e10vk

-----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, U0RVUNUzGb3AcLR7+1CuYzbjA/V1FO5cMCQ9qwT/dZnsGupgMCE9Gyg+uTazZMsU EnMMh3CFe2WtkicKwO6DSg== 0000950124-04-000754.txt : 20040309 0000950124-04-000754.hdr.sgml : 20040309 20040309123510 ACCESSION NUMBER: 0000950124-04-000754 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040309 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: 1934 Act SEC FILE NUMBER: 001-10706 FILM NUMBER: 04656625 BUSINESS ADDRESS: STREET 1: 500 WOODWARD AVENUE MC 3391 STREET 2: COMERICA TOWER AVE1ST FL CITY: DETROIT STATE: MI ZIP: 48226-3509 BUSINESS PHONE: 313 222-9743 MAIL ADDRESS: STREET 1: 411 WEST LAFAYETTE MC 3419 STREET 2: ATTN: BRAD SCHWARTZ CITY: DETROIT STATE: MI ZIP: 48226-3419 FORMER COMPANY: FORMER CONFORMED NAME: DETROITBANK CORP DATE OF NAME CHANGE: 19850311 10-K 1 k83434e10vk.htm ANNUAL REPORT FOR THE FISCAL YEAR ENDED 12/31/2003 e10vk

United States
Securities and Exchange Commission

Washington, D.C. 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, 2003.

Commission file number 1-10706

Comerica Incorporated


Incorporated in the State of Delaware		IRS Employer Identification No. 38-1998421.

Comerica Tower at Detroit Center
500 Woodward Avenue, MC 3391
Detroit, Michigan 48226
1-800-521-1190

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

These securities are registered on the New York Stock Exchange.

Securities registered pursuant to Section 12(g) of the Act:

•7 1/4% Subordinated Notes due in 2007.

•9.98% Series B Capital Securities of Imperial Capital Trust I due 2026.*

•7.60% Trust Preferred of Comerica Capital Trust I due 2050.

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

*The registrant has reporting obligations for these securities which were acquired in connection with the merger of Imperial Bancorp with and into Comerica Holdings Incorporated, a wholly-owned subsidiary of the registrant. As a result of the merger, Imperial Capital Trust became a wholly-owned indirect subsidiary of the registrant.

TABLE OF CONTENTS


PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	Item 9A. Controls and Procedures
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
	Item 14. Principal Accounting Fees and Services
PART IV
	Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
SIGNATURES
Exhibit Index
1999 Common Stock Deferred Incentive Award Plan
Non-Employee Director Fee Deferral Plan
Common Stock Non-Employee Director Fee Deferral
Annual Report to Shareholders
Subsidiaries of Registrant
Consent of Ernst & Young LLP
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906

was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best knowledge of the registrant, in the definitive proxy statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes [x] No [ ]

The registrant is an accelerated filer as defined in Exchange Act Rule 12b-2.

At March 1, 2004, the registrant’s common stock, $5 par value, held by nonaffiliates had an aggregate market value of $9,485,319,938 based on the closing price on the New York Stock Exchange on that date of $57.36 per share and 165,364,713 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 1, 2004, the registrant had outstanding 174,462,245 shares of its common stock, $5 par value.

Documents Incorporated
by Reference:

1. Parts I and II:
Items 6-8–Annual Report to Shareholders for the year ended December 31, 2003.

2. Part III:
Items 10-13–Proxy Statement for the Annual Meeting of Shareholders to be held May 18, 2004.

PART I

Item 1. Business

GENERAL

Comerica Incorporated (“Comerica” or the “Corporation”) is a financial services company, incorporated under the laws of the State of Delaware, headquartered in Detroit, Michigan. Based on assets as of December 31, 2003, it was among the 20 largest banking companies 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”). As of December 31, 2003, Comerica owned directly or indirectly all the outstanding common stock of three active banking and 48 non-banking subsidiaries. At December 31, 2003, Comerica had total assets of approximately $52.6 billion, total deposits of approximately $41.5 billion, total loans (net of unearned

income) of approximately $40.3 billion and common shareholders’ equity of approximately $5.1 billion.

BUSINESS STRATEGY

Comerica has strategically aligned its operations into three major lines of business: the Business Bank, Small Business and Personal Financial Services, and Wealth and Institutional Management.

The Business Bank is comprised of middle market, commercial real estate, national dealer services, global finance, large corporate, leasing, financial services group and technology and life sciences lending. 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.

Small Business and Personal Financial Services includes small business banking (annual sales under $10 million) and personal financial services, consisting of consumer lending, consumer deposit gathering and mortgage loan origination. This line of business offers a variety of consumer products, including deposit accounts, installment loans, credit cards, student loans, home equity lines of credit and residential mortgage loans. In addition, a full range of financial services is provided to small businesses and municipalities.

Wealth and Institutional Management is responsible for private banking, personal and institutional trust, retirement plans, and asset management (including Munder Capital Management, investment adviser to the Munder funds, and Wilson Kemp & Associates). This division also includes Comerica Securities, which offers institutional, retail and discount brokerage, and investment banking services, as well as Comerica Insurance, which is a full line insurance agency.

Comerica has positioned itself to deliver financial services in its four primary geographic markets: Michigan, California, Texas, and Florida, with operations in numerous other states, Canada and Mexico.

In addition to the three major lines of business, the Finance division is also reported as a segment.

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 liquidity, interest rate risk and foreign exchange risk.

SUPERVISION AND REGULATION

Banks, bank holding companies and financial institutions are highly regulated at both the state and federal level. Comerica is subject to supervision and regulation by the Board of Governors of Federal Reserve Board (“FRB”) under the Bank Holding Company Act of 1956, as amended (the “Act”).

The Gramm-Leach-Bliley Act of 1999 expanded the activities in which a bank holding company registered as a financial holding company can engage. The conditions to be a financial holding company, among others, include the requirement that each depository institution subsidiary of the holding company be well capitalized and well managed.

Comerica became a financial holding company in 2000. As a financial holding company, in addition to bank holding company powers, Comerica may affiliate with securities firms and insurance companies and engage in activities that are financial in nature. Activities that are “financial in nature” include, but are not limited to: securities underwriting; dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking; travel agent services; and activities that the FRB has determined to be financial in nature or incidental or complementary to a financial activity, provided that it does not pose a substantial risk to the safety or soundness of the depository institution or the financial system generally. A bank holding company that is not also a financial holding company is limited to engaging in banking and other activities previously determined by the FRB to be closely related to banking.

Comerica Bank is chartered by the State of Michigan and is primarily supervised and regulated by the Division of Financial Institutions, Office of Financial and Insurance Services of the State of Michigan and the FRB. Comerica Bank & Trust, National Association is chartered under federal law and subject to supervision and regulation by the Office of the Comptroller of the Currency (“OCC”). Comerica Bank and Comerica Bank & Trust, National Association, are members of the Federal Reserve System (“FRS”). The deposits of all the foregoing banks are insured by the Bank Insurance Fund (“BIF”) of the Federal Deposit Insurance Corporation (“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 (which is in the winding up process, with active operations conducted by the Canadian branch of Comerica Bank) 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 owned by Comerica Bank. In addition, Comerica’s non-banking subsidiaries are subject to supervision and regulation by various state, federal and self-regulatory agencies, including, but not limited to, the National Association of Securities Dealers, Inc. (in the case of Comerica Securities, Inc. and Comerica Capital Markets Corporation), the Department of Insurance of the State of Michigan (in the case of Comerica Insurance

Services, Inc.), and the Securities and Exchange Commission (in the case of Munder Capital Management, the Corporation’s investment advisory subsidiary).

In most cases, no FRB approval is required for Comerica to acquire a company, other than a bank holding company or insured depository institution, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the FRB. Prior FRB approval is required before Comerica may acquire the beneficial ownership or control of more than 5% of the voting shares or substantially all of the assets of a bank holding company or bank. If any subsidiary bank of Comerica ceases to be “well capitalized” or “well managed” under applicable regulatory standards, the FRB may place limitations on the Corporation’s ability to conduct the broader financial activities permissible for financial holding companies or impose any limitations or conditions on the conduct or activities of the Corporation or any of its affiliates as the FRB finds appropriate and consistent with the purpose of the Bank Holding Company Act. If the deficiencies persist, the FRB may order Comerica to divest any subsidiary bank or cease to engage in any activities permissible for financial holding companies that are not permissible for bank holding companies. Alternatively, Comerica may elect to conform its non-banking activities to those permissible for a bank holding company that is not also a financial holding company. If any subsidiary bank of Comerica receives a rating under the Community Reinvestment Act of 1977 of less than satisfactory, Comerica will be prohibited from engaging in new activities not permissible for non-financial holding companies/bank holding companies or acquiring companies other than bank holding companies or banks.

Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act and Regulation W, limit borrowings by Comerica and its nonbank subsidiaries from its affiliate insured depository institutions, and also limit various other transactions between Comerica and its nonbank subsidiaries, on the one hand, and its affiliate insured depository institutions, on the other. For example, Section 23A of the Federal Reserve Act limits to no more than 10% of its total capital, the aggregate outstanding amount of any insured depository institution’s loans and other “covered transactions” with any particular nonbank affiliate, and limits to no more than 20% of its total capital, the aggregate outstanding amount of any insured depository institution’s covered transactions with all of its nonbank affiliates. Section 23A of the Federal Reserve Act also generally requires that an insured depository institution’s loans to its nonbank affiliates be, at a minimum, 100% secured, and Section 23B of the Federal Reserve Act generally requires that an insured depository institution’s transactions with its nonbank affiliates be on arms-length terms.

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, and are not intended as legal advice that should be relied upon for any reason. 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 may acquire banks in states other than its home state, 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 if such amount is lower than thirty percent).

The Interstate Act also authorizes banks to acquire branch offices outside their home states by merging with out-of-state banks, purchasing branches in other states and establishing de novo branches in other states, thereby creating interstate branching, provided that in the case of purchasing branches and establishing new branches in a state in which it does not already have banking operations in such state, such state must have “opted-in” to the Act by enacting a law permitting such de novo branching and, in the case of mergers, such state must not have “opted-out” of that portion of the Act.

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. On June 30, 2003, Comerica merged its California and Texas banking subsidiaries into its Michigan banking subsidiary to create one bank, with branches in Michigan, California, Texas and Florida.

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 calendar 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 or to fund the retirement of preferred stock. 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 under circumstances in which such payment could be deemed an unsafe and unsound banking practice. In addition, Comerica’s state bank subsidiaries are also subject to limitations

under state law regarding the amount of earnings that may be paid out as dividends, and require prior approval for payments of dividends that exceed certain levels.

At January 1, 2004, Comerica’s subsidiary banks, without obtaining prior governmental approvals, could declare aggregate dividends of approximately $209 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, 2004 through the date of declaration. Comerica’s subsidiary banks declared dividends of $354 million in 2003, $647 million in 2002, and $578 million in 2001, without the need for prior governmental approvals.

Source of Strength

FRB regulations require that bank holding companies serve as a source of strength to each subsidiary bank and 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, without adversely affecting its ability to meet other obligations. 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 failure of a banking or thrift subsidiary or related to FDIC assistance provided to a subsidiary in danger of failure) the other banking subsidiaries may be assessed for the FDIC’s loss, subject to certain exceptions.

FDICIA

The Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) requires, among other things, 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 a depository 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, 2003, the

Corporation and all of its banking subsidiaries exceeded the ratios required for an institution to be considered “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, or (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit 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. Specifically, such a depository institution may be required to do one or more of the following, among other things: sell sufficient voting stock to become adequately capitalized, reduce the interest rates it pays on deposits, reduce its rate of asset growth, dismiss certain senior executive officers or directors, and stop accepting deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator or such other action as the FDIC and the applicable federal banking agency shall determine appropriate.

FDICIA also contains a variety of other provisions that may affect the operations of depository institutions including 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. Comerica’s subsidiary banks are all well-capitalized and may accept brokered deposits, as permitted by their charters.

Capital Requirements

The FRB imposes on Comerica and other banks, risk-based capital requirements and guidelines, which are substantially similar to the capital requirements and guidelines imposed by the OCC and the FDIC on depository institutions under their jurisdictions.

For this purpose, a depository institution’s or holding company’s assets and certain specified off-balance sheet commitments are assigned to four risk categories, each weighted differently based on the level of credit risk that is ascribed to such assets or commitments. A depository institution’s or holding company’s capital, in turn, is divided into two tiers: core (“Tier 1”) capital, which includes common equity, non-cumulative perpetual preferred stock ,and a limited amount of cumulative perpetual preferred stock and related surplus (excluding auction rate issues) and a limited amount of cumulative perpetual stock and minority interests in equity accounts of consolidated subsidiaries, less goodwill, certain identifiable intangible assets and certain other assets; and supplementary (“Tier 2”) capital, which includes, among other items, perpetual preferred stock not meeting the Tier 1 definition, mandatory convertible securities, subordinated debt, and allowances for loan and lease losses, subject to certain limitations, less certain required deductions.

The Corporation, like other bank holding companies, currently is required to maintain Tier 1 and “total capital’ (the sum of Tier 1 and Tier 2 capital) equal to at least 4% and 8% of its total risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit), respectively. At December 31, 2003, the Corporation met both requirements, with Tier 1 and total capital equal to 8.72% and 12.71% of its total risk-weighted assets.

The FRB, FDIC and OCC rules require Comerica to incorporate market and interest rate risk components into their risk-based capital standards. Under the market risk requirements, capital is allocated to support the amount of market risk related to a financial institution’s ongoing trading activities. The FRB also requires bank holding companies to maintain a minimum “leverage ratio” (Tier 1 capital to adjusted total assets) of 3% if the holding company has the highest regulatory rating and meets certain other requirements, or of 3% plus an additional cushion of at least 100 to 200 basis points if the holding company does not meet these requirements. At December 31, 2003, the Corporation’s leverage ratio was 10.13%.

As an additional means to identify problems in the financial management of depository institutions, FDICIA requires federal bank regulatory agencies to establish certain non-capital safety and soundness standards for institutions they supervise. The standards relate generally to, among others, earnings, liquidity, operations and management, asset quality, various risk and management exposures (e.g. credit, operational, market, interest rate, etc.) and executive compensation. The agencies are authorized to take action against institutions that fail to meet such standards.

FDIC Insurance Assessments

Comerica’s subsidiary banks are subject to FDIC deposit insurance assessments to maintain the Bank Insurance Fund (the “BIF”) and the Savings Insurance Fund (the “SAIF”). As of December 31, 2003, the Corporation’s banking subsidiaries held approximately $38.6 billion and $1.0 billion, respectively, of BIF- and SAIF- assessable deposits. The Corporation currently pays no deposit insurance assessments on these deposits under the FDIC’s risk related assessment system.

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.

Future Legislation

Changes to the laws of the states and countries in which the Corporation and its subsidiaries do business can affect the operating environment of bank holding companies and their subsidiaries in substantial and unpredictable ways. Comerica cannot accurately predict whether such changes will occur or, if they occur, the ultimate effect they would have upon the financial condition or results of operations of the Corporation.

COMPETITION

Financial service provision is a highly competitive business. The Corporation’s banking subsidiaries compete primarily with banks based in its primary areas of operations in the United States for loans, deposits and trust accounts. Through its offices in Arizona, Colorado, Georgia, Illinois, Indiana, Louisiana, Massachusetts, Minnesota, North Carolina, New Jersey, Nevada, New York, Ohio, Oregon, Pennsylvania, Tennessee, Virginia and Washington, Comerica competes with other financial institutions for various deposits, loans and other products and services.

At year-end 2003, Comerica was the largest financial holding company headquartered in Michigan in terms of total assets and deposits. Based on the Interstate Act as described above and the Gramm-Leach Bliley Act, Comerica 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, credit unions, banks, insurance companies and securities firms.

EMPLOYEES

As of December 31, 2003, Comerica and its subsidiaries had 10,627 full-time and 1,227 part-time employees.

AVAILABLE INFORMATION

The Corporation maintains an Internet website at www.comerica.com where the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available without charge, as soon as reasonably practicable after those reports are filed with the U.S. Securities and Exchange Commission. The Code of Business Conduct and Ethics adopted by the Corporation is also available on the Internet website.

Item 2. Properties

The executive offices of the Corporation are located in the Comerica Tower at Detroit Center, 500 Woodward Avenue, Detroit, Michigan 48226. Comerica and its subsidiaries occupy 14 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, 2003, Comerica, through its banking affiliates, operates a total of 506 banking branches, trust services locations, and loan production or other financial services offices, primarily in the States of Michigan, California, Texas and Florida. Of these offices, 231 were owned and 275 were leased. Affiliates also operate from leased spaces in Phoenix, Arizona; Denver, Colorado; Darien, Connecticut; Atlanta, Georgia; Barrington, Chicago and Oakbrook Terrace, Illinois; Indianapolis, Indiana; Boston, Massachusetts; Minneapolis, Minnesota; Durham, North Carolina; Princeton and Sea Girt, New Jersey; Las Vegas, Nevada; New York, New York; Beachwood, West Chester and Westlake, Ohio; Portland, Oregon; King of Prussia, Pennsylvania; Memphis, Tennessee; Reston, Virginia; Kirkland and Bellevue, Washington; Sao Paulo, Brazil; Guadalajara, Mexico; Mexico City, Mexico; Queretaro, Mexico; Monterey, Mexico; Wanchai, Hong Kong; Toronto, Ontario, Canada and Windsor, Ontario, Canada.

The Corporation owns a 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 lending functions and operations.

In 1983, Comerica entered into a sale/leaseback agreement with an unaffiliated party covering an operations center which was built in Auburn Hills, Michigan, and now is occupied by various departments of the Corporation and Comerica Bank.

Item 3. Legal Proceedings

The Corporation and certain of its subsidiaries are subject to various pending and threatened legal proceedings, including certain purported class actions, arising out of the normal course of business or operations. In view of the inherent difficulty of predicting the outcome of such matters, the Corporation cannot state what the eventual outcome of any such matters will be; however, based on current knowledge and after consultation with legal counsel, management does not believe that the amount of any resulting liability arising from these matters will have a material adverse effect on the Corporation’s consolidated financial position or results from operations.

Item 4. Submission of Matters to a Vote of Security Holders

The Corporation did not submit any matters for a shareholders’ vote in the fourth quarter of 2003.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Market Information

The common stock of Comerica Incorporated is traded on the New York Stock Exchange (NYSE Trading Symbol: CMA). At March 1, 2004, there were approximately 16,010 record holders of the Corporation’s common stock.

Quarterly cash dividends were declared during 2003 and 2002, totaling $2.00 and $1.92 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 2003 and 2002.


					Dividends		Dividend*
Quarter	High		Low		Per Share		Yield
2003
Fourth	$	56.34	$	46.38	$	0.50		3.9	%
Third		49.75		45.28		0.50		4.2
Second		53.58		37.79		0.50		4.4
First		46.74		37.10		0.50		4.8
2002
Fourth	$	50.30	$	35.20	$	0.48		4.5	%
Third		63.80		47.00		0.48		3.5
Second		66.09		59.70		0.48		3.1
First		64.85		52.75		0.48		3.3

* 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.

Equity Compensation Plan Information

Number of

securities

Number of

Weighted-

remaining available

securities to be

average exercise

for future issuance

issued upon

price of

under equity

exercise of

outstanding

compensation

outstanding

options,

plans (excluding

options, warrants

warrants and

securities reflected

Plan Category

and rights

rights

in column (a))

(a)

(b)

(c)

Equity compensation plans⁽¹⁾ approved by security holders

16,338,793

⁽²⁾

50.09

10,104,558

⁽²⁾⁽³⁾

Equity compensation plans not approved by security holders ⁽⁴⁾

344,286

51.20

55,500

Total

16,683,079

50.12

10,160,058

⁽¹⁾ Consists of options to acquire shares of common stock, par value $5.00 per share, issued under the Corporation’s Amended and Restated 1997 Long-Term Incentive Plan, the 1991 Long-Term Incentive Plan, the Amended and Restated Comerica Incorporated Stock Option Plan for Non-Employee Directors, the Imperial Bank Stock Option Plan (assumed by the Corporation in connection with its acquisition of Imperial Bank), and the Metrobank 1988 Stock Option Plan (assumed by the Corporation in connection with its acquisition of Metrobank). Does not include 464,841 shares of restricted stock outstanding as of December 31, 2003. There are no shares available for future issuances under any of these plans other than the Corporation’s Amended and Restated 1997 Long-Term Incentive Plan and the Amended and Restated Comerica Incorporated Stock Option Plan for Non-Employee Directors. The Amended and Restated 1997 Long-Term Incentive Plan was initially approved by the shareholders on May 16, 1997, with the most recent amendments to the plan, which required shareholder approval, approved on May 22, 2001.

⁽²⁾ Does not include shares of common stock purchased by employees under the Corporation’s Employee Stock Purchase Plan, or contributed by the Corporation on behalf of the employees.

⁽³⁾ These shares are available for future issuance under the Corporation’s Amended and Restated 1997 Long-Term Incentive Plan in the form of options, restricted stock, and other performance or non-performance related awards and under the Amended and Restated Comerica Incorporated Stock Option Plan for Non-Employee Directors in the form of options. Under the Long-Term Incentive Plan, not more than a total of 2.4 million shares may be used for restricted stock awards and not more than 2 million are available for issuance pursuant to the exercise of incentive stock options. Further, no eligible individual during any calendar year may receive more than the lesser of (i) 15% of the shares available for awards during such calendar year, or (ii) 350,000 shares.

⁽⁴⁾ Consists of options to acquire shares of common stock, par value $5.00 per share, issued under the Amended and Restated Comerica Incorporated Stock Option Plan for Non-Employee Directors of Comerica Bank and Affiliated Banks.

Most of the equity awards made by the Corporation are granted under the shareholder approved Amended and Restated 1997 Long-Term Incentive Plan. Plans not approved by the Corporation’s shareholders include:

Amended and Restated Comerica Incorporated Stock Option Plan for Non-Employee Directors of Comerica Bank and Affiliated Banks – Under this plan, the Corporation may grant options to acquire up to 450,000 shares of common stock, subject to equitable adjustment upon the occurrence of events such as stock splits, stock dividends or recapitalizations. After each annual meeting of shareholders, each member of the Board of Directors of a subsidiary bank of the Corporation who is not an employee of the Corporation or of any of its subsidiaries nor a director of the Corporation (the “Eligible Directors”) automatically will be granted an option to purchase 2,500 shares of the common stock of the Corporation. Option grants under the plan are in addition to annual retainers, meeting fees and other compensation payable to Eligible Directors in connection with their services as directors. The plan is administered by a committee of the Board of Directors. With respect to the automatic grants, the Committee does not have discretion with respect to matters such as the selection of directors to whom options will be granted, the timing of grants, the number of shares to become subject to each option grant, the exercise price of options, or the periods of time during which any option may be exercised. In addition to the automatic grants, the committee may grant options to the Eligible Directors in its discretion. The exercise price of each option granted is the fair market value of each share of common stock subject to the option on the date the option is granted. The exercise price is payable in full upon exercise of the option and may be paid in cash or by delivery of previously owned shares. The committee may change the option price per share following a corporate reorganization or recapitalization so that the aggregate option price for all shares subject to each outstanding option prior to the change is equivalent to the aggregate option price for all shares or other securities into which option shares have been converted or which have been substituted for option shares. The term of each option cannot be more than ten years. No options may be granted under this plan after the Corporation’s 2004 annual meeting of shareholders.

Employee Stock Purchase Plan – Under the Corporation’s Employee Stock Purchase Plan (the “ESPP”), a total of 1.6 million shares of the Corporation’s common stock are available for sale or awards to eligible Corporation employees. The ESPP provides participating employees a convenient and affordable way to purchase shares of Corporation common stock without being charged a brokerage fee. Employees may contribute to the plan through regular after-tax payroll deductions, or they may make after-tax lump sum contributions during two window periods during the year. The

Corporation provides a matching contribution equal to 15% of the contributions made during the previous quarter, provided there have been no withdrawals during that quarter. The Corporation also provides a matching contribution equal to 5% of the contributions made during the first of the previous two plan years, provided there have been no withdrawals during the previous two plan years and the participant is still employed on the last day of the second plan year. No matches are made on contributions exceeding $25,000 per year. Following a contribution, the plan administrator purchases shares of stock for a participant’s account. Such purchases are generally made on the open market at the current market price as soon as practicable under the plan.

The Corporation has amended the ESPP, subject to shareholder approval, to increase the number of shares under the plan to 5 million. The ESPP has also been amended to provide that, under the ESPP, the Corporation may, in its discretion, make service award contributions to the accounts of those employees whom it wishes to recognize for service to the Corporation. Such service award contributions are used to purchase shares of Corporation stock at the current market price. The Corporation uses this program to recognize and reward employees for attaining specified years of service. From 1993 to December 31, 2003, the Corporation issued 54,499 shares of common stock under its service award program. Each year, the Corporation authorizes the awards of shares to employees who attain the requisite years of service. Currently under the program, employees receive 4, 5, 7 and 10 shares of common stock for attaining ten, fifteen, twenty and twenty-five years of service, respectively. The number of shares awarded each year depends on the employees who attain the requisite years of service. For the year-to-date 2004, the Corporation has issued, through the ESPP, 2,310 shares of common stock under the service award program.

Director Deferred Compensation Plans – The Corporation maintains two deferred compensation plans for non-employee directors of the Corporation, its subsidiaries and its advisory boards: the Amended and Restated Comerica Incorporated Common Stock Non-Employee Director Fee Deferral Plan (the “Common Stock Deferral Plan”) and the Amended and Restated Comerica Incorporated Non-Employee Director Fee Deferral Plan (the “Director Fee Deferral Plan”). The Common Stock Deferral Plan allows directors to invest in units that are equivalent to shares of common stock of the Corporation, while the Director Fee Deferral Plan allows directors to invest in units that are equivalent to the shares of certain mutual funds offered under such plan. The Common Stock Deferral Plan previously provided for the mandatory deferral of 50% of the annual retainer of each director of the Corporation into shares of common stock of the Corporation, but currently has no mandatory deferral. Until the mandatory deferral requirement was discontinued, directors could voluntarily defer the remaining 50% of their director fees (and all other non-employee directors of the Corporation’s subsidiaries could choose to defer up to 100% of their director fees) under the Common Stock

Deferral Plan or the Director Fee Deferral Plan, or a combination of the two plans. Currently, all eligible non-employee directors may defer any portion or none of their director fees under the Common Stock Deferral Plan or the Director Fee Deferral Plan, or a combination of the two plans.

The directors’ accounts under the Common Stock Deferral Plan are increased to the extent of dividends paid on the Corporation common stock to reflect the number of additional shares of Corporation common stock that could have been purchased had the dividends been paid on each share of common stock underlying then outstanding stock units in the directors’ accounts. Similarly, the directors’ accounts under the Director Fee Deferral Plan are increased in connection with the payment of dividends paid on the mutual fund shares to reflect the number of additional shares of mutual fund shares that could have been purchased had the dividends or other distributions been paid on each share of stock underlying then outstanding mutual fund units in the directors’ accounts. Following the applicable deferral period, the distribution of a participant’s Corporation stock unit account under the Common Stock Deferral Plan is made in Corporation common stock (with fractional shares being paid in cash), while the distribution of a participant’s mutual fund account under the Director Fee Deferral Plan is made in cash.

Employee Deferred Compensation Plans – The Corporation maintains two deferred compensation plans for eligible employees of the Corporation and its subsidiaries: the 1999 Comerica Incorporated Amended and Restated Common Stock Deferred Incentive Award Plan (the “Employee Common Stock Deferral Plan”) and the 1999 Comerica Incorporated Deferred Compensation Plan (the “Employee Deferral Plan”). Under the Employee Common Stock Deferral Plan, eligible employees may defer specified portions of their incentive awards into units equivalent to shares of common stock of the Corporation. The employees’ accounts under the Employee Common Stock Deferral Plan are increased in connection with the payment of dividends paid on the Corporation’s common stock to reflect the number of additional shares of the Corporation’s common stock that could have been purchased had the dividends been paid on each share of common stock underlying then outstanding stock units in the employees’ accounts. The deferred compensation under the Employee Common Stock Deferral Plan is payable in shares of the Corporation’s common stock following termination of service as an employee.

Similarly, under the Employee Deferral Plan, eligible employees may defer specified portions of their compensation, including salary and bonus (but not certain incentive awards), into units equivalent to shares of funds offered under the Employee Deferral Plan. Beginning in 1999, no such funds include Corporation stock. The employees’ accounts under the Employee Deferral Plan are increased in connection with the payment of dividends paid on the fund shares to reflect the number of additional shares of the fund stock that could have been purchased had the dividends been paid on each share of

fund stock underlying then outstanding stock units in the employees’ accounts. The deferred compensation under the Employee Deferral Plan is payable in cash following termination of service as an employee.

For additional information regarding the Corporation’s equity compensation plans, please refer to Note 16 on page 80 of the Consolidated Financial Statements contained in the Corporation’s Annual Report to Shareholders for the year ended December 31, 2003.

Item 6. Selected Financial Data

The response to this item is included on page 24 of the Corporation’s Annual Report to Shareholders for the year ended December 31, 2003, 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 Reports” on pages 25 through 57 of the Corporation’s Annual Report to Shareholders for the year ended December 31, 2003, 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 46 through 52 of the Corporation’s Annual Report to Shareholders for the year ended December 31, 2003, which pages are hereby incorporated by reference.

Item 8. Financial Statements and Supplementary Data

The response to this item is included on pages 58 through 110 of the Corporation’s Annual Report to Shareholders for the year ended December 31, 2003, and in the Statistical Disclosure by Bank Holding Companies on pages 27 through 48, which pages are hereby incorporated by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

As required by Rule 13a-15(b) of the Exchange Act, management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by this Annual Report, of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report. As required by Rule 13a-15(d), management, including the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during period covered by this Annual Report that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that there has been no such change during the period covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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,” “Committees and Meetings of Directors,” “Committee Assignments,” “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 18, 2004, which sections are hereby incorporated by reference.

Item 11. Executive Compensation

The response to this item will be included under the sections captioned “Compensation Committee Interlocks and Insider Participation,” “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 18, 2004, 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 definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 18, 2004, 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 “Director Independence and Transactions of Directors with Comerica,” “Transactions of 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 18, 2004, which sections are hereby incorporated by reference.

Item 14. Principal Accounting Fees and Services

The response to this item will be included under the section captioned “Independent Auditors” of the Corporation’s definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 18, 2004, which section is hereby incorporated by reference.

FORWARD-LOOKING STATEMENTS

This Report contains statements that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. In addition, the Corporation may make other written and oral communications from time to time that contain such statements. Forward-looking statements, including statements as to industry trends, future expectations of the Corporation and other matters that do not relate strictly to historical facts, are based on certain assumptions by management. Forward-looking statements are often identified by words or phrases such as “anticipate,” “believe,” “expect,” “intend,” “seek,” “plan,” “objective,” “seek,” “trend” and “goal.” Forward-looking statements are subject to various assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and the Corporation undertakes no obligation to update any forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.

In addition to factors mentioned elsewhere in this report or previously disclosed in the Corporation’s SEC reports (accessible on the SEC’s website at www.sec.gov or on the Corporation’s website at www.comerica.com), the following factors, among others, could cause actual results to differ materially from forward-looking statements and future results could differ materially from historical performance:

• general political and economic conditions, either domestically or internationally, may be less favorable that expected;

• the mix of interest rates and maturities of the Corporation’s interest earning assets and interest bearing liabilities (primarily loans and deposits) may be less favorable than expected;

• interest rate margin compression may be greater than expected;

• developments concerning credit quality in various industry sectors may result in an increase in the level of the Corporation’s provision for credit losses, nonperforming assets, net charge-offs and reserve for credit losses;

• demand for commercial loan and investment advisory products may continue to be weak;

• customer borrowing, repayment, investment and deposit practices generally may be less favorable than anticipated;

• interest rate and currency fluctuations, equity and bond market fluctuations, and inflation may be greater than expected;

• global capital markets in general, and the technology industry in particular, may continue to exhibit weakness, adversely affecting the Corporation’s investment advisory business line, as well as the Corporation’s private banking and brokerage business lines, and the availability and terms of funding necessary to meet the Corporation’s liquidity needs;

• the introductions, withdrawal, success and timing of business initiatives and strategies, including, but not limited to, the opening of new branches or private banking offices or plans to grow personal financial services and wealth management;

• competitive product and pricing pressures among financial institutions within the Corporation’s markets may increase;

• legislative or regulatory developments, including changes in laws or regulations concerning taxes, banking, securities, capital requirements and risk-based capital guidelines, reserve methodologies, deposit insurance and other aspects of the financial services industry, may adversely affect the business in which the Corporation is engaged or the Corporation’s financial results;

• legal and regulatory proceedings and related matters with respect to the financial services industry, including those directly involving the Corporation and its subsidiaries, could adversely affect the Corporation or the financial services industry generally;

• pending and proposed changes in accounting rules, policies, guidance, practices and procedures could adversely affect the Corporation’s financial results;

• instruments, systems and strategies used to hedge or otherwise manage exposure to various types of market, credit , operational and enterprise wide risk could be less effective than anticipated, and the Corporation may not be able to effectively mitigate its risk exposures in particular market environments or against particular types of risk;

• terrorist activities or other hostilities, which may adversely affect the general economy, financial and capital markets, specific industries, and the Corporation; and

• technological changes may be more difficult or expensive than anticipated.

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 2003 Annual Report to Shareholders or in the 2004 Proxy Statement used in connection with the 2004 Annual Meeting of Shareholders to be held on May 18, 2004.

The following cross-reference index shows the page location in the 2003 Annual Report or the section of the 2004 Proxy Statement of only that information which is to be incorporated by reference into this Form 10-K.

All other sections of the 2003 Annual Report or the 2004 Proxy Statement are not required in this Form 10-K and are not to be considered a part of this Form 10-K.


		Page Number of 2003
		Annual Report or Section
		of 2004 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 -- The
	Corporation did not submit any matters for the shareholders’ vote in the
	fourth quarter of 2003.
	PART II
ITEM 5.	Market for Registrant’s Common Equity and Related Security Holder Matters		Included herein
ITEM 6.	Selected Financial Data		24
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25-57
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk		46-52
ITEM 8.	Financial Statements and Supplementary Data:
	Comerica Incorporated and Subsidiaries
	Consolidated Balance Sheets		58
	Consolidated Statements of Income		59
	Consolidated Statements of Changes in Shareholders’ Equity		60
	Consolidated Statements of Cash Flows		61
	Notes to Consolidated Financial Statements		62-105
	Report of Management		106
	Report of Independent Auditors		107
	Statistical Disclosure by Bank Holding Companies:
	Analysis of Net Interest Income - Fully Taxable Equivalent		27
	Rate-Volume Analysis - Fully Taxable Equivalent		28
	Analysis of the Allowance for Loan Losses		30
	Allocation of the Allowance for Loan Losses		31
	Analysis of Investment Securities and Loans		38
	Loan Maturities and Interest Rate Sensitivity		39
	Analysis of Investment Securities Portfolio - Fully Taxable Equivalent		40
	International Cross-Border Outstandings		40


		Page Number of 2003
		Annual Report or Section
		of 2004 Proxy Statement
	Summary of Nonperforming Assets and Past Due Loans	43
	Remaining Expected Maturity of Risk Management Interest Rate Swaps	48
	Deposits - Maturity Distribution of Domestic Certificates of Deposit of $100,000 and Over	74
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - None.
ITEM 9A.	Controls and Procedures	Included herein
	PART III
ITEM 10.	Directors and Executive Officers of the Registrant	Information About Nominees and Incumbent Directors, Committee and Meetings of Directors, Committee Assignments, Executive Officers of the Corporation and Section 16(a) Beneficial Ownership Reporting Compliance
ITEM 11.	Executive Compensation	Compensation Committee Interlocks and Insider Participation, 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	Director Independence and Transactions of Directors with Comerica, Transactions of Executive Officers with Comerica and Information about Nominees and Incumbent Directors
ITEM 14.	Principal Accounting Fees and Services	Independent Auditors

PART IV

Item 15. 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 21.

