be hereinafter amended from time to time): (i) approving or adopting, or recommending to the shareholders, any action or matter expressly required to be submitted to shareholders for approval; or (ii) adopting, amending or repealing any bylaw of the Corporation. (b) Directors Committee. The Board of Directors may establish a Directors Committee of the Board of Directors. The Directors Committee may: (i) nominate candidates for election as directors of the Corporation at any meeting of shareholders called for election of directors (an "Election Meeting"); (ii) nominate candidates to fill any vacancies on the Board of Directors which may exist from time to time; and (iii) have such other powers and authority as the Board of Directors may delegate to it from time to time. 6 7 SECTION 9. COMMITTEE MINUTES. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. SECTION 10. COMPENSATION OF DIRECTORS. Unless otherwise restricted by the Corporation's certificate of incorporation, the Board of Directors shall have authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 11. PARTICIPATION IN MEETING BY TELEPHONE OR OTHER ELECTRONIC MEDIA. Unless otherwise restricted by the Corporation's certificate of incorporation or these bylaws, members of the Board of Directors or any committee designated by the Board of Directors may participate in a meeting of the Board of Directors or committee by means of conference telephone, internet conferencing or similar communications equipment by means of which all persons participating in the meeting can hear or otherwise communicate with each other, and such participation in a meeting shall constitute presence in person at such meeting. SECTION 12. NOMINATIONS OF DIRECTOR CANDIDATES. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Corporation's certificate of incorporation with respect to the right of directors to fill any vacancies on the board, and the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any annual meeting of shareholders, or at any special meeting of shareholders called for the purpose of electing directors, and shall be made: (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof, including the Directors Committee); or (b) by any shareholder of the Corporation: (i) who is a shareholder of record on the date of the giving of the notice provided for in this Section 12 and on the record date for the determination of shareholders entitled to vote at such meeting; and (ii) who complies with the notice procedures set forth in this Section 12. In addition to any other applicable requirements, for a nomination to be made by a shareholder, such shareholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a shareholder's notice to the Secretary 7 8 of the Corporation must be delivered to or mailed and received at the principal executive offices of the Corporation: (a) in the case of an annual meeting of shareholders, not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the immediately preceding year's annual meeting of shareholders; provided, however, that in the event that the date of the annual meeting of shareholders is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the shareholder in order to be timely must be so received not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting of shareholders was first made; and (b) in the case of a special meeting of shareholders called for the purpose of electing directors, not earlier than the close of business on the one hundred twentieth (120th) day prior to such special meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a shareholder's notice as described above. For purpose of this Section 12, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service, or reported in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. To be in proper written form, a shareholder's notice to the Secretary of the Corporation must set forth: (a) as to each person whom the shareholder proposes to nominate for election as a director: (i) the name, age, business address and residence address of the person; (ii) the principal occupation or employment of the person; (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person as of the record date for the meeting (if such date shall then have been made publicly available and shall have occurred) and as of the date of such notice; and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to section 14 of the Exchange Act, and the rules and regulations promulgated thereunder; and 8 9 (b) as to the shareholder giving the notice: (i) the name and address of such shareholder and beneficial owner, if any, as they appear on the Corporation's books; (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such shareholder as of the record date for the meeting (if such date shall then have been made publicly available and shall have occurred) and as of the date of such notice; (iii) a description of all arrangements or understandings between such shareholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nominations are to be made by such shareholder; (iv) a representation that such shareholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice; and (v) any other information relating to such shareholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by the written consent to such nomination of each person proposed as a nominee and such person's written consent to serve as a director if elected. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 12, or as otherwise provided in the Corporation's certificate of incorporation with respect to the right of directors to fill any vacancies on the board, and the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. ARTICLE IV NOTICES SECTION 1. NOTICE. Whenever any notice is required to be given to any director or shareholder under any provision of statute or of the Corporation's certificate of incorporation or of these bylaws, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or shareholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given orally in person or by electronic mail to the electronic mail address, if any, provided by such director, telegram, telex, radiogram or cablegram, and such notice shall be deemed to be given when the recipient receives the notice personally, by telephone or internet or when the notice, addressed as provided above, has been delivered to the company, or to the equipment transmitting such notice. 9 10 SECTION 2. WAIVER OF NOTICE. Whenever any notice is required to be given under any provision of statute or of the Corporation's certificate of incorporation or of these bylaws, a written waiver thereof, signed (manually or electronically by electronic mail) by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the shareholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Corporation's certificate of incorporation or these bylaws. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE V OFFICERS SECTION 1. SELECTION. The Board of Directors may appoint such officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by or at the direction of the Board of Directors. The officers so appointed may include a Chairman of the Board, President, one or more Vice Chairmen, one or more Vice Presidents (including Executive, Senior, First, regular and Assistant Vice Presidents), a Secretary and a Treasurer, and one or more lesser officers as may be deemed appropriate. The Chief Executive Officer also may appoint officers of the level of Senior Vice President and below and such agents as the Chief Executive Officer shall deem necessary, at any time, which officers and agents shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by or at the direction of the Board of Directors or the Chief Executive Officer. Any number of offices may be held by the same person, unless the Certificate of Incorporation otherwise provides. SECTION 2. COMPENSATION. The salaries of all executive officers of the Corporation shall be fixed by the Board of Directors or by an authorized committee of the Board of Directors. SECTION 3. TERM, REMOVAL AND VACANCIES. Each officer of the Corporation shall hold office until his or her successor is elected and qualified, or until his or her earlier resignation or removal from office. Any officer elected or appointed by the Board of Directors may be removed from office at any time, with or without cause, by the affirmative vote of a majority of the Board of Directors. Any officer also may be removed from office at any time by the Chief Executive Officer. Any vacancy occurring in any office of the Corporation may be filled by the Board of Directors or by the Chief Executive Officer. 10 11 SECTION 4. CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER. (a) Chief Executive Officer. At the first meeting of each newly-elected Board of Directors, the board shall designate the Chairman of the Board or President as the Chief Executive Officer of the Corporation; provided, however, that if a motion is not made and carried to change the designation, the designation shall be same as the designation for the preceding year; provided, further, that the designation of the Chief Executive Officer may be changed at any regular or special meeting of the Board of Directors. The Chief Executive Officer shall be responsible to the Board of Directors for the general supervision and management of the business and affairs of the Corporation. The Chairman of the Board or President who is not the Chief Executive Officer shall be subject to the authority of the Chief Executive Officer, but shall exercise all of the powers and discharge all of the duties of the Chief Executive Officer, during the absence or disability of the Chief Executive Officer. (b) Chief Operating Officer. At any meeting of the Board of Directors, the board may designate a Chief Operating Officer of the Corporation. The Chief Operating Officer shall perform all duties incident to that office and such other duties as may be delegated to him or her by or at the direction of the Board of Directors, the Executive Committee of the Board, or the Chief Executive Officer. SECTION 5. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors shall be selected by, and from among the membership of, the Board of Directors. He or she shall preside at all meetings of the shareholders and of the Board of Directors. He or she shall perform all other duties and functions incident to the office of Chairman of the Board of Directors, and such other duties and functions as may be assigned to him or her from time to time by the Board of Directors. He or she shall be, ex officio, a member of all standing committees except the Select Compensation Committee and the Audit and Legal Committee. Except where by law the signature of the President of this Corporation is required, the Chairman of the Board of Directors shall possess the same power and authority as the President to sign all certificates, contracts, instruments, papers and documents of every conceivable kind and character whatsoever, in the name and on behalf of this Corporation, which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all of the powers and discharge all of the duties of the President. SECTION 6. PRESIDENT. The President shall be selected by the Board of Directors. During the absence or disability of the Chairman of the Board of Directors, or while such office is vacant, the President shall perform all duties and functions, and while so acting shall have all of the powers and authority of the Chairman of the Board of Directors. The President shall perform all duties incident to the office of President, and such other duties as may be prescribed by or at the direction of the Board of Directors, the Executive Committee of the Board, or the Chief Executive Officer. The President shall be, ex officio, a member of all standing committees except the Select Compensation Committee and the Audit and Legal Committee. 11 12 SECTION 7. VICE CHAIRMEN. One or more Vice Chairmen (who need not be members of the Board of Directors) may be selected by the Board of Directors. The Vice Chairmen shall perform all duties incident to their office, and such other duties as may be delegated to them by or at the direction of the Board of Directors, any executive committee, or the Chief Executive Officer. SECTION 8. SECRETARY. The Secretary or an Assistant Secretary, or, during their absence or disability, a Secretary Pro Tem designated by the Board of Directors or the Chief Executive Officer, shall attend all meetings of the Board of Directors and all meetings of the shareholders, shall record all the proceedings thereof in a book to be kept for that purpose, and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, all notices required by statute, bylaw or resolution, and shall perform such other duties incident to his or her office or as may be prescribed by or at the direction of the Board of Directors or the Chief Executive Officer. The Secretary shall have custody of the corporate seal of the Corporation and the Secretary and Assistant Secretaries shall have authority to affix the same to any instrument when its use is required or appropriate. SECTION 9. ASSISTANT SECRETARIES. The Assistant Secretary or Assistant Secretaries shall, in the absence of the Secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Secretary, and shall perform such other duties and have such other powers incident to his or her office or as may be prescribed from time to time by or at the direction of the Board of Directors or the Chief Executive Officer. SECTION 10. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by or at the direction of the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by or at the direction of the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall deliver to the Corporation, and shall keep in force, a bond, in such form and amount, and with such surety or sureties as shall be satisfactory to the Board of Directors, for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation. SECTION 11. ASSISTANT TREASURERS. The Assistant Treasurer or Assistant Treasurers shall, in the absence of the Treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Treasurer, and shall 12 13 perform such other duties and have such other powers incident to his or her office or as may be prescribed from time to time by or at the direction of the Board of Directors or the Chief Executive Officer. SECTION 12. INDEMNIFICATION AND INSURANCE. (a) To the fullest extent permitted by these bylaws and by applicable law and regulation, as presently existing or hereafter amended, the Corporation shall indemnify any person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he or she is or was a director, officer or employee of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. Any person who is or was an agent of the Corporation may be indemnified to the same extent as provided above. In addition, in the event any such action, suit or proceeding is threatened or instituted against a spouse to whom a director or officer is legally married at the time the director or officer is covered under the indemnification provided herein, which action, suit or proceeding arises solely out of his or her status as the spouse of a director or officer, including, without limitation, an action, suit or proceeding that seeks damages recoverable from marital community property of the director or officer and his or her spouse, property owned jointly by them or property purported to have been transferred from the director or officer to his or her spouse, then the spouse of the director or officer shall be indemnified to the same extent as provided above. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, raise any inference that he or she had reasonable cause to believe that his or her conduct was unlawful. (b) To the fullest extent permitted by these bylaws and by applicable law and regulation, as presently existing or hereafter amended, the Corporation shall indemnify any person who is or was a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that he or she is or was a director or officer or employee of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses 13 14 (including attorneys' fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Any person who is or was an agent of the Corporation may be indemnified to the same extent as provided above. In addition, in the event any such action or suit is threatened or instituted against a spouse to whom a director or officer is legally married at the time the director or officer is covered under the indemnification provided herein, which action or suit arises solely out of his or her status as the spouse of a director or officer, including, without limitation, an action or suit that seeks damages recoverable from marital community property of the director or officer and his or her spouse, property owned jointly by them or property purported to have been transferred from the director or officer to his or her spouse, then the spouse of the director or officer shall be indemnified to the same extent as provided above. (c) To the extent that a present or former director, officer, spouse of the director or officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this Section, or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. (d) Any indemnification under subsections (a) and (b) of this Section (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, spouse of the director or officer, employee or agent is proper in the circumstances because the person has met the applicable standard of conduct set forth in subsections (a) and (b) of this Section. Such determination shall be made with respect to a person who is a director or officer or the spouse of a director or officer at the time of the determination (i) by a majority vote of directors who were not parties to the action, suit or proceeding, even if they constitute less than a quorum, (ii) by a committee of such disinterested directors designated by a majority vote of such directors, even if they constitute less than a quorum, (iii) if there are no such disinterested directors, or if a majority of such disinterested directors so directs, in a written opinion by independent legal counsel chosen by the entire Board of Directors, subject to the reasonable satisfaction of the party seeking indemnification, or (iv) by the shareholders. Such determination may be made with respect to any other person seeking indemnification under subsections (a) and (b) 14 15 of this Section by the Corporation's Chairman, Chief Executive Officer, President, Vice Chairman or General Counsel, or by their designees. (e) Expenses (including attorney's fees) incurred by an officer, director or spouse of an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer or spouse to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in this Section. Such expenses (including attorneys' fees) incurred by former directors or officers, their spouses or other employees and agents may be so paid upon such terms and conditions, if any, as the Corporation deems appropriate. (f) The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. (g) The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, spouse of a director or officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Section. (h) For the purposes of this Section, references to "the Corporation" include, in addition to the resulting or surviving corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had the power and authority to indemnify its directors, officers, spouses of directors or officers, and employees or agents, so that any person who is or was a director, officer, spouse of a director or officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued. (i) For purposes of this Section, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to 15 16 "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Section. (j) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent, and with respect to any spouse of a director or officer, shall continue following the time the director or officer spouse ceases to be a director or officer even if the marriage of the individuals terminates prior to the end of the period of coverage, and shall inure to the benefit of the heirs, executors and administrators of such a person. (k) The Court of Chancery shall have exclusive jurisdiction to hear and determine all actions for advancement of expenses or indemnification brought under this Section or under any agreement, vote of shareholders or disinterested directors, or otherwise. The Court of Chancery may summarily determine the Corporation's obligation to advance expenses (including attorneys' fees). SECTION 13. OFFICER APPOINTED PURSUANT TO MERGER AGREEMENT. During the period in which the Employment Agreement, entered into as of February 20, 1992, between the Corporation and Mr. Eugene A. Miller (the "Employment Agreement") is in effect, any modification, amendment or failure to honor the terms of the Employment Agreement shall require the affirmative vote of 75% of the members of the entire Board of Directors. ARTICLE VI STOCK AND TRANSFERS SECTION 1. CERTIFICATES OF STOCK. Shares of the Corporation's stock may be certificated or uncertificated, as provided under Delaware law at any time. All holdings of shares of stock of the Corporation shall be numbered and shall be entered into the books of the Corporation as they are issued. All certificated shares of stock shall exhibit the holder's name and number of shares and shall be signed by or in the name of the Corporation by the Chairman or a Vice Chairman of the Board of Directors, or by the Chief Executive Officer, President or a Vice President and the Treasurer or an Assistant Treasurer, or by the Secretary or an Assistant Secretary of the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one 16 17 series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof, and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation may issue to represent such class or series of stock or, in the case of uncertificated shares, contained in the notice sent pursuant to Delaware law, provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation may issue to represent such class or series of stock or, in the case of uncertificated shares, contained in the notice sent pursuant to Delaware law, a statement that the Corporation will furnish without charge to each shareholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof, and the qualifications, limitations or restrictions of such preferences and/or rights. Any of or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. SECTION 2. LOST CERTIFICATES. The Board of Directors may direct a new certificate to be issued in the place of any certificate theretofore issued by the Corporation, alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing the issuance of a new certificate the Board of Directors may, in its discretion and as a condition present to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against it with respect to the certificate alleged to have been lost, stolen or destroyed. SECTION 3. TRANSFERS OF STOCK. The Corporation shall make transfers of stock on the Corporation's books only by the record holder of such stock or by his or her duly authorized agent or attorney-in-fact, and, in the case of stock represented by a certificate, upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares, duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer. SECTION 4. FIXING RECORD DATE. In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other 17 18 action. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 5. REGISTERED SHAREHOLDERS. The Corporation shall have the right to treat the person registered on its books as the owner of shares as the absolute owner thereof, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII GENERAL PROVISIONS SECTION 1. DIVIDENDS. The Board of Directors, subject to any restrictions contained in its Certificate of Incorporation, may declare and pay any dividends upon the shares of its capital stock either (a) out of surplus as defined in and computed in accordance with the provisions of the governing statute, or (b) in case there shall be no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Dividends may be paid in cash, in property, or in shares of the Corporation's capital stock, subject to the provisions of the statute and of the Corporation's certificate of incorporation. SECTION 2. RESERVES. The Board of Directors shall have power and authority to set apart, out of any funds available for dividends, such reserve or reserves, for any proper purpose, as the board in its discretion shall approve, and the board shall have the power and authority to abolish any reserve created by the board. SECTION 3. VOTING SECURITIES. Unless otherwise directed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President, or, in the case of their absence or inability to act, the Vice Chairmen or Vice Presidents, in order of their seniority, shall have full power and authority on behalf of the Corporation to attend and to act and to vote, or to execute in the name or on behalf of the Corporation, a proxy authorizing an agent or attorney-in-fact for the Corporation to attend and vote at any meetings of security holders of Corporations in which the Corporation may hold securities, and at such meetings (s)he or his or her duly authorized agent or attorney-in-fact shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Corporation might have possessed and exercised if present. The Board of Directors by resolution from time to time may confer like power upon any other person or persons. SECTION 4. CHECKS. All checks, drafts and orders for the payment of money shall be signed in the name of the Corporation in such manner and by such officer or officers or 18 19 such other person or persons as the Board of Directors shall from time to time designate for that purpose. SECTION 5. CONTRACTS, CONVEYANCES, ETC. When the execution of any contract, conveyance or other instruments has been authorized without specification of the executing officers, the Chairman of the Board, Chief Executive Officer, President, any Vice Chairman or any Vice President, and the Secretary or any Assistant Secretary, may execute the same in the name and on behalf of this Corporation and may affix the corporate seal thereto. The Board of Directors shall have power to designate the officers and agents of this Corporation or any of its subsidiaries or affiliates who shall have authority to execute any instrument on behalf of this Corporation. SECTION 6. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. SECTION 7. SEAL. The corporate seal shall have inscribed thereon the name of the Corporation and the words "Corporate Seal" and "Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. SECTION 8. MICHIGAN CONTROL SHARE STATUTE. Pursuant to Section 794 of the Michigan Business Corporation Act ("MBCA"), Chapter 7B of the MBCA shall not apply to the Corporation or control share acquisitions (as such term is defined in Section 791 of the MBCA) of the shares of the Corporation's capital stock. ARTICLE VIII AMENDMENTS SECTION 1. AMENDMENT BY REGULAR VOTE. These bylaws may be altered, amended or repealed or new bylaws may be adopted by the shareholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the Corporation's certificate of incorporation, at any regular meeting of the shareholders or of the Board of Directors, or at any special meeting of the shareholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new bylaws is contained in the notice of such special meeting. SECTION 2. AMENDMENT BY 75% VOTE. The affirmative vote of 75% of the total Board of Directors is required to alter, amend, repeal, add to or otherwise change the effects of Article III, Section 8(b); Article V, Section 13; or this Article VIII, Section 2 of the Corporation's bylaws. 19 EX-10.15 3 1997 LONG-TERM INCENTIVE PLAN 1 EXHIBIT 10.15 AMENDED AND RESTATED COMERICA INCORPORATED 1997 LONG-TERM INCENTIVE PLAN SECTION 1. PURPOSE. The purpose of Comerica's Long-Term Incentive Plan is to align the interests of employees of the Corporation selected to receive awards with those of shareholders by rewarding long term decision-making and actions for the betterment of the Corporation. Accordingly, eligible individuals may receive Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Awards and Other Stock-Based Awards. Ownership of the Corporation's stock assists in the attraction and retention of qualified employees, and provides them with additional incentive to devote their best efforts to pursue and sustain the Corporation's superior long-term performance. This enhances the value of the Corporation for the benefit of its shareholders. SECTION 2. DEFINITIONS. a. "Affiliate" means (i) any entity that is controlled by the Corporation, whether directly or indirectly, and (ii) any entity in which the Corporation has a significant equity interest, as determined by the Committee. b. "Agreement" means a written agreement, in a form approved by the Committee, which sets forth the terms and conditions of an Award. Agreements shall be subject to the express terms and conditions set forth herein, and to such other terms and conditions not inconsistent with the Plan as the Committee shall deem appropriate. c. "Award" means an Option, a Stock Appreciation Right, a Restricted Stock Award, a Performance Award or an Other Stock-Based Award pursuant to the Plan. Each Award shall be evidenced by an Agreement. d. "Award Recipient" means an Eligible Individual who has received an Award under the Plan. e. "Beneficiary" means any person(s) designated by an Award Recipient on a beneficiary designation form, or any person(s) entitled to receive any amounts owing to such Award Recipient under this Plan upon his or her death by reason of having been named in the Award Recipient's will or trust agreement or having qualified as a taker of the Award Recipient's property under the laws of intestacy. If an Award Recipient authorizes any person, in writing, to exercise such individual's Options or SARs following the Award Recipient's death, the term "Beneficiary" shall include any person in whose favor such Options or SARs are exercised by the person authorized to exercise the Options or SARs. f. "Board" means the Board of Directors of Comerica Incorporated. 2 g. "Change of Control" shall have the meaning set forth in Exhibit A to this Plan. h. "Code" means the Internal Revenue Code of 1986, as amended. i. "Committee" means the committee appointed by the Board to administer the Plan as provided herein. Unless otherwise determined by the Board, the Compensation Committee of the Board shall be the Committee. j. "Corporation" means Comerica Incorporated, a Delaware corporation, and its Affiliates. k. "Disabled" or "Disability" means "Totally Disabled" within the meaning of such term as set forth in the Long-Term Disability Plan of Comerica Incorporated (the provisions of which are incorporated herein by reference), or as the Committee shall determine based on information provided to it. However, with respect to the rules relating to Incentive Stock Options, the term "Disabled" shall mean disabled as that term is utilized in Sections 422 and 22(e)(3) of the Code, or any successor Code provisions relating to ISOs. l. "Eligible Individual" means any employee of the Corporation or any Affiliate who the Committee determines to be an Eligible Individual. Notwithstanding the foregoing, an Eligible Individual for purposes of receipt of the grant of an ISO shall be limited to those individuals who are eligible to receive ISOs under rules set forth in the Code and applicable regulations. m. "Exchange Act" means the Securities Exchange Act of 1934, as amended. n. "Fair Market Value" means the closing price of a Share on the New York Stock Exchange as reported on the Composite Tape; if, however, there is no trading of Shares on the date in question, then the closing price of the Shares as so reported, on the last preceding date on which there was trading shall instead be used to determine Fair Market Value. If Fair Market Value for any date in question cannot be determined as provided above, Fair Market Value shall be determined by the Committee by whatever method or means the members, in the good faith exercise of their discretion, at that time shall deem appropriate. o. "Incentive Stock Option" or "ISO" means an Option granted pursuant to the Plan that meets the requirements of Section 422 of the Code, or any successor provision, and that is intended by the Committee to constitute an ISO. p. "Nonqualified Stock Option" or "NQSO" means an Option granted pursuant to the Plan that is not intended to be an Incentive Stock Option. q. "Option" means a Nonqualified Stock Option or an Incentive Stock Option. r. "Other Stock-Based Award" means any right granted under Section 6(E) of the 3 s. Plan. "Performance Award" means any Award made pursuant to Section 6(D) of the Plan. t. "Performance Measures" means, with respect to each Award, the criteria and objectives, determined by the Committee, which must be met during the applicable Performance Period or Restriction Period, as the case may be, as a condition of the holder's vesting of, and receipt of payment with respect to, or retention of, such Award. Such criteria and objectives may include, but shall not be limited to, return on investments, cumulative earnings per share, or return on shareholders' equity. The Performance Measures pertinent to any Award shall be established at the time of the making of such Award and shall be set forth in the Agreement covering such Award, but may be revised by the Committee thereafter if and whenever its members determine that, in light of events occurring or circumstances arising after the date such Award is made, such revision is necessary or appropriate to afford the recipient benefits substantially similar to those originally intended with respect to such Award. u. "Performance Period" means the period designated by the Committee during which the Performance Measures applicable to an Award shall be measured. The Performance Period shall be established on or before the time of the making of the Award, and the length of any Performance Period shall be within the discretion of the Committee. v. "Plan" means the Amended and Restated Comerica Incorporated 1997 Long-Term Incentive Plan. w. "Restriction Period" means the period designated by the Committee during which Shares of Restricted Stock remain forfeitable. x. "Restricted Stock Award" means an award of Shares pursuant to Section 6(C) of the Plan subject to such restrictions as may be imposed by the Committee. Shares of restricted stock shall constitute issued and outstanding Shares for all corporate purposes. y. "Retirement" means retirement in accordance with the policies of the Corporation or Affiliate which employs the Award Recipient. z. "Shares" means shares of Common Stock, $5.00 par value, of the Corporation or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 8 of the Plan. 4 aa. "Stock Appreciation Right" or "SAR" means a right granted under Section 6(B) of the Plan. bb. "Tax Withholding Date" shall mean the earliest date the obligation to withhold tax with respect to an Award arises. SECTION 3. STOCK SUBJECT TO THE PLAN. Shares which may be issued pursuant to Awards under the Plan may be either authorized and unissued Shares, or authorized and issued Shares held in the Corporation's Treasury, Shares purchased in the open market or in private transactions or any combination of the foregoing. Subject to adjustment as provided in Section 8, as of the first day of each calendar year during which the Plan remains in effect, there shall be reserved for issuance for the purpose of Awards under the Plan that number of Shares which equals 1.6 percent of the Shares that were outstanding (including, for this purpose, any treasury shares) as of the close of business on the preceding December 31st. Not more than 49% of the Shares available for Awards each calendar year may be utilized for Awards other than Options and not more than 15% of the Shares available for Awards each calendar year may be utilized for Restricted Stock Awards. Shares reserved for issuance in any calendar year may only be utilized in connection with Awards made during the year in which they first become available, and may not be carried forward and utilized for the purpose of making Awards in future years. However, Shares covered by Awards which are canceled or forfeited may be reutilized to make Awards. Not more than 2,000,000 Shares (subject to adjustment as provided in Section 8) shall be available for issuance pursuant to the exercise of Incentive Stock Options. The maximum number of Shares which may become subject to Awards to any Eligible Individual during any calendar year shall be the lesser of (i) 10% of the Shares available for Awards during such calendar year, or (ii) 200,000 Shares. SECTION 4. ADMINISTRATION. The Plan shall be administered by the Committee. In addition to any implied powers and duties that may be needed to carry out the provisions of the Plan, the Committee shall have all the powers vested in it by the terms of the Plan, including exclusive authority to select Eligible Individuals, to make Awards, to determine the type, size, terms and timing of Awards (which need not be uniform), to accelerate the vesting of awards in extraordinary circumstances, including the occurrence of a Change of Control of the Corporation or the termination of an Award Recipient's employment, to permit or prohibit the transfer of Awards, and to prescribe the form of the Agreements governing Awards. The Committee may cancel all or any portion of any Award, whether or not vested or deferred, as set forth below. Upon cancellation, the Award Recipient shall forfeit the Award and any benefits attributable to such canceled Award or portion thereof. The Committee may cancel an Award if, in its sole discretion, the Committee determines in good faith that the Award Recipient has done any of the following: (i) committed a felony; 5 (ii) committed fraud; (iii) embezzled; (iv) disclosed confidential information or trade secrets; (v) was terminated for cause; (vi) engaged in any activity in competition with the business of the Corporation or any subsidiary or affiliate of the Corporation; or (vii) engaged in conduct that adversely affected the Corporation. The Executive Vice President - Corporate Staff of the Corporation, or such other person designated from time to time by the Chief Executive Officer of the Corporation (the "Delegate"), shall have the power and authority to suspend all or any portion of any Award if the Delegate makes in good faith the determination described in the preceding sentence. Any such suspension of an Award shall remain in effect until the suspension shall be presented to and acted on by the Committee at its next meeting. This paragraph shall have no application for a two year period following a Change of Control of the Corporation. The Committee may interpret the Plan and the Agreements entered into pursuant to the Plan, establish, amend and rescind rules and regulations relating to the Plan, make any other determinations it believes necessary or advisable in connection with the administration of the Plan, and correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Agreement in the manner and to the extent the Committee deems appropriate. Determinations of the Committee shall be made by a majority vote of its members at a meeting at which a quorum is present or pursuant to a unanimous written consent of its members. A majority of the members of the Committee shall constitute a quorum. All Committee determinations shall be final, conclusive and binding on the Corporation, any Award Recipient, Beneficiary or other interested party. The Committee may authorize any one or more of its members, or any officer of the Corporation, to execute and deliver documents on behalf of the Committee. No member of the Committee shall be liable for any action or omission in connection with the Plan, except for his or her own willful misconduct. SECTION 5. ELIGIBILITY. Awards may only be made to Eligible Individuals. No member of the Committee shall be eligible to receive an Award under the Plan. SECTION 6. AWARDS. a. Options. The Committee may grant Options to Eligible Individuals in accordance with the provisions of this subsection subject to such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine to be appropriate. 1. Exercise Price. The purchase price per Share under an Option shall be determined by the Committee; provided, however, that such purchase price shall not be less than 100% of the Fair Market Value of a Share on the date 6 of grant of such Option, and such purchase price may not be decreased during the term of the Option other than pursuant to Section 8. 2. Option Term. The term of each Option shall be fixed by the Committee; provided, however, that the maximum term of each Nonqualified Stock Option shall be ten years. 3. Time and Manner of Exercise. The Committee shall determine the time or times at which an Option may be exercised, and the manner in which (including, without limitation, cash, Shares, other securities, other Awards or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price) payment of the exercise price with respect thereto may be made, or deemed to have been made. Any form of "cashless" exercise of an Option which is legally permissible may be utilized under the Plan in connection with the exercise of an Option. 4. Employment Status. a. Intentionally left blank. b. Retirement. An Award Recipient's Retirement shall not affect any current Options other than those granted in the year of Retirement. All current Options other than those granted in the year of Retirement shall continue to vest pursuant to the vesting schedule applicable to such Options and any vested Option (including any ISO held by an optionee who is not Disabled), held by such individual shall continue to be in full force and effect, provided the term of the Option has not otherwise expired, for the remainder of the term of the Option. All options granted in the year of Retirement which have not otherwise vested shall terminate upon the date of Retirement. c. Disability. Upon the cessation of the Award Recipient's employment due to Disability, any Option held by such individual shall continue to be exercisable, provided the term of the Option has not otherwise expired, for a period of three years subsequent to the date of cessation of the Award Recipient's employment (or, in the case of any ISO held by an optionee who is Disabled, for a period of one year subsequent to such cessation date). d. Termination of Employment. Upon the cessation of the Award Recipient's employment for any reason other than Retirement, Disability or death, any Option held by such individual shall continue to be exercisable, provided the term of the Option has not otherwise expired, for a period of ninety days after the date of termination of the Award Recipient's employment. 7 e. Death. Upon the Award Recipient's death (whether during his or her employment with the Corporation or an Affiliate or during any applicable post-termination exercise period), any Option held by such individual shall continue to be exercisable by the Beneficiary(ies) of the decedent, provided the term of the Option (as such term may have been shortened due to the Award Recipient's Retirement, Disability or termination of employment for any other reason) has not otherwise expired, for a period of one year after the date of the Award Recipient's death (or, in the case of ISOs, for a period of three months after the Award Recipient's death). f. Extension or Reduction of Exercise Period. In any of the foregoing circumstances, the Committee may extend or shorten the exercise period, but may not extend any such period beyond the term of the Option as originally established (or, insofar as this paragraph relates to SARs, the term of the SAR as originally established). Further, with respect to ISOs, as a condition of any such extension, the holder shall be required to deliver to the Corporation a release which provides that such individual will hold the Corporation and/or Affiliate harmless with respect to any adverse tax consequences the individual may suffer by reason of any such extension. 5. Reload Options. With respect to Options granted pursuant to this Plan, the Committee may grant "reload" options pursuant to which grant the Award Recipient will receive a new Option when the payment of the exercise price of a previously granted Option is made by the delivery of Shares already owned by the Award Recipient pursuant to Section 6(A)(3) hereof, and/or when Shares are tendered or forfeited as payment of the amount required to be withheld under applicable income tax laws in connection with the exercise of an Option. Any such new Option shall be an Option to purchase the number of Shares not exceeding the sum of (A) the number of Shares tendered or forfeited to satisfy the purchase price upon the exercise of the previously- granted Option to which such "reload" option relates, and (B) the number of Shares tendered or forfeited as payment of the amount to be withheld under applicable income tax laws in connection with the exercise of the Option to which such "reload" option relates. Such "reload" Options shall have a per share exercise price equal to the Fair Market Value as of the date of grant of the Shares covered by such Option. b. Stock Appreciation Rights. The Committee may grant Stock Appreciation Rights to Eligible Individuals in accordance with the provisions of this subsection subject to such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine to be appropriate. A Stock Appreciation Right granted under the Plan shall confer on the Award Recipient a right to receive upon exercise thereof the excess of (i) the Fair Market Value of one Share on the date of exercise (or, if the Committee shall so determine, at any time during a 8 specified period before or after the date of exercise) over (ii) the grant price of the Stock Appreciation Right as specified by the Committee, which price shall not be less than 100% of the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right. Subject to the terms of the Plan and any applicable Agreement, the grant price, term, manner of exercise, dates of exercise, methods of settlement and any other terms and conditions of any Stock Appreciation Right shall be those determined by the Committee. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate. Except as otherwise provided herein, any SAR must be exercised during the period of the Award Recipient's employment with the Corporation or Affiliate. The provisions of Section 6(A)(4)(b)-(f) hereof shall apply for purposes of determining the exercise period in the event of the Award Recipient's Retirement, Disability, death or other termination of employment. c. Restricted Stock. The Committee may make Restricted Stock Awards to Eligible Individuals in accordance with the provisions of this subsection subject to such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine to be appropriate. 1. Nature of Restrictions. Restricted Stock Awards shall be subject to such restrictions, including Performance Measures, as the Committee may impose (including, without limitation, any limitation on the right to vote a Share of restricted stock or the right to receive any dividend or other right or property with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate; provided, however, that the minimum Restriction Period with respect to a Restricted Stock Award that is made subject to restrictions which are performance-related shall be one year. In the event a Restricted Stock Award is made subject to restrictions which are not performance-related, the minimum Restriction Period shall be three years. 2. Stock Certificates. Shares of restricted stock under the Plan shall be evidenced by issuance of a stock certificate(s), which shall be held by the Corporation. Such certificate(s) shall be registered in the name of the Award Recipient and shall bear an appropriate legend which refers to the restrictions applicable to such Restricted Stock Award. Alternatively, shares of restricted stock under the Plan may be recorded in book entry form. 3. Forfeiture; Delivery of Shares. Except as otherwise determined by the Committee, upon termination of an Award Recipient's employment (as determined under criteria established by the Committee) during the applicable Restriction Period, all Shares of restricted stock shall be forfeited and reacquired by the Corporation. However, in such circumstances, the Committee may waive, in whole or in part, any or all remaining restrictions applicable to the Restricted Stock Award. Shares comprising any Restricted 9 Stock Award held by the Corporation that are no longer subject to restrictions shall be delivered to the Award Recipient (or his or her Beneficiary) promptly after the applicable restrictions lapse or are waived. d. Performance Awards. The Committee may grant Performance Awards to Eligible Individuals in accordance with the provisions of this subsection subject to such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine to be appropriate. A Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including, without limitation, restricted Shares), other securities, other Awards, or other property, and (ii) shall confer on the Award Recipient the right to receive a payment upon the attainment of Performance Measures during any Performance Period the Committee may establish. The payment of any Performance Award (or any part of any Performance Award) in Shares (whether or not such Shares are restricted Shares), other securities, other Awards or other property shall be in lieu of a cash payment of such Performance Award (or such part thereof). Subject to the terms of the Plan and any applicable Award Agreement, the Performance Measures to be achieved during any Performance Period, the length of any Performance Period and the amount of any payment or transfer to be made pursuant to any Performance Award shall be determined by the Committee. e. Other Stock-Based Awards. The Committee may grant Other Stock-Based Awards to Eligible Individuals in accordance with the provisions of this subsection and subject to such additional terms and conditions, including Performance Measures, not inconsistent with the provisions of the Plan, as the Committee shall determine. Other Stock-Based Awards may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purpose of the Plan; provided, however, that such grants must comply with applicable law. f. General. Except as otherwise specified herein, the following provisions shall relate to Awards under the Plan: 1. Consideration for Awards. Awards shall be made without monetary consideration or for such minimal monetary consideration as may be required by applicable law. 2. Separate or Tandem Awards. Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, in fulfillment of, or in substitution for, any other Award or any award made under any plan of the Company or any Affiliate other than this Plan. Awards granted in addition to, or in tandem with, other Awards, or in addition to, or in tandem with, awards made under any such other plan of the Corporation or any Affiliate may be 10 made either at the same time as, or at a different time from, the making of such other Awards or awards. 3. Forms of Payment under Awards. Subject to the terms of the Plan and of any applicable Agreement, payments or transfers to be made by the Corporation or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms as the Committee shall determine (including, without limitation, cash, Shares, other securities, other Awards or other property or any combination thereof), and may be made in a single payment or transfer, in installments or an a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments. 4. Limits on Transfer of Awards. No Award and no right under any such Award shall be transferable by an Award Recipient otherwise than by will or by the laws of intestacy; provided, however, that, an Award Recipient may, in the manner established by the Committee, designate a Beneficiary to exercise the rights of the Award Recipient and to receive any property distributable with respect to any Award upon the death of the Award Recipient. Each Award or right under any Award shall be exercisable during the Award Recipient's lifetime only by the Award Recipient or, if permissible under applicable law, by the Award Recipient's guardian or legal representative. No Award or right under any such Award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance thereof shall be void and unenforceable against the Corporation or any Affiliate. 5. Term of Awards. Subject to any specific provisions of the Plan, the term of each Award shall be for such period as may be determined by the Committee. 6. Securities Law Restrictions. All certificates for Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such restrictions as the Committee may deem advisable under the Plan, or the rules, regulations and other requirements of the Securities and Exchange Commission, the New York Stock Exchange, any other exchange on which Shares may be eligible to be traded or any applicable federal or state securities laws, and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. 7. Limitation on Awards. The maximum amount of compensation payable with respect to any Award to any Eligible Officer under the Plan which is settled in cash will not exceed $2,500,000 for any calendar year. 11 SECTION 7. WITHHOLDING OF TAXES. The Corporation will, if required by applicable law, withhold the minimum statutory amount of Federal, state and/or local withholding taxes in connection with the exercise or vesting of an Award. Unless otherwise provided in the applicable Agreement, each Award Recipient may satisfy any such tax withholding obligation by any of the following means, or by a combination of such means: (i) a cash payment; (ii) by delivery to the Corporation of already-owned Shares which have been held by the individual for at least six months having a Fair Market Value, as of the Tax Withholding Date, sufficient to satisfy the amount of the withholding tax obligation arising from an exercise or vesting of an Award; (iii) by authorizing the Corporation to withhold from the Shares otherwise issuable to the individual pursuant to the exercise or vesting of an Award, a number of shares having a Fair Market Value, as of the Tax Withholding Date, which will satisfy the amount of the withholding tax obligation; or (iv) by a combination of such methods of payment. If the amount requested is not paid, the Corporation may refuse to satisfy the Award. SECTION 8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event the number of outstanding Shares changes as a result of any stock split, stock dividend, recapitalization, merger, consolidation, reorganization, combination, or exchange of shares, split-up, split-off, spin-off, liquidation or other similar change in capitalization, or any distribution made to common stockholders other than cash dividends, the number or kind of shares that may be issued under the Plan pursuant to Section 3, and the number or kind of shares subject to, or the exercise price per share under, any outstanding Award, shall be automatically adjusted, and the Committee shall be authorized to make such other equitable adjustment of any Award or Shares issuable pursuant thereto, or in any Performance Measures relating to any Award, so that the value of the interest of the individual shall not be decreased by reason of the occurrence of such event. Any such adjustment shall be conclusive and binding. SECTION 9. AMENDMENT AND TERMINATION. The Committee may amend, modify or terminate the Plan, at any time, in such respects as it shall deem advisable. Any such amendment, modification or termination of the Plan shall not, without the consent of any Award Recipient, adversely affect his or her rights under an Award previously made. SECTION 10. MISCELLANEOUS PROVISIONS. a. No employee or other person shall have any claim or right to receive an Award under the Plan. b. Receipt of an Award shall not confer upon the Award Recipient any rights of a shareholder with respect to any Shares subject to such Award except as specifically provided in the Agreement relating to the Award. 12 c. The Plan, the making and exercise of Awards thereunder, and the obligations of the Corporation to satisfy Awards shall be subject to all applicable Federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required, and the Committee may impose any additional restrictions with respect to Awards in order to comply with any legal requirements applicable to Awards or to qualify for any exemption it may deem appropriate. d. The expenses of the Plan shall be borne by the Corporation. e. By accepting an Award under the Plan or payment pursuant to any Award, each Award Recipient, legal representative and Beneficiary shall be conclusively deemed to have indicated his or her acceptance and ratification of, and consent to, any action taken under the Plan by the Committee or the Corporation. f. Awards under the Plan shall be binding upon the Corporation, its successors, and assigns. g. Nothing in the Plan, or in any Agreement entered into pursuant to the Plan, shall confer on an Award Recipient any right to continue in the employ of the Corporation or any Affiliate, or in any way affect the Corporation's (or such Affiliate's) right to terminate the individual's employment without prior notice, at any time, for any reason or for no reason. h. Participation in the Plan shall not affect an individual's eligibility to participate in any other benefit or incentive plan of the Corporation. i. A breach by any Award Recipient, his or her Beneficiary(ies), or legal representative, of any restrictions, terms or conditions contained in the Plan, any Agreement, or otherwise established by the Committee with respect to any Award will, unless waived in whole or in part by the Committee, cause a forfeiture of such Award. j. This Amended and Restated Comerica Incorporated 1997 Long-Term Incentive Plan shall be effective on November 19, 1999 and thereafter shall continue until terminated by the Committee. k. Except to the extent superseded by Federal law, the provisions of this Plan shall be interpreted and construed in accordance with the laws of the State of Delaware. 2 13 EXHIBIT A CHANGE OF CONTROL For the purpose of this Plan, a "Change of Control" shall mean: l. The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Corporation (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Corporation, (ii) any acquisition by the Corporation, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection 3 of this Exhibit A; or 2. Individuals who, as of the date hereof, constitute the Corporation's Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or 3. Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the Corporation's assets (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the company resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, 14 as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the company resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the company resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or 4. Approval by the Corporation's shareholders of a complete liquidation or dissolution of the Corporation. EX-10.16 4 INCORPORATED MANAGEMENT INCENTIVE PLAN 1 EXHIBIT 10.16 AMENDED AND RESTATED COMERICA INCORPORATED MANAGEMENT INCENTIVE PLAN SECTION 1. PURPOSE. The purpose of the Comerica Incorporated Management Incentive Plan is to promote and advance the interests of Comerica Incorporated (the "Corporation") and its shareholders by enabling the Corporation to attract, retain and reward key employees of the Corporation and its Affiliates, and to qualify incentive compensation paid to Participants who are Covered Employees as performance-based compensation within the meaning of Section 162(m) of the Code. SECTION 2. DEFINITIONS. The terms below shall have the following meanings: a. "Affiliate" means (i) any entity that is controlled by the Corporation, whether directly or indirectly, and (ii) any entity in which the Corporation has a significant equity interest, as determined by the Committee. b. "Annual Base Salary" means the participant's rate of annual salary as of the last December 1st occurring during the Performance Period. c. "Board" means the Board of Directors of the Corporation. d. "Code" means the Internal Revenue Code of 1986, as amended. e. "Committee" means the committee appointed by the Board to administer the Plan as provided herein. Unless otherwise determined by the Board, the Compensation Committee of the Board shall be the Committee. f. "Corporation" means Comerica Incorporated, a Delaware corporation, and its successors and assigns. g. "Covered Employee" means a "covered employee" within the meaning of Section 162(m) of the Code. h. "Incentive Payment" means, with respect to each Participant, the amount he or she may receive for the applicable Performance Period as established by the Committee pursuant to the provisions of the Plan. i. "Participant" means any employee of the Corporation or an Affiliate who is designated by the Committee as eligible to receive an Incentive Payment under the Plan. j. "Performance Goals" mean (i) earnings per share, (ii) return on average equity, (iii) return on average assets, or (iv) any other objective performance goals as may be established by the Committee for a Performance Period. Performance Goals may be 2 absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated and may be based on or adjusted for any other objective goals, events, or occurrences established by the Committee for a Performance Period. Such Performance Goals may be particular to a line of business, subsidiary or other unit or may be based on the performance of the Corporation generally. Such Performance Goals may cover such period as may be specified by the Committee. k. "Performance Period" means, with respect to any Incentive Payment for a one-year performance period, the calendar year, and, with respect to any Incentive Payment for a three-year performance period, the three-year period specified by the Committee. l. "Performance Targets" mean the specific measures which must be satisfied in connection with any Performance Goal prior to funding of any incentive pool. m. "Plan" means the Amended and Restated Comerica Incorporated Management Incentive Plan. SECTION 3. ADMINISTRATION. The Plan shall be administered by the Committee. Subject to the express provisions of the Plan, the Committee shall have exclusive authority to interpret the Plan, to promulgate, amend, and rescind rules and regulations relating to it and to make all other determinations deemed necessary or advisable in connection with the administration of the Plan, including, but not limited to, determinations relating to eligibility, whether to make Incentive Payments, the terms of any such payments, the time or times at which Performance Goals are established, the Performance Periods to which Incentive Payments relate, and the actual dollar amount of any Incentive Payment. The determinations of the Committee pursuant to this authority shall be conclusive and binding. The Committee may, in its discretion, authorize the Chief Executive Officer of the Corporation to act on its behalf, except with respect to matters relating to such Chief Executive Officer or which are required to be certified by the Committee under the Plan, or which are required to be handled exclusively by the Committee under Code Section 162(m) or the regulations promulgated thereunder. SECTION 4. ESTABLISHMENT OF PERFORMANCE GOALS AND INCENTIVE PAYMENTS. A. Establishment of Performance Goals. Prior to the completion of 25% of the Performance Period or such earlier date as is required under Section 162(m) of the Code, the Committee shall, in its sole discretion, for each such Performance Period, determine and establish in writing the following: 1. The Performance Goals applicable to the Performance Period; and 2. The Performance Targets pursuant to which the total amount which may be available for payment to all Participants as Incentive Payments based upon the relative level of attainment of the Performance Goals may be calculated. 3 B. Certification and Payment. After the end of each Performance Period, the Committee shall: 1. Certify in writing, prior to the unconditional payment of any Incentive Payment, the level of attainment of the Performance Goals for the Performance Period; 2. Determine the total amount available for Incentive Payments based on the relative level of attainment of such Performance Goals; 3. In its sole discretion, reduce the size of, or eliminate, the total amount available for Incentive Payments for the Performance Period; and 4. In its sole discretion, determine the share, if any, of the available amount to be paid to each Participant as that Participant's Incentive Payment, and authorize payment of such amount. In the case of a Participant who is a Covered Employee, the Committee shall not be authorized to increase the amount of the Incentive Payment for any Performance Period determined with respect to any such individual by reference to the applicable Performance Targets except to the extent permitted under Section 162(m) of the Code and regulations thereunder. C. Conditional Payments. The Committee may authorize a conditional payment of a Participant's Incentive Payment prior to the end of a Performance Period based upon the Committee's good faith determination of the projected size of (i) the total amount which will become available for payment as Incentive Payments for the Performance Period, and (ii) the amount determined with respect to any such Participant by reference to the Performance Targets. D. Other Applicable Rules. 1. Unless otherwise determined by the Committee with respect to any Covered Employee or by the Corporation's Chief Executive Officer with respect to any other Participant (unless otherwise required by applicable law), no payment pursuant to this Plan shall be made to a Participant unless the Participant is employed by the Corporation or an Affiliate as of the date of payment; provided, however, in the event of the Participant's (i) retirement in accordance with the policies of the Corporation or Affiliate which employs the Participant, (ii) death, or (iii) disability (within the meaning of such term as set forth in the Long-Term Disability Plan of Comerica Incorporated or its successor, the provisions of which are incorporated herein by reference, or as the Committee shall determine based on information provided to it), the Corporation shall pay the Participant an Incentive Payment for the one-year Performance Period and the three-year Performance Period, which Incentive Payments shall be prorated based on the number of months the Participant was employed by the Corporation or an Affiliate during each applicable Performance Period (the one- year Performance Period and the three-year Performance Period) in which the Participant's retirement, death or disability occurred. In the case of the Participant's retirement, such payment shall be made at the end of the Performance Period during which the Participant retired in the normal course 4 of payments made to all other participants, and in the case of the Participant's death or disability, such payment shall be made as soon as is administratively feasible following the date of the Participant's death or disability. 2. Incentive Payments shall be subject to applicable federal, state and local withholding taxes and other applicable withholding in accordance with the Corporation's payroll practices as from time-to-time in effect. 3. The maximum amount which may become payable to any Covered Employee in any calendar year as an Incentive Payment with respect to all Performance Periods completed during such calendar year shall be the lesser of (i) 200% of such Participant's Annual Base Salary, or (ii) $2,500,000. 4. Incentive Payments calculated by reference to one-year Performance Periods shall be payable in cash or shares of the Corporation's common stock, $5.00 par value per share ("Shares"), and Incentive Payments calculated by reference to three-year Performance Periods shall be payable one-half in cash and one- half in Shares. Any such Shares shall be awarded pursuant to the Corporation's long-term incentive plan and may be subject to restrictions as may be determined by the Committee. In each case, Incentive Payments shall be made as soon as practical after the completion of the Performance Period. Notwithstanding anything in this Section 4(D)(4) to the contrary, if a Participant elects to defer receipt of all or any portion of an Incentive Payment under the provisions of any deferred compensation plan maintained by the Corporation, the provisions in this Plan (including the provisions of this Section 4(D)(4)) regarding the timing and form of payment of Incentive Payments shall cease to apply to such deferred amounts and the provisions of the applicable deferred compensation plan shall govern the timing and form of payment of such deferred amounts. 5. A Participant shall have the right to defer all, and unless prohibited by the Committee in its sole discretion a Participant shall have the right to defer any portion, of any Incentive Payment as permitted under the provisions of any deferred compensation plan maintained by the Corporation. The Committee, in its sole discretion, may impose limitations on the percentage or dollar amount of any Participant election to defer any Incentive Payment and may impose rules prohibiting the deferral of less than 100% of any Incentive Payment. 6. Until paid to a Participant, awards shall not be subject to the claims of creditors and may not be assigned, alienated, transferred or encumbered in any way other than by will or pursuant to laws of intestacy. 5 SECTION 5. AMENDMENT OR TERMINATION. The Committee may amend, modify or terminate the Plan in any respect at any time without the consent of any Participant. Any such action may be taken without the approval of the Corporation's shareholders unless shareholder approval is required by applicable law. Termination of the Plan shall not affect any Incentive Payments earned prior to, but payable on or after, the date of termination, and any such payments shall continue to be subject to the terms of the Plan notwithstanding its termination. SECTION 6. CHANGE OF CONTROL. Notwithstanding any other provision hereof, in the event of a "Change of Control" of the Company as defined in the Comerica Incorporated Executive Officer Employment Agreements, the following provisions shall be applicable: A. The Performance Periods then in effect will be deemed to have concluded on the date of the Change of Control of the Company and the total amount deemed to be available to fund the related incentive pools will be that proportion of the amount (based upon the number of months in such Performance Period elapsed through the date of Change of Control of the Company) which would be available for funding assuming the Corporation had attained Performance Goals at a level generating maximum funding for the Performance Periods; and B. The Committee, in its sole discretion, will approve the share of the available amount payable to each Participant as that Participant's Incentive Payment (provided that in all events the entire available amount as calculated pursuant to Section 6(A) shall be paid to Participants as Incentive Payments), and payments shall be made to each Participant as soon thereafter as is practicable. SECTION 7. EFFECTIVE DATE OF THE PLAN. This Amended and Restated Comerica Incorporated Management Incentive Plan shall be effective as of November 19, 1999 and shall remain in effect until terminated by the Committee pursuant to Section 5. SECTION 8. GENERAL PROVISIONS. A. The establishment of the Plan shall not confer upon any Participant any legal or equitable right against the Corporation or any Affiliate, except as expressly provided in the Plan. B. The Plan does not constitute an inducement or consideration for the employment of any Participant, nor is it a contract between the Corporation, or any Affiliate, and any Participant. Participation in the Plan shall not give a Participant any right to be retained in the employ of the Corporation or any Affiliate. C. Nothing contained in this Plan shall prevent the Board or Committee from adopting other or additional compensation arrangements, subject to shareholder approval if 6 such approval is required, and such arrangements may be either generally applicable or applicable only in specific cases. D. The Plan shall be governed, construed and administered in accordance with the laws of the State of Delaware except to the extent such laws may be superseded by federal law. E. This Plan is intended to comply in all aspects with applicable law and regulation, including, with respect to those Participants who are Covered Employees, Section 162(m) of the Code. In case any one or more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law or regulation, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed in compliance with all applicable laws including, without limitation, Code Section 162(m), so as to carry out the intent of this Plan. EX-10.18 5 DEFERRED COMPENSATION PLAN 1 EXHIBIT 10.18 1999 COMERICA INCORPORATED DEFERRED COMPENSATION PLAN 2 COMERICA INCORPORATED DEFERRED COMPENSATION PLAN TABLE OF CONTENTS
ARTICLE I. PURPOSE AND INTENT............................................................................I-1 ARTICLE II. DEFINITIONS A. Definitions..................................................................................II-1 (1) Account.............................................................................II-1 (2) Irrevocable Election Form...........................................................II-1 (3) Beneficiary(ies)....................................................................II-1 (4) Board...............................................................................II-1 (5) Code ...........................................................................II-1 (6) Comerica Stock......................................................................II-1 (7) Comerica Stock Fund ...............................................................II-1 (8) Committee...........................................................................II-1 (9) Compensation........................................................................II-2 (10) Compensation Deferral...............................................................II-2 (11) Deferral Period.....................................................................II-2 (12) Disabled and Disability.............................................................II-2 (13) Eligible Employee...................................................................II-2 (14) Employer............................................................................II-2 (15) ERISA...............................................................................II-3 (16) Exchange Act........................................................................II-3 (17) Participant.........................................................................II-3 (18) Plan................................................................................II-3 (19) Plan Administrator(s)...............................................................II-3 (20) Retirement..........................................................................II-3 (21) Section 16 Insider..................................................................II-3 (22) Trust...............................................................................II-3 (23) Trustee.............................................................................II-3 (24) Unforeseeable Emergency.............................................................II-3 ARTICLE III. ELECTION TO PARTICIPATE IN THE PLAN A. Completion of Irrevocable Election Form.....................................................III-1 B. Contents of Irrevocable Election Form.......................................................III-1 C. Effect of Entering Into Irrevocable Election Form...........................................III-1 D. Special Rules Applicable to Irrevocable Election Form and Deferral of Compensation................................................................III-1 (1) Deferral Election to be Made Before Compensation is Earned.............................................................III-1 (2) Irrevocability of Deferral Election................................................III-2 (3) Cancellation of Deferral Election..................................................III-2 E. Deferrals By Committee......................................................................III-3
ARTICLE IV. DEFERRED COMPENSATION ACCOUNTS AND - i - 3
INVESTMENT OF DEFERRED COMPENSATION A. Deferred Compensation Accounts........................................................................IV-1 B. Earnings on Compensation Deferrals....................................................................IV-1 C. Contribution of Compensation Deferrals to Trust.......................................................IV-2 D. Insulation from Liability.............................................................................IV-2 E. Ownership of Compensation Deferrals...................................................................IV-2 F. Special Rule Application to Certain Reallocations.....................................................IV-3 G. Adjustment of Accounts Upon Changes In Capitalization.................................................IV-4 ARTICLE V. DISTRIBUTION OF COMPENSATION DEFERRALS A. In General.............................................................................................V-1 (1) Employment Through Deferral Period................................................................V-1 (2) Termination Prior to End of Deferral Period ......................................................V-2 (3) Death of Participant Prior to End of Installment Distribution Period...................................................................V-3 (4) Hardship Distributions............................................................................V-3 (5) Cash Out Distributions............................................................................V-3 B. Designation of Beneficiary.............................................................................V-4 (1) Beneficiary Designation Must be Filed Prior to Participant's Death...............................................................................V-4 (2) Absence of Beneficiary............................................................................V-4 ARTICLE VI. AMENDMENT OR TERMINATION A. Amendment and Termination of Plan................................................................VI-1 ARTICLE VII. AUDITING OF ACCOUNTS AND STATEMENTS TO PARTICIPANTS A. Auditing of Accounts............................................................................VII-1 B. Statements to Participants......................................................................VII-1 C. Fees and Expenses of Administration.............................................................VII-1 ARTICLE VIII. MISCELLANEOUS PROVISIONS A. Nonforfeitability of Participant Accounts......................................................VIII-1 B. Prohibition Against Assignment.................................................................VIII-1 C. No Employment Contract.........................................................................VIII-1 D. Successors Bound...............................................................................VIII-1 E. Prohibition Against Loans......................................................................VIII-1 F. Administration By Committee....................................................................VIII-1 G. Governing Law and Rules of Construction........................................................VIII-2 H. Power to Interpret.............................................................................VIII-2 I. Effective Date.................................................................................VIII-3
- ii - 4 ARTICLE I. PURPOSE AND INTENT. The Plan enables Eligible Employees to defer receipt of all or a portion of their Compensation to provide additional income for them subsequent to retirement, disability or termination of employment. It is the intention of Comerica Incorporated that the Plan cover only employees who are management or highly-compensated employees within the meaning of sections 201(2), 301(a)(3), and 401(a)(1) of ERISA. I-1 5 ARTICLE II. DEFINITIONS. A. Definitions. The following words and phrases, wherever capitalized, shall have the following meanings respectively: (1) "Account(s)" means the account established for each Participant under Article IV(A) hereof. (2) "Irrevocable Election Form" means the Irrevocable Election Form in the form attached hereto as Attachment A, as it may be revised from time to time. (3) "Beneficiary(ies)" means the person(s), natural or corporate, in whatever capacity, designated by a Participant pursuant to this Plan, or the person otherwise deemed to constitute the Participant's beneficiary under Article V(B)(2) hereof. (4) "Board" means the Board of Directors of Comerica Incorporated. (5) "Code" means the Internal Revenue Code of 1986, as amended. (6) "Comerica Stock" means shares of common stock of Comerica Incorporated, $5.00 par value. (7) "Comerica Stock Fund" means an investment option established under the Plan pursuant to which a Participant may have requested investment prior to January 1, 1999, of sums deferred under the Plan in units whose value is tied to the market value of shares of Comerica Stock. (8) "Committee" means the Compensation Committee of the Board, or such other committee appointed by the Board to administer the Plan. (9) "Compensation" means gross salary from the Employer including base salary, incentive compensation, bonuses, overtime, commissions and any other form of II-1 6 cash remuneration approved by the Committee, other than an incentive award granted to Participants pursuant to the Management Incentive Plan that is related to Comerica Incorporated's 3 year return on equity performance. (10) "Compensation Deferral(s)" means the amount of Compensation a Participant has elected to defer, pursuant to an Irrevocable Election Form and, where the context requires, shall also include earnings on such amounts. (11) "Deferral Period" means the period during which a Participant elects to defer receipt of Compensation under the Plan, which period shall end coincident with the Participant's Retirement. (12) "Disabled" or "Disability" means "disabled" under the Comerica Incorporated Long-Term Disability Plan or under the Comerica Incorporated Executive Long-Term Disability Plan, whichever such plan covers the individual. (13) "Eligible Employee" means an individual employed by an Employer who is: (i) eligible to receive compensation under the Comerica Incorporated Management Incentive Plan; (ii) eligible to receive compensation under an incentive program sponsored by any business unit of the Employer, provided the Compensation the individual expects to earn in the year his deferral election is operative is approximately $100,000; or (iii) approved for participation by the Committee on the basis of high earning potential and other relevant factors consistent with the Plan. (14) "Employer" means Comerica Incorporated, a Delaware corporation, and its subsidiary corporations, and any successor entity which may succeed the Employer and its subsidiary corporations. II-2 7 (15) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. (16) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (17) "Participant" means an Eligible Employee whose Irrevocable Election Form has been accepted by the Committee pursuant to Article III(A) hereof, and who either has a deferral election currently in effect or an Account balance under the Plan. (18) "Plan" means the unfunded, nonqualified elective deferred compensation plan the provisions of which are set forth herein, as they may be amended from time to time. (19) "Plan Administrator(s)" means the individual(s) appointed by the Committee to handle the day-to-day administration of the Plan. (20) "Retirement" means retirement under the Comerica Incorporated Retirement Plan. (21) "Section 16 Insider" means any Participant who is designated by the Company as a reporting person under Section 16 of the Exchange Act. (22) "Trust" means such trust as may be established by Comerica Incorporated in connection with this Plan. (23) "Trustee" means the entity selected by Comerica Incorporated as trustee of the Trust. (24) "Unforeseeable Emergency" means a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (within the meaning of Code Section 152(a)) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. II-3 8 ARTICLE III. ELECTION TO PARTICIPATE IN THE PLAN. A. Completion of Irrevocable Election Form. An Eligible Employee who wishes to become a Participant in the Plan must complete and sign an Irrevocable Election Form. Any Irrevocable Election Form received by the Committee shall become binding upon the Committee's acceptance thereof. In the Irrevocable Election Form, the Employee shall indicate the Compensation the Participant wishes to defer. An Eligible Employee must file a separate Irrevocable Election Form with respect to each year's Compensation he or she wishes to defer. B. Contents of Irrevocable Election Form. Each Irrevocable Election Form shall: (i) designate the amount of Compensation to be deferred in whole percentages or in whole dollars; (ii) request that the Employer defer payment of the Compensation to the Participant until the year the Participant retires; (iii) state how the Participant wishes to receive payment of the Compensation Deferrals at retirement; and (iv) contain other provisions the Committee deems appropriate. C. Effect of Entering Into Irrevocable Election Form. Upon the Committee's acceptance of a Participant's Irrevocable Election Form, the Participant shall be (i) bound by the provisions of the Plan and by the provisions of any agreement governing the Trust; (ii) bound by the provisions of the Irrevocable Election Form; and (iii) deemed to have assumed the risks of deferral, including, without limitation, the risk of poor investment performance and the risk that Comerica Incorporated may become insolvent. D. Special Rules Applicable to Irrevocable Election Forms and Deferral of Compensation. (1) Deferral Election to be Made Before Compensation is Earned. In no event shall any Compensation which has been earned by a Participant prior to the date such Participant's Irrevocable Election Form has been accepted by the Committee be deferred III-1 9 under the Plan. Further, the effective date of any Irrevocable Election Form shall not be earlier than the first day of the calendar year which begins after the Irrevocable Election Form is signed by the Participant and accepted by the Committee. Notwithstanding the preceding sentence, an Irrevocable Election Form delivered to the Committee within 60 days of the effective date of the Plan may defer Compensation to be earned in the remaining portion of the year in which it is delivered; and, provided further, an Irrevocable Election Form delivered to the Committee within 30 days of the date an individual first becomes eligible to participate in the Plan may defer Compensation to be earned in the remaining portion of the year in which it is delivered. Notwithstanding anything in this Article III to the contrary, the Committee, in its sole discretion, may impose limitations on the percentage or dollar amount of any Participant election to defer Compensation and may impose rules prohibiting the deferral of less than 100% of any award under any incentive compensation plan of the Employer that permits deferral of awards thereunder. (2) Irrevocability of Deferral Election. Except as provided in Article III(D)(3) and V(A)(4) below, the provisions of the Irrevocable Election Form relating to a Participant's election to defer Compensation and the Participant's selection of the time and manner of payment of Compensation Deferrals shall be irrevocable. (3) Cancellation of Deferral Election. In the event of an Unforeseeable Emergency, the Committee may, in its sole discretion, permit the Participant to cancel an election to defer Compensation, in whole or in part, and permit the Participant to receive at the otherwise scheduled payment date whatever portion of the amount subject to the III-2 10 deferral election is necessary, in the judgment of the Committee, to alleviate the financial hardship occasioned by the Unforeseeable Emergency. Any Participant who seeks to cancel a deferral election on account of an Unforeseeable Emergency shall submit to the Committee a written request which sets forth in reasonable detail the Unforeseeable Emergency, and the amount of the Compensation Deferral which the Participant believes to be necessary to remedy it. In determining whether to grant any Participant's request to cancel a deferral election on the basis of an Unforeseeable Emergency, the Committee shall adhere to the requirements of Section 1.457-2(h)(4) of the Income Tax Regulations, the provisions of which are incorporated herein by reference. Any Participant who is permitted to cancel a deferral election shall not again be eligible to submit a deferral election until the calendar year following the calendar year in which such cancellation is permitted. If a Participant receives a hardship distribution under the Comerica Incorporated Preferred Savings Plan, the Participant's deferral election hereunder shall be automatically canceled to the extent it would defer the Participant's receipt of any Compensation the Participant would earn during a twelve-month period beginning on the date of the Participant's receipt of such hardship distribution. Any Participant whose deferral election is automatically canceled in accordance with the provisions hereof shall not again be eligible to submit a deferral election until the next enrollment period after the elapse of at least 12 months following the Participant's receipt of a hardship distribution. E. Deferrals By Committee. At its discretion, the Committee may defer any Compensation payable to an Eligible Employee pursuant to a notice to the Eligible Employee. Any Compensation payable to an Eligible Employee which is deferred by the III-3 11 Committee shall be paid to the Eligible Employee in a manner determined by the Committee, i.e., a lump sum or installments, upon his or her termination of employment. Any Compensation deferred under the Plan by the Committee shall be invested in the investment option under the Plan which most closely approximates a money market fund pending the Employer's receipt of an investment request from the Eligible Employee. It shall be the Eligible Employee's obligation to submit an investment request to the Employer if any Compensation deferred by the Committee is to be invested in any fund other than a money market fund. Notwithstanding anything to the contrary, no Compensation, other than the Compensation placed in the Account prior to January 1,1999, shall be invested in or reallocated to Comerica Stock. Also, upon the death of the Eligible Employee on behalf of whom the Compensation is deferred prior to distribution of all Compensation deferred by the Committee and the earnings thereon, unless the Eligible Employee has delivered a beneficiary designation form to the Committee with respect to the sums deferred by the Committee, the balance will be distributed to the Beneficiary(ies) listed on the most recent beneficiary designation form delivered to the Committee with respect to other Compensation deferred by the Eligible Employee under the Plan. If the Eligible Employee has not designated a Beneficiary(ies) with respect to sums deferred by the Committee and has not deferred other Compensation under the Plan (or submitted a beneficiary designation form with respect to any such deferrals), the Compensation deferred by the Committee and any earnings thereon shall be payable to the Eligible Employee's estate upon his or her death. III-4 12 ARTICLE IV. DEFERRED COMPENSATION ACCOUNTS AND INVESTMENT OF DEFERRED COMPENSATION. A. Deferred Compensation Accounts. The Plan Administrator shall establish a book reserve account in the name of each Participant. As soon as is administratively feasible following the date Compensation subject to a Participant's deferral election would otherwise be paid to the Participant, the Plan Administrator shall credit the Compensation being deferred to the Participant's Account. Each Participant's Account shall further be credited with earnings or charged with losses resulting from the deemed investment of the Compensation Deferrals credited to the Account as though the Compensation Deferrals had been invested in the investments selected by the Participant as provided below, and shall be charged with any distributions, any federal and state income tax withholdings, any social security tax as may be required by law and by any further amounts, including administrative fees and expenses, the Employer is either required to withhold or determines are appropriate charges to such Participant's Account. B. Earnings on Compensation Deferrals. At the time a Participant submits an Irrevocable Election Form, and from time to time thereafter at intervals to be determined by the Committee, each Participant shall direct, in a form approved by and in accordance with procedures established by the Committee, how the Participant chooses the balance in his Account to be deemed to be invested among investment options (which shall not include Comerica Stock) to be made available by the Committee. In lieu of making investment options available to Participants, Comerica Incorporated may credit deferred sums with a reasonable rate of interest to reflect the time value of money. IV-1 13 Comerica Incorporated shall be under no obligation to acquire any of the investments selected by any Participant, and any investments actually made by it with Compensation Deferrals will be acquired solely in the name of Comerica Incorporated, and will remain the sole property of Comerica Incorporated. C. Contribution of Compensation Deferrals to Trust. In the sole discretion of Comerica Incorporated, all or any portion of the Compensation Deferrals credited to any Participant's Account may be contributed to a Trust established by Comerica Incorporated in connection with the Plan. No Participant or Beneficiary shall have the right to direct or require that Comerica Incorporated contribute the Participant's Compensation Deferrals to the Trust. Any Compensation Deferrals so contributed shall be held, invested and administered to provide benefits under the Plan except as otherwise required in the agreement governing the Trust. D. Insulation from Liability. No member of the Committee or officer, employee or director of any Employer shall be liable to any person for any action taken or omitted in connection with the administration of this Plan or Trust unless attributable to such individual's own fraud or willful misconduct. E. Ownership of Compensation Deferrals. Title to and beneficial ownership of any assets, of whatever nature, which may be allocated by Comerica Incorporated to any Account in the name of any Participant shall at all times remain with Comerica Incorporated, and no Participant or Beneficiary shall have any property interest whatsoever in any specific assets of Comerica Incorporated by reason of the establishment of the Plan nor shall the rights of any Participant or Beneficiary to payments under the Plan be increased by reason of Comerica Incorporated's contribution of IV-2 14 Compensation Deferrals to the Trust. The rights of each Participant and Beneficiary hereunder shall be limited to enforcing the unfunded, unsecured promise of the Participant's Employer to pay benefits under the Plan, and the status of any Participant or Beneficiary shall be that of an unsecured general creditor of Comerica Incorporated. Participants and Beneficiaries shall not be deemed to be parties to any trust agreement Comerica Incorporated enters into with the Trustee. F. Special Rule Applicable To Certain Reallocations. (A) Notwithstanding the foregoing, effective January 1, 1999, a Participant may not direct a reallocation of monies out of any investment fund into the Comerica Stock Fund. A Participant may however, reallocate monies out of the Comerica Stock Fund into any other investment fund (which shall not include the Comerica Stock Fund), except as provided in subsection (B) of this section. (B) A Section 16 Insider may not direct a reallocation of monies out of the Comerica Stock Fund into any other investment funds if, within the previous six months, he or she (or any other person whose transactions are attributed to the Section 16 Insider under Section 16 of the Exchange Act) either (i) acquired shares of Comerica Stock in the open market or pursuant to a private transaction, or (ii) made an election under the Plan (or under any other plan sponsored by the Company) that resulted in an acquisition of equity securities of the Company within the meaning of that term under Section 16 of the Exchange Act. To the extent consistent with rules under Section 16 of the Exchange Act, the foregoing prohibitions shall not be applicable if the reallocation is in connection with the Section 16 Insider's death, disability, retirement or termination of employment. IV-3 15 Notwithstanding any other provision of the Plan, effective January 1, 1999, except in the circumstances of death, Disability, Retirement or other termination of employment, a Section 16 Insider shall not be permitted to receive a cash distribution from the Plan which is funded to any extent by a disposition of his or her interest. G. Adjustment of Accounts Upon Changes In Capitalization. With respect to Accounts that are deemed to be invested in whole or in part in the Comerica Stock Fund, in the event the number of outstanding shares of Comerica Stock changes as a result of any stock split, stock dividend, recapitalization, merger, consolidation, reorganization, combination, or exchange of shares, split-up, split-off, spin-off, liquidation or other similar change in capitalization, or any distribution made to common stockholders other than cash dividends, the number or kind of shares of Comerica Stock in which such Accounts are deemed to be invested shall be automatically adjusted, and the Committee shall be authorized to make such other equitable adjustment of any Account, so that the value of the Account shall not be decreased by reason of the occurrence of such event. Any such adjustment shall be conclusive and binding. IV-4 16 ARTICLE V. DISTRIBUTION OF COMPENSATION DEFERRALS. A. In General. The benefits payable hereunder as deferred compensation shall be paid to the Participant or to the Participant's Beneficiary as follows: (1) Employment Through Deferral Period. If the Participant's employment with an Employer continues until the last day of the Deferral Period, Comerica Incorporated shall, as soon as administratively feasible following the end of the Deferral Period, distribute, or commence to distribute, the balance of the Account in the name of the Participant in cash in any manner described below which is selected by the Participant in the Participant's Irrevocable Election Form: (i) a single sum; (ii) annual installments over 5 years, (iii) annual installments over 10 years; or (iv) annual installments over 15 years. For purposes of determining the amount of annual installments, X shall equal the number of years over which benefits will be paid as elected by the Participant. Comerica Incorporated shall pay to the Participant or to the Participant's Beneficiary an amount equal to 1/X of the fair market value of the Account in the Participant's name, such value to be determined by the Committee as of the earliest convenient date, as determined by the Committee, which occurs prior to the date the payment is to be made. On approximately the same date of the following year, Comerica Incorporated shall pay to the Participant or to the Participant's Beneficiary an amount equal to 1/X-1 of the fair market value of such Account, such value to be determined by the Committee as of the earliest convenient date, as determined by the Committee, which occurs prior to the date the payment is to be made. On approximately the same date of the following year, Comerica V-1 17 Incorporated shall pay to the Participant or to the Participant's Beneficiary an amount equal to 1/X-2 of the fair market value of such Account, such value to be determined by the Committee as of the earliest convenient date, as determined by the Committee, which occurs prior to the date the payment is to be made, and similar payments shall be made on approximately the same date of each succeeding year until a total of X annual payments have been made with the last such payment being in an amount equal to the fair market value of the Account in the name of the Participant determined as of the date such amount is paid. (2) Termination Prior to End of Deferral Period. If the Participant's employment with the Employer terminates prior to the last day of the Deferral Period (unless such termination is due to the Participant's Disability), then notwithstanding the manner of distribution selected by the Participant, Comerica Incorporated shall distribute or direct the Trustee to distribute an amount equal to the fair market value of the Account in the name of the Participant as of the earliest convenient date, as determined by the Committee, which occurs subsequent to the date the Participant's employment terminates. Such amount shall be distributed to the Participant or to the Participant's Beneficiary in a single sum as soon as is administratively feasible following the Participant's termination date. If the Participant's employment terminates prior to the last day of the Deferral Period because the Participant has become Disabled, then notwithstanding the distribution date selected by the Participant in the Participant's Irrevocable Election Form, an amount equal to the fair market value of the Account in the name of the Participant as of the earliest convenient date, as determined by the Committee, which occurs subsequent to the date the Participant's employment terminates, shall be distributed, or commence to be V-2 18 distributed, as soon as administratively feasible following his or her termination date, such distribution to be made in the manner specified in the Participant's Irrevocable Election Form. (3) Death of Participant Prior to End of Installment Distribution Period. If the Participant dies before a total of X annual payments are made hereunder, then an amount equal to the fair market value of the Account in the name of the Participant as of the earliest convenient date, as determined by the Committee, which occurs subsequent to the date of the Participant's death shall be distributed in a single sum to the Participant's Beneficiary, such distribution to be made as soon as is administratively feasible following the date of the Participant's death. (4) Hardship Distributions. In the event of an Unforeseeable Emergency involving a Participant which occurs prior to distribution of the entire balance of the Account in the name of the Participant, the Committee may, in its sole discretion, distribute to the Participant in a single sum an amount equal to such portion of the Account in the Participant's name as shall be necessary in the judgment of the Committee to alleviate the financial hardship occasioned by the Unforeseeable Emergency. Any Participant desiring a distribution under the Plan on account of an Unforeseeable Emergency shall submit to the Committee a written request for such distribution which sets forth in reasonable detail the Unforeseeable Emergency which would cause the Participant severe financial hardship, and the amount which the Participant believes to be necessary to alleviate the financial hardship. In determining whether to grant any requested hardship distribution, the Committee shall adhere to the requirements of the Income Tax Regulations referred to in Article III(D)(3) hereof. V-3 19 (5) Cash Out Distributions. If, at the time an installment distribution of an Account in the name of any Participant is scheduled to commence, the fair market value of such Account does not exceed $5,000 then, notwithstanding an election by the Participant that such Account be distributed in installments, the balance of such Account shall be distributed to the Participant in a single sum on or about the date the first installment is scheduled to be made. B. Designation of Beneficiary. A Participant shall deliver to the Committee a written designation of Beneficiary(ies) under the Plan, which designation may from time to time be amended or revoked without notice to, or consent of, any previously designated Beneficiary. (1) Beneficiary Designation Must be Filed Prior to Participant's Death. No designation of Beneficiary, and no amendment or revocation thereof, shall become effective if delivered to the Committee after such Participant's death, unless the Committee shall determine such designation, amendment or revocation to be valid. (2) Absence of Beneficiary. In the absence of an effective designation of Beneficiary, or if no Beneficiary designated shall survive the Participant, then the balance of the Account in the name of the Participant shall be paid to the Participant's estate. V-4 20 ARTICLE VI. AMENDMENT OR TERMINATION. A. Amendment and Termination of Plan. This Plan may be amended or terminated at any time in the sole discretion of the Committee by a written instrument executed by the Committee. No such amendment shall affect the time of payment of any Compensation earned prior to the time of such amendment or termination except as the Committee may determine to be necessary to carry out the purpose of the Plan. Written notice of any such amendment or termination shall be given to each Participant. Upon termination of the Plan, Comerica Incorporated shall distribute to each Participant or Beneficiary, or direct that the Trustee so distribute, the amounts which would have been distributed to such Participant or Beneficiary under the Plan had the Participant's employment with an Employer terminated at the time of termination of the Plan. In addition, no such amendment shall make the Trust revocable. VI-1 21 ARTICLE VII. AUDITING OF ACCOUNTS AND STATEMENTS TO PARTICIPANTS. A. Auditing of Accounts. The Plan shall be audited from time to time as directed by the Committee by auditors selected by the Committee. B. Statements to Participants. Statements will be provided to Participants under the Plan on at least an annual basis. C. Fees and Expenses of Administration. Fees of the Trustee and expenses of administration of the Plan shall be deducted from Accounts. VII-1 22 ARTICLE VIII. MISCELLANEOUS PROVISIONS. A. Nonforfeitability of Participant Accounts. Each Participant shall be fully vested in his or her Account. B. Prohibition Against Assignment. Benefits payable to Participants and their Beneficiaries under the Plan may not be anticipated, assigned (either at law or in equity), alienated, sold, transferred, pledged or encumbered in any manner, nor may they be subjected to attachment, garnishment, levy, execution or other legal or equitable process for the debts, contracts, liabilities, engagements or acts of any Participant or Beneficiary. C. No Employment Contract. Nothing in the Plan is intended to be construed, or shall be construed, as constituting an employment contract between the Employer and any Participant nor shall any Plan provision affect the Employer's right to discharge any Participant for any reason or for no reason. D. Successors Bound. The contractual agreement between Comerica Incorporated and each Participant resulting from the execution of an Irrevocable Election Form shall be binding upon and inure to the benefit of Comerica Incorporated, its successors and assigns, and to the Participant and to the Participant's heirs, executors, administrators and other legal representatives. E. Prohibition Against Loans. The Participant may not borrow any Compensation Deferrals from Comerica Incorporated nor utilize his or her Account as security for any loan from the Employer. VIII-1 23 F. Administration By Committee. Responsibility for administration of the Plan shall be vested in the Committee. To the extent permitted by law, the Committee may delegate any authority it possesses to the Plan Administrator(s). To the extent the Committee has delegated authority concerning a matter to the Plan Administrator(s), any reference in the Plan to the "Committee" insofar as it pertains to such matter, shall refer likewise to the Plan Administrator(s). G. Governing Law and Rules of Construction. This Plan shall be governed in all respects, whether as to construction, validity or otherwise, by applicable federal law and, to the extent that federal law is inapplicable, by the laws of the State of Michigan. Each provision of this Plan shall be treated as severable, to the end that, if any one or more provisions shall be adjudged or declared illegal, invalid or unenforceable, this Plan shall be interpreted, and shall remain in full force and effect, as though such provision or provisions had never been contained herein. It is the intention of Comerica Incorporated that the Plan established hereunder be "unfunded" for income tax purposes and for purposes of Title I of ERISA, and the provisions hereof shall be construed in a manner to carry out that intention. H. Power to Interpret. This Plan shall be interpreted and effectuated to comply with the applicable requirements of ERISA, the Code and other applicable tax law principles; and all such applicable requirements are hereby incorporated herein by reference. Subject to the above, the Committee shall have power to construe and interpret this Plan, including but not limited to all provisions of this Plan relating to eligibility for benefits and the amount, manner and time of payment of benefits, any such construction and interpretation by the Committee and any action taken thereon in good faith by the Plan VIII-2 24 Administrator(s) to be final and conclusive upon any affected party. The Committee shall also have power to correct any defect, supply any omission, or reconcile any inconsistency in such manner and to such extent as the Committee shall deem proper to carry out and put into effect this Plan; and any construction made or other action taken by the Committee pursuant to this Article VIII(H) shall be binding upon such other party and may be relied upon by such other party. I. Effective Date. The effective date of this amendment and restatement shall be January 1, 1999, except as otherwise expressly stated herein. VIII-3 EX-10.19 6 DEFERRED 3 YEAR ROE AWARD PLAN 1 EXHIBIT 10.19 1999 COMERICA INCORPORATED DEFERRED 3 YEAR ROE AWARD PLAN 2 1999 COMERICA INCORPORATED DEFERRED 3 YEAR ROE AWARD PLAN TABLE OF CONTENTS ARTICLE I. PURPOSE AND INTENT............................................................................I-1 ARTICLE II. DEFINITIONS A. Definitions..................................................................................II-1 (1) Account.............................................................................II-1 (2) Irrevocable Election Form...........................................................II-1 (3) Beneficiary(ies)....................................................................II-1 (4) Board...............................................................................II-1 (5) Code ...........................................................................II-1 (6) Comerica Stock Fund.................................................................II-1 (7) Comerica Stock................................................................. II-1 (8) Committee...........................................................................II-1 (9) [Intentionally left blank]..........................................................II-1 (10) Deferral Period.....................................................................II-2 (11) Disabled and Disability.............................................................II-2 (12) [Intentionally left blank]..........................................................II-2 (13) Employer ...........................................................................II-2 (14) ERISA...............................................................................II-2 (15) Exchange Act........................................................................II-2 (16) Participant.........................................................................II-2 (17) Plan................................................................................II-2 (18) Plan Administrator(s)...............................................................II-2 (19) Retirement..........................................................................II-2 (20) 3 Year ROE Award ...................................................................II-3 (21) 3 Year ROE Award Deferral...........................................................II-3 (22) Trust...............................................................................II-3 (23) Trustee.............................................................................II-3 (24) Unforeseeable Emergency.............................................................II-3 ARTICLE III. ELECTION TO PARTICIPATE IN THE PLAN A. Completion of Irrevocable Election Form.....................................................III-1 B. Contents of Irrevocable Election Form.......................................................III-1 C. Effect of Entering Into Irrevocable Election Form...........................................III-1 D. Special Rules Applicable to Irrevocable Election Form and Deferral of 3 Year ROE Award ...........................................................III-2 (1) Deferral Election to be Made Before Compensation is Earned.............................................................III-2 (2) Irrevocability of Deferral Election................................................III-2 (3) Cancellation of Deferral Election..................................................III-3 E. Deferrals By Committee......................................................................III-4