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(a)		Restated Certificate of Incorporation of Comerica Incorporated, as amended⁽¹⁾

3.1(b)		Certificate of Amendment to Restated Certificate of Incorporation of Comerica Incorporated⁽²⁾

3.2		Amended and restated bylaws of Comerica Incorporated⁽³⁾

4		Rights Agreement between Comerica Incorporated and Comerica Bank⁽⁴⁾

10.1†		Comerica Incorporated Amended and Restated 1997 Long-Term Incentive Plan (restated 2001)⁽⁵⁾

10.2†		Comerica Incorporated Amended and Restated Management Incentive Plan (restated 2001)⁽⁵⁾

10.3†		Comerica Incorporated Director Fee Deferral Plan⁽⁶⁾

10.4†		Benefit Equalization Plan for Employees of Comerica Incorporated⁽⁶⁾

10.5†		Form of Employment Agreement (Exec. Off.)

10.6†		Form of Director Indemnification Agreement between Comerica Incorporated and its directors⁽⁷⁾

10.7†		Supplemental Benefit Agreement with Eugene A. Miller⁽⁸⁾

10.8†		Employment Agreement with Ralph W. Babb, Jr.⁽⁹⁾

10.9†		Supplemental Pension and Retiree Medical Agreement with Ralph W. Babb Jr.⁽¹⁰⁾


10.10†		1999 Comerica Incorporated Deferred Compensation Plan, January 1, 1999⁽¹¹⁾

10.11†		Comerica Incorporated Common Stock Deferred Incentive Award Plan, (Restated November 24, 2003)

10.12†		Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee Directors (Amended and Restated May 22, 2001)⁽⁷⁾

10.13†		Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee Directors of Comerica Bank and Affiliated Banks (Amended and Restated May 22, 2001)⁽⁷⁾

10.14†		Comerica Incorporated Non-Employee Director Fee Deferral Plan, (Amended and Restated January 27, 2004)

10.15†		Comerica Incorporated Common Stock Non-Employee Director Fee Deferral Plan, (Amended and Restated January 27, 2004)

10.16†		Imperial Bancorp 1986 Stock Option Plan (as amended)⁽¹²⁾

11		Statement regarding Computation of Net Income Per Common Share⁽¹³⁾

13		Incorporated Sections of Registrant’s 2003 Annual Report to Shareholders

21		Subsidiaries of Registrant

23		Consent of Ernst & Young LLP

31.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


⁽¹⁾		Filed as Exhibit 3.1 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.

⁽²⁾		Filed as Exhibit 3.1 to Registrant’s Registrant Statement on Form S-4, No. 333-51042, and incorporated herein by reference.

⁽³⁾		Filed as Exhibit 3.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, and incorporated herein by reference.

⁽⁴⁾		Filed as Exhibit 4 to Registrant’s Current Report on Form 8-K dated June 18, 1996, regarding the Registrant’s Rights Agreement with Comerica Bank, and incorporated herein by reference.


⁽⁵⁾		Filed as the same exhibit number to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001.

⁽⁶⁾		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.

⁽⁷⁾		Filed as the same exhibit number to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.

⁽⁸⁾		Filed as Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, and incorporated herein by reference.

⁽⁹⁾		Filed as Exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference.

⁽¹⁰⁾		Filed as Exhibit 10.2 to Registrant’s Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference.

⁽¹¹⁾		Filed as Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference.

⁽¹²⁾		Filed as Exhibit 10.23 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated herein by reference.

⁽¹³⁾		Incorporated by reference from Note 15 on page 80 of Registrant’s 2003 Annual Report to Shareholders attached hereto as Exhibit 13.

†		Management compensation plan.

(b) Reports on Form 8-K

1. A report on Form 8-K, dated October 15, 2003, was submitted under items 9 and 11, announcing the Corporation’s earnings for the quarter ended September 30, 2003.

2. A report on Form 8-K, dated November 18, 2003, was submitted under item 9, announcing the Corporation’s investor conference to be held on November 18, 2003.

3. A report on Form 8-K, dated December 1, 2003, was submitted under item 9, announcing the Corporation’s resumption of its stock repurchase program.

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 8th day of March, 2004.

COMERICA INCORPORATED

/s/ Ralph W. Babb, Jr.

Ralph W. Babb, Jr.
Chairman, President and Chief Executive Officer

/s/ Elizabeth S. Acton

Elizabeth S. Acton
Executive Vice President 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 8th day of March, 2004.

By Directors

/s/ Ralph W. Babb, Jr.

Ralph W. Babb, Jr.

/s/ Lillian Bauder

Lillian Bauder

/s/ Joseph J. Buttigieg, III

Joseph J. Buttigieg, III

/s/ James F. Cordes

James F. Cordes

/s/ Peter D. Cummings

Peter D. Cummings

/s/ J. Philip DiNapoli

J. Philip DiNapoli

/s/ Anthony F. Earley, Jr.

Anthony F. Earley, Jr.

/s/ Max M. Fisher

Max M. Fisher

/s/ Roger Fridholm

Roger Fridholm

/s/ Todd W. Herrick

Todd W. Herrick

/s/ David Baker Lewis

David Baker Lewis

/s/ Alfred A. Piergallini

Alfred A. Piergallini

/s/ Howard F. Sims

Howard F. Sims

/s/ Robert S. Taubman

Robert S. Taubman

/s/ William P. Vititoe

William P. Vititoe

/s/ Patricia M. Wallington

Patricia M. Wallington

/s/ Gail L. Warden

Gail L. Warden

/s/ Kenneth L. Way

Kenneth L. Way

Exhibit Index


Exhibit No.		Description
	3.1(a)	Restated Certificate of Incorporation of Comerica Incorporated, as amended⁽¹⁾

	3.1(b)	Certificate of Amendment to Restated Certificate of Incorporation of Comerica Incorporated⁽²⁾

	3.2	Amended and restated bylaws of Comerica Incorporated⁽³⁾

	4	Rights Agreement between Comerica Incorporated and Comerica Bank⁽⁴⁾

	10.1†	Comerica Incorporated Amended and Restated 1997 Long-Term Incentive Plan (restated 2001)⁽⁵⁾

	10.2†	Comerica Incorporated Amended and Restated Management Incentive Plan (restated 2001)⁽⁵⁾

	10.3†	Comerica Incorporated Director Fee Deferral Plan⁽⁶⁾

	10.4†	Benefit Equalization Plan for Employees of Comerica Incorporated⁽⁶⁾

	10.5†	Form of Employment Agreement (Exec. Off.)

	10.6†	Form of Director Indemnification Agreement between Comerica Incorporated and its directors⁽⁷⁾

	10.7†	Supplemental Benefit Agreement with Eugene A. Miller⁽⁸⁾

	10.8†	Employment Agreement with Ralph W. Babb, Jr.⁽⁹⁾

	10.9†	Supplemental Pension and Retiree Medical Agreement with Ralph W. Babb Jr.⁽¹⁰⁾

	10.10†	1999 Comerica Incorporated Deferred Compensation Plan, January 1, 1999⁽¹¹⁾

	10.11†	Comerica Incorporated Common Stock Deferred Incentive Award Plan, (Restated November 24, 2003)

	10.12†	Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee Directors (Amended and Restated May 22, 2001)⁽⁷⁾

	10.13†	Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee Directors of Comerica Bank and Affiliated Banks (Amended and Restated May 22, 2001)⁽⁷⁾

	10.14†	Comerica Incorporated Non-Employee Director Fee Deferral Plan, (Amended and Restated January 27, 2004)

	10.15†	Comerica Incorporated Common Stock Non-Employee Director Fee Deferral Plan, (Amended and Restated January 27, 2004)

	10.16†	Imperial Bancorp 1986 Stock Option Plan (as amended)⁽¹²⁾

	11	Statement regarding Computation of Net Income Per Common Share⁽¹³⁾

Exhibit Index


Exhibit No.		Description
	13	Incorporated Sections of Registrant’s 2003 Annual Report to Shareholders

	21	Subsidiaries of Registrant

	23	Consent of Ernst & Young LLP

	31.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


⁽¹⁾		Filed as Exhibit 3.1 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.

⁽²⁾		Filed as Exhibit 3.1 to Registrant’s Registrant Statement on Form S-4, No. 333-51042, and incorporated herein by reference.

⁽³⁾		Filed as Exhibit 3.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, and incorporated herein by reference.

⁽⁴⁾		Filed as Exhibit 4 to Registrant’s Current Report on Form 8-K dated June 18, 1996, regarding the Registrant’s Rights Agreement with Comerica Bank, and incorporated herein by reference.

⁽⁵⁾		Filed as the same exhibit number to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001.

⁽⁶⁾		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.

⁽⁷⁾		Filed as the same exhibit number to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.

⁽⁸⁾		Filed as Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, and incorporated herein by reference.

⁽⁹⁾		Filed as Exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference.

⁽¹⁰⁾		Filed as Exhibit 10.2 to Registrant’s Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference.

⁽¹¹⁾		Filed as Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference.

⁽¹²⁾		Filed as Exhibit 10.23 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated herein by reference.

⁽¹³⁾		Incorporated by reference from Note 15 on page 80 of Registrant’s 2003 Annual Report to Shareholders attached hereto as Exhibit 13.

†		Management compensation plan.

EX-10.11 3 k83434exv10w11.txt 1999 COMMON STOCK DEFERRED INCENTIVE AWARD PLAN EXHIBIT 10.11 As approved by the Compensation Committee on November 24, 2003 1999 COMERICA INCORPORATED AMENDED AND RESTATED COMMON STOCK DEFERRED INCENTIVE AWARD PLAN TABLE OF CONTENTS 1999 COMERICA INCORPORATED AMENDED AND RESTATED COMMON STOCK DEFERRED INCENTIVE AWARD PLAN

-i- TABLE OF CONTENTS (CONTINUED)

-ii- TABLE OF CONTENTS (CONTINUED)

-iii- ARTICLE I PURPOSE AND INTENT The Plan enables Participants to defer receipt of all or a portion of their Incentive 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 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 (10) "Deferral Period" means the period during which a Participant elects to defer receipt of the Incentive 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 approved 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 1999 Comerica Incorporated Amended and Restated Common Stock Deferred Incentive 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 (20) "Incentive Award" means the incentive award granted to Participants pursuant to the Management Incentive Plan that is related to Comerica Incorporated's performance, including, but not limited to 3 year return on equity performance. (21) "Incentive 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 a rabbi trust, as may be established by Comerica Incorporated in connection with this Plan. Such rabbi trust will be irrevocable, and will contain certain key provisions, which the Internal Revenue Service would require in order to conclude that contributions made thereto by an employer, to provide for the payment of non-qualified deferred compensation benefits to employees, will not be taxed to employees at the time contributions are made, but instead, at the time the benefits are received or otherwise made available to the employee (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 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 submit a signed Irrevocable Election Form indicating the Incentive Award the Participant wishes to defer. Any Irrevocable Election Form approved by the Committee or its delegate shall become binding upon the Committee's approval thereof. Committee approval requires that the Committee acknowledge receipt of an employee's Irrevocable Election Form, and consents to the participation of such employee. An Irrevocable Election Form must be approved by the Committee on or before the last day of the calendar year prior to the calendar year in which the deferred Incentive Award will be earned. A Participant must file a separate Irrevocable Election Form with respect to each year's Incentive Award he or she wishes to defer. B. Contents of Irrevocable Election Form. Each Irrevocable Election Form shall: (i) designate the amount of the Incentive Award to be deferred in whole percentages or in whole dollars; (ii) request that the Employer defer payment of the Incentive Award to the Participant until the year the Participant retires; (iii) state how the Participant wishes to receive payment of the Incentive Award Deferrals at retirement; and (iv) contain other provisions the Committee deems appropriate. C. Effect of Submitting an Irrevocable Election Form. Upon the Committee's approval 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 III-1 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 the Incentive Award. (1) Deferral Election to be Made Before the Incentive Award is Earned. Incentive Awards may only be deferred to the extent that they have not yet been earned by a Participant. An election to defer an Incentive Award must be approved by the Committee before the first day of the calendar year in which the Incentive Award is earned. Notwithstanding the preceding sentence, an Irrevocable Election Form approved by the Committee within thirty (30) days of the effective date of a new or amended Plan may defer an Incentive Award for such calendar year, to the extent it has not yet been earned; and, provided further, an Irrevocable Election Form approved by the Committee within thirty (30) days of the date an individual first becomes eligible to participate in the Plan may defer an Incentive Award for such calendar year, to the extent it has not yet been earned. 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 Incentive 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 V(A)(4) below, the provisions of the Irrevocable Election Form relating to a Participant's election to defer the Incentive Award and the Participant's selection of the time and manner of payment of the Incentive Award Deferrals shall be irrevocable. III-2 E. Deferrals By Committee. At its discretion, the Committee may defer any portion of the Incentive Award payable to a Participant pursuant to a notice to the Participant. Any of the Incentive Award payable to a Participant which is deferred by the Committee shall be distributed to the Participant in shares of Comerica Stock in either a lump sum distribution of Comerica Stock or installments of Comerica Stock, upon his or her termination of employment. Any Incentive Award deferred under the Plan by the Committee shall be invested in the Comerica Stock Fund. Upon the death of the Participant on behalf of whom the Incentive Award is deferred, 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 Incentive Award deferred by the Participant under the Plan. If the Participant has not submitted a beneficiary designation form with respect to such other deferrals, the Incentive 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-3 ARTICLE IV DEFERRED INCENTIVE AWARD ACCOUNTS AND INVESTMENT OF DEFERRED INCENTIVE AWARD A. Deferred Incentive 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 Incentive Award subject to a Participant's deferral election would otherwise be paid to the Participant, the Plan Administrator shall credit the Incentive Award being deferred to the Participant's Account. From time to time, at intervals to be determined by the Committee, each Participant's Account shall be credited with earnings or charged with losses resulting from the deemed investment of the Incentive Award Deferrals credited to the Account as though the Incentive 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 Incentive 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, the balance of each Participant's Account, and any earnings and dividends thereon shall be invested 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 Incentive Award Deferrals will be acquired solely in the name of Comerica Incorporated, and will remain the sole property of Comerica Incorporated, except to the extent held in a Trust. IV-1 C. Contribution of Incentive Award Deferrals to Trust. In the sole discretion of Comerica Incorporated, all or any portion of the Incentive 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 Incentive Award Deferrals to the Trust. Any Incentive 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, 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 Incentive 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 Incentive 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 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 ARTICLE V DISTRIBUTION OF INCENTIVE AWARD DEFERRALS A. In General. The benefits payable hereunder as Deferred Incentive 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) five (5) annual installments; (iii) ten (10) annual installments; or (iv) fifteen (15) annual installments. (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 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, 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, in such manner specified in the Participant's Irrevocable Election Form. V-1 (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, in a lump sum, as soon as is administratively feasible following the date of the Participant's death. (4) Hardship Distributions/Cancellation of Deferral Election. In the event of an Unforeseeable Emergency involving a Participant, the Committee may, in its sole discretion: (1) make a single distribution of Comerica Stock, to the Participant from the Participant's Account; and/or (2) permit the Participant to cancel a future deferral election and to instead receive, at the otherwise scheduled payment date, such portion of the amount that is subject to the deferral election, but only in an amount as shall be necessary in the judgment of the Committee to alleviate the financial hardship occasioned by the Unforeseeable Emergency. Distributions permitted on account of an Unforeseen Emergency may be increased to the extent necessary to pay the applicable income tax withholding amounts so the net amount may satisfy the hardship. Any Participant desiring a distribution or seeking 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 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 either such request, the Committee shall apply the standards of the Income Tax Regulations, the provisions of which are incorporated herein by reference. V-2 Any Participant who receives a hardship distribution or who is permitted to cancel a deferral election shall not again be eligible to submit a deferral election until the next enrollment period after the calendar year in which a hardship distribution or a cancellation is permitted. If a Participant receives a hardship distribution under this Article V(A)(4) and/or 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 Incentive Award earned during the twelve-month period following 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 calendar year in which the Participant receives a hardship distribution. (5) Stock Distributions. If, at the time an installment distribution of a Participant's Account is scheduled to commence, the fair market value of such Account does not exceed $5,000 then, notwithstanding an election by the Participant to receive distribution of such Account in installments, the balance of Comerica Stock shall be distributed to the Participant in a lump sum 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 be amended or revoked from time to time, without notice to, or consent of, any previously designated Beneficiary. V-3 (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 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 Incentive 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 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 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. It will not, however, be deemed a violation of this Article VIII(B) to follow a Domestic Relations Order pursuant to procedures established by the Committee. 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 Incentive Award Deferrals from Comerica Incorporated nor utilize his or her Account as security for any loan from the Employer. VIII-1 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 Administrator(s) to be final and conclusive upon any affected party. The Committee shall VIII-2 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. Claims Procedures. Any claim for benefits under the Plan, must be made pursuant to ERISA claims procedures, a copy of which is available upon request. J. Effective Date. The effective date of this amendment and restatement shall be November 24, 2003, except as otherwise expressly stated herein. VIII-3 EX-10.14 4 k83434exv10w14.txt NON-EMPLOYEE DIRECTOR FEE DEFERRAL PLAN EXHIBIT 10.14 Amended and Restated as of January 27, 2004 Corporate Governance and Nominating Committee Approval: January 27, 2004 Board Approval: January 27, 2004 AMENDED AND RESTATED COMERICA INCORPORATED NON-EMPLOYEE DIRECTOR FEE DEFERRAL PLAN AMENDED AND RESTATED COMERICA INCORPORATED NON-EMPLOYEE DIRECTOR FEE DEFERRAL PLAN TABLE OF CONTENTS SECTION I - PURPOSE....................................................... 1 SECTION II - DEFINITIONS.................................................. 1 SECTION III - ELIGIBILITY................................................. 3 SECTION IV - PROCEDURES RELATING TO DEFERRALS............................. 3 SECTION V - CREDITING AND ADJUSTING ACCOUNTS.............................. 4 SECTION VI - DISTRIBUTION OF DEFERRED FEES................................ 6 SECTION VII - DESIGNATION OF BENEFICIARY.................................. 7 SECTION VIII - MISCELLANEOUS PROVISIONS................................... 8

AMENDED AND RESTATED COMERICA INCORPORATED NON-EMPLOYEE DIRECTOR FEE DEFERRAL PLAN SECTION I -- PURPOSE The purpose of the Amended and Restated Comerica Incorporated Non-Employee Director Fee Deferral Plan (the "Plan") is to allow eligible directors to defer their Director Fees, under the conditions provided herein, into a Mutual Fund Unit Account. Eligible directors of the Corporation, directors of any Subsidiary or directors of any Advisory Board may defer all or any portion of their Director Fees into a Mutual Fund Unit Account, as requested by such director. The Plan was originally established as the "Comerica Incorporated Plan for Deferring the Payment of Director's Fees." In 1997, such plan was amended and restated as the "Comerica Incorporated Director Fee Deferral Plan." Then on May 21, 1999, the plan was divided into two plans, one of which became the "Comerica Incorporated 1999 Discretionary Director Fee Deferral Plan," and which was subsequently amended and restated on November 26, 2002 as the "Comerica Incorporated Director Fee Deferral Plan," the plan continued herein.(1) 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 or unit of the Corporation. B. "Beneficiary(ies)" means such individual(s) or entity(ies) designated on the most recent valid Beneficiary Designation Form that the Participant has properly submitted to the Corporation or in accordance with Section VII of this Plan, if there is no valid Beneficiary designation. C. "Beneficiary Designation Form" is the form used to designate the Participant's Beneficiary(ies),C. as modified by the Plan Administrator or the Committee from time to time. D. "Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. - ------------------ (1) The second plan which resulted from the division was named the "Comerica Incorporated 1999 Common Stock Director Fee Deferral Plan," which was amended and restated on November 26, 2002 as the "Comerica Incorporated Common Stock Director Fee Deferral Plan" and was further amended and restated on January 27, 2004 as the "Amended and Restated Comerica Incorporated Common Stock Non-Employee Director Fee Deferral Plan." E. "Committee" means the Corporate Governance and Nominating Committee of the Board of Directors of the Corporation, or any successor committee duly authorized by the Board of Directors of the Corporation. F. "Corporation" means Comerica Incorporated, a Delaware corporation, and its successors and assigns. G. "Deferral Election Form" is the form used to defer the payment of unearned Director Fees timely submitted by a Participant, as modified by the Plan Administrator or the Committee from time to time. H. "Director Fees" means a director's annual retainer, if any, fees earned by the director for performing director duties, including fees for attending board meetings, fees for attending meetings of any committee of the board of the Corporation or its Subsidiaries or Advisory Boards, if any, and fees for serving as chair of any committee of the board of the Corporation or its Subsidiaries or an Advisory Board, if any. I. "Mutual Fund Unit" means a unit equivalent to a mutual fund share that is maintained for the benefit of a Participant in a Mutual Fund Unit Account of such Participant. J. "Mutual Fund Unit Account" means an account established under Section V of this Plan, solely for bookkeeping purposes, in the name of each Participant to record those Director Fees that have been deferred to such account and the earnings thereon. K. "Participant" means an eligible director meeting the requirements of Section III below, for whom a Mutual Fund Unit Account is maintained under the Plan. L. "Plan" means the Amended and Restated Comerica Incorporated Non-Employee Director Fee Deferral Plan, the provisions of which are set forth herein, as it may be further amended and restated from time to time. M. "Plan Administrator" means one or more individuals appointed by the Committee to handle the day-to-day administration of the Plan. N. "Reallocation of Existing Account Balances Form" is the form used to reallocate previously deferred Director Fees, as modified by the Plan Administrator from time to time. O. "Reallocation of Future Deferrals Form" is the form used to reallocate Director Fees to be earned in the future, as 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 or are owned by the Corporation. 2 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 Corporation, each director of any Subsidiary and each director of any Advisory Board shall be eligible to participate in the Plan, provided any such director is not an employee of the Corporation or any Subsidiary of the Corporation. SECTION IV - PROCEDURES RELATING TO DEFERRALS A. Deferral of Director Fees. Eligible directors of the Corporation, of any Subsidiary, and of any Advisory Board may defer any portion (0% - 100%) of their Director Fees under this Plan. 1. Deferral Period. Director Fees may be deferred pursuant to this Section IV(A) for the period specified by the Participant in a Deferral Election Form; provided, however, that in no event shall the period of deferral exceed ten (10) years from the date of distribution of the first installment. 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, as defined in Section IV(B), or five years from the date of service for which the Director Fees became payable, notwithstanding the deferral election under this Plan. 2. Deferred Director Fees. Once Director Fees are deferred under this Plan, a director may not receive distributions of such deferred amounts, except in accordance with Section VI of this Plan. B. Regular Retirement. An eligible director of the Corporation shall retire from the board of the Corporation as provided in the Corporation's Corporate Governance Guidelines, as amended from time to time. An eligible director of any Subsidiary or of any Advisory Board shall retire from the board on which he or she serves as determined from time to time by the Corporation. Nothing contained in this Plan shall entitle a Participant to serve beyond the term for which he or she was elected or appointed to the board(s) on which he or she serves. C. Deferral Procedures. Any eligible director wishing to defer Director Fees must submit a Deferral Election Form to Retirement Services, Deferred Compensation Group, MC 3431, P.O. Box 75000, Detroit, Michigan 48275-3431 or to such other unit or person as designated by the Committee from time to time, prior to the beginning of 3 the calendar year during which the Director Fees are to be earned. However, any newly-appointed or newly-elected director may submit a Deferral Election Form with respect to unearned Director Fees within thirty (30) days of his or her appointment or election. A deferral election pursuant to this Plan may cover all or a portion (0% - 100%) of the Director Fees which may be deferred, and shall designate into which mutual fund and in what proportions the Director Fees should be recorded. In the event a Participant does not indicate an appropriate minimum deferral period in a Deferral Election Form, such Participant's applicable Director Fees shall be deferred for a period of five years from the date of service for which the Director Fees became payable, notwithstanding the deferral election under this Plan. If a Participant does not indicate the method of deferral, such Director Fees shall be paid out in a single lump sum at the end of the deferral period. D. Modifications/Irrevocability. If a director has submitted a Deferral Election Form relating to Director Fees to be earned in the future, he or she may modify or cancel such election by submitting a new Deferral Election Form, so long as the modification or cancellation is made prior to the beginning of the calendar year in which such Director Fees will be earned. Any such Deferral Election Form will supersede any previous Deferral Election Form as it relates to Director Fees to be earned in future calendar years. No revocation or modification can be made with respect to Director Fees which have already been earned. SECTION V - CREDITING AND ADJUSTING ACCOUNTS A. Value of Mutual Fund Unit Account. 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 Corporation from time to time. Each Mutual Fund Unit Account shall be adjusted as follows: 1. A Participant's Mutual Fund Unit Account shall be deemed to be invested in one or more of the mutual funds offered for investment by the Committee and designated by each Participant for his or her account. In the event the Corporation, in its sole and absolute discretion, has established a rabbi trust for its own benefit to fund the Corporation's obligations under this Plan, or otherwise purchased shares to be held in its own name, or for its own account (as general assets of the Corporation), that may be used for meeting its obligations to provide benefits under this Plan, the purchase price for Mutual Fund Units shall be the actual price of the corresponding shares purchased by the Corporation on the open market, provided such purchase(s) occur within 40 business days of the date the Director Fees would have otherwise been paid to the director had they not been deferred. The Mutual Fund Unit Accounts of directors deferring fees from the same annual retainer payment or the same meeting will be credited on the same basis (e.g., by averaging prices) if stock is purchased on different days. No Participant shall have any right to vote any shares of the mutual funds held in 4 the rabbi trust or otherwise owned by the Corporation in respect of its obligations hereunder. In the event that the Corporation, in its sole and absolute discretion, has not established a rabbi trust, and has not otherwise purchased shares to be held in its own name, or for its own account (as general assets of the Corporation), that may be used for meeting its obligations to provide benefits under this Plan, the purchase price for Mutual Fund Units under this Plan shall be based upon the closing price for the corresponding mutual fund shares on the exchange on which the relevant mutual fund is listed or the market on which such mutual fund is traded on the day that the Director Fees would have otherwise been paid to the director had they not been deferred. 2. A Participant's Mutual Fund Unit Account shall be charged each business day with any distributions made on such day. Such account shall also be credited with earnings, gains and losses each business day, using the closing price for the designated mutual fund on the exchange on which such mutual fund is listed or the market on which such mutual fund is traded as of the most recent prior trading day. Dividends shall be deemed to be reinvested in like mutual funds and shall be credited at the time actual dividends are paid, with the number of Mutual Fund Units attributable to a dividend being calculated by dividing the dollar amount of the dividend by the closing price of a share of the designated mutual fund on the dividend payment date, provided that if the Corporation, in its sole and absolute discretion, has established a rabbi trust for its own benefit to fund the Corporation's obligations under this Plan, or otherwise purchased shares to be held in its own name, or for its own account (as general assets of the Corporation), that may be used for meeting its obligations to provide benefits under this Plan, then dividends shall be credited based on the purchase price(s) for the mutual fund shares determined as in Section V(A)(1) above. Finally, a Participant's Mutual Fund Unit Account shall be credited with the amount, if any, of Director Fees deferred and designated to be credited to such account during each quarter, or on a more frequent basis if deemed appropriate by the Committee. B. Reallocation of Existing Account Balances. Each Participant may reallocate all or a portion of his or her existing Mutual Fund Unit Account to an alternate mutual fund or funds, as an investment option with respect to existing deferred Director Fees, by properly submitting a Reallocation of Existing Account Balances Form to the Corporation. To the extent the Corporation, in its sole and absolute discretion, has established a rabbi trust for its own benefit to fund the Corporation's obligations under this Plan or has otherwise purchased shares to be held in its own name, or for its own account (as general assets of the Corporation), that may be used for meeting its obligations to provide benefits under this Plan, (1) 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 Corporation, whether voluntary or involuntary, and (2) no transfers between investment options will be allowed if prohibited by the rules 5 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 Participants. C. Reallocation of Future Deferral Elections. Each Participant may reallocate all or a portion of his or her Mutual Fund Unit Account to change prospectively the percentage(s) of an investment and/or designate an alternate mutual fund or funds, as an investment option with respect to future deferred Director Fees by properly submitting a Reallocation of Future Deferral Elections Form to the Corporation. To the extent the Corporation, in its sole and absolute discretion, has established a rabbi trust for its own benefit to fund the Corporation's obligations under this Plan or has otherwise purchased shares to be held in its own name, or for its own account (as general assets of the Corporation), that may be used for meeting its obligations to provide benefits under this Plan, 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 Corporation, whether voluntary or involuntary. SECTION VI - DISTRIBUTION OF DEFERRED FEES A. Time and Manner. Subject to the provisions of Section IV of this Plan, distribution of the Participant's Mutual Fund Unit 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 Form. 1. Lump Sum Distributions. A lump sum distribution under a lump sum distribution option shall be made to the Participant in cash, in one lump sum. A lump sum will also be the method of payment used in the event that a Participant fails to indicate a payment method. 2. Installment Distributions. Installment distributions under an installment distribution option shall be made to the Participant in cash in installments over a period of time, not exceed ten (10) years from the date of distribution of the first installment, as specified by the Participant on the applicable Deferral Election Form. A Participant may choose an applicable installment period from the options designated by the Corporation on the Deferral Election Form. 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. a. Less than $10,000. If, at the time an installment distribution of a Mutual Fund Unit Account is scheduled to commence, the fair market value of all the Mutual Fund Units in such account does not exceed $10,000, 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 lump sum, in cash. For 6 purposes of this Section VI(A)(2)(a), the fair market value of a Mutual Fund Unit shall be based on the closing price of the corresponding mutual fund on the exchange on which such mutual fund is listed or the market on which such mutual fund is traded, on the trading day prior to the distribution of either the lump sum payment or installment payment. 3. Death. Notwithstanding any other provision of the Plan, upon the death of a Participant, the remaining balance of his or her Mutual Fund Unit Account shall be distributed in one lump sum to the Participant's Beneficiary(ies) as soon as practicable after the date the Corporation receives notice of the Participant's death. B. 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 distribution, an amount in cash, 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 apply the standards of Section 1.457-2(h)(4) of the Regulations under the Code (or any successor regulations dealing with the same subject matter), the provisions of which are incorporated herein by reference. SECTION VII - DESIGNATION OF BENEFICIARY Upon becoming a Participant of the Plan, each director shall submit to Retirement Services, Deferred Compensation Group, MC 3431, P.O. Box 75000, Detroit, Michigan 48275-3431 (or to such other unit or person as designated by the Committee from time to time) a Beneficiary Designation Form designating one or more Beneficiaries to whom distributions otherwise due the Participant, shall be made in a lump sum payment in the event of the Participant's death before distribution of the Participant's Mutual Fund Unit Account has been completed. A Beneficiary Designation Form will be effective only if it is signed by the Participant and submitted before the Participant's death. Any subsequent Beneficiary Designation Form properly submitted will supersede any previous Beneficiary Designation Form so submitted. If a Participant designates a spouse as a Beneficiary, such designation shall automatically terminate and be of no effect following the divorce of the Participant and such individual, unless ratified in writing post-divorce. 7 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, the portion of the Mutual Fund Unit Account that remains undistributed at the time of the Participant's death shall be paid to the alternate Beneficiary(ies) who survive(s) the Participant. If there are no alternate Beneficiaries living or in existence at the date of the Participant's death, or if the Participant has not submitted a valid Beneficiary Designation Form to the Corporation, the balance of the account shall be paid in a lump sum distribution to the legal representative for the benefit of the Participant's estate. SECTION VIII - MISCELLANEOUS PROVISIONS A. Participant Consent. By electing to defer compensation pursuant to the Plan, Participants shall be deemed conclusively to have accepted and consented to all terms of the Plan as amended from time to time, and all actions or decisions made or to be made by the Corporation, the Board of Directors, the Committee or the Plan Administrator with regard to the Plan. Such terms and consent shall also apply to, and be binding upon, the Beneficiaries, distributees and personal representatives and other successors in interest of each Participant. B. Notice. Any election made, or notice given by a Participant pursuant to the Plan shall be in writing to the Committee, or to such representative as may be designated by the Committee for such purpose. Notice shall be deemed to have been made or given on the date received by the Committee or its designated representative. C. Competency. If the Committee determines that any person to whom a payment is due hereunder is a minor, or is adjudicated incompetent by reason of physical or mental disability, the Committee shall have the power to cause the payments becoming due to such person to be made to the legal guardian for the benefit of the minor or incompetent, without responsibility of the Corporation or the Committee to see to the application of such payment, unless prior to such payment claim is made therefore by a duly appointed legal representative. Payments made pursuant to such power shall operate as a complete discharge of the Corporation, the Board of Directors and the Committee. D. Nonalienation of Benefits. Neither the Participant nor any Beneficiary designated by him or her shall have any right to alienate, assign, or encumber any benefits that are or may be distributed 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. E. Administration of Plan. Full power and authority to construe, interpret, and administer 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. 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 8 such matter, shall refer likewise to the Plan Administrator. Decisions of the Committee shall be final, conclusive, and binding upon all parties. F. Fees and Expenses of Administration. If the Committee so determines, reasonable trustee's fees (if applicable) and reasonable out-of-pocket expenses of administering the Plan may be ratably deducted (using average balances) on an annual basis from Mutual Fund Unit Accounts. In the event the Corporation, in its sole and absolute discretion, has established a rabbi trust for its own benefit to fund the Corporation's obligations under this Plan, or otherwise purchased shares to be held in its own name, or for its own account (as general assets of the Corporation), that may be used for meeting its obligations to provide benefits under this Plan and fees of any kind, including, without limitation, redemption fees, are assessed or imposed thereto by a mutual fund company in connection with any purchase or sale, including, without limitation, a Participant's early trading activity, such fees shall be charged to the applicable Participant's Mutual Fund Unit Account. G. Amendment or Termination. The Board of Directors of the Corporation may amend or terminate this Plan at any time. The Committee also maintains the right to make amendments to the Plan, to the extent that such amendments pertain to the administration of the Plan. Any amendment or termination of this Plan shall not adversely affect the rights of Participants or Beneficiaries to the amounts in the Mutual Fund Unit Account at the time of such amendment or termination without such Participant's or Beneficiary's consent. H. Effective Date. The terms of this Plan shall apply to all Director Fees deferred under this Plan or one of its predecessors on and after January 1, 1997, except to the extent that retroactive application would adversely affect the rights of a Participant or Beneficiary to the amounts in the applicable Mutual Fund Unit Account at the time of the adoption of this amendment and restatement of the Plan. I. Statements to Participants. Statements will be provided to Participants under the Plan on at least an annual basis. J. Nonforfeitability of Participant Accounts. Each Participant shall be fully vested in his or her Mutual Fund Unit Account, and the right to receive the amounts in the Mutual Fund Unit Account shall be nonforfeitable. K. Successors Bound. The contractual agreement between the Corporation and each Participant resulting from the execution of a Deferral Election Form shall be binding upon and inure to the benefit of the Corporation, its successors and assigns, and to the Participant and to the Participant's beneficiaries, heirs, executors, administrators and other legal representatives. L. Governing Law and Rules of Construction. This Plan shall be governed in all respects, whether as to construction, validity or otherwise, by the laws of the State of Delaware unless preempted by federal law. Each provision of this Plan shall be treated 9 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 the Corporation that the Plan established hereunder be "unfunded" for income tax purposes, whether or not the Corporation establishes a rabbi trust, and the provisions hereof shall be construed in a manner to carry out that intention. M. Ownership of Deferred Director Fees and Continued Director Status. Title to and beneficial ownership of any assets, of whatever nature, which may be allocated by the Corporation to any Mutual Fund Unit Account in the name of any Participant shall at all times remain with the Corporation and its Subsidiaries, and no Participant or Beneficiary shall have any property interest whatsoever in any specific assets of the Corporation or its Subsidiaries 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 the Corporation and its Subsidiaries to pay benefits under the Plan, and the status of any Participant or Beneficiary shall be that of an unsecured general creditor of the Corporation and its Subsidiaries. Neither the establishment of the Plan nor the distribution of any benefits hereunder or any action of the Corporation, its Board of Directors or any committee thereto, shall be held or construed to confer upon any person the legal right to remain a director of the Corporation or any Subsidiary or any Advisory Board. 10 EX-10.15 5 k83434exv10w15.txt COMMON STOCK NON-EMPLOYEE DIRECTOR FEE DEFERRAL EXHIBIT 10.15 Amended and Restated as of January 27, 2004 Corporate Governance and Nominating Committee Approval: January 27, 2004 Board Approval: January 27, 2004 AMENDED AND RESTATED COMERICA INCORPORATED COMMON STOCK NON-EMPLOYEE DIRECTOR FEE DEFERRAL PLAN AMENDED AND RESTATED COMERICA INCORPORATED COMMON STOCK NON-EMPLOYEE DIRECTOR FEE DEFERRAL PLAN TABLE OF CONTENTS SECTION I - PURPOSE....................................................... 1 SECTION II - DEFINITIONS.................................................. 1 SECTION III - ELIGIBILITY................................................. 3 SECTION IV - PROCEDURES RELATING TO DEFERRALS............................. 3 SECTION V - CREDITING AND ADJUSTING ACCOUNTS.............................. 4 SECTION VI - DISTRIBUTION OF DEFERRED FEES................................ 5 SECTION VII - DESIGNATION OF BENEFICIARY.................................. 6 SECTION VIII - MISCELLANEOUS PROVISIONS................................... 7