- i - 3 ARTICLE IV. DEFERRED 3 YEAR ROE AWARD COMPENSATION ACCOUNTS AND INVESTMENT OF DEFERRED 3 YEAR ROE AWARD COMPENSATION A. Deferred 3 Year ROE Award Accounts...........................................................IV-1 B. Earnings on 3 Year ROE Award Deferrals.......................................................IV-1 C. Contribution of 3 Year ROE Award Deferrals to Trust..........................................IV-1 D. Insulation from Liability....................................................................IV-2 E. Ownership of 3 Year ROE Award Deferrals......................................................IV-2 F. [Intentionally left blank]...................................................................IV-3 G. Adjustment of Accounts Upon Changes in Capitalization........................................IV-3 ARTICLE V. DISTRIBUTION OF 3 YEAR ROE AWARD DEFERRALS A. In General ...................................................................................V-1 (1) Employment Through Deferral Period...................................................V-1 (2) Termination Prior to End of Deferral Period .........................................V-2 (3) Death of Participant Prior to End of Installment Distribution Period......................................................V-2 (4) Hardship Distributions ..............................................................V-2 (5) Stock Distributions .................................................................V-3 B. Designation of Beneficiary...................................................................V-3 (1) Beneficiary Designation Must be Filed Prior to Participant's Death................................................................................V-3 (2) Absence of Beneficiary...............................................................V-3 ARTICLE VI. AMENDMENT OR TERMINATION A. Amendment and Termination of Plan............................................................VI-1 ARTICLE VII. AUDITING OF ACCOUNTS AND STATEMENTS TO PARTICIPANTS A. Auditing of Accounts........................................................................VII-1 B. Statements to Participants..................................................................VII-1 C. Fees and Expenses of Administration.........................................................VII-1 ARTICLE VIII. MISCELLANEOUS PROVISIONS A. Nonforfeitability of Participant Accounts..................................................VIII-1 B. Prohibition Against Assignment.............................................................VIII-1 C. No Employment Contract.....................................................................VIII-1 D. Successors Bound...........................................................................VIII-1 E. Prohibition Against Loans..................................................................VIII-1 F. Administration By Committee................................................................VIII-1 G. Governing Law and Rules of Construction....................................................VIII-2 H. Power to Interpret.........................................................................VIII-2 I. Effective Date.............................................................................VIII-3
- ii - 4 ARTICLE I. PURPOSE AND INTENT. The Plan enables Participants to defer receipt of all or a portion of their 3 Year ROE Award to provide additional income for them subsequent to retirement, disability or termination of employment. It is the intention of Comerica Incorporated that the Plan cover only employees who are management or highly-compensated employees within the meaning of sections 201(2), 301(a)(3), and 401(a)(1) of ERISA. I-1 5 ARTICLE II. DEFINITIONS. A. Definitions. The following words and phrases, wherever capitalized, shall have the following meanings respectively: (1) "Account(s)" means the account established for each Participant under Article IV(A) hereof. (2) "Irrevocable Election Form" means the Irrevocable Election Form in the form attached hereto as Attachment A, as it may be revised from time to time. (3) "Beneficiary(ies)" means the person(s), natural or corporate, in whatever capacity, designated by a Participant pursuant to this Plan, or the person otherwise deemed to constitute the Participant's beneficiary under Article V(B)(2) hereof. (4) "Board" means the Board of Directors of Comerica Incorporated. (5) "Code" means the Internal Revenue Code of 1986, as amended. (6) "Comerica Stock Fund" means the investment established under the Plan pursuant to which a Participant may request investment of sums deferred under the Plan in units whose value is tied to the market value of shares of Comerica Stock. (7) "Comerica Stock" means shares of common stock of Comerica Incorporated, $5.00 par value. (8) "Committee" means the Compensation Committee of the Board, or such other committee appointed by the Board to administer the Plan. (9) [Intentionally left blank] II-1 6 (10) "Deferral Period" means the period during which a Participant elects to defer receipt of the 3 Year ROE Award under the Plan, which period shall end coincident with the Participant's Retirement. (11) "Disabled" or "Disability" means "disabled" under the Comerica Incorporated Long-Term Disability Plan or under the Comerica Incorporated Executive Long-Term Disability Plan, whichever such plan covers the individual. (12) [Intentionally left blank] (13) "Employer" means Comerica Incorporated, a Delaware corporation, and its subsidiary corporations, and any successor entity which may succeed the Employer and its subsidiary corporations. (14) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. (15) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (16) "Participant" means an employee whose Irrevocable Election Form has been accepted by the Committee pursuant to Article III(A) hereof, and who either has a deferral election currently in effect or an Account balance under the Plan. (17) "Plan" means the unfunded, nonqualified elective Deferred 3 Year ROE Award plan, the provisions of which are set forth herein, as they may be amended from time to time. (18) "Plan Administrator(s)" means the individual(s) appointed by the Committee to handle the day-to-day administration of the Plan. (19) "Retirement" means retirement under the Comerica Incorporated Retirement Plan. II-2 7 (20) "3 Year ROE Award" means the incentive award granted to Participants pursuant to the Management Incentive Plan that is related to Comerica Incorporated's 3 year return on equity performance. (21) "3 Year ROE Award Deferral(s)" means the amount of an incentive award a Participant has elected to defer, pursuant to an Irrevocable Election Form and, where the context requires, shall also include earnings on such amounts. (22) "Trust" means such trust as may be established by Comerica Incorporated in connection with this Plan. (23) "Trustee" means the entity selected by Comerica Incorporated as trustee of the Trust. (24) "Unforeseeable Emergency" means a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (within the meaning of Code Section 152(a)) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. II-3 8 ARTICLE III. ELECTION TO PARTICIPATE IN THE PLAN. A. Completion of Irrevocable Election Form. An individual who wishes to become a Participant in the Plan must complete and sign an Irrevocable Election Form. Any Irrevocable Election Form received by the Committee shall become binding upon the Committee's acceptance thereof. In the Irrevocable Election Form, the employee shall indicate the 3 Year ROE Award the Participant wishes to defer. A Participant must file a separate Irrevocable Election Form with respect to each year's 3 Year ROE Award he or she wishes to defer. B. Contents of Irrevocable Election Form. Each Irrevocable Election Form shall: (i) designate the amount of the 3 Year ROE Award to be deferred in whole percentages or in whole dollars; (ii) request that the Employer defer payment of the 3 Year ROE Award to the Participant until the year the Participant retires; (iii) state how the Participant wishes to receive payment of the 3 Year ROE Award Deferrals at retirement; and (iv) contain other provisions the Committee deems appropriate. C. Effect of Entering Into Irrevocable Election Form. Upon the Committee's acceptance of a Participant's Irrevocable Election Form, the Participant shall be (i) bound by the provisions of the Plan and by the provisions of any agreement governing the Trust; (ii) bound by the provisions of the Irrevocable Election Form; and (iii) deemed to have assumed the risks of deferral, including, without limitation, the risk of poor investment performance and the risk that Comerica Incorporated may become insolvent. III-1 9 D. Special Rules Applicable to Irrevocable Election Forms and Deferral of The 3 Year ROE Award. (1) Deferral Election to be Made Before The 3 Year ROE Award is Earned. In no event shall any of the 3 Year ROE Award which has been earned by a Participant prior to the date such Participant's Irrevocable Election Form has been accepted by the Committee be deferred under the Plan. Further, the effective date of any Irrevocable Election Form shall not be earlier than the first day of the calendar year which begins after the Irrevocable Election Form is signed by the Participant and accepted by the Committee. Notwithstanding the preceding sentence, an Irrevocable Election Form delivered to the Committee within 60 days of the effective date of the Plan may defer the 3 Year ROE Award to be earned in the remaining portion of the year in which it is delivered; and, provided further, an Irrevocable Election Form delivered to the Committee within 30 days of the date an individual first becomes eligible to participate in the Plan may defer the 3 Year ROE Award to be earned in the remaining portion of the year in which it is delivered. Notwithstanding anything in this Article III to the contrary, the Committee, in its sole discretion, may impose limitations on the percentage or dollar amount of any Participant election to defer the 3 Year ROE Award and may impose rules prohibiting the deferral of less than 100% of any award under any other incentive plan of the Employer that permits deferral of awards thereunder. (2) Irrevocability of Deferral Election. Except as provided in Article III(D)(3) and V(A)(4) below, the provisions of the Irrevocable Election Form relating to a Participant's election to defer the 3 Year ROE Award and the Participant's selection of the time and manner of payment of the 3 Year ROE Award Deferrals shall be irrevocable. III-2 10 (3) Cancellation of Deferral Election. In the event of an Unforeseeable Emergency, the Committee may, in its sole discretion, permit the Participant to cancel an election to defer the 3 Year ROE Award, in whole or in part, and permit the Participant to receive at the otherwise scheduled payment date whatever portion of the amount subject to the deferral election is necessary, in the judgment of the Committee, to alleviate the financial hardship occasioned by the Unforeseeable Emergency. Any Participant who seeks to cancel a deferral election on account of an Unforeseeable Emergency shall submit to the Committee a written request which sets forth in reasonable detail the Unforeseeable Emergency, and the amount of the 3 Year ROE Award Deferral which the Participant believes to be necessary to remedy it. In determining whether to grant any Participant's request to cancel a deferral election on the basis of an Unforeseeable Emergency, the Committee shall adhere to the requirements of Section 1.457-2(h)(4) of the Income Tax Regulations, the provisions of which are incorporated herein by reference. Any Participant who is permitted to cancel a deferral election shall not again be eligible to submit a deferral election until the calendar year following the calendar year in which such cancellation is permitted. If a Participant receives a hardship distribution under the Comerica Incorporated Preferred Savings Plan, the Participant's deferral election hereunder shall be automatically canceled to the extent it would defer the Participant's receipt of any 3 Year ROE Award the Participant would earn during a twelve-month period beginning on the date of the Participant's receipt of such hardship distribution. Any Participant whose deferral election is automatically canceled in accordance with the provisions hereof shall not again be III-3 11 eligible to submit a deferral election until the next enrollment period after the elapse of at least 12 months following the Participant's receipt of a hardship distribution. E. Deferrals By Committee. At its discretion, the Committee may defer any of the 3 Year ROE Award payable to a Participant pursuant to a notice to the Participant. Any of the 3 Year ROE Award payable to a Participant which is deferred by the Committee shall be distributed to the Participant in shares of Comerica Stock by either a lump sum distribution of Comerica Stock or installments of Comerica Stock, upon his or her termination of employment. Any 3 Year ROE Award deferred under the Plan by the Committee shall be invested in the Comerica Stock Fund. Also, upon the death of the Participant on behalf of whom the 3 Year ROE Award is deferred prior to distribution of all of the 3 Year ROE Award deferred by the Committee and the earnings thereon, unless the Participant has delivered a beneficiary designation form to the Committee with respect to the sums deferred by the Committee, the balance will be distributed to the Beneficiary(ies) listed on the most recent beneficiary designation form delivered to the Committee with respect to any other 3 year ROE Award deferred by the Participant under the Plan. If the Participant has not designated a Beneficiary(ies) with respect to sums deferred by the Committee and has not deferred any other 3 Year ROE Award under the Plan (or submitted a beneficiary designation form with respect to any such deferrals), the 3 Year ROE Award deferred by the Committee and any earnings thereon shall be payable in the form of Comerica Stock to the Participant's estate upon his or her death. III-4 12 ARTICLE IV. DEFERRED 3 YEAR ROE AWARD ACCOUNTS AND INVESTMENT OF DEFERRED 3 YEAR ROE AWARD. A. Deferred 3 Year ROE Award Accounts. The Plan Administrator shall establish a book reserve account in the name of each Participant. As soon as is administratively feasible following the date the 3 Year ROE Award subject to a Participant's deferral election would otherwise be paid to the Participant, the Plan Administrator shall credit the 3 Year ROE Award being deferred to the Participant's Account. Each Participant's Account shall further be credited with earnings or charged with losses resulting from the deemed investment of the 3 Year ROE Award Deferrals credited to the Account as though the 3 Year ROE Award Deferrals had been invested in Comerica Stock, and shall be charged with any distributions, any federal and state income tax withholdings, any social security tax as may be required by law and by any further amounts, including administrative fees and expenses, the Employer is either required to withhold or determines are appropriate charges to such Participant's Account. B. Earnings on 3 Year ROE Award Deferrals. At the time a Participant submits an Irrevocable Election Form, and from time to time thereafter at intervals to be determined by the Committee, each Participant shall invest the balance of his Account, any earnings and dividends thereon in Comerica Stock. Comerica Incorporated shall be under no obligation to acquire any Comerica Stock to fund this Plan, and any investment actually made by the Corporation with 3 Year ROE Award Deferrals will be acquired solely in the name of Comerica Incorporated, and will remain the sole property of Comerica Incorporated. IV-1 13 C. Contribution of 3 Year ROE Award Deferrals to Trust. In the sole discretion of Comerica Incorporated, all or any portion of the 3 Year ROE Award Deferrals credited to any Participant's Account may be contributed to a Trust established by Comerica Incorporated in connection with the Plan. No Participant or Beneficiary shall have the right to direct or require that Comerica Incorporated contribute the Participant's 3 Year ROE Award Deferrals to the Trust. Any 3 Year ROE Award Deferrals so contributed shall be held, invested and administered to provide benefits under the Plan except as otherwise required in the agreement governing the Trust. D. Insulation from Liability. No member of the Committee or officer, employee or director of any Employer shall be liable to any person for any action taken or omitted in connection with the administration of this Plan or Trust unless attributable to such individual's own fraud or willful misconduct. E. Ownership of 3 Year ROE Award Deferrals. Title to and beneficial ownership of any assets, of whatever nature, which may be allocated by Comerica Incorporated to any Account in the name of any Participant shall at all times remain with Comerica Incorporated, and no Participant or Beneficiary shall have any property interest whatsoever in any specific assets of Comerica Incorporated by reason of the establishment of the Plan nor shall the rights of any Participant or Beneficiary to payments under the Plan be increased by reason of Comerica Incorporated's contribution of 3 Year ROE Award Deferrals to the Trust. The rights of each Participant and Beneficiary hereunder shall be limited to enforcing the unfunded, unsecured promise of the Participant's Employer to pay benefits under the Plan, and the status of any Participant or Beneficiary shall be that of an unsecured general creditor of Comerica Incorporated. Participants and Beneficiaries shall IV-2 14 not be deemed to be parties to any trust agreement Comerica Incorporated enters into with the Trustee. F. [Intentionally left blank] G. Adjustment of Accounts Upon Changes In Capitalization. In the event the number of outstanding shares of Comerica Stock changes as a result of any stock split, stock dividend, recapitalization, merger, consolidation, reorganization, combination, or exchange of shares, split-up, spin-off, liquidation or other similar change in capitalization, or any distribution made to common stockholders other than cash dividends, the number or kind of shares of Comerica Stock in which such Accounts are deemed to be invested shall be automatically adjusted, and the Committee shall be authorized to make such other equitable adjustment of any Account, so that the value of the Account shall not be decreased by reason of the occurrence of such event. Any such adjustment shall be conclusive and binding. IV-3 15 ARTICLE V. DISTRIBUTION OF 3 YEAR ROE AWARD DEFERRALS. A. In General. The benefits payable hereunder as Deferred 3 Year ROE Award shall be paid to the Participant or to the Participant's Beneficiary as follows: (1) Employment Through Deferral Period. If the Participant's employment with an Employer continues until the last day of the Deferral Period, Comerica Incorporated shall, as soon as administratively feasible following the end of the Deferral Period, distribute, or commence to distribute, the balance of the Account in the name of the Participant in Comerica Stock, in any manner described below which is selected by the Participant in the Participant's Irrevocable Election Form: (i) a single sum; (ii) annual installments over 5 years, (iii) annual installments over 10 years; or (iv) annual installments over 15 years. (2) Termination Prior to End of Deferral Period. If the Participant's employment with the Employer terminates prior to the last day of the Deferral Period (unless such termination is due to the Participant's Disability), then notwithstanding the manner of distribution selected by the Participant, Comerica Incorporated shall distribute or direct the Trustee to distribute Comerica Stock to the Participant as of the earliest convenient date, as determined by the Committee, which occurs subsequent to the date the Participant's employment terminates. Such shares shall be distributed to the Participant or to the Participant's Beneficiary in a single distribution as soon as is administratively feasible following the Participant's termination date. If the Participant's employment terminates prior to the last day of the Deferral Period because the Participant has become Disabled, then notwithstanding the distribution date V-1 16 selected by the Participant in the Participant's Irrevocable Election Form, certificates evidencing the Comerica Stock Fund investment, shall be distributed, or commence to be distributed, as soon as administratively feasible following his or her termination date, such distribution to be made in the manner specified in the Participant's Irrevocable Election Form. (3) Death of Participant Prior to End of Installment Distribution Period. If the Participant dies before a distribution of all the Comerica Stock is made, then the remaining Comerica Stock certificates shall be distributed to the Participant's Beneficiary, such distribution to be made as soon as is administratively feasible following the date of the Participant's death. (4) Hardship Distributions. In the event of an Unforeseeable Emergency involving a Participant which occurs prior to distribution of the entire balance of the Account in the name of the Participant, the Committee may, in its sole discretion, make a single distribution of Comerica Stock, to the Participant in an amount equal to such portion of the Account in the Participant's name as shall be necessary in the judgment of the Committee to alleviate the financial hardship occasioned by the Unforeseeable Emergency. Any Participant desiring a distribution under the Plan on account of an Unforeseeable Emergency shall submit to the Committee a written request for such distribution which sets forth in reasonable detail the Unforeseeable Emergency which would cause the Participant severe financial hardship, and the number of Comerica Stock certificates, which the Participant believes to be necessary to alleviate the financial hardship. In determining whether to grant any requested hardship distribution, the Committee shall adhere to the requirements of the Income Tax Regulations referred to in Article III(D)(3) hereof. V-2 17 (5) Stock Certificate Distributions. If, at the time an installment distribution of an Account in the name of any Participant is scheduled to commence, the fair market value of such Account does not exceed $5,000 then, notwithstanding an election by the Participant that such Account be distributed in installments, the balance of Comerica Stock in such Account shall be distributed to the Participant in a single distribution on or about the date the first installment is scheduled to be made. B. Designation of Beneficiary. A Participant shall deliver to the Committee a written designation of Beneficiary(ies) under the Plan, which designation may from time to time be amended or revoked without notice to, or consent of, any previously designated Beneficiary. (1) Beneficiary Designation Must be Filed Prior to Participant's Death. No designation of Beneficiary, and no amendment or revocation thereof, shall become effective if delivered to the Committee after such Participant's death, unless the Committee shall determine such designation, amendment or revocation to be valid. (2) Absence of Beneficiary. In the absence of an effective designation of Beneficiary, or if no Beneficiary designated shall survive the Participant, then the balance of the Account in the name of the Participant shall be paid to the Participant's estate. V-3 18 ARTICLE VI. AMENDMENT OR TERMINATION. A. Amendment and Termination of Plan. This Plan may be amended or terminated at any time in the sole discretion of the Committee by a written instrument executed by the Committee. No such amendment shall affect the time of distribution of any of the 3 Year ROE Award earned prior to the time of such amendment or termination except as the Committee may determine to be necessary to carry out the purpose of the Plan. Written notice of any such amendment or termination shall be given to each Participant. Upon termination of the Plan, Comerica Incorporated shall distribute to each Participant or Beneficiary, or direct that the Trustee so distribute, the amounts which would have been distributed to such Participant or Beneficiary under the Plan had the Participant's employment with an Employer terminated at the time of termination of the Plan. In addition, no such amendment shall make the Trust revocable. VI-1 19 ARTICLE VII. AUDITING OF ACCOUNTS AND STATEMENTS TO PARTICIPANTS. A. Auditing of Accounts. The Plan shall be audited from time to time as directed by the Committee by auditors selected by the Committee. B. Statements to Participants. Statements will be provided to Participants under the Plan on at least an annual basis. C. Fees and Expenses of Administration. Fees of the Trustee and expenses of administration of the Plan shall be deducted from Accounts. VII-1 20 ARTICLE VIII. MISCELLANEOUS PROVISIONS. A. Nonforfeitability of Participant Accounts. Each Participant shall be fully vested in his or her Account. B. Prohibition Against Assignment. Benefits payable to Participants and their Beneficiaries under the Plan may not be anticipated, assigned (either at law or in equity), alienated, sold, transferred, pledged or encumbered in any manner, nor may they be subjected to attachment, garnishment, levy, execution or other legal or equitable process for the debts, contracts, liabilities, engagements or acts of any Participant or Beneficiary. C. No Employment Contract. Nothing in the Plan is intended to be construed, or shall be construed, as constituting an employment contract between the Employer and any Participant nor shall any Plan provision affect the Employer's right to discharge any Participant for any reason or for no reason. D. Successors Bound. The contractual agreement between Comerica Incorporated and each Participant resulting from the execution of an Irrevocable Election Form shall be binding upon and inure to the benefit of Comerica Incorporated, its successors and assigns, and to the Participant and to the Participant's heirs, executors, administrators and other legal representatives. E. Prohibition Against Loans. The Participant may not borrow any 3 Year ROE Award Deferrals from Comerica Incorporated nor utilize his or her Account as security for any loan from the Employer. F. Administration By Committee. Responsibility for administration of the Plan shall be vested in the Committee. To the extent permitted by law, the Committee may VIII-1 21 delegate any authority it possesses to the Plan Administrator(s). To the extent the Committee has delegated authority concerning a matter to the Plan Administrator(s), any reference in the Plan to the "Committee" insofar as it pertains to such matter, shall refer likewise to the Plan Administrator(s). G. Governing Law and Rules of Construction. This Plan shall be governed in all respects, whether as to construction, validity or otherwise, by applicable federal law and, to the extent that federal law is inapplicable, by the laws of the State of Michigan. Each provision of this Plan shall be treated as severable, to the end that, if any one or more provisions shall be adjudged or declared illegal, invalid or unenforceable, this Plan shall be interpreted, and shall remain in full force and effect, as though such provision or provisions had never been contained herein. It is the intention of Comerica Incorporated that the Plan established hereunder be "unfunded" for income tax purposes and for purposes of Title I of ERISA, and the provisions hereof shall be construed in a manner to carry out that intention. H. Power to Interpret. This Plan shall be interpreted and effectuated to comply with the applicable requirements of ERISA, the Code and other applicable tax law principles; and all such applicable requirements are hereby incorporated herein by reference. Subject to the above, the Committee shall have power to construe and interpret this Plan, including but not limited to all provisions of this Plan relating to eligibility for benefits and the amount, manner and time of payment of benefits, any such construction and interpretation by the Committee and any action taken thereon in good faith by the Plan Administrator(s) to be final and conclusive upon any affected party. The Committee shall also have power to correct any defect, supply any omission, or reconcile any inconsistency VIII-2 22 in such manner and to such extent as the Committee shall deem proper to carry out and put into effect this Plan; and any construction made or other action taken by the Committee pursuant to this Article VIII(H) shall be binding upon such other party and may be relied upon by such other party. I. Effective Date. The effective date of this amendment and restatement shall be January 1, 1999, except as otherwise expressly stated herein. VIII-3 EX-10.20 7 INCORPORATED STOCK OPTION PLAN 1 APPROVED BY BOARD OF DIRECTORS ON 1/20/00 EXHIBIT 10.20 AMENDED AND RESTATED COMERICA INCORPORATED STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS SECTION 1. PURPOSE. The purposes of this Stock Option Plan for Non-Employee Directors are to promote the continued prosperity of Comerica Incorporated by aligning the long-term financial interests of the recipients of options hereunder with those of the shareholders of the Corporation, to provide an additional incentive for such individuals to remain as directors, and to provide a means through which the Corporation and its affiliates may attract well-qualified individuals to serve as directors. SECTION 2. DEFINITIONS. The following words and phrases, wherever capitalized, shall have the following meanings respectively, unless the context otherwise requires: A. "Affiliated Bank" means Comerica Bank-Illinois, Comerica Bank-California, Comerica Bank & Trust, F.S.B., Comerica Bank-Texas or any other financial institution which is or becomes a member of the controlled group of corporations within the meaning of Section 1563(a)(1) of the Code (or other successor provision of the Code defining the term "controlled group of corporations") of which Comerica Incorporated is the common parent corporation. B. "Agreement" means a written agreement which sets forth the terms and conditions of an option grant under the Plan, including any amendment to such written agreement. Agreements shall be subject to the express terms and conditions set forth herein. C. "Board" means the Board of Directors of Comerica Incorporated. D. "Cause" means any act of (a) fraud or intentional misrepresentation, or (b) embezzlement, misappropriation or conversion of assets or opportunities of the Corporation or any Subsidiary. 2 E. "Change in Control of the Corporation" shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 26% or more of the combined voting power of the Corporation's then outstanding securities; or (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (C) of this subsection) whose election by the Board or nomination for election by the stockholders of the Corporation was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (C) the shareholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation, other than a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 75% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition of all or substantially all of its assets. F. "Code" means the Internal Revenue Code of 1986, as amended. G. "Comerica Bank" means Comerica Bank, a Michigan banking corporation. H. "Committee" means the Directors Committee. No member of the Committee shall be eligible to receive discretionary Option grants under Section 5.B. of the Plan. I. "Common Stock" means shares of $5.00 par value common stock of Comerica Incorporated, subject to adjustment pursuant to Section 7. J. "Corporation" means Comerica Incorporated, a Delaware corporation. K. "Disabled" or "Disability" means unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form as the Committee may require. L. "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended. M. "Exchange Act" means the Securities Exchange Act of 1934, as amended. -2- 3 N. "Exercise Price" means, with respect to each share of Common Stock subject to an Option, the price at which such share may be purchased from the Corporation pursuant to the exercise of such Option. O. "Fair Market Value" means the closing price of the Common Stock on the New York Stock Exchange as reported on the Composite Tape, or if it is not listed on the New York Stock Exchange, the closing price on the exchange on which the Common Stock is then listed, or if not listed on any exchange, then the closing price reported on the NASDAQ National Market System over-the-counter market; if, however, there is no trading of the Common Stock on the date in question, then the closing price of the Common Stock, as so reported, on the last preceding date on which there was trading shall instead be used to determine Fair Market Value; if Fair Market Value for any date in question cannot be determined as hereinabove provided, Fair Market Value shall be determined by the Committee by whatever method or means the members, in the good faith exercise of their discretion, at that time shall deem appropriate. P. "Legal Representative" means the "guardian or legal representative" of the optionholder as those terms are construed under the Exchange Act who, upon the Disability or incapacity of an optionholder, shall have acquired on behalf of the optionholder, by legal proceeding or otherwise, the right to exercise the optionholder's rights and receive his or her benefits under the Plan. Q. "Non-Employee Director" means (i) with respect to Section 5.A. of the Plan, a member of the Board in his capacity as a director of the Corporation, provided such individual is not an employee of the Corporation or of any Subsidiary of the Corporation; and (ii) with respect to Section 5.B. of the Plan, a member of the board of directors of Comerica Bank or any Affiliated Bank in such individual's capacity as a director of Comerica Bank or any Affiliated Bank, provided such individual also is a director of the Corporation and is not an employee of the Corporation or of any Subsidiary of the Corporation. R. "Option" means the right, granted pursuant to this Plan, of a holder to purchase shares of Common Stock at the Exercise Price. All options granted under the Plan shall be "nonstatutory stock options," i.e., options which do not qualify under Sections 422 or 423 of the Code. S. "Personal Representative" means the executor, administrator or personal representative appointed to administer the optionholder's probate estate, or if the individual has no probate estate, then the successor trustee(s) of any revocable living trust the individual established during his or her lifetime. T. "Plan" means the plan set forth herein which shall be known as the "Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee Directors." -3- 4 U. "Qualified Domestic Relations Order" means a "qualified domestic relations order" as defined in the Code or in Title I of ERISA, or in rules promulgated thereunder. V. "Subsidiary" means any corporation of which a majority of the outstanding voting capital stock is owned, directly or indirectly, by the Corporation. With respect to non-corporate entities, it means any entity in which the Corporation owns, directly or indirectly, a majority of the equity interest. SECTION 3. SHARES AVAILABLE UNDER THE PLAN. The aggregate number of shares which may be issued and as to which grants of Options may be made under the Plan is 375,000 shares(1) of the Common Stock, subject to adjustment as set forth in Section 7. If any Option granted under the Plan is canceled by mutual consent or terminates or expires for any reason without having been exercised in full, the number of shares subject thereto shall again be available for purposes of the Plan. The shares which may be issued under the Plan may be either authorized but unissued shares or treasury shares or partly each. SECTION 4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Directors Committee (the "Committee"). The Committee may delegate the day-to-day administration of the Plan to any individual or individuals it deems appropriate. The Committee shall keep records of action taken at its meetings or by unanimous written consent. A majority of the Committee shall constitute a quorum at any meeting, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by all the members of the Committee, shall constitute acts of the Committee. Subject to the remaining provisions of this Section, the Committee shall have full authority to carry out the provisions of the Plan, including authority to interpret the Plan and prescribe such rules, regulations and procedures in connection with the operation of the Plan as it shall deem to be necessary and advisable for the administration of the Plan consistent with the purposes of the Plan. All questions of interpretation and application of the Plan, or as to Options granted under the Plan, shall be subject to the determination of the Committee, which shall be final and binding. With respect to Section 5.A. of the Plan, the selection of the Non-Employee Directors to whom Options are to be granted, the timing of such grants, the number of shares subject to any Option, the exercise price of any Option, the periods during which any Option may be exercised and the term of any Option shall be as set forth in those provisions hereof - -------------- (1) This number of shares reflects the 1998 "3 for 2" stock split. -4- 5 which relate to Section 5.A. of the Plan, and the Committee shall have no discretion as to such matters. With respect to Section 5.B. of the Plan, the Committee shall have exclusive authority to grant Options under the Plan, to select the Non-Employee Directors who will receive Options, to determine the number of Options to be granted to any Non-Employee Director and the terms of any Option grant, and to determine the time when any Options will be granted. SECTION 5. GRANT OF STOCK OPTIONS. A. Automatic Annual Grants. On the day each annual meeting of the shareholders of the Corporation is held, each Non-Employee Director shall automatically and without further action by the Board or the Committee be granted an Option to purchase 1,500 shares(2) of Common Stock, subject to adjustment and substitution as set forth in Section 7. If the number of shares then remaining available for the grant of Options under the Plan is not sufficient for each Non-Employee Director to be granted an Option for 1,500 shares (or the number of adjusted or substituted shares pursuant to Section 7), then each Non-Employee Director shall be granted an Option for a number of whole shares equal to the number of shares then remaining available divided by the number of Non-Employee Directors, disregarding any fractions of a share. B. Discretionary Grants. Any Non-Employee Director shall be eligible to receive whatever number of Options the Committee, in its sole discretion, chooses to grant to him or her from time to time, but shall not have a right to receive any such grants. SECTION 6. TERMS AND CONDITIONS APPLICABLE TO OPTION GRANTS. Options granted under the Plan shall be subject to the following terms and conditions: A. Exercise Price. The Exercise Price with respect to each share of Common Stock covered by the Option shall be 100% of the Fair Market Value of such share on the date the Option is granted. B. Payment of Exercise Price. The Exercise Price for each Option shall be paid in full upon exercise and shall be payable in cash (including check, bank draft or money order); provided, however, that in lieu of cash, the individual exercising the Option may pay the Exercise Price, in whole or in part, by delivering to the Corporation shares of Common Stock having a Fair Market Value on the date of exercise of the Option equal to the Exercise Price of the shares being purchased: except that (i) any portion of the Exercise Price representing a fraction of a share shall in any event be paid in cash, and (ii) no - --------------- (2) This number of shares reflects the 1998 "3 for 2" stock split. -5- 6 shares of Common Stock which have been held for less than six months may be delivered in payment of the Exercise Price of an Option. Delivery of shares may also be accomplished through the effective transfer to the Corporation of shares held by a broker or other agent. The Corporation will also cooperate with any individual exercising an Option who participates in a cashless exercise program of a broker or other agent under which all or part of the shares received upon exercise of the Option are sold through the broker or other agent or under which the broker or other agent makes a loan to such individual. Notwithstanding the foregoing, the exercise of the Option shall not be deemed to occur and no shares of Common Stock will be issued by the Corporation upon exercise of the Option until the Corporation has received payment of the Exercise Price in full. The date of exercise of an Option shall be determined under procedures established by the Committee, and as of the date of exercise the individual exercising the Option shall be considered for all purposes to be the owner of the shares with respect to which the Option has been exercised. Payment of the Exercise Price with shares shall not increase the number of shares of Common Stock which may be issued under the Plan as provided in Section 3. C. Term of Options and Vesting. No Option shall be exercisable during the first year of its term except as provided in Section 6.E., upon the occurrence of a Change in Control of the Corporation, or as the Committee otherwise determines. Each Option shall be exercisable with respect to all of the shares subject thereto from and after the first anniversary of the date of its grant. Subject to Section 6.E. which provides for earlier termination of an Option under certain circumstances, each Option shall expire ten years after the date of grant. An Option, to the extent exercisable at any time, may be exercised in whole or in part. Notwithstanding any other provision contained in the Plan, in case any Change in Control of the Corporation occurs, all outstanding Options shall become immediately and fully exercisable whether or not otherwise exercisable by their terms. D. Restrictions on Transferability. No Option shall be transferable by the grantee otherwise than by will, or if the grantee dies intestate, by the laws of descent and distribution of the state of domicile of the grantee at the time of death or pursuant to a Qualified Domestic Relations Order. All Options shall be exercisable during the lifetime of the grantee only by the grantee or by the grantee's Legal Representative. These restrictions on transferability shall not apply to the extent such restrictions are not at the time required for the Plan to continue to meet the requirements of Rule 16b-3 under the Exchange Act, or any successor Rule. E. Separation From Board Service. If a grantee ceases to be a director of the Corporation, Comerica Bank or any Affiliated Bank, any outstanding Options the grantee then holds shall be exercisable in accordance with the following provisions: 1.(a) Retirement, Disability, or Other Separation. If the grantee's separation is due to his or her retirement, Disability, or any other circumstance not covered in -6- 7 Sections 6.E.1.(b) or 6.E.2. below, any outstanding Option held by such grantee shall be exercisable by the grantee, or by his or her Legal Representative or Personal Representative, as the case may be (but only if exercisable by the grantee immediately prior to ceasing to be a director), at any time prior to the expiration date of such Option; and 1.(b) Death. If the grantee's separation is due to his or her death, any outstanding Option held by such grantee shall be exercisable by the grantee, or by his or her Legal Representative or Personal Representative, as the case may be, at any time prior to the expiration date of such Option or within one year after the date the grantee ceases to be a director, whichever period is shorter; and 2. Resignation or Removal for Cause. If the grantee's separation is due to his or her resignation or removal from office for Cause, any outstanding Option held by the grantee which is exercisable by the grantee immediately prior to his or her resignation or removal shall be exercisable by the grantee for 90 days following such resignation or removal (or by his Personal Representative or Legal Representative during the remainder of such 90-day period if he or she dies or becomes Disabled during such period), but not beyond the original term of such Option. An Option held by a grantee who has ceased to be a director of the Corporation, Comerica Bank or any Affiliated Bank shall expire at the end of the applicable exercise period, if any, specified in this Section 6.E. F. Option Agreements. All grants of Options shall be evidenced by an Agreement which shall be executed on behalf of the Corporation by a representative of the Committee. G. Conditions Applicable to Grants of Options. The obligation of the Corporation to issue shares of Common Stock under the Plan shall be subject to (i) the effectiveness of a registration statement under the Securities Act of 1933, as amended, with respect to such shares, if deemed necessary or appropriate by counsel for the Corporation; (ii) the condition that any shares to be issued shall have been listed (or authorized for listing upon official notice of issuance) upon each stock exchange, if any, on which the Common Stock may then be listed; and (iii) all other applicable laws, regulations, rules and orders which may then be in effect. Subject to the foregoing provisions of this Section 6 and the other provisions of the Plan, any Option granted under the Plan shall be subject to such restrictions and other terms and conditions, if any, as shall be determined by the Committee in its discretion and set forth in an Agreement; except that (i) with respect to automatic grants under Section 5.A. hereof, in no event shall the Committee or the Board have any power or authority which would cause the Plan to fail to be a plan described in Rule 16b-3(c)(2) (ii) (or old Rule 16b- 3(b)(1)(iii) so long as such rule remains effective), or any successor Rule; and (ii) with respect to discretionary grants under Section 5.B. hereof, in no event shall any member -7- 8 of the Committee be other than a "disinterested person" under Rule 16b-3(c)(2)(i) (or Rule 16b-3(b)(1)(ii) so long as such rule remains effective). Furthermore, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. SECTION 7. ADJUSTMENT AND SUBSTITUTION OF SHARES. In the event any change occurs in the number of shares of Common Stock outstanding as a result of any stock split, stock dividend, recapitalization, merger, consolidation, reorganization, combination or exchange of shares, split-up, split-off, spin off, liquidation or other similar change in capitalization, or any distribution to common shareholders other than cash dividends, the number or kind of shares that may be issued under the Plan pursuant to Section 3, including shares covered by existing Options, shall be automatically adjusted to preserve the proportionate interests of the grantees in the Corporation as represented by their outstanding Options, and the proportionality of the share pool under the Plan in relation to the total number of shares outstanding. If the outstanding shares of the Common Stock shall be changed into or become exchangeable for a different number or kind of shares of stock or other securities of the Corporation or another corporation, whether through reorganization, reclassification, recapitalization, stock split-up, combination of shares, merger or consolidation, then there shall be substituted for each share of the Common Stock set forth in Section 3, including shares covered by existing Options, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall become exchangeable. In case of any adjustment or substitution as provided for in the first two paragraphs of this Section 7, the aggregate Exercise Price for all shares subject to each then outstanding Option prior to such adjustment or substitution shall be the aggregate Exercise Price for all shares of stock or other securities (including any fraction) into which such shares shall have been converted or which shall have been substituted for such shares. Any new Exercise Price per share shall be carried to at least three decimal places with the last decimal place rounded upwards to the nearest whole number. If the outstanding shares of Common Stock shall be changed in value by reason of any spin-off, split-off or split-up, or dividend in partial liquidation, dividend in property other than cash or extraordinary distribution to holders of Common Stock, the Committee shall make any adjustments to any then outstanding Option which it determines are equitably required to prevent dilution or enlargement of the rights of grantees which would otherwise result from any such transaction. -8- 9 No adjustment or substitution provided for in this Section 7 shall require the Corporation to issue or sell a fraction of a share or other security. Accordingly, all fractional shares or other securities which result from any such adjustment or substitution shall be eliminated and not carried forward to any subsequent adjustment or substitution. Except as provided in this Section 7, a grantee shall have no rights by reason of the issuance by the Corporation of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. SECTION 8. EFFECT OF THE PLAN ON THE RIGHTS OF THE CORPORATION, ITS AFFILIATES AND SHAREHOLDERS. Nothing in the Plan, in any Option granted under the Plan, or in any Agreement shall confer any right to any person to continue as a director of the Corporation, Comerica Bank or any Affiliated Bank, or interfere in any way with the rights of the shareholders of the Corporation, the Board or the board of directors of Comerica Bank or any Affiliated Bank to elect and remove directors. SECTION 9. AMENDMENT AND TERMINATION. The right to amend the Plan at any time and from time to time and the right to terminate the Plan at any time are hereby specifically reserved to the Board; provided, however, that no such termination shall result in the cancellation of any outstanding Options theretofore granted under the Plan; and provided further that no amendment of the Plan shall: (i) be made without shareholder approval if shareholder approval of the amendment is at the time required for Options granted under the Plan to directors of the Corporation, Comerica Bank or any Affiliated Bank to qualify for the exemption from Section 16(b) of the Exchange Act provided by Rule 16b-3, or by any successor Rule, or by the rules of any stock exchange on which the Common Stock may then be listed; (ii) amend more than once every six months the provisions of the Plan relating to grants under Section 5.A. of the Plan including the selection of the directors to whom Options are to be granted under Section 5.A., the timing of such grants, the number of shares which will become subject to any Option granted under Section 5.A., the Exercise Price of any Option granted under Section 5.A., the periods during which any Option granted under Section 5.A. may be exercised and the term of any such Option other than to comport with changes in the Code or ERISA, or the rules and regulations thereunder; or (iii) otherwise amend the Plan in any manner that would cause Options granted under the Plan to directors of the Corporation, Comerica Bank or any Affiliated Bank not to qualify for the exemption provided by Rule 16b-3, or any successor Rule. No amendment or termination of the Plan shall, without the written consent of the holder of an Option theretofore granted under the Plan, adversely affect the rights of such holder with respect thereto. -9- 10 Notwithstanding anything contained in the preceding paragraph or in any other provision of the Plan or in any Agreement, the Board shall have the power to amend the Plan in any manner deemed necessary or advisable so that Options granted under the Plan qualify for the exemption provided by Rule 16b-3 (or any successor rule relating to exemption from Section 16(b) of the 1934 Act), and any such amendment shall, to the extent deemed necessary or advisable by the Board, be applicable to any outstanding Options theretofore granted under the Plan notwithstanding any contrary provisions in any Agreement. In the event of any such amendment to the Plan, the holder of any Option outstanding under the Plan shall, upon request of the Committee and as a condition to the exercisability of such Option, execute a conforming amendment in the form prescribed by the Committee to the Agreement referred to in Section 6.F. within such reasonable time as the Committee shall specify in such request. SECTION 10. EFFECTIVE DATE AND DURATION OF PLAN. The Plan shall become effective upon approval by the affirmative votes of the holders of a majority of the shares of Common Stock present, or represented, and entitled to vote at a duly called and convened meeting of shareholders. If approval is obtained at the Annual Meeting of Shareholders in 1995, the Plan shall be effective on the date of the meeting and the first Options shall be granted on that date following the meeting. The last Options to be granted under the Plan shall be granted on the day of the Annual Meeting of Shareholders of the Corporation in the year 2004. -10- EX-10.21 8 DISCRETIONARY DIRECTOR FEE DEFERRAL PLAN 1 EXHIBIT 10.21 COMERICA INCORPORATED 1999 DISCRETIONARY DIRECTOR FEE DEFERRAL PLAN 2 COMERICA INCORPORATED 1999 DISCRETIONARY DIRECTOR FEE DEFERRAL PLAN TABLE OF CONTENTS SECTION I - PURPOSE............................................................1 SECTION II - DEFINITIONS.......................................................1 SECTION III - ELIGIBILITY......................................................2 SECTION IV - PROCEDURES RELATING TO DEFERRALS..................................2 SECTION V - CREDITING OF EARNINGS TO ACCOUNTS..................................4 SECTION VI - DISTRIBUTION OF DEFERRED FEES.....................................5 SECTION VII - DESIGNATION OF BENEFICIARY.......................................5 SECTION VIII - MISCELLANEOUS PROVISIONS........................................6 EXHIBIT A1 - NOTICE OF ELECTION TO DEFER....................................A1-1 EXHIBIT A2 - NOTICE OF ELECTION TO DEFER....................................A2-1 EXHIBIT B - NOTICE OF CANCELLATION OF DEFERRAL ELECTION......................B-1 EXHIBIT C - REALLOCATION OF INVESTMENT.......................................C-1 EXHIBIT D - BENEFICIARY DESIGNATION FORM.....................................D-1
-i- 3 COMERICA INCORPORATED 1999 DISCRETIONARY DIRECTOR FEE DEFERRAL PLAN SECTION I - PURPOSE The purpose of this Plan is to allow an eligible director to defer compensation, under the conditions provided herein, into a Mutual Fund Unit Account. The funds in each eligible director's Mutual Fund Unit Account are hypothetically invested in mutual funds designated by the Committee from time to time. No more than one-half of the Director Fees of each Company director may be allocated, on the director's behalf, into a Mutual Fund Unit Account. Any director of any Subsidiary of the Company or an Advisory Board may defer all or a portion of his or her Director Fees into a Mutual Fund Unit Account. SECTION II - DEFINITIONS The following words and phrases, wherever capitalized, shall have the following meanings respectively: A. "Advisory Board" means a special board of directors appointed to advise a Subsidiary of the Company. B. "Beneficiary(ies)" means such individual(s) or entity(ies) designated on the most recent Beneficiary Designation the director has submitted to the Corporate Secretary. C. "Beneficiary Designation" means a beneficiary designation on the form attached hereto as Exhibit "C", as such form may be modified by the Plan Administrator from time to time. D. "Cancellation of Deferral Election" means a written notice of cancellation of election to defer unearned fees on the form attached hereto as Exhibit "B", as such form may be modified by the Plan Administrator from time to time. E. "Code" means the Internal Revenue Code of 1986, as amended. F. "Committee" means the Directors' Committee of the Board of Directors of Comerica Incorporated. G. "Company" means Comerica Incorporated, a Delaware corporation. H. "Corporate Secretary" means the Secretary of Comerica Incorporated. I. "Deferral Election" means a written notice to defer the payment of director fees on one of the applicable forms attached hereto as Exhibits "A1 or A2", as such form may be modified by the Plan Administrator from time to time. -1- 4 J. "Director Fees" means a director's annual retainer, fees for attending board meetings, fees for attending meetings of any committee of the board, if any, and fees for serving as chairman of any committee of the board. K. "Mutual Fund Unit Account" means an account established under Section V of this Plan in the name of each director to record those fees that have been deferred to such account and earnings thereon. L. "Participant" means an eligible director for whom a Mutual Fund Unit Account is maintained under the Plan. M. "Plan" means the Comerica Incorporated 1999 Discretionary Director Fee Deferral Plan," the provisions of which are set forth herein, as it may be amended from time to time. N. "Plan Administrator" means one or more individuals appointed by the Committee to handle the day-to-day administration of the Plan. O. "Reallocation Form" means a written notice to reallocate a deferred Director Fees on the form attached hereto as Exhibit C, as such form may be modified by the Plan Administrator from time to time. P. "Subsidiary" means any corporation, partnership or other entity, a majority of whose stock or interests is owned by Comerica Incorporated. Q. "Unforeseeable Emergency" means a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (within the meaning of Code Section 152(a)) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. SECTION III - ELIGIBILITY Each director of the Company, each director of any Subsidiary of the Company and each director of an Advisory Board of a Subsidiary of the Company shall be eligible to participate in the Plan provided any such director is not an employee of the Company or an employee of any Subsidiary of the Company. SECTION IV - PROCEDURES RELATING TO DEFERRALS A. Deferral of Directors Compensation. 1. Deferral for Directors of the Company. No more than one-half of the Director Fees of each of the Company's directors shall be subject to a Deferral Election (other than length of deferral and schedule of pay-out) under this Plan. The remainder of the Directors' Fees of each Company director shall be deferred automatically as provided in the Comerica Incorporated 1999 Common Stock Director Fee Deferral Plan. The minimum period of deferral for Director Fees deferred pursuant to this Section IV (A) shall be the lesser of the -2- 5 number of years remaining before regular retirement or five years. In the event a Company director does not indicate the period of deferral for such fees on the Deferral Election, such fees shall be deferred for a period of five years and paid out in a single lump sum. 2. Deferral for Directors of any Subsidiary. Directors of any Subsidiary of the Company may defer any portion of their compensation under this Plan or the Comerica Incorporated 1999 Common Stock Director Fee Deferral Plan. The minimum period of deferral for Director Fees deferred pursuant to this Section IV (A) shall be the lesser of the number of years remaining before regular retirement or five years. In the event a director of any Subsidiary of the Company does not indicate the period of deferral, such fees shall be deferred for a period of five years and paid out in a single lump sum. 3. Deferral for Directors of any Advisory Board. Directors of an Advisory Board of any Subsidiary of the Company may defer any portion of their compensation under this Plan or the Comerica Incorporated 1999 Common Stock Director Fee Deferral Plan. The minimum period of deferral for Director Fees deferred pursuant to this Section IV (A) shall be the lesser of the number of years remaining before regular retirement or five years. In the event a director of an Advisory Board of any Subsidiary of the Company does not indicate the period of deferral, such fees shall be deferred for a period of five years and paid out in a single lump sum. B. Elective Deferral Procedures. Any eligible director wishing to defer Director Fees which are subject to a Deferral Election must submit a Deferral Election to the Corporate Secretary at 500 Woodward, MC 3391, Detroit, Michigan 48226-3391 or such other person designated by the Chief Executive Officer of the Company from time to time, prior to the beginning of the service year during which the fees are to be earned (from annual meeting of shareholders to annual meeting of shareholders). However, any newly-appointed or newly-elected director may submit a Deferral Election within sixty days of his or her appointment or election. A Deferral Election pursuant to this Plan may cover all or a portion of Director Fees which may be deferred pursuant to this Plan but shall not cover amounts subject to an automatic allocation pursuant to the Comerica Incorporated 1999 Common Stock Director Fee Deferral Plan, and shall designate in which mutual fund and in what proportions the Director Fees under this Plan so deferred will be recorded. 1. Irrevocability. A director may not modify or revoke a Deferral Election (except to the extent permitted to reallocate among investment options), once the director has performed the services that entitle the director to the fees. If a director has submitted a Deferral Election relating to fees to be earned in the future, he or she may modify such election by submitting a new Deferral Election prior to the beginning of the calendar year in which the fees will be earned. Any such Deferral Election will supersede any previous Deferral Election as it relates to fees to be earned in future years. 2. Cancellation. A Deferral Election may be canceled by submitting a Cancellation of Deferral Election in form and substance as provided in Exhibit B attached hereto, as such form may be modified by the Plan Administrator from time to time. A director who cancels a Deferral Election may not submit a new Deferral Election -3- 6 before at least twelve months have elapsed from the effective date of the cancellation. SECTION V - CREDITING OF EARNINGS TO ACCOUNTS Director Fees which have been deferred under this Plan shall be credited to Mutual Fund Unit Accounts created by and recorded on the books of the Company from time to time. As of the last day of each month or on a more frequent basis if practicable, each Mutual Fund Unit Account shall be adjusted as follows: A. Mutual Fund Unit Account shall be "hypothetically invested" in one of the mutual funds offered for investment by the Committee and designated by each director. In the event the sponsor of said mutual fund ("Sponsor") has established a rabbi trust for its own benefit to fund the Sponsor's obligations under this Plan, the purchase price for the mutual fund shares shall be the actual price of the shares the Sponsor purchases on the open market on the day of the deferral of the Director Fees. In the event that the Sponsor has not established a rabbi trust, the purchase price shall be based upon the closing price for the mutual fund shares on the exchange of which the mutual fund is listed on the day that the Director Fees would have otherwise been paid to the director had they not been deferred. No director shall have any right to vote any shares of the Sponsor's mutual funds held in the rabbi trust except to the extent otherwise permitted by the terms of the rabbi trust. 1. The account shall first be charged with any distributions made during the month or on a more frequent basis if practicable; 2. The account shall then be credited with earnings, gains and losses for the month based upon the closing price for the designated mutual fund on the exchange of which said fund is listed as of the last day of such month or on a more frequent basis if practicable, plus any dividends paid during such period. 3. The account shall then be credited with the amount, if any, of Director Fees deferred and designated to be credited to such account during such month or on a more frequent basis if practicable. B. Reallocation of Investment Options. Each director may reallocate all or a portion of his or her Mutual Fund Unit Account to change the percentage(s) of an investment and/or designate an alternate mutual fund as an investment option by submitting a Reallocation Form in form and substance as provided in Exhibit "C" to the Corporate Secretary or such other person designated by the Chief Executive Officer of the Company from time to time. The Plan Administrator may delay any reallocation request because of a trading blackout period or any other trading restriction which may be imposed on the Company, whether voluntary or involuntary. No transfers between investment options will be allowed if prohibited by the rules applicable to the particular mutual fund from or to which a transfer is to be made or by rules adopted by the Plan Administrator and communicated to the directors. -4- 7 SECTION VI - DISTRIBUTION OF DEFERRED FEES A. Time and Manner. Distribution of each Participant's account shall be made in cash at such time and in such manner, i.e., a lump sum or installments, as the Participant has specified in the Deferral Election(s) submitted to the Corporate Secretary or as otherwise required by Section IV(A). B. Installment Payments. Installment payments under an installment payment option may not exceed ten years. The amount of each installment payment shall be determined by multiplying the balance of the Mutual Fund Unit Account on the date the installment is scheduled to be paid by a fraction, the numerator of which is one and the denominator of which is the number of unpaid installments remaining at such time. If a Participant who is receiving installment payments dies prior to receiving the balance of his or her account, the unpaid balance shall be paid in one lump sum to the Participant's Beneficiary(ies) not later than the 15th day of the month following the month in which the Participant's death occurred. C. Hardship Distributions. In the event of an Unforeseeable Emergency involving a Participant which occurs prior to distribution of the entire balance of the Participant's Mutual Fund Unit Account, the Committee may, in its sole discretion, distribute to the Participant in a single sum an amount equal to such portion of such account as shall be necessary, in the judgment of the Committee, to alleviate the financial hardship occasioned by the Unforeseeable Emergency. Any Participant desiring a distribution under the Plan on account of an Unforeseeable Emergency shall submit to the Committee a written request for such distribution which sets forth in reasonable detail the Unforeseeable Emergency which would cause the Participant severe financial hardship, and the amount which the Participant believes to be necessary to alleviate the financial hardship. In determining whether to grant any requested hardship distribution, the Committee shall adhere to the requirements of Section 1.457-2(h)(4) of the Income Tax Regulations (or to any successor regulations dealing with the same subject matter), the provisions of which are incorporated herein by reference. D. Cash Out Distributions. If, at the time an installment distribution of a Mutual Fund Unit Account in the name of any Participant is scheduled to commence, the fair market value of such account does not exceed $10,000, then, notwithstanding an election by the Participant that such account be distributed in installments, the balance of such account shall be distributed to the Participant in a single sum on or about the date the first installment is scheduled to be made. SECTION VII - DESIGNATION OF BENEFICIARY Upon becoming a Participant of the Plan, each director shall submit to the Corporate Secretary or such other person designated by the Chief Executive Officer of the Company from time to time a Beneficiary Designation on the form attached as Exhibit "D" designating one or more Beneficiaries to whom payments otherwise due the Participant shall be made in the event of the Participant's death before distribution of the Participant's Mutual Fund Unit Account has been completed. A Beneficiary Designation will be effective only if it is signed by the Participant and submitted to the Corporate Secretary before the Participant's death. -5- 8 Any Beneficiary Designation submitted to the Corporate Secretary will supersede any previous Beneficiary Designation so submitted. If the primary beneficiary shall predecease the Participant or the primary beneficiary and the Participant die in a common disaster under such circumstances that it is impossible to determine who survived the other, amounts remaining unpaid at the time of the Participant's death shall be paid to the alternate beneficiary(ies) who survive the Participant. If there are no alternate beneficiaries living or in existence at the date of the Participant's death, the balance of the account shall be paid in one lump sum to the legal representative of the Participant's estate. SECTION VIII - MISCELLANEOUS PROVISIONS A. Nonalienation of Benefits. Neither the Participant nor any Beneficiary designated by him or her shall have any right to alienate, assign, or encumber any amount that is or may be payable hereunder, nor may any such amount be subject to attachment, garnishment, levy, execution or other legal or equitable process for the debts, contracts, liabilities, engagements or acts of any Participant or Beneficiary. B. Administration of Plan. Full power and authority to construe, interpret, and administer the Plan shall be vested in the Directors' Committee of the Board of Directors of the Company. To the extent permitted by law, the Committee may delegate any authority it possesses to the Plan Administrator. To the extent the Committee has delegated authority concerning a matter to the Plan Administrator, any reference in the Plan to the "Committee" insofar as it pertains to such matter, shall refer likewise to the Plan Administrator. Decisions of the Committee shall be final, conclusive, and binding upon all parties. C. Amendment or Termination. The Board of Directors of the Company may amend or terminate this Plan at any time. Any amendment or termination of this Plan shall not affect the rights of Participants or Beneficiaries to the amounts in the Mutual Fund Unit Account of such amendment or termination. The Plan Administrator may make any amendments to the Plan, including forms under the Plan, recommended by the Company's legal counsel which are necessary or appropriate to keep the Plan and forms in compliance with applicable laws. The Company reserves the right to accelerate distribution of fees deferred hereunder in the event the Plan is terminated. D. Effective Date. This Plan is intended to constitute an amendment and restatement of a prior plan maintained by the Company captioned "Comerica Incorporated Director Fee Deferral Plan". The Plan was approved by the Board of Directors of Company on May 21, 1999. The version of the Plan contained in this document shall be effective to defer monies to be earned from and after January 1, 1997, and the earnings rate contained in this version of the Plan shall apply to existing accounts under the Plan beginning January 1, 1997. Except for the earnings rate, monies deferred under prior versions of the Plan shall remain subject to prior deferral elections. E. Statements to Participants. Statements will be provided to Participants under the Plan on at least an annual basis. -6- 9 F. Nonforfeitability of Participant Accounts. Each Participant shall be fully vested in his or her Mutual Fund Unit Account created by Company from time to time. G. Successors Bound. The contractual agreement between Comerica Incorporated and each Participant resulting from the execution of a Deferral Election shall be binding upon and inure to the benefit of Comerica Incorporated, its successors and assigns, and to the Participant and to the Participant's heirs, executors, administrators and other legal representatives. H. Governing Law and Rules of Construction. This Plan shall be governed in all respects, whether as to construction, validity or otherwise, by applicable federal law and, to the extent that federal law is inapplicable, by the laws of the State of Michigan. Each provision of this Plan shall be treated as severable, to the end that, if any one or more provisions shall be adjudged or declared illegal, invalid or unenforceable, this Plan shall be interpreted, and shall remain in full force and effect, as though such provision or provisions had never been contained herein. It is the intention of Comerica Incorporated that the Plan established hereunder be "unfunded" for income tax purposes, whether or not the Company establishes a rabbi trust, and the provisions hereof shall be construed in a manner to carry out that intention. I. Ownership of Fee Deferrals. Title to and beneficial ownership of any assets, of whatever nature, which may be allocated by Comerica Incorporated to any Mutual Fund Unit Account in the name of any Participant shall at all times remain with Comerica Incorporated, and no Participant or Beneficiary shall have any property interest whatsoever in any specific assets of Comerica Incorporated by reason of the establishment of the Plan. The rights of each Participant and Beneficiary hereunder shall be limited to enforcing the unfunded, unsecured promise of Comerica Incorporated to pay benefits under the Plan, and the status of any Participant or Beneficiary shall be that of an unsecured general creditor of Comerica Incorporated. -7- 10 EXHIBIT "A1" COMERICA INCORPORATED DIRECTOR FEE DEFERRAL PLANS FORM APPLICABLE TO COMERICA INCORPORATED DIRECTORS NOTICE OF ELECTION TO DEFER AND DISTRIBUTION OF DEFERRED DIRECTORS' FEES A DIRECTOR WHO WISHES TO DEFER FEES PURSUANT TO THE COMERICA INCORPORATED 1999 COMMON STOCK DIRECTOR FEE DEFERRAL PLAN OR COMERICA INCORPORATED 1999 DISCRETIONARY DIRECTOR FEE DEFERRAL PLAN (COLLECTIVELY CALLED "PLANS") SHOULD CHECK APPLICABLE BOXES, SIGN AND DATE THE FORM AND RETURN IT TO: ALBERT P. TAYLOR COMERICA INCORPORATED 500 WOODWARD AVE 31ST FLOOR, MC 3382 DETROIT, MICHIGAN 48226-3382 A. I SERVE AS DIRECTOR ON THE COMERICA INCORPORATED BOARD. B. ELECTION TO DEFER FEES. PURSUANT TO PROVISIONS OF THE ABOVE REFERENCED PLANS, I HEREBY ELECT TO HAVE THE FEES WHICH ARE PAYABLE TO ME FOR RENDERING SERVICES AS A MEMBER OF THE BOARD OF DIRECTORS OF COMERICA INCORPORATED DEFERRED IN THE MANNER SPECIFIED BELOW. I UNDERSTAND THAT AT LEAST ONE-HALF OF MY DIRECTOR FEES SHALL BE DEFERRED INTO THE COMERICA COMMON STOCK FUND. I UNDERSTAND AND AGREE THAT THIS ELECTION SHALL BECOME EFFECTIVE ON THE DATE OF THE ANNUAL MEETING OF SHAREHOLDERS IMMEDIATELY FOLLOWING RECEIPT OF THIS NOTICE OF ELECTION BY THE OFFICE OF THE CHAIRMAN OF COMERICA INCORPORATED OR ON THE FIRST DAY OF THE MONTH FOLLOWING RECEIPT BY SUCH IF I AM A NEWLY ELECTED DIRECTOR OF COMERICA INCORPORATED. I UNDERSTAND THAT THIS ELECTION SHALL BE IRREVOCABLE WITH RESPECT TO FEES ONCE I HAVE PERFORMED THE SERVICES WHICH ENTITLE ME TO RECEIVE SUCH FEES. THIS ELECTION SHALL CONTINUE IN EFFECT UNTIL I MODIFY OR REVOKE IT. C. PERCENTAGE OF FEES TO BE DEFERRED: MANDATORY 50% COMERICA COMMON STOCK FUND A1-1 11 DISCRETIONARY (SELECT UP TO 50%) ____ COMERICA COMMON STOCK FUND ____ MUNDER INDEX 500 FUND ____ MUNDER BOND FUND ____ MUNDER SHORT TERM BOND FUND ____ MUNDER SMALL COMPANY GROWTH FUND ____ MUNDER CASH INVESTMENT FUND D. YEAR DISTRIBUTION OF DEFERRED FEES IS TO COMMENCE (MUST BE A MINIMUM OF 5 YEARS, EXCEPT IN THE CASE OF RETIREMENT, IN WHICH CASE PAYMENTS MAY BEGIN IN THE YEAR OF RETIREMENT): 20__ PAYMENTS WILL BE MADE OR COMMENCE ON MAY 30TH OF THE YEAR SELECTED. E. PAYMENT METHOD DESIRED: ___ LUMP SUM ___ INSTALLMENTS OVER _____ YEARS (YOU MAY CHOOSE 2, 5 OR 10 YEARS). (THE BALANCE OF ANY FEE DEFERRAL ACCOUNT WILL BE DISTRIBUTED IN ONE LUMP SUM TO THE DIRECTOR'S DESIGNATED BENEFICIARY IF THE DIRECTOR DIES BEFORE RECEIPT OF ALL INSTALLMENT PAYMENTS). FREQUENCY OF INSTALLMENTS: ___ ANNUALLY ___ EVERY 3 MONTHS DATE: MAY 21, 1999 __________________________ ------------ SIGNATURE OF DIRECTOR Name _______________________________ Address _______________________________ _______________________________ Social Security # __________________________ A1-2 12 EXHIBIT "A2" COMERICA INCORPORATED DIRECTOR FEE DEFERRAL PLANS FORM APPLICABLE TO BANK OR ADVISORY DIRECTORS NOTICE OF ELECTION TO DEFER AND DISTRIBUTION OF DEFERRED DIRECTORS' FEES A DIRECTOR WHO WISHES TO DEFER FEES PURSUANT TO THE TERMS OF THE COMERICA INCORPORATED 1999 COMMON STOCK DIRECTOR FEE DEFERRAL PLAN OR THE COMERICA INCORPORATED 1999 DISCRETIONARY DIRECTOR FEE DEFERRAL PLAN (COLLECTIVELY CALLED "PLANS") SHOULD CHECK APPLICABLE BOXES, COMPLETE THE OTHER PORTIONS OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO: ALBERT P. TAYLOR COMERICA INCORPORATED 500 WOODWARD AVE 31ST FLOOR, MC 3382 DETROIT, MICHIGAN 48226-3382 A. BOARD ON WHICH I SERVE AS DIRECTOR: ___ COMERICA BANK ___ COMERICA BANK- CALIFORNIA ___ COMERICA BANK - TEXAS ___ COMERICA ADVISORY BOARD B. ELECTION TO DEFER FEES. PURSUANT TO PROVISIONS OF THE ABOVE REFERENCED PLANS, I HEREBY ELECT TO HAVE THE FEES SPECIFIED BELOW WHICH BECOME PAYABLE TO ME FOR RENDERING SERVICES AS A MEMBER OF THE BOARD OF DIRECTORS ON WHICH I SERVE DEFERRED IN THE MANNER SPECIFIED BELOW. I UNDERSTAND AND AGREE THAT THIS ELECTION SHALL BECOME EFFECTIVE ON THE DATE OF THE ANNUAL MEETING OF SHAREHOLDERS, IMMEDIATELY FOLLOWING RECEIPT OF THIS ELECTION BY THE OFFICE OF THE CHAIRMAN OF COMERICA INCORPORATED OR ON THE FIRST DAY OF THE MONTH FOLLOWING RECEIPT BY SUCH IF I AM NEWLY ELECTED DIRECTOR OF COMERICA. I UNDERSTAND THAT THIS ELECTION SHALL BE IRREVOCABLE WITH RESPECT TO FEES ONCE I HAVE PERFORMED THE SERVICES WHICH ENTITLE ME TO RECEIVE SUCH FEES. THIS ELECTION SHALL CONTINUE IN EFFECT UNTIL I MODIFY OR REVOKE IT. A2-1 13 C. PERCENTAGE OF FEES TO BE DEFERRED DISCRETIONARY (SELECT UP TO 100%) _______ COMERICA COMMON STOCK FUND _______ MUNDER INDEX 500 FUND _______ MUNDER BOND FUND _______ MUNDER SHORT TERM BOND FUND _______ MUNDER SMALL COMPANY GROWTH FUND _______ MUNDER CASH INVESTMENT FUND D. YEAR DISTRIBUTION OF DEFERRED FEES IS TO COMMENCE: 20__ PAYMENTS WILL BE MADE OR COMMENCE ON MAY 30TH OF THE YEAR SELECTED. E. PAYMENT METHOD DESIRED: ___ LUMP SUM ___ INSTALLMENTS OVER _____ YEARS (YOU MAY CHOOSE 2, 5 OR 10 YEARS). (THE BALANCE OF ANY FEE DEFERRAL ACCOUNT WILL BE DISTRIBUTED IN ONE LUMP SUM TO THE DIRECTORS DESIGNATED BENEFICIARY IF THE DIRECTOR DIES BEFORE RECEIPT OF ALL INSTALLMENT PAYMENTS). FREQUENCY OF INSTALLMENTS: ___ ANNUALLY ___ EVERY 3 MONTHS DATE: MAY 21, 1999 _______________________ SIGNATURE OF DIRECTOR NAME _________________________________ ADDRESS _________________________________ _________________________________ SOCIAL SECURITY # _____________________________ A2-2 14 EXHIBIT "B" COMERICA INCORPORATED DIRECTOR FEE DEFERRAL PLAN NOTICE OF CANCELLATION OF DEFERRAL ELECTION A DIRECTOR WHO WISHES TO CANCEL A DEFERRAL ELECTION SHOULD SIGN AND DATE THIS FORM AND RETURN IT TO: ALBERT TAYLOR COMERICA INCORPORATED 500 WOODWARD AVE 31ST FLOOR, MC 3382 DETROIT, MICHIGAN 48226-3382 PURSUANT TO PROVISIONS OF THE ABOVE REFERENCED PLAN, I HEREBY CANCEL MY DEFERRAL ELECTION UNDER THE PLAN EFFECTIVE AS OF THE FIRST DAY OF THE MONTH FOLLOWING YOUR RECEIPT OF THIS NOTICE OF CANCELLATION OF DEFERRAL ELECTION. THIS CANCELLATION SHALL APPLY ONLY TO UNEARNED FEES THAT WOULD, BUT FOR THIS CANCELLATION, BE DEFERRED UNDER MY PRIOR DEFERRAL ELECTION. ANY FEES I HAVE PREVIOUSLY ELECTED TO DEFER THAT HAVE ALREADY BEEN EARNED THROUGH MY RENDERING OF SERVICES SHALL REMAIN SUBJECT TO MY PRIOR DEFERRAL ELECTION. DATE: __________________ ___________________________ SIGNATURE OF DIRECTOR NAME: ___________________________________ ADDRESS: ___________________________________ ___________________________________ SOCIAL SECURITY # _____________________________ B-1 15 EXHIBIT "C" COMERICA INCORPORATED DIRECTOR FEE DEFERRAL PLAN NOTICE OF REALLOCATION OF INVESTMENT OPTIONS A DIRECTOR WHO WISHES TO REALLOCATE INVESTMENT OPTIONS OF DEFERRED DIRECTOR FEES SHOULD SIGN AND DATE THIS FORM AND RETURN IT TO: ALBERT TAYLOR COMERICA INCORPORATED 500 WOODWARD AVE 31ST FLOOR, MC 3382 DETROIT, MICHIGAN 48226-3382 PURSUANT TO PROVISIONS OF THE COMERICA INCORPORATED 1999 DISCRETIONARY DIRECTOR DEFERRAL FEE PLAN, I HEREBY CANCEL MY PREVIOUS INVESTMENT OPTION ALLOCATION UNDER THE PLAN EFFECTIVE AS OF THE FIRST DAY OF THE MONTH FOLLOWING YOUR RECEIPT OF THIS NOTICE OF REALLOCATION OF INVESTMENT OPTION. ANY FEES I HAVE PREVIOUSLY ELECTED TO DEFER WILL BE REALLOCATED IN SUCH PORTIONS AND TO SUCH FUND(S) AS DESIGNATED BELOW: PERCENTAGE OF FEES TO BE DEFERRED DISCRETIONARY (SELECT UP TO 100%) _______ COMERICA COMMON STOCK FUND _______ MUNDER INDEX 500 FUND _______ MUNDER BOND FUND _______ MUNDER SHORT TERM BOND FUND _______ MUNDER SMALL COMPANY GROWTH FUND _______ MUNDER CASH INVESTMENT FUND _______________________________ ________________ SIGNATURE OF DIRECTOR DATE C-1 16 EXHIBIT "D" COMERICA INCORPORATED DIRECTOR FEE DEFERRAL PLAN BENEFICIARY DESIGNATION FORM A DIRECTOR WHO IS SUBMITTING AN ELECTION TO DEFER FEES SHOULD COMPLETE THIS FORM, SIGN AND DATE IT AND RETURN IT TO: ALBERT TAYLOR COMERICA INCORPORATED 500 WOODWARD AVENUE 31ST FLOOR, MC 3382 DETROIT, MICHIGAN 48226-3382 PURSUANT TO THE PROVISIONS OF THE COMERICA INCORPORATED 1999 COMMON STOCK DIRECTOR FEE DEFERRAL PLAN OR THE COMERICA INCORPORATED 1999 DISCRETIONARY DIRECTOR FEE DEFERRAL PLAN (THE "PLAN), I HEREBY DESIGNATE THE PERSON(S) NAMED BELOW AS BENEFICIARY OF ALL SUMS HELD UNDER THE PLAN WHICH ARE OWING TO ME AT THE TIME OF MY DEATH. A. PRIMARY BENEFICIARY (CHECK ONE BOX AND PROVIDE RELATED INFORMATION): 1. ___ MY SPOUSE. NAME OF SPOUSE ___________________ SOCIAL SECURITY#____________ ADDRESS _________________________________________________ _________________________________________________ 2. ___ THE SUCCESSOR TRUSTEE(S) OF MY REVOCABLE LIVING TRUST. CAPTION APPEARING ON TRUST AGREEMENT ____________________________ DATE OF ORIGINAL OR AMENDED AND RESTATED TRUST AGREEMENT ________ EMPLOYER IDENTIFICATION NUMBER __________________ 3. ___ THE EXECUTOR, ADMINISTRATOR OR PERSONAL REPRESENTATIVE OF MY ESTATE. 4. ___ OTHER (EACH BENEFICIARY MUST BE OVER 18 YEARS OF AGE). D-1 17 A. NAME OF BENEFICIARY ________________ SOCIAL SECURITY #_______ RELATIONSHIP TO DIRECTOR ________________________________ ADDRESS __________________________________________ __________________________________________ PORTION OF ACCOUNT TO BE DISTRIBUTED TO THIS BENEFICIARY _______% B. NAME OF BENEFICIARY _____________ SOCIAL SECURITY #____________ RELATIONSHIP TO DIRECTOR ________________________________ ADDRESS __________________________________________ __________________________________________ PORTION OF ACCOUNT TO BE DISTRIBUTED TO THIS BENEFICIARY _______% (IF YOU WISH TO NAME MORE THAN TWO BENEFICIARIES, PLEASE SUBMIT DUPLICATE COPIES OF THIS FORM AND INSERT APPROPRIATE PERCENTAGES. PLEASE SIGN AND DATE EACH COPY OF THIS FORM WHICH IS SUBMITTED.) B. ALTERNATE BENEFICIARY IF ALL PERSONS NAMED ABOVE AS MY PRIMARY BENEFICIARY PREDECEASE ME OR SUCH PERSON(S) AND I DIE IN A COMMON DISASTER UNDER SUCH CIRCUMSTANCES THAT IT IS IMPOSSIBLE TO DETERMINE WHO SURVIVED THE OTHER, THEN I DESIGNATE THE FOLLOWING PERSON AS ALTERNATE BENEFICIARY TO RECEIVE THE SUMS THAT WOULD OTHERWISE HAVE BEEN PAYABLE TO THE PRIMARY BENEFICIARY IF THE PRIMARY BENEFICIARY HAD SURVIVED. NAME OF ALTERNATE BENEFICIARY ___________________________ SOCIAL SECURITY OR EIN # ________________________________ ADDRESS ______________________________ ______________________________ D-2 18 THIS DESIGNATION SUPERSEDES ANY PREVIOUS BENEFICIARY DESIGNATION I MAY HAVE MADE WITH RESPECT TO DEFERRED FEES UNDER THE PLAN, INCLUDING PRIOR VERSIONS OF THE PLAN. I RESERVE THE RIGHT TO CHANGE THE BENEFICIARY(IES) NAMED HEREIN IN ACCORDANCE WITH THE TERMS OF THE PLAN. IF THERE ARE NO ALTERNATE BENEFICIARIES LIVING OR IN EXISTENCE AT THE DATE OF MY DEATH, I UNDERSTAND THAT THE BALANCE OF MY ACCOUNT WILL BE PAID TO THE LEGAL REPRESENTATIVE OF MY ESTATE. _______________________________ ________________ SIGNATURE OF DIRECTOR DATE _______________________________ ________________ SIGNATURE OF WITNESS DATE D-3 EX-10.22 9 1999 COMMON STOCK DIRECTOR FEE DEFERRAL PLAN 1 EXHIBIT 10.22 COMERICA INCORPORATED 1999 COMMON STOCK DIRECTOR FEE DEFERRAL PLAN 2 COMERICA INCORPORATED 1999 COMMON STOCK DIRECTOR FEE DEFERRAL PLAN TABLE OF CONTENTS SECTION I - PURPOSE............................................................1 SECTION II - DEFINITIONS.......................................................1 SECTION III - ELIGIBILITY......................................................2 SECTION IV - PROCEDURES RELATING TO DEFERRALS..................................2 SECTION V - CREDITING OF EARNINGS TO ACCOUNTS..................................4 SECTION VI - DISTRIBUTION OF DEFERRED FEES.....................................4 SECTION VII - DESIGNATION OF BENEFICIARY.......................................5 SECTION VIII - MISCELLANEOUS PROVISIONS........................................6 EXHIBIT A1 - NOTICE OF ELECTION TO DEFER....................................A1-1 EXHIBIT A2 - NOTICE OF ELECTION TO DEFER....................................A2-1 EXHIBIT B - NOTICE OF CANCELLATION OF DEFERRAL ELECTION......................B-1 EXHIBIT C - BENEFICIARY DESIGNATION FORM.....................................C-1 -i- 3 COMERICA INCORPORATED 1999 COMMON STOCK DIRECTOR FEE DEFERRAL PLAN SECTION I - PURPOSE The purpose of this Common Stock Plan is to allow eligible directors to defer their compensation, under the conditions provided herein, into the Company Stock Unit Account. All funds in the Company Stock Unit Account are hypothetically invested in the common stock of the Company. At least one-half of the Director Fees of each eligible director of the Company must be deferred into the Company Stock Unit Account. The remaining Director Fees of an eligible director of the Company may be deferred in any portion as requested by each director. Eligible directors of any Subsidiary of the Company or Advisory Board may defer any portion of their compensation under this Common Stock Plan. SECTION II - DEFINITIONS The following words and phrases, wherever capitalized, shall have the following meanings respectively: A. "Advisory Board" means a special board of directors appointed to advise a Subsidiary of the Company. B. "Beneficiary(ies)" means such individual(s) or entity(ies) designated on the most recent Beneficiary Designation the director has submitted to the Corporate Secretary. C. "Beneficiary Designation" means a beneficiary designation on the form attached hereto as Exhibit "C", as such form may be modified by the Plan Administrator from time to time. D. [Intentionally Left Blank] E. "Code" means the Internal Revenue Code of 1986, as amended. F. "Committee" means the Directors' Committee of the Board of Directors of Comerica Incorporated. G. "Company " means Comerica Incorporated, a Delaware corporation. H. "Common Stock Plan" means the "Comerica Incorporated 1999 Common Stock Director Fee Deferral Plan," the provisions of which are set forth herein, as it may be amended from time to time. -1- 4 I. "Company Stock Unit Account" means an account established under Section V of this Common Stock Plan in the name of each director to record those fees that are deferred under this Common Stock Plan on the director's behalf and earnings thereon. J. "Corporate Secretary" means the Secretary of Comerica Incorporated. K. "Deferral Election" means a written notice to defer the payment of director fees on one of the applicable forms attached hereto as Exhibits "A-1 or A-2", as such form may be modified by the Plan Administrator from time to time. L. "Director Fees" means a director's annual retainer, fees for attending board meetings, fees for attending meetings of any committee of the board, if any, and fees for serving as chairman of any committee of the board. At least one-half (or other fractional portion as determined by the Committee) of the Director Fees of each eligible director of the Company (not the directors of any Subsidiary of the Company or Advisory Board of a Subsidiary of the Company) shall be automatically deferred and allocated, on the director's behalf, into the Company Stock Unit Account designated for each director. M. "Participant" means an eligible director for whom a Company Stock Unit Account is maintained under the Common Stock Plan. N. "Plan Administrator" means one or more individuals appointed by the Committee to handle the day-to-day administration of the Common Stock Plan. O. "Subsidiary" means any corporation, partnership or other entity, a majority of whose stock or interests is owned by Comerica Incorporated. P. "Unforeseeable Emergency" means a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (within the meaning of Code Section 152(a)) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. SECTION III - ELIGIBILITY Each director of the Company and, each director of any Subsidiary of the Company, and each director of any Advisory Board of a Subsidiary of the Company shall be eligible to participate in the Common Stock Plan provided any such director is not an employee of the Company or an employee of any Subsidiary of the Company. SECTION IV - PROCEDURES RELATING TO DEFERRALS A. Deferral of Director Compensation. 1. Mandatory Deferrals for Directors of the Company. At least one-half of the Director Fees of each of the Company's directors shall be automatically deferred to and recorded in each individual director's Company Stock Unit Account and shall not otherwise be subject to -2- 5 any other Deferral Election (other than length of deferral and schedule of pay-out). The remainder of the Director Fees of a Company director may be deferred under this Common Stock Plan or as provided in Comerica Incorporated's 1999 Discretionary Director Fee Deferral Plan. The minimum period of deferral for Director Fees deferred pursuant to this Section IV (A) shall be the lesser of the number of years remaining before regular retirement or five years. In the event a Company director does not indicate the period of deferral, such fees shall be deferred for a period of five years and paid out in a single lump sum. 2. Deferral for Directors of any Subsidiary. Directors of any Subsidiary of the Company may defer any portion of their compensation under this Common Stock Plan or Comerica Incorporated's 1999 Discretionary Director Fee Deferral Plan. The minimum period of deferral for Director Fees deferred pursuant to this Section IV (A) shall be the lesser of the number of years remaining before regular retirement or five years. In the event a director of any Subsidiary of the Company does not indicate the period of deferral, such fees shall be deferred for a period of five years and paid out in a single lump sum. 3. Deferral for Directors of any Advisory Board. Directors of an Advisory Board of any Subsidiary of the Company may defer any portion of their compensation under this Common Stock Plan or Comerica Incorporated's 1999 Discretionary Director Fee Deferral Plan. The minimum period of deferral for Director Fees deferred pursuant to this Section IV (A) shall be the lesser of the number of years remaining before regular retirement or five years. In the event a director of an Advisory Board of any Subsidiary of the Company does not indicate the period of deferral, such fees shall be deferred for a period of five years and paid out in a single lump sum. B. Deferral Procedures. Any director wishing to defer Director Fees which are subject to a Deferral Election must submit a Deferral Election to the Corporate Secretary at 500 Woodward, MC 3391, Detroit, Michigan 48226-3391 or such other person designated by the Chief Executive Officer of the Company from time to time, prior to the beginning of the service year during which the fees are to be earned (from annual meeting of shareholders to annual meeting of shareholders). However, any newly-appointed or newly-elected director may submit a Deferral Election within sixty days of his or her appointment or election. A Deferral Election must cover all of an individual's Director Fees which are subject to an automatic allocation into the Common Stock Unit Account, as determined by the Committee. 1. Irrevocability. A director may not modify or revoke a Deferral Election (except to the extent permitted to reallocate among investment options), once the director has performed the services that entitle the director to the fees. If a director has submitted a Deferral Election relating to fees to be earned in the future, he or she may modify such election by submitting a new Deferral Election prior to the beginning of the calendar year in which the fees will be earned. Any such Deferral Election will supersede any previous Deferral Election as it relates to fees to be earned in future years. 2. Cancellation. A Deferral Election may be canceled by submitting a Cancellation of Deferral Election in form and substance as provided in Exhibit B attached hereto, as such form may be modified by the Plan Administrator from time to time. -3- 6 A director who cancels a Deferral Election may not submit a new Deferral Election before at least twelve months have elapsed from the effective date of the cancellation. SECTION V - CREDITING OF EARNINGS TO ACCOUNTS Director Fees which have been deferred under the Common Stock Plan shall be credited to Common Stock Unit Accounts which are recorded on the books of the Company. As of the last day of each month or on a more frequent basis if practicable, the Company Stock Unit Account shall be adjusted as follows: Company Stock Unit Accounts shall be "hypothetically invested" in the common stock of the Company. In the event the Company has established a rabbi trust for its own benefit to fund the Company's obligations under this Common Stock Plan, the purchase price for the Company stock units shall be the actual price of the shares the Company purchases on the open market on the day of the deferral of the Director Fees. In the event that the Company has not established a rabbi trust, the purchase price shall be based upon the closing price for the stock on the New York Stock Exchange on the day that the Director Fees would have otherwise been paid to the director had they not been deferred. No director shall have any right to vote any shares of the Company's stock held in the rabbi trust except to the extent otherwise permitted by the terms of the rabbi trust. 1. The account shall first be charged with any distributions made during the month or on a more frequent basis if practicable; 2. The account shall then be credited with earnings, gains and losses for the month or on a more frequent basis if practicable based upon the closing price for Company common stock on the New York Stock Exchange as of the last day of such month, plus any dividends paid during such period. 3. The account shall then be credited with the amount, if any, of Director Fees deferred and designated to be credited to such account during such month. SECTION VI - DISTRIBUTION OF DEFERRED FEES A. Time and Manner. Distribution of the Participant's accounts shall be made in cash at such time and in such manner, i.e., a lump sum or installments, as the Participant has specified in the Deferral Election(s) submitted to the Corporate Secretary or as otherwise required by Section IV(A). B. Installment Payments. Installment payments under an installment payment option may not exceed ten years. The amount of each installment payment shall be determined by multiplying the balance of the Company Stock Unit Account on the date the installment is scheduled to be paid by a fraction, the numerator of which is one and the denominator of which is the number of unpaid installments remaining at such time. If a Participant who is -4- 7 receiving installment payments dies prior to receiving the balance of his or her account, the unpaid balance shall be paid in one lump sum to the Participant's Beneficiary(ies) not later than the 15th day of the month following the month in which the Participant's death occurred. C. Hardship Distributions. In the event of an Unforeseeable Emergency involving a Participant which occurs prior to distribution of the entire balance of the Participant's Company Stock Unit Account, the Committee may, in its sole discretion, distribute to the Participant in a single sum an amount equal to such portion of such account as shall be necessary, in the judgment of the Committee, to alleviate the financial hardship occasioned by the Unforeseeable Emergency. Any Participant desiring a distribution under the Common Stock Plan on account of an Unforeseeable Emergency shall submit to the Committee a written request for such distribution which sets forth in reasonable detail the Unforeseeable Emergency which would cause the Participant severe financial hardship, and the amount which the Participant believes to be necessary to alleviate the financial hardship. In determining whether to grant any requested hardship distribution, the Committee shall adhere to the requirements of Section 1.457-2(h)(4) of the Income Tax Regulations (or to any successor regulations dealing with the same subject matter), the provisions of which are incorporated herein by reference. D. Cash Out Distributions. If, at the time an installment distribution of a Company Stock Unit Account in the name of any Participant is scheduled to commence, the fair market value of such account does not exceed $10,000, then, notwithstanding an election by the Participant that such account be distributed in installments, the balance of such account shall be distributed to the Participant in a single sum on or about the date the first installment is scheduled to be made. SECTION VII - DESIGNATION OF BENEFICIARY Upon becoming a Participant of the Common Stock Plan, each director shall submit to the Corporate Secretary or such other person designated by the Chief Executive Officer of the Company from time to time a Beneficiary Designation in form and substance as provided in Exhibit C attached hereto, as such form may be modified by the Plan Administrator from time to time, designating one or more Beneficiaries to whom payments otherwise due the Participant shall be made in the event of the Participant's death before distribution of the Participant's Company Stock Unit Account has been completed. A Beneficiary Designation will be effective only if it is signed by the Participant and submitted to the Corporate Secretary before the Participant's death. Any Beneficiary Designation submitted to the Corporate Secretary will supersede any previous Beneficiary Designation so submitted. If the primary beneficiary shall predecease the Participant or the primary beneficiary and the Participant die in a common disaster under such circumstances that it is impossible to determine who survived the other, amounts remaining unpaid at the time of the Participant's death shall be paid to the alternate beneficiary(ies) who survive the Participant. If there are no alternate beneficiaries living or in existence at the date of the Participant's death, the balance of the account shall be paid in one lump sum to the legal representative of the Participant's estate. -5- 8 SECTION VIII - MISCELLANEOUS PROVISIONS A. Nonalienation of Benefits. Neither the Participant nor any Beneficiary designated by him or her shall have any right to alienate, assign, or encumber any amount that is or may be payable hereunder, nor may any such amount be subject to attachment, garnishment, levy, execution or other legal or equitable process for the debts, contracts, liabilities, engagements or acts of any Participant or Beneficiary. B. Administration of Common Stock Plan. Full power and authority to construe, interpret, and administer the Plan shall be vested in the Directors' Committee of the Board of Directors of the Company. To the extent permitted by law, the Committee may delegate any authority it possesses to the Common Stock Plan Administrator. To the extent the Committee has delegated authority concerning a matter to the Plan Administrator, any reference in the Common Stock Plan to the "Committee" insofar as it pertains to such matter, shall refer likewise to the Plan Administrator. Decisions of the Committee shall be final, conclusive, and binding upon all parties. C. Amendment or Termination. The Board of Directors of the Company may amend or terminate this Common Stock Plan at any time. Any amendment or termination of this Common Stock Plan shall not affect the rights of Participants or Beneficiaries to the amounts in the Company Stock Unit Account at the time of such amendment or termination. The Common Stock Plan Administrator may make any amendments to the Common Stock Plan, including forms under the Common Stock Plan, recommended by the Company's legal counsel which are necessary or appropriate to keep the Common Stock Plan and forms in compliance with applicable laws. The Company reserves the right to accelerate distribution of fees deferred hereunder in the event the Common Stock Plan is terminated. D. Effective Date. This Common Stock Plan is intended to constitute an amendment and restatement of a prior Plan maintained by the Company captioned "Comerica Incorporated Director Fee Deferral Plan". The Common Stock Plan was approved by the Board of Directors of Company on May 21, 1999. The version of the Common Stock Plan contained in this document shall be effective to defer monies to be earned from and after January 1, 1997, and the earnings rate contained in this version of the Common Stock Plan shall apply to existing accounts under the Common Stock Plan beginning January 1, 1997. Except for the earnings rate, monies deferred under prior versions of the Common Stock Plan shall remain subject to prior deferral notices. E. Statements to Participants. Statements will be provided to Participants under the Common Stock Plan on at least an annual basis. F. Nonforfeitability of Participant Accounts. Each Participant shall be fully vested in his or her Company Stock Unit Account. G. Successors Bound. The contractual agreement between Comerica Incorporated and each Participant resulting from the execution of a Deferral Election shall be binding upon and inure to the benefit of Comerica Incorporated, its successors and assigns, and to the -6- 9 Participant and to the Participant's heirs, executors, administrators and other legal representatives. H. Governing Law and Rules of Construction. This Common Stock Plan shall be governed in all respects, whether as to construction, validity or otherwise, by applicable federal law and, to the extent that federal law is inapplicable, by the laws of the State of Michigan. Each provision of this Common Stock Plan shall be treated as severable, to the end that, if any one or more provisions shall be adjudged or declared illegal, invalid or unenforceable, this Common Stock Plan shall be interpreted, and shall remain in full force and effect, as though such provision or provisions had never been contained herein. It is the intention of Comerica Incorporated that the Common Stock Plan established hereunder be "unfunded" for income tax purposes, whether or not the Company establishes a rabbi trust, and the provisions hereof shall be construed in a manner to carry out that intention. I. Ownership of Fee Deferrals. Title to and beneficial ownership of any assets, of whatever nature, which may be allocated by Company to any Company Stock Unit Account in the name of any Participant shall at all times remain with Company, and no Participant or Beneficiary shall have any property interest whatsoever in any specific assets of Company by reason of the establishment of the Common Stock Plan. The rights of each Participant and Beneficiary hereunder shall be limited to enforcing the unfunded, unsecured promise of Company to pay benefits under the Common Stock Plan, and the status of any Participant or Beneficiary shall be that of an unsecured general creditor of Company. -7- 10 EXHIBIT "A1" COMERICA INCORPORATED DIRECTOR FEE DEFERRAL PLANS FORM APPLICABLE TO COMERICA INCORPORATED DIRECTORS NOTICE OF ELECTION TO DEFER AND DISTRIBUTION OF DEFERRED DIRECTORS' FEES A DIRECTOR WHO WISHES TO DEFER FEES PURSUANT TO THE COMERICA INCORPORATED 1999 COMMON STOCK DIRECTOR FEE DEFERRAL PLAN OR COMERICA INCORPORATED 1999 DISCRETIONARY DIRECTOR FEE DEFERRAL PLAN (COLLECTIVELY CALLED "PLANS") SHOULD CHECK APPLICABLE BOXES, SIGN AND DATE THE FORM AND RETURN IT TO: ALBERT P. TAYLOR COMERICA INCORPORATED 500 WOODWARD AVE 31ST FLOOR, MC 3382 DETROIT, MICHIGAN 48226-3382 A. I SERVE AS DIRECTOR ON THE COMERICA INCORPORATED BOARD B. ELECTION TO DEFER FEES. PURSUANT TO PROVISIONS OF THE ABOVE REFERENCED PLANS, I HEREBY ELECT TO HAVE THE FEES WHICH ARE PAYABLE TO ME FOR RENDERING SERVICES AS A MEMBER OF THE BOARD OF DIRECTORS OF COMERICA INCORPORATED DEFERRED IN THE MANNER SPECIFIED BELOW. I UNDERSTAND THAT AT LEAST ONE-HALF OF MY DIRECTOR FEES SHALL BE DEFERRED INTO THE COMERICA COMMON STOCK FUND. I UNDERSTAND AND AGREE THAT THIS ELECTION SHALL BECOME EFFECTIVE ON THE DATE OF THE ANNUAL MEETING OF SHAREHOLDERS IMMEDIATELY FOLLOWING RECEIPT OF THIS NOTICE OF ELECTION BY THE OFFICE OF THE CHAIRMAN OF COMERICA INCORPORATED OR ON THE FIRST DAY OF THE MONTH FOLLOWING RECEIPT BY SUCH IF I AM A NEWLY ELECTED DIRECTOR OF COMERICA INCORPORATED. I UNDERSTAND THAT THIS ELECTION SHALL BE IRREVOCABLE WITH RESPECT TO FEES ONCE I HAVE PERFORMED THE SERVICES WHICH ENTITLE ME TO RECEIVE SUCH FEES. THIS ELECTION SHALL CONTINUE IN EFFECT UNTIL I MODIFY OR REVOKE IT. C. PERCENTAGE OF FEES TO BE DEFERRED: MANDATORY 50% COMERICA COMMON STOCK FUND A1-1 11 DISCRETIONARY (SELECT UP TO 50%) ____ COMERICA COMMON STOCK FUND ____ MUNDER INDEX 500 FUND ____ MUNDER BOND FUND ____ MUNDER SHORT TERM BOND FUND ____ MUNDER SMALL COMPANY GROWTH FUND ____ MUNDER CASH INVESTMENT FUND D. YEAR DISTRIBUTION OF DEFERRED FEES IS TO COMMENCE (MUST BE A MINIMUM OF 5 YEARS, EXCEPT IN THE CASE OF RETIREMENT, IN WHICH CASE PAYMENTS MAY BEGIN IN THE YEAR OF RETIREMENT): 20__ PAYMENTS WILL BE MADE OR COMMENCE ON MAY 30TH OF THE YEAR SELECTED. E. PAYMENT METHOD DESIRED: ___ LUMP SUM ___ INSTALLMENTS OVER _____ YEARS (YOU MAY CHOOSE 2, 5 OR 10 YEARS). (THE BALANCE OF ANY FEE DEFERRAL ACCOUNT WILL BE DISTRIBUTED IN ONE LUMP SUM TO THE DIRECTORS DESIGNATED BENEFICIARY IF THE DIRECTOR DIES BEFORE RECEIPT OF ALL INSTALLMENT PAYMENTS). FREQUENCY OF INSTALLMENTS: ___ ANNUALLY ___ EVERY 3 MONTHS DATE: MAY 21, 1999 _____________________________ SIGNATURE OF DIRECTOR Name _______________________________ Address _______________________________ _______________________________ Social Security # ____________________________ A1-2 12 EXHIBIT "A2" COMERICA INCORPORATED DIRECTOR FEE DEFERRAL PLANS FORM APPLICABLE TO BANK OR ADVISORY DIRECTORS NOTICE OF ELECTION TO DEFER AND DISTRIBUTION OF DEFERRED DIRECTORS' FEES A DIRECTOR WHO WISHES TO DEFER FEES PURSUANT TO THE TERMS OF THE COMERICA INCORPORATED 1999 COMMON STOCK DIRECTOR FEE DEFERRAL PLAN OR THE COMERICA INCORPORATED 1999 DISCRETIONARY DIRECTOR FEE DEFERRAL PLAN (COLLECTIVELY CALLED "PLANS") SHOULD CHECK APPLICABLE BOXES, COMPLETE THE OTHER PORTIONS OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO: ALBERT P. TAYLOR COMERICA INCORPORATED 500 WOODWARD AVE 31ST FLOOR, MC 3382 DETROIT, MICHIGAN 48226-3382 A. BOARD ON WHICH I SERVE AS DIRECTOR: ___ COMERICA BANK ___ COMERICA BANK- CALIFORNIA ___ COMERICA BANK - TEXAS ___ COMERICA ADVISORY BOARD B. ELECTION TO DEFER FEES. PURSUANT TO PROVISIONS OF THE ABOVE REFERENCED PLANS, I HEREBY ELECT TO HAVE THE FEES SPECIFIED BELOW WHICH BECOME PAYABLE TO ME FOR RENDERING SERVICES AS A MEMBER OF THE BOARD OF DIRECTORS ON WHICH I SERVE DEFERRED IN THE MANNER SPECIFIED BELOW. I UNDERSTAND AND AGREE THAT THIS ELECTION SHALL BECOME EFFECTIVE ON THE DATE OF THE ANNUAL MEETING OF SHAREHOLDERS, IMMEDIATELY FOLLOWING RECEIPT OF THIS ELECTION BY THE OFFICE OF THE CHAIRMAN OF COMERICA INCORPORATED OR ON THE FIRST DAY OF THE MONTH FOLLOWING RECEIPT BY SUCH IF I AM A NEWLY ELECTED DIRECTOR OF COMERICA. I UNDERSTAND THAT THIS ELECTION SHALL BE IRREVOCABLE WITH RESPECT TO FEES ONCE I HAVE PERFORMED THE SERVICES WHICH ENTITLE ME TO RECEIVE SUCH FEES. THIS ELECTION SHALL CONTINUE IN EFFECT UNTIL I MODIFY OR REVOKE IT. A2-1 13 C. PERCENTAGE OF FEES TO BE DEFERRED DISCRETIONARY (SELECT UP TO 100%) _______ COMERICA COMMON STOCK FUND _______ MUNDER INDEX 500 FUND _______ MUNDER BOND FUND _______ MUNDER SHORT TERM BOND FUND _______ MUNDER SMALL COMPANY GROWTH FUND _______ MUNDER CASH INVESTMENT FUND D. YEAR DISTRIBUTION OF DEFERRED FEES IS TO COMMENCE: 20__ PAYMENTS WILL BE MADE OR COMMENCE ON MAY 30TH OF THE YEAR SELECTED. E. PAYMENT METHOD DESIRED: ___ LUMP SUM ___ INSTALLMENTS OVER _____ YEARS (YOU MAY CHOOSE 2, 5 OR 10 YEARS). (THE BALANCE OF ANY FEE DEFERRAL ACCOUNT WILL BE DISTRIBUTED IN ONE LUMP SUM TO THE DIRECTORS DESIGNATED BENEFICIARY IF THE DIRECTOR DIES BEFORE RECEIPT OF ALL INSTALLMENT PAYMENTS). FREQUENCY OF INSTALLMENTS: ___ ANNUALLY ___ EVERY 3 MONTHS DATE: MAY 21, 1999 ___________________________ SIGNATURE OF DIRECTOR NAME _________________________________ ADDRESS _________________________________ _________________________________ SOCIAL SECURITY # ______________________________ A2-2 14 EXHIBIT "B" COMERICA INCORPORATED DIRECTOR FEE DEFERRAL PLAN NOTICE OF CANCELLATION OF DEFERRAL ELECTION A DIRECTOR WHO WISHES TO CANCEL A DEFERRAL ELECTION SHOULD SIGN AND DATE THIS FORM AND RETURN IT TO: ALBERT TAYLOR COMERICA INCORPORATED 500 WOODWARD AVE 31ST FLOOR, MC 3382 DETROIT, MICHIGAN 48226-3382 PURSUANT TO PROVISIONS OF THE ABOVE REFERENCED PLAN, I HEREBY CANCEL MY DEFERRAL ELECTION UNDER THE PLAN EFFECTIVE AS OF THE FIRST DAY OF THE MONTH FOLLOWING YOUR RECEIPT OF THIS NOTICE OF CANCELLATION OF DEFERRAL ELECTION. THIS CANCELLATION SHALL APPLY ONLY TO UNEARNED FEES THAT WOULD, BUT FOR THIS CANCELLATION, BE DEFERRED UNDER MY PRIOR DEFERRAL ELECTION. ANY FEES I HAVE PREVIOUSLY ELECTED TO DEFER THAT HAVE ALREADY BEEN EARNED THROUGH MY RENDERING OF SERVICES SHALL REMAIN SUBJECT TO MY PRIOR DEFERRAL ELECTION. DATE: __________________ ___________________________ SIGNATURE OF DIRECTOR NAME: ___________________________________ ADDRESS: ___________________________________ ___________________________________ SOCIAL SECURITY # ________________________________ B-1 15 EXHIBIT "C" COMERICA INCORPORATED DIRECTOR FEE DEFERRAL PLAN NOTICE OF REALLOCATION OF INVESTMENT OPTIONS A DIRECTOR WHO WISHES TO REALLOCATE INVESTMENT OPTIONS OF DEFERRED DIRECTOR FEES SHOULD SIGN AND DATE THIS FORM AND RETURN IT TO: ALBERT TAYLOR COMERICA INCORPORATED 500 WOODWARD AVE 31ST FLOOR, MC 3382 DETROIT, MICHIGAN 48226-3382 PURSUANT TO PROVISIONS OF THE COMERICA INCORPORATED 1999 DISCRETIONARY DIRECTOR DEFERRAL FEE PLAN, I HEREBY CANCEL MY PREVIOUS INVESTMENT OPTION ALLOCATION UNDER THE PLAN EFFECTIVE AS OF THE FIRST DAY OF THE MONTH FOLLOWING YOUR RECEIPT OF THIS NOTICE OF REALLOCATION OF INVESTMENT OPTION. ANY FEES I HAVE PREVIOUSLY ELECTED TO DEFER WILL BE REALLOCATED IN SUCH PORTIONS AND TO SUCH FUND(S) AS DESIGNATED BELOW: PERCENTAGE OF FEES TO BE DEFERRED DISCRETIONARY (SELECT UP TO 100%) _______ COMERICA COMMON STOCK FUND _______ MUNDER INDEX 500 FUND _______ MUNDER BOND FUND _______ MUNDER SHORT TERM BOND FUND _______ MUNDER SMALL COMPANY GROWTH FUND _______ MUNDER CASH INVESTMENT FUND _______________________________ _________________ SIGNATURE OF DIRECTOR DATE C-1 16 EXHIBIT "D" COMERICA INCORPORATED DIRECTOR FEE DEFERRAL PLAN BENEFICIARY DESIGNATION FORM A DIRECTOR WHO IS SUBMITTING AN ELECTION TO DEFER FEES SHOULD COMPLETE THIS FORM, SIGN AND DATE IT AND RETURN IT TO: ALBERT TAYLOR COMERICA INCORPORATED 500 WOODWARD AVENUE 31ST FLOOR, MC 3382 DETROIT, MICHIGAN 48226-3382 PURSUANT TO THE PROVISIONS OF THE COMERICA INCORPORATED 1999 COMMON STOCK DIRECTOR FEE DEFERRAL PLAN OR THE COMERICA INCORPORATED 1999 DISCRETIONARY DIRECTOR FEE DEFERRAL PLAN (THE "PLAN), I HEREBY DESIGNATE THE PERSON(S) NAMED BELOW AS BENEFICIARY OF ALL SUMS HELD UNDER THE PLAN WHICH ARE OWING TO ME AT THE TIME OF MY DEATH. A. PRIMARY BENEFICIARY (CHECK ONE BOX AND PROVIDE RELATED INFORMATION): 1. ___ MY SPOUSE. NAME OF SPOUSE ___________________ SOCIAL SECURITY#_____________ ADDRESS _________________________________________________________ _________________________________________________________ 2. ___ THE SUCCESSOR TRUSTEE(S) OF MY REVOCABLE LIVING TRUST. CAPTION APPEARING ON TRUST AGREEMENT _______________________________ DATE OF ORIGINAL OR AMENDED AND RESTATED TRUST AGREEMENT ___________ EMPLOYER IDENTIFICATION NUMBER _____________________________________ 3. ___ THE EXECUTOR, ADMINISTRATOR OR PERSONAL REPRESENTATIVE OF MY ESTATE. 