AMENDED AND RESTATED COMERICA INCORPORATED COMMON STOCK NON-EMPLOYEE DIRECTOR FEE DEFERRAL PLAN SECTION I - PURPOSE The purpose of the Amended and Restated Comerica Incorporated Common Stock Non-Employee Director Fee Deferral Plan (the "Common Stock Plan") is to allow eligible directors to defer their Director Fees, under the conditions provided herein, into a Corporation Stock Unit Account. Eligible directors of the Corporation, any Subsidiary, or any Advisory Board may defer all or any portion of their Director Fees into a Corporation Stock Unit Account as requested by such director. The Common Stock Plan was originally established as the "Comerica Incorporated Plan for Deferring the Payment of Director's Fees." In 1997, such plan was amended and restated as the "Comerica Incorporated Director Fee Deferral Plan." Then on May 21, 1999, the plan was divided into two plans, one of which became the "Comerica Incorporated 1999 Common Stock Director Fee Deferral Plan," and which was subsequently amended and restated on November 26, 2002 as the "Comerica Incorporated Common Stock Director Fee Deferral Plan," the plan continued herein.(1) 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 or unit of the Corporation. B. "Beneficiary(ies)" means such individual(s) or entity(ies) designated on the most recent valid Beneficiary Designation Form that the Participant has properly submitted to the Corporation, or in accordance with Section VII of this Common Stock Plan, if there is no valid Beneficiary designation. C. "Beneficiary Designation Form" is the form used to designate the Participant's Beneficiary(ies), as modified by the Plan Administrator or the Committee from time to time. D. "Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. - --------------- (1) The second plan which resulted from the division was named the "Comerica Incorporated 1999 Discretionary Director Fee Deferral Plan," which was amended and restated on November 26, 2002 as the "Comerica Incorporated Director Fee Deferral Plan" and was further amended and restated on January 27, 2004 as the "Amended and Restated Comerica Incorporated Non-Employee Director Fee Deferral Plan." E. "Committee" means the Corporate Governance and Nominating Committee of the Board of Directors of the Corporation, or any successor committee duly authorized by the Board of Directors of the Corporation. F. "Common Stock" means the common stock of the Corporation, par value $5.00 per share. G. "Common Stock Plan" means the Amended and Restated Comerica Incorporated Common Stock Non-Employee Director Fee Deferral Plan, the provisions of which are set forth herein, as it may be further amended and restated from time to time. H. "Corporation" means Comerica Incorporated, a Delaware corporation, and its successors and assigns. I. "Corporation Stock Unit Account" means an account established under Section V of this Common Stock Plan, solely for bookkeeping purposes, in the name of each Participant to record those Director Fees that are deferred under this Common Stock Plan on the Participant's behalf and the earnings and dividends thereon. J. "Deferral Election Form" is the form used to defer the payment of unearned Director Fees timely submitted by a Participant, as modified by the Plan Administrator or the Committee from time to time. K. "Director Fees" means a director's annual retainer, if any, fees earned by the director for performing director duties, including fees for attending board meetings, fees for attending meetings of any committee of the board of the Corporation or its Subsidiaries or Advisory Boards, if any, and fees for serving as chair of any committee of the board of the Corporation or its Subsidiaries or an Advisory Board, if any. L. "Participant" means an eligible director meeting the requirements of Section III below for whom a Corporation Stock Unit Account is maintained under the Common Stock Plan. M. "Plan Administrator" means one or more individuals appointed by the Committee to handle the day-to-day administration of the Common Stock Plan. N. "Stock Unit" means a unit equivalent to a share of Common Stock that is maintained for the benefit of a Participant in the Corporation Stock Unit Account of such Participant. O. "Subsidiary" means any corporation, partnership or other entity, a majority of whose stock or interests is or are owned by the Corporation. 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 2 extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. SECTION III - ELIGIBILITY Each director of the Corporation, each director of any Subsidiary, and each director of any Advisory Board shall be eligible to participate in the Common Stock Plan, provided any such director is not an employee of the Corporation or any Subsidiary of the Corporation. SECTION IV - PROCEDURES RELATING TO DEFERRALS A. Deferral of Director Fees. Eligible directors of the Corporation, of any Subsidiary, and of any Advisory Board may defer any portion (0% - 100%) of their Director Fees under this Common Stock Plan. 1. Deferral Period. Director Fees may be deferred pursuant to this Section IV(A) for the period specified by the Participant in a Deferral Election Form; provided, however, that in no event shall the period of deferral exceed ten (10) years from the date of distribution of the first installment. 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, as defined in Section IV(B), or five years from the date of service for which the Director Fees became payable, notwithstanding the deferral election under this Common Stock Plan. 2. Deferred Director Fees. Once Director Fees are deferred under this Common Stock Plan, a Participant may not receive distributions of such deferred amounts, except in accordance with Section VI of this Common Stock Plan. B. Regular Retirement. An eligible director of the Corporation shall retire from the board of the Corporation as provided in the Corporation's Corporate Governance Guidelines, as amended from time to time. An eligible director of any Subsidiary or of any Advisory Board shall retire from the board on which he or she serves as determined from time to time by the Corporation. Nothing contained in this Common Stock Plan shall entitle a Participant to serve beyond the term for which he or she was elected or appointed to the board(s) on which he or she serves. C. Deferral Procedures. Any eligible director wishing to defer Director Fees must submit a Deferral Election Form to Retirement Services, Deferred Compensation Group, MC 3431, P.O. Box 75000, Detroit, Michigan 48275-3431 or to such other unit or person as designated by the Committee from time to time, prior to the beginning of the calendar year during which the Director Fees are to be earned. However, any newly-appointed or newly-elected director may submit a Deferral Election Form, with respect to unearned Director Fees, within thirty (30) days of his or her appointment or election. A deferral election pursuant to this Common Stock Plan may cover all or a portion (0% - 100%) of the Director Fees which may be deferred. 3 In the event a Participant does not indicate an appropriate minimum deferral period in a Deferral Election Form, such Participant's applicable Director Fees shall be deferred for a period of five years from the date of service for which the Director Fees became payable, notwithstanding the deferral election under this Common Stock Plan. If a Participant does not indicate the method of deferral, such Director Fees shall be paid out in a single lump sum at the end of the deferral period. D. Modifications/Irrevocability. If a director has submitted a Deferral Election Form relating to Director Fees to be earned in the future, he or she may modify or cancel such election by submitting a new Deferral Election Form, so long as the modification or cancellation is made prior to the beginning of the calendar year in which such Director Fees will be earned. Any such Deferral Election Form will supersede any previous Deferral Election Form as it relates to Director Fees to be earned in future calendar years. No revocation or modification can be made with respect to Director Fees which have already been earned. SECTION V - CREDITING AND ADJUSTING ACCOUNTS Director Fees, which have been deferred under the Common Stock Plan, shall be credited to a Corporation Stock Unit Account. The Corporation Stock Unit Account shall be adjusted as follows: A. A Participant's Corporation Stock Unit Account shall be deemed to be invested in Common Stock. In the event the Corporation, in its sole and absolute discretion, has established a rabbi trust for its own benefit to fund the Corporation's obligations under this Common Stock Plan, or otherwise purchases shares to be held in its own name, or for its own account (as general assets of the Corporation), that may be used for meeting its obligations to provide benefits under this Common Stock Plan, the purchase price for the Stock Units shall be the actual price of the corresponding shares of Common Stock that the Corporation purchases on the open market, provided such purchase(s) occurs on the date the Director Fees would have otherwise been paid to the director had they not been deferred. In the event that (1) the Corporation, in its sole and absolute discretion, has not established a rabbi trust and has not otherwise purchased shares to be held in its own name, or for its own account (as general assets of the Corporation), that may be used for meeting its obligations to provide benefits under this Common Stock Plan, or (2) the Corporation, in its sole and absolute discretion, has established such a rabbi trust or otherwise purchases such shares as described above, but the purchase does not occur on the date the Director Fees would have otherwise been paid to the director had they not been deferred, then the purchase price of Stock Units shall be based upon the closing price for the Common 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. To the extent the Corporation, in its sole and absolute discretion, has established a rabbi trust for its own benefit to fund the Corporation's obligations under this Common Stock Plan or has otherwise purchased shares to be held in its own name, or for its own account (as general assets of the Corporation), that may be used for meeting its obligations to provide benefits under this Common Stock Plan, no 4 director shall have any right to vote any shares of Common Stock held in the rabbi trust or otherwise owned by the Corporation in respect of its obligations hereunder. B. A Participant's Corporation Stock Unit Account shall be charged each business day with any distributions made on such day. Such account shall also be credited with earnings, gains and losses each business day, using the closing price for Common Stock on the New York Stock Exchange as of the most recent prior trading day. Dividends shall be deemed to be reinvested in Common Stock and shall be credited at the time actual dividends are paid, with the number of Stock Units attributable to a dividend being calculated by dividing the dollar amount of the dividend by the closing price of the Common Stock on the dividend payment date, provided that if the Corporation, in its sole and absolute discretion, has established a rabbi trust for its own benefit to fund the Corporation's obligations under this Common Stock Plan, or otherwise purchased shares to be held in its own name, or for its own account (as general assets of the Corporation), that may be used for meeting its obligations to provide benefits under this Common Stock Plan, then dividends shall be credited based on the purchase price(s) for the shares of Common Stock determined as in Section V(A) above. Finally, a Participant's Corporation Stock Unit Account shall be credited with the amount, if any, of Director Fees deferred and designated to be credited to such account during each quarter, or on a more frequent basis if deemed appropriate by the Committee. SECTION VI - DISTRIBUTION OF DEFERRED FEES A. Time and Manner. Subject to the provisions of Section IV of this Common Stock Plan, distribution of the Participant's Corporation Stock Unit Account shall be made in Common Stock at such time and in such manner, i.e., a lump sum or installments, as the Participant has specified in the Deferral Election Form. Fractional shares of Common Stock shall be paid in cash. 1. Lump Sum Distributions. A lump sum distribution under a lump sum distribution option shall be made to the Participant in shares of Common Stock in one lump sum. A lump sum will also be the method of payment used in the event that a Participant fails to indicate a payment method. 2. Installment Distributions. Installment distributions under an installment distribution option shall be made to the Participant in shares of Common Stock in installments over a period of time, not to exceed ten (10) years from the date of distribution of the first installment, as specified by the Participant on the applicable Deferral Election Form. A Participant may choose an applicable installment period from the options designated by the Corporation on the Deferral Election Form. The number of shares of Common Stock distributable in each installment shall be determined by multiplying the number of Stock Units in the Corporation Stock Unit Account on the date the installment is scheduled to be distributed by a fraction, the numerator of which is one and the denominator of which is the number of unpaid installments remaining at such time. 5 a. Less than $10,000. If, at the time an installment distribution is scheduled to commence, the fair market value of the Participant's Corporation Stock Unit Account does not exceed $10,000, notwithstanding an election by the Participant that such account be distributed in installments, the Stock Units in such account shall be distributed in shares of Common Stock to the Participant in a lump sum. For purposes of this Section VI(A)(2)(a), the fair market value of a Corporation Stock Unit Account shall be based on the closing price of the Common Stock on the New York Stock Exchange on the trading day prior to the distribution of either the lump sum payment or installment payment. 3. Death. Notwithstanding any other provision of the Common Stock Plan, upon the death of a Participant, the remaining balance of his or her Corporation Stock Unit Account shall be distributed in one lump sum to the Participant's Beneficiary(ies) as soon as practicable after the date the Corporation receives notice of the Participant's death. B. 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 Corporation Stock Unit Account, the Committee may, in its sole discretion, distribute to the Participant in a single distribution, the number of shares of Common Stock equal to the 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 apply the standards of Section 1.457-2(h)(4) of the Regulations under the Code (or any successor regulations dealing with the same subject matter), the provisions of which are incorporated herein by reference. SECTION VII - DESIGNATION OF BENEFICIARY Upon becoming a Participant of the Common Stock Plan, each director shall submit to Retirement Services, Deferred Compensation Group, MC 3431, P.O. Box 75000, Detroit, Michigan 48275-3431 (or to such other unit or person as designated by the Committee from time to time) a Beneficiary Designation Form designating one or more Beneficiaries to whom distributions otherwise due the Participant shall be made in a lump sum payment in the event of the Participant's death before distribution of the Participant's Corporation Stock Unit Account has been completed. A Beneficiary Designation Form will be effective only if it is signed by the Participant and submitted before the Participant's death. Any subsequent Beneficiary Designation Form properly submitted will supersede any previous Beneficiary Designation Form so submitted. If a Participant designates a spouse as a Beneficiary, such designation shall automatically 6 terminate and be of no effect following the divorce of the Participant and such individual, unless ratified in writing post-divorce. 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, the undistributed Stock Units in the Participant's Corporation Stock Unit Account remaining at the time of the Participant's death shall be distributed in shares to the alternate Beneficiary(ies) who survive(s) the Participant. If there are no alternate Beneficiaries living or in existence at the date of the Participant's death, or if the Participant has not submitted a valid Beneficiary Designation Form to the Corporation, the remaining Stock Units in the Participant's Corporation Stock Unit Account shall be distributed in shares in a single distribution to the legal representative for the benefit of the Participant's estate. SECTION VIII - MISCELLANEOUS PROVISIONS A. Participant Consent. By electing to defer compensation pursuant to the Common Stock Plan, Participants shall be deemed conclusively to have accepted and consented to all terms of the Common Stock Plan, as amended from time to time, and all actions or decisions made or to be made by the Corporation, the Board of Directors, the Committee or the Plan Administrator with regard to the Common Stock Plan. Such terms and consent shall also apply to, and be binding upon, the Beneficiaries, distributees and personal representatives and other successors in interest of each Participant. B. Notice. Any election made, or notice given by a Participant pursuant to the Common Stock Plan shall be in writing to the Committee, or to such representative as may be designated by the Committee for such purpose. Notice shall be deemed to have been made or given on the date received by the Committee or its designated representative. C. Competency. If the Committee determines that any person to whom a payment is due hereunder is a minor, or is adjudicated incompetent by reason of physical or mental disability, the Committee shall have the power to cause the payments becoming due to such person to be made to the legal guardian for the benefit of the minor or incompetent, without responsibility of the Corporation or the Committee to see to the application of such payment, unless prior to such payment claim is made therefore by a duly appointed legal representative. Payments made pursuant to such power shall operate as a complete discharge of the Corporation, the Board of Directors and the Committee. D. Nonalienation of Benefits. Neither the Participant nor any Beneficiary designated by him or her shall have any right to alienate, assign, or encumber any benefits that are or may be distributed hereunder, nor may any such amounts 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. E. Administration of Common Stock Plan. Full power and authority to construe, interpret, and administer the Common Stock Plan shall be vested in the 7 Committee. 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 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. F. Fees and Expenses of Administration. If the Committee so determines, reasonable trustee's fees (if applicable) and reasonable out-of-pocket expenses of administering the Common Stock Plan may be ratably deducted (using average balances) on an annual basis from Corporation Stock Unit Accounts. G. Amendment or Termination. The Board of Directors of the Corporation may amend or terminate this Common Stock Plan at any time. The Committee also maintains the right to make amendments to the Common Stock Plan to the extent that such amendments pertain to the administration of the Common Stock Plan. Any amendment or termination of this Common Stock Plan shall not adversely affect the rights of Participants or Beneficiaries to distribution in shares, of the value of the Corporation Stock Unit Account at the time of such amendment or termination, without such Participant's or Beneficiary's consent. H. Effective Date. The terms of this Common Stock Plan shall apply to all Director Fees deferred under this Common Stock Plan or one of its predecessors on and after January 1, 1997, except to the extent that retroactive application would adversely affect the rights of a Participant or Beneficiary to the amounts in the applicable Corporation Stock Unit Account at the time of the adoption of this amendment and restatement of the Common Stock Plan. I. Statements to Participants. Statements will be provided to Participants under the Common Stock Plan on at least an annual basis. J. Nonforfeitability of Participant Accounts. Each Participant shall be fully vested in his or her Corporation Stock Unit Account, and the right to receive the amounts in the Corporation Stock Unit Account shall be nonforfeitable. K. Successors Bound. The contractual agreement between the Corporation and each Participant resulting from the execution of a Deferral Election Form shall be binding upon and inure to the benefit of the Corporation, its successors and assigns, and to the Participant and to the Participant's beneficiaries, heirs, executors, administrators and other legal representatives. L. Governing Law and Rules of Construction. This Common Stock Plan shall be governed in all respects, whether as to construction, validity or otherwise, by the laws of the State of Delaware unless preempted by federal law. 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 the Corporation that the Common Stock Plan established hereunder be "unfunded" for 8 income tax purposes, whether or not the Corporation establishes a rabbi trust, and the provisions hereof shall be construed in a manner to carry out that intention. M. Ownership of Deferred Director Fees and Continued Director Status. Title to and beneficial ownership of any assets, of whatever nature, which may be allocated by the Corporation to any Corporation Stock Unit Account in the name of any Participant, shall at all times remain with the Corporation and its Subsidiaries, and no Participant or Beneficiary shall have any property interest whatsoever in any specific assets of the Corporation or its Subsidiaries 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 the Corporation and its Subsidiaries 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 the Corporation and its Subsidiaries. Neither the establishment of the Common Stock Plan nor the distribution of any benefits hereunder or any action of the Corporation, its Board of Directors, or any committee thereto, shall be held or construed to confer upon any person the legal right to remain a director of the Corporation or any Subsidiary or any Advisory Board. N. Changes in Capitalization. The shares of Common Stock in the Corporation Stock Unit Accounts shall be subject to adjustment or substitution, as determined in the sole discretion of the Board of Directors of the Corporation, in the event of any change in corporate capitalization, such as a stock split or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the Corporation, any reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code) or any partial or complete liquidation of the Corporation. 9 EX-13 6 k83434exv13.htm ANNUAL REPORT TO SHAREHOLDERS exv13
TABLE OF CONTENTS

FINANCIAL REVIEW AND REPORTS

2003 FINANCIAL RESULTS AND KEY CORPORATE INITIATIVES

OVERVIEW/EARNINGS PERFORMANCE

STRATEGIC LINES OF BUSINESS

BALANCE SHEET AND CAPITAL FUNDS ANALYSIS

RISK MANAGEMENT

CRITICAL ACCOUNTING POLICIES

FORWARD-LOOKING STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF MANAGEMENT

REPORT OF INDEPENDENT AUDITORS

HISTORICAL REVIEW

1999 Common Stock Deferred Incentive Award Plan

Non-Employee Director Fee Deferral Plan

Common Stock Non-Employee Director Fee Deferral

Annual Report to Shareholders

Subsidiaries of Registrant

Consent of Ernst & Young LLP

Certification Pursuant to Section 302

Certification Pursuant to Section 302

Certification Pursuant to Section 906

Table of Contents

FINANCIAL REVIEW AND REPORTS
Comerica Incorporated and Subsidiaries

Page

Financial Results and Key Corporate Initiatives
25

Overview/ Earnings Performance
25

Strategic Lines of Business
37

Balance Sheet and Capital Funds Analysis
38

Risk Management
42

Critical Accounting Policies
53

Forward-Looking Statements
56

Consolidated Financial Statements:

Consolidated Balance Sheets
58

Consolidated Statements of Income
59

Consolidated Statements of Changes in Shareholders’ Equity
60

Consolidated Statements of Cash Flows
61

Notes to Consolidated Financial Statements
62

Report of Management
106

Report of Independent Auditors
107

Historical Review
108

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TABLE 1: SELECTED FINANCIAL DATA

Years Ended December 31

2003 2002 2001 2000 1999

(dollar amounts in millions, except per share data)

EARNINGS SUMMARY

Total interest income
$ 2,412 $ 2,797 $ 3,393 $ 3,716 $ 3,097

Net interest income
1,926 2,132 2,102 2,004 1,817

Provision for loan losses
377 635 241 251 144

Net securities gains
50 41 20 16 9

Noninterest income (excluding net securities gains)
837 859 817 964 884

Noninterest expenses
1,483 1,515 1,587 1,511 1,387

Provision for income taxes
292 281 401 431 420

Net income
661 601 710 791 759

PER SHARE OF COMMON STOCK

Basic net income
$ 3.78 $ 3.43 $ 3.93 $ 4.38 $ 4.20

Diluted net income
3.75 3.40 3.88 4.31 4.13

Cash dividends declared
2.00 1.92 1.76 1.60 1.44

Common shareholders’ equity
29.20 28.31 27.17 23.98 20.87

Market value
56.06 43.24 57.30 59.38 46.69

YEAR-END BALANCES

Total assets
$ 52,592 $ 53,301 $ 50,750 $ 49,557 $ 45,529

Total earning assets
48,804 47,780 46,566 45,791 42,426

Total loans
40,302 42,281 41,196 40,170 36,305

Total deposits
41,463 41,775 37,570 33,854 29,196

Total borrowings
5,063 5,756 7,489 10,353 11,682

Total medium- and long-term debt
4,801 5,216 5,503 8,259 8,757

Total common shareholders’ equity
5,110 4,947 4,807 4,250 3,698

DAILY AVERAGE BALANCES

Total assets
$ 52,980 $ 51,130 $ 49,688 $ 46,877 $ 42,662

Total earning assets
48,841 47,053 45,722 43,364 39,247

Total loans
42,370 42,091 41,371 38,698 35,490

Total deposits
41,519 37,712 35,312 30,340 27,478

Total borrowings
5,624 7,725 8,782 11,621 11,003

Total medium- and long-term debt
5,074 5,763 6,198 8,298 7,441

Total common shareholders’ equity
5,033 4,884 4,605 3,963 3,409

CREDIT QUALITY

Allowance for loan losses
$ 803 $ 791 $ 637 $ 585 $ 529

Total nonperforming assets
538 579 627 339 213

Net loans charged-off
365 481 189 195 109

Net loans charged-off as a percentage of average total loans
0.86 % 1.14 % 0.46 % 0.50 % 0.31 %

Allowance for loan losses as a percentage of total period-end loans
1.99 1.87 1.55 1.46 1.46

RATIOS

Net interest margin
3.95 % 4.55 % 4.61 % 4.63 % 4.64 %

Return on average assets
1.25 1.18 1.43 1.69 1.78

Return on average common shareholders’ equity
13.12 12.31 15.16 19.52 21.78

Efficiency ratio
53.64 50.59 54.30 50.88 51.26

Dividend payout ratio
53.33 56.47 45.36 37.12 34.87

Average common shareholders’ equity as a percentage of average assets
9.50 9.55 9.27 8.45 7.99

Tier 1 common capital as a percentage of risk-weighted assets
8.04 7.39 7.30 6.80 6.70

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2003 FINANCIAL RESULTS AND KEY CORPORATE INITIATIVES

Financial Results

• Reported net income of $661 million, or $3.75 per diluted share, compared to $601 million, or $3.40 per diluted share, for 2002

• Returned 13.12 percent on average common shareholders’ equity

• Returned 1.25 percent on average assets

• Raised the quarterly cash dividend four percent, to $0.50 per share, an annual rate of $2.00 per share

• Increased allowance for loan losses as a percentage of total loans to 1.99 percent at December 31, 2003, an addition of $12 million from December 31, 2002

Key Corporate Initiatives

• Completed several milestones of the enterprise-wide risk management program to improve analytics and systems to enhance operational and credit risk management

• Improved core capital ratios, as evidenced by an increase in the Tier 1 common capital ratio to 8.04%

• Continued to focus on Connectivity, a national initiative of building successful customer relationships through cross-selling

• Continued to invest in and expand our delivery network, including the opening of 10 new branches in 2003; plan to continue branch expansion process with the opening of approximately 50 new branches over the next three years, including about 15 branches in 2004, with a focus on the California and Texas markets

• Consolidated the California and Texas banking subsidiaries into the Michigan banking subsidiary, to better serve customers and to increase efficiency in capital management

• Designed a Franchise Model to strengthen our growth opportunities outside of the Midwest, by defining our best practices and implementing them in all of our markets

OVERVIEW/ EARNINGS PERFORMANCE
      Comerica Incorporated (the Corporation) is a financial holding company headquartered in Detroit, Michigan. The accounting and reporting policies of the Corporation and its subsidiaries conform to accounting principles generally accepted in the United States and prevailing practices within the banking industry. The Corporation’s consolidated financial statements are prepared based on the application of accounting policies, the most significant of which are described on page 62 in Note 1 to the consolidated financial statements. The most critical of these significant accounting policies are discussed in the “Critical Accounting Policies” section on page 53 of this financial review.
      The Corporation’s major lines of business are the Business Bank, Small Business and Personal Financial Services, and Wealth and Institutional Management. The core businesses are tailored to each of the Corporation’s four primary geographic markets: Midwest, Western, Texas and Florida.
      As a financial institution, Comerica’s principal activity is lending to and accepting deposits from businesses and individuals. The primary source of revenue is net interest income, which is derived principally from the difference between interest earned on loans and interest paid on deposits and other funding sources. Comerica also provides other products and services that meet the financial needs of customers and which generate noninterest income, Comerica’s secondary source of revenue. Growth in loans, deposits and noninterest income are affected by many factors, including the economic growth in the markets Comerica serves, the financial needs and health of customers, Comerica’s ability to provide the types of products and services customers need and successfully adding new customers and/or increasing the number of products used by current customers.
      Weak loan demand in 2003, resulting from the uncertainty in the economy, caused industry-wide commercial and industrial loans to decline. Even in such conditions, average loans in each of Comerica’s National Dealer Services, Private Banking, Small Business and Middle Market loan portfolios increased by six percent or more in 2003. These increases, however, were offset by declines in other loan portfolios, as well as management’s decision not to renew (non-relationship) loans where management believed there was no opportunity for revenues other than loan interest income. This decision to discontinue non-relationship loans primarily affected Global Corporate Banking, where average loans declined 24 percent. Average deposits increased 10 percent, with a majority of the increase
25

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from customers associated with mortgage refinancing activities. These deposits peaked mid-year 2003. Historically low interest rates and narrow interest spreads during 2003 contributed to declining net interest income in 2003. Noninterest income, excluding net securities gains, decreased slightly in 2003 compared to 2002. The gain the Corporation realized on the sale of Official Payments Corporation (OPAY) (a 55 percent owned consolidated subsidiary) in 2002 was the primary reason for this decline in noninterest income.

      An important aspect of lending is assuring the customer ultimately repays. The Corporation’s credit staff closely monitors the financial health of our lending customers in order to assess ability to repay and to adequately provide for expected losses. The economic environment in 2003, as in 2002, continued to weaken some lending customers, creating a second year of loan quality challenges. A central focus of the Corporation in 2003 was collecting on loans to financially troubled customers. As a result of these efforts, loan quality showed continued improvement throughout 2003, particularly in the fourth quarter. An equally important focus of management was on developing improved tools for evaluating the adequacy of the allowance for loan losses. Many of these tools were in place by the end of 2003, with the remainder expected to be in place by the end of 2004.
      The principal costs incurred in providing financial services are personnel costs (salaries and benefits). Management remains focused on being a cost effective and efficient provider of services. To that end, management expects that 2004 noninterest expenses will be maintained at 2003 levels.
      A majority of the Corporation’s revenues are generated by the Business Bank segment, making the Corporation highly sensitive to changes in the business environment in its primary geographic markets. Management intends to create more balance, and therefore less sensitivity, by targeting future growth in the Small Business and Personal Financial Services and the Wealth and Institutional Management segments. As part of this effort, the Corporation is standardizing product platforms and delivery systems in all regions, and establishing a national branding and marketing program. In addition, the Corporation has planned branch expansion in markets with favorable demographics, which is intended to create more geographic balance.
      For 2004, management expects average loan volume to be flat and average earning assets to modestly decline, when compared to 2003, due to reduced levels of short-term investments. Net interest income is expected to be modestly lower in 2004 and net interest margin, on average, is expected to be relatively unchanged from 2003. Assuming higher activity levels and growth in market values, noninterest income should post modest growth, absent securities gains, which are not expected to be a major contributor in 2004. Noninterest expenses are expected to be relatively flat in 2004 as compared to 2003 levels. Management believes that a business recovery appears to be taking hold in the Corporation’s markets, and there will be continued credit quality improvement in 2004.
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TABLE 2: ANALYSIS OF NET INTEREST INCOME-Fully Taxable Equivalent (FTE)

Years Ended December 31

2003 2002 2001

Average Average Average Average Average Average

Balance Interest Rate Balance Interest Rate Balance Interest Rate

(dollar amounts in millions)

Commercial loans
$ 25,084 $ 1,037 4.13 % $ 25,460 $ 1,198 4.70 % $ 26,401 $ 1,807 6.85 %

Real estate construction loans
3,540 178 5.04 3,353 193 5.74 3,090 246 7.95

Commercial mortgage loans
7,521 403 5.35 6,786 416 6.12 5,695 435 7.65

Residential mortgage loans
831 54 6.47 758 54 7.15 795 60 7.59

Consumer loans
1,515 82 5.41 1,504 98 6.55 1,479 124 8.39

Lease financing
1,283 59 4.59 1,242 67 5.37 1,111 69 6.25

International loans
2,596 115 4.44 2,988 140 4.70 2,800 207 7.38

Business loan swap income (expense)(4)
— 285 — — 361 — — 175 —

Total loans(1)
42,370 2,213 5.22 42,091 2,527 6.00 41,371 3,123 7.55

Investment securities(2)
4,529 166 3.65 4,360 247 5.74 3,909 247 6.37

Short-term investments
1,942 36 1.85 602 27 4.45 442 27 6.02

Total earning assets
48,841 2,415 4.94 47,053 2,801 5.96 45,722 3,397 7.44

Cash and due from banks
1,811 1,800 1,835

Allowance for loan losses
(831 ) (739 ) (654 )

Accrued income and other assets
3,159 3,016 2,785

Total assets
$ 52,980 $ 51,130 $ 49,688

Money market and NOW deposits
$ 17,359 204 1.18 $ 13,081 192 1.47 $ 9,902 249 2.51

Savings deposits
1,571 8 0.50 1,643 16 1.01 1,380 19 1.36

Certificates of deposit(3)(4)
8,061 139 1.72 10,376 245 2.36 13,149 583 4.44

Foreign office time deposits(5)
618 19 3.15 771 26 3.36 628 37 5.97

Total interest-bearing deposits
27,609 370 1.34 25,871 479 1.85 25,059 888 3.54

Short-term borrowings
550 7 1.20 1,962 37 1.85 2,584 105 4.08

Medium- and long-term debt(3)(4)
5,074 109 2.14 5,763 149 2.58 6,198 298 4.80

Total interest-bearing sources
33,233 486 1.46 33,596 665 1.98 33,841 1,291 3.82

Noninterest-bearing deposits
13,910 11,841 10,253

Accrued expenses and other liabilities
804 809 823

Preferred stock
— — 166

Common shareholders’ equity
5,033 4,884 4,605

Total liabilities and shareholders’ equity
$ 52,980 $ 51,130 $ 49,688

Net interest income/rate spread (FTE)
$ 1,929 3.48 $ 2,136 3.98 $ 2,106 3.62

FTE adjustment(6)
$ 3 $ 4 $ 4

Impact of net noninterest-bearing sources of funds
0.47 0.57 0.99

Net interest margin (as a percentage of average earning assets) (FTE)
3.95 % 4.55 % 4.61 %

(1) Nonaccrual loans are included in average balances reported and are used to calculate rates.

(2) Average rate based on average historical cost.

(3) Certificates of deposit and medium- and long-term debt average balances have been adjusted to reflect the gain or loss attributable to the risk hedged by risk management swaps that qualify as a fair value hedge.

(4) The gain or loss attributable to the effective portion of cash flow hedges of loans is shown in “Business loan swap income (expense)”. The gain or loss attributable to the effective portion of fair value hedges of deposits and medium- and long-term debt, which totaled a gain of $92 million in 2003, is included in the related interest expense line items.

(5) Includes substantially all deposits by foreign domiciled depositors; deposits are primarily in excess of $100,000.

(6) The FTE adjustment is computed using a federal income tax rate of 35%.

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TABLE 3: RATE-VOLUME ANALYSIS-Fully Taxable Equivalent (FTE)

2003 / 2002 2002 / 2001

Increase Increase Net Increase Increase Net

(Decrease) (Decrease) Increase (Decrease) (Decrease) Increase

Due to Rate Due to Volume* (Decrease) Due to Rate Due to Volume* (Decrease)

(in millions)

Interest income (FTE):

Loans:

Commercial loans
$ (145 ) $ (16 ) $ (161 ) $ (565 ) $ (44 ) $ (609 )

Real estate construction loans
(24 ) 9 (15 ) (68 ) 15 (53 )

Commercial mortgage loans
(52 ) 39 (13 ) (86 ) 67 (19 )

Residential mortgage loans
(5 ) 5 — (4 ) (2 ) (6 )

Consumer loans
(17 ) 1 (16 ) (27 ) 1 (26 )

Lease financing
(10 ) 2 (8 ) (9 ) 7 (2 )

International loans
(8 ) (17 ) (25 ) (75 ) 8 (67 )

Business loan swap income (expense)
(76 ) — (76 ) 186 — 186

Total loans
(337 ) 23 (314 ) (648 ) 52 (596 )

Investment securities
(87 ) 6 (81 ) (25 ) 25 —

Short-term investments
(4 ) 13 9 (7 ) 7 —

Total interest income (FTE)
(428 ) 42 (386 ) (680 ) 84 (596 )

Interest expense:

Interest-bearing deposits:

Money market and NOW deposits
(38 ) 50 12 (104 ) 47 (57 )

Savings deposits
(8 ) — (8 ) (5 ) 2 (3 )

Certificates of deposit
(66 ) (40 ) (106 ) (273 ) (65 ) (338 )

Foreign office time deposits
(2 ) (5 ) (7 ) (16 ) 5 (11 )

Total interest-bearing deposits
(114 ) 5 (109 ) (398 ) (11 ) (409 )

Short-term borrowings
(13 ) (17 ) (30 ) (57 ) (11 ) (68 )

Medium- and long-term debt
(25 ) (15 ) (40 ) (138 ) (11 ) (149 )

Total interest expense
(152 ) (27 ) (179 ) (593 ) (33 ) (626 )

Net interest income (FTE)
$ (276 ) $ 69 $ (207 ) $ (87 ) $ 117 $ 30

* Rate/volume variances are allocated to variances due to volume.

Net Interest Income
      Net interest income is the difference between interest and yield-related fees earned on assets, and interest paid on liabilities. 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. Gains and losses related to the effective portion of risk management interest rate swaps that qualify as hedges are included with the interest income or expense of the hedged item when classified in earnings. Net interest income on a fully taxable equivalent (FTE) basis comprised 69 percent of net revenues in 2003, compared to 70 percent in 2002 and 72 percent in 2001. Table 2 on page 27 provides an analysis of net interest income for the years ended December 31, 2003, 2002 and 2001. The rate-volume analysis in Table 3 above details the components of the change in net interest income on a FTE basis for the years ended December 31, 2003 versus 2002 and December 31, 2002 versus 2001.
      Net interest income (FTE) was $1.9 billion in 2003, a decrease of $207 million, or 10 percent from 2002. The net interest margin, which is net interest income (FTE) expressed as a percentage of average earning assets, decreased to 3.95 percent in 2003 from 4.55 percent in 2002. The declines in net interest income and net interest margin were the result of a restructuring of the investment portfolio, designed to achieve more consistent cash flows; the impact of interest rate swap maturities; spread compression, as a result of lower loan yields in a declining rate environment; and a competitive deposit rate environment during a period of sustained low
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interest rates. Average earning assets increased by four percent to $48.8 billion, primarily as the result of a $1.3 billion increase in average short-term investments, which were funded by an increase in average noninterest-bearing deposits, primarily attributed to the strong growth of title and escrow deposits in the Corporation’s Financial Services Group. A portion of these deposits was not long-lived, as seen by a decline from a high quarterly average of $6.9 billion in third quarter 2003 to a quarterly average of $4.7 billion in fourth quarter 2003, and was, therefore, invested on a short-term basis. The spreads on these short-term investments negatively impacted net interest margin in 2003. The Corporation expects, on average, net interest margin in 2004 to remain relatively unchanged compared to 2003.

      The Corporation implements various asset and liability management tactics to manage 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 loan and deposit portfolio growth rates. Such actions include the management of earning assets, funding and capital and the utilization of interest rate swap contracts. Interest rate swap contracts are employed to effectively fix the yields on certain variable rate loans and to alter the interest rate characteristics of deposits and debt issued throughout the year. Refer to the “Interest Rate Risk” section on page 47 of this financial review for additional information regarding the Corporation’s asset and liability management policies.
      In 2002, net interest income (FTE) was $2.1 billion, an increase of one percent over 2001. Contributing to the increase was a three percent increase in average earning assets and a 13 percent increase in average interest-free sources of funds. The Corporation generated a two percent increase in average loans in 2002, with total loans averaging $42.1 billion in 2002. The increase in average interest-free sources of funds was primarily due to a $1.6 billion increase in average noninterest-bearing deposits in the Corporation’s Financial Services Group. The net interest margin decreased six basis points to 4.55 percent in 2002 from 4.61 percent in 2001. The net interest margin in 2002 was negatively impacted, in part, by spread compression, as a result of lower loan yields in a declining rate environment, and a competitive deposit rate environment during a period of sustained low interest rates. The increased movement of loans to nonaccrual status as the economy slowed also contributed to compression in the rate spread.
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TABLE 4: ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

Years Ended December 31

2003 2002 2001 2000 1999

(dollars amounts in millions)

Balance at beginning of year
$ 791 $ 637 $ 585 $ 529 $ 498

Transfer to loans held-for-sale
— — — — (4 )

Loans charged-off:

Domestic

Commercial
305 425 200 200 101

Real estate construction

Real estate construction business line
1 — 1 — —

Other
1 1 1 — —

Total real estate construction
2 1 2 — —

Commercial mortgage

Commercial real estate business line
4 6 — — 1

Other
18 4 3 1 1

Total commercial mortgage
22 10 3 1 2

Residential mortgage
— — — — —

Consumer
8 9 5 11 31

Lease financing
4 9 7 1 —

International
67 63 15 11 10

Total loans charged-off
408 517 232 224 144

Recoveries:

Domestic

Commercial
29 27 35 21 21

Real estate construction
— — — — —

Commercial mortgage
1 2 1 1 3

Residential mortgage
— — 1 — —

Consumer
2 3 5 7 10

Lease financing
— 3 1 — 1

International
11 1 — — —

Total recoveries
43 36 43 29 35

Net loans charged-off
365 481 189 195 109

Provision for loan losses
377 635 241 251 144

Balance at end of year
$ 803 $ 791 $ 637 $ 585 $ 529

Ratio of allowance for loan losses to total loans at end of year
1.99 % 1.87 % 1.55 % 1.46 % 1.46 %

Ratio of net loans charged-off during the year to average loans outstanding during the year
0.86 % 1.14 % 0.46 % 0.50 % 0.31 %

Allowance for credit losses on lending-related commitments*
$ 33 $ 35 $ 18 $ 23 $ 19

* Included in “Accrued expenses and other liabilities” on the consolidated balance sheets.

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TABLE 5: ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

December 31

2003 2002 2001 2000 1999

Amount % Amount % Amount % Amount % Amount %

(dollar amounts in millions)

Domestic

Commercial
$ 500 57 % $ 485 60 % $ 414 61 % $ 353 65 % $ 309 65 %

Real estate construction
31 8 26 8 17 8 11 7 12 6

Commercial mortgage
95 20 86 17 61 15 59 13 35 14

Residential mortgage
— 2 — 2 — 2 — 2 — 2

Consumer
19 4 18 4 11 4 8 4 18 4

Lease financing
26 3 8 3 9 3 5 3 8 2

International
91 6 130 6 88 7 105 6 95 7

Unallocated
41 38 37 44 52

Total
$ 803 100 % $ 791 100 % $ 637 100 % $ 585 100 % $ 529 100 %

Amount — allocated allowance
% — loans outstanding as a percentage of total loans
Provision and Allowance for Loan Losses
      The provision for loan losses reflects management’s evaluation of the adequacy of the allowance for loan losses. The allowance for loan losses represents management’s assessment of probable losses inherent in the Corporation’s loan 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. Internal risk ratings are assigned to each business loan at the time of approval and are subject to subsequent periodic reviews by the senior management of the Corporation’s Credit Policy Group. The Corporation performs a detailed credit quality review quarterly on large business loans that have deteriorated below certain levels of credit risk, and may allocate a specific portion of the allowance to such loans based upon this review. The Corporation defines business loans as those belonging to the commercial, real estate construction, commercial mortgage, lease financing and international loan portfolios. A portion of the allowance is allocated to the remaining business loans by applying projected loss ratios, based on numerous factors identified below, to the loans within each risk rating. In addition, a portion of the allowance is allocated to these remaining loans based on industry specific and geographic risks inherent in certain portfolios, including portfolio exposures to automotive suppliers, the high technology, entertainment and healthcare industries, and certain Latin American transfer risks. The portion of the allowance allocated to non-business loans is determined by applying projected loss ratios to various segments of the loan portfolio. Projected loss ratios incorporate factors, such as recent charge-off experience, current economic conditions and trends, trends with respect to past due and nonaccrual amounts, and are supported by underlying analysis, including information from migration and loss given default studies from each geographic market. The total allowance for loan losses was $803 million at December 31, 2003, compared to $791 million at December 31, 2002. The allocated portion of the allowance was $762 million at December 31, 2003, an increase of $9 million from year-end 2002. As shown in Table 5 above, the increase was primarily due to higher allocations to commercial loans, lease financing and commercial mortgage loans at December 31, 2003, as compared to year-end 2002. The increase in the allocated allowance for commercial loans and lease financing resulted from the impact of the continued uncertainty in the economy on our customers. The increase in the allocated allowance for commercial mortgage loans resulted from growth in the commercial mortgage loan portfolio. Partially offsetting this increase was a decline in the allocated allowance for international loans that resulted primarily from a decrease in nonaccrual international loans and a decline in the international loan portfolio, particularly Brazil.
      Actual loss ratios experienced in the future may vary from those projected. The uncertainty occurs because factors affecting the determination of probable losses inherent in the loan portfolio may exist which are not necessarily captured by the application of projected loss ratios or identified industry specific and geographic risks. An unallocated portion of the allowance is maintained to capture these probable losses. The unallocated allowance reflects management’s view that the allowance should recognize the margin for error inherent in the process of estimating expected loan losses. Factors that were considered in the evaluation of the adequacy of the Corporation’s unallocated allowance include the imprecision in the risk rating system and the risk associated with new customer relationships. The unallocated allowance was $41 million at December 31, 2003, an increase of $3 million from 2002.
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      The total allowance, including the unallocated amount, is available to absorb losses from any segment within the portfolio. Unanticipated economic events, including political, economic and regulatory stability in countries where the Corporation has a concentration of loans, could cause changes in the credit characteristics of the portfolio and result in an unanticipated increase in the allocated allowance. Inclusion of other industry specific and geographic portfolio exposures in the allocated allowance, as well as significant increases in the current portfolio exposures, could also increase the amount of the allocated allowance. Any of these events, or some combination, may result in the need for additional provision for loan losses in order to maintain an adequate allowance.
      The provision for loan losses was $377 million in 2003, compared to $635 million and $241 million in 2002 and 2001, respectively. The decrease in the provision for loan losses in 2003 compared to 2002 resulted from a large 2002 provision for loan losses, which reflected the impact that the economic environment had on many of the Corporation’s customers, and management’s decision in 2002 to sell certain loans. In addition, in 2002, political and economic events in Argentina and Brazil led to an increase in reserves related to the Corporation’s exposure in those countries. Refer to the “Earning Assets” section on page 39 of this financial review for further discussion of the Corporation’s Argentine and Brazilian exposure. Included in the provision for loan losses in 2001 was a $25 million merger-related charge to conform the credit policies of Imperial Bancorp (Imperial), a $7 billion banking company acquired in 2001, with those of the Corporation. The provision levels in 2003 reflected the impact the uncertainty of the economy continued to have on the Corporation’s customers. Business bankruptcy rates both nationally and in the Michigan market, where the Corporation has a geographic concentration of credit, were at elevated levels during 2003. Michigan Purchasing Management and Michigan Business Activity Indices retrenched during the first nine months of 2003, but in the fourth quarter 2003 began an upswing that our forward-looking indicators suggest will continue in 2004.
      Net charge-offs in 2003 were $365 million, or 0.86 percent of average total loans, compared to $481 million, or 1.14 percent, in 2002 and $189 million, or 0.46 percent, in 2001. An analysis of the changes in the allowance for loan losses, including charge-offs and recoveries by loan category, is presented in Table 4 on page 30.
      Nonperforming assets at December 31, 2003 were $538 million, as compared to $579 million at December 31, 2002. During the year, $660 million of loans with balances greater than $2 million were transferred to nonaccrual, compared to $733 million in 2002, and $399 million of nonaccrual business loans were charged-off, compared to $508 million in 2002. The carrying value of nonaccrual loans as a percentage of contractual value was 58 percent at December 31, 2003 and 60 percent at December 31, 2002. For further information on changes in nonperforming assets, see the “Nonperforming Assets” section of this financial review on page 43.
      The allowance as a percentage of total loans, nonperforming assets and annual net charge-offs is provided in the following table.

Years Ended

December 31

2003 2002 2001

Allowance for loan losses as a percentage of total loans at end of year
1.99 % 1.87 % 1.55 %

Allowance for loan losses as a percentage of nonperforming assets at end of year
149 136 102

Allowance for loan losses as a percentage of total net charge-offs for the year
220 164 337

      The allowance for loan losses as a percentage of total period-end loans increased to 1.99 percent at December 31, 2003, from 1.87 percent at December 31, 2002. The allowance for loan losses as a percentage of nonperforming assets increased to 149 percent at December 31, 2003, from 136 percent at December 31, 2002. This increased allowance coverage of loans and nonperforming assets resulted primarily from the economic risk factors previously noted. The increase in the allowance for loan losses as a percentage of net charge-offs for the year ended December 31, 2003, when compared to the prior year, resulted from the high level of net charge-offs in 2002. Management expects credit quality to improve throughout 2004.
      The Corporation maintains an allowance to cover probable credit losses inherent in lending-related commitments, including letters of credit and financial guarantees, which is included in “accrued expenses and other liabilities” on the consolidated balance sheets. At December 31, 2003 and 2002, the allowance for credit losses on lending-related commitments was $33 million and $35 million, respectively.
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Noninterest Income

Years Ended December 31

2003 2002 2001

(in millions)

Service charges on deposit accounts
$ 238 $ 227 $ 211

Fiduciary income
169 171 180

Commercial lending fees
63 69 67

Letter of credit fees
65 60 58

Foreign exchange income
35 40 35

Brokerage fees
34 38 44

Investment advisory revenue, net
30 27 12

Bank-owned life insurance
42 53 33

Equity in earnings of unconsolidated subsidiaries
6 8 (43 )

Warrant income
4 5 5

Net securities gains
50 41 20

Net gain on sales of businesses
— 12 31

Other noninterest income
151 149 184

Total noninterest income
$ 887 $ 900 $ 837

      Noninterest income decreased $13 million, or one percent, to $887 million in 2003, compared to $900 million in 2002 and increased $63 million, or eight percent, in 2002, compared to $837 million in 2001. An analysis of increases and decreases by individual line item is presented below.
      Service charges on deposit accounts increased $11 million, or five percent, in 2003 compared to an increase of $16 million, or eight percent, in 2002. The increases in both 2003 and 2002 were due to continued growth in deposits, the sale of new and existing cash management services to business customers and the benefit of lower earnings credit allowances provided to business customers.
      Fiduciary income decreased $2 million, or one percent, in 2003, compared to a decrease of $9 million, or five percent in 2002. Personal and institutional trust fees are the two major components of this category. These fees are based on services provided and assets managed. Fluctuations in the market values of the underlying assets managed, particularly equity securities, impact fiduciary income. The income decline in 2003 and 2002 reflects the effect that equity market conditions experienced during each year had on assets managed.
      Commercial lending fees decreased $6 million, or 10 percent, in 2003 compared to an increase of $2 million, or four percent, in 2002. Due to the slower economy, income earned on agent bank fees decreased in 2003 due to a decline in the volume of loan participations. The slower economy was also responsible for the modest growth in 2002.
      Letter of credit fees increased $5 million, or nine percent, in 2003 compared to an increase of $2 million, or five percent, in 2002. These increases were related to the demand for international trade services from new and existing Middle Market, Commercial Real Estate and Global Corporate Banking customers.
      Foreign exchange income declined $5 million, or 11 percent, in 2003 compared to an increase of $5 million, or 13 percent, in 2002. The decrease in 2003 was, in part, the result of a change in the strategy used to hedge a foreign subsidiary that caused certain currency gains and losses formerly recorded in earnings to be recorded in other comprehensive income. The increase in 2002 was primarily due to an increase in income from trade-related services provided to new and existing customers.
      Brokerage fees decreased $4 million, or 12 percent, to $34 million, in 2003, compared to a decrease of $6 million, or 14 percent, in 2002. Brokerage fees include commissions from retail broker transactions and mutual fund sales and are subject to changes in the level of market activity. Reduced transaction volumes as a result of market conditions contributed to the declines in 2003 and 2002.
      Investment advisory revenue, which includes revenue generated by the Corporation’s asset management reporting unit (Munder Capital Management or Munder), increased $3 million, or 10 percent, in 2003, compared to an increase of $15 million, or 132 percent, in 2002. Assets under management at Munder totaled $34 billion, $32 billion and $35 billion at December 31, 2003, 2002 and 2001, respectively. The increase in 2003 revenue, when compared to 2002, resulted from a 2002 impairment charge of $5 million on deferred distribution costs, discussed more fully below. The large increase in 2002, when compared to 2001, was due primarily to a $35 million
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reduction in impairment charges on deferred distribution costs, discussed more fully below, partially offset by a $20 million reduction in investment advisory revenue as general market conditions continued to weaken in 2002.

      The Corporation recorded impairment charges on deferred distribution costs of $5 million in 2002 and $40 million in 2001. These charges resulted from a continued reassessment of the recoverability of unamortized commission costs paid to brokers for selling Class B mutual fund shares. Net asset values in these funds have declined as market conditions weakened in 2002 and 2001. These declines prompted the Corporation’s revaluation of expected future cash flows from the funds, which are based on a percentage of assets under management and early redemption fees over a prescribed number of years. Net remaining deferred distribution costs at December 31, 2003 were $12 million. The changes in deferred distribution costs are reflected in the table below. Given net asset values at December 31, 2003, it would take a decline in total Class B mutual fund shares under management at Munder of approximately 50 percent to trigger further impairment, which at that level would be approximately $1 million. Each additional five percentage point decline results in a further impairment of approximately $1 million.
      Inherent in the model used to estimate future cash flows are an assumed growth rate in assets under management of 8% during the recoupment period, an assumed early redemption rate of 20%, and a discount rate based on the libor curve plus 275 basis points. Changes that fall within a reasonably possible range in either the redemption rate or discount rate used do not have a significant impact on impairment. At December 31, 2003, reducing the assumed growth rate to 0% would not trigger impairment.
      A summary of deferred distribution costs activity is provided in the following table.

Deferred Distribution Costs

2003 2002 2001

(in millions)

Balance at January 1
$ 19 $ 33 $ 86

Commissions paid to brokers
2 3 11

Redemption fees received
(3 ) (5 ) (10 )

Amortization of costs
(6 ) (7 ) (14 )

Impairment charge
— (5 ) (40 )

Balance at December 31
$ 12 $ 19 $ 33

      Bank-owned life insurance income decreased $11 million to $42 million in 2003, compared to an increase of $20 million to $53 million in 2002. The decrease in 2003 was due primarily to large non-taxable proceeds on bank-owned life insurance policies due to death benefits received in 2002, including $9 million of proceeds from the death of an executive in the second quarter of 2002, and a decline in earnings on policies held. The large 2002 non-taxable proceeds on bank-owned life insurance, as well as an increase in policies held, were primarily responsible for the 2002 increase over 2001.
      Equity in earnings of unconsolidated subsidiaries decreased $2 million in 2003, compared to an increase of $51 million in 2002. As a result of the July 1, 2003 adoption of FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities” (FIN 46(R)), the Corporation consolidated its interest in the Peninsula Fund Limited Partnership (PFLP), a venture capital fund. Prior to the adoption of FIN 46(R), the Corporation’s share of income from the PFLP, which totaled $2 million in the first six months of 2003 and $5 million in 2002, was recorded in equity in earnings of unconsolidated subsidiaries. In addition, the adoption of FIN 46(R) resulted in the deconsolidation of two entities formed to issue trust preferred securities. Since the July 1, 2003 adoption of FIN 46(R), the Corporation’s share of income from these formerly consolidated subsidiaries, which was not material, has been recorded in equity in earnings of unconsolidated subsidiaries. For further information on the adoption of FIN 46(R), see Notes 1 and 24 to the consolidated financial statements on pages 62 and 94, respectively. Included in equity in earnings of unconsolidated subsidiaries in 2001 was a one-time $57 million charge related to long-term incentive plans at a United Kingdom (U.K.) subsidiary, Framlington (an U.K. based investment manager), of which Munder is a minority owner.
      Warrant income was $4 million in 2003 compared to $5 million in both 2002 and 2001. The Corporation recognizes warrant income when the warrant positions become marketable as a result of a public equity offering.
      The Corporation recognized net gains related to its investment securities portfolio of $50 million, $41 million, and $20 million in 2003, 2002 and 2001, respectively. The significant gains in 2003 resulted mainly from a restructuring of the investment portfolio, designed to achieve more consistent cash flows. The 2002 gain was net of $14 million in write-downs of Argentine securities recorded in 2002.
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      The net gain on the sales of businesses in 2002 included a gain of $12 million related to the sale of OPAY. In 2001, net gain on the sales of businesses included a $21 million gain on the sale of the Corporation’s ownership in an automated teller machine (ATM) network provider and an $8 million gain from the sale of substantially all of the assets of a deposit-servicing subsidiary.
      Other noninterest income increased $2 million, or one percent, in 2003 compared to a decrease of $35 million, or 19 percent, in 2002. Other noninterest income in 2003 included $9 million of net write-downs of venture capital and private equity investments compared to $10 million of net write-downs in 2002. Noninterest income in 2003 also included $3 million of cash flow hedge ineffectiveness losses compared to $4 million of cash flow hedge ineffectiveness gains recognized in 2002. Other noninterest income in 2002 also included $5 million of net losses on the sale of commercial loans held-for-sale. In 2001, other noninterest income included $11 million in net gains resulting from the purchase and subsequent sale of interest rate derivative contracts which failed to meet the Corporation’s risk-reduction criteria and a $5 million gain from the demutualization of an insurance carrier. Comparisons of other noninterest income were impacted by the divestiture of OPAY in the third quarter of 2002 and Imperial’s merchant bankcard business in the second quarter of 2001. Combined, these divestitures resulted in a reduction of other noninterest income of $5 million in 2003, when compared to 2002, and $9 million in 2002, when compared to 2001.
      Management expects a modest increase in noninterest income, excluding securities gains, in 2004 from 2003 levels.
Noninterest Expenses

Years Ended December 31

2003 2002 2001

(in millions)

Salaries
$ 736 $ 699 $ 707

Employee benefits
161 145 135

Total salaries and employee benefits
897 844 842

Net occupancy expense
128 122 115

Equipment expense
61 62 70

Outside processing fee expense
71 65 61

Software expense
37 33 34

Customer services
25 26 41

Goodwill impairment
— 86 —

Restructuring charges
— — 152

Other noninterest expenses
264 277 272

Total noninterest expenses
$ 1,483 $ 1,515 $ 1,587

      Noninterest expenses decreased $32 million, or two percent, to $1,483 million in 2003, compared to $1,515 million in 2002 and decreased $72 million, or five percent, in 2002, compared to $1,587 million in 2001. An analysis of increases and decreases by individual line item is presented below.
      Salaries expense increased $37 million, or five percent, in 2003 versus a decrease of $8 million, or one percent, in 2002. The increase in 2003 was due primarily to an increase of $27 million in business unit and executive incentives. Also contributing to the increase in 2003, was approximately $17 million in merit increases, offset by a $5 million decline in salary expense due to the Corporation’s 2002 sale of its OPAY subsidiary. The decrease in 2002 was primarily due to a $40 million decline in business unit and executive incentives, net of a $17 million compensation charge related to the adoption of the fair value method of accounting for stock options and approximately $17 million in merit increases. Business unit incentives are tied to new business and business unit profitability, while executive incentives are tied to peer-based comparisons of corporate results. For further information on the adoption of the fair value method of accounting for stock options, refer to Notes 1 and 16 to the consolidated financial statements on pages 62 and 80, respectively.
      Employee benefits expense increased $16 million, or 11 percent in 2003 compared to an increase of $10 million, or seven percent, in 2002. The increase in 2003 was due to an increase in pension expense. The increase in 2002 was primarily due to an increase in pension expense and employee healthcare costs. For a further discussion of pension expense, refer to Note 17 to the consolidated financial statements on page 82.
      Net occupancy and equipment expenses, on a combined basis, increased $5 million, or three percent, to $189 million in 2003, compared to a decrease of $1 million, or less than one percent, in 2002. The increase in 2003 resulted primarily from lease termination
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costs associated with the consolidation of Western region facilities. The 2002 decline resulted from the previously mentioned divestiture of OPAY in the third quarter of 2002.

      Outside processing fees increased $6 million, or nine percent, to $71 million in 2003, from $65 million in 2002 and increased $4 million, or six percent, in 2002, compared to $61 million in 2001. The impact of the divestiture of Imperial’s merchant bankcard business in the second quarter of 2001 impacted the percentage growth in this expense in both 2002 and 2001.
      Software expense increased $4 million, or 12 percent in 2003 compared to a decrease of $1 million, or three percent in 2002. The increase in 2003 was primarily due to increased investments in technology and the implementation of several systems, which had previously been in the development stages, increasing both amortization and maintenance costs.
      Customer services decreased $1 million, or four percent, to $25 million in 2003, from $26 million in 2002 and decreased $15 million, or 35 percent, in 2002, compared to $41 million in 2001. Customer services represent expenses paid on behalf of customers, and are one method to attract and retain certain noninterest-bearing deposit balances. As a result of a lower interest rate environment, fewer credits were provided to these customers in 2003, compared to 2002, and in 2002 compared to 2001.
      A goodwill impairment charge of $86 million was recorded in 2002 as a result of the Corporation’s evaluation of goodwill. This charge resulted from a decline in equity markets, and its related impact on the valuation of the Corporation’s Munder subsidiary. Further declines in equity markets could trigger additional goodwill impairment charges in future periods. Additional information on the goodwill impairment charge can be found in the “Critical Accounting Policies” section on page 53 of this financial review and Note 8 to the consolidated financial statements on page 72.
      The Corporation recorded restructuring charges of $152 million in 2001. The restructuring charges included $148 million related to the first quarter 2001 acquisition of Imperial and $4 million at the Corporation’s OPAY subsidiary. The OPAY restructuring charge is shown net of the portion of the charge attributable to the minority shareholders in OPAY. The Corporation sold its OPAY subsidiary in 2002. In addition, the Corporation recorded a $25 million merger-related charge in 2001 that was included in the provision for loan losses to conform the credit policies of Imperial with those of the Corporation. The integration with Imperial was completed in fourth quarter 2001 and all merger-related and restructuring charges were expensed. For additional information on both restructuring charges, refer to Note 19 to the consolidated financial statements on page 88.
      Other noninterest expenses decreased $13 million, or five percent, in 2003 compared to a $5 million increase, or two percent, in 2002. The decrease in other noninterest expenses in 2003, compared to 2002, was primarily due to the provision for probable credit losses on lending-related commitments, which was a credit of $3 million in 2003 and a charge of $17 million in 2002. For additional information on the provision for probable credit losses on lending-related commitments refer to Notes 1 and 22 to the consolidated financial statements on pages 62 and 90, respectively. The increase in 2002, when compared to 2001, was primarily due to a $31 million reduction in goodwill amortization expense due to a change in goodwill accounting rules, effective January 1, 2002, that discontinued the amortization of goodwill. This was partially offset by an increase in the provision for probable credit losses on lending-related commitments, which was a charge of $17 million in 2002, as noted above, and a credit of $5 million in 2001. In addition, other noninterest expenses in 2001 included $5 million in minority interest income to record Munder’s minority interest holders’ share of the Framlington long-term incentive plan’s charge discussed in noninterest income.
      Management expects noninterest expenses to remain unchanged from 2003 levels in 2004.
      The Corporation’s efficiency ratio is defined as total noninterest expenses divided by the sum of net interest income (FTE) and noninterest income, excluding securities gains. The ratio increased to 53.64 percent in 2003, compared to 50.59 percent in 2002 and 54.30 percent in 2001. The efficiency ratio increased in 2003 despite a decline in noninterest expenses, as a result of the significant decline in revenues from 2002 levels. The efficiency ratio in 2001 was impacted by $152 million in merger-related and restructuring charges recorded during the year. Management’s expectation is that the efficiency ratio will decline to approximately 50 percent in the future.
Income Taxes
      The provision for income taxes was $292 million in 2003, compared to $281 million in 2002 and $401 million in 2001. The effective tax rate, computed by dividing the provision for income taxes by income before income taxes, was 30.7 percent in 2003, 31.8 percent in 2002 and 36.1 percent in 2001. The tax rate decline in 2003 from 2002 levels resulted in part from higher levels of recognized foreign tax credits. The lower effective tax rate in 2002, when compared to 2001, resulted in part from the reduction in income before income taxes, which increased the proportion of permanent tax differences to pre-tax income. The tax rate in 2002 was also impacted by increased non-taxable revenue on bank-owned life insurance policies. The Corporation’s $197 million deferred income tax liability at December 31, 2003 was net of a deferred tax asset of $430 million, which the Corporation’s management believes will
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be realized in future periods. Management based this conclusion on the expectation that taxable income in future years will equal or exceed taxable income in 2003, both in the aggregate and in those state(s) where the incidence of taxable income is necessary to assure realization of deferred tax assets. In the event that the future taxable income does not occur in the manner anticipated, other initiatives could be undertaken to preclude the need to recognize a valuation allowance against the deferred tax asset.

STRATEGIC LINES OF BUSINESS
      The Corporation’s operations are strategically aligned into three major lines of business: the Business Bank, Small Business and Personal Financial Services, and Wealth and Institutional Management. These lines of business are differentiated based upon 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 or the Finance Division. Note 26 to the consolidated financial statements on page 98 describes how these segments were identified and presents financial results of these businesses for the years ended December 31, 2003, 2002 and 2001. The following table presents net income (loss) by line of business.

Net Income (Loss) By Line of Business

Years Ended December 31

2003 2002 2001

(dollar amounts in millions)

Business Bank
$ 663 $ 500 $ 529

Small Business and Personal Financial Services
213 211 226

Wealth and Institutional Management
61 9 (13 )

Finance
(239 ) (33 ) 64

Other
(37 ) (86 ) (96 )

Total
$ 661 $ 601 $ 710

      The Business Bank’s net income increased $163 million, or 33 percent, to $663 million in 2003, compared to a decrease of $29 million, or five percent, to $500 million in 2002. Contributing to the Business Bank’s increase in net income was a $30 million increase in net interest income, a $220 million decrease in the provision for loan losses and a $34 million increase in noninterest income. Noninterest expenses increased $21 million. The increase in net interest income was primarily due to strong deposit growth, particularly in the Corporation’s Financial Services Group. Provision for loan losses declined due to lower charge-offs, reduced loan balances and a slight improvement in credit quality. 2003 noninterest income included a $9 million increase in services charges on deposits over 2002 levels, while 2002 noninterest income included a $20 million write-down of Argentine securities. Noninterest expenses increased due to increases in incentive compensation, employee benefits, and deposit processing charges related to increased deposit levels. Average loan balances declined as a result of a planned decrease in the Global Corporate Banking loan portfolio, partially offset by an increase in the Middle Market and National Dealer Services loan portfolios.
      Small Business and Personal Financial Services’ net income increased $2 million, or less than one percent, to $213 million in 2003, compared to a decrease of $15 million, or seven percent, to $211 million in 2002. Net interest income increased $6 million due to higher loan and deposit balances, partially offset by lower deposit spreads. Provision for loan losses decreased $13 million. Noninterest expenses increased $30 million due to higher salaries, employee benefits, and branch costs.
      Wealth and Institutional Management’s net income was $61 million in 2003, compared to net income of $9 million in 2002 and a net loss of $13 million in 2001. Net income in 2002 was reduced by an $86 million pre-tax goodwill impairment charge at the asset management reporting unit (Munder) and a $5 million deferred distribution cost impairment charge. Net interest income increased $18 million in 2003, from 2002 levels, primarily due to an increase in Private Banking deposit balances. The provision for loan losses increased $16 million in 2003, due to higher required loan loss reserves in the Private Banking business.
      The net loss for the Finance Division was $239 million in 2003, compared to a net loss of $33 million in 2002 and net income of $64 million in 2001. The larger loss in 2003, when compared to 2002, resulted primarily from a $300 million decrease in net interest income due to high funding credits paid to the Business Bank and other deposit businesses related to indeterminate life deposit accounts (principally noninterest-bearing demand accounts) and lower net interest income from the investment security portfolio due to the run-off and sale of higher yielding securities that were replaced with lower yielding securities. Noninterest income decreased $35 million in 2003, primarily due to lower gains from the sale of mortgage-backed securities in 2003.
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      The net loss for the Other category was $37 million in 2003, compared to a net loss of $86 million in 2002 and a net loss of $96 million in 2001. The decline in the net loss in 2003, when compared to 2002, largely resulted from a lower unallocated loan loss provision in 2003. Partially offsetting this was a decline in noninterest income of $16 million in 2003 from 2002 levels as 2002 noninterest income included $16 million related to the Corporation’s OPAY subsidiary, sold in the third quarter of 2002, $12 million of which was from the sale of the business.