4. ___ OTHER (EACH BENEFICIARY MUST BE OVER 18 YEARS OF AGE). D-1 17 A. NAME OF BENEFICIARY _________________ SOCIAL SECURITY #__________ RELATIONSHIP TO DIRECTOR ________________________________________ ADDRESS ________________________________________________________ ________________________________________________________ PORTION OF ACCOUNT TO BE DISTRIBUTED TO THIS BENEFICIARY _______% B. NAME OF BENEFICIARY _____________ SOCIAL SECURITY #_____________ RELATIONSHIP TO DIRECTOR ________________________________________ ADDRESS ________________________________________________________ ________________________________________________________ PORTION OF ACCOUNT TO BE DISTRIBUTED TO THIS BENEFICIARY _______% (IF YOU WISH TO NAME MORE THAN TWO BENEFICIARIES, PLEASE SUBMIT DUPLICATE COPIES OF THIS FORM AND INSERT APPROPRIATE PERCENTAGES. PLEASE SIGN AND DATE EACH COPY OF THIS FORM WHICH IS SUBMITTED.) B. ALTERNATE BENEFICIARY IF ALL PERSONS NAMED ABOVE AS MY PRIMARY BENEFICIARY PREDECEASE ME OR SUCH PERSON(S) AND I DIE IN A COMMON DISASTER UNDER SUCH CIRCUMSTANCES THAT IT IS IMPOSSIBLE TO DETERMINE WHO SURVIVED THE OTHER, THEN I DESIGNATE THE FOLLOWING PERSON AS ALTERNATE BENEFICIARY TO RECEIVE THE SUMS THAT WOULD OTHERWISE HAVE BEEN PAYABLE TO THE PRIMARY BENEFICIARY IF THE PRIMARY BENEFICIARY HAD SURVIVED. NAME OF ALTERNATE BENEFICIARY ___________________________________ SOCIAL SECURITY OR EIN # ________________________________________ ADDRESS ________________________________________________________ ________________________________________________________ D-2 18 THIS DESIGNATION SUPERSEDES ANY PREVIOUS BENEFICIARY DESIGNATION I MAY HAVE MADE WITH RESPECT TO DEFERRED FEES UNDER THE PLAN, INCLUDING PRIOR VERSIONS OF THE PLAN. I RESERVE THE RIGHT TO CHANGE THE BENEFICIARY(IES) NAMED HEREIN IN ACCORDANCE WITH THE TERMS OF THE PLAN. IF THERE ARE NO ALTERNATE BENEFICIARIES LIVING OR IN EXISTENCE AT THE DATE OF MY DEATH, I UNDERSTAND THAT THE BALANCE OF MY ACCOUNT WILL BE PAID TO THE LEGAL REPRESENTATIVE OF MY ESTATE. _______________________________ ___________________ SIGNATURE OF DIRECTOR DATE _______________________________ ___________________ SIGNATURE OF WITNESS DATE D-3 EX-13 10 REGISTRANT'S 1999 ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13 FINANCIAL REVIEW AND REPORTS 1999 Financial Highlights...................... 22 Earnings Performance........................... 22 Strategic Lines of Business.................... 29 Balance Sheet and Capital Funds Analysis....... 31 Risk Management................................ 32 Consolidated Financial Statements.............. 40 Notes to Consolidated Financial Statements..... 44 Report of Management........................... 65 Report of Independent Auditors................. 65 Historical Review.............................. 66 2 COMERICA INCORPORATED 1999 ANNUAL REPORT 21 TABLE 1: SELECTED FINANCIAL DATA
Year Ended December 31 (dollar amounts in millions, except per share data) 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------- EARNINGS SUMMARY Total interest income $ 2,673 $ 2,617 $ 2,648 $ 2,563 $ 2,614 Net interest income 1,547 1,461 1,443 1,412 1,300 Provision for credit losses 114 113 146 114 87 Securities gains 5 6 5 14 12 Noninterest income (excluding securities gains) 712 597 523 493 487 Restructuring charge - (7) - 90 - Noninterest expenses (excluding restructuring charge) 1,117 1,027 1,008 1,069 1,086 Net income 673 607 530 417 413 PER SHARE OF COMMON STOCK Basic net income $ 4.20 $ 3.79 $ 3.24 $ 2.41 $ 2.38 Diluted net income 4.14 3.72 3.19 2.38 2.37 Cash dividends declared 1.44 1.28 1.15 1.01 0.91 Common shareholders' equity 20.60 17.94 16.02 14.70 15.17 Market value 46.69 68.19 60.17 34.92 26.67 YEAR-END BALANCES Total assets $ 38,653 $ 36,601 $ 36,292 $ 34,206 $ 35,470 Total earning assets 36,046 33,427 33,104 31,110 32,051 Total loans 32,693 30,605 28,895 26,207 24,442 Total deposits 23,291 24,313 22,586 22,367 23,167 Total borrowings 11,348 8,862 10,479 8,731 9,319 Medium- and long-term debt 8,580 5,282 7,286 4,242 4,644 Common shareholders' equity 3,225 2,797 2,512 2,366 2,608 DAILY AVERAGE BALANCES Total assets $ 36,960 $ 34,987 $ 34,869 $ 34,195 $ 34,129 Total earning assets 34,079 32,113 32,025 31,370 31,537 Total loans 31,560 28,599 27,209 25,352 23,561 Total deposits 22,519 22,253 21,946 22,258 21,655 Total borrowings 10,771 9,452 9,798 8,850 9,639 Medium- and long-term debt 7,289 6,032 5,980 4,745 4,510 Common shareholders' equity 2,999 2,617 2,408 2,554 2,511 RATIOS Return on average assets 1.82% 1.74% 1.52% 1.22% 1.21% Return on average common shareholders' equity 21.86 22.54 21.32 15.98 16.46 Efficiency ratio 49.35 49.39 51.04 60.36 60.09 Dividend payout ratio 35 34 36 42 38 Average common shareholders' equity as a percent of average assets 8.11 7.48 6.91 7.47 7.36 - ---------------------------------------------------------------------------------------------------------------------
3 22 COMERICA INCORPORATED 1999 ANNUAL REPORT 1999 FINANCIAL HIGHLIGHTS CENTERED ON PERFORMANCE - - Earned 21.86 percent on average common shareholders' equity, compared to 22.54 percent in 1998. - - Returned 1.82 percent on average assets, compared to 1.74 percent in 1998. REPORTED RECORD EARNINGS - - Reported net income of $673 million, or $4.14 per share, compared with $607 million, or $3.72 per share in 1998. SUSTAINED GROWTH - - Generated a 17 percent increase in business loans, averaging $29 billion. - - Experienced growth in noninterest income of $114 million, or 19 percent. - - Averaged $37 billion in total assets in 1999, a 6 percent increase from 1998. - - Increased average shareholders' equity to $3.2 billion. ENHANCED SHAREHOLDERS' RETURN - - Raised the quarterly cash dividend 12.5 percent to $0.36 per share, an annual rate of $1.44 per share. IMPLEMENTED KEY STRATEGIES - - Formed relationship with Trammel Crow Corporate Services to reduce real estate operating costs. - - Opened new loan production offices in Atlanta, Chicago and Stamford, Connecticut. - - Opened new international finance offices in Hong Kong and Sao Paulo. - - Opened a new personal trust office in Phoenix. RETURN ON AVERAGE ASSETS (in percentages)
1995 1996 1997 1998 1999 Comerica 1.21 1.22 1.52 1.74 1.82 Excluding Restructuring Charge 1.40 Industry Average 1.12 1.26 1.31 1.22 1.39
EARNINGS PERFORMANCE NET INTEREST INCOME Net interest income, on a fully taxable equivalent (FTE) basis, is the difference between interest earned on assets, including certain yield related fees, and interest paid on liabilities. Interest expense includes the net interest income or expense associated with risk management interest rate swaps. Adjustments are made to the yields on tax-exempt assets in order to present tax-exempt income and fully taxable income on a comparable basis. Net interest income (FTE) comprised 68 percent of net revenues in 1999, compared to 71 percent in 1998 and 73 percent in 1997. NET INTEREST INCOME
1995 1996 1997 1998 1999 Net Interest Income (FTE) 1,321 1,427 1,452 1,468 1,552 Net Interest Margin (FTE) 4.19 4.54 4.53 4.57 4.55
4 COMERICA INCORPORATED 1999 ANNUAL REPORT 23 TABLE 2: ANALYSIS OF NET INTEREST INCOME - FULLY TAXABLE EQUIVALENT
1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Average Average Average Average Average Average (dollar amounts in millions) Balance Interest Rate Balance Interest Rate Balance Interest Rate - ------------------------------------------------------------------------------------------------------------------------------------ Commercial loans $ 19,681 $ 1,516 7.70% $ 16,973 $ 1,365 8.04% $ 14,234 $ 1,174 8.25% International loans 2,627 206 7.86 2,342 187 7.97 1,953 138 7.07 Real estate construction loans 1,364 116 8.48 989 91 9.24 866 81 9.38 Commercial mortgage loans 4,461 368 8.25 3,819 334 8.74 3,547 322 9.08 Residential mortgage loans 929 69 7.47 1,325 102 7.69 1,676 133 7.90 Consumer loans 1,816 181 9.98 2,575 263 10.20 4,486 440 9.81 Lease financing 682 47 6.84 576 44 7.65 447 33 7.48 - ------------------------------------------------------------------------------------------------------------------------------------ Total loans (1) 31,560 2,503 7.93 28,599 2,386 8.34 27,209 2,321 8.53 Taxable securities 2,309 156 6.67 3,232 217 6.72 4,490 309 6.84 Securities exempt from federal income taxes 94 8 9.09 139 12 9.16 197 18 9.32 - ------------------------------------------------------------------------------------------------------------------------------------ Total investment securities 2,403 164 6.76 3,371 229 6.81 4,687 327 6.94 Short-term investments 116 11 8.85 143 9 6.25 129 9 6.59 - ------------------------------------------------------------------------------------------------------------------------------------ Total earning assets 34,079 2,678 7.85 32,113 2,624 8.17 32,025 2,657 8.29 Cash and due from banks 1,518 1,622 1,686 Allowance for credit losses (463) (440) (402) Accrued income and other assets 1,826 1,692 1,560 - ------------------------------------------------- -------- -------- Total assets $ 36,960 $ 34,987 $ 34,869 ================================================= ======== ======== Money market and NOW accounts $ 7,664 208 2.71 $ 7,346 231 3.15 $ 6,926 232 3.35 Savings deposits 1,513 24 1.59 1,584 28 1.79 1,701 34 2.02 Certificates of deposit 6,399 310 4.84 6,521 345 5.29 6,699 361 5.39 Foreign office deposits(2) 688 48 7.05 651 44 6.71 805 46 5.68 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing deposits 16,264 590 3.63 16,102 648 4.02 16,131 673 4.17 Federal funds purchased and securities sold under agreements to repurchase 2,823 146 5.16 2,510 137 5.44 2,017 111 5.49 Other borrowed funds 659 33 5.07 910 49 5.40 1,801 98 5.45 Medium- and long-term debt 7,289 411 5.63 6,032 368 6.10 5,980 374 6.26 Other (3) -- (54) -- -- (46) -- -- (51) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing sources 27,035 1,126 4.16 25,554 1,156 4.52 25,929 1,205 4.65 Noninterest-bearing deposits 6,255 6,151 5,815 Accrued expenses and other liabilities 421 415 467 Preferred stock 250 250 250 Common shareholders' equity 2,999 2,617 2,408 - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' equity $ 36,960 $ 34,987 $ 34,869 ================================================= ======== ======== Net interest income/rate spread (FTE) $ 1,552 3.69 $ 1,468 3.65 $ 1,452 3.64 ======== ======== ======== FTE adjustment (4) $ 5 $ 7 $ 9 ======== ======== ======== Impact of net noninterest-bearing sources of funds 0.86 0.92 0.89 - ------------------------------------------------------------------------------------------------------------------------------------ Net interest margin (as a percent of average earning assets) (FTE) 4.55% 4.57% 4.53% ====================================================================================================================================
(1) Nonaccrual loans are included in average balances reported and are used to calculate rates. (2) Includes substantially all deposits by foreign depositors; deposits are primarily in excess of $100,000. (3) Net interest rate swap income. If swap income were allocated, average rates on total loans would have been 8.05% in 1999, 8.43% in 1998 and 8.63% in 1997; average rates on medium- and long-term debt would have been 5.38% in 1999, 5.76% in 1998 and 5.85% in 1997. (4) The FTE adjustment is computed using a federal income tax rate of 35%. 5 24 COMERICA INCORPORATED 1999 ANNUAL REPORT TABLE 3: RATE-VOLUME ANALYSIS - FULLY TAXABLE EQUIVALENT
1999 / 1998 1998 / 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Increase Increase Net Increase Increase Net (Decrease) (Decrease) Increase (Decrease) (Decrease) Increase (in millions) Due to Rate Due to Volume(*) (Decrease) Due to Rate Due to Volume(*) (Decrease) - ------------------------------------------------------------------------------------------------------------------------------------ Interest income (FTE) Commercial loans $ (58) $ 209 $ 151 $(29) $ 220 $ 191 International loans (3) 22 19 17 32 49 Real estate construction loans (7) 32 25 (1) 11 10 Commercial mortgage loans (19) 53 34 (12) 24 12 Residential mortgage loans (3) (30) (33) (4) (27) (31) Consumer loans (6) (76) (82) 18 (195) (177) Lease financing (4) 7 3 1 10 11 - ------------------------------------------------------------------------------------------------------------------------------------ Total loans (100) 217 117 (10) 75 65 Taxable securities 1 (62) (61) (7) (85) (92) Securities exempt from federal income taxes -- (4) (4) (1) (5) (6) - ------------------------------------------------------------------------------------------------------------------------------------ Total investment securities 1 (66) (65) (8) (90) (98) Short-term investments 5 (3) 2 -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total interest income (FTE) (94) 148 54 (18) (15) (33) Interest expense Money market and NOW accounts (32) 9 (23) (14) 13 (1) Savings deposits (3) (1) (4) (4) (2) (6) Certificates of deposit (29) (6) (35) (6) (10) (16) Foreign office deposits 2 2 4 8 (10) (2) - ------------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing deposits (62) 4 (58) (16) (9) (25) Federal funds purchased and securities sold under agreements to repurchase (7) 16 9 (1) 27 26 Other borrowed funds (3) (13) (16) (1) (48) (49) Medium- and long-term debt (28) 71 43 (9) 3 (6) Other (1) (8) -- (8) 5 -- 5 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest expense (108) 78 (30) (22) (27) (49) - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income (FTE) $ 14 $ 70 $ 84 $ 4 $ 12 $ 16 ====================================================================================================================================
(*) Rate/volume variances are allocated to variances due to volume. (1) Net interest rate swap income. 6 COMERICA INCORPORATED 1999 ANNUAL REPORT 25 Net interest income (FTE) rose 6 percent to $1,552 million in 1999. Contributing to this increase was a 10 percent increase in average total loans and an increase in noninterest-bearing sources of funds, primarily shareholders' equity. A significant increase of 16 percent in average commercial loans was partially offset by planned reductions of investment securities, which decreased on average by $1.0 billion, or 29 percent, from 1998, and planned runoff of residential mortgage and consumer loans, which declined on average by a combined $1.2 billion from the prior year. The net interest margin remained relatively stable in 1999, decreasing 2 basis points to 4.55 percent from 4.57 percent last year. The decrease in the net interest margin was partially due to a 6 basis point decline in the impact of net noninterest-bearing sources of funds resulting from an average yield environment which was lower in 1999 than 1998, as well as changes in the mix of interest-bearing liabilities. This was offset by a strategic repositioning which occurred within the earning assets portfolio, whereby investment securities and residential mortgage loans were replaced with commercial loans. With the repositioning effectively completed and deposit balances growing at rates slower than earning assets, a greater reliance on purchased funds is expected, which will gradually reduce the margin. Comerica (the "Corporation") applied various asset and liability management tactics to minimize exposure to net interest income risk. This risk represents the potential reduction in net interest income that may result from a fluctuating economic environment including changes to interest rates and portfolio growth rates. Such actions included the tactical management of earning assets, funding and capital. In addition, off-balance sheet interest rate swap contracts were employed, effectively fixing the yields on certain variable rate loans and altering the interest rate characteristics of debt issued throughout the year. Refer to page 34 of this financial review for additional information regarding the Corporation's asset and liability management policies. In 1998,net interest income (FTE) increased 1 percent over 1997,benefitting from strong growth in average earning assets, primarily commercial loans. The growth in average commercial loans was offset by the sale of $2.0 billion of indirect consumer loans and non-relationship credit card receivables in the second quarter of 1998. The net interest margin for 1998 was 4.57 percent, an increase of 4 basis points from 1997. The increase in the net interest margin was primarily due to an increase in the impact of noninterest-bearing sources of funds, the consumer loan divestitures and a reduced emphasis on investment securities in the mix of earning assets. PROVISION AND ALLOWANCE FOR CREDIT LOSSES The provision for credit losses reflects management's evaluation of the adequacy of the allowance for credit losses. The allowance for credit losses represents management's assessment of probable credit 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 loan loss experience, current economic conditions and trends, geographic dispersion of borrowers, and trends with respect to past due and nonaccrual amounts. The allocated reserve was $271 million at December 31,1999, an increase of $44 million from 1998. Allocations to corporate loans, as shown in Table 8, increased from loan growth and changing credit characteristics of the portfolio. Consumer loan allocations declined as credit quality improved and loan outstandings declined. 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 maintained. The unallocated portion of the reserve reflects NET LOANS CHARGED OFF TO AVERAGE LOANS (in percentages)
1995 1996 1997 1998 1999 Comerica 0.32 0.33 0.33 0.30 0.29 Industry Average 0.53 0.51 0.56 0.48 0.47
7 26 COMERICA INCORPORATED 1999 ANNUAL REPORT TABLE 4: ANALYSIS OF THE ALLOWANCE FOR CREDIT LOSSES
Year Ended December 31 (dollar amounts in millions) 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------- Balance at beginning of period $452 $424 $367 $341 $326 Allowance of institutions purchased/sold -- -- -- (3) 4 Loans charged off Domestic Commercial 78 49 33 33 33 Real estate construction -- -- 1 1 3 Commercial mortgage 2 1 4 5 8 Residential mortgage -- -- -- 1 2 Consumer 31 65 92 86 73 Lease financing -- 4 -- -- -- International 10 7 1 -- -- - ----------------------------------------------------------------------------------------------------------------- Total loans charged off 121 126 131 126 119 Recoveries Domestic Commercial 17 19 19 18 19 Real estate construction -- -- 1 1 3 Commercial mortgage 3 9 10 9 8 Consumer 10 13 12 13 13 Lease financing 1 -- -- -- -- - ----------------------------------------------------------------------------------------------------------------- Total recoveries 31 41 42 41 43 - ----------------------------------------------------------------------------------------------------------------- Net loans charged off 90 85 89 85 76 Provision for credit losses 114 113 146 114 87 - ----------------------------------------------------------------------------------------------------------------- Balance at end of period $476 $452 $424 $367 $341 ================================================================================================================= Ratio of allowance for credit losses to total loans at end of period 1.46% 1.48% 1.47% 1.40% 1.40% Ratio of net loans charged off during the period to average loans outstanding during the period 0.29% 0.30% 0.33% 0.33% 0.32% =================================================================================================================
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, hedge funds and 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 $205 million at December 31, 1999, a decrease of $20 million from December 31,1998. This decrease in the unallocated allowance was primarily due to a managed reduction in loans to customers in the sub-prime and hedge fund portfolios, partially offset by an increase in healthcare loans. 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. The provision for credit losses was $114 million in 1999, compared to $113 million in 1998 and $146 million in 1997. The provision in 1999 was virtually unchanged from 1998, while the decrease in 1998 from 1997 was primarily due to the consumer loan sale in the second quarter of 1998. Total net charge-offs remained in the same relative range, at $90 million in 1999, compared to $85 million in 1998 and $89 million in 1997. The ratio of net loans charged off to average total loans was 0.29 percent in 1999 and 0.30 percent in 1998. Commercial loan net charge-offs as a percentage of average commercial loans were 0.31 percent for 1999 and 0.18 percent for 1998. Commercial net charge-offs in 1999 8 COMERICA INCORPORATED 1999 ANNUAL REPORT 27 were primarily related to mortgage banking customers and long-term health care providers. Consumer loan net charge-offs as a percentage of average consumer loans were 1.16 percent for 1999 and 2.03 percent for 1998. At December 31, 1999, the allowance for credit losses was $476 million, an increase of $24 million since year-end 1998. The allowance as a percentage of total loans decreased to 1.46 percent from 1.48 percent at December 31, 1998. The allowance as a percentage of total nonperforming assets decreased to 262 percent at December 31, 1999, from 375 percent at year-end 1998. NONINTEREST INCOME
Year Ended December 31 (in millions) 1999 1998 1997 - --------------------------------------------------------------------------- Fiduciary and investment management income $241 $184 $147 Service charges on deposit accounts 169 158 141 Commercial lending fees 49 43 32 Letter of credit fees 39 31 26 Securities gains 5 6 5 Other 184 167 150 - --------------------------------------------------------------------------- Subtotal 687 589 501 Consumer businesses sold -- 14 4 Bond indenture business sold -- -- 23 Other significant nonrecurring items 30 -- -- - --------------------------------------------------------------------------- Total noninterest income $717 $603 $528 ===========================================================================
Noninterest income increased $114 million, or 19 percent, to $717 million in 1999, compared to $603 million in 1998 and $528 million in 1997. Comparisons between 1999 and 1998 for certain noninterest income and noninterest expense line items were impacted by the Corporation obtaining a majority interest in Munder Capital Management ("Munder"), an investment advisory subsidiary, in July 1998 and the sale of consumer loans and the mortgage servicing business in 1998. Prior to the third quarter of 1998, the Corporation accounted for its minority interest in Munder under the equity method, recording the Corporation's pro-rata share of Munder net income in other noninterest income. After adjusting for acquisitions, divestitures, securities gains and the significant nonrecurring items discussed below, noninterest income increased $78 million, or 13 percent, in 1999. NONINTEREST INCOME (in millions)
1995 1996 1997 1998 1999 Comerica 499 507 528 603 717
Fiduciary and investment management income increased $57 million, or 30 percent, in 1999 compared to an increase of $37 million, or 25 percent, in 1998. After adjusting for the Munder consolidation, the increase over 1998 was 19 percent. Investment management income increased $43 million, or 240 percent, in 1999, principally due to the consolidation of Munder and the growth of assets in Munder's NetNet Fund, a mutual fund comprised primarily of Internet-related stocks. Personal trust income increased 10 percent in 1999 and reflects strong overall growth from new business and market performance of assets under management. Service charges on deposit accounts increased $11 million, or 7 percent, in 1999 compared to an increase of $17 million, or 12 percent, in 1998. This increase was primarily attributable to continued strong growth in the sale of new and existing electronic cash management services to commercial customers during 1999. Commercial lending fees increased $6 million, or 13 percent, in 1999 compared to an increase of $11 million, or 38 percent, in 1998. Continued strong corporate lending activities to new and existing customers contributed to this increase. Letter of credit fees increased $8 million, or 24 percent, in 1999 compared to an increase of $5 million, or 20 percent, in 1998. These increases were primarily related to the growth in middle-market commercial lending and additional investment in international trade services. Income from securities gains totaled $5 million in 1999, a decrease of $1 million from 1998. Other noninterest income increased $33 million, or 19 percent, in 1999. Excluding the impact of acquisitions, divestitures and significant nonrecurring items in both periods, other noninterest income increased 9 percent. Higher levels of foreign exchange income, bankcard fees, brokerage service fees and investment banking fees accounted for the majority of this increase. Significant nonrecurring items in other noninterest income in 1999 include a $21 million gain on the sale of the Corporation's ownership in an automated teller machine network provider and a $9 million gain on the sale of a warrant obtained from an equity ownership in a joint venture. Significant nonrecurring items in 1998 include an $11 million net gain on the sale of the mortgage servicing business and consumer loans, while 1997 includes a $23 million gain on the sale of the Corporation's bond indenture services business. 9 28 COMERICA INCORPORATED 1999 ANNUAL REPORT NONINTEREST EXPENSES
Year Ended December 31 (in millions) 1999 1998 1997 - -------------------------------------------------------------------- Salaries $559 $500 $464 Employee benefits 81 65 75 - -------------------------------------------------------------------- Total salaries and employee benefits 640 565 539 Net occupancy expense 94 90 89 Equipment expense 61 60 62 Outside processing fee expense 48 43 42 Other 269 269 271 - -------------------------------------------------------------------- Subtotal 1,112 1,027 1,003 Restructuring charge -- (7) -- Other significant nonrecurring items 5 -- 5 - -------------------------------------------------------------------- Total noninterest expenses $1,117 $1,020 $1,008 ====================================================================
Noninterest expenses increased 10 percent to $1,117 million in 1999, compared to $1,020 million in 1998 and $1,008 million in 1997. Excluding the effect of the acquisitions, divestitures and the significant nonrecurring items discussed below, non-interest expenses increased $64 million, or 6 percent, in 1999. Total salaries expense increased $59 million, or 12 percent, in 1999 versus an increase of $36 million, or 8 percent, in 1998. The increase in 1999 was primarily from the consolidation of Munder, annual merit increases and higher levels of revenue-related incentives. The number of full-time equivalent employees increased 100, or 1 percent, from year-end 1998, primarily due to investments in strategic businesses. Employee benefits expense increased $16 million, or 24 percent, in 1999 versus a decrease of $10 million, or 13 percent, in 1998. The increase in 1999 was primarily due to reduced pension expense in 1998 as a result of benefits from reduced staff levels related to the Direction 2000 program and the consumer and mortgage servicing divestitures. The consolidation of Munder and an increase in health insurance expense also contributed to the increase. Net occupancy and equipment expenses, on a combined basis, increased $5 million, or 3 percent, in 1999 versus a decrease of $1 million, or 1 percent, in 1998. The majority of the 1999 increase was attributable to the consolidation of Munder. During 1999, the Corporation formed a relationship with Trammell Crow Corporate Services to provide property and real estate management services. Occupancy expense also increased in 1999 due to fees paid to Trammell Crow which replaced salaries and employee benefits expense associated with real estate staff. NONINTEREST EXPENSES (in millions)
1995 1996 1997 1998 1999 Comerica 1,086 1,159 1,008 1,020 1,117 Excluding Restructuring Charge 1,069
Outside processing fees totaled $48 million in 1999 and $43 million in 1998. The increase of $5 million from the prior year is primarily due to the outsourcing of certain consumer loan processing functions in 1999. The Corporation recorded a restructuring charge in 1996 in connection with a major program (Direction 2000) to improve efficiency, revenue and customer service. A reduction of $7 million, netted against other noninterest expenses, was made to eliminate the restructuring liability in 1998. Other noninterest expenses increased $5 million in 1999, compared to a $7 million decrease in 1998. Other noninterest expenses in 1999 included a $5 million contribution to Comerica's charitable foundation. Other noninterest expenses included $5 million of litigation accruals in 1997. Excluding acquisitions, divestitures and the significant non-recurring items described above, other noninterest expenses increased $3 million, or 1 percent. The minimal increase reflects management's continued efforts to contain expenses. The Corporation's efficiency ratio is defined as total noninterest expenses divided by the sum of net interest revenue (FTE) and noninterest income, excluding securities gains. The ratio was 49.35 percent in 1999,compared to 49.39 percent in 1998 and 51.04 percent in 1997. INCOME TAXES The provision for income taxes was $360 million in 1999, compared to $324 million in 1998 and $287 million in 1997. The effective tax rate, computed by dividing the provision for income taxes by income before taxes, was 34.9 percent in 1999, 34.8 percent in 1998 and 35.0 percent in 1997. 10 COMERICA INCORPORATED 1999 ANNUAL REPORT 29 TABLE 5: ANALYSIS OF INVESTMENT SECURITIES AND LOANS
December 31 (in millions) 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------- Investment securities available for sale U.S. government and agency securities $ 2,275 $ 2,206 $ 3,239 $ 3,968 $ 6,038 State and municipal securities 74 115 170 228 371 Other securities 390 391 597 604 450 - ----------------------------------------------------------------------------------------------------------------- Total investment securities available for sale $ 2,739 $ 2,712 $ 4,006 $ 4,800 $ 6,859 ================================================================================================================= Commercial loans $20,655 $19,086 $15,805 $13,520 $12,041 International loans Government and official institutions 10 12 6 11 6 Banks and other financial institutions 391 433 339 323 583 Other 2,172 2,268 1,740 1,372 796 - ----------------------------------------------------------------------------------------------------------------- Total international loans 2,573 2,713 2,085 1,706 1,385 Real estate construction loans 1,709 1,080 941 751 641 Commercial mortgage loans 4,774 4,179 3,634 3,446 3,254 Residential mortgage loans 870 1,038 1,565 1,744 2,221 Consumer loans 1,351 1,862 4,348 4,634 4,570 Lease financing 761 647 517 406 330 - ----------------------------------------------------------------------------------------------------------------- Total loans $32,693 $30,605 $28,895 $26,207 $24,442 =================================================================================================================
STRATEGIC LINES OF BUSINESS 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. The Other category includes items not directly associated with these lines of business. Note 22 on page 60 describes how these segments were identified and presents financial results of these business lines for the years ended December 31, 1999, 1998 and 1997. Business Bank net income increased $28 million, or 8 percent, in 1999, principally due to additional net interest income resulting from 16 percent average loan growth and a $39 million increase in noninterest income. This was partially offset by a higher provision for credit losses resulting from loan growth, higher charge-offs and changing credit characteristics of the portfolio. Individual Bank net income decreased $4 million, or 1 percent, in 1999. Comparisons with 1998 were affected by the sale of the mortgage servicing business and $2.0 billion of consumer assets in 1998. Net interest income increased $20 million, or 3 percent, from 1998, generated principally from retail deposits. The provision for credit losses in 1999 reflects the reduction of the allowance which was allocated to the bankcard and revolving check credit loans transferred to loans held for sale and a decline in net charge-offs resulting from a decrease in average loans and improved credit quality. The provision in 1998 reflects the reduction in the allowance resulting from the sale of $2.0 billion of indirect consumer loans and credit card receivables. Noninterest income in 1998 includes an $11 million net gain on the sale of the mortgage servicing business and consumer loans. Net income for the Investment Bank was $3 million in 1999, compared to $4 million in 1998. Net income for Finance decreased $25 million in 1999, primarily due to a decrease in net interest income of $39 million. The net interest income of the Finance Division is mostly the result of hedging interest rate risk generated in the other segments. While net interest income attributed to assets with maturities can be specifically hedged, the net interest income attributed to most deposit liabilities, which have no maturity, can fluctuate if market rates and market spreads vary from year to year. In 1999, the net interest margin attributed to deposits benefitted from the level of market rates compared to the prior year, with the offsetting decline recognized in the Finance Division, where the risk was hedged. Net income for Other increased $68 million in 1999, primarily due to a decline in the allowance for credit losses not assigned to specific business lines. Included in noninterest income for 1999 is a $21 million gain on the sale of the Corporation's ownership in an ATM network provider. Noninterest income and expenses include the full year results for Munder in 1999 and the third and fourth quarter results for Munder in 1998. An adjustment of $7 million was made in 1998, to eliminate the remaining restructuring liability associated with the Corporation's Direction 2000 restructuring charge recorded in 1996. The adjustment was netted against noninterest expenses. Noninterest income in 1997 includes a $23 million gain on the sale of the Corporation's bond indenture services business. 11 30 COMERICA INCORPORATED 1999 ANNUAL REPORT TABLE 6: INTERNATIONAL CROSS-BORDER RISK
Governments Banks and December 31 and Official Other Financial Commercial (in millions) Institutions Institutions and Industrial Total - --------------------------------------------------------------------------------------------- Mexico 1999 $15 $150 $426 $591 1998 15 214 347 576 1997 41 78 295 414 - --------------------------------------------------------------------------------------------- Canada 1998 -- -- 380 380 - ---------------------------------------------------------------------------------------------
TABLE 7: LOAN MATURITIES AND INTEREST RATE SENSITIVITY
After One December 31, 1999 Within But Within After (in millions) One Year(*) Five Years Five Years Total - -------------------------------------------------------------------------------------------------- Commercial loans $15,658 $3,999 $ 998 $20,655 Commercial mortgage loans 1,368 2,261 1,145 4,774 International loans 2,329 215 29 2,573 Real estate construction loans 1,153 436 120 1,709 - -------------------------------------------------------------------------------------------------- Total $20,508 $6,911 $2,292 $29,711 ================================================================================================== Loans maturing after one year Predetermined interest rates $3,013 $1,904 Floating interest rates 3,898 388 - -------------------------------------------------------------------------------------------------- Total $6,911 $2,292 ==================================================================================================
(*) Includes demand loans, loans having no stated repayment schedule or maturity and overdrafts. TABLE 8: ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES
1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------- December 31 (in millions) Amount % Amount % Amount % Amount % Amount % - -------------------------------------------------------------------------------------------------------------------------- Commercial $169 63% $131 62% $ 94 55% $98 52% $118 49% Real estate construction 6 5 4 4 7 3 6 3 5 3 Commercial mortgage 35 15 21 14 18 13 27 13 33 13 Residential mortgage -- 3 -- 3 1 5 2 7 2 9 Consumer 18 4 48 6 116 15 120 18 84 19 Lease financing 8 2 6 2 1 2 1 1 1 1 International 35 8 17 9 5 7 3 6 2 6 Unallocated 205 -- 225 -- 182 -- 110 -- 96 -- - -------------------------------------------------------------------------------------------------------------------------- Total $476 100% $452 100% $424 100% $367 100% $341 100% ==========================================================================================================================
Amount - allocated allowance % - loans outstanding as a percent of total loans 12 COMERICA INCORPORATED 1999 ANNUAL REPORT 31 BALANCE SHEET AND CAPITAL FUNDS ANALYSIS Total assets were $38.7 billion at year-end 1999, representing a $2.1 billion increase from $36.6 billion on December 31, 1998. On an average basis, total assets increased to $37.0 billion in 1999 from $35.0 billion in 1998. This increase was funded primarily by purchased funds, which rose on average $1.3 billion and shareholders' equity, which increased on average $382 million. EARNING ASSETS Total earning assets were $36.0 billion at year-end 1999, representing a $2.6 billion increase from $33.4 billion at December 31, 1998. On an average basis, total earning assets were $34.1 billion in 1999, compared to $32.1 billion in 1998. The average balance of commercial and commercial mortgage loans increased $3.3 billion, or 16 percent, from 1998. Real estate construction loans also rose an average $375 million, or 38 percent, in 1999. The corporate portfolio continues to grow in all of the Corporation's markets, especially in loans to companies with sales over $5 million. This growth is attributable to effective marketing efforts, strong customer relationships and continued economic strength in the commercial loan markets. International loans averaged $2.6 billion in 1999, an increase of $285 million from 1998. Approximately 17 percent of this increase was attributable to loan growth in the Corporation's Canadian commercial banking subsidiary, much of which was funded locally and does not cause cross-border risk. The remaining growth reflects the increasing global activity of the Corporation's traditional customer base. Risk management practices are undertaken to minimize risk inherent in international lending arrangements. These practices include structuring bilateral arrangements or participating in bank facilities which secure repayment from sources external to the borrower's country. Accordingly, such international outstandings are excluded from cross-border risk of that country. Mexican cross-border risk of $591 million, or 1.53 percent of assets, was the only country with exposure exceeding 1.00 percent of assets at December 31, 1999. There were no countries with exposure between 0.75 percent and 1.00 percent of total assets at year-end 1999. Additional information on the Corporation's Mexican cross-border risk is provided in Table 6 on page 30. Average residential mortgage loans decreased $396 million primarily due to management's decision to sell the majority of mortgage originations. Average consumer loans, comprised of installment, revolving credit and bankcard loans, declined $759 million in 1999. The decline in consumer loans is a result of the 1998 sale of $2.0 billion of indirect consumer loans and non-relationship bankcard receivables. Average installment, revolving credit and bankcard loans decreased $592 million, $83 million and $84 million, respectively, during the period. Consumer loans at December 31, 1999, reflect the reclassification of $493 million of revolving check credit and bankcard loans to loans held for sale, pending sale in 2000. Average investment securities declined to $2.4 billion in 1999, compared to $3.4 billion in 1998. As part of repositioning the Corporation's balance sheet, investment securities were allowed to runoff during the first three quarters of 1999 to fund growth in higher-yielding loans and to divest lower earning variable rate assets. With this repositioning effectively complete, the Corporation began purchasing investment securities in the fourth quarter of 1999 with the intent of aligning investment security growth with expected growth in earning assets. Average U.S. government and agency securities decreased $818 million and average state and municipal securities decreased $44 million, while average other securities decreased $106 million. Declines in U.S. government and agency securities have primarily resulted from sales and pay downs, while the tax exempt portfolio of state and municipal securities continued to decrease as reduced tax advantages for these types of securities deterred additional investment. Other securities consist primarily of collateralized mortgage obligations (CMOs), Brady bonds and Eurobonds. OTHER EARNING ASSETS Short-term investments include interest-bearing deposits with banks, federal funds sold and securities purchased under agreements to resell, trading securities and loans held for sale. These investments provide a range of maturities under one year to manage the short-term investment requirements of the Corporation. Interest-bearing deposits with banks are investments with banks in developed countries or foreign banks' international banking facilities located in the United States. Federal funds sold offer supplemental earnings opportunities and serve correspondent banks. Included in loans held for sale at December 31, 1999, are $493 million of revolving check credit and bankcard loans pending sale in 2000. Average short-term investments decreased slightly to $116 million during 1999, from $143 million during 1998. TABLE 9: MATURITY DISTRIBUTION OF DOMESTIC CERTIFICATES OF DEPOSIT OF $100,000 AND OVER
December 31 (in millions) 1999 - --------------------------------------------- Three months or less $1,623 Over three months to six months 365 Over six months to twelve months 366 Over twelve months 186 - --------------------------------------------- TOTAL $2,540 =============================================
13 32 COMERICA INCORPORATED 1999 ANNUAL REPORT DEPOSITS AND BORROWED FUNDS Average deposits increased $266 million, or 1 percent, from 1998. Average noninterest-bearing deposits grew $104 million, or 2 percent, from 1998, largely due to the growth in commercial loan relationships. Average interest-bearing transaction, savings and money market deposits increased 3 percent during 1999, to $9.2 billion. Certificates of deposit decreased $85 million, or 1 percent, on an average basis from 1998. Average federal funds purchased and securities sold under agreements to repurchase increased $313 million, or 12 percent, from 1998. The majority of this increase was offset by a net decrease in average other borrowed funds, which declined $251 million, or 28 percent, from 1998. Other borrowed funds include term federal funds purchased and treasury tax and loan notes. The decline in other borrowed funds was attributable to lower levels of available collateral to secure treasury tax and loan notes. The Corporation uses medium-term debt (both domestic and European) and long-term debt to provide the necessary funding to support expanding earning assets. These notes assist the Corporation in providing liquidity which mirrors the estimated duration of our deposits. Long-term subordinated notes further help maintain the subsidiary banks' total capital ratio at a level that qualifies for the lowest FDIC risk-based insurance premium. Medium-term debt increased $3.4 billion representing the net result of the issuance of $6.3 billion and the maturity of $2.9 billion of notes during 1999. Long-term debt decreased $77 million during 1999, primarily due to the maturity of $75 million of subordinated notes. Further information on medium- and long-term debt is included in Note 9 of the consolidated financial statements on page 49. CAPITAL Shareholders' equity was $3.5 billion at December 31, 1999, up $428 million, or 14 percent from December 31, 1998. This increase was primarily due to the net effect of increases from retained earnings of $431 million and $26 million of common stock issued for employee stock plans and a decrease of $25 million in nonowner equity. At December 31, 1999, the Corporation had remaining authorization to purchase 20 million shares of common stock. Further information on the change in nonowner equity is provided in Note 11 on page 50. The Corporation declared common dividends totaling $225 million on net income applicable to common stock of $655 million, representing a dividend payout ratio of 35 percent. The payout ratio in 1998 was 34 percent. At December 31, 1999, the Corporation and all of its banking subsidiaries exceeded the capital ratios required for an institution to be considered "well capitalized" by the standards developed under the Federal Deposit Insurance Corporation Improvement Act of 1991. See Note 17 of the consolidated financial statements on page 54 for the capital ratios. RISK MANAGEMENT The Corporation assumes various types of risk in the normal course of business. The most significant risk exposures are credit, interest rate, liquidity and operational risk. The other commonly identified exposure, market risk, is not significant as trading activities are limited. Comerica employs risk management processes to identify, measure, monitor and control these risks. CREDIT RISK Credit risk represents the risk that a customer or counterparty may not perform in accordance with contractual terms. Credit risk is inherent in the financial services business and results from extending credit to customers, purchasing securities and entering into off-balance sheet financial derivative instruments. Policies and procedures for measuring and managing this risk are formulated, approved and communicated throughout the Corporation. Credit executives, independent from lending officers, are involved in the origination and underwriting process to ensure adherence to risk policies and underwriting standards. The Corporation also manages credit risk through diversification, limiting exposure to any single industry or customer, selling participations to third parties and requiring collateral. NONPERFORMING ASSETS The Corporation's policies regarding nonaccrual loans reflect the importance of identifying troubled loans early. Consumer loans are directly charged off no later than 180 days past due, or earlier if deemed uncollectible. Loans other than consumer are generally placed on nonaccrual status when management determines that principal or interest may not be fully collectible, but no later than when the loan is 90 days past due on principal or interest unless it is fully collateralized and in the process of collection. Loan amounts in excess of probable future NONPERFORMING ASSETS TO LOANS AND OTHER REAL ESTATE (IN PERCENTAGES)
1995 1996 1997 1998 1999 Comerica 0.67 0.53 0.36 0.39 0.56 Industry Average 1.23 0.79 0.71 0.73 0.64
14 COMERICA INCORPORATED 1999 ANNUAL REPORT 33 TABLE 10: ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO - FULLY TAXABLE EQUIVALENT
Maturity(+) ----------------------------------------------------------------------------------------- Weighted Within 1 Year 1 - 5 Years 5 - 10 Years After 10 Years Total Average December 31, 1999 ----------------------------------------------------------------------------------------- Maturity (dollar amounts in millions) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Yrs./Mos. - ------------------------------------------------------------------------------------------------------------------------------------ Available for sale U.S. Treasury $59 5.43% $ -- --% $ -- --% $ -- --% $ 59 5.43% 0/10 U.S. government and agency 4 5.26 120 7.27 1,441 6.40 651 7.08 2,216 6.64 10/1 State and municipal securities 25 6.85 33 6.15 14 6.04 2 6.53 74 6.38 2/11 Other bonds, notes and debentures 22 8.43 180 8.87 43 8.42 43 8.47 288 8.71 5/5 Federal Reserve Bank stock and other investments* -- -- -- -- -- -- -- -- 102 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total investment securities available for sale $110 6.35% $333 8.03% $1,498 6.45% $696 7.17% $2,739 6.84% 9/2 ====================================================================================================================================
* Balances are excluded in the calculation of total yield. + Based on final contractual maturity. TABLE 11: SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS
December 31 (dollar amounts in millions) 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------------- Nonperforming assets Nonaccrual loans Commercial loans $ 110 $ 77 $ 59 $ 72 $ 87 International loans 44 20 1 -- -- Real estate construction loans -- 1 3 3 7 Commercial mortgage loans 10 7 11 23 31 Residential mortgage loans 1 3 4 5 6 - -------------------------------------------------------------------------------------------------------- Total nonaccrual loans 165 108 78 103 131 Reduced-rate loans 7 8 8 8 3 - -------------------------------------------------------------------------------------------------------- Total nonperforming loans 172 116 86 111 134 Other real estate 10 5 17 29 29 - -------------------------------------------------------------------------------------------------------- Total nonperforming assets $ 182 $ 121 $ 103 $ 140 $ 163 ======================================================================================================== Nonperforming loans as a percentage of total loans 0.53% 0.38% 0.30% 0.42% 0.55% Nonperforming assets as a percentage of total loans and other real estate 0.56% 0.39% 0.36% 0.53% 0.67% Allowance for credit losses as a percentage of total nonperforming assets 262% 375% 413% 263% 209% Loans past due 90 days or more and still accruing $ 48 $ 40 $ 53 $52 $ 57 ========================================================================================================
15 34 COMERICA INCORPORATED 1999 ANNUAL REPORT cash collections are charged off to an amount that represents management's assessment of the ultimate collectibility of the loan. Interest previously accrued but not collected on nonaccrual loans is charged against current income at the time the loan is placed on nonaccrual. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable. Nonperforming assets as a percent of total loans and other real estate were 0.56 percent and 0.39 percent at year-end 1999 and 1998, respectively. Nonaccrual loans at December 31, 1999, increased 53 percent to $165 million from $108 million at year-end 1998. Table 11 on page 33 provides additional detail on nonperforming assets. Loans to customers in the healthcare and mortgage banking industries accounted for $34 million of the increase in commercial nonaccrual loans. The increase in international nonaccrual loans from year-end 1998, was primarily related to Indonesian and two Canadian customers. Loans past due 90 days or more increased $8 million from year-end 1998 and was primarily attributable to customers related to the energy industry. The nonaccrual loan table below indicates the percentage of nonaccrual loan value to original contractual value which exhibits the degree to which loans reported as nonaccrual have been charged off. Other real estate owned (ORE) increased to $10 million. NONACCRUAL LOANS December 31 (dollar amounts in millions) 1999 1998 - ---------------------------------------------- Carrying value $165 $108 Contractual value 244 159 Carrying value as a percentage of contractual value 68% 68% ============================================== CONCENTRATION OF CREDIT Loans to companies and individuals involved with the automotive industry, including suppliers, manufacturers and dealers, represented the largest significant industry concentration at December 31, 1999. These loans totaled $4.8 billion, or 15 percent of total loans at December 31, 1999, versus $4.6 billion, or 15 percent, at December 31, 1998. These totals include floor plan loans to automobile dealers of $1,653 million and $1,454 million at December 31, 1999 and 1998, respectively. All other industry concentrations individually represented less than 5 percent of total loans at year-end 1999. The Corporation has successfully operated in the Michigan economy in spite of a loan concentration and several down-turns in the auto industry. The largest automotive industry loan on nonaccrual status at December 31, 1999, was $8 million. There were no other automotive industry loans larger than $1 million on nonaccrual status as of year-end 1999. In addition, there were no significant automotive industry-related charge-offs during the year. COMMERCIAL REAL ESTATE LENDING The real estate construction loan portfolio contains loans primarily made to long-time customers with satisfactory project completion experience. The portfolio has approximately 1,128 loans, of which 66 percent have balances of less than $1 million. The largest real estate construction loan has a balance of approximately $23 million. The commercial mortgage loan portfolio, 57 percent of which relates to owner-occupied properties, also consists primarily of loans to long-time customers. Of the approximately 7,041 loans in the portfolio,85 percent have balances under $1 million and the largest loan has a balance of approximately $18 million. Additionally, the Corporation's policy requires a 75 percent or less loan-to-value ratio for all commercial mortgage and real estate construction loans. The geographic distribution of the real estate construction and commercial mortgage loan portfolios is also an important factor in evaluating credit risk. The following table indicates the diversification of the portfolios throughout the markets served by the Corporation. GEOGRAPHIC DISTRIBUTION
December 31, 1999 Real Estate Commercial (in millions) Construction Mortgage - -------------------------------------------------------------- Michigan $ 823 $3,109 California 291 836 Texas 378 373 Florida 118 154 Other 99 302 - -------------------------------------------------------------- TOTAL $1,709 $4,774 ==============================================================
INTEREST RATE RISK Interest rate risk arises primarily through the Corporation's core business activities of extending loans and taking deposits. The Corporation actively manages its material exposure to interest rate risk. The principal objective of asset and liability management is to maximize net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity. The Corporation utilizes various on- and off-balance sheet financial instruments to manage the extent to which net interest income may be affected by fluctuations in interest rates. The board of directors authorizes the Asset Liability Policy Committee (ALPC) to establish policies and risk limits pertaining to asset and liability management activities. The ALPC as well as the board monitors compliance with these policies. The ALPC meets regularly to discuss asset and liability management strategies and is comprised of executive and senior management from various areas of the Corporation, including finance, lending, investments and deposit gathering. 16 COMERICA INCORPORATED 1999 ANNUAL REPORT 35 INTEREST RATE SENSITIVITY Interest rate risk arises in the normal course of business due to differences in the repricing and maturity characteristics of assets and liabilities. Since no single measurement system satisfies all management objectives, a combination of techniques is used to manage interest rate risk, including simulation analysis, asset and liability repricing schedules and economic value of equity. The ALPC regularly reviews the results of these interest rate risk measurements. The Corporation frequently evaluates net interest income under various balance sheet and interest rate scenarios. The results of these analyses provide the information needed to assess the proper balance sheet structure. An unexpected change in the pace of economic activity, whether domestically or internationally, could translate into a materially different interest rate environment than currently expected. Management evaluates "base" net interest income under what is believed to be the most likely balance sheet structure and interest rate environment. This "base" net interest income is then evaluated against interest rate scenarios that are taken up and down 200 basis points from the most likely rate environment. In addition, adjustments to asset prepayment levels, yield curves and overall balance sheet mix and growth assumptions are made to be consistent with each interest rate environment. These assumptions are inherently uncertain and, as a result, the model cannot precisely predict the impact of higher or lower interest rates on net interest income. Actual results may differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. Derivative financial instruments and other financial instruments used for purposes other than trading are included in these analyses. The measurement of risk exposure at year-end 1999 for a 200-basis-point decline in short-term interest rates identified approximately $52 million, or 3 percent, of net interest income at risk during 2000. If short-term interest rates rise 200 basis points, net interest income at risk during 2000 would be approximately $30 million, or 2 percent. Corresponding measurements of risk exposure at year-end 1998 were $72 million of net interest income at risk for a 200-basis-point decline in interest rates and a net interest benefit of $49 million for a 200-basis-point rise in interest rates. Corporate policy limits adverse change to no more than 5 percent of management's most likely net interest income forecast. The Corporation is within the policy guideline. Most assets and liabilities reprice either at maturity or in accordance with their contractual terms. However, several balance sheet components demonstrate characteristics that require adjustments to more accurately reflect repricing and cash flow behavior. Assumptions based on historical pricing relationships and anticipated market reactions are made to certain core deposit categories to reflect the elasticity of the changes in the related interest rates relative to changes in market interest rates. In addition, estimates are made concerning early loan and security repayments. Prepayment assumptions are based on the expertise of portfolio managers along with input from financial markets. Consideration is given to current and future interest rate levels. While management recognizes the limited ability of a traditional gap schedule to accurately portray interest rate risk, adjustments are made to provide a more accurate picture of the Corporation's interest rate risk profile. This additional interest rate risk measurement tool provides a directional outlook on the impact of changes in interest rates. Interest rate sensitivity is measured as a percentage of earning assets. The operating range for interest rate sensitivity, on an elasticity-adjusted basis, is between an asset sensitive position of 10 percent of earning assets and a liability sensitive position of 10 percent of earning assets. Table 12 on page 36 shows the interest sensitivity gap as of year-end 1999 and 1998. The report reflects the contractual repricing and payment schedules of assets and liabilities, including an estimate of all early loan and security repayments which adds $605 million of rate sensitivity to the 1999 year-end gap. In addition, the schedule includes an adjustment for the price elasticity on certain core deposits. The Corporation was slightly asset sensitive throughout most of 1999. The Corporation had a one-year asset sensitive gap of $487 million, or 1 percent of earning assets, as of December 31, 1999. This compares to a $2,111 million asset sensitive gap, or 6 percent of earning assets, on December 31, 1998. Management anticipates continued growth in asset sensitivity throughout 2000, and will analyze both on- and off-balance sheet alternatives to hedge this increased asset sensitivity and achieve the desired interest rate risk profile for the Corporation. The Corporation utilizes interest rate swaps predominantly as asset and liability management tools with the overall objective of dampening 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 (e.g., from a floating rate to a fixed rate, a fixed rate to a floating rate, or from one floating rate index to another). This strategy assists management in achieving interest rate risk objectives. 17 36 COMERICA INCORPORATED 1999 ANNUAL REPORT TABLE 12: SCHEDULE OF RATE SENSITIVE ASSETS AND LIABILITIES
December 31, 1999 December 31, 1998 Interest Sensitivity Period Interest Sensitivity Period - -------------------------------------------------------------------------------------------------- Within Over Within Over (dollar amounts in millions) One Year One Year Total One Year One Year Total - -------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ -- $ 1,202 $ 1,202 $ -- $ 1,773 $ 1,773 Short-term investments 612 1 613 103 7 110 Investment securities 843 1,896 2,739 881 1,831 2,712 Commercial loans (including lease financing) 19,573 1,843 21,416 17,555 2,178 19,733 International loans 2,523 50 2,573 2,713 -- 2,713 Real estate related loans 4,502 2,851 7,353 3,856 2,441 6,297 Consumer loans 858 493 1,351 1,044 818 1,862 - -------------------------------------------------------------------------------------------------- Total loans 27,456 5,237 32,693 25,168 5,437 30,605 Other assets 647 759 1,406 618 783 1,401 - -------------------------------------------------------------------------------------------------- Total assets $29,558 $ 9,095 $38,653 $26,770 $ 9,831 $36,601 ================================================================================================== LIABILITIES Deposits Noninterest-bearing $ 959 $ 5,177 $ 6,136 $ 1,451 $ 5,548 $ 6,999 Savings -- 1,420 1,420 -- 1,533 1,533 Money market and NOW 5,966 1,845 7,811 5,991 1,901 7,892 Certificates of deposit 5,546 1,031 6,577 5,275 1,232 6,507 Foreign office 1,347 -- 1,347 1,382 -- 1,382 - -------------------------------------------------------------------------------------------------- Total deposits 13,818 9,473 23,291 14,099 10,214 24,313 Short-term borrowings 2,768 -- 2,768 3,580 -- 3,580 Medium- and long-term debt 7,269 1,311 8,580 3,771 1,511 5,282 Other liabilities 224 315 539 64 315 379 - -------------------------------------------------------------------------------------------------- Total liabilities 24,079 11,099 35,178 21,514 12,040 33,554 Shareholders' equity (31) 3,506 3,475 (8) 3,055 3,047 - -------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $24,048 $14,605 $38,653 $21,506 $15,095 $36,601 ================================================================================================== Sensitivity impact of interest rate swaps (7,409) 7,409 -- (5,549) 5,549 -- - -------------------------------------------------------------------------------------------------- Interest sensitivity gap (1,899) 1,899 -- (285) 285 -- Gap as a percentage of earning assets (5)% 5% -- (1)% 1% -- Sensitivity impact from elasticity adjustments (1) 2,386 (2,386) -- 2,396 (2,396) -- - -------------------------------------------------------------------------------------------------- Interest sensitivity gap with elasticity adjustments (1) $ 487 $ (487) -- $ 2,111 $(2,111) -- Gap as a percentage of earning assets 1% (1)% -- 6% (6)% -- ==================================================================================================
(1) Elasticity adjustments for NOW, savings and money market deposit accounts are based on historical pricing relationships dating back to 1985 as well as expected future pricing relationships. 18 COMERICA INCORPORATED 1999 ANNUAL REPORT 37 TABLE 13: REMAINING EXPECTED MATURITY OF RISK MANAGEMENT INTEREST RATE SWAPS
2005- Dec. 31 (dollar amounts in millions) 2000 2001 2002 2003 2004 2026 Total 1998 - ---------------------------------------------------------------------------------------------------------------------- VARIABLE RATE ASSET DESIGNATION: Receive fixed swaps Generic $ 700 $3,250 $2,850 $ -- $ -- $ -- $6,800 $3,950 Index amortizing 149 -- -- -- -- -- 149 2,169 Weighted average:(1) Receive rate 6.34% 5.68% 7.14% --% --% --% 6.36% 6.01% Pay rate 6.18% 6.15% 7.50% --% --% --% 6.71% 5.30% - ---------------------------------------------------------------------------------------------------------------------- FIXED RATE ASSET DESIGNATION: Pay fixed swaps Generic $ 13 $ -- $ -- $ -- $ -- $ -- $ 13 $ 2 Index amortizing 7 -- -- -- -- -- 7 11 Amortizing -- -- 2 -- -- -- 2 -- Weighted average:(1) Receive rate 6.48% --% 5.09% --% --% --% 6.37% 5.54% Pay rate 5.92% --% 6.05% --% --% --% 5.93% 5.88% - ---------------------------------------------------------------------------------------------------------------------- FIXED RATE DEPOSIT DESIGNATION: Generic receive fixed swaps $ 10 $ -- $ -- $ -- $ -- $ -- $ 10 $ -- Weighted average:(3) Receive rate 5.16% --% --% --% --% --% 5.16% --% Pay rate 5.01% --% --% --% --% --% 5.01% --% - ---------------------------------------------------------------------------------------------------------------------- MEDIUM- AND LONG-TERM DEBT DESIGNATION: Generic receive fixed swaps $ 200 $ -- $ 150 $ -- $ -- $1,150 $1,500 $ 700 Weighted average:(1) Receive rate 6.91% --% 7.37% --% --% 6.79% 6.86% 7.33% Pay rate 6.11% --% 6.09% --% --% 5.90% 5.95% 5.28% Floating/floating swaps $ 37 $ -- $ -- $ -- $ -- $ -- $ 37 $ 37 Weighted average:(2) Receive rate 5.93% --% --% --% --% --% 5.93% 4.98% Pay rate 6.19% --% --% --% --% --% 6.19% 5.19% - ---------------------------------------------------------------------------------------------------------------------- Total notional amount $1,116 $3,250 $3,002 $ -- $ -- $1,150 $8,518 $6,869 ======================================================================================================================
(1) Variable rates paid on receive fixed swaps are based on one-month and three-month LIBOR rates in effect at December 31, 1999. Variable rates received on pay fixed swaps are based on prime. (2) Variable rates paid are based on LIBOR at December 31, 1999, while variable rates received are based on the two-year Constant Treasury Maturity Rate. (3) Variable rate paid is based on one-month CDOR at December 31, 1999. 19 38 COMERICA INCORPORATED 1999 ANNUAL REPORT RISK MANAGEMENT DERIVATIVE FINANCIAL INSTRUMENTS AND FOREIGN EXCHANGE CONTRACTS RISK MANAGEMENT NOTIONAL ACTIVITY
Interest Foreign Rate Exchange (in millions) Contracts Contracts Totals - ----------------------------------------------------------------------------------- Balances at December 31, 1997 $ 8,567 $ 599 $ 9,166 Additions 3,402 7,218 10,620 Maturities/amortizations (4,330) (6,904) (11,234) Terminations (755) -- (755) - -------------------------------------------------------------------------------- Balances at December 31, 1998 $ 6,884 $ 913 $ 7,797 Additions 3,677 10,491 14,168 Maturities/amortizations (667) (10,191) (10,858) Terminations (1,376) -- (1,376) - -------------------------------------------------------------------------------- Balances at December 31, 1999 $ 8,518 $ 1,213 $ 9,731 ================================================================================
The notional amount of risk management interest rate swaps totaled $8,518 million at December 31, 1999, and $6,869 million at December 31, 1998. The fair value of risk management interest rate swaps at December 31, 1999, was a negative $155 million, compared to a positive $146 million at December 31, 1998. For the year ended December 31, 1999, risk management interest rate swaps generated $54 million in net interest income, compared to $46 million in net interest income for the year ended December 31, 1998. These off-balance sheet instruments represented 78 percent of total derivative financial instruments and foreign exchange contracts, including commitments to purchase and sell investment securities, at year-end 1999 and 75 percent at year-end 1998. Table 13 on page 37 summarizes the expected maturity distribution of the notional amount of risk management interest rate swaps and provides the weighted average interest rates associated with amounts to be received or paid as of December 31, 1999. The swaps have been grouped by the assets and liabilities to which they have been designated. In addition to interest rate swaps, the Corporation employs various other types of off-balance sheet derivative and foreign exchange contracts to mitigate exposures to interest rate and foreign currency risks associated with specific assets and liabilities (e.g., loans or deposits denominated in foreign currencies and mortgages held for sale). Such instruments include interest rate caps and floors, purchased put options, foreign exchange forward contracts, foreign exchange generic swap agreements and cross-currency swaps. The aggregate notional amounts of these risk management derivative and foreign exchange contracts at December 31, 1999 and 1998, were $1,213 million and $928 million, respectively. Further information regarding risk management financial instruments and foreign currency exchange contracts is provided in Notes 1, 9, 18, and 25. CUSTOMER-INITIATED AND OTHER DERIVATIVE FINANCIAL INSTRUMENTS AND FOREIGN EXCHANGE CONTRACTS CUSTOMER-INITIATED AND OTHER NOTIONAL ACTIVITY
Interest Foreign Rate Exchange (in millions) Contracts Contracts Totals - -------------------------------------------------------------------------------- Balances at December 31, 1997 $ 496 $ 1,837 $ 2,333 Additions 417 36,171 36,588 Maturities/amortizations (232) (37,335) (37,567) - ------------------------------------------------------------------------ Balances at December 31, 1998 $ 681 $ 673 $ 1,354 Additions 133 31,004 31,137 Maturities/amortizations (251) (31,098) (31,349) - ------------------------------------------------------------------------ Balances at December 31, 1999 $ 563 $ 579 $ 1,142 ========================================================================
On a limited basis, the Corporation writes interest rate caps and enters into foreign exchange contracts and interest rate swaps to accommodate the needs of customers requesting such services. At December 31, 1999 and 1998, customer- initiated activity represented 10 percent and 15 percent, respectively, of total derivative and foreign exchange contracts, including commitments to purchase and sell securities. Refer to Note 18 on page 55 for further information regarding customer-initiated and other derivative financial instruments and foreign exchange contracts. LIQUIDITY RISK Liquidity is the ability to meet financial obligations through the maturity or sale of existing assets or acquisition of additional funds. Liquidity requirements are satisfied with various funding sources, including a $7.5 billion medium-term note program which allows the Michigan, California and Texas banks to issue debt with maturities between one month and 15 years. The Michigan bank has an additional $2 billion European note program. At year-end 1999, unissued debt related to the two programs totaled $2.3 billion. In addition, liquid assets totaled $4.1 billion at December 31, 1999. The Corporation also had available $20.4 billion from a collateralized borrowing account with the Federal Reserve Bank at year-end 1999. Purchased funds at December 31, 1999, excluding certificates of deposit with maturities beyond one year and medium- and long-term debt, approximated $6.5 billion. The parent company had available a $250 million commercial paper facility at December 31, 1999, $175 million of which was unused. Another source of liquidity for the parent company is dividends from its subsidiaries. As discussed in Note 17 on page 54, subsidiary banks are subject to regulation and may be limited in their ability to pay dividends or transfer funds to the holding company. During 2000, the subsidiary banks can pay dividends up to $879 million plus current net profits without prior regulatory approval. One measure of current parent company liquidity is investment in subsidiaries as a percent of shareholders' equity. An amount over 100 percent represents the reliance on subsidiary dividends to repay liabilities. As of December 31, 1999, the ratio was 106 percent. 20 COMERICA INCORPORATED 1999 ANNUAL REPORT 39 OPERATIONAL RISK Operational risk is the risk of unexpected losses attributable to human error, system failures, fraud, unauthorized transactions and inadequate internal controls and procedures. The Corporation mitigates this risk through a system of internal controls that are designed to keep operating risks at appropriate levels. The Corporation's internal audit and financial staff monitors and assesses the overall effectiveness of the system of internal controls on an ongoing basis and internal audit provides an opinion on the environment to management and the Audit Committee. Operational losses are experienced by all companies and are routinely incurred in business operations. Comerica has established an Operational Risk Committee comprised of executives from several disciplines. This group is charged with surfacing significant operational risks which may impact customer service, reputation or result in financial loss if not adequately addressed. The internal audit staff independently supports an active Audit Committee oversight process. The Audit Committee serves as an independent extension of the Board of Directors. Routine and special meetings are scheduled periodically to provide more detail on relevant operational risks. OTHER MATTERS The Corporation initiated an extensive enterprise-wide and centrally managed project to prepare its computer systems, applications and infrastructure for year 2000 readiness. The year 2000 team included the active involvement of senior executives as well as seasoned project managers and business unit liaisons from throughout the Corporation. To date, the Corporation has experienced no known significant system, supplier or customer failures attributable to the year 2000 date change. The cost of the Corporation's year 2000 project includes internal and external development costs, asset impairment write-offs and the cost of software and hardware for systems that were not ready or would not have been ready by the year 2000. The year 2000 project cost, both internal and external, will total approximately $50 million, of which the Corporation incurred approximately $48 million through December 31, 1999. The remaining year 2000 costs yet to be incurred relate to retention incentives for key year 2000 program employees. Of the $48 million incurred to date, $12 million was for capital assets which the Corporation is expensing over their useful lives. The project was staffed with external resources as well as internal staff redeployed from less time-sensitive assignments. The redeployment of existing staff did not have a material adverse effect on the Corporation's business, results of operations or financial position. This annual report to shareholders includes forward-looking statements based on management's current expectations and/or the assumptions made in the earnings simulation analyses, but numerous factors could cause variances in these projections and their underlying assumptions, such as interest rate changes, changes in industries where the Corporation has a concentration of loans, changes in the level of fee income, changing economic conditions and continuing consolidations in the banking industry. 21 40 COMERICA INCORPORATED 1999 ANNUAL REPORT CONSOLIDATED BALANCE SHEETS COMERICA INCORPORATED AND SUBSIDIARIES
December 31 (in thousands, except share data) 1999 1998 - ------------------------------------------------------------------------ ASSETS Cash and due from banks $ 1,201,990 $ 1,773,100 Short-term investments 612,959 109,640 Investment securities available for sale 2,739,464 2,712,165 Commercial loans 20,654,658 19,086,541 International loans 2,573,003 2,713,259 Real estate construction loans 1,709,261 1,079,614 Commercial mortgage loans 4,774,052 4,179,271 Residential mortgage loans 870,029 1,037,941 Consumer loans 1,350,725 1,861,630 Lease financing 761,550 646,607 - ------------------------------------------------------------------------ Total loans 32,693,278 30,604,863 Less allowance for credit losses (476,470) (452,409) - ------------------------------------------------------------------------ Net loans 32,216,808 30,152,454 Premises and equipment 330,728 352,650 Customers' liability on acceptances outstanding 43,810 12,335 Accrued income and other assets 1,507,573 1,488,487 - ------------------------------------------------------------------------ Total assets $38,653,332 $36,600,831 ======================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest-bearing deposits $ 6,136,038 $ 6,999,337 Interest-bearing deposits 17,155,365 17,313,796 - ------------------------------------------------------------------------ Total deposits 23,291,403 24,313,133 Federal funds purchased and securities sold under agreements to repurchase 1,332,397 3,108,985 Other borrowed funds 1,435,634 471,168 Acceptances outstanding 43,810 12,335 Accrued expenses and other liabilities 495,587 366,338 Medium- and long-term debt 8,579,857 5,282,259 - ------------------------------------------------------------------------ Total liabilities 35,178,688 33,554,218 Nonredeemable preferred stock--$50 stated value Authorized--5,000,000 shares Issued--5,000,000 shares in 1999 and 1998 250,000 250,000 Common stock--$5 par value Authorized--325,000,000 shares Issued--157,233,107 shares in 1999 and 157,233,088 shares in 1998 786,166 786,165 Capital surplus 35,092 24,649 Accumulated nonowner changes in equity (31,702) (6,455) Retained earnings 2,485,204 2,086,589 Deferred compensation (2,955) (5,202) Less cost of common stock in treasury-- 715,496 shares in 1999 and 1,351,997 shares in 1998 (47,161) (89,133) - ------------------------------------------------------------------------ Total shareholders' equity 3,474,644 3,046,613 - ------------------------------------------------------------------------ Total liabilities and shareholders' equity $38,653,332 $36,600,831 ========================================================================
See notes to consolidated financial statements. 22 COMERICA INCORPORATED 1999 ANNUAL REPORT 41 CONSOLIDATED STATEMENTS OF INCOME COMERICA INCORPORATED AND SUBSIDIARIES
Year Ended December 31 (in thousands,except per share data) 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $ 2,500,978 $ 2,382,329 $ 2,317,844 Interest on investment securities Taxable 156,933 218,378 310,399 Exempt from federal income tax 4,647 7,252 10,797 - --------------------------------------------------------------------------------------------------------------------- Total interest on investment securities 161,580 225,630 321,196 Interest on short-term investments 10,152 8,815 8,363 - --------------------------------------------------------------------------------------------------------------------- Total interest income 2,672,710 2,616,774 2,647,403 INTEREST EXPENSE Interest on deposits 590,335 647,825 673,265 Interest on short-term borrowings 179,133 185,711 209,010 Interest on medium- and long-term debt 410,367 367,777 374,022 Net interest rate swap income (54,266) (45,810) (51,670) - --------------------------------------------------------------------------------------------------------------------- Total interest expense 1,125,569 1,155,503 1,204,627 - --------------------------------------------------------------------------------------------------------------------- Net interest income 1,547,141 1,461,271 1,442,776 Provision for credit losses 114,000 113,000 146,000 - --------------------------------------------------------------------------------------------------------------------- Net interest income after provision for credit losses 1,433,141 1,348,271 1,296,776 NONINTEREST INCOME Fiduciary and investment management income 240,574 184,354 147,336 Service charges on deposit accounts 169,173 157,416 141,078 Commercial lending fees 48,887 43,326 31,342 Letter of credit fees 38,468 31,127 26,047 Securities gains 5,453 6,116 5,195 Other noninterest income 214,333 180,809 176,954 - --------------------------------------------------------------------------------------------------------------------- Total noninterest income 716,888 603,148 527,952 NONINTEREST EXPENSES Salaries and employee benefits 640,357 565,303 538,926 Net occupancy expense 93,728 89,911 89,380 Equipment expense 61,092 60,147 61,759 Outside processing fee expense 47,754 42,785 41,683 Restructuring charge -- (6,840) -- Other noninterest expenses 274,026 268,738 276,238 - --------------------------------------------------------------------------------------------------------------------- Total noninterest expenses 1,116,957 1,020,044 1,007,986 - --------------------------------------------------------------------------------------------------------------------- Income before income taxes 1,033,072 931,375 816,742 Provision for income taxes 360,483 324,299 286,266 - --------------------------------------------------------------------------------------------------------------------- Net Income $ 672,589 $ 607,076 $ 530,476 ===================================================================================================================== Net income applicable to common stock $ 655,489 $ 589,976 $ 513,376 ===================================================================================================================== Basic net income per common share $ 4.20 $ 3.79 $ 3.24 Diluted net income per common share 4.14 3.72 3.19 Cash dividends declared on common stock $ 224,837 $ 199,403 $ 181,272 Dividends per common share $ 1.44 $ 1.28 $ 1.15 - ---------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 23 42 COMERICA INCORPORATED 1999 ANNUAL REPORT CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY COMERICA INCORPORATED AND SUBSIDIARIES
Non- Accumulated redeemable Nonowner Preferred Common Capital Changes Retained Deferred (in thousands,except share data) Stock Stock Surplus In Equity Earnings Compensation - -------------------------------------------------------------------------------------------------------------------------- BALANCES AT JANUARY 1, 1997 $250,000 $536,487 $ -- $ (22,789) $1,854,116 $(2,245) Net income for 1997 -- -- -- -- 530,476 -- Nonowner changes in equity,net of tax -- -- -- 20,852 -- -- Net income and nonowner changes in equity -- -- -- -- -- -- Cash dividends declared: Preferred stock -- -- -- -- (17,100) -- Common stock -- -- -- -- (181,272) -- Purchase and retirement of 3,618,479 shares of common stock -- (18,092) (30,750) -- (193,451) -- Issuance of common stock under employee stock plans -- 4,323 30,750 -- 9 (531) Amortization of deferred compensation -- -- -- -- -- 993 Stock split (three-for-two) -- 261,359 -- -- (261,359) -- - -------------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1997 250,000 784,077 -- (1,937) 1,731,419 (1,783) Net income for 1998 -- -- -- -- 607,076 -- Nonowner changes in equity,net of tax -- -- -- (4,518) -- -- Net income and nonowner changes in equity -- -- -- -- -- -- Cash dividends declared: Preferred stock -- -- -- -- (17,100) -- Common stock -- -- -- -- (199,403) -- Purchase and retirement of 60,000 shares of common stock -- (300) (3,182) -- -- -- Purchase of 2,199,650 shares of common stock -- -- -- -- -- -- Issuance of common stock under employee stock plans -- 2,388 27,831 -- (35,403) (4,604) Amortization of deferred compensation -- -- -- -- -- 1,185 - -------------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1998 250,000 786,165 24,649 (6,455) 2,086,589 (5,202) Net income for 1999 -- -- -- -- 672,589 -- Nonowner changes in equity,net of tax -- -- -- (25,247) -- -- Net income and nonowner changes in equity -- -- -- -- -- -- Cash dividends declared: Preferred stock -- -- -- -- (17,100) -- Common stock -- -- -- -- (224,837) -- Purchase of 44,082 shares of common stock -- -- -- -- -- -- Issuance of common stock under employee stock plans -- 1 10,443 -- (32,037) 4 Amortization of deferred compensation -- -- -- -- -- 2,243 - -------------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1999 $250,000 $786,166 $35,092 $(31,702) $ 2,485,204 $(2,955) ========================================================================================================================== Total Treasury Shareholders' Stock Equity - -------------------------------------------------------------------------------- BALANCES AT JANUARY 1, 1997 $ -- $2,615,569 Net income for 1997 -- 530,476 Nonowner changes in equity,net of tax -- 20,852 ---------- Net income and nonowner changes in equity -- 551,328 Cash dividends declared: Preferred stock -- (17,100) Common stock -- (181,272) Purchase and retirement of 3,618,479 shares of common stock -- (242,293) Issuance of common stock under employee stock plans -- 34,551 Amortization of deferred compensation -- 993 Stock split (three-for-two) -- -- - -------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1997 -- 2,761,776 Net income for 1998 -- 607,076 Nonowner changes in equity,net of tax -- (4,518) ---------- Net income and nonowner changes in equity -- 602,558 Cash dividends declared: Preferred stock -- (17,100) Common stock -- (199,403) Purchase and retirement of 60,000 shares of common stock -- (3,482) Purchase of 2,199,650 shares of common stock (145,202) (145,202) Issuance of common stock under employee stock plans 56,069 46,281 Amortization of deferred compensation -- 1,185 - -------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1998 (89,133) 3,046,613 Net income for 1999 -- 672,589 Nonowner changes in equity,net of tax -- (25,247) ---------- Net income and nonowner changes in equity -- 647,342 Cash dividends declared: Preferred stock -- (17,100) Common stock -- (224,837) Purchase of 44,082 shares of common stock (2,885) (2,885) Issuance of common stock under employee stock plans 44,857 23,268 Amortization of deferred compensation -- 2,243 - -------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1999 $ (47,161) $3,474,644 ================================================================================
( ) Indicates deduction. See notes to consolidated financial statements. 24 COMERICA INCORPORATED 1999 ANNUAL REPORT 43 CONSOLIDATED STATEMENTS OF CASH FLOWS COMERICA INCORPORATED AND SUBSIDIARIES
Year Ended December 31 (in thousands) 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 672,589 $ 607,076 $ 530,476 Adjustments to reconcile net income to net cash provided by operating activities Provision for credit losses 114,000 113,000 146,000 Depreciation 56,893 57,633 58,529 Restructuring charge -- (21,923) (61,237) Net (increase) decrease in trading account securities (10,063) 2,796 (3,093) Net (increase) decrease in loans held for sale 36,371 (5,236) (2,666) Net (increase) decrease in accrued income receivable (44,716) 19,487 (23,730) Net increase in accrued expenses 138,459 2,973 54,330 Net amortization of intangibles 33,921 30,414 28,375 Other,net 39,096 (116,295) (134,982) - -------------------------------------------------------------------------------------------------------------------------- Total adjustments 363,961 82,849 61,526 - -------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 1,036,550 689,925 592,002 INVESTING ACTIVITIES Net (increase) decrease in interest-bearing deposits with banks (9,418) (1,184) 24,010 Net (increase) decrease in federal funds sold and securities purchased under agreements to resell (25,094) 96,941 (117,601) Proceeds from sale of investment securities available for sale 335,611 111,511 238,506 Proceeds from maturity of investment securities available for sale 724,555 1,209,291 1,456,447 Purchases of investment securities available for sale (1,175,726) (126,239) (924,509) Net increase in loans (other than loans purchased) (2,671,100) (3,768,220) (2,615,226) Purchase of loans -- (1,115) (162,128) Fixed assets, net (34,971) (35,609) (31,023) Net (increase) decrease in customers' liability on acceptances outstanding (31,475) 6,057 14,710 Proceeds from sale of consumer businesses -- 1,878,907 -- - -------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (2,887,618) (629,660) (2,116,814) FINANCING ACTIVITIES Net increase (decrease) in deposits (1,021,730) 1,726,816 219,144 Net increase (decrease) in short-term borrowings (812,122) 387,252 (1,296,290) Net increase (decrease) in acceptances outstanding 31,475 (6,057) (14,710) Proceeds from issuance of medium- and long-term debt 6,275,000 3,200,000 5,600,000 Repayments and purchases of medium- and long-term debt (2,977,402) (5,212,498) (2,555,382) Proceeds from issuance of common stock 23,268 50,885 35,082 Purchase of common stock for treasury and retirement (2,885) (148,684) (242,293) Dividends paid (235,646) (211,966) (195,412) - -------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 1,279,958 (214,252) 1,550,139 - -------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and due from banks (571,110) (153,987) 25,327 Cash and due from banks at beginning of year 1,773,100 1,927,087 1,901,760 - -------------------------------------------------------------------------------------------------------------------------- Cash and due from banks at end of year $1,201,990 $1,773,100 $ 1,927,087 ========================================================================================================================== Interest paid $1,101,993 $1,188,599 $ 1,161,812 ========================================================================================================================== Income taxes paid $ 266,835 $ 256,880 $ 266,428 ========================================================================================================================== Noncash investing and financing activities Transfer from loans to loans held for sale $ 492,746 $ -- $ -- Loan transfers to other real estate 11,036 5,084 7,076 ==========================================================================================================================
See notes to consolidated financial statements. 25 44 COMERICA INCORPORATED 1999 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COMERICA INCORPORATED AND SUBSIDIARIES (1) ACCOUNTING POLICIES ORGANIZATION Comerica Incorporated is a registered bank holding company headquartered in Detroit, Michigan. The Corporation's principal lines of business are the Business Bank,the Individual Bank and the Investment Bank. The core businesses are tailored to each of the Corporation's four primary geographic markets: Michigan, Texas, California and Florida. The accounting and reporting policies of Comerica Incorporated and its subsidiaries conform to generally accepted accounting principles and prevailing practices within the banking industry. Management makes estimates and assumptions that affect the amounts reported in the financial statements and accompanying footnotes. Actual results could differ from these estimates. The following is a summary of the more significant accounting and reporting policies. CONSOLIDATION The consolidated financial statements include the accounts of the Corporation and its subsidiaries after elimination of all significant intercompany accounts and transactions. Prior years' financial statements are reclassified to conform with current financial statement presentation. For acquisitions accounted for as pooling-of-interests combinations the historical consolidated financial statements are restated to include the accounts and results of operations. For acquisitions using the purchase method of accounting, the assets acquired and liabilities assumed are adjusted to fair market values at the date of acquisition,and the resulting net discount or premium is accreted or amortized into income over the remaining lives of the relevant assets and liabilities. Goodwill representing the excess of cost over the net book value of identifiable assets acquired is amortized on a straight line basis over periods ranging from 10 to 30 years (weighted average of 19 years). Core deposit intangible assets are amortized on an accelerated method over 10 years. The Corporation periodically evaluates long-lived assets, certain identifiable intangibles and goodwill for indication of impairment in value. LOANS HELD FOR SALE Loans held for sale,normally mortgages,are carried at the lower of cost or market. Market value is determined in the aggregate. SECURITIES Investment securities held to maturity are those securities which management has the ability and positive intent to hold to maturity. Investment securities held to maturity are stated at cost, adjusted for amortization of premium and accretion of discount. Investment securities that fail to meet the ability and positive intent criteria are accounted for as securities available for sale, and stated at fair value with unrealized gains and losses, net of income taxes, reported as a component of shareholders' equity. Trading account securities are carried at market value. Realized and unrealized gains or losses on trading securities are included in noninterest income. Gains or losses on the sale of securities are computed based on the adjusted cost of the specific security. PREMISES AND EQUIPMENT Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation, computed on the straight-line method, is charged to operations over the estimated useful lives of the assets. The estimated useful lives are generally 10-33 years for premises that the company owns and 3-8 years for furniture and equipment. Leasehold improvements are amortized over the terms of their respective leases or 10 years, whichever is shorter. ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses represents management's assessment of probable losses inherent in the Corporation's on- and off-balance sheet credit portfolio. 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 loan loss experience,current economic conditions and trends,geographic dispersion of borrowers,and trends with respect to past due and nonaccrual amounts. Management maintains an unallocated allowance to recognize the uncertainty and imprecision underlying the process of estimating expected credit losses. This uncertainty occurs because other factors affecting the determination of probable losses inherent in the loan portfolio may exist which are not 26 COMERICA INCORPORATED 1999 ANNUAL REPORT 45 (1) ACCOUNTING POLICIES (CONTINUED) necessarily captured by the application of historical loss ratios. Loans which are deemed uncollectible are charged off and deducted from the allowance. The provision for credit losses and recoveries on loans previously charged off are added to the allowance. NONPERFORMING ASSETS Nonperforming assets are comprised of loans for which the accrual of interest has been discontinued, loans for which the terms have been renegotiated to less than market rates due to a serious weakening of the borrower's financial condition and other real estate which has been acquired primarily through foreclosure and is awaiting disposition. Consumer loans are generally not placed on nonaccrual status and are directly charged off no later than 180 days past due, or earlier if deemed uncollectible. Loans other than consumer are generally placed on nonaccrual status when principal or interest is past due 90 days or more and/or when,in the opinion of management, full collection of principal or interest is unlikely. At the time a loan is placed on nonaccrual status, interest previously accrued but not collected is charged against current income. Income on such loans is then recognized only to the extent that cash is received and where future collection of principal is probable. Other real estate acquired is carried at the lower of cost or fair value, minus estimated costs to sell. When the property is acquired through foreclosure, any excess of the related loan balance over fair value is charged to the allowance for credit losses. Subsequent write-downs, operating expenses and losses upon sale, if any, are charged to noninterest expenses. STOCK-BASED COMPENSATION The Corporation elected to continue to apply Accounting Principles Board opinion No. 25, "Accounting for Stock Issued to Employees,"and related interpretations in measuring and recognizing compensation expense for its stock-based compensation plans, and to disclose the pro forma effect of applying the fair value method contained in Statement on Financial Accounting Standards (SFAS) No. 123,"Accounting for Stock-based Compensation." Information on the Corporation's stock-based compensation plans is included in Note 13. PENSION COSTS Pension costs are charged to salaries and employee benefits expense and funded consistent with the requirements of federal law and regulations. POSTRETIREMENT BENEFITS Postretirement benefits are recognized in the financial statements during the employee's active service period. DERIVATIVE FINANCIAL INSTRUMENTS AND FOREIGN EXCHANGE CONTRACTS Interest rate and foreign exchange swaps, interest rate caps and floors, and futures and forward contracts may be used to manage the Corporation's exposure to interest rate and foreign currency risks. These instruments, with the exception of futures and forwards, are 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 in noninterest income or expense. Net interest income or expense, including premiums paid or received,is recognized over the life of the contract and reported as an adjustment to interest expense. Realized gains and losses on futures and forwards are generally deferred and amortized over the life of the contract as an adjustment to net interest income. Gains or losses on early termination of risk management derivative financial instruments are deferred and amortized as an adjustment to the yields of the related assets or liabilities over their remaining contractual life. If the designated asset or liability matures, or is disposed of or extinguished, any unrealized gains or losses on the related derivative instrument are recognized currently and reported as an adjustment to interest expense. Foreign exchange futures and forward contracts, foreign currency options, interest rate caps and interest rate swap agreements executed as a service to customers are accounted for on a fair value basis. As a result,the fair values of these instruments are recorded in the consolidated balance sheet with both realized and unrealized gains and losses recognized currently in noninterest income. INCOME TAXES Provisions for income taxes are based on amounts reported in the statements of income (after exclusion of nontaxable income such as interest on state and municipal securities) and include deferred income taxes on temporary differences between the tax basis and financial reporting basis of assets and liabilities. STATEMENTS OF CASH FLOWS For the purpose of presentation in the statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption,"Cash and due from banks." LOAN ORIGINATION FEES AND COSTS Loan origination and commitment fees are deferred and recognized over the life of the related loan or over the commitment period as a yield adjustment. Loan fees on unused commitments and fees related to loans sold are recognized currently as noninterest income. NONOWNER CHANGES IN EQUITY Statement on Financial Accounting Standards No. 130, "Reporting Comprehensive Income," establishes standards for the reporting and display of net income and nonowner changes in equity and its components in a full set of general-purpose financial statements. The Corporation has elected to present information regarding this statement in the Consolidated Statements of Changes in Shareholders' Equity on page 42 and in Note 11. The caption "Net income and nonowner changes in equity," represents total comprehensive income as defined in the statement. 27 46 Comerica Incorporated 1999 Annual Report 2 ACQUISITIONS............................................................... During 1998, Comerica obtained a majority interest in Munder Capital Management, an investment advisory firm. Net income for the third and fourth quarter of 1998 includes the consolidated financial results of Munder. The Corporation's minority interest in periods prior to the third quarter of 1998 was accounted for under the equity method. Intangible assets increased $133 million as a result of the consolidation. The fair market value of total assets acquired and total liabilities assumed was not material. 3 INVESTMENT SECURITIES...................................................... Information concerning investment securities as shown in the consolidated balance sheets of the Corporation was as follows:
Gross Gross Unrealized Unrealized Estimated (in thousands) Cost Gains Losses Fair Value - --------------------------------------------------------------------------------- December 31, 1999 U.S. government and agency securities $2,317,530 $ 1,458 $ 43,459 $2,275,529 State and municipal securities 72,054 1,764 122 73,696 Other securities 400,260 2,580 12,601 390,239 - --------------------------------------------------------------------------------- Total securities available for sale $2,789,844 $ 5,802 $ 56,182 $2,739,464 ================================================================================= December 31, 1998 U.S. government and agency securities $2,196,736 $ 13,463 $ 3,993 $2,206,206 State and municipal securities 110,711 4,587 48 115,250 Other securities 415,901 2,129 27,321 390,709 - --------------------------------------------------------------------------------- Total securities available for sale $2,723,348 $ 20,179 $ 31,362 $2,712,165 =================================================================================
The cost and estimated fair values of debt securities by contractual maturity were as follows (securities with multiple maturity dates are classified in the period of final maturity). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
December 31, 1999 Estimated (in thousands) Cost Fair Value - --------------------------------------------------------------- Contractual maturity Within one year $ 106,837 $ 106,756 Over one year to five years 204,838 204,844 Over five years to ten years 60,063 56,965 Over ten years 44,717 39,227 - --------------------------------------------------------------- Subtotal securities 416,455 407,792 Mortgage-backed securities 2,271,352 2,229,523 Equity and other nondebt securities 102,037 102,149 - --------------------------------------------------------------- Total securities available for sale $2,789,844 $2,739,464 ===============================================================
Sales and calls of investment securities available for sale resulted in realized gains and losses as follows:
Year Ended December 31 (in thousands) 1999 1998 - ------------------------------------------ Securities gains $ 5,535 $ 7,629 Securities losses (82) (1,513) - ------------------------------------------ Total $ 5,453 $ 6,116 ==========================================
Assets, principally securities, carried at approximately $1.8 billion at December 31, 1999, were pledged to secure public deposits (including State of Michigan deposits of $48 million at December 31, 1999) and for other purposes as required by law. 28 Comerica Incorporated 1999 Annual Report 47 4 NONPERFORMING ASSETS....................................................... The following table summarizes nonperforming assets and loans which are contractually past due 90 days or more as to interest or principal payments. Nonperforming assets consist of nonaccrual loans, reduced-rate loans and other real estate. Nonaccrual loans are those on which interest is not being recognized. Reduced-rate loans are those on which interest has been renegotiated to lower than market rates because of the weakened financial condition of the borrower. Nonaccrual and reduced-rate loans are included in loans on the consolidated balance sheet.