BALANCE SHEET AND CAPITAL FUNDS ANALYSIS
      Total assets were $52.6 billion at year-end 2003, a decrease of $709 million from $53.3 billion at December 31, 2002. On an average basis, total assets increased to $53.0 billion in 2003 from $51.1 billion in 2002, an increase of $1.9 billion. This increase was funded primarily by deposits, which rose on average $3.8 billion, partially offset by a reduction in short-term borrowings which declined on average $1.4 billion and in medium- and long-term debt, which declined on average $689 million.
TABLE 6: ANALYSIS OF INVESTMENT SECURITIES AND LOANS

December 31,

2003 2002 2001 2000 1999

(in millions)

Investment securities available-for-sale

U.S. Treasury and other Government agency securities
$ 4,309 $ 2,748 $ 3,920 $ 3,135 $ 2,950

State and municipal securities
11 23 32 46 73

Other securities
169 282 339 710 760

Total investment securities available-for-sale
$ 4,489 $ 3,053 $ 4,291 $ 3,891 $ 3,783

Commercial loans
$ 22,974 $ 25,242 $ 25,176 $ 26,009 $ 23,629

Real estate construction loans:

Real estate construction business line
2,754 2,900 2,824 n/a n/a

Other
643 557 434 n/a n/a

Total real estate construction loans
3,397 3,457 3,258 2,915 2,167

Commercial mortgage loans:

Commercial real estate business line
1,655 1,626 1,421 n/a n/a

Other
6,223 5,568 4,846 n/a n/a

Total commercial mortgage loans
7,878 7,194 6,267 5,361 4,873

Residential mortgage loans
875 789 779 808 871

Consumer loans
1,568 1,538 1,484 1,477 1,389

Lease financing
1,301 1,296 1,217 1,029 803

International loans:

Government and official institutions
6 9 9 2 10

Banks and other financial institutions
45 199 427 402 391

Commercial and industrial
2,258 2,557 2,579 2,167 2,172

Total international loans
2,309 2,765 3,015 2,571 2,573

Total loans
$ 40,302 $ 42,281 $ 41,196 $ 40,170 $ 36,305

n/a — not available
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TABLE 7: LOAN MATURITIES AND INTEREST RATE SENSITIVITY

December 31, 2003

Loans Maturing

After One

But Within

Within Five After

One Year* Years Five Years Total

(in millions)

Commercial loans
$ 17,506 $ 4,150 $ 1,318 $ 22,974

Real estate construction loans
2,478 727 192 3,397

Commercial mortgage loans
2,698 3,744 1,436 7,878

International loans
2,184 118 7 2,309

Total
$ 24,866 $ 8,739 $ 2,953 $ 36,558

Sensitivity of Loans to Changes in Interest Rates:

Predetermined (fixed) interest rates
$ 3,469 $ 2,568

Floating interest rates
5,270 385

Total
$ 8,739 $ 2,953

* Includes demand loans, loans having no stated repayment schedule or maturity and overdrafts

Earning Assets
      Total earning assets were $48.8 billion at December 31, 2003, an increase of $1.0 billion from $47.8 billion at year-end 2002. The Corporation’s average earning assets balances are reflected in Table 2 on page 27. On an average basis, total earning assets were $48.8 billion in 2003, compared to $47.1 billion in 2002. Total loans were $40.3 billion at December 31, 2003, a decline of $2.0 billion from $42.3 billion at December 31, 2002. Total loans, on an average basis, increased one percent to $42.4 billion in 2003, from $42.1 billion in 2002. Although certain business loan categories continued to show growth in 2003, total business loan growth slowed in 2003 due to the continued uncertainty in the economy and management’s strategy to reduce large corporate non-relationship loans and loans in certain Latin American countries experiencing difficulties. The Corporation experienced growth, on an average basis, in the National Dealer Services (18 percent), Private Banking (12 percent), Small Business (8 percent) and Middle Market (6 percent) loan portfolios, from 2002 to 2003. Average loans in the Global Corporate Banking portfolio, which includes Large Corporate and Global Finance, declined 24 percent over the same periods as a result of maturing non-relationship loans that were not renewed.
      Management expects modestly lower earning assets, on average, in 2004 when compared to 2003, principally as a result of expected lower levels of short-term investments.
      Short-term investments include interest-bearing deposits with banks, federal funds sold, 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 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. Average short-term investments increased to $1.9 billion during 2003, from $602 million in 2002, due primarily to an increase in federal funds sold. Substantially all of the growth in average federal funds sold resulted from strong growth in the Corporation’s Financial Services Group deposits, which were not expected to be long-lived, and therefore invested on a short-term basis. Federal funds sold offer supplemental earning opportunities and serve correspondent banks. Loans held-for-sale typically represent residential mortgage loans and Small Business Administration loans that have been originated and which management decided to sell.
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TABLE 8: ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO-Fully Taxable Equivalent

December 31, 2003

Maturity*

Weighted

Within 1 Year 1 - 5 Years 5 - 10 Years After 10 Years Total Average

Maturity

Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Yrs./Mos.

(dollar amounts in millions)

Available-for-sale

U.S. Treasury and other Government agency securities
$ 183 1.97 % $ 728 2.97 % $ 1,182 3.59 % $ 2,216 3.69 % $ 4,309 3.47 % 9/9

State and municipal securities
3 6.35 5 5.48 3 6.27 — — 11 5.92 2/11

Other securities

Other bonds, notes and debentures
8 6.71 73 4.90 — — — — 81 5.05 2/1

Other investments**
— — — — — — 88 — 88 — —

Total investment securities available-for-sale
$ 194 2.23 % $ 806 3.16 % $ 1,185 3.59 % $ 2,304 3.69 % $ 4,489 3.50 % 9/7

* Based on final contractual maturity.

** Balances are excluded from the calculation of total yield.

      Reinvestment of proceeds from fourth quarter 2002 investment securities sales resulted in an increase of $1.4 billion in investment securities available-for-sale at December 31, 2003 compared to December 31, 2002. Average investment securities rose to $4.5 billion in 2003, compared to $4.4 billion in 2002. Average U.S. government and agency securities increased $258 million, while average state and municipal securities decreased $12 million. Increases in U.S. government and agency securities resulted from interest rate risk and balance sheet management decisions while the tax-exempt portfolio of state and municipal securities continued to decrease as reduced tax advantages for these types of securities discouraged additional investment. Average other securities decreased $78 million in 2003. Other securities at December 31, 2003 consisted primarily of collateralized mortgage obligations (CMO’s), Brady bonds and Eurobonds.
      Average commercial real estate loans, consisting of real estate construction and commercial mortgage loans, increased $922 million, or nine percent, from $10.1 billion in 2002 to $11.1 billion in 2003. Average loans to borrowers not primarily engaged in the business of commercial real estate represented $6.5 billion, or 59 percent, of the 2003 $11.1 billion average commercial real estate loans, as compared to $5.7 billion, or 56 percent, of the 2002 $10.1 billion average commercial real estate loans.
      Average residential mortgage loans increased $73 million, or 10 percent, from 2002, due to management’s decision to retain mortgages originated for certain relationship customers.
TABLE 9: INTERNATIONAL CROSS-BORDER OUTSTANDINGS
(year-end outstandings exceeding 1% of total assets)

December 31

Government Banks and

and Official Other Financial Commercial

Institutions Institutions and Industrial Total

(in millions)

Mexico
2003 $ 12 $ 3 $ 1,106 $ 1,121

2002 15 7 1,168 1,190

2001 17 25 1,207 1,249

Brazil
2001 $ 31 $ 322 $ 236 $ 589

      Consistent with management’s strategy to reduce large corporate non-relationship loans and loans in certain Latin-American countries experiencing difficulties, international loans decreased 16 percent, to $2.3 billion at December 31, 2003, compared to $2.8 billion at December 31, 2002. Average international loans were $2.6 billion in 2003, a decrease of $392 million, or 13 percent, from 2002. International loans declined primarily in Argentina and Brazil. The Corporation has operating platforms in all three North
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American countries. Active risk management practices minimize risk inherent in international lending arrangements. These practices include structuring bilateral agreements 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. Mexico, with cross-border outstandings of $1.1 billion, or two percent of total assets, was the only country with outstandings exceeding 1.00 percent of total assets at December 31, 2003. There were no countries with cross-border outstandings between 0.75 and 1.00 percent of total assets at year-end 2003. Additional information on the Corporation’s international cross-border risk in countries where the Corporation’s outstandings exceeded 1.00 percent of total assets at the end of one or more of the three years in the period ended December 31, 2003 is provided in Table 9 on page 40. As a result of political and economic events in Argentina and Brazil, the Corporation is closely monitoring its Argentine and Brazilian exposures. Total Argentine exposure at December 31, 2003 was $47 million, a decrease of $38 million from $85 million at December 31, 2002. Total Brazilian exposure at December 31, 2003 was $203 million, a decrease of $308 million from $511 million at December 31, 2002. A breakout of the components of Argentine and Brazilian exposure is provided in the following table.

December 31

Argentina Brazil

2003 2002 2003 2002

(in millions)

Loans
$ 46 $ 70 $ 193 $ 412

Securities
1 6 10 51

Unfunded commitments
— 9 — 48

Total exposure
$ 47 $ 85 $ 203 $ 511

Nonperforming loans
$ 24 $ 37 $ 7 $ 3

Nonperforming securities
— 4 1 —

Total nonperforming assets
$ 24 $ 41 $ 8 $ 3

Deposits and Borrowed Funds
      Average deposits were $41.5 billion during 2003, an increase of $3.8 billion, or 10 percent, from 2002. Average noninterest-bearing deposits grew $2.1 billion, or 17 percent, from 2002, as a result of increased title and escrow deposits in the Corporation’s Financial Services Group, which benefit from high home mortgage financing and refinancing activity. Future events, such as an increase in interest rates from current levels, could cause a decline in home mortgage financing and refinancing activity, which may result in lower levels of these deposits. Average interest-bearing transaction, savings and money market deposits increased 29 percent during 2003, to $18.9 billion. Average certificates of deposit decreased $2.3 billion in 2003, or 22 percent, from 2002. This decrease was primarily from certificates of deposit issued in denominations in excess of $100,000 through brokers or to institutional investors, which matured and were not replaced. Average foreign office time deposits decreased $153 million, or 20 percent, from the 2002 level. The absence of significant loan growth in 2003 and increases in transaction, savings and money market deposits contributed to the reduced level of certificates of deposit issued in denominations in excess of $100,000 through brokers or to institutional investors and foreign office time deposits.
      Average short-term borrowings decreased $1.4 billion, or 72 percent, as deposit growth reduced the need for these funding sources. Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, commercial paper and treasury tax and loan notes.
      The Corporation uses medium-term debt (both domestic and European) and long-term debt to provide funding to support earning assets while providing liquidity which mirrors the estimated duration of deposits. Long-term subordinated notes further help maintain the Corporation’s and subsidiary banks’ total capital ratios at a level that qualifies for the lowest FDIC risk-based insurance premium. Medium- and long-term debt decreased on an average basis by $689 million as deposit growth and slowing loan growth reduced the need for these funding sources. Further information on medium- and long-term debt is provided in Note 12 to the consolidated financial statements on page 76.
Capital
      Shareholders’ equity was $5.1 billion at December 31, 2003, up $163 million, from December 31, 2002. This increase was primarily due to the retention of $311 million of retained earnings (net income less cash dividends declared), the recognition of stock-based compensation and the effect of employee stock plan activity, which increased common shareholders’ equity by $26 million and
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$16 million, respectively, offset by a $163 million decrease in other comprehensive income resulting primarily from a decrease in the accumulated net gain on cash flow hedges and unrealized gain(loss) on investment securities available-for-sale and a $27 million decrease from the fourth quarter 2003 repurchase of 0.5 million of common shares in the open market. Further information on the change in other comprehensive income is provided in Note 14 to the consolidated financial statements on page 78.

      The Corporation declared common dividends totaling $350 million, or $2.00 per share, on net income applicable to common stock of $661 million. The dividend payout ratio calculated on a per share basis, was 53 percent in 2003 versus 56 percent in 2002 and 45 percent in 2001.
      At December 31, 2003, 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. Refer to Note 21 to the consolidated financial statements on page 89 for the capital ratios.
      On December 1, 2003, the Corporation determined it would resume its share repurchase program. The Corporation’s share repurchase is conducted under an existing authority from the Corporation’s Board of Directors. The Corporation repurchased 0.5 million shares in the open market in 2003 for $27 million compared to 3.5 million in 2002 for $210 million. Comerica Incorporated common stock available for repurchase under this authority totaled 4.8 million shares at December 31, 2003.

RISK MANAGEMENT
      The Corporation assumes various types of risk in the normal course of business. Management classifies the risk exposures into credit, market, operational and business risks and employs, or is in the process of employing, various risk management processes to identify, measure, monitor and control these risks, as described below.
      In 2002, the Corporation launched a multi-year program to enhance the Corporation’s risk management capabilities. As part of this program, the Corporation is introducing additional processes, tools and systems designed to provide management with deeper insight into the Corporation’s risks and enhance the Corporation’s ability to control risks and to ensure that appropriate compensation is received for risks taken. The program will also aid the Corporation in reporting material risk exposures and overall risk profile. As part of the overall risk governance process, the Corporation established an Enterprise-Wide Risk Management Committee that is responsible for managing the Corporation’s aggregated risk position. The Committee is made up of various risk managers throughout the Corporation. In order to facilitate this effort, the Risk Management Office was also established and will be responsible for identifying, gathering and measuring the aggregated risk pool. In addition, the Risk Management Office, in concert with the Corporate Audit Department, will have responsibility for providing an independent testing and validation process for the various risk measurements. While specialists in the risk management areas of credit, market, operational and business will continue to manage individual risks, the Risk Management Office will provide the Enterprise-Wide Risk Management Committee, management and the Board with an objective view of the Corporation’s aggregated risk position.
      Early in the second quarter of 2003, the Corporation began implementing the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, Management Assessment of Internal Controls. Although the effective date of the reporting requirements was delayed until the 2004 calendar year reporting period, the project team continued to pursue its project plans with the objective of performing a complete pilot of the entire Section 404 compliance effort by year-end 2003. The Corporation believes that the internal control evaluation, documentation, and testing plans implemented by the project team and executed by the Corporation’s Audit staff throughout 2003 are in conformity with all aspects of Section 404 of the Sarbanes-Oxley Act and interpretive guidance provided in draft rules issued in October of 2003 by the Public Company Accounting Oversight Board.
Credit Risk
      Credit risk represents the risk of loss due to a customer’s or counterparty’s failure to meet its financial obligations in accordance with contractual terms. The Corporation manages credit risk through underwriting, periodically reviewing, and approving its credit exposures per Board-approved established credit policies and guidelines. Additionally, the Corporation manages credit risk through loan portfolio diversification, limiting exposure to any single industry, customer, or guarantor and selling participations and/or syndicating credit exposures above those levels it deems prudent to third parties.
      During 2003, as part of the previously announced enterprise-wide risk management program, new credit risk rating tools were developed and are in the process of implementation. The evaluation of the Corporation’s loan portfolio with these tools is anticipated to provide improved measurement of the potential risks within the overall loan portfolio.
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TABLE 10: SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS

December 31

2003 2002 2001 2000 1999

(dollar amounts in millions)

NONPERFORMING ASSETS

Nonaccrual loans:

Commercial
$ 300 $ 372 $ 467 $ 233 $ 116

Real estate construction:

Real estate construction business line
21 17 8 5 —

Other
3 2 2 — —

Total real estate construction
24 19 10 5 —

Commercial mortgage:

Commercial real estate business line
3 8 1 — —

Other
84 45 17 17 10

Total commercial mortgage
87 53 18 17 10

Residential mortgage
1 — — — 1

Consumer
3 2 5 3 5

Lease financing
24 5 8 4 6

International
68 114 109 69 55

Total nonaccrual loans
507 565 617 331 193

Reduced-rate loans
— — — 2 9

Total nonperforming loans
507 565 617 333 202

Other real estate
30 10 10 6 11

Nonaccrual debt securities
1 4 — — —

Total nonperforming assets
$ 538 $ 579 $ 627 $ 339 $ 213

Nonperforming loans as a percentage of total loans
1.26 % 1.34 % 1.50 % 0.83 % 0.56 %

Nonperforming assets as a percentage of total loans, other real estate and nonaccrual debt securities
1.33 1.37 1.52 0.84 0.59

Allowance for loan losses as a percentage of total nonperforming assets
149 136 102 172 249

Loans past due 90 days or more and still accruing
$ 32 $ 43 $ 44 $ 36 $ 48

Nonperforming Assets

      Nonperforming assets include loans and loans held-for-sale on nonaccrual status, loans which have been renegotiated to less than market rates due to a serious weakening of the borrower’s financial condition, real estate which has been acquired primarily through foreclosure and is awaiting disposition (Other Real Estate or ORE) and debt securities on nonaccrual status.
      Consumer loans are charged-off no later than 180 days past due, and earlier, if deemed uncollectible. Loans, other than consumer loans, and debt securities are generally placed on nonaccrual status when management determines that principal or interest may not be fully collectible, but no later than 90 days past due on principal or interest, unless the loan or debt security is fully collateralized and in the process of collection. Loan amounts in excess of probable future cash collections are charged-off to an amount that management ultimately expects to collect. 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. Loans that have been restructured to yield a rate that was equal to or greater than the rate charged for new loans with comparable risk and have met the requirements for a return to accrual status are not included in nonperforming assets. However, such loans may be required to be evaluated for impairment. Refer to Note 4 of the consolidated financial statements on page 69 for a further discussion of impaired loans.
      Nonperforming assets decreased $41 million, or seven percent, to $538 million at December 31, 2003 from $579 million at December 31, 2002. As shown in table 10 above, nonaccrual loans decreased $58 million, or 10 percent, to $507 million at
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December 31, 2003, from $565 million at December 31, 2002. ORE increased $20 million to $30 million at year-end 2003 from $10 million at year-end 2002. Nonaccrual debt securities decreased $3 million to $1 million at December 31, 2003 from $4 million at December 31, 2002. The $58 million reduction in nonaccrual loans at December 31, 2003 from year end 2002 levels resulted primarily from a $72 million decline in nonaccrual commercial loans and a $46 million decline in nonaccrual international loans. These declines were partially offset by a $39 million increase in 2003 in nonaccrual commercial mortgage loans not related to the commercial real estate business line (shown as “Other” in Table 10). These other nonaccrual commercial mortgage loans involve owner-occupied properties in which the borrower is involved in business activities other than real estate, and the sources of repayment are not dependent on the performance of the real estate market. Loans to such borrowers comprised $84 million of the $87 million in commercial mortgage nonaccrual loans at December 31, 2003. Loans are classified as commercial mortgage loans if the primary collateral is a lien on any real property. The term “primary collateral” means more than 50% of the facility at loan approval is predicated on the value of real property. An analysis on nonaccrual loans at December 31, 2003, based on the Standard Industrial Classification (SIC) code, is presented on page 45. Latin American debt securities comprised the $1 million of nonaccrual debt securities at December 31, 2003. Loans past due 90 days or more and still on accrual status decreased $11 million to $32 million at December 31, 2003, from $43 million at December 31, 2002. Nonperforming assets as a percentage of total loans, other real estate and nonaccrual debt securities was 1.33 percent and 1.37 percent at year-end 2003 and 2002, respectively.

      The following table presents a summary of changes in nonaccrual loans.

2003 2002

(in millions)

Balance at January 1
$ 565 $ 617

Loans transferred to nonaccrual(1)
660 733

Nonaccrual business loan gross charge-offs(2)
(399 ) (508 )

Loans transferred to accrual status(1)
(15 ) (43 )

Nonaccrual business loans sold(3)
(144 ) (134 )

Payments/Other(4)
(160 ) (100 )

Balance at December 31
$ 507 $ 565

(1)
Based on an analysis of nonaccrual loans with book balances greater than $2 million.

(2)
Analysis of gross loan charge-offs:

Nonaccrual business loans $ 399 $ 508

Performing business loans 1 —

Consumer loans 8 9

Total gross loan charge-offs $ 408 $ 517

(3)
Analysis of loans sold:

Nonaccrual business loans $ 144 $ 134

Performing watch list loans (as defined below) sold 15 —

Total loans sold $ 159 $ 134

(4)
Net change related to nonaccrual loans with balances less than $2 million, other than business loan gross charge-offs and nonaccrual loans sold, are included in Payments/Other.

      Loans with balances greater than $2 million transferred to nonaccrual status decreased $73 million, or 10 percent, to $660 million in 2003, compared with $733 million in 2002. There were 13 loans greater than $10 million transferred to nonaccrual in 2003. These loans totaled $273 million and were to customers in the automotive ($72 million), manufacturing ($56 million), transportation ($55 million), services ($33 million), real estate ($24 million), retail trade ($21 million) and finance ($12 million) sectors.
      The Corporation sold $144 million of nonaccrual business loans in 2003. These loans were to customers in the non-automotive manufacturing ($61 million), services ($37 million), automotive ($12 million), utilities ($12 million), wholesale trade ($9 million), finance ($6 million) and other ($7 million) sectors.
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      The following table presents a summary of total internally classified nonaccrual and watch list loans (generally consistent with regulatory defined special mention, substandard and doubtful loans) at December 31, 2003. Consistent with the decrease in nonaccrual loans from December 31, 2002 to December 31, 2003, total combined nonaccrual and watch list loans declined both in dollars and as a percentage of the total loan portfolio.

December 31

2003 2002

(dollar amounts in

millions)

Total nonaccrual and watch list loans
$ 3,284 $ 4,237

As a percentage of total loans
8.2 % 10.0 %

      The following table presents a summary of nonaccrual loans at December 31, 2003 and loans transferred to nonaccrual and net charge-offs during the year ended December 31, 2003, based on the Standard Industrial Classification (SIC) code.

December 31,

2003 Year Ended December 31, 2003

Loans

Nonaccrual Transferred Net

SIC Category Loans to Nonaccrual* Charge-Offs

(dollar amounts in millions)

Automotive
$ 87 17 % $ 117 18 % $ 73 20 %

Services
75 15 98 15 25 7

Non-automotive manufacturing
57 11 94 14 46 12

Retail trade
55 11 46 7 22 6

Wholesale trade
42 8 83 12 40 11

Real estate
42 8 34 5 10 3

Transportation
36 7 61 9 10 3

Technology-related
33 7 61 9 56 15

Utilities
28 6 26 4 7 2

Entertainment
17 3 3 1 24 7

Finance
2 1 18 3 19 5

Other
33 6 19 3 33 9

Total
$ 507 100 % $ 660 100 % $ 365 100 %

* Based on an analysis of nonaccrual loans with book balances greater than $2 million.

      Shared National Credit Program (SNC) loans comprised approximately 20 percent and 26 percent of total nonperforming assets at December 31, 2003 and 2002, respectively. SNC loans are facilities greater than $20 million shared by three or more federally supervised financial institutions which are reviewed by regulatory authorities at the agent bank level. These loans comprised approximately 14 percent and 18 percent of total loans at December 31, 2003 and 2002, respectively. Of the $660 million of loans greater than $2 million transferred to nonaccrual status in 2003, $210 million were SNC loans. SNC loans comprised approximately 25 percent of 2003 loans charged-offs.
      The following nonaccrual loans table indicates the percentage of nonaccrual loan value to original contract value, which exhibits the degree to which loans reported as nonaccrual have been partially charged-off.

Nonaccrual Loans

December 31

2003 2002

(dollar amounts

in millions)

Carrying value
$ 507 $ 565

Contractual value
874 938

Carrying value as a percentage of contractual value
58 % 60 %

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      Key credit quality measures, including nonaccrual and watch list loans as a percentage of total loans, new loans transferred to nonaccrual and net charge-offs, improved in 2003, particularly in the fourth quarter. Management anticipates continued improvement throughout 2004, with nonperforming assets expected to be reduced by year-end 2004 and full-year 2004 average net charge-offs expected to be nearing 60 basis points.

Concentration of Credit

      Loans to companies and individuals involved with the automotive industry represented the largest significant industry concentration at December 31, 2003 and 2002. These loans totaled $6.6 billion, or 16 percent, of total loans at December 31, 2003, compared to $7.0 billion, or 17 percent, at December 31, 2002. Included in these totals are floor plan loans to automotive dealers of $2.7 billion and $2.6 billion at December 31, 2003 and 2002, respectively. All other industry concentrations individually represented less than 10 percent of total loans at year-end 2003.
      Nonperforming assets to companies and individuals involved with the automotive industry comprised approximately 17 percent of total nonperforming assets at December 31, 2003. The largest automotive industry loan on nonaccrual status at December 31, 2003, was $13 million. Total automotive industry-related net charge-offs were approximately $73 million in 2003. The largest automotive industry-related charge-off during the year was $18 million.

Commercial Real Estate Lending

      The Corporation takes measures to limit risk inherent in its commercial real estate lending activities. These measures include limiting exposure to those borrowers directly involved in the commercial real estate markets and adherence to policies requiring conservative loan-to-value ratios for such loans. Commercial real estate loans, consisting of real estate construction and commercial mortgage loans, totaled $11.3 billion at December 31, 2003, of which $6.9 billion, or 61 percent, involved borrowers not primarily engaged in the business of commercial real estate and where the sources of repayment are not dependent on the performance of the real estate market.
      The real estate construction loan portfolio contains loans primarily made to long-time customers with satisfactory completion experience. The portfolio totaled $3.4 billion and had approximately 1,700 loans, of which 55 percent had balances less than $1 million at December 31, 2003. The largest real estate construction loan had a balance of approximately $34 million at December 31, 2003. The commercial mortgage loan portfolio totaled $7.9 billion at December 31, 2003. The portfolio had approximately 8,400 loans, of which 77 percent had balances of less than $1 million, at December 31, 2003. The largest commercial mortgage loan had a balance of approximately $30 million at December 31, 2003.
      The geographic distribution of real estate construction and commercial mortgage loan borrowers is an important factor in diversifying credit risk. The following table indicates, by address of borrower, the diversification of the Corporation’s real estate construction and commercial mortgage loan portfolio.

Geographic Distribution of Borrowers

December 31, 2003

Real Estate Commercial

Construction Mortgage

Amount % Amount %

(in millions)

Michigan
$ 1,453 43 % $ 4,711 60 %

California
1,155 34 1,461 19

Texas
460 13 730 9

Florida
160 5 274 3

Other
169 5 702 9

Total
$ 3,397 100 % $ 7,878 100 %

Market Risk
      Market risk represents the risk of loss due to adverse movements in market rates or prices, which include interest rates, foreign exchange rates, and equity prices, the failure to meet financial obligations coming due because of an inability to liquidate assets or
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obtain adequate funding and the inability to easily unwind or offset specific exposures without significantly lowering prices because of inadequate market depth or market disruptions.

Interest Rate Risk

      Interest rate risk arises primarily through the Corporation’s core business activities of extending loans and accepting deposits. The Corporation actively manages its material exposure to interest rate risk. The principal objective of interest rate risk 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 types of financial instruments to manage the extent to which net interest income may be affected by fluctuations in interest rates. The Board of Directors, upon recommendations of the Risk Asset Quality Review Committee, establishes policies and risk limits pertaining to interest rate risk management activities. The Board, with the assistance of the Risk Asset Quality Review Committee and the Asset and Liability Policy Committee (ALPC), monitors compliance with these policies. The ALPC meets regularly to discuss and review interest rate risk management strategies and is comprised of executive and senior management from various areas of the Corporation, including finance, lending, investments, deposit gathering and risk management.

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, economic value of equity and asset and liability repricing schedules. 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, using simulation analysis as its principal risk management technique. The results of these analyses provide the information needed to assess the balance sheet structure. Changes in economic activity, different from those management included in its simulation analyses, 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 increase and decrease 200 basis points (but no lower than zero percent) 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 entered into for risk management purposes are included in these analyses. The measurement of risk exposure, at year-end 2003, for a decline in short-term interest rates to zero percent identified approximately $41 million, or two percent, of net interest income at risk during 2004. If short-term interest rates rise 200 basis points, net interest income would be enhanced during 2004 by approximately $82 million, or four percent. Corresponding measures of risk exposure for year-end 2002 were $91 million of net interest income at risk for a decline in short-term rates to zero percent and a $104 million enhancement of net interest income for a 200 basis point rise in rates. Corporate policy limits adverse change to no more than five percent of management’s most likely net interest income forecast and the Corporation is operating within this policy guideline. Management anticipates balance sheet dynamics in 2004 to continue to create net interest income movement with changes in interest rates, and will analyze both on- and off-balance sheet alternatives to achieve the desired interest rate risk profile for the Corporation.
      In addition to the simulation analysis, an economic value of equity analysis and a traditional interest gap analysis are performed as alternative measures to interest rate risk exposure. The economic value of equity analysis begins with an estimate of the mark-to-market valuation of the Corporation’s balance sheet and then applies the estimated market value impact of rate movements upon the assets and liabilities. The economic value of equity is then calculated as the residual necessary to re-balance the resulting assets and liabilities. The market value change in the economic value of equity is then compared to the corporate policy guideline limiting such change to 10 percent of book equity as a result of a non-parallel 200-basis point increase or decrease in short-term rates. The Corporation is operating within this policy parameter.
      The traditional interest rate gap analysis provides a rudimentary directional outlook on the impact of changes in interest rates. Management recognizes the limited ability of a traditional gap schedule to accurately portray interest rate risk and therefore uses the results as a directional and corroborative tool. 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. The Corporation is operating within this policy parameter.
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      The Corporation utilizes investment securities and derivative instruments, predominantly interest rate swaps, as asset and liability management tools with the overall objective of mitigating the adverse impact to net interest income from changes in interest rates. These swaps primarily modify the interest rate characteristics of certain assets and liabilities (e.g., from a floating rate to a fixed rate, from a fixed rate to a floating rate, or from one floating rate index to another). This strategy assists management in achieving interest rate risk management objectives.
TABLE 11: REMAINING EXPECTED MATURITY OF RISK MANAGEMENT INTEREST RATE SWAPS

Dec. 31, Dec. 31,

2009- 2003 2002

2004 2005 2006 2007 2008 2026 Total Total

(dollar amounts in millions)

Variable rate asset designation:

Generic receive fixed swaps
$ 3,500 $ 3,800 $ 1,500 $ — $ — $ — $ 8,800 $ 10,616

Weighted Average:(1)

Receive Rate
6.59 % 6.11 % 5.36 % — % — % — % 6.17 % 7.44 %

Pay Rate
4.00 4.00 4.00 — — — 4.00 3.71

Fixed rate asset designation:

Pay fixed swaps

Generic
$ 13 $ — $ — $ — $ — $ — $ 13 $ 14

Amortizing
5 — — — — — 5 5

Weighted Average:(2)

Receive Rate
3.43 % 1.18 % 1.18 % 1.18 % — % — % 3.41 % 3.72 %

Pay Rate
4.12 4.15 4.15 4.15 — — 4.12 3.96

Fixed rate deposit designation:

Generic receive fixed swaps
$ — $ — $ — $ — $ — $ — $ — $ 1,467

Weighted Average:(1)

Receive Rate
— % — % — % — % — % — % — % 4.22 %

Pay Rate
— — — — — — — 3.12

Medium- and long-term debt designation:

Generic receive fixed swaps
$ — $ 250 $ 100 $ 450 $ 350 $ 850 $ 2,000 $ 1,500

Weighted Average:(1)

Receive Rate
— % 7.04 % 2.95 % 5.82 % 6.17 % 6.30 % 6.09 % 6.78 %

Pay Rate
— 1.13 1.24 1.21 1.19 1.11 1.16 1.67

Total notional amount
$ 3,518 $ 4,050 $ 1,600 $ 450 $ 350 $ 850 $ 10,818 $ 13,602

(1) Variable rates paid on receive fixed swaps are based on prime, LIBOR with various maturities or one-month Canadian Dollar Offered Rate (CDOR) rates in effect at December 31, 2003.

(2) Variable rates received are based on three-month and six-month LIBOR or one-month and three-month CDOR rates in effect at December 31, 2003.

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Risk Management Derivative Financial Instruments and Foreign Exchange Contracts

Risk Management Notional Activity

Interest Foreign

Rate Exchange

Contracts Contracts Totals

(in millions)

Balance at January 1, 2002
$ 14,497 $ 820 $ 15,317

Additions
4,014 16,433 20,447

Maturities/ amortizations
(4,909 ) (16,515 ) (21,424 )

Balance at December 31, 2002
$ 13,602 $ 738 $ 14,340

Additions
4,146 17,598 21,744

Maturities/ amortizations
(6,030 ) (17,897 ) (23,927 )

Terminations
(900 ) — (900 )

Balance at December 31, 2003
$ 10,818 $ 439 $ 11,257

      The notional amount of risk management interest rate swaps totaled $10.8 billion at December 31, 2003, and $13.6 billion at December 31, 2002. The decrease in notional amount of $2.8 billion was, in part, due to a $1.8 billion decrease in hedged total loans from December 31, 2002 to December 31, 2003. The fair value of risk management interest rate swaps was an asset of $346 million at December 31, 2003, compared to an asset of $740 million at December 31, 2002.
      For the year ended December 31, 2003, risk management interest rate swaps generated $378 million of net interest income, compared to $460 million of net interest income for the year ended December 31, 2002. The lower swap income for 2003 over 2002 was primarily due to the 2003 maturity of swaps with fixed receivable rates that were significantly higher than available in the market for the additions.
      During the second quarter of 2003, the Corporation terminated interest rate swaps with a notional amount of $900 million that were designated as cash flow hedges. Of the pretax gain that was realized on the terminated swaps, $52 million was included in other comprehensive income and is being recognized in interest income through 2006, the period during which the related hedged loans affect earnings. At December 31, 2003, $38 million of the pretax gain realized remains in other comprehensive income.
      Table 11 on page 48 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, 2003. Swaps have been grouped by the asset and liability designation.
      In addition to interest rate swaps, the Corporation employs various other types of derivatives 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). Such instruments include interest rate caps and floors, purchased put options, foreign exchange forward contracts and foreign exchange swap agreements. The aggregate notional amounts of these risk management derivatives and foreign exchange contracts at December 31, 2003 and 2002, were $439 million and $738 million, respectively.
      Further information regarding risk management financial instruments and foreign currency exchange contracts is provided in Notes 1, 12, and 22 to the consolidated financial statements on pages 62, 76 and 90, respectively.
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Customer-Initiated and Other Derivative Financial Instruments and Foreign Exchange Contracts

Customer-Initiated and Other Notional Activity

Interest Foreign

Rate Exchange

Contracts Contracts Totals

(in millions)

Balance at January 1, 2002
$ 1,698 $ 2,689 $ 4,387

Additions
771 46,725 47,496

Maturities/ amortizations
(725 ) (47,643 ) (48,368 )

Balance at December 31, 2002
$ 1,744 $ 1,771 $ 3,515

Additions
1,616 70,181 71,797

Maturities/ amortizations
(689 ) (70,048 ) (70,737 )

Terminations
(369 ) — (369 )

Balance at December 31, 2003
$ 2,302 $ 1,904 $ 4,206

      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. Customer-initiated activity represented 27 percent at December 31, 2003, and 19 percent at December 31, 2002, of total derivative and foreign exchange contracts, including commitments to purchase and sell securities. Refer to Notes 1 and 22 of the consolidated financial statements on pages 62 and 90, respectively, 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. The Corporation has various financial obligations, including contractual obligations and commercial commitments, which require future cash payments. The following contractual obligations table summarizes the Corporation’s noncancelable contractual obligations and future required minimum payments. Refer to Notes 7, 11 and 12 of the financial statements on pages 72, 75 and 76, respectively, for a further discussion of these contractual obligations.

Contractual Obligations

December 31, 2003

Minimum Payments Due by Period

Less than 1-3 3-5 More than

Total 1 Year Years Years 5 Years

(in millions)

Deposits without a stated maturity
$34,097 $ 34,097 $ — $ — $ —

Certificates of deposit and other deposits with a stated maturity
7,366 6,071 943 204 148

Short-term borrowings
262 262 — — —

Medium- and long-term debt
4,570 850 385 1,738 1,597

Operating leases
256 54 90 58 54

Other long-term obligations
226 21 26 12 167

Total contractual obligations
$46,777 $ 41,355 $ 1,444 $ 2,012 $ 1,966

      The Corporation also has other commercial commitments that impact liquidity. These commitments include commitments to purchase and sell earning assets, commitments to fund private equity and venture capital investments, unused commitments to extend credit, standby letters of credit and financial guarantees, commercial letters of credit and credit default swaps. The following commercial commitments table summarizes the Corporation’s commercial commitments and expected expiration dates by period.
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Commercial Commitments

December 31, 2003

Expected Expiration Dates by Period

Less than 1-3 3-5 More than

Total 1 Year Years Years 5 Years

(in millions)

Commitments to purchase investment securities
$ 3 $ 3 $ — $ — $ —

Commitments to sell investment securities
2 2 — — —

Commitments to fund private equity and venture capital investments
65 — — — 65

Unused commitments to extend credit
27,049 13,974 8,212 2,842 2,021

Standby letters of credit and financial guarantees
6,045 4,213 1,318 382 132

Commercial letters of credit
261 231 7 3 20

Credit default swaps
— — — — —

Total commercial commitments
$ 33,425 $ 18,423 $ 9,537 $ 3,227 $ 2,238

      Since many of these commitments expire without being drawn upon, the total amount of these commercial commitments does not necessarily represent the future cash requirements of the Corporation. Refer to the “Other Market Risks” section below and Note 22 of the consolidated financial statements on page 90 for a further discussion of these commercial commitments.
      Liquidity requirements are satisfied with various funding sources. First, the Corporation accesses the purchased funds market regularly to meet funding needs. Purchased funds at December 31, 2003, comprised of certificates of deposit of $100,000 and over that mature in less than one year, foreign office time deposits and short-term borrowings, approximated $4.0 billion, compared to $6.0 billion and $10.4 billion at December 31, 2002 and December 31, 2001, respectively. Second, two medium-term note programs, a $15 billion senior note program and a $2 billion European program, allow the principal banking subsidiary to issue debt with maturities between one month and 15 years. At year-end 2003, unissued debt relating to the two medium-term note programs totaled $15.9 billion. A third source, if needed, would be liquid assets, cash and due from banks, short-term investments and investment securities available-for-sale, which totaled $10.0 billion at December 31, 2003. Additionally, the Corporation also had available $14.3 billion from a collateralized borrowing account with the Federal Reserve Bank at December 31, 2003.
      The parent company had available a $250 million commercial paper facility at December 31, 2003, which was unused. Another source of liquidity for the parent company is dividends from its subsidiaries. As discussed in Note 21 to the financial statements on page 89, subsidiary banks are subject to regulation and may be limited in their ability to pay dividends or transfer funds to the holding company. During 2004, the subsidiary banks can pay dividends up to $209 million plus current year net profits without prior regulatory approval. One measure of current parent company liquidity is investment in subsidiaries as a percentage of shareholders’ equity. An amount over 100 percent represents the reliance on subsidiary dividends to repay liabilities. As of December 31, 2003, the ratio was 110 percent.
      The Corporation regularly evaluates its ability to meet funding needs in unanticipated, stress environments. In conjunction with the quarterly 200 basis point interest rate shock analysis, discussed in the “Interest Rate Sensitivity” section on page 47 of this financial review, liquidity ratios and potential funding availability are examined. Each quarter, the Corporation also evaluates its ability to meet liquidity needs under a series of broad events, distinguished in terms of duration and severity. The evaluation projects that sufficient sources of liquidity are available in each series of events.

Other Market Risks

      The Corporation’s market risk related to trading instruments is not significant, as trading activities are limited. Certain components of the Corporation’s noninterest income, primarily fiduciary income and investment advisory revenue, are at risk to fluctuations in the market values of underlying assets, particularly equity securities. Other components of noninterest income, primarily brokerage fees, are at risk to changes in the level of market activity.
      At December 31, 2003, the Corporation had a $118 million portfolio of indirect (through funds) private equity and venture capital investments, and had commitments of $65 million to fund additional investments in future periods. The value of these investments is at risk to changes in equity markets, general economic conditions and a variety of other factors. The majority of these investments are not readily marketable, and are reported in other assets. The investments are individually reviewed for impairment on a quarterly basis, by comparing the carrying value to the estimated fair value. The Corporation bases estimates of fair value for the majority of its
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indirect private equity and venture capital investments on the percentage ownership in the fair value of the entire fund, as reported by the fund management. In general, the Corporation does not have the benefit of the same information regarding the fund’s underlying investments as does fund management. Therefore, after indication that fund management adheres to accepted, sound and recognized valuation techniques, the Corporation generally utilizes the fair values assigned to the underlying portfolio investments by fund management. For those funds where fair value is not reported by fund management, the Corporation derives the fair value of the fund by estimating the fair value of each underlying investment in the fund. In addition to using qualitative information about each underlying investment, as provided by fund management, the Corporation gives consideration to information pertinent to the specific nature of the debt or equity investment, such as relevant market conditions, offering prices, operating results, financial conditions, exit strategy, and other qualitative information, as available. The lack of an independent source to validate fair value estimates is an inherent limitation in the valuation process. The amount by which the carrying value exceeds the fair value, that is determined to be other than temporary impairment, is charged to current earnings and the carrying value of the investment is written down accordingly. The total write-downs on indirect private equity and venture capital investments in 2003 were $17 million, which was partially offset by $9 million of income recognized on such investments in 2003. No generic assumption is applied to all investments when evaluating for impairment. The following table provides information on the Corporation’s indirect private equity and venture capital investments portfolio.

Indirect Private Equity and Venture Capital Investments

December 31, 2003

(dollars in millions)

Number of investments
100

Balance of investments
$ 118

Largest single investment
37

Commitments to fund additional investments
65

      In 2002, the Corporation adopted the fair value recognition provisions of SFAS No. 123, “Accounting for Stock Based Compensation” (as amended by SFAS 148 “Accounting for Stock-Based Compensation — Transition and Disclosure”), to be applied prospectively to all new stock-based compensation awards granted to employees after December 31, 2001. Under SFAS No. 123, the fair value of stock-based compensation as of the date of grant is recognized as compensation expense on a straight-line basis over the vesting period. In 2003, the Corporation recognized total stock-based compensation expense of $28 million. The fair value of stock options is estimated on the date of grant using an option valuation model that requires several inputs. The option valuation model is sensitive to the market price of the Corporation’s stock at the grant date, which affects the fair value estimates and, therefore, the amount of expense recorded on future grants. Using the number of stock options granted in 2003, and the Corporation’s stock price at December 31, 2003, each $5.00 per share increase in stock price would result in an increase in pretax expense of approximately $4 million, from the assumed base, over the options’ vesting period. Refer to Notes 1 and 16 of the consolidated financial statements on pages 62 and 80, respectively, for further discussion of the adoption of SFAS No. 123.
Operational Risk
      Operational risk represents the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. The definition includes legal risk, which is the risk of loss resulting from failure to comply with laws and regulations as well as prudent ethical standards and contractual obligations. It also includes the exposure to litigation from all aspects of an institution’s activities. The definition does not include strategic or reputational risks. Although operational losses are experienced by all companies and are routinely incurred in business operations, the Corporation recognizes that the identification and control of such operational losses is a paramount concern and seeks to limit their impact to a level deemed appropriate by management after considering the nature of the Corporation’s business and the environment in which it operates. Operational risk is mitigated through a system of internal controls that are designed to keep operating risks at appropriate levels. The Corporation has established an Operational Risk Management Committee, which includes members of executive management, to ensure appropriate risk management techniques and systems are maintained. The Corporation has developed a framework that includes a centralized operational risk management function and business/ support unit risk coordinators responsible for managing operational risk specific to the respective business lines.
      In addition, the Corporation’s internal audit and financial staff monitors and assesses the overall effectiveness of the system of internal controls on an ongoing basis. Internal Audit reports the results of reviews on the controls and systems to management and the Audit and Legal Committee of the Board of Directors. The internal audit staff independently supports the Audit and Legal Committee
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oversight process. The Audit and Legal Committee serves as an independent extension of the Board of Directors. Routine and special meetings are scheduled periodically to provide more detail on relevant operations risks.

Business Risk
      Business risk represents the risk of loss due to impairment of reputation, failure to fully develop and execute business plans, failure to assess current and new opportunities in business, markets and products, and any other event not identified in the defined risk categories of credit, operational, or market risks (e.g., emerging risks). Mitigation of the various risk elements that represent business risk is achieved through initiatives to help the Corporation better understand and report on the various risks. Wherever quantifiable, the Corporation will use situational analysis and other testing techniques to appreciate the scope and extent of these risks.

CRITICAL ACCOUNTING POLICIES
      The Corporation’s consolidated financial statements are prepared based on the application of accounting policies, the most significant of which are described on page 62 in Note 1 to the consolidated financial statements. These policies require numerous estimates and strategic or economic assumptions, which may prove inaccurate or subject to variations. Changes in underlying factors, assumptions or estimates could have a material impact on the Corporation’s future financial condition and results of operations. The most critical of these significant accounting policies are the policies for allowance for loan losses, pension plan accounting and goodwill. These policies are reviewed with the Audit and Legal Committee of the Corporation’s Board of Directors and are discussed more fully below.
Allowance for Loan Losses
      The allowance for loan losses is calculated with the objective of maintaining a reserve sufficient to absorb estimated probable loan losses. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires an estimate of the loss content for each risk rating and for each impaired loan, an estimate of the amounts and timing of expected future cash flows, and an estimate of the value of collateral, including the market value of thinly traded or nonmarketable equity securities.
      Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Consistent with this definition, all nonaccrual and reduced rate loans are impaired. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. The valuation is reviewed and updated each quarter. While the determination of fair value may involve estimates, each estimate is unique to the individual loan, and none is individually significant.
      The portion of the allowance allocated to the remaining loans is determined by applying projected loss ratios to loans in each risk category. Projected loss ratios incorporate factors, such as recent charge-off experience, current economic conditions and trends, trends with respect to past due and nonaccrual amounts, and are supported by underlying analysis, including information from migration and loss given default studies from each geographic market. Since a loss ratio is applied to a large portfolio of loans, any variation between actual and assumed results could be significant. In addition, a portion of the allowance is allocated to these remaining loans based on industry specific and geographic risks inherent in certain portfolios, including portfolio exposures to automotive suppliers, the high technology, entertainment and healthcare industries, and certain Latin American transfer risks.
      An unallocated allowance is also maintained to cover factors affecting the determination of probable losses inherent in the loan portfolio that are not necessarily captured by projected loss ratios or identified industry specific and geographic risk. The unallocated allowance considers the imprecision in the risk rating system and the risk associated with new customer relationships.
      The principal assumption used in deriving the allowance for loan losses is the estimate of loss content for each risk rating. To illustrate, if recent loss experience dictated that the projected loss ratios would be changed by five percent (of the estimate) across all risk ratings, the allocated allowance as of December 31, 2003 would change by approximately $17 million. For further discussion of the methodology used in the determination of the allowance for loan losses, refer to the discussion of “Provision and Allowance for Loan Losses” in the this financial review section on page 31, and Note 1 to the consolidated financial statements on page 62. To the extent actual outcomes differ from management estimates, additional provision for loan losses may be required that would adversely impact earnings in future periods. A substantial majority of the allocated allowance is assigned to business segments. Any earnings impact resulting from actual outcomes differing from management estimates would primarily affect the Business Bank segment. The unallocated allowance for loan losses is not assigned to business segments, and any earnings impact resulting from actual outcomes differing from management estimates would primarily affect the Other category in segment reporting.
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Pension Plan Accounting
      The Corporation has defined benefit plans in effect for substantially all full-time employees. Benefits under the plans are based on years of service, age and compensation. Assumptions are made concerning future events that will determine the amount and timing of required benefit payments, funding requirements and pension expense (income). The three major assumptions are the discount rate used in determining the current benefit obligation, the long-term rate of return expected on plan assets and the rate of compensation increase. The assumed discount rate is based on quoted rates for 10-year, Aa-rated (by Moody’s Investors Service) corporate debt instruments in December, the last month prior to the year of recording the expense. The second assumption, long-term rate of return expected on plan assets, is set after considering both long-term returns in the general market and long-term returns experienced by the assets in the plan. The current asset allocation and target asset allocation model for the plans is detailed in Note 17 on page 82. The expected returns on these various asset categories are blended to derive one long-term return assumption. The assets are invested in certain collective investment funds and mutual investment funds administered by Munder Capital Management, equity securities, U.S. government and agency securities, corporate bonds and notes and a real estate investment trust. The third assumption, rate of compensation increase, is based on reviewing recent annual pension-eligible compensation increases as well as the expectation of the next year’s increase. The Corporation reviews its pension plan assumptions on an annual basis with its asset manager and actuaries to determine if the assumptions are reasonable and adjusts the assumptions to reflect changes in future expectations.
      The key actuarial assumptions that will be used to calculate 2004 expense for the defined benefit pension plans are a discount rate of 6.13%, a long-term rate of return on assets of 8.75%, and a rate of compensation increase of 4.0%. Pension expense in 2004 is expected to decrease by approximately $9 million from the $26 million recorded in 2003.
      Changing the 2004 key assumptions in 25 basis point increments would have had the following impact on pension expense:

Key Assumptions

(in millions)

Discount rate
$ 4.5

Long-term rate of return
2.4

Rate of compensation
2.0

      If the assumed long-term return on assets differs from the actual return on assets, the difference is amortized on a straight-line basis over a period of five years to the extent the cumulative differences are less than 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets. Any differences greater than 10 percent at the beginning of the year are recognized and included as a component of net pension cost for that year. The Employee Benefits Committee, which is comprised of executive and senior managers from various areas of the Corporation, provides broad asset allocation guidelines to the asset manager, who reports results and investment strategy quarterly to the Committee. Asset allocations for the investment returns are compared to expected results based on broad market indices for each class of investment.
      Note 17 on page 82 to the consolidated financial statements contains a table showing the funded status of the qualified defined benefit plan at year-end, which was $22 million at December 31, 2003. As can be seen from that table, the actuarial loss in the qualified defined benefit plan at December 31, 2003 decreased to $284 million, compared to an actuarial loss of $294 million at December 31, 2002. Unless recovered in the market, this loss will be amortized to pension expense over five years. In 2003, the actual return on assets was $130 million, compared to a loss on assets of $54 million in 2002. The Corporation contributed $46 million and $175 million, in 2003 and 2002, respectively, to the qualified defined benefit plan to mitigate the impact of these actuarial losses on future years. Additional contributions, to the extent allowable by law, may be made to further mitigate these losses. For the foreseeable future, the Corporation has sufficient liquidity to make such payments.
      Pension expense is recorded in “salaries and employee benefits” expense in the consolidated statements of income, and is allocated to segments based on the segment’s share of salaries expense. Given the salaries expense included in 2003 segment results, pension expense was allocated approximately 44%, 26%, 28% and 2% to the Business Bank, Small Business and Personal Financial Services, Wealth and Institutional Management and Finance segments, respectively, in 2003.
      A minimum pension liability is required to be recorded in shareholders’ equity as part of accumulated other comprehensive income for pension plans where the accrued benefit cost is less than the accumulated benefit obligation. An after-tax minimum pension liability of $13 million and $16 million was included in shareholders’ equity as part of accumulated other comprehensive income at December 31, 2003 and 2002, respectively.
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Goodwill
      Goodwill arising from business acquisitions represents the value attributable to unidentifiable intangible elements in the business acquired. The fair value of goodwill is dependent upon many factors, including the Corporation’s ability to provide quality, cost effective services in the face of competition from other market leaders on a national and global basis. A decline in earnings as a result of business or market conditions, a lack of growth or the Corporation’s inability to deliver cost effective services over sustained periods can lead to impairment of goodwill which could adversely impact earnings in future periods.
      The majority of the Corporation’s goodwill relates to the acquisition premiums recorded when purchasing asset management and banking businesses. Goodwill is reviewed periodically for impairment by comparing the fair value of the reporting unit containing the goodwill to the book value of the reporting unit, including goodwill. If the book value is in excess of the fair value, impairment is indicated and the goodwill must be written down to its fair value.
      The fair value of reporting units is derived through use of internal valuation models for all units except the asset management reporting unit, which is part of the Wealth and Institutional Management segment. Inherent in these internal valuation models are assumptions related to the cash flows expected to be generated by reporting units, which are based on historical and projected growth expectations for reporting units, and on comparable market multiples. Cash flows are discounted using a risk-free rate plus a spread that incorporates long-term equity risk. The valuation for the asset management reporting unit (Munder) is based on an independent valuation prepared by an investment banker not affiliated with the Corporation. The annual test of goodwill and identified intangible assets that have an indefinite useful life, performed as of July 1, 2003, in accordance with SFAS No. 142, did not indicate that an impairment charge was required and there were no indications of impairment subsequent to this test in 2003. For a further discussion of the Corporation’s goodwill, refer to Note 8 to the consolidated financial statements on page 72.
      The valuation model for the asset management reporting unit includes, among others, estimates of a discount rate, market growth and new business growth assumptions. The following describes the estimated sensitivities to these assumptions, based on the most recent independent valuation.
      The discount rate assumptions used in the valuation model were 13% for Munder and 10% for Framlington (Munder’s U.K. unconsolidated subsidiary). Increasing each of the discount rates by 200 basis points would result in a decrease in the valuation of approximately $13 million at the midpoint of the valuation range. The market growth rate assumptions used for Munder were approximately 8% for equity, 1% for fixed and 3% for cash investments. The overall market growth rate assumption used for Framlington was approximately 9%. Decreasing the market growth rates by 50% would result in a decrease in the valuation of approximately $39 million at the midpoint of the valuation range. The new business growth assumption used for Munder was approximately 6% (compound annual growth rate) and the redemption (business attrition) rate used was approximately 2%. The new business growth assumption used for Framlington was approximately 5% (compound annual growth rate) and the redemption (business attrition) rate used was approximately 4%. Decreasing the new business growth assumption and increasing the redemption rate by 10% would result in a combined decrease in the valuation of approximately $15 million.
      In addition, the valuation model uses a market valuation for comparable companies (market multiples). While the market multiple is not an assumption, a presumption that it provides an indicator of the value of the asset management reporting unit is inherent in the valuation.
      The fair value estimate is updated whenever there are indicators of impairment. At December 31, 2003, management estimates that it would take a decline in the fair value of the asset management reporting unit of $75 million to trigger impairment.
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FORWARD-LOOKING STATEMENTS
      This report includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. All statements regarding the Corporation’s expected financial position, strategies and growth prospects and general economic conditions expected to exist in the future are forward-looking statements. The words, “anticipates,” “believes,” “feels,” “expects,” “estimates,” “seeks,” “strives,” “plans,” “intends,” “outlook,” “forecast,” “position,” “target,” “mission,” “assume,” “achievable,” “potential,” “strategy,” “goal,” “aspiration,” “outcome,” “continue,” “remain,” “maintain,” “trend” and variations of such words and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions as they relate to the Corporation or its management, are intended to identify forward-looking statements.
      The Corporation cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date the statement is made, and the Corporation does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.
      In addition to factors mentioned elsewhere in this report or previously disclosed in the Corporation’s SEC reports (accessible on the SEC’s website at www.sec.gov or on the Corporation’s website at www.comerica.com), the following factors, among others, could cause actual results to differ materially from forward-looking statements and future results could differ materially from historical performance:

• general political, economic or industry conditions, either domestically or internationally, may be less favorable than expected;

• the mix of interest rates and maturities of the Corporation’s interest earning assets and interest-bearing liabilities (primarily loans and deposits) may be less favorable than expected;

• interest rate margin compression may be greater than expected;

• developments concerning credit quality in various industry sectors may result in an increase in the level of the Corporation’s provision for credit losses, nonperforming assets, net charge-offs and reserve for credit losses;

• demand for commercial loan and investment advisory products may continue to be weak;

• customer borrowing, repayment, investment and deposit practices generally may be less favorable than anticipated;

• interest rate and currency fluctuations, equity and bond market fluctuations, and inflation may be greater than expected;

• global capital markets may continue to exhibit weakness, adversely affecting the Corporation’s investment advisory business line, as well as the Corporation’s private banking and brokerage business lines, and the availability and terms of funding necessary to meet the Corporation’s liquidity needs;

• the introductions, withdrawal, success and timing of business initiatives and strategies, including, but not limited to the opening of new branches or private banking offices plans to grow personal financial services and wealth management;

• competitive product and pricing pressures among financial institutions within the Corporation’s markets may increase;

• legislative or regulatory developments, including changes in laws or regulations concerning taxes, banking, securities, capital requirements and risk-based capital guidelines, reserve methodologies, deposit insurance and other aspects of the financial services industry, may adversely affect the business in which the Corporation is engaged or the Corporation’s financial results;

• legal and regulatory proceedings and related matters with respect to the financial services industry, including those directly involving the Corporation and its subsidiaries, could adversely affect the Corporation or the financial services industry generally;

• pending and proposed changes in accounting rules, policies, guidance, practices and procedures could adversely affect the Corporation’s financial results;

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• instruments, systems and strategies used to hedge or otherwise manage exposure to various types of market, credit, operational and enterprisewide risk could be less effective than anticipated, and the Corporation may not be able to effectively mitigate its risk exposures in particular market environments or against particular types of risk;

• terrorist activities or other hostilities, which may adversely affect the general economy, financial and capital markets, specific industries, and the Corporation; and

• technological changes may be more difficult or expensive than anticipated.

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CONSOLIDATED BALANCE SHEETS

Comerica Incorporated and Subsidiaries

December 31

2003 2002

(in millions, except

share data)

ASSETS

Cash and due from banks
$ 1,527 $ 1,902

Short-term investments
4,013 2,446

Investment securities available-for-sale
4,489 3,053

Commercial loans
22,974 25,242

Real estate construction loans
3,397 3,457

Commercial mortgage loans
7,878 7,194

Residential mortgage loans
875 789

Consumer loans
1,568 1,538

Lease financing
1,301 1,296

International loans
2,309 2,765

Total loans
40,302 42,281

Less allowance for loan losses
(803 ) (791 )

Net loans
39,499 41,490

Premises and equipment
374 371

Customers’ liability on acceptances outstanding
27 33

Accrued income and other assets
2,663 4,006

Total assets
$ 52,592 $ 53,301

LIABILITIES AND SHAREHOLDERS’ EQUITY

Noninterest-bearing deposits
$ 14,104 $ 16,335

Interest-bearing deposits
27,359 25,440

Total deposits
41,463 41,775

Short-term borrowings
262 540

Acceptances outstanding
27 33

Accrued expenses and other liabilities
929 790

Medium- and long-term debt
4,801 5,216

Total liabilities
47,482 48,354

Common stock — $5 par value:

Authorized — 325,000,000 shares

Issued — 178,735,252 shares at 12/31/03 and 12/31/02
894 894

Capital surplus
384 363

Accumulated other comprehensive income
74 237

Retained earnings
3,973 3,684

Less cost of common stock in treasury — 3,735,163 shares at 12/31/03 and 3,960,149 shares at 12/31/02
(215 ) (231 )

Total shareholders’ equity
5,110 4,947

Total liabilities and shareholders’ equity
$ 52,592 $ 53,301

See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME

Comerica Incorporated and Subsidiaries

Years Ended December 31

2003 2002 2001

(in millions, except per share data)

INTEREST INCOME

Interest and fees on loans
$ 2,211 $ 2,524 $ 3,121

Interest on investment securities
165 246 246

Interest on short-term investments
36 27 26

Total interest income
2,412 2,797 3,393

INTEREST EXPENSE

Interest on deposits
370 479 888

Interest on short-term borrowings
7 37 105

Interest on medium- and long-term debt
109 149 298

Total interest expense
486 665 1,291

Net interest income
1,926 2,132 2,102

Provision for loan losses
377 635 241

Net interest income after provision for loan losses
1,549 1,497 1,861

NONINTEREST INCOME

Service charges on deposit accounts
238 227 211

Fiduciary income
169 171 180

Commercial lending fees
63 69 67

Letter of credit fees
65 60 58

Foreign exchange income
35 40 35

Brokerage fees
34 38 44

Investment advisory revenue, net
30 27 12

Bank-owned life insurance
42 53 33

Equity in earnings of unconsolidated subsidiaries
6 8 (43 )

Warrant income
4 5 5

Net securities gains
50 41 20

Net gain on sales of businesses
— 12 31

Other noninterest income
151 149 184

Total noninterest income
887 900 837

NONINTEREST EXPENSES

Salaries and employee benefits
897 844 842

Net occupancy expense
128 122 115

Equipment expense
61 62 70

Outside processing fee expense
71 65 61

Software expense
37 33 34

Customer services
25 26 41

Goodwill impairment
— 86 —

Restructuring charges
— — 152

Other noninterest expenses
264 277 272

Total noninterest expenses
1,483 1,515 1,587

Income before income taxes
953 882 1,111

Provision for income taxes
292 281 401

NET INCOME
$ 661 $ 601 $ 710

Net income applicable to common stock
$ 661 $ 601 $ 698

Basic net income per common share
$ 3.78 $ 3.43 $ 3.93

Diluted net income per common share
3.75 3.40 3.88

Cash dividends declared on common stock
350 335 313

Cash dividends declared per common share
2.00 1.92 1.76

See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Comerica Incorporated and Subsidiaries

Accumulated

Other Total

Preferred Common Capital Comprehensive Retained Treasury Shareholders’

Stock Stock Surplus Income Earnings Stock Equity

(in millions, except share data)

BALANCE AT JANUARY 1, 2001
$ 250 $ 888 $ 280 $ 12 $ 3,086 $ (16 ) $ 4,500

Net income
— — — — 710 — 710

Other comprehensive income, net of tax
— — — 213 — — 213

Total comprehensive income
— — — — — — 923

Redemption of preferred stock
(250 ) — — — — — (250 )

Cash dividends declared:

Preferred stock ($2.32 per share)
— — — — (12 ) — (12 )

Common stock ($1.76 per share)
— — — — (313 ) — (313 )

Purchase of 2,198,700 shares of common stock
— — — — — (121 ) (121 )

Net issuance of common stock under employee stock plans
— 6 37 — (23 ) 46 66

Recognition of stock-based compensation expense
— — 14 — — — 14

BALANCE AT DECEMBER 31, 2001
$ — $ 894 $ 331 $ 225 $ 3,448 $ (91 ) $ 4,807

Net income
— — — — 601 — 601

Other comprehensive income, net of tax
— — — 12 — — 12

Total comprehensive income
— — — — — — 613

Cash dividends declared on common stock ($1.92 per share)
— — — — (335 ) — (335 )

Purchase of 3,536,300 shares of common stock
— — — — — (210 ) (210 )

Net issuance of common stock under employee stock plans
— — 10 — (30 ) 70 50

Recognition of stock-based compensation expense
— — 22 — — — 22

BALANCE AT DECEMBER 31, 2002
$ — $ 894 $ 363 $ 237 $ 3,684 $ (231 ) $ 4,947

Net income
— — — — 661 — 661

Other comprehensive income (loss), net of tax
— — — (163 ) — — (163 )

Total comprehensive income
— — — — — — 498

Cash dividends declared on common stock ($2.00 per share)
— — — — (350 ) — (350 )

Purchase of 510,500 shares of common stock
— — — — — (27 ) (27 )

Net issuance of common stock under employee stock plans
— — (5 ) — (22 ) 43 16

Recognition of stock-based compensation expense
— — 26 — — — 26

BALANCE AT DECEMBER 31, 2003
$ — $ 894 $ 384 $ 74 $ 3,973 $ (215 ) $ 5,110

See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS

Comerica Incorporated and Subsidiaries

Years Ended December 31

2003 2002 2001

(in millions)

OPERATING ACTIVITIES

Net income
$ 661 $ 601 $ 710

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses
377 635 241

Depreciation and software amortization
69 69 77

Net amortization of securities
29 13 7

Net amortization of intangibles
1 4 34

Merger-related and restructuring charges
— (8 ) 55

Net gain on sale of investment securities available-for-sale
(50 ) (41 ) (20 )

Net gain on sales of businesses
— (12 ) (31 )

Contributions to pension plan fund
(47 ) (175 ) (37 )

Goodwill impairment
— 86 —

Net decrease in trading securities
1 71 3

Net decrease (increase) in loans held-for-sale
62 118 (130 )

Net decrease in accrued income receivable
18 45 134

Net increase (decrease) in accrued expenses
90 (19 ) 35

Other, net
110 (159 ) (138 )

Total adjustments
660 627 230

Net cash provided by operating activities
1,321 1,228 940

INVESTING ACTIVITIES

Net (increase) decrease in other short-term investments
(1,630 ) (1,436 ) 779

Proceeds from sales of investment securities available-for-sale
4,030 2,871 2,386

Proceeds from maturities of investment securities available-for-sale
4,987 2,042 1,304

Purchases of investment securities available-for-sale
(10,416 ) (3,691 ) (4,189 )

Decrease (increase) in receivables for securities sold pending settlement
1,110 (1,110 ) —

Net decrease (increase) in loans
1,589 (1,673 ) (1,222 )

Fixed assets, net
(59 ) (80 ) (68 )

Purchase of bank-owned life insurance
— (8 ) (107 )

Net decrease (increase) in customers’ liability on acceptances outstanding
6 (4 ) (2 )

Net cash provided by acquisitions/ sales of businesses
— 8 45

Net cash used in investing activities
(383 ) (3,081 ) (1,074 )

FINANCING ACTIVITIES

Net (decrease) increase in deposits
(307 ) 4,212 3,704

Net decrease in short-term borrowings
(278 ) (1,446 ) (107 )

Net (decrease) increase in acceptances outstanding
(6 ) 4 2

Proceeds from issuance of medium- and long-term debt
511 1,106 2,081

Repayments of medium- and long-term debt
(875 ) (1,555 ) (4,933 )

Redemption of preferred stock
— — (250 )

Proceeds from issuance of common stock and other capital transactions
16 50 66

Purchase of common stock for treasury and retirement
(27 ) (210 ) (121 )

Dividends paid
(347 ) (331 ) (314 )

Net cash (used in) provided by financing activities
(1,313 ) 1,830 128

Net decrease in cash and due from banks
(375 ) (23 ) (6 )

Cash and due from banks at beginning of year
1,902 1,925 1,931

Cash and due from banks at end of year
$ 1,527 $ 1,902 $ 1,925

Interest paid
$ 457 $ 693 $ 1,420

Income taxes paid
$ 148 $ 244 $ 344

Noncash investing and financing activities:

Loans transferred to other real estate
$ 32 $ 9 $ 13

Loans transferred to loans held-for-sale
— 120 —

See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Comerica Incorporated and Subsidiaries
Note 1 — Summary of Significant Accounting Policies

Organization

      Comerica Incorporated is a registered financial holding company headquartered in Detroit, Michigan. The Corporation’s major lines of business are the Business Bank, Small Business and Personal Financial Services, and Wealth and Institutional Management. For further discussion of each line of business, refer to Note 26 on page 98. The core businesses are tailored to each of the Corporation’s four primary geographic regions: Midwest, Western, Texas and Florida. The Corporation and its banking subsidiaries are regulated at both the state and federal levels.
      The accounting and reporting policies of the Corporation conform to accounting principles generally accepted in the United States and prevailing practices within the banking industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.
      The following summarizes the significant accounting policies of the Corporation applied in the preparation of the accompanying consolidated financial statements.

Principles of 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.
      In January 2003, the Financial Accounting Standards Board (the FASB) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” which provides guidance on how to identify a variable interest entity (VIE), and when the assets, liabilities, noncontrolling interests and results of operations of a VIE need to be included in a company’s consolidated financial statements. This interpretation was revised in December 2003 with the issuance of Interpretation No. 46(R), “Consolidation of Variable Interest Entities” (FIN 46(R)). The Corporation adopted the provisions of FIN 46(R) effective July 1, 2003 for all interests held in a VIE. For further information on the adoption of FIN 46(R), see Note 24 on page 94.
      In general, a VIE is an entity that lacks sufficient equity or its equity holders lack adequate decision making ability. If either of these characteristics is present, the entity is subject to a variable interests consolidation model, and consolidation is based on variable interests, not on ownership of the entity’s outstanding voting stock. Variable interests are defined as contractual, ownership, or other money interests in an entity that change with fluctuations in the entity’s net asset value. The primary beneficiary consolidates the VIE; the primary beneficiary is defined as the enterprise that absorbs a majority of expected losses or receives a majority of residual returns (if the losses or returns occur), or both. The Corporation consolidates entities not determined to be VIE’s when it holds a majority (controlling) interest in the entity’s outstanding voting stock. The minority interest in less than 100% owned consolidated subsidiaries is not material, and is included in “accrued expenses and other liabilities” on the consolidated balance sheets. The related minority interest in earnings is also not material, and is included in “other noninterest expenses” on the consolidated statements of income.
      Equity investments in entities that are not VIE’s where the Corporation owns less than a majority (controlling) interest and equity investments in entities that are VIE’s where the Corporation is not the primary beneficiary are not consolidated. Rather, such investments are accounted for using either the equity method or cost method. The equity method is used for investments in corporate joint venture and investments where the Corporation has the ability to exercise significant influence over the investee’s operation and financial policies, which is generally presumed to exist if the Corporation owns more than 20% of the voting stock of the investee. Equity method investments are included in “accrued income and other assets” on the consolidated balance sheets, with income and losses recorded in “equity in earnings of unconsolidated subsidiaries” on the consolidated statements of income. Equity investments that do not meet the criteria to be accounted for under the equity method are accounted for under the cost method. Cost method investments in publicly traded companies are included in “investment securities available-for-sale” on the consolidated balance sheets, with income and any required write downs recorded in “net securities gains” on the consolidated statements of income. Cost method investments in non-publicly traded companies are included in “accrued income and other assets” on the consolidated balance sheets, with income and any required write-downs recorded in “other noninterest income” on the consolidated statements of income.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Comerica Incorporated and Subsidiaries
      For acquisitions accounted for as pooling-of-interests combinations, the historical consolidated financial statements are restated to include the accounts and results of operations. Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations” (issued June 2001), eliminated the pooling-of-interests method for acquisitions initiated after June 30, 2001. 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. Prior to 2002, goodwill representing the excess of cost over the net book value of identifiable assets acquired was amortized on a straight-line basis over periods ranging from 10 to 25 years (weighted average of 19 years). Beginning in 2002, as required by SFAS No. 142, “Goodwill and Other Intangible Assets” (issued June 2001), goodwill is no longer amortized, but is subject to annual impairment tests. Other intangible assets that do not have indefinite lives will continue to be amortized over their useful lives. Core deposit intangible assets are amortized on an accelerated method over 10 years. Refer to Note 8 on page 72 for further information on the adoption of SFAS No. 142.