December 31 (in thousands) 1999 1998 - ------------------------------------------------------------------- Nonaccrual loans Commercial loans $110,606 $ 77,175 International loans 44,046 20,350 Real estate construction loans 249 452 Commercial mortgage loans 9,620 6,788 Residential mortgage loans 572 3,468 - ------------------------------------------------------------------- Total 165,093 108,233 Reduced-rate loans 7,347 7,464 - ------------------------------------------------------------------- Total nonperforming loans 172,440 115,697 Other real estate 9,595 4,956 - ------------------------------------------------------------------- Total nonperforming assets $182,035 $120,653 =================================================================== Loans past due 90 days and still accruing $ 47,676 $ 40,209 =================================================================== Gross interest income that would have been recorded had the nonaccrual and reduced-rate loans performed in accordance with original terms $ 17,309 $ 13,674 =================================================================== Interest income recognized $ 2,158 $ 3,899 ===================================================================
A loan is impaired when it is probable that payment of interest and principal 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.
December 31 (in thousands) 1999 1998 1997 - -------------------------------------------------------------------------- Average impaired loans for the year $146,070 $ 85,500 $ 73,502 Total period-end impaired loans 159,165 101,417 70,470 Period-end impaired loans requiring an allowance 155,828 87,494 60,376 Impairment allowance 51,753 21,951 20,358
Those impaired loans not requiring an allowance represent loans for which the fair value exceeded the recorded investment in the loan. Twenty-four percent of the total impaired loans at December 31, 1999, are evaluated based on fair value of related collateral. Remaining loan impairment is based on the present value of expected future cash flows discounted at the loan's effective interest rate. 5 ALLOWANCE FOR CREDIT LOSSES................................................ An analysis of changes in the allowance for credit losses follows:
(in thousands) 1999 1998 1997 - ---------------------------------------------------------------------------- Balance at January 1 $ 452,409 $ 424,147 $ 367,165 Loans charged off (120,976) (125,627) (131,140) Recoveries on loans previously charged off 31,004 40,889 42,122 - ---------------------------------------------------------------------------- Net loans charged off (89,972) (84,738) (89,018) Provision for credit losses 114,000 113,000 146,000 Foreign currency translation adjustment 33 -- -- - ---------------------------------------------------------------------------- Balance at December 31 $ 476,470 $ 452,409 $ 424,147 ============================================================================ As a percent of total loans 1.46% 1.48% 1.47% ============================================================================
29 48 Comerica Incorporated 1999 Annual Report 6 SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK............................ Concentrations of both on-balance sheet and off-balance sheet credit risk are controlled and monitored as part of credit policies. The Corporation is a regional bank holding company with a geographic concentration of its on-balance sheet and off-balance sheet activities centered in Michigan. In addition, the Corporation has an industry concentration with the automotive industry, which includes manufacturers and their finance subsidiaries, suppliers, dealers and company executives. At December 31, 1999 and 1998, exposure from loan commitments and guarantees to companies related to the automotive industry totaled $8.9 billion and $9.0 billion, respectively. Additionally, commercial real estate loans, including commercial mortgages and construction loans, totaled $6.5 billion in 1999 and $5.3 billion in 1998. Approximately $2.7 billion of commercial real estate loans at December 31, 1999, involved mortgages on owner-occupied properties. Those borrowers are involved in business activities other than real estate, and the sources of repayment are not dependent on the performance of the real estate market. 7 PREMISES AND EQUIPMENT AND OTHER NONCANCELABLE OBLIGATIONS................. A summary of premises and equipment at December 31 by major category follows:
(in thousands) 1999 1998 - --------------------------------------------------------------------------- Land $ 49,464 $ 49,356 Buildings and improvements 351,458 341,260 Furniture and equipment 320,565 327,498 - --------------------------------------------------------------------------- Total cost 721,487 718,114 Less accumulated depreciation and amortization (390,759) (365,464) - --------------------------------------------------------------------------- Net book value $ 330,728 $ 352,650 ===========================================================================
Rental expense for leased properties and equipment amounted to $42 million in 1999 and $41 million in 1998 and 1997. Future minimum payments under noncancelable obligations are as follows:
(in thousands) - --------------------------- 2000 $ 45,638 2001 41,859 2002 36,811 2003 32,789 2004 28,779 2005 and later 254,842 ===========================
8 SHORT-TERM BORROWINGS...................................................... Federal funds purchased and securities sold under agreements to repurchase generally mature within one to four days from the transaction date. Other borrowed funds, consisting of commercial paper, borrowed securities, term federal funds purchased, short-term notes and treasury tax and loan deposits, generally mature within one to 120 days from the transaction date. The following is a summary of short-term borrowings at December 31, 1999 and 1998:
Federal Funds Purchased and Securities Sold Other Under Agreements Borrowed (in thousands) to Repurchase Funds - --------------------------------------------------------------------- December 31, 1999 Amount outstanding at year-end $ 1,332,397 $ 1,435,634 Weighted average interest rate at year-end 4.40% 4.50% December 31, 1998 Amount outstanding at year-end $ 3,108,985 $ 471,168 Weighted average interest rate at year-end 4.83% 3.91% =====================================================================
At December 31, 1999, the parent company had available a $250 million commercial paper facility of which $75 million was outstanding. This facility is supported by a $210 million line of credit agreement. Under the current agreement the line will expire in May of 2000. At December 31, 1999, the Corporation's subsidiary banks had pledged loans totaling $27.3 billion to secure a collateralized borrowing account with the Federal Reserve Bank. 30 Comerica Incorporated 1999 Annual Report 49 9 MEDIUM- AND LONG-TERM DEBT................................................. Medium- and long-term debt consisted of the following at December 31:
(in thousands) 1999 1998 - --------------------------------------------------------------------------------- Parent Company 7.25% subordinated notes due 2007 $ 158,543 $ 159,669 9.75% subordinated notes due 1999 -- 74,970 - --------------------------------------------------------------------------------- Total parent company 158,543 234,639 Subsidiaries Subordinated notes: 7.25% subordinated notes due 2007 198,502 198,301 8.375% subordinated notes due 2024 155,287 155,502 7.25% subordinated notes due 2002 149,561 149,404 6.875% subordinated notes due 2008 103,729 104,186 7.125% subordinated notes due 2013 154,834 155,181 7.875% subordinated notes due 2026 173,217 174,086 6.00% subordinated notes due 2008 248,010 247,798 - --------------------------------------------------------------------------------- Total subordinated notes 1,183,140 1,184,458 Medium-term notes: Floating rate based on LIBOR indices 5,762,320 3,612,076 Floating rate based on Treasury indices 37,000 37,000 Floating rate based on Prime indices 1,224,993 -- Fixed rate notes with interest rate of 6.65% 199,944 199,810 - --------------------------------------------------------------------------------- Total medium-term notes 7,224,257 3,848,886 Notes payable 13,917 14,276 - --------------------------------------------------------------------------------- Total subsidiaries 8,421,314 5,047,620 - --------------------------------------------------------------------------------- Total medium- and long-term debt $8,579,857 $5,282,259 =================================================================================
Concurrent with the issuance of certain of the medium- and long-term debt presented above,the Corporation entered into interest rate swap agreements to convert the stated rate of the debt to a rate based on the indices identified in the following table:
Principal Amount Base of Debt Rate at (in thousands) Converted Base Rate 12/31/99 - ------------------------------------------------------------------------- Subsidiaries Subordinated notes: 7.25% subordinated notes $200,000 6-month LIBOR 6.13% 7.25% subordinated notes 150,000 6-month LIBOR 6.13% 6.88% subordinated notes 100,000 6-month LIBOR 6.13% 6.00% subordinated notes 250,000 6-month LIBOR 6.13% 7.13% subordinated notes 150,000 6-month LIBOR 6.13% 7.88% subordinated notes 150,000 6-month LIBOR 6.13% Medium-term notes: Floating rate based on LIBOR indices 108,000 3-month LIBOR 6.00% Floating rate based on Treasury indices 37,000 3-month LIBOR 6.00% Fixed rate notes with interest rate of 6.65% 200,000 3-month LIBOR 6.00% =========================================================================
All subordinated notes and debentures with maturities greater than one year qualify as Tier 2 capital. The Corporation currently has two medium-term note programs: a senior note program and a European note program. Under these programs, certain bank subsidiaries may offer an aggregate principal amount of up to $9.5 billion. The notes can be issued as fixed or floating rate notes and with terms from one month to 15 years. The interest rates on the floating rate medium-term notes based on LIBOR ranged from one-month LIBOR minus 0.10% to three-month LIBOR plus 0.17%. The notes are due from 2000 to 2002. The interest rate on the floating rate medium-term notes based on U.S. Treasury indices is equal to the two-year Constant Treasury Maturity Rate plus 0.01%. The notes are due in 2000. The fixed rate notes mature in 2000. The medium-term notes do not qualify as Tier 2 capital and are not insured by the FDIC. The principal maturities of medium- and long-term debt are as follows:
(in thousands) - ------------------------------ 2000 $6,593,933 2001 316,148 2002 485,416 2003 2,585 2004 2,592 2005 and later 1,179,183 ==============================
10 SHAREHOLDERS' EQUITY....................................................... The board of directors authorized the repurchase of up to 40.5 million shares of Comerica Incorporated common stock for general corporate purposes, acquisitions and employee benefit plans. At December 31, 1999, 20.6 million shares had been repurchased under this program. At December 31, 1999, the Corporation had reserved 9.7 million shares of common stock for issuance to employees and directors under the long-term incentive plans. The Corporation issued 5 million shares of Fixed/Adjustable Rate Noncumulative Preferred Stock,Series E, with a stated value of $50 per share in 1996. Dividends are payable quarterly, at a rate of 6.84% per annum through July 1, 2001. Thereafter, the rate will be equal to 0.625% plus an effective rate, but not less than 7.34% nor greater than 13.34%. The effective rate will be equal to the highest of the Treasury Bill Rate, the Ten Year Constant Treasury Maturity Rate and the Thirty Year Constant Treasury Maturity Rate (as defined in the prospectus). The Corporation, at its option, may redeem all or part of the outstanding shares on or after July 1, 2001. 31 50 Comerica Incorporated 1999 Annual Report 11 NONOWNER CHANGES IN EQUITY................................................. Nonowner changes in equity includes 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 years ended December 31, 1999, 1998 and 1997.
Year Ended December 31 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------------- Net unrealized gains (losses) on investment securities available for sale: Balance at beginning of year $ (7,688) $ (970) $(22,789) Net unrealized holding gains (losses) arising during the period (33,815) (3,835) 39,038 Less: Reclassification adjustment for gains (losses) included in net income 5,453 6,116 5,195 - ---------- --------------------------------------------------------------------------------------------------------------------- Change in net unrealized gains (losses) before income taxes (39,268) (9,951) 33,843 Provision for income taxes (14,239) (3,233) 12,024 - -------------------------------------------------------------------------------------------------------------------------------- Change in net unrealized gains (losses) on investment securities available for sale, net of tax (25,029) (6,718) 21,819 - -------------------------------------------------------------------------------------------------------------------------------- Balance at December 31 $(32,717) $ (7,688) $ (970) - -------------------------------------------------------------------------------------------------------------------------------- Accumulated foreign currency translation adjustment: Balance at beginning of year $ 1,233 $ (967) $ -- Net translation gains (losses) arising during the period (218) 2,200 (967) Less: Reclassification adjustment for gains (losses) included in net income -- -- -- - ---------- --------------------------------------------------------------------------------------------------------------------- Change in translation adjustment before income taxes (218) 2,200 (967) Provision for income taxes -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Change in foreign currency translation adjustment, net of tax (218) 2,200 (967) - -------------------------------------------------------------------------------------------------------------------------------- Balance at December 31 $ 1,015 $ 1,233 $ (967) - -------------------------------------------------------------------------------------------------------------------------------- Total accumulated nonowner changes in equity, net of taxes, at December 31 $(31,702) $ (6,455) $ (1,937) ================================================================================================================================
12 NET INCOME PER COMMON SHARE................................................ Basic net income per common share is computed by dividing net income applicable to common stock by the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share is computed by dividing net income applicable to common stock by the weighted average number of shares, nonvested stock and dilutive common stock equivalents outstanding during the period. Common stock equivalents consist of common stock issuable under the assumed exercise of stock options granted under the Corporation's stock plans, using the treasury stock method. A computation of earnings per share follows:
Year Ended December 31 (in thousands, except per share data) 1999 1998 1997 - ------------------------------------------------------------------------------------------- Basic Average shares outstanding 156,094 155,859 158,333 =========================================================================================== Net income $672,589 $607,076 $530,476 Less preferred stock dividends 17,100 17,100 17,100 - ------------------------------------------------------------------------------------------- Net income applicable to common stock $655,489 $589,976 $513,376 =========================================================================================== Basic net income per common share $ 4.20 $ 3.79 $ 3.24 =========================================================================================== Diluted Average shares outstanding 156,094 155,859 158,333 Nonvested stock 167 191 204 Common stock equivalents Net effect of the assumed exercise of stock options 2,136 2,707 2,503 - ------------------------------------------------------------------------------------------- Diluted average shares 158,397 158,757 161,040 =========================================================================================== Net income $672,589 $607,076 $530,476 Less preferred stock dividends 17,100 17,100 17,100 - ------------------------------------------------------------------------------------------- Net income applicable to common stock $655,489 $589,976 $513,376 =========================================================================================== Diluted net income per common share $ 4.14 $ 3.72 $ 3.19 ===========================================================================================
32 Comerica Incorporated 1999 Annual Report 51 13 LONG-TERM INCENTIVE PLANS.................................................. The Corporation has long-term incentive plans under which it has awarded both shares of restricted stock to key executive officers and stock options to executive officers, directors and key personnel of the Corporation and its subsidiaries. The Corporation has elected to follow Accounting Principles Board opinion No. 25, "Accounting For Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee and director stock options. Under APB 25, no compensation expense is recognized because the exercise price of the Corporation's employee and director stock options equals the market price of the underlying stock on the date of grant. The maturity of each option is determined at the date of grant; however, no options may be exercised later than ten years from the date of grant. The options may have restrictions regarding exercisability. Pro forma information regarding net income and earnings per share is required under SFAS No. 123, "Accounting for Stock-Based Compensation," and has been determined as if the Corporation had accounted for its employee and director stock options under the fair value method of that Statement. The fair value of options was estimated at the date of grant using a Black-Scholes option pricing model. The Black-Scholes model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. The model may not necessarily provide a reliable single measure of the fair value of employee and director stock options. The Corporation's employee and director stock options have characteristics significantly different from those of traded options and changes in the subjective input assumptions can materially affect the fair value estimate. The fair value of the options was estimated using an option valuation model with the following weighted-average assumptions:
1999 1998 1997 - -------------------------------------------------------------------- Risk-free interest rate 5.15% 5.54% 6.49% Expected dividend yield 3.24% 3.45% 3.77% Expected volatility factors of the market price of Comerica common stock 24% 21% 20% Expected option life (in years) 4.8 4.3 4.4
For purposes of pro forma disclosures, the estimated fair value of the options granted in 1995 and thereafter is amortized to expense over the options' vesting period. A majority of the Corporation's options vest over a four-year period. Had compensation cost for the Corporation's stock-based compensation plans been determined in accordance with the fair value provisions of SFAS No. 123, net income and earnings per share would have been as follows:
(in thousands, except per share data) 1999 1998 1997 - ----------------------------------------------------------------------------- Pro forma net income $ 639,169 $ 578,335 $ 506,875 Pro forma earnings per share: Basic $ 4.09 $ 3.71 $ 3.20 Diluted 4.04 3.64 3.15 ============================================================================= Average per Share - ----------------------------------------------------------------------- Exercise Market Number Price Price - ----------------------------------------------------------------------- Outstanding--December 31, 1996 7,161,626 $ 18.95 $ 34.92 Granted 1,994,182 40.28 40.28 Cancelled (266,295) 26.00 43.07 Exercised (1,252,170) 15.93 44.81 Expired -- - ----------------------------------------------------------------------- Outstanding--December 31, 1997 7,637,343 $ 24.77 $ 60.17 Granted 2,058,542 71.37 71.37 Cancelled (232,617) 42.92 64.33 Exercised (1,213,818) 21.33 64.07 Expired -- - ----------------------------------------------------------------------- Outstanding--December 31, 1998 8,249,450 $ 36.39 $ 68.19 Granted 2,237,754 66.63 66.63 Cancelled (202,392) 63.00 58.69 Exercised (680,664) 18.86 62.76 Expired -- - ----------------------------------------------------------------------- Outstanding--December 31, 1999 9,604,148 $ 44.12 $ 46.69 ======================================================================= Exercisable-- December 31, 1999 5,352,198 Available for grant -- December 31, 1999 103,246 =======================================================================
The following table summarizes information about stock options outstanding at December 31, 1999:
Outstanding Exercisable - ----------------------------------------------------------------------------------- Average Average Exercise Average Exercise Exercise Price Range Shares Life (a) Price Shares Price - ----------------------------------------------------------------------------------- $ 8.59 -$18.00 946,488 2.8 $14.43 946,488 $14.43 18.59 - 21.00 1,292,130 4.5 19.02 1,292,130 19.02 21.59 - 25.42 1,686,724 5.4 24.46 1,327,145 24.20 28.33 - 65.13 1,751,145 7.3 41.73 1,009,539 41.19 65.56 - 66.81 2,085,441 9.2 66.81 -- -- 68.44 - 71.58 1,842,220 8.2 71.58 776,896 71.58 - ----------------------------------------------------------------------------------- Total 9,604,148 6.7 $44.12 5,352,198 $31.30 ===================================================================================
(a) Average contractual life remaining in years. 33 52 Comerica Incorporated 1999 Annual Report 14 EMPLOYEE BENEFIT PLANS..................................................... The Corporation has a defined benefit pension plan in effect for substantially all full-time employees. Staff expense includes income of $0.8 million in 1999, $3.0 million in 1998 and $0.3 million in 1997 for the plan. Benefits under the plan are based primarily on years of service and the levels of compensation during the five highest paid consecutive calendar years occurring during the last ten years before retirement. The plan's assets primarily consist of units of certain collective investment funds administered by Munder Capital Management, equity securities, U.S. government and agency securities and corporate bonds and notes. The Corporation's postretirement benefits plan continues postretirement health care and life insurance benefits for retirees as of December 31, 1992, provides a phase-out for employees over 50 as of that date and substantially reduces all benefits for remaining employees. The Corporation has funded the plan with a company-owned life insurance contract. The following tables set forth reconciliations of the Corporation's pension and postretirement plan obligations and plan assets:
Defined Benefit Postretirement Pension Plan Benefit Plan - ------------------------------------------------------------------------------------------ (in thousands) 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------ CHANGE IN BENEFIT OBLIGATION: Benefit obligation at January 1 $ 542,941 $ 525,329 $ 80,710 $ 81,584 Service cost 15,387 13,924 256 262 Interest cost 38,118 36,039 5,308 5,509 Curtailment -- (5,518) -- -- Actuarial gain (63,598) (3,631) (4,995) (423) Benefits paid (23,162) (23,202) (6,717) (6,222) - ------------------------------------------------------------------------------------------ Benefit obligation at December 31 $ 509,686 $ 542,941 $ 74,562 $ 80,710 ========================================================================================== CHANGE IN PLAN ASSETS: Fair value of plan assets at January 1 $ 628,194 $ 585,215 $ 88,312 $ 86,727 Actual return on plan assets 46,750 66,181 (1,475) 4,226 Employer contributions -- -- 4,271 3,581 Benefits paid (23,162) (23,202) (6,717) (6,222) - ------------------------------------------------------------------------------------------ Fair value of plan assets at December 31 $ 651,782 $ 628,194 $ 84,391 $ 88,312 ==========================================================================================
The following table sets forth the funded status of the defined benefit pension and postretirement plan and amounts recognized on the Corporation's balance sheet:
Defined Benefit Postretirement Pension Plan Benefit Plan - ------------------------------------------------------------------------------------------ (in thousands) 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------ Funded status at December 31 $ 142,096 $ 85,253 $ 9,829 $ 7,602 Unrecognized net gain (106,068) (44,829) (4,701) (7,115) Unrecognized net transition (asset)/obligation (5,690) (10,524) 59,850 64,477 Unrecognized prior service cost (2,072) (2,394) -- -- - ------------------------------------------------------------------------------------------ Prepaid benefit cost $ 28,266 $ 27,506 $ 64,978 $ 64,964 ==========================================================================================
Components of net periodic benefit cost/(income):
Defined Benefit Pension Plan (in thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------- Service cost $ 15,387 $ 13,924 $ 12,400 Interest cost 38,118 36,039 33,823 Expected return on plan assets (51,241) (48,887) (42,313) Amortization of unrecognized transition asset (4,834) (4,834) (4,834) Amortization of unrecognized prior service cost (322) (331) (353) Amortization of unrecognized net loss 2,132 1,071 978 - ------------------------------------------------------------------------------------- Net periodic benefit income $ (760) $ (3,018) $ (299) ===================================================================================== Postretirement Benefit Plan (in thousands) 1999 1998 1997 - --------------------------------------------------------------------------- Service cost $ 256 $ 262 $ 273 Interest cost 5,308 5,509 5,710 Expected return on plan assets (5,935) (5,829) (5,413) Amortization of unrecognized transition obligation 4,628 4,628 4,628 Amortization of unrecognized net gain -- -- (56) - --------------------------------------------------------------------------- Net periodic benefit cost $ 4,257 $ 4,570 $ 5,142 ===========================================================================
Actuarial assumptions were as follows:
Defined Benefit Pension Plan 1999 1998 1997 - -------------------------------------------------------------------------------- Discount rate used in determining benefit obligation 8.0% 7.0% 7.0% Long-term rate of return on assets 9.3% 9.0% 9.0% Rate of compensation increase 5.0% 5.0% 5.0% ================================================================================ Postretirement Benefit Plan 1999 1998 1997 - -------------------------------------------------------------------------------- Discount rate used in determining benefit obligation 8.0% 7.0% 7.0% Long-term rate of return on assets 6.7% 6.7% 6.7% ================================================================================
The health care cost trend rate projected for 1999 was 5 percent and is assumed to remain constant. Increasing each health care rate by one percentage point would increase the accumulated postretirement benefit obligation by $5 million at December 31, 1999, and the aggregate of the service and interest cost components by $353 thousand for the year ended December 31, 1999. Decreasing each health care rate by one percentage point would decrease the accumulated postretirement benefit obligation by $4 million at December 31, 1999, and the aggregate of the service and interest cost components by $315 thousand for the year ended December 31, 1999. The Corporation also maintains defined contribution plans (including 401(k) plans) for various groups of its employees. All of the Corporation's salaried and regular part-time employees are eligible to participate in one or more of the plans. The Corporation makes matching contributions, most of which are based on a declining percentage of employee contributions (currently, maximum per employee is $1,000) as well as a performance-based matching contribution based on the Corporation's financial performance. Staff expense includes expense of $11.7 million in 1999, $11.1 million in 1998 and $9.7 million in 1997 for the plans. 34 Comerica Incorporated 1999 Annual Report 53 15 INCOME TAXES............................................................... The current and deferred components of income taxes were as follows:
(in thousands) 1999 1998 1997 - ----------------------------------------------------------------------- Currently payable Federal $287,776 $245,486 $239,680 Foreign 22,797 27,263 30,723 State and local 10,174 13,847 15,584 - ----------------------------------------------------------------------- 320,747 286,596 285,987 Deferred federal, state and local 39,736 37,703 279 - ----------------------------------------------------------------------- Total $360,483 $324,299 $286,266 =======================================================================
There were $1.9 million, $2.1 million and $1.8 million of income taxes provided on securities transactions in 1999, 1998 and 1997, respectively. The principal components of deferred tax (assets) liabilities at December 31 were as follows:
(in thousands) 1999 1998 - ---------------------------------------------------------------------------- Allowance for credit losses $(150,025) $(142,889) Lease financing transactions 229,086 165,974 Allowance for depreciation 2,871 10,899 Deferred loan origination fees and costs (31,424) (25,554) Investment securities available for sale (17,458) (3,507) Employee benefits (8,259) (6,824) Other temporary differences,net (37,442) (35,563) - ---------------------------------------------------------------------------- Total $ (12,651) $ (37,464) ============================================================================
The provision for income taxes differs from that computed by applying the federal statutory rate of 35 percent for the reasons in the following analysis:
(in thousands) 1999 1998 1997 - -------------------------------------------------------------------------------- Tax based on federal statutory rate $ 361,575 $ 325,981 $ 285,860 Effect of tax-exempt interest income (2,737) (4,039) (5,687) Other 1,645 2,357 6,093 - -------------------------------------------------------------------------------- Provision for income taxes $ 360,483 $ 324,299 $ 286,266 ================================================================================
16 TRANSACTIONS WITH RELATED PARTIES.......................................... The bank subsidiaries have had, and expect to have in the future, transactions with the Corporation's directors and their affiliates. Such transactions were made in the ordinary course of business and included extensions of credit, all of which were made on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers and did not, in management's opinion, involve more than normal risk of collectibility or present other unfavorable features. The aggregate amount of loans attributable to persons who were related parties at December 31, 1999, approximated $327 million at the beginning and $347 million at the end of 1999. During 1999, new loans to related parties aggregated $559 million and repayments totaled $539 million. 35 54 Comerica Incorporated 1999 Annual Report 17 REGULATORY CAPITAL AND BANKING SUBSIDIARIES................................ Banking regulations limit the transfer of assets in the form of dividends, loans or advances from the bank subsidiaries to the Corporation. Under the most restrictive of these regulations, the aggregate amount of dividends which can be paid to the Corporation without obtaining prior approval from bank regulatory agencies approximated $879 million at January 1, 2000, plus current year's earnings. Substantially all the assets of the Corporation's subsidiaries are restricted from transfer to the Corporation in the form of loans or advances. Dividends paid to the Corporation by its banking subsidiaries amounted to $261 million in 1999, $442 million in 1998 and $354 million in 1997. The Corporation and its banking subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts and ratios of Tier 1 and total capital (as defined in the regulations) to average and risk-weighted assets. At December 31, 1999 and 1998, the Corporation and all of its banking subsidiaries exceeded the ratios required for an institution to be considered "well capitalized" (total capital ratio greater than 10 percent). The following is a summary of the capital position of the Corporation and its significant banking subsidiaries:
Comerica Inc. Comerica Comerica Bank- Comerica Bank- (in thousands) (Consolidated) Bank Texas California - ------------------------------------------------------------------------------------------------------------------- December 31, 1999 Tier 1 capital $ 3,179,790 $ 2,614,284 $ 358,200 $ 382,339 Total capital 4,903,202 4,046,166 452,678 576,282 Tier 1 capital to average assets (minimum-3.0%) 8.39% 8.53% 9.59% 8.60% Tier 1 capital to risk-weighted assets (minimum-4.0%) 6.95 7.00 10.12 7.48 Total capital to risk-weighted assets (minimum-8.0%) 10.72 10.83 12.79 11.27 December 31, 1998 Tier 1 capital $ 2,699,143 $ 2,263,522 $ 310,743 $ 330,998 Total capital 4,435,977 3,740,843 407,268 453,387 Tier 1 capital to average assets (minimum-3.0%) 7.68% 8.02% 8.12% 8.04% Tier 1 capital to risk-weighted assets (minimum-4.0%) 6.26 6.42 8.07 7.35 Total capital to risk-weighted assets (minimum-8.0%) 10.28 10.60 10.58 10.07 - -------------------------------------------------------------------------------------------------------------------
18 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK.......................... In the normal course of business, the Corporation enters into various off-balance sheet transactions involving derivative financial instruments, foreign exchange contracts and credit-related financial instruments to manage exposure to fluctuations in interest rate, foreign currency and other market risks and to meet the financing needs of customers. These financial instruments involve, to varying degrees, elements of credit and market risk in excess of the amount reflected in the consolidated balance sheets. Credit risk is the possible loss that may occur in the event of nonperformance by the counterparty to a financial instrument. The Corporation attempts to minimize credit risk arising from off-balance sheet financial instruments by evaluating the creditworthiness of each counterparty, adhering to the same credit approval process used for traditional lending activities. Counterparty risk limits and monitoring procedures have also been established to facilitate the management of credit risk. Collateral is obtained, if deemed necessary, based on the results of management's credit evaluation. Collateral varies, but may include cash, investment securities, accounts receivable, inventory, property, plant and equipment or real estate. Derivative financial instruments and foreign exchange contracts are traded over an organized exchange or negotiated over-the-counter. Credit risk associated with exchange-traded contracts is typically assumed by the organized exchange. Over-the-counter contracts are tailored to meet the needs of the counterparties involved and, therefore, contain a greater degree of credit risk and liquidity risk than exchange-traded contracts which have standardized terms and readily available price information. The Corporation reduces exposure to credit and liquidity risks from over-the-counter derivative and foreign exchange contracts by conducting such transactions with investment-grade domestic and foreign investment banks or commercial banks. 36 Comerica Incorporated 1999 Annual Report 55 18 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED).............. Market risk is the potential loss that may result from movements in interest or foreign currency rates which cause an unfavorable change in the value of a financial instrument. The Corporation manages this risk by establishing monetary exposure limits and monitoring compliance with those limits. Market risk arising from derivative and foreign exchange positions entered into on behalf of customers is reflected in the consolidated financial statements and may be mitigated by entering into offsetting transactions. Market risk inherent in off-balance sheet derivative and foreign exchange contracts held or issued for risk management purposes is generally offset by changes in the value of rate sensitive on-balance sheet assets or liabilities. DERIVATIVE FINANCIAL INSTRUMENTS AND FOREIGN EXCHANGE CONTRACTS The Corporation, as an end-user, employs a variety of off-balance sheet financial instruments for risk management purposes. Activity related to these instruments is centered predominantly in the interest rate markets and mainly involves interest rate swaps. Various other types of instruments are also used to manage exposures to market risks, including interest rate caps and floors, total return swaps, foreign exchange forward contracts and foreign exchange swap agreements. Refer to the section entitled "Risk Management Derivative Financial Instruments and Foreign Exchange Contracts" in the financial review on page 38 for further information about the Corporation's objectives for using such instruments. The following table presents the composition of off-balance sheet derivative financial instruments and foreign exchange contracts, excluding commitments, held or issued for risk management purposes at December 31, 1999 and 1998. Notional 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. During 1999, the Corporation terminated a portion of its portfolio of index amortizing interest rate swaps. The notional amount of these swaps totaled $1,376 million. The gain resulting from early termination was deferred and is being amortized over the remaining expected life of the swaps at time of termination. In 1998, the Corporation terminated its portfolio of zero-coupon interest rate swaps. The notional amount of these swaps totaled $700 million. A portion of these swaps were replaced with paying swaps. The Corporation also terminated its portfolio of principal only total return swaps in conjunction with divesting the mortgage servicing business. The notional amount of these swaps was $55 million. Credit risk, which excludes the effects of any collateral or netting arrangements, is measured as the cost to replace, at current market rates, contracts in a profitable position. The amount of this exposure is represented by the gross unrealized gains on derivative and foreign exchange contracts.
Notional/ Contract Unrealized Unrealized Fair (in millions) Amount Gains Losses Value - --------------------------------------------------------------------------- December 31, 1999 Risk management Interest rate swaps $8,518 $ 17 $ (172) $ (155) Foreign exchange contracts: Spot and forwards 1,098 33 (23) 10 Swaps 115 -- (5) (5) - --------------------------------------------------------------------------- Total foreign exchange contracts 1,213 33 (28) 5 - --------------------------------------------------------------------------- Total risk management $9,731 $ 50 $ (200) $ (150) =========================================================================== December 31, 1998 Risk management Interest rate contracts: Swaps $6,869 $ 152 $ (6) $ 146 Options, caps and floors purchased 15 -- -- -- - --------------------------------------------------------------------------- Total interest rate contracts 6,884 152 (6) 146 Foreign exchange contracts: Spot and forwards 782 32 (29) 3 Swaps 131 12 -- 12 - --------------------------------------------------------------------------- Total foreign exchange contracts 913 44 (29) 15 - --------------------------------------------------------------------------- Total risk management $7,797 $ 196 $ (35) $ 161 ===========================================================================
Bilateral collateral agreements with counterparties covered 95 percent and 94 percent of the notional amount of interest rate derivative contracts at December 31, 1999 and 1998, respectively. These agreements reduce credit risk by providing for the exchange of marketable investment securities to secure amounts due on contracts in an unrealized gain position. In addition, at December 31, 1999, master netting arrangements had been established with all interest rate swap counterparties and certain foreign exchange counterparties. These arrangements effectively reduce credit risk by permitting settlement, on a net basis, of contracts entered into with the same counterparty. The Corporation has not experienced any material credit losses associated with derivative or foreign exchange contracts. 37 56 Comerica Incorporated 1999 Annual Report 18 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED).............. On a limited scale, fee income is earned from entering into various transactions, principally foreign exchange contracts and interest rate caps,at the request of customers. The Corporation does not speculate in derivative financial instruments for the purpose of profiting in the short-term from favorable movements in market rates. Fair values for customer-initiated and other derivative and foreign exchange contracts represent the net unrealized gains or losses on such contracts and are recorded in the consolidated balance sheets. Changes in fair value are recognized in the consolidated income statements. For the year ended December 31, 1999, unrealized gains and unrealized losses on customer-initiated and other foreign exchange contracts averaged $19 million and $15 million, respectively. For the year ended December 31, 1998, unrealized gains and unrealized losses averaged $14 million and $9 million, respectively. These contracts also generated noninterest income of $10 million in 1999 and $9 million in 1998. Average positive and negative fair values and income related to customer-initiated and other interest rate contracts were not material for 1999 and 1998. The following table presents the composition of off-balance sheet derivative financial instruments and foreign exchange contracts held or issued in connection with customer-initiated and other activities at December 31, 1999 and 1998.