Short-term Investments

      Short-term investments include interest-bearing deposits with banks, federal funds sold, securities purchased under agreements to resell, trading securities and loans held-for-sale.
      Trading securities are carried at market value. Realized and unrealized gains or losses on trading securities are included in “other noninterest income” on the consolidated statements of income.
      Loans held-for-sale, typically residential mortgages and Small Business Administration loans, are carried at the lower of cost or market. Market value is determined in the aggregate.

Investment Securities

      Investment securities held-to-maturity are those securities which the Corporation has the ability and management has the 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 separate component of other comprehensive income. Unrealized losses on securities available-for-sale are recognized in earnings if the Corporation does not have the ability or intent to hold the securities until market recovery or if full collection of the amounts due according to the contractual terms of the debt is not expected.
      Gains or losses on the sale of securities are computed based on the adjusted cost of the specific security sold.

Allowance for Loan Losses

      The allowance for loan losses represents management’s assessment of probable losses inherent in the Corporation’s loan 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. Internal risk ratings are assigned to each business loan at the time of approval and are subject to subsequent periodic reviews by the senior management of the Corporation’s Credit Policy Group. The Corporation performs a detailed credit quality review quarterly on large business loans that have deteriorated below certain levels of credit risk, and may allocate a specific portion of the allowance to such loans based upon this review. The Corporation defines business loans as those belonging to the commercial, real estate construction, commercial mortgage, lease financing and international loan portfolios. A portion of the allowance is allocated to the remaining business loans by applying projected loss ratios, based on numerous factors identified below, to the loans within each risk rating. In addition, a portion of the allowance is allocated to these remaining loans based on industry specific and geographic risks inherent in certain portfolios. The portion of the allowance allocated to non-business loans is determined by applying projected loss ratios to various segments of the loan portfolio. Projected loss ratios incorporate factors, such as recent charge-off experience, current economic conditions and trends, trends with respect to past due and nonaccrual amounts, and are supported by underlying analysis, including information from migration and loss given default studies from each geographic market.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Comerica Incorporated and Subsidiaries
      Management maintains an unallocated allowance to recognize the uncertainty and imprecision underlying the process of estimating expected loan losses. Determination of the probable losses inherent in the portfolio, which are not necessarily captured by the allocation methodology discussed above, involve the exercise of judgment. Factors that were considered in the evaluation of the adequacy of the Corporation’s unallocated allowance include the imprecision in the risk rating system and the risk associated with new customer relationships.
      The total allowance, including the unallocated amount, is available to absorb losses from any segment within the portfolio. Unanticipated economic events, including political, economic and regulatory stability in countries where the Corporation has a concentration of loans, could cause changes in the credit characteristics of the portfolio and result in an unanticipated increase in the allocated allowance. Inclusion of other industry specific and geographic portfolio exposures in the allocated allowance, as well as significant increases in the current portfolio exposures could also increase the amount of the allocated allowance. Any of these events, or some combination, may result in the need for additional provision for loan losses in order to maintain an allowance that complies with credit risk and accounting policies.
      Loans, which are deemed uncollectible, are charged off and deducted from the allowance. The provision for loan losses and recoveries on loans previously charged off are added to the allowance.

Allowance for Credit Losses on Lending-Related Commitments

      The Corporation maintains an allowance to cover probable credit losses inherent in lending-related commitments, including commitments to extend credit, letters of credit and guarantees. This allowance is included in “accrued expenses and other liabilities” on the consolidated balance sheets, with the corresponding charge reflected in “other noninterest expense” on the consolidated statements of income.

Nonperforming Assets

      Nonperforming assets are comprised of loans and debt securities 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 real estate which has been acquired primarily through foreclosure and is awaiting disposition.
      Loans, which were restructured, but yield a rate equal to or greater than the rate charged for new loans with comparable risk and have met the requirements for accrual status, are not reported as nonperforming assets. Such loans continue to be evaluated for impairment for the remainder of the calendar year of the modifications. These loans may be excluded from the impairment assessment in the calendar years subsequent to the restructuring if not impaired based on the modified terms. See Note 4 on page 69 for additional information on loan impairment.
      Consumer loans are generally not placed on nonaccrual status and are charged off no later than 180 days past due, and earlier, if deemed uncollectible. Loans, other than consumer loans, and debt securities 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 or debt security is placed on nonaccrual status, interest previously accrued but not collected is charged against current income. Income on such loans and debt securities is then recognized only to the extent that cash is received and where future collection of principal is probable. Generally, a loan or debt security may be returned to accrual status when all delinquent principal and interest have been received and the Corporation expects repayment of the remaining contractual principal and interest or when the loan or debt security is both well secured and in the process of collection.
      A nonaccrual loan that is restructured will generally remain on nonaccrual after the restructuring, for a period of six months to demonstrate that the borrower can meet the restructured terms. However, sustained payment performance prior to the restructuring, or significant events that coincide with the restructuring, are included in assessing whether the borrower can meet the restructured terms. These factors may result in the loan being returned to an accrual basis at the time of restructuring or upon satisfaction of a shorter performance period. If management is uncertain whether the borrower has the ability to meet the revised payment schedule, the loan remains classified as nonaccrual. 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 loan losses. Subsequent write-downs, operating expenses and losses upon sale, if any, are charged to noninterest expenses.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Comerica Incorporated and Subsidiaries

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.

Software

      Capitalized software is stated at cost, less accumulated amortization. Capitalized software includes purchased software and capitalizable application development costs associated with internally-developed software. Amortization, computed on the straight-line method, is charged to operations over the estimated useful life of the software, which is generally 5 years. Capitalized software is included in “accrued income and other assets” on the consolidated balance sheets.

Impairment

      Goodwill and identified intangible assets that have an indefinite useful life are subject to impairment testing, which the Corporation conducts annually, or on an interim basis if events or changes in circumstances between annual tests indicate the assets might be impaired. The Corporation performs its annual impairment test for goodwill and identified intangible assets that have an indefinite useful life as of July 1 of each year. The impairment test involves assigning tangible assets and liabilities, identified intangible assets and goodwill to reporting units, which are a subset of the Corporation’s operating segments, and comparing the fair value of each reporting unit to its carrying value. If the fair value is less than the carrying value, a further test is required to measure the amount of impairment.
      The Corporation reviews finite lived intangible assets and other long lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable from projected undiscounted net operating cash flows. If the projected undiscounted net operating cash flows are less than the carrying amount, the Corporation recognizes a loss to reduce the carrying amount to fair value. Additional information regarding the Corporation’s goodwill, intangible assets and impairment policies can be found in Notes 8 and 9 on pages 72 and 73, respectively.

Stock-Based Compensation

      In 2002, the Corporation adopted the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (as amended by SFAS No. 148, “Accounting for Stock-based Compensation-Transition and Disclosure”), which the Corporation is applying prospectively to new stock-based compensation awards granted to employees after December 31, 2001. Options granted prior to January 1, 2002 continue to be accounted for under the intrinsic value method, as outlined in APB Opinion No. 25, “Accounting for Stock Issued to Employees.” Awards under the Corporation’s plans vest over periods ranging from one to four years. Therefore, the expense related to stock-based compensation included in the determination of net income for 2003 and 2002 is less than that which would have been recognized if the fair value method had been applied to all awards since the original effective date of SFAS No. 123. The impact of the adoption of SFAS No. 123 on 2003 and 2002 net income was a decrease of $13 million and $11 million, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Comerica Incorporated and Subsidiaries
The effect on net income and earnings per share, if the fair value method had been applied to all outstanding and unvested awards in each of the three years in the period ended December 31, 2003, is presented in the table below.

Years Ended December 31

2003 2002 2001

(in millions)

Net income applicable to common stock, as reported
$ 661 $ 601 $ 698

Add: Stock-based compensation expense included in reported net income, net of related tax effects
18 17 11

Deduct: Total stock-based compensation expense determined under fair value method for all awards, net of related tax effects
26 30 56

Pro forma net income applicable to common stock
$ 653 $ 588 $ 653

Net income per common share:

Basic-as reported
$ 3.78 $ 3.43 $ 3.93

Basic-pro forma
3.74 3.36 3.68

Diluted-as reported
3.75 3.40 3.88

Diluted-pro forma
3.70 3.32 3.63

      Pro forma net income applicable to common stock and net income per common share in 2001 was affected by the accelerated vesting of former Imperial and OPAY stock options as a result of the Imperial acquisition. Further information on the Corporation’s stock-based compensation plans is included in Note 16 on page 80.

Pension Costs

      Pension costs are charged to salaries and employee benefits expense and funded consistent with the requirements of federal law and regulations. Inherent in the determination of pension costs are assumptions concerning future events that will determine the amount and timing of required benefit payments under the plans. These include an assumed rate of compensation increase and an assumed discount rate used in determining the current benefit obligation. An assumption is also made related to the long-term rate of return expected on plan assets. To the extent actual outcomes differ from these assumptions, accounting standards generally require these “actuarial gains/ losses” to be amortized to expense over a period of five years to the extent the cumulative differences are less than ten percent of the greater of the projected benefit obligation or the market-related value of plan assets. Any differences greater than ten percent at the beginning of the year are recognized and included as a component of net pension cost for that year.

Postretirement Benefits

      Postretirement benefits are recognized in “salaries and employee benefits” on the consolidated statements of income during the employee’s active service period.

Derivative Financial Instruments and Foreign Exchange Contracts

      Derivative instruments are carried at fair value as either other assets or liabilities on the balance sheet. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument is determined by whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Corporation designates the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments designated and qualifying as a fair value hedge (i.e., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings during the period of the change in fair values. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item (i.e. the ineffective portion), if any, is recognized in current earnings during
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Comerica Incorporated and Subsidiaries
the period of change. For derivative instruments that are designated and qualify as a hedge of a net investment in a foreign currency, the gain or loss is reported in other comprehensive income as part of the cumulative translation adjustment to the extent it is effective. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change.
      Foreign exchange futures and forward contracts, foreign currency options, interest rate caps and interest rate swap agreements executed as a service to customers are not designated as hedging instruments and both the realized and unrealized gains and losses on these instruments are recognized currently in noninterest income.

Standby and Commercial Letters of Credit and Financial Guarantees

      In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). The Interpretation requires the liability related to certain guarantee contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party to be recognized and initially measured at fair value by the guarantor. The initial recognition and measurement provisions were applied by the Corporation on a prospective basis to guarantees issued or modified subsequent to December 31, 2002. Further information on the Corporation’s obligations under guarantees is included in Note 22 on page 90.

Income Taxes

      The provision for income taxes is based on amounts reported in the statements of income (after exclusion of nontaxable items, principally income on bank-owned life insurance and interest income 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. Deferred tax assets are evaluated for realization based on available evidence and assumptions made regarding future events. In the event that the future taxable income does not occur in the manner anticipated, other initiatives could be undertaken to preclude the need to recognize a valuation allowance against the deferred tax asset.

Statements of Cash Flows

      For the purpose of presentation in the consolidated statements of cash flows, cash and cash equivalents are defined as those amounts included in “cash and due from banks” on the consolidated balance sheets.

Deferred Distribution Costs

      Certain mutual fund distribution costs, principally commissions paid to brokers, are capitalized when paid and amortized over six years. Fees that contractually recoup the deferred costs, primarily 12b-1 fees, are received over a 6 – 8 year period. The net of these fees and amortization is recorded in “investment advisory revenue, net” on the consolidated statements of income. Early redemption fees collected are recorded as a reduction to the capitalized costs.

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.

Other Comprehensive Income

      The Corporation has elected to present information on comprehensive income in the Consolidated Statements of Changes in Shareholders’ Equity on page 60 and in Note 14 on page 78.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Comerica Incorporated and Subsidiaries
Note 2 — Acquisitions
      In January 2001, the Corporation merged with Imperial Bancorp (Imperial), a $7 billion (assets) bank holding company, through an exchange of 0.46 shares of Comerica common stock for each share of Imperial common stock. The Corporation issued 21 million shares of common stock as part of the transaction. The financial information presented in this annual report is restated to include the accounts and results of operations of Imperial, which was accounted for as a pooling-of-interests combination. The Corporation incurred a pre-tax, merger-related and restructuring charge of $173 million ($128 million after-tax) in 2001 in connection with the acquisition. As of December 31, 2001, all merger-related expenses had been incurred.
Note 3 — Investment Securities
      A summary of the Corporation’s investment securities available-for-sale follows:

Gross Gross

Amortized Unrealized Unrealized

Cost Gains Losses Fair Value

(in millions)

December 31, 2003

U.S. Treasury and other Government agency securities
$ 4,346 $ 3 $ 40 $ 4,309

State and municipal securities
10 1 — 11

Other securities
168 1 — 169

Total securities available-for-sale
$ 4,524 $ 5 $ 40 $ 4,489

December 31, 2002

U.S. Treasury and other Government agency securities
$ 2,714 $ 34 $ — $ 2,748

State and municipal securities
22 1 — 23

Other securities
294 2 14 282

Total securities available-for-sale
$ 3,030 $ 37 $ 14 $ 3,053

      A summary of the Corporation’s temporarily impaired investment securities available-for-sale follows:

December 31, 2003

Impaired

Less than 12 months Over 12 months Total

Fair Unrealized Fair Unrealized Fair Unrealized

Value Losses Value Losses Value Losses

(in millions)

U.S. Treasury and other Government agency securities
$ 3,357 $ 40 $ 2 $ — $ 3,359 $ 40

State and municipal securities
— — — — — —

Other securities
— — — — — —

Total temporarily impaired securities
$ 3,357 $ 40 $ 2 $ — $ 3,359 $ 40

      At December 31, 2003, the Corporation had 65 U.S. Treasury and other Government agency securities in an unrealized loss position. As shown in the table above, substantially all of these securities were in an unrealized loss position for less than twelve months. The unrealized losses arose as a result of changes in market interest rates. The Corporation has the ability and intent to hold these available-for-sale investment securities until maturity or market price recovery. Full collection of the amounts due according to the contractual terms of the debt is expected.
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Comerica Incorporated and Subsidiaries
      The table below summarizes the amortized cost and fair values of debt securities, by contractual maturity (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, 2003

Amortized Fair

Cost Value

(in millions)

Contractual maturity

Within one year
$ 75 $ 75

After one year through five years
77 78

After five year through ten years
2 3

After ten years
— —

Subtotal
154 156

Mortgage-backed securities
4,282 4,245

Equity and other nondebt securities
88 88

Total securities available-for-sale
$ 4,524 $ 4,489

      Sales, calls and write-downs of investment securities available-for-sale resulted in realized gains and losses as follows:

Years Ended

December 31

2003 2002 2001

(in millions)

Securities gains
$ 64 $ 78 $ 29

Securities losses
(14 ) (37 ) (9 )

Total
$ 50 $ 41 $ 20

      At December 31, 2003, assets, principally securities, with a carrying value of approximately $1.1 billion were pledged, primarily with the Federal Reserve Bank and state and local governments. Securities were pledged where permitted or required by law to secure liabilities and public and other deposits, including deposits of the State of Michigan of $146 million at December 31, 2003.
Note 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 and debt securities, reduced-rate loans and other real estate. Nonaccrual loans and debt securities 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 sheets. Nonaccrual debt securities are included in “investment securities available-for-sale” and other real estate is included in “accrued income and other assets” on the consolidated balance sheets.
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Comerica Incorporated and Subsidiaries

December 31

2003 2002

(in millions)

Nonaccrual loans:

Commercial
$ 300 $ 372

Real estate construction:

Real estate construction business line
21 17

Other
3 2

Total real estate construction
24 19

Commercial mortgage:

Commercial real estate business line
3 8

Other
84 45

Total commercial mortgage
87 53

Residential mortgage
1 —

Consumer
3 2

Lease financing
24 5

International
68 114

Total nonaccrual loans
507 565

Reduced-rate loans
— —

Total nonperforming loans
507 565

Other real estate
30 10

Nonaccrual debt securities
1 4

Total nonperforming assets
$ 538 $ 579

Loans past due 90 days and still accruing
$ 32 $ 43

Gross interest income that would have been recorded had the nonaccrual and reduced-rate loans performed in accordance with original terms
$ 59 $ 67

Interest income recognized
$ 12 $ 17

      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.
      Impaired loans at December 31, 2003 were $559 million, $56 million of which were restructured and met the requirements to be on accrual status. These restructured loans are performing in accordance with their modified terms, but, in accordance with impaired loan disclosures, must be disclosed as impaired for the remainder of the calendar year of the restructuring. Excluding these restructured loans, impaired business loans remaining on nonaccrual status totaled $503 million at December 31, 2003.
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Comerica Incorporated and Subsidiaries

December 31

2003 2002 2001

(in millions)

Average impaired loans for the year
$ 593 $ 628 $ 549

Total year-end impaired loans
$ 559 $ 582 $ 674

Less: Loans restructured during the year on accrual status at year-end
(56 ) (19 ) (62 )

Total year-end nonaccrual business loans
$ 503 $ 563 $ 612

Year-end impaired loans requiring an allowance
$ 480 $ 530 $ 562

Allowance allocated to impaired loans
$ 182 $ 197 $ 228

      Those impaired loans not requiring an allowance represent loans for which the fair value exceeded the recorded investment in such loans. At December 31, 2003, approximately 70 percent of the total impaired loans were 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.
Note 5 — Allowance for Loan Losses
      An analysis of changes in the allowance for loan losses follows:

2003 2002 2001

(dollar amounts in millions)

Balance at January 1
$ 791 $ 637 $ 585

Loans charged-off
(408 ) (517 ) (232 )

Recoveries on loans previously charged-off
43 36 43

Net loans charged-off
(365 ) (481 ) (189 )

Provision for loan losses
377 635 241

Balance at December 31
$ 803 $ 791 $ 637

As a percentage of total loans
1.99 % 1.87 % 1.55 %

      The provision for loan losses in 2001 included a $25 million merger-related charge to conform the credit policies of Imperial with Comerica.
Note 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 financial services holding company with a geographic concentration of its on-balance sheet and off-balance sheet activities in Michigan and California. In addition, the Corporation has an industry concentration with the automotive industry.
      At December 31, 2003 and 2002, exposure from loans, unused commitments and standby letters of credit and financial guarantees to companies related to the automotive industry totaled $10.7 billion and $11.5 billion, respectively. Additionally, commercial real estate loans, including real estate construction and commercial mortgage loans, totaled $11.3 billion and $10.7 billion at December 31, 2003 and 2002, respectively. Of the commercial real estate loans at December 31, 2003, $6.9 billion involved borrowers not primarily engaged in the business of commercial real estate and where the sources of repayment are not dependent on the performance of the real estate market. Unused commitments on commercial real estate loans were $2.8 billion and $2.9 billion at December 31, 2003 and 2002, respectively.
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Comerica Incorporated and Subsidiaries
Note 7 — Premises & Equipment
      A summary of premises and equipment by major category follows:

December 31

2003 2002

(in millions)

Land
$ 57 $ 56

Buildings and improvements
441 439

Furniture and equipment
377 376

Total cost
875 871

Less: Accumulated depreciation and amortization
(501 ) (500 )

Net book value
$ 374 $ 371

      The Corporation conducts a portion of its business from leased facilities and leases certain equipment. Rental expense for leased properties and equipment amounted to $70 million in 2003, $59 million in 2002 and $55 million in 2001. As of December 31, 2003, future minimum payments under operating leases and other noncancelable obligations are as follows:

Years Ending

December 31

(in millions)

2004
$ 75

2005
67

2006
49

2007
37

2008
33

Thereafter
221

Total
$ 482

Note 8 — Goodwill and Other Intangible Assets — Adoption of SFAS No. 142
      In accordance with the Corporation’s adoption of SFAS No. 142, the Corporation performed the first required impairment test of goodwill and indefinite-lived intangible assets as of January 1, 2002. Based on this test, the Corporation was not required to record a transition adjustment upon adoption. Goodwill was again evaluated for impairment as of July 1, 2002. As a result of this test, the Corporation was required to record a goodwill impairment charge of $86 million in the third quarter of 2002. This charge resulted from the decline in equity markets, and its related impact on the valuation of the Corporation’s asset management reporting unit (Munder), which is a part of the Wealth and Institutional Management segment for business segment reporting purposes. The fair value of Munder used in the determination of the impairment charge was based on a valuation prepared by an investment banker not affiliated with the Corporation. The valuation used a combination of valuation techniques, including discounted cash flows and the prices of external comparable businesses. The annual test of goodwill and indefinite-lived intangible assets, performed as of July 1, 2003, did not indicate an impairment charge was required.
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Comerica Incorporated and Subsidiaries
      The Corporation adopted SFAS No. 142 effective January 1, 2002. The impact of adopting SFAS No. 142 on net income and earnings per share adjusted to exclude amortization expense (net of taxes) related to goodwill is as follows:

Years ended December 31

2003 2002 2001

(in millions, except per share

amounts)

Reported net income applicable to common stock
$ 661 $ 601 $ 698

Add back: Goodwill amortization, net of tax
— — 28

Adjusted net income applicable to common stock
$ 661 $ 601 $ 726

Basic net income per common share:

Reported net income applicable to common stock
$ 3.78 $ 3.43 $ 3.93

Goodwill amortization, net of tax
— — 0.16

Adjusted net income applicable to common stock
$ 3.78 $ 3.43 $ 4.09

Diluted net income per common share:

Reported net income applicable to common stock
$ 3.75 $ 3.40 $ 3.88

Goodwill amortization, net of tax
— — 0.16

Adjusted net income applicable to common stock
$ 3.75 $ 3.40 $ 4.04

      The changes in the carrying amount of goodwill for the years ended December 31, 2003 and 2002, are as follows:

Small Business Wealth and

Business and Personal Institutional

Bank Financial Services Management Total

(in millions)

Balance at January 1, 2002
$ 90 $ 54 $ 189 $ 333

Goodwill impairment
— — (86 ) (86 )

Balance at December 31, 2002
$ 90 $ 54 $ 103 $ 247

Goodwill impairment
— — — —

Balance as of December 31, 2003
$ 90 $ 54 $ 103 $ 247

Note 9 — Acquired Intangible Assets
      Amortized intangible assets consisted of the following:

December 31

2003 2002

Gross Gross

Carrying Accumulated Carrying Accumulated

Amortized Intangible Assets Amount Amortization Amount Amortization

(in millions)

Core deposit intangibles
$ 28 $ 27 $ 28 $ 26

Other
6 5 6 5

Total
$ 34 $ 32 $ 34 $ 31

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Comerica Incorporated and Subsidiaries
      The amortization expense related to acquired intangible assets amounted to $1 million in 2003, $4 million in 2002 and $3 million in 2001. The remaining amortization expense related to acquired intangible assets is summarized as follows:

Years Ending

December 31

(in millions)

2004
$ 1

2005
1

Total
$ 2

Note 10 — Deposits
      A maturity distribution of domestic certificates of deposit of $100,000 and over follows:

December 31

2003 2002

(in millions)

Three months or less
$ 1,733 $ 2,435

Over three months to six months
345 1,194

Over six months to twelve months
1,102 1,104

Over twelve months
639 375

Total
$ 3,819 $ 5,108

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Comerica Incorporated and Subsidiaries
Note 11 — 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 table provides a summary of short-term borrowings.

Federal Funds Purchased Other

and Securities Sold Under Borrowed

Agreements to Repurchase Funds

(dollar amounts in millions)

December 31, 2003

Amount outstanding at year-end
$ 169 $ 93

Weighted average interest rate at year-end
0.81 % 0.77 %

Maximum month-end balance during the year
$ 552 $ 249

Average balance outstanding during the year
459 91

Weighted average interest rate during the year
1.23 % 1.06 %

December 31, 2002

Amount outstanding at year-end
$ 344 $ 196

Weighted average interest rate at year-end
1.06 % 1.47 %

Maximum month-end balance during the year
$ 1,569 $ 1,173

Average balance outstanding during the year
1,571 391

Weighted average interest rate during the year
1.90 % 1.63 %

December 31, 2001

Amount outstanding at year-end
$ 1,693 $ 293

Weighted average interest rate at year-end
1.64 % 1.81 %

Maximum month-end balance during the year
$ 1,693 $ 2,597

Average balance outstanding during the year
2,045 539

Weighted average interest rate during the year
4.15 % 3.78 %

      At December 31, 2003, the Corporation had available a $250 million commercial paper facility, with no outstanding borrowings. This facility is supported by a $220 million line of credit agreement. Under the current agreement, the line will expire in May 2004.
      At December 31, 2003, the Corporation’s subsidiary banks had pledged loans totaling $19 billion to secure a $15 billion collateralized borrowing account with the Federal Reserve Bank.
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Comerica Incorporated and Subsidiaries
Note 12 — Medium- & Long-Term Debt
      Medium- and long-term debt are summarized as follows:

December 31

2003 2002

(in millions)

Parent company

7.25% subordinated note due 2007
$ 170 $ 175

4.80% subordinated note due 2015
301 —

7.60% subordinated note due 2050(1)
355 —

Total parent company
826 175

Subsidiaries

Subordinated notes:

7.25% subordinated note due 2007
225 232

6.00% subordinated note due 2008
276 284

6.875% subordinated note due 2008
114 117

8.50% subordinated note due 2009
110 113

7.65% subordinated note due 2010
270 279

7.125% subordinated note due 2013
172 179

8.375% subordinated note due 2024
198 206

7.875% subordinated note due 2026
197 205

9.98% subordinated note due 2026(1)
59 —

Total subordinated notes
1,621 1,615

Medium-term notes:

Floating rate based on LIBOR indices
1,135 2,025

2.95% fixed rate note
100 —

2.85% fixed rate note
100 —

Variable rate secured debt financing due 2007
997 978

9.98% trust preferred securities due 2026(1)
— 56

7.60% trust preferred securities due 2050(1)
— 342

Variable rate note payable due 2009
22 25

Total subsidiaries
3,975 5,041

Total medium- and long-term debt
$ 4,801 $ 5,216

(1) The Corporation’s adoption of FIN 46(R) in the third quarter 2003 required the deconsolidation of the entities that hold the two issuances of trust preferred securities due 2026 and 2050. As a result of the deconsolidation, effective July 1, 2003, the debt instruments reported on the consolidated balance sheets changed from trust preferred securities debt to subordinated debt. For additional information regarding FIN 46(R), see Notes 1 and 24 on pages 62 and 94, respectively.

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Comerica Incorporated and Subsidiaries
      The carrying value of medium- and long-term debt has been adjusted to reflect the gain or loss attributable to the risk hedged. Concurrent with or subsequent to 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

Converted Base Rate 12/31/03

(dollar amounts in millions)

Parent company

7.25% subordinated note due 2007
$ 150 6-month LIBOR 1.21 %

4.80% subordinated note due 2015
300 6-month LIBOR 1.21

Subsidiaries

Subordinated notes:

7.25% subordinated note due 2007
200 6-month LIBOR 1.21

6.00% subordinated note due 2008
250 6-month LIBOR 1.21

6.875% subordinated note due 2008
100 6-month LIBOR 1.21

8.50% subordinated note due 2009
100 3-month LIBOR 1.16

7.65% subordinated note due 2010
250 3-month LIBOR 1.16

7.125% subordinated note due 2013
150 6-month LIBOR 1.21

8.375% subordinated note due 2024
150 6-month LIBOR 1.21

7.875% subordinated note due 2026
150 6-month LIBOR 1.21

Medium-term notes:

2.95% fixed rate note
100 3-month LIBOR 1.16

2.85% fixed rate note
100 3-month LIBOR 1.16

      In May 2003, the Corporation issued a $300 million, 4.80% subordinated note which is classified in medium- and long-term debt. The note pays interest on May 1 and November 1 of each year, beginning with November 1, 2003, and matures May 1, 2015. The Corporation used $135 million of the net proceeds for the repayment of commercial paper, and the remaining net proceeds for general corporate purposes.
      The Corporation has a $350 million, 7.60% subordinated note and a $55 million, 9.98% subordinated note that relate to trust preferred securities issuances held by entities that were deconsolidated, effective July 1, 2003, as a result of the adoption of FIN 46(R). The 7.60% subordinated note pays interest each quarter beginning October 1, 2001, and is callable any time after July 30, 2006. The 9.98% subordinated note pays interest semi-annually in June and December, and is callable anytime after June 30, 2007. Banking regulators have announced that, “until notice is given to the contrary,” these notes will continue to qualify as Tier 1 capital. All other subordinated notes 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, the principal bank subsidiary may offer an aggregate principal amount of up to $17 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 plus 0.047% to three-month LIBOR plus 0.245%. The medium-term notes are due from 2004 to 2007. The medium-term notes do not qualify as Tier 2 capital and are not insured by the FDIC.
      In December 2001, the Corporation privately placed approximately $1 billion of variable rate notes as part of a secured financing transaction. The Corporation utilized approximately $1.2 billion of dealer floor plan loans as collateral in conjunction with this transaction. The over-collateralization of the issuance provided for a preferred credit rating status. The secured financing includes $924 million of deferred payment notes bearing interest at the rate of 30 basis points plus a commercial paper reference rate, and $60 million of deferred payment notes based on one-month LIBOR. The interest rate on each of these note issuances is reset monthly. The $924 million deferred payment notes, which may be redeemed upon the occurrence of certain conditions, mature in December 2007. Interest will accrue on the $60 million deferred payment notes until January 2007, at which time the notes become redeemable by the holder. These notes do not qualify as Tier 2 capital and are not insured by the FDIC.
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Comerica Incorporated and Subsidiaries
      The principal maturities of medium- and long-term debt are as follows:

Years Ending

December 31

(in millions)

2004
$ 850

2005
185

2006
200

2007
1,388

2008
350

Thereafter
1,597

Total
$ 4,570

Note 13 — Shareholders’ Equity
      In August 2001, the Board authorized the repurchase of up to 10 million shares of Comerica Incorporated outstanding common stock. Repurchases under this program totaled 0.5 million shares, 3.5 million shares and 1.2 million shares in the years ended December 31, 2003, 2002 and 2001, respectively. All share repurchases were accomplished through open market purchases.
      At December 31, 2003, the Corporation had reserved 27.3 million shares of common stock for issuance to employees and directors under the long-term incentive plans.
      In August 2001, the Corporation retired 5 million shares of Fixed/ Adjustable Rate Noncumulative Preferred Stock, Series E, with a stated value of $50 per share.
Note 14 — Other Comprehensive Income
      Other comprehensive income includes the change in unrealized gains and losses on investment securities available-for-sale, the change in accumulated net gains and losses on cash flow hedges, the change in the accumulated foreign currency translation adjustment and the change in accumulated minimum pension liability adjustment. The Consolidated Statements of Changes in Shareholders’ Equity includes only combined, net of tax, other comprehensive income. The following table presents reconciliations of the components of accumulated other comprehensive income for the years ended December 31, 2003, 2002 and 2001. Total comprehensive income totaled $498 million, $613 million and $923 million, for the years ended December 31, 2003, 2002 and 2001, respectively. The $115 million decline in total comprehensive income in the year ended December 31, 2003 when compared to the same period in the prior year resulted from a decline in net unrealized gains on cash flow hedges and investment securities available-for-sale due to changes in the interest rate environment, partially offset by an increase in net income.
      The adoption of SFAS No. 133 on January 1, 2001 resulted in a cumulative effect of an accounting change of $65 million, $42 million net of tax, included in other comprehensive income. For a further discussion of the effect of derivative instruments on other comprehensive income see Notes 1 and 22 on pages 62 and 90, respectively.
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Comerica Incorporated and Subsidiaries

Years Ended December 31

2003 2002 2001

(in millions)

Net unrealized gains (losses) on investment securities available-for-sale:

Balance at beginning of year
$ 15 $ 16 $ 8

Net unrealized holding gains (losses) arising during the year
(8 ) 39 32

Less: Reclassification adjustment for gains (losses) included in net income
50 41 20

Change in net unrealized gains (losses) before income taxes
(58 ) (2 ) 12

Less: Provision for income taxes
(20 ) (1 ) 4

Change in net unrealized gains (losses) on investment securities available-for-sale, net of tax
(38 ) (1 ) 8

Balance at end of year
$ (23 ) $ 15 $ 16

Accumulated net gains (losses) on cash flow hedges:

Balance at beginning of year
$ 241 $ 209 $ —

Transition adjustment upon adoption of accounting standard
— — 65

Net cash flow hedges gains (losses) arising during the year
90 410 432

Less: Reclassification adjustment for gains (losses) included in net income
285 361 175

Change in cash flow hedges before income taxes
(195 ) 49 322

Less: Provision for income taxes
(68 ) 17 113

Change in cash flow hedges, net of tax
(127 ) 32 209

Balance at end of year
$ 114 $ 241 $ 209

Accumulated foreign currency translation adjustment:

Balance at beginning of year
$ (3 ) $ — $ 4

Net translation gains (losses) arising during the year
(1 ) (3 ) (5 )

Less: Reclassification adjustment for gains (losses) included in net income
— — (1 )

Change in translation adjustment before income taxes
(1 ) (3 ) (4 )

Less: Provision for income taxes
— — —

Change in foreign currency translation adjustment, net of tax
(1 ) (3 ) (4 )

Balance at end of year
$ (4 ) $ (3 ) $ —

Accumulated minimum pension liability adjustment:

Balance at beginning of year
$ (16 ) $ — $ —

Minimum pension liability adjustment arising during the year before income taxes
5 (25 ) —

Less: Provision for income taxes
2 (9 ) —

Change in minimum pension liability, net of tax
3 (16 ) —

Balance at end of year
$ (13 ) $ (16 ) $ —

Total accumulated other comprehensive income, net of taxes, at end of year
$ 74 $ 237 $ 225

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Comerica Incorporated and Subsidiaries
Note 15 — 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. Unallocated employee stock ownership plan shares are not included in average common shares outstanding. A computation of basic and diluted net income per common share is presented in the table below.