Notional/ Contract Unrealized Unrealized Fair (in millions) Amount Gains Losses Value - ------------------------------------------------------------------------------- December 31,1999 Customer-initiated and other Interest rate contracts: Caps and floors written $ 166 $ -- $ (1) $ (1) Caps and floors purchased 141 1 -- 1 Swaps 256 2 (2) -- Total interest rate contracts 563 3 (3) -- Foreign exchange contracts: Spot, forwards, futures and options 579 14 (11) 3 Total customer-initiated and other $1,142 $ 17 $ (14) $ 3 December 31,1998 Customer-initiated and other Interest rate contracts: Caps and floors written $ 241 $ -- $ (1) $ (1) Caps and floors purchased 176 1 -- 1 Swaps 264 7 (6) 1 Total interest rate contracts 681 8 (7) 1 Foreign exchange contracts: Spot, forwards, futures and options 673 20 (13) 7 Total customer-initiated and other $1,354 $ 28 $ (20) $ 8
Detailed discussions of each class of derivative financial instrument and foreign exchange contract held or issued by the Corporation for both risk management and customer-initiated and other activities are provided below. INTEREST RATE SWAPS Interest rate swaps are agreements in which two parties periodically exchange fixed cash payments for variable payments based on a designated market rate or index (or variable payments based on two different rates or indices for basis swaps), applied to a specified notional amount until a stated maturity. The Corporation's swap agreements are structured such that variable payments are primarily based on prime, one-month LIBOR or three-month LIBOR. These instruments are principally negotiated over-the-counter and are subject to credit risk, market risk and liquidity risk. INTEREST RATE OPTIONS, INCLUDING CAPS AND FLOORS Option contracts grant the option holder the right to buy or sell an underlying financial instrument for a predetermined price before the contract expires. Interest rate caps and floors are option-based contracts which entitle the buyer to receive cash payments based on the difference between a designated reference rate and the strike price, applied to a notional amount. Written options, primarily caps, expose the Corporation to market risk but not credit risk. A fee is received at inception for assuming the risk of unfavorable changes in interest rates. Purchased options contain both credit and market risk; however, market risk is limited to the fee paid. Options are either exchange-traded or negotiated over-the-counter. All interest rate caps and floors are over-the-counter agreements. FOREIGN EXCHANGE CONTRACTS The Corporation uses foreign exchange rate swaps, including generic receive variable swaps and cross-currency swaps, for risk management purposes. Generic receive variable swaps involve payment, in a foreign currency, of the difference between a contractually fixed exchange rate and an average exchange rate determined at settlement, applied to a notional amount. Cross-currency swaps involve the exchange of both interest and principal amounts in two different currencies. Other foreign exchange contracts such as futures, forwards and options are primarily entered into as a service to customers and to offset market risk arising from such positions. Futures and forward contracts require the delivery or receipt of foreign currency at a specified date and exchange rate. Foreign currency options allow the holder to purchase or sell a foreign currency at a specified date and price. Foreign exchange futures are exchange-traded, while forwards, swaps and most options are negotiated over-the-counter. Foreign exchange contracts expose the Corporation to both market risk and credit risk. 38 Comerica Incorporated 1999 Annual Report 57 18 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED).............. COMMITMENTS The Corporation also enters into commitments to purchase or sell earning assets for risk management purposes. These transactions, which are similar in nature to forward contracts, did not have a material impact on the consolidated financial statements for the years ended December 31, 1999 and 1998. Commitments to purchase and sell U.S. Treasury and municipal bond securities related to the Corporation's trading account totaled $4 million and $17 million at December 31, 1999 and 1998, respectively. Outstanding commitments expose the Corporation to both credit and market risk. Available credit lines on fixed rate credit card and check product accounts, which have characteristics similar to option contracts, totaled $1.2 billion and $1.6 billion at December 31, 1999 and 1998, respectively. These commitments expose the Corporation to the risk of a reduction in net interest income as interest rates increase. Market risk exposure arising from fixed rate revolving credit commitments is very limited, however, since it is unlikely that a significant number of customers with these accounts will simultaneously borrow up to their maximum available credit lines. Additional information concerning unused commitments to extend credit is provided in the "Credit-Related Financial Instruments" section below. CREDIT-RELATED FINANCIAL INSTRUMENTS The Corporation issues off-balance sheet financial instruments in connection with commercial and consumer lending activities. Credit risk associated with these instruments is represented by the contractual amounts indicated in the following table:
(in millions) 1999 1998 - -------------------------------------------------------------------------- Unused commitments to extend credit $24,230 $28,393 Standby letters of credit and financial guarantees 4,064 3,632 Commercial letters of credit 232 328 Credit default swaps 44 44 ===========================================================================
UNUSED COMMITMENTS TO EXTEND CREDIT Commitments to extend credit are legally binding agreements to lend to a customer, provided there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many commitments expire without being drawn upon, the total contractual amount of commitments does not necessarily represent future cash requirements of the Corporation. Total unused commitments to extend credit at December 31, 1999 and 1998, included $3 billion of variable and fixed rate revolving credit commitments. Other unused loan commitments, primarily variable rate, totaled $21 billion at December 31, 1999, and $25 billion at December 31, 1998. STANDBY AND COMMERCIAL LETTERS OF CREDIT AND FINANCIAL GUARANTEES Standby and commercial letters of credit and financial guarantees represent conditional obligations of the Corporation which guarantee the performance of a customer to a third party. Standby letters of credit and financial guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Long-term standby letters of credit and financial guarantees, defined as those maturing beyond one year, expire in decreasing amounts through the year 2012, and were $1,475 million and $1,432 million at December 31, 1999 and 1998, respectively. The remaining standby letters of credit and financial guarantees, which mature within one year, totaled $2,589 million and $2,200 million at December 31, 1999 and 1998, respectively. Commercial letters of credit are issued to finance foreign or domestic trade transactions. CREDIT DEFAULT SWAPS Credit default swaps allow the Corporation to diversify its loan portfolio by assuming credit exposure from different borrowers or industries without actually extending credit in the form of a loan. Credit risk associated with credit default swaps was $44 million at December 31, 1999 and 1998. 19 CONTINGENT LIABILITIES..................................................... The Corporation and its subsidiaries are parties to litigation and claims arising in the normal course of their activities. Although the amount of ultimate liability, if any, with respect to such matters cannot be determined with reasonable certainty, management, after consultation with legal counsel, believes that the litigation and claims, some of which are substantial, will not have a material adverse effect on the Corporation's consolidated financial position. In addition, management cannot predict with reasonable certainty the likelihood, or the impact, of any future claims that may be brought against the Corporation. For example, although the Corporation is not currently a named defendant in any lawsuits involving year 2000 readiness, it is impossible to know whether any claims in connection with the year 2000 will be asserted in the future, and the potential liability, if any, that may arise from such claims. 39 58 Comerica Incorporated 1999 Annual Report 20 USAGE RESTRICTIONS......................................................... Cash and due from banks may include amounts required to be deposited with the Federal Reserve Bank. These reserve balances vary, depending on the level of customer deposits in the Corporation's subsidiary banks. The average amount of these reserves was $103 million and $129 million for the years ended December 31, 1999 and 1998, respectively. 21 ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS............................. Disclosure of the estimated fair values of financial instruments, which differ from carrying values, often requires the use of estimates. In cases where quoted market values are not available, the Corporation uses present value techniques and other valuation methods to estimate the fair values of its financial instruments. These valuation methods require considerable judgment, and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used. Accordingly, the estimates provided herein do not necessarily indicate amounts which could be realized in a current exchange. Furthermore, as the Corporation normally intends to hold the majority of its financial instruments until maturity, it does not expect to realize many of the estimated amounts disclosed. The disclosures also do not include estimated fair value amounts for items which are not defined as financial instruments, but which have significant value. These include such items as core deposit intangibles, the future earnings potential of significant customer relationships and the value of trust operations and other fee generating businesses. The Corporation does not believe that it would be practicable to estimate a representational fair value for these types of items. The Corporation used the following methods and assumptions: Cash and short-term investments: The carrying amount approximates the estimated fair value of these instruments, which consist of cash and due from banks, interest-bearing deposits with banks and federal funds sold. Trading account securities: These securities are carried at quoted market value or the market value for comparable securities, which represents estimated fair value. Loans held for sale: The market value of these loans represents estimated fair value or estimated net selling price. The market value is determined on the basis of existing forward commitments or the market values of similar loans. Investment securities: The market value of investment securities, which is based on quoted market values or the market values for comparable securities, represents estimated fair value. Domestic commercial loans: These consist of commercial, real estate construction, commercial mortgage and equipment lease financing loans. The estimated fair value of the Corporation's variable rate commercial loans is represented by their carrying value, adjusted by an amount which estimates the change in fair value caused by changes in the credit quality of borrowers since the loans were originated. The estimated fair value of fixed rate commercial loans is calculated by discounting the contractual cash flows of the loans using year-end origination rates derived from the Treasury yield curve or other representative bases. The resulting amounts are adjusted to estimate the effect of changes in the credit quality of borrowers since the loans were originated. International loans: The estimated fair value of the Corporation's short-term international loans which consist of trade-related loans, or loans which have no cross-border risk due to the existence of domestic guarantors or liquid collateral, is represented by their carrying value, adjusted by an amount which estimates the effect on fair value of changes in the credit quality of borrowers or guarantors. The estimated fair value of long-term international loans is based on the quoted market values of these loans or on the market values of international loans with similar characteristics. Retail loans: This category consists of residential mortgage, consumer and auto lease financing loans. The estimated fair value of residential mortgage loans is based on discounted contractual cash flows or market values of similar loans sold in conjunction with securitized transactions. For consumer loans, the estimated fair values are calculated by discounting the contractual cash flows of the loans using rates representative of year-end origination rates. The resulting amounts are adjusted to estimate the effect of changes in the credit quality of borrowers since the loans were originated. Customers' liability on acceptances outstanding: The carrying amount approximates the estimated fair value. Loan servicing rights: The estimated fair value represents those servicing rights recorded under SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Fair value is computed using discounted cash flow analyses, using interest rates and prepayment speed assumptions currently quoted for comparable instruments. Deposit liabilities: The estimated fair value of demand deposits, consisting of checking, savings and certain money market deposit accounts, is represented by the amounts payable on demand. The carrying amount of deposits in foreign offices approximates their estimated fair value, while the estimated fair value of term deposits is calculated by discounting the scheduled cash flows using the year-end rates offered on these instruments. 40 Comerica Incorporated 1999 Annual Report 59 21 ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)................. Short-term borrowings: The carrying amount of federal funds purchased, securities sold under agreements to repurchase and other borrowings approximates estimated fair value. Acceptances outstanding: The carrying amount approximates the estimated fair value. Medium- and long-term debt: The estimated fair value of the Corporation's variable rate medium- and long-term debt is represented by its carrying value. The estimated fair value of the fixed rate medium- and long-term debt is based on quoted market values. If quoted market values are not available, the estimated fair value is based on the market values of debt with similar characteristics. Derivative financial instruments and foreign exchange contracts: The estimated fair value of interest rate swaps represents the amount the Corporation would receive or pay to terminate or otherwise settle the contracts at the balance sheet date, taking into consideration current unrealized gains and losses on open contracts. The estimated fair value of foreign exchange futures and forward contracts and commitments to purchase or sell financial instruments is based on quoted market prices. The estimated fair value of interest rate and foreign currency options (including interest rate caps and floors) is determined using option pricing models. Credit-related financial instruments: The estimated fair value of unused commitments to extend credit and standby and commercial letters of credit is represented by the estimated cost to terminate or otherwise settle the obligations with the counterparties. This amount is approximated by the fees currently charged to enter into similar arrangements, considering the remaining terms of the agreements and any changes in the credit quality of counterparties since the agreements were entered into. This estimate of fair value does not take into account the significant value of the customer relationships and the future earnings potential involved in such arrangements as the Corporation does not believe that it would be practicable to estimate a representational fair value for these items. The estimated fair values of the Corporation's financial instruments at December 31, 1999 and 1998 are as follows:
1999 1998 - --------------------------------------------------------------------------------- Carrying Estimated Carrying Estimated (in millions) Amount Fair Value Amount Fair Value - --------------------------------------------------------------------------------- ASSETS Cash and short-term investments $ 1,294 $ 1,294 $ 1,830 $ 1,830 Trading account securities 16 16 6 6 Loans held for sale 505 535 46 46 Investment securities available for sale 2,739 2,739 2,712 2,712 Commercial loans 20,655 20,444 19,086 19,016 International loans 2,573 2,538 2,713 2,696 Real estate construction loans 1,709 1,710 1,080 1,075 Commercial mortgage loans 4,774 4,674 4,179 4,216 Residential mortgage loans 870 866 1,038 1,071 Consumer loans 1,351 1,321 1,862 1,807 Lease financing 761 753 647 648 - --------------------------------------------------------------------------------- Total loans 32,693 32,306 30,605 30,529 Less allowance for credit losses (476) -- (452) -- - --------------------------------------------------------------------------------- Net loans 32,217 32,306 30,153 30,529 Customers'liability on acceptances outstanding 44 44 12 12 Loan servicing rights 5 5 4 4 LIABILITIES Demand deposits (noninterest-bearing) 6,136 6,136 6,999 6,999 Interest-bearing deposits 17,155 17,137 17,314 17,340 - --------------------------------------------------------------------------------- Total deposits 23,291 23,273 24,313 24,339 Short-term borrowings 2,768 2,768 3,580 3,580 Acceptances outstanding 44 44 12 12 Medium- and long-term debt 8,580 8,490 5,282 5,355 OFF-BALANCE SHEET FINANCIAL INSTRUMENTS Derivative financial instruments and foreign exchange contracts Risk management: Unrealized gains -- 50 -- 196 Unrealized losses (1) (200) -- (35) Customer-initiated and other: Unrealized gains 17 17 28 28 Unrealized losses (14) (14) (20) (20) Credit-related financial instruments -- (15) -- (13) =================================================================================
41 60 Comerica Incorporated 1999 Annual Report 22 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. 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 similar information for any other financial institution. The management accounting system assigns balance sheet and income statement items to each line of business using certain methodologies which are constantly being refined. For comparability purposes, amounts in all periods are based on methodologies in effect at December 31, 1999. These methodologies, which are briefly summarized in the following paragraph, may be modified as management accounting systems are enhanced and changes occur in the organizational structure or product lines. In addition to the three major lines of business, the Finance Division is also reported as a segment. The Corporation's internal funds transfer pricing system records cost of funds or credit for funds using a combination of matched maturity funding for certain assets and liabilities and a blended rate based on various maturities for the remaining assets and liabilities. The credit loss provision is assigned based on the amount necessary to maintain an allowance for credit losses adequate for that line of business. Noninterest income and expenses directly attributable to a line of business are assigned to that business. Direct expenses incurred by areas whose services support the overall Corporation are allocated to the business lines as follows: Product processing expenditures are allocated based on standard unit costs applied to actual volume measurements; administrative expenses are allocated based on estimated time expended; and corporate overhead is assigned based on the ratio of a line of business' noninterest expenses to total noninterest expenses incurred by all business lines. Common equity is allocated based on credit, operational and business risks. The following discussion provides information about the activities of each line of business. A discussion of the financial results and the factors impacting 1999 performance can be found in the section entitled "Strategic Lines of Business" in the financial review on page 29. The Business Bank is comprised of middle market lending, asset-based lending,large corporate banking and international financial services. This line of business meets the needs of medium-size 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 Individual Bank includes consumer lending, consumer deposit gathering, mortgage loan origination and servicing, small business banking (annual sales under $5 million) and private banking. This line of business offers a variety of consumer products, including deposit accounts, direct and indirect installment loans, credit cards, home equity lines of credit and residential mortgage loans. In addition, a full range of financial services is provided to small businesses and municipalities. Private lending and personal trust services are also provided to meet the personal financial needs of affluent individuals (as defined by individual net income or wealth). The Investment Bank is responsible for the sale of mutual fund and annuity products, as well as life, disability and long-term care insurance products. This line of business also offers institutional trust products, retirement services and provides investment management and advisory services, investment banking and discount securities brokerage services. The Finance segment includes the Corporation's securities portfolio and asset and liability management activities. This segment is responsible for managing the Corporation's funding, liquidity and capital needs, performing interest sensitivity gap and earnings simulation analysis and executing various strategies to manage the Corporation's exposure to interest rate risk. The Other category includes divested business lines, the income and expense impact of cash and credit loss reserves not assigned to specific business lines, miscellaneous other items of a corporate nature and certain direct expenses not allocated to business lines. The other category also includes the financial results of Munder on a consolidated basis since July 1998, during which time management considered strategic options for its majority interest. In 2000, results for Munder will be included in the Investment Bank. 42 Comerica Incorporated 1999 Annual Report 61 22 BUSINESS SEGMENT INFORMATION (CONTINUED)................................... Lines of business/segment financial results were as follows:
Business Bank Individual Bank Investment Bank* - ------------------------------------------------------------------------------------------------------------------------- (dollar amounts in millions) 1999 1998 1997 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------- EARNINGS SUMMARY Net interest income (FTE) $ 853 $ 746 $ 658 $ 699 $ 679 $ 754 $ (4) $ (3) $ (2) Provision for credit losses 149 79 (11) (6) (14) 82 -- -- -- Noninterest income 193 154 128 294 300 269 135 122 107 Noninterest expenses 339 308 299 599 586 598 126 113 101 Restructuring charge -- -- -- -- -- -- -- -- -- Provision for income taxes (FTE) 202 185 181 139 142 120 2 2 1 Net income (loss) 356 328 317 261 265 223 3 4 3 SELECTED AVERAGE BALANCES Assets $26,121 $22,908 $19,884 $ 7,042 $ 7,651 $ 9,534 $ 29 $ 33 $ 28 Loans 25,021 21,555 18,276 6,584 7,076 8,936 -- 1 -- Deposits 4,529 4,332 3,929 17,332 17,213 17,055 24 34 41 Common equity 1,604 1,340 1,062 715 736 769 27 27 23 STATISTICAL DATA Return on average assets 1.36% 1.43% 1.60% 1.44% 1.47% 1.24% 5.83% 5.63% 4.15% Return on average common equity 22.16 24.49 29.92 36.50 35.96 28.94 12.15 14.17 12.63 Efficiency ratio 32.60 34.51 38.35 60.22 59.82 58.39 n/m n/m n/m Finance Other Total - --------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- EARNINGS SUMMARY Net interest income (FTE) $ 7 $ 46 $ 40 $ (3) $ -- $ 2 $ 1,552 $ 1,468 $ 1,452 Provision for credit losses -- -- -- (29) 48 75 114 113 146 Noninterest income 8 8 4 87 19 20 717 603 528 Noninterest expenses 3 3 3 50 17 7 1,117 1,027 1,008 Restructuring charge -- -- -- -- (7) -- -- (7) -- Provision for income taxes (FTE) 4 18 15 18 (16) (21) 365 331 296 Net income (loss) 8 33 26 45 (23) (39) 673 607 530 SELECTED AVERAGE BALANCES Assets $ 3,730 $ 4,320 $ 5,152 $ 38 $ 75 $ 271 $ 36,960 $34,987 $ 34,869 Loans 481 280 70 (526) (313) (73) 31,560 28,599 27,209 Deposits 569 704 902 65 (30) 19 22,519 22,253 21,946 Common equity 315 333 294 338 181 260 2,999 2,617 2,408 STATISTICAL DATA Return on average assets 0.06% 0.28% 0.22% n/m% n/m% n/m% 1.82% 1.74% 1.52% Return on average common equity 2.41 10.00 8.98 n/m n/m n/m 21.86 22.54 21.32 Efficiency ratio n/m n/m n/m n/m n/m n/m 49.35 49.39 51.04 ===========================================================================================================================
* Included in noninterest expenses are fees internally transferred to other lines of business for referrals to the Investment Bank. If excluded, Investment Bank net income would have been $12 million in 1999, $9 million in 1998 and $6 million in 1997. Return on average common equity would have been 45.27% in 1999, 33.65% in 1998 and 27.49% in 1997. n/m - not meaningful 43 62 COMERICA INCORPORATED 1999 ANNUAL REPORT 23 PARENT COMPANY FINANCIAL STATEMENTS........................................
BALANCE SHEETS--Comerica Incorporated December 31 (in thousands,except share data) 1999 1998 - ----------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 80 $ 2,728 Time deposits with banks 69,900 22,600 Investment securities available for sale 27,505 22,392 Investment in subsidiaries, principally banks 3,669,435 3,280,384 Premises and equipment 4,335 5,855 Other assets 55,900 57,235 - ----------------------------------------------------------------------------------------------------------------------- Total assets $ 3,827,155 $ 3,391,194 ======================================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Commercial paper $ 74,877 $ -- Long-term debt 158,543 234,639 Advances from nonbanking subsidiaries 3,882 -- Other liabilities 115,209 109,942 - ----------------------------------------------------------------------------------------------------------------------- Total liabilities 352,511 344,581 Nonredeemable preferred stock--$50 stated value Authorized--5,000,000 shares Issued--5,000,000 shares in 1999 and 1998 250,000 250,000 Common stock--$5 par value Authorized--325,000,000 shares Issued--157,233,107 shares in 1999 and 157,233,088 shares in 1998 786,166 786,165 Capital surplus 35,092 24,649 Accumulated nonowner changes in equity (31,702) (6,455) Retained earnings 2,485,204 2,086,589 Deferred compensation (2,955) (5,202) Less cost of common stock in treasury--715,496 shares in 1999 and 1,351,997 shares in 1998 (47,161) (89,133) - ----------------------------------------------------------------------------------------------------------------------- Total shareholders'equity 3,474,644 3,046,613 - ----------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders'equity $ 3,827,155 $ 3,391,194 ======================================================================================================================= STATEMENTS OF INCOME--Comerica Incorporated Year Ended December 31 (in thousands) 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------- INCOME Income from subsidiaries Dividends from subsidiaries $ 260,603 $ 442,495 $ 353,500 Other interest income 808 3,899 3,626 Intercompany management fees 93,414 157,393 166,952 Other interest income 347 545 559 Other noninterest income 24,354 2,628 2,070 - ---------------------------------------------------------------------------------------------------------- Total income 379,526 606,960 526,707 EXPENSES Interest on long-term debt and other borrowed funds 17,193 22,214 26,129 Net interest rate swap income (682) (1,648) (2,818) Salaries and employee benefits 64,580 61,583 65,766 Occupancy expense 5,840 6,630 9,373 Equipment expense 1,572 1,873 2,053 Restructuring charge -- 100 -- Other noninterest expenses 29,730 36,002 54,262 - ---------------------------------------------------------------------------------------------------------- Total expenses 118,233 126,754 154,765 - ---------------------------------------------------------------------------------------------------------- Income before income taxes and equity in undistributed net income of subsidiaries 261,293 480,206 371,942 Income tax expense 349 13,279 6,111 - ---------------------------------------------------------------------------------------------------------- 260,944 466,927 365,831 Equity in undistributed net income of subsidiaries, principally banks 411,645 140,149 164,645 - ---------------------------------------------------------------------------------------------------------- NET INCOME $ 672,589 $ 607,076 $ 530,476 ==========================================================================================================
44 COMERICA INCORPORATED 1999 ANNUAL REPORT 63 23 PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)............................
STATEMENTS OF CASH FLOWS-- Comerica Incorporated Year Ended December 31 (in thousands) 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 672,589 $ 607,076 $ 530,476 Adjustments to reconcile net income to net cash provided by operating activities Undistributed earnings of subsidiaries, principally banks (411,645) (140,149) (164,645) Depreciation 1,404 1,755 1,800 Restructuring charge -- (6,008) (20,992) Other, net 5,822 4,908 7,465 - ---------------------------------------------------------------------------------------------------------- Total adjustments (404,419) (139,494) (176,372) - ---------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 268,170 467,582 354,104 INVESTING ACTIVITIES Purchase of investment securities available for sale (7,687) (11,640) (4,092) Proceeds from sale of investment securities available for sale 2,580 1,983 427 Proceeds from sales of fixed assets and other real estate 115 136 28,958 Purchases of fixed assets (316) (1,222) (1,424) Net (increase) decrease in bank time deposits (47,300) 57,800 25,300 Net increase in receivables from subsidiaries -- -- (375) Capital transactions with subsidiaries (5,610) (134,752) (3,283) - ---------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (58,218) (87,695) 45,511 FINANCING ACTIVITIES Net increase (decrease) in advances from subsidiaries 3,882 (4,054) 3,818 Repayments and purchases of long-term debt (76,096) (63,712) 141 Net increase (decrease) in short-term borrowings 74,877 -- (842) Proceeds from issuance of common stock 23,268 50,885 35,082 Purchase of common stock for treasury and retirement (2,885) (148,684) (242,293) Dividends paid (235,646) (211,966) (195,412) - ---------------------------------------------------------------------------------------------------------- Net cash used in financing activities (212,600) (377,531) (399,506) - ---------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash on deposit at bank subsidiary (2,648) 2,356 109 Cash on deposit at bank subsidiary at beginning of year 2,728 372 263 - ---------------------------------------------------------------------------------------------------------- Cash on deposit at bank subsidiary at end of year $ 80 $ 2,728 $ 372 - ---------------------------------------------------------------------------------------------------------- Interest paid $ 19,184 $ 15,290 $ 25,799 ========================================================================================================== Income taxes recovered (paid) $ 9,807 $ 975 $ (1,145) ==========================================================================================================
45 64 COMERICA INCORPORATED 1999 ANNUAL REPORT 24 SUMMARY OF QUARTERLY FINANCIAL INFORMATION................................. The following quarterly information is unaudited. However, in the opinion of management, the information reflects all adjustments which are necessary for the fair presentation of the results of operations for the periods presented.
1999 - ------------------------------------------------------------------------------- (in thousands, Fourth Third Second First except per share data) Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------- Interest income $729,838 $671,936 $641,501 $629,435 Interest expense 321,563 281,544 261,859 260,603 Net interest income 408,275 390,392 379,642 368,832 Provision for credit losses 45,000 21,000 28,000 20,000 Securities gains 3,512 49 690 1,202 Noninterest income (excluding securities gains) 191,356 170,426 193,961 155,692 Noninterest expenses 287,813 276,850 288,880 263,414 Net income 175,681 170,414 167,382 159,112 Basic net income per common share $ 1.10 $ 1.06 $ 1.04 $ 0.99 Diluted net income per common share 1.08 1.05 1.03 0.98 1998 - ----------------------------------------------------------------------------------- (in thousands, Fourth Third Second First except per share data) Quarter Quarter Quarter Quarter - ----------------------------------------------------------------------------------- Interest income $ 652,121 $ 639,562 $ 651,230 $ 673,861 Interest expense 281,371 279,127 286,752 308,253 Net interest income 370,750 360,435 364,478 365,608 Provision for credit losses 36,000 21,000 28,000 28,000 Securities gains/(losses) 6,081 174 11 (150) Noninterest income (excluding securities gains) 161,306 151,940 148,784 135,002 Noninterest expenses 263,051 253,821 253,299 249,873 Net income 157,820 154,490 150,383 144,383 Basic net income per common share $ 0.99 $ 0.97 $ 0.94 $ 0.89 Diluted net income per common share 0.97 0.95 0.92 0.88 - ---================================================================================
25 PENDING ACCOUNTING PRONOUNCEMENTS.......................................... In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement, as amended by Statement No. 137, 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 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 other comprehensive income 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. Statement 133, as amended, is effective for fiscal years beginning after September 15, 2000. The statement permits adoption as of the beginning of any fiscal quarter. The Corporation expects to adopt SFAS No. 133 effective January 1,2001. The Corporation has not yet determined what the effect of SFAS No. 133 will be on the earnings and financial position of the Corporation. The FASB has not yet finalized several significant implementation issues which affect the Corporation. 46 COMERICA INCORPORATED 1999 ANNUAL REPORT 65 REPORT OF MANAGEMENT Management is responsible for the accompanying financial statements and all other financial information in this Annual Report. The financial statements have been prepared in conformity with generally accepted accounting principles and include amounts which of necessity are based on management's best estimates and judgments and give due consideration to materiality. The other financial information herein is consistent with that in the financial statements. In meeting its responsibility for the reliability of the financial statements, management develops and maintains systems of internal accounting controls. These controls are designed to provide reasonable assurance that assets are safeguarded and transactions are executed and recorded in accordance with management's authorization. The concept of reasonable assurance is based on the recognition that the cost of internal accounting control systems should not exceed the related benefits. The systems of control are continually monitored by the internal auditors whose work is closely coordinated with and supplements in many instances the work of independent auditors. The financial statements have been audited by independent auditors Ernst & Young LLP. Their role is to render an independent professional opinion on management's financial statements based upon performance of procedures they deem appropriate under generally accepted auditing standards. The Corporation's Board of Directors oversees management's internal control and financial reporting responsibilities through its Audit & Legal Committee as well as various other committees. The Audit & Legal Committee, which consists of directors who are not officers or employees of the Corporation, meets periodically with management and internal and independent auditors to assure that they and the Committee are carrying out their responsibilities, and to review auditing, internal control and financial reporting matters. /S/ Eugene A. Miller Eugene A. Miller Chairman, President and Chief Executive Officer /S/ Ralph W. Babb Jr. Ralph W. Babb Jr. Vice Chairman and Chief Financial Officer /S/ Marvin J. Elenbaas Marvin J. Elenbaas Senior Vice President and Controller REPORT OF INDEPENDENT AUDITORS Board of Directors, Comerica Incorporated We have audited the accompanying consolidated balance sheets of Comerica Incorporated and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Comerica Incorporated and subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /S/ Ernst & Young LLP Detroit, Michigan January 18, 2000 47 66 COMERICA INCORPORATED 1999 ANNUAL REPORT HISTORICAL REVIEW-AVERAGE BALANCE SHEETS COMERICA INCORPORATED AND SUBSIDIARIES
Consolidated Financial Information (in millions) 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 1,518 $ 1,622 $ 1,686 $ 1,576 $ 1,500 Short-term investments 116 143 129 195 351 Investment securities 2,403 3,371 4,687 5,823 7,625 Commercial loans 19,681 16,973 14,234 12,686 11,302 International loans 2,627 2,342 1,953 1,541 1,257 Real estate construction loans 1,364 989 866 707 541 Commercial mortgage loans 4,461 3,819 3,547 3,483 3,157 Residential mortgage loans 929 1,325 1,676 1,960 2,450 Consumer loans 1,816 2,575 4,486 4,624 4,569 Lease financing 682 576 447 351 285 - ----------------------------------------------------------------------------------------------------------------- Total loans 31,560 28,599 27,209 25,352 23,561 Less allowance for credit losses (463) (440) (402) (361) (340) - ----------------------------------------------------------------------------------------------------------------- Net loans 31,097 28,159 26,807 24,991 23,221 Accrued income and other assets 1,826 1,692 1,560 1,610 1,432 - ----------------------------------------------------------------------------------------------------------------- Total assets $ 36,960 $ 34,987 $ 34,869 $ 34,195 $ 34,129 ================================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest-bearing deposits $ 6,255 $ 6,151 $ 5,815 $ 5,589 $ 4,767 Interest-bearing deposits 16,264 16,102 16,131 16,669 16,888 - ----------------------------------------------------------------------------------------------------------------- Total deposits 22,519 22,253 21,946 22,258 21,655 Federal funds purchased and securities sold under agreements to repurchase 2,823 2,510 2,017 2,106 2,816 Other borrowed funds 659 910 1,801 1,999 2,313 Accrued expenses and other liabilities 421 415 467 400 324 Medium- and long-term debt 7,289 6,032 5,980 4,745 4,510 - ----------------------------------------------------------------------------------------------------------------- Total liabilities 33,711 32,120 32,211 31,508 31,618 Shareholders' equity 3,249 2,867 2,658 2,687 2,511 - ----------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 36,960 $ 34,987 $ 34,869 $ 34,195 $ 34,129 =================================================================================================================
48 COMERICA INCORPORATED 1999 ANNUAL REPORT 67 HISTORICAL REVIEW-STATEMENTS OF INCOME COMERICA INCORPORATED AND SUBSIDIARIES
Consolidated Financial Information (in millions, except per share data) 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------ INTEREST INCOME Interest and fees on loans $ 2,501 $ 2,382 $ 2,318 $ 2,161 $ 2,091 Interest on investment securities Taxable 157 219 310 372 474 Exempt from federal income tax 5 7 11 18 26 - ------------------------------------------------------------------------------------------------------------------ Total interest on investment securities 162 226 321 390 500 Interest on short-term investments 10 9 9 12 23 - ------------------------------------------------------------------------------------------------------------------ Total interest income 2,673 2,617 2,648 2,563 2,614 INTEREST EXPENSE Interest on deposits 590 648 673 686 721 Interest on short-term borrowings 179 186 209 219 302 Interest on medium- and long-term debt 411 368 374 295 289 Net interest rate swap (income)/expense (54) (46) (51) (49) 2 - ------------------------------------------------------------------------------------------------------------------ Total interest expense 1,126 1,156 1,205 1,151 1,314 - ------------------------------------------------------------------------------------------------------------------ Net interest income 1,547 1,461 1,443 1,412 1,300 Provision for credit losses 114 113 146 114 87 - ------------------------------------------------------------------------------------------------------------------ Net interest income after provision for credit losses 1,433 1,348 1,297 1,298 1,213 NONINTEREST INCOME Fiduciary and investment management income 241 184 147 133 125 Service charges on deposit accounts 169 158 141 140 130 Commercial lending fees 49 43 32 23 21 Letter of credit fees 39 31 26 22 20 Securities gains 5 6 5 14 12 Other noninterest income 214 181 177 175 191 - ------------------------------------------------------------------------------------------------------------------ Total noninterest income 717 603 528 507 499 NONINTEREST EXPENSES Salaries and employee benefits 640 565 539 561 562 Net occupancy expense 94 90 89 99 99 Equipment expense 61 60 62 69 68 Outside processing fee expense 48 43 42 42 49 Restructuring charge -- (7) -- 90 -- Other noninterest expenses 274 269 276 298 308 - ------------------------------------------------------------------------------------------------------------------ Total noninterest expenses 1,117 1,020 1,008 1,159 1,086 - ------------------------------------------------------------------------------------------------------------------ Income before income taxes 1,033 931 817 646 626 Provision for income taxes 360 324 287 229 213 - ------------------------------------------------------------------------------------------------------------------ NET INCOME $ 673 $ 607 $ 530 $ 417 $ 413 ================================================================================================================== Net income applicable to common stock $ 655 $ 590 $ 513 $ 408 $ 413 ================================================================================================================== Basic net income per common share $ 4.20 $ 3.79 $ 3.24 $ 2.41 $ 2.38 Diluted net income per common share 4.14 3.72 3.19 2.38 2.37 Cash dividends declared on common stock $ 225 $ 199 $ 181 $ 170 $ 158 Dividends per common share $ 1.44 $ 1.28 $ 1.15 $ 1.01 $ 0.91 - ------------------------------------------------------------------------------------------------------------------
49 68 COMERICA INCORPORATED 1999 ANNUAL REPORT HISTORICAL REVIEW--STATISTICAL DATA COMERICA INCORPORATED AND SUBSIDIARIES
Consolidated Financial Information 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------- AVERAGE RATES (FULLY TAXABLE EQUIVALENT BASIS) Short-term investments 8.85% 6.25% 6.59% 6.23% 6.61% Investment securities 6.76 6.81 6.94 6.79 6.72 Commercial loans 7.70 8.04 8.25 8.21 8.75 International loans 7.86 7.97 7.07 6.64 7.06 Real estate construction loans 8.48 9.24 9.38 9.22 9.52 Commercial mortgage loans 8.25 8.74 9.08 9.29 9.40 Residential mortgage loans 7.47 7.69 7.90 7.83 7.80 Consumer loans 9.98 10.20 9.81 9.88 10.10 Lease financing 6.84 7.65 7.48 6.82 6.65 - -------------------------------------------------------------------------------------------------------------------------- Total loans 7.93 8.34 8.53 8.54 8.90 - -------------------------------------------------------------------------------------------------------------------------- Interest income as a percent of earning assets 7.85 8.17 8.29 8.20 8.35 Domestic deposits 3.48 3.91 4.09 4.04 4.05 Deposits in foreign offices 7.05 6.71 5.68 5.46 6.07 - -------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits 3.63 4.02 4.17 4.11 4.27 Federal funds purchased and securities sold under agreements to repurchase 5.16 5.44 5.49 5.31 5.88 Other borrowed funds 5.07 5.40 5.45 5.36 5.87 Medium- and long-term debt 5.63 6.10 6.26 6.22 6.41 - -------------------------------------------------------------------------------------------------------------------------- Interest expense as a percent of interest-bearing sources 4.16 4.52 4.65 4.51 4.95 - -------------------------------------------------------------------------------------------------------------------------- Interest rate spread 3.69 3.65 3.64 3.69 3.40 Impact of net noninterest-bearing sources of funds 0.86 0.92 0.89 0.85 0.79 - -------------------------------------------------------------------------------------------------------------------------- Net interest margin as a percent of earning assets 4.55 4.57 4.53 4.54 4.19 RETURN ON AVERAGE COMMON SHAREHOLDERS' EQUITY 21.86 22.54 21.32 15.98 16.46 RETURN ON AVERAGE ASSETS 1.82 1.74 1.52 1.22 1.21 EFFICIENCY RATIO 49.35 49.39 51.04 60.36 60.09 PER SHARE DATA Book value at year-end $ 20.60 $ 17.94 $ 16.02 $ 14.70 $ 15.17 Market value at year-end 46.69 68.19 60.17 34.92 26.67 Market value--high and low for year 70-44 73-47 62-34 39-24 29-16 OTHER DATA Number of banking offices 332 334 350 358 395 Number of employees (full-time equivalent) 10,234 10,134 9,960 11,079 12,876 - --------------------------------------------------------------------------------------------------------------------------
50 COMERICA INCORPORATED 1999 ANNUAL REPORT 69 SHAREHOLDER INFORMATION STOCK Comerica's stock trades on the New York Stock Exchange (NYSE) under the symbol CMA. SHAREHOLDER ASSISTANCE Inquiries related to shareholder records, change of name, address or ownership of stock, and lost or stolen stock certificates should be directed to the transfer agent and registrar: Norwest Shareowner Services P.O. Box 64854 St. Paul, Minnesota 55164-0854 (800) 468-9716 ELIMINATION OF DUPLICATE MATERIALS If you receive duplicate mailings at one address, you may have multiple shareholder accounts. You can consolidate your multiple accounts into a single, more convenient account by contacting the transfer agent shown above. In addition, if more than one member of your household is receiving shareholder materials, you can eliminate the duplicate mailings by contacting the transfer agent. DIVIDEND REINVESTMENT PLAN Comerica offers a dividend reinvestment plan which permits participating shareholders of record to reinvest dividends in Comerica common stock without paying brokerage commissions or service charges. Participating shareholders also may invest up to $3,000 in additional funds each quarter for the purchase of additional shares. A brochure describing the plan in detail and an authorization form can be requested from the transfer agent shown above. DIVIDEND DIRECT DEPOSIT Common shareholders of Comerica may have their dividends deposited into their savings or checking account at any bank that is a member of the National Automated Clearing House (ACH) system. Information describing this service and an authorization form can be requested from the transfer agent shown above. DIVIDEND PAYMENTS Subject to approval of the board of directors, dividends customarily are paid on Comerica's common stock on or about January 1, April 1, July 1 and October 1. ANNUAL MEETING The Annual Meeting of Shareholders of Comerica Incorporated will be held on Friday, May 19, 2000, at 9:30 a.m. at the Detroit Institute of Arts, 5200 Woodward Avenue, Detroit, Michigan. FORM 10-K A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-K, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, MAY BE OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION AT THE ADDRESS LISTED ON PAGE 70. STOCK PRICES, DIVIDENDS AND YIELDS
Dividend Dividend(*) Quarter High Low Per Share Yield - -------------------------------------------------------- 1999 Fourth $61.38 $44.00 $0.36 2.7% Third 61.63 47.63 0.36 2.6 Second 66.63 57.31 0.36 2.3 First 70.00 58.94 0.36 2.2 - -------------------------------------------------------- 1998 Fourth $69.00 $46.50 $0.32 2.2% Third 71.94 51.00 0.32 2.1 Second 73.00 61.94 0.32 1.9 First 72.13 54.33 0.32 2.0 - --------------------------------------------------------
(*) 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. At January 31, 2000, there were approximately 17,227 holders of record of the Corporation's common stock. INVESTOR RELATIONS ON THE INTERNET Go to www.comerica.com to find the latest investor relations information about Comerica, including stock quotes, news releases and customized financial data. COMMUNITY REINVESTMENT ACT (CRA) PERFORMANCE Comerica is committed to meeting the credit needs of the communities it serves. Following are the most recent CRA ratings for Comerica subsidiaries: Comerica Bank (Michigan) Outstanding Comerica Bank-Texas Satisfactory Comerica Bank-California Satisfactory Comerica Bank, N.A. Outstanding EQUAL EMPLOYMENT OPPORTUNITY Comerica is committed to its affirmative action program and practices which ensure uniform treatment of employees without regard to race, creed, color, age, national origin, religion, handicap, marital status, veteran status, weight, height or sex. PRODUCT INFORMATION CENTER If you have any questions about Comerica's products and services, please contact our Product Information Center at (800) 292-1300. EX-21 11 SUBSIDIARIES OF REGISTRANT 1 State or Jurisdiction of Incorporation or Name Organization Comerica Investment Services, Inc. Michigan Comerica Capital Markets Corporation Michigan Comerica Insurance Services, Inc. Michigan Comerica Insurance Group, Inc. Michigan Comerica Securities, Inc. Michigan Wilson, Kemp & Associates, Inc. Michigan WAM Holdings, Inc. Delaware WAM Holdings II, Inc. Delaware Comerica AutoLease, Inc. Michigan VRB Corp. Michigan Comerica International Corporation U.S. Comerica Trust Company of Bermuda, Ltd. Bermuda Comerica Holdings Incorporated Delaware CMT Holdings, Inc. Texas Comerica Merchant Services, Inc. Delaware Interstate Select Insurance Services, Inc. California Comerica Acceptance Corporation Michigan Comerica Assurance Ltd Bermuda Comerica Corporate Services Incorporated Michigan Comerica Reinsurance Company, Ltd. British Virgin Islands Comerica Properties Corporation Michigan Professional Life Underwriters Services, Inc. Michigan Comerica Trade Services Limited Hong Kong Comerica Leasing Corporation Michigan Comerica Management Company Michigan Comerica Networking, Inc. Michigan Comerica Equities Incorporated Delaware Comerica West Incorporated Delaware Comerica West Financial Incorporated Delaware Munder Capital Management Delaware World Asset Management Delaware Munder UK, L.L.C. Delaware Comerica Bank-Mexico, S.A. Mexico Comerica Bank-California California Comerica Bank-Texas Texas Comerica Bank, National Association United States Comerica Bank & Trust United States Comerica Bank-Canada Canada Comerica Bank Michigan EX-23 12 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements listed below of our report on the consolidated financial statements of Comerica Incorporated and subsidiaries dated January 18, 2000, included in this Annual Report on Form 10-K for the year ended December 31, 1999: Registration Statement No. 33-42485 on Form S-8 dated August 29, 1991 Registration Statement No. 33-45500 on Form S-8 dated February 11, 1992 Registration Statement No. 33-49964 on Form S-8 dated July 23, 1992 Registration Statement No. 33-49966 on Form S-8 dated July 23, 1992 Registration Statement No. 33-53220 on Form S-8 dated October 13, 1992 Registration Statement No. 33-53222 on Form S-8 dated October 13, 1992 Registration Statement No. 33-58823 on Form S-8 dated April 26, 1995 Registration Statement No. 33-58837 on Form S-8 dated April 26, 1995 Registration Statement No. 33-58841 on Form S-8 dated April 26, 1995 Registration Statement No. 33-65457 on Form S-8 dated December 29, 1995 Registration Statement No. 33-65459 on Form S-8 dated December 29, 1995 Registration Statement No. 333-00839 on Form S-8 dated February 9, 1996 Registration Statement No. 333-24569 on Form S-8 dated April 4, 1997 Registration Statement No. 333-24567 on Form S-8 dated April 4, 1997 Registration Statement No. 333-24565 on Form S-8 dated April 4, 1997 Registration Statement No. 333-24555 on Form S-8 dated April 4, 1997 Registration Statement No. 333-37061 on Form S-8 dated October 2, 1997 /s/ Ernst & Young LLP Detroit, Michigan March 28, 2000 EX-27 13 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACED FROM THE DECEMBER 1999 FORM 10-K FOR COMERICA INCORPORATED AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1,201,990 13,921 77,954 16,369 2,739,464 0 0 32,693,278 476,470 38,653,332 23,291,403 2,768,031 539,397 8,579,857 0 250,000 786,166 2,438,478 38,653,332 2,500,978 161,580 10,152 2,672,710 590,335 1,125,569 1,547,141 114,000 5,453 1,116,957 1,033,072 672,589 0 0 672,589 4.20 4.14 4.55 165,093 47,676 7,347 0 452,409 120,976 31,004 476,470 236,189 34,966 205,315
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