Years Ended December 31

2003 2002 2001

(in millions, except per share

data)

Basic

Net income
$ 661 $ 601 $ 710

Less preferred stock dividends
— — 12

Net income applicable to common stock
$ 661 $ 601 $ 698

Average common shares outstanding
175 175 178

Basic net income per common share
$ 3.78 $ 3.43 $ 3.93

Diluted

Net income
$ 661 $ 601 $ 710

Less preferred stock dividends
— — 12

Net income applicable to common stock
$ 661 $ 601 $ 698

Average common shares outstanding
175 175 178

Common stock equivalents

Net effect of the assumed exercise of stock options
1 2 2

Diluted average common shares
176 177 180

Diluted net income per common share
$ 3.75 $ 3.40 $ 3.88

      Options to purchase an average 9.2 million, 6.1 million and 3.9 million shares of common stock at exercise prices ranging from $46.25 — $71.58, $55.73 — $71.58 and $56.66 — $71.58 were outstanding during the years ended December 31, 2003, 2002 and 2001, respectively, but were not included in the computation of diluted net income per common share because the options’ exercise prices were greater than the average market price of common shares for the period.
Note 16 — Stock-Based Compensation
      The Corporation has stock-based compensation plans under which it awards both shares of restricted stock to key executive officers and key personnel, and stock options to executive officers, directors and key personnel of the Corporation and its subsidiaries. The restricted stock generally vests within five years. 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. The plans provide for a grant of up to 16.8 million common shares.
      In 2002, the Corporation adopted the fair value method of accounting for stock options, as outlined in SFAS No. 123 (as amended by SFAS No. 148). Transition rules require that all stock options granted in the year of adoption be accounted for under the fair value method, thus, the new method was applied prospectively to all grants made after December 31, 2001. Therefore, the expense related to stock-based compensation included in the determination of net income for 2003 and 2002 is less than that which would have been recognized if the fair value method had been applied to all awards since the original effective date of SFAS No. 123. Under SFAS No. 123, compensation expense, equal to the fair value of stock-based compensation as of the date of grant, is recognized over the
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Comerica Incorporated and Subsidiaries
vesting period. Awards under the Corporation’s plans vest over periods ranging from one to four years. Options granted prior to January 1, 2002 continue to be accounted for under the intrinsic value method, as outlined in APB Opinion No. 25. The effect on net income and net income per common share if the fair value method had been applied to all outstanding and unvested awards is presented in Note 1 on page 62.
      The fair value of stock options granted was estimated at the date of grant using the 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 several inputs, 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 input assumptions can materially affect the fair value estimates.
      The fair value of the options granted was estimated using an option valuation model with the following weighted-average assumptions:

Years Ended December 31

2003 2002 2001

Risk-free interest rate
3.08 % 4.68 % 4.88 %

Expected dividend yield
2.83 2.65 2.66

Expected volatility factors of the market price of Comerica common stock
33 33 31

Expected option life (in years)
5.0 4.8 4.8

      A summary of the Corporation’s stock option activity, and related information for each of the three years in the period ended December 31, 2003 follows:

Weighted Average

per Share

Number of Exercise Market

Options Price Price

(in thousands)

Outstanding-January 1, 2001
12,560 $ 43.38 $ 59.38

Granted (weighted-average grant fair value of $14.02)
2,566 52.00 52.00

Cancelled
(270 ) 54.32 64.74

Exercised
(1,757 ) 28.71 59.70

Outstanding-December 31, 2001
13,099 $ 46.81 $ 57.30

Granted (weighted-average grant fair value of $17.64)
3,197 63.14 63.14

Cancelled
(288 ) 60.25 55.51

Exercised
(1,134 ) 29.63 59.49

Outstanding-December 31, 2002
14,874 $ 51.37 $ 43.24

Granted (weighted-average grant fair value of $10.32)
2,993 40.68 40.68

Cancelled
(651 ) 56.13 45.87

Exercised
(533 ) 24.99 46.34

Outstanding-December 31, 2003
16,683 $ 50.12 $ 56.06

Exercisable-December 31, 2002
9,154 $ 47.57

Exercisable-December 31, 2003
10,901 50.73

Available for grant-December 31, 2003
10,160

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      The table below summarizes information about stock options outstanding at December 31, 2003:

Outstanding Exercisable

Weighted Weighted

Weighted Average Average

Number of Average Exercise Number of Exercise

Range of Exercise Prices Options Life (a) Price Options Price

(in thousands) (in thousands)

$13.42 — $19.92
951 1.0 $ 18.23 951 $ 18.23

21.00 — 38.85
1,055 2.6 26.20 1,051 26.15

40.09 — 49.87
5,835 7.1 40.93 2,674 41.35

51.43 — 59.24
2,394 7.4 52.05 1,460 52.23

60.31 — 66.81
4,835 7.0 64.58 3,152 65.32

69.00 — 71.58
1,613 4.2 71.58 1,613 71.58

Total
16,683 6.2 $ 50.12 10,901 $ 50.73

(a) Weighted average contractual life remaining in years.

      In addition, the Corporation awarded 225 thousand, 123 thousand and 162 thousand shares of restricted stock in 2003, 2002 and 2001, respectively. The fair value of these shares at grant date was $9 million in 2003, $8 million in 2002 and $9 million in 2001. Total compensation cost recognized for stock-based employee compensation was $28 million, $25 million and $17 million in 2003, 2002 and 2001, respectively.
Note 17 — Employee Benefit Plans
      The Corporation has a qualified and a non-qualified defined benefit pension plan, which together, provide benefits for substantially all full-time employees. Employee benefits expense included pension expense of $26 million and $5 million in 2003 and 2002, respectively, and pension income of $1 million in 2001 for the plans. Benefits under the plans are based primarily on years of service, age and compensation during the five highest paid consecutive calendar years occurring during the last ten years before retirement. The plans’ assets primarily consist of units of certain collective investment funds and mutual investment funds administered by Munder Capital Management, equity securities, U.S. government and agency securities, corporate bonds and notes and a real estate investment trust. The predominance of these assets have publicly quoted prices, which is the basis for determining fair value of plan assets.
      The Corporation’s postretirement benefits plan continues postretirement health care and life insurance benefits for retirees as of December 31, 1992, and life insurance only for retirees after that date. The Corporation has funded the plan with bank-owned life insurance. On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act (the Act) was signed into law. In accordance with FASB Staff Position, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” issued in January 2004, the Corporation elected to defer accounting for the effects of the Act. Therefore, the Corporation’s measurements of accumulated postretirement benefit obligations and net periodic postretirement benefit costs do not reflect the effects of the Act. The FASB plans to issue specific authoritative guidance on the accounting for federal subsidies resulting from the Act later in 2004, which could require the Corporation to modify its postretirement disclosures.
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      The following table sets forth reconciliations of the Corporation’s qualified pension plan, non-qualified pension plan and postretirement plan benefit obligations and plan assets.

Qualified Non-Qualified

Defined Benefit Defined Benefit Postretirement

Pension Plan Pension Plan Benefit Plan

2003 2002 2003 2002 2003 2002

(in millions)

Change in projected benefit obligation:

Projected benefit obligation at January 1
$ 726 $ 620 $ 83 $ 73 $ 84 $ 77

Service cost
20 17 3 2 — —

Interest cost
47 46 5 5 5 6

Amendments/ Adjustments
— 2 2 — — —

Actuarial (gain) loss
64 66 2 4 (1 ) 7

Benefits paid
(26 ) (25 ) (3 ) (1 ) (6 ) (6 )

Projected benefit obligation at December 31
$ 831 $ 726 $ 92 $ 83 $ 82 $ 84

Change in plan assets:

Fair value of plan assets at January 1
$ 703 $ 607 $ — $ 1 $ 79 $ 83

Actual return (loss) on plan assets
130 (54 ) — — 8 (1 )

Employer contributions
46 175 3 — 1 3

Benefits paid
(26 ) (25 ) (3 ) (1 ) (6 ) (6 )

Fair value of plan assets at December 31
$ 853 $ 703 $ — $ — $ 82 $ 79

Accumulated benefit obligation
$ 731 $ 633 $ 74 $ 67 $ 82 $ 84

      The non-qualified pension plan was the only pension plan with an accumulated benefit obligation in excess of plan assets.
      The following table sets forth the funded status of the qualified pension plan, non-qualified pension plan and postretirement plan and amounts recognized on the Corporation’s consolidated balance sheets:

Qualified Non-Qualified

Defined Benefit Defined Benefit Postretirement

Pension Plan Pension Plan Benefit Plan

2003 2002 2003 2002 2003 2002

(in millions)

Funded status at December 31*
$ 22 $ (23 ) $ (92 ) $ (83 ) $ — $ (5 )

Unrecognized net (gain) loss
284 294 36 37 19 23

Unrecognized net transition (asset) obligation
— — — — 38 43

Unrecognized prior service cost
17 19 — — — —

Prepaid (accrued) benefit cost
$ 323 $ 290 $ (56 ) $ (46 ) $ 57 $ 61

Accrued minimum benefit liability
— — (18 ) (21 ) — —

Intangible asset
— — — — — —

Accumulated other comprehensive income
— — 18 21 — —

Net amount recognized
$ 323 $ 290 $ (56 ) $ (46 ) $ 57 $ 61

* Based on projected benefit obligation

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      Components of net periodic benefit cost (income) are as follows:

Qualified and Non-Qualified Defined Benefit Pension Plans

Years Ended December 31

Qualified Defined Non-Qualified Defined

Benefit Pension Plan Benefit Pension Plan

2003 2002 2001 2003 2002 2001

(in millions)

Service cost
$ 20 $ 17 $ 13 $ 3 $ 2 $ 2

Interest cost
47 46 42 5 5 5

Expected return on plan assets
(69 ) (71 ) (67 ) — — —

Amortization of unrecognized transition asset
— — (1 ) — — —

Amortization of unrecognized prior service cost
2 2 2 — 1 1

Amortization of unrecognized net (gain) loss
13 — (1 ) 3 3 3

Net periodic benefit cost (income)
$ 13 $ (6 ) $ (12 ) $ 11 $ 11 $ 11

Additional information:

(Decrease) increase in minimum liability included in other comprehensive income
$ — $ — $ — $ (3 ) $ 21 $ —

Actual return (loss) on plan assets
130 (54 ) (35 ) — — 1

Postretirement Benefit Plan

Years Ended

December 31

2003 2002 2001

(in millions)

Service cost
$ — $ — $ —

Interest cost
5 6 6

Expected return on plan assets
(4 ) (5 ) (6 )

Amortization of unrecognized transition obligation
4 4 4

Net periodic benefit cost
$ 5 $ 5 $ 4

Additional information:

Increase in minimum liability included in other comprehensive income
$ — $ — $ —

Actual return (loss) on plan assets
8 (1 ) —

      Actuarial assumptions are reflected below. The discount rate and rate of compensation increase used to determine benefit obligation for each year shown is as of the end of the year. The discount rate, expected return on plan assets and rate of compensation increase used to determine net cost for each year shown is as of the beginning of the year.
      Weighted average assumptions used to determine benefit obligation:

December 31

Qualified and

Non-Qualified Defined Postretirement

Benefit Pension Plans Benefit Plan

2003 2002 2001 2003 2002 2001

Discount rate used in determining benefit obligation
6.1 % 6.8 % 7.4 % 6.1 % 6.8 % 7.4 %

Rate of compensation increase
4.0 4.5 5.0

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      Weighted average assumptions used to determine net cost:

Years Ended December 31

Qualified and

Non-Qualified Defined Postretirement

Benefit Pension Plans Benefit Plan

2003 2002 2001 2003 2002 2001

Discount rate used in determining net cost
6.8 % 7.4 % 7.9 % 6.8 % 7.4 % 7.9 %

Expected return on plan assets
8.8 10.0 10.0 5.0 5.0 6.7

Rate of compensation increase
4.0 5.0 5.0

      The long-term rate of return expected on plan assets is set after considering both long-term returns in the general market and long-term returns experienced by the assets in the plan. The returns on the various asset categories are blended to derive one long-term rate of return. The Corporation reviews its pension plan assumptions on an annual basis with its asset manager and actuaries to determine if assumptions are reasonable and adjusts the assumptions to reflect changes in future expectations.
      Assumed healthcare and prescription drug cost trend rates:

December 31

Prescription

Healthcare Drug

2003 2002 2003 2002

Cost trend rate assumed for next year
7 % 7 % 8 % 9 %

Rate that the cost trend rate gradually declines to
5 5 5 5

Year that the rate reaches the rate it is assumed to remain at
2007 2007 2007 2007

      Assumed healthcare and prescription drug cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one-percentage point change in 2003 assumed healthcare and prescription drug cost trend rates would have the following effects:

One-Percentage-Point

Increase Decrease

(in millions)

Effect on postretirement benefit obligation
$ 6 $ (5 )

Effect on total service and interest cost
— —

Plan Assets

      The Corporation’s qualified defined benefit pension plan asset allocations at December 31, 2003 and 2002 and target allocation for 2004 are shown in the table below. There were no assets in the non-qualified defined benefit pension plan. The postretirement benefit plan is fully invested in bank-owned life insurance policies.

Qualified Defined Benefit

Pension Plan

Percentage of

Plan Assets at

Target December 31,

Allocation

Asset Category 2004 2003 2002

Equity securities
55-65 % 64 % 47 %

Fixed income, including cash
30-40 34 50

Alternative assets
0-5 2 3

Total
100 % 100 %

      The investment goal for the qualified defined benefit pension plan is to achieve a real rate of return (nominal rate minus consumer price index change) consistent with that received on investment grade corporate bonds. The Corporation’s 2004 target allocation percentages by asset category are noted in the table above. Given the mix of equity securities and fixed income (including
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Comerica Incorporated and Subsidiaries
cash), management believes that by targeting the benchmark return to an “investment grade” quality return, an appropriate degree of risk is maintained. Within the asset classes, the degree of non-U.S. based assets is limited to 15 percent of the total, to be allocated within both equity securities and fixed income. The investment manager has discretion to make investment decisions within the target allocation parameters. The Employee Benefits Committee must approve exceptions to this policy. Securities issued by the Corporation and its subsidiaries are not eligible for use within this plan.

Cash Flows

Years Ended December 31

Qualified Non-Qualified

Defined Benefit Defined Benefit Postretirement

Employer Contributions Pension Plan Pension Plan Benefit Plan*

(in millions)

2002
$ 175 $ — $ 3

2003
46 3 1

2004 (projected)
65 4 7

* 2004 projected employer contributions for the postretirement benefit plan does not include settlements on death claims.

Years Ended December 31

Qualified Non-Qualified

Defined Benefit Defined Benefit Postretirement

Benefit Payments Pension Plan Pension Plan Benefit Plan

(in millions)

2002
$ 25 $ 1 $ 6

2003
26 3 6

      The Corporation also maintains defined contribution plans (including 401(k) plans) for various groups of its employees. All of the Corporation’s employees are eligible to participate in one or more of the plans. Under the Corporation’s defined contribution plan, 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. The Corporation’s match is made in stock of the Corporation, which is restricted until the end of the calendar year, after which the employees may reallocate to other investment options. Employees may choose to invest contributions in the stock of the Corporation, and may reallocate employee contributions invested in the Corporation’s stock to other investments at any time. Employee benefits expense included expense of $13 million in 2003, $11 million in 2002 and $17 million in 2001 for the plans.
      Prior to the merger, Imperial maintained an externally leveraged employee stock ownership plan (the ESOP) for certain employees. In 2001, the plan was converted to an internally leveraged plan and merged into the Corporation’s 401(k) plan. Shares are released to the ESOP as principal and interest payments are made on the loans. In 2002, a total of 131,954 shares of common stock, with a cost basis of $5 million, were released to the ESOP. In 2001, a total of 44,508 shares of common stock, with a cost basis of $2 million, were released to the ESOP. There was no remaining unearned compensation and were no remaining unallocated ESOP shares at December 31, 2002. At December 31, 2001, unearned compensation related to the ESOP of $5 million was reflected as a reduction of shareholders’ equity. The fair value of unallocated ESOP shares totaled $8 million at December 31, 2001.
      Prior to the merger, Imperial also maintained a Deferred Compensation Plan (the DC Plan) to provide specified benefits to certain employees and directors. The DC Plan allowed participants to defer all or a portion of their salary and bonus. Imperial matched from 0% to 50% of certain participants’ deferrals under the plan. The match percentage was 25% for 2001. The expense related to funding the deferred compensation match totaled $1 million for the year ended December 31, 2001. The plan was merged into the Corporation’s deferred compensation plan at June 30, 2001. No additional matching contributions are paid to participants under the terms of the merged plan.
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Note 18 — Income Taxes

      The current and deferred components of the provision for income taxes are as follows:

December 31

2003 2002 2001

(in millions)

Current

Federal
$ 201 $ 209 $ 305

Foreign
18 8 17

State and local
23 16 34

Total current
242 233 356

Deferred federal, state and local
50 48 45

Total
$ 292 $ 281 $ 401

      There were income tax provisions of $18 million, $14 million and $7 million on securities transactions in 2003, 2002 and 2001, respectively.
      The principal components of deferred tax assets and liabilities are as follows:

December 31

2003 2002

(in millions)

Deferred tax assets:

Allowance for loan losses
$ 257 $ 247

Allowance for depreciation
1 6

Deferred loan origination fees and costs
43 44

Other temporary differences, net
129 119

Total deferred tax assets
430 416

Deferred tax liabilities:

Lease financing transactions
581 510

Employee benefits
3 10

Other comprehensive income
43 130

Total deferred tax liabilities
627 650

Net deferred tax liability
$ 197 $ 234

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      A reconciliation of expected income tax expense at the federal statutory rate of 35 percent to the Corporation’s provision for income taxes and effective tax rate follows:

Years Ended December 31

2003 2002 2001

Amount Rate Amount Rate Amount Rate

(in millions)

Tax based on federal statutory rate
$ 333 35.0 % $ 309 35.0 % $ 389 35.0 %

Effect of tax-exempt interest income
(2 ) (0.2 ) (2 ) (0.2 ) (2 ) (0.2 )

State income taxes
12 1.2 15 1.7 24 2.2

Bank-owned life insurance
(16 ) (1.7 ) (20 ) (2.3 ) (13 ) (1.2 )

Affordable housing credit
(19 ) (2.0 ) (15 ) (1.7 ) (11 ) (1.0 )

Goodwill
— — — — 7 0.6

Merger-related tax liability adjustment
— — — — (7 ) (0.6 )

United Kingdom tax credit
(9 ) (0.9 ) — — (5 ) (0.4 )

Other
(7 ) (0.7 ) (6 ) (0.7 ) 19 1.7

Provision for income taxes
$ 292 30.7 % $ 281 31.8 % $ 401 36.1 %

Note 19 — Merger-Related and Restructuring Charges
      The Corporation recorded merger-related and restructuring charges of $173 million in 2001 related to the acquisition of Imperial, of which $25 million was recorded in the provision for loan losses. The remaining $148 million of charges were recorded in noninterest expenses. The Corporation also recorded a 2001 restructuring charge of $4 million related to its subsidiary, Official Payments Corporation (OPAY). The OPAY restructuring charge was recorded net of the portion of the charge attributable to the minority shareholders in OPAY. The Corporation sold its OPAY subsidiary in 2002, therefore, no liability remains for OPAY restructuring charges as of the sale date.
      The 2001 Imperial restructuring charge included employee termination costs, other employee related costs, a charge related to conforming policies, facilities and operations and other charges. Employee termination costs included the cost of severance, outplacement and other benefits associated with the involuntary termination of employees, primarily senior management and employees in corporate support and data processing functions. A total of 352 employees were terminated in 2001 as part of the restructuring plan. Other employee-related costs included cash payments related to change in control provisions in employment contracts and retention bonuses. Charges related to conforming policies represented costs associated with conforming the credit and accounting policies of Imperial with those of the Corporation. The Corporation also incurred facilities and operations charges associated with closing excess facilities and replacing signage. Other merger-related restructuring costs were primarily comprised of investment banking, accounting, consulting and legal fees. There was no remaining liability related to the Imperial charge as of December 31, 2002 and no additional Imperial-related restructuring charges are expected.
Note 20 — 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, leases and professional services. With respect to the extensions of credit, all 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, 2003, totaled $313 million at the beginning and $290 million at the end of 2003. During 2003, new loans to related parties aggregated $479 million and repayments totaled $502 million.
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Note 21 — Regulatory Capital and Reserve Requirements

      Cash and due from banks includes reserves required to be maintained and/or 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 required reserve balances were $250 million and $209 million for the years ended December 31, 2003 and 2002, respectively.
      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 $209 million at January 1, 2004, 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 declared to the Corporation by its banking subsidiaries amounted to $354 million in 2003, $647 million in 2002 and $578 million in 2001.
      The Corporation and its banking subsidiaries are subject to various regulatory capital requirements administered by federal and state 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. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements. At December 31, 2003 and 2002, 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 subsidiary.

Comerica Inc. Comerica

(Consolidated) Bank*

(in millions)

December 31, 2003

Tier 1 common capital
$ 4,786 $ 4,909

Tier 1 capital
5,186 5,229

Total capital
7,560 7,196

Risk-weighted assets
59,505 59,198

Average assets (fourth quarter)
51,214 50,914

Tier 1 common capital to risk-weighted assets
8.04 % 8.29 %

Tier 1 capital to risk-weighted assets (minimum-4.0%)
8.72 8.83

Total capital to risk-weighted assets (minimum-8.0%)
12.71 12.16

Tier 1 capital to average assets (minimum-3.0%)
10.13 10.27

December 31, 2002

Tier 1 common capital
$ 4,459 $ 4,569

Tier 1 capital
4,857 4,889

Total capital
7,073 6,957

Risk-weighted assets
60,327 60,424

Average assets (fourth quarter)
52,290 52,220

Tier 1 common capital to risk-weighted assets
7.39 % 7.56 %

Tier 1 capital to risk-weighted assets (minimum-4.0%)
8.05 8.09

Total capital to risk-weighted assets (minimum-8.0%)
11.72 11.51

Tier 1 capital to average assets (minimum-3.0%)
9.29 9.36

* On June 30, 2003, the Corporation merged its California and Texas banking subsidiaries into its Michigan banking subsidiary. Comerica Bank totals and ratios at December 31, 2002 are restated to reflect this change.

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Note 22 — Derivative and Credit-Related Financial Instruments and Foreign Exchange Contracts
      In the normal course of business, the Corporation enters into various 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.
      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 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.
      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 derivative and foreign exchange contracts held or issued for risk management purposes is generally offset by changes in the value of rate sensitive assets or liabilities.

Derivative Financial Instruments and Foreign Exchange Contracts

      The Corporation, as an end-user, employs a variety of 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.
      As part of a fair value hedging strategy, the Corporation has entered into interest rate swap agreements for interest rate risk management purposes. The interest rate swap agreements utilized, effectively modify the Corporation’s exposure to interest rate risk by converting fixed-rate deposits and debt to a floating rate. These agreements involve the receipt of fixed rate interest amounts in exchange for floating rate interest payments over the life of the agreement, without an exchange of the underlying principal amount. No ineffectiveness was required to be recorded on these hedging instruments in the statement of income for the year ended December 31, 2003. As part of a cash flow hedging strategy, the Corporation entered into predominantly 3-year interest rate swap agreements that effectively convert a portion of its existing and forecasted floating-rate loans to a fixed-rate basis, thus reducing the impact of interest rate changes on future interest income over the next three years. Approximately 22 percent ($9 billion) of the Corporation’s outstanding loans were designated as the hedged items to interest rate swap agreements at December 31, 2003. For the year ended December 31, 2003, interest rate swap agreements designated as cash flow hedges increased interest and fees on loans by $285 million compared with $361 million for the year ended December 31, 2002. Other noninterest income in the year ended December 31, 2003 included $3 million of ineffective cash flow hedge net losses. If interest rates, interest curves and notional amounts remain at their current levels, the Corporation expects to reclassify $102 million of net gains on derivative instruments, that are designated as cash flow hedges, from accumulated other comprehensive income to earnings during the next twelve months due to receipt of variable interest associated with the existing and forecasted floating-rate loans. In addition, the Corporation uses forward foreign exchange contracts to protect the value of its foreign subsidiaries. Realized and unrealized gains and losses from these hedges are not included in the statement of income, but are shown in the accumulated foreign currency translation adjustment account included in other comprehensive income, with the related amounts due to or from counterparties included in other liabilities or other assets. During the
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years ended December 31, 2003 and 2002, the Corporation recognized immaterial amounts of net gains in accumulated foreign currency translation adjustment, related to the forward foreign exchange contracts.
      The Corporation also uses various other types of financial instruments to mitigate interest rate and foreign currency risks associated with specific assets or liabilities. Such instruments include interest rate caps and floors, foreign exchange forward contracts, and foreign exchange cross-currency swaps.
      The following table presents the composition of derivative financial instruments and foreign exchange contracts, excluding commitments, held or issued for risk management purposes at December 31, 2003 and 2002. The fair values of all derivatives and foreign exchange contracts are reflected in the consolidated balance sheets.

Notional/

Contract Unrealized Unrealized Fair

Amount Gains Losses Value

(in millions)

December 31, 2003

Risk management

Interest rate contracts:

Swaps
$ 10,818 $ 348 $ 2 $ 346

Foreign exchange contracts:

Spot and forwards
340 23 1 22

Swaps
99 — 1 (1 )

Total foreign exchange contracts
439 23 2 21

Total risk management
$ 11,257 $ 371 $ 4 $ 367

December 31, 2002

Risk management

Interest rate contracts:

Swaps
$ 13,602 $ 740 $ — $ 740

Foreign exchange contracts:

Spot and forwards
481 16 1 15

Swaps
257 2 — 2

Total foreign exchange contracts
738 18 1 17

Total risk management
$ 14,340 $ 758 $ 1 $ 757

      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.
      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.
      Bilateral collateral agreements with counterparties covered 86 percent and 91 percent of the notional amount of interest rate derivative contracts at December 31, 2003 and 2002, 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, 2003, 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.
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      On a limited scale, fee income is earned from entering into various transactions, principally foreign exchange contracts and interest rate contracts at the request of customers. Market risk inherent in customer contracts is often mitigated by taking offsetting positions. The Corporation generally 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, 2003, unrealized gains and unrealized losses on customer-initiated and other interest rate contracts and foreign exchange contracts averaged $74 million and $66 million, respectively.
      For the year ended December 31, 2002, unrealized gains and unrealized losses averaged $60 million and $59 million, respectively. These contracts also generated noninterest income of $32 million in 2003 and $34 million in 2002.
      The following table presents the composition of derivative financial instruments and foreign exchange contracts held or issued in connection with customer-initiated and other activities.

Notional/

Contract Unrealized Unrealized Fair

Amount Gains Losses Value

(in millions)

December 31, 2003

Customer initiated and other

Interest rate contracts:

Caps and floors written
$ 443 $ — $ 3 $ (3 )

Caps and floors purchased
443 3 — 3

Swaps
1,416 24 21 3

Total interest rate contracts
2,302 27 24 3

Foreign exchange contracts:

Spot, forwards, futures and options
1,879 41 37 4

Swaps
25 1 1 —

Total foreign exchange contracts
1,904 42 38 4

Total customer-initiated and other
$ 4,206 $ 69 $ 62 $ 7

December 31, 2002

Customer initiated and other

Interest rate contracts:

Caps and floors written
$ 342 $ — $ 3 $ (3 )

Caps and floors purchased
325 4 — 4

Swaps
1,077 29 28 1

Total interest rate contracts
1,744 33 31 2

Foreign exchange contracts:

Spot, forwards, futures and options
1,475 34 36 (2 )

Swaps
296 1 — 1

Total foreign exchange contracts
1,771 35 36 (1 )

Total customer-initiated and other
$ 3,515 $ 68 $ 67 $ 1

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      Detailed discussions of each class of derivative financial instruments and foreign exchange contracts held or issued by the Corporation for both risk management and customer-initiated and other activities are as follows.

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.

Commitments

      The Corporation also enters into commitments to purchase or sell earning assets for risk management and trading purposes. These transactions are similar in nature to forward contracts. The Corporation had commitments to purchase investment securities for its trading account and available-for-sale portfolio totaling $3 million at December 31, 2003 and totaling $581 million at December 31, 2002. Commitments to sell investment securities related to the trading account totaled $2 million at December 31, 2003 and $4 million at December 31, 2002. Outstanding commitments expose the Corporation to both credit and market risk.

Credit-Related Financial Instruments

      The Corporation issues off-balance sheet financial instruments in connection with commercial and consumer lending activities. The Corporation’s credit risk associated with these instruments is represented by the contractual amounts indicated in the following table.

December 31

2003 2002

(in millions)

Unused commitments to extend credit
$ 27,049 $ 27,377

Standby letters of credit and financial guarantees
6,045 5,545

Commercial letters of credit
261 241

Credit default swaps
— 11

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      The Corporation maintains an allowance to cover probable credit losses inherent in lending-related commitments, including commitments to extend credit, letters of credit and guarantees. At December 31, 2003 and 2002, the allowance for credit losses on lending-related commitments, which is recorded in “accrued expenses and other liabilities” on the consolidated balance sheets, was $33 million and $35 million, respectively.

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 included bankcard, revolving check credit and equity access loan commitments of $2 billion at December 31, 2003 and 2002. Other unused commitments, primarily variable rate, totaled $25 billion at December 31, 2003 and 2002.

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 $1,832 million and $1,668 million at December 31, 2003 and 2002, respectively.
      The remaining standby letters of credit and financial guarantees, which mature within one year, totaled $4,213 million and $3,877 million at December 31, 2003 and 2002, respectively. Commercial letters of credit are issued to finance foreign or domestic trade transactions and are short-term in nature. The Corporation may enter into participation arrangements with third parties, which effectively reduce the maximum amount of future payments, which may be required under standby letters of credit. These risk participations covered $481 million of the $6,045 million standby letters of credit outstanding at December 31, 2003. At December 31, 2003, the carrying value of the Corporation’s standby and commercial letters of credit and financial guarantees, which is included in “accrued expenses and other liabilities” on the consolidated balance sheet, totaled $77 million.

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. There was no credit risk associated with credit default swaps at December 31, 2003. Credit risk associated with credit default swaps was $11 million at December 31, 2002.
Note 23 — Contingent Liabilities
      The Corporation and certain of its subsidiaries are subject to various pending and threatened legal proceedings, including certain purported class actions, arising out of the normal course of business or operations. In view of the inherent difficulty of predicting the outcome of such matters, the Corporation cannot state what the eventual outcome of any such matters will be; however, based on current knowledge and after consultation with legal counsel, management does not believe that the amount of any resulting liability arising from these matters will have a material adverse effect on the Corporation’s consolidated financial position or results of operations.
Note 24 — Variable Interest Entities — Adoption of FIN 46(R)
      Effective July 1, 2003, the Corporation adopted the provisions of FIN 46(R) for all interests held in a VIE. The Corporation evaluated various entities in which it held an interest to determine if these entities met the definition of a variable interest entity (VIE), and whether the Corporation was the primary beneficiary and should consolidate the entity based on the variable interests it held. The following provides a summary of the VIE’s in which the Corporation has a significant interest, and discusses the accounting changes that resulted from the adoption of FIN 46(R).
      The Corporation owns 100% of the common stock of two entities formed in 1997 and 2001 to issue trust preferred securities. Prior to the third quarter 2003 adoption of FIN 46(R), the Corporation consolidated these entities as a result of its ownership of the
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outstanding common securities. These entities meet the FIN 46(R) definition of a VIE, but the Corporation is not the primary beneficiary in either of these entities. As such, the Corporation deconsolidated these entities in the third quarter 2003. The trust preferred securities held by these entities ($405 million at December 31, 2003) were previously classified in “medium- and long-term debt” on the Corporation’s consolidated balance sheets. Deconsolidation of these entities did not change the classification of this as debt, but changed the debt instruments reported on the consolidated balance sheets from trust preferred securities debt to subordinated debt. The Corporation is not exposed to loss related to these VIE’s. Banking regulators announced that, until “notice is given to the contrary”, this debt will continue to qualify as Tier 1 capital.
      The Corporation has a significant limited partnership interest in the Peninsula Fund Limited Partnership (PFLP), a venture capital fund, which was acquired in 1996. Under FIN 46(R), the PFLP’s general partner (an employee of the Corporation) is considered a related party to the Corporation. Prior to the third quarter 2003 adoption of FIN 46(R), the Corporation recorded its investment in PFLP using the equity method, as an unconsolidated subsidiary. However, this entity meets the FIN 46(R) definition of a VIE, and the Corporation is the primary beneficiary of the entity. As such, the Corporation consolidated PFLP in the third quarter 2003. At consolidation, PFLP had approximately $22 million in assets, primarily investment securities, and consolidation resulted in an increase in both the Corporation’s assets and liabilities on the consolidated balance sheet of approximately $12 million. Consolidation does not impact net income, but changes the line items within the income statement where income from this entity is recorded; from noninterest income (where equity in earnings of unconsolidated subsidiaries was recorded) to interest income and other noninterest expense. Creditors of the partnership do not have recourse against the Corporation, and exposure to loss as a result of involvement with PFLP at December 31, 2003 was limited to approximately $8 million of net equity investment in the entity and approximately $2 million of commitments for future investments.
      The Corporation has limited partnership interests in three other venture capital funds, which were acquired in 1999 and 2000. Under FIN 46(R), the general partner (an employee of the Corporation) in these three partnerships is considered a related party to the Corporation. These three entities meet the FIN 46(R) definition of a VIE. However, the Corporation is not the primary beneficiary of the entities. As such, the Corporation will continue to account for its interest in these partnerships on the cost method. These three entities had approximately $172 million in assets at December 31, 2003. Exposure to loss as a result of involvement with these three entities at December 31, 2003 was limited to approximately $9 million of book basis of the Corporation’s investments and approximately $8 million of commitments for future investments.
      The Corporation, as a limited partner, also holds an insignificant ownership percentage interest in 96 other venture capital and private equity investment partnerships where the Corporation is not related to the general partner. While these entities may meet the FIN 46(R) definition of a VIE, the Corporation is not the primary beneficiary of any of these entities as a result of its insignificant ownership percentage interest. The Corporation accounts for its interests in these partnerships on the cost method, and exposure to loss as a result of involvement with these entities at December 31, 2003 was limited to approximately $101 million of book basis of the Corporation’s investments and approximately $55 million of commitments for future investments.
      Two limited liability subsidiaries of the Corporation are the general partners in two investment fund partnerships, formed in 1999 and 2003. As general partner, these subsidiaries manage the investments held by these funds. These two investment partnerships meet the FIN 46(R) definition of a VIE. However, the general partner is not the primary beneficiary of either of these entities. As such, the Corporation will continue to account for its indirect interests in these partnerships on the cost method. These two investment partnerships had approximately $145 million in assets at December 31, 2003 and were structured so that the Corporation’s exposure to loss as a result of its interest should be limited to the book basis of the Corporation’s investment in the limited liability subsidiaries, which was insignificant at December 31, 2003.
      The Corporation has a significant limited partner interest in 26 low income housing tax credit/ historic rehabilitation tax credit partnerships, acquired at various times from 1992 to 2003. These entities meet the FIN 46(R) definition of a VIE. However, the Corporation is not the primary beneficiary of the entities and, as such, will continue to account for its interest in these partnerships on the cost or equity method. These entities had approximately $177 million in assets at December 31, 2003. Exposure to loss as a result of its involvement with these entities at December 31, 2003 was limited to approximately $37 million of book basis of the Corporation’s investment, which includes unfunded commitments for future investments.
      The Corporation, as a limited partner, also holds an insignificant ownership percentage interest in 71 other low income housing tax credit/ historic rehabilitation tax credit partnerships. While these entities may meet the FIN 46(R) definition of a VIE, the Corporation is not the primary beneficiary of any of these entities as a result of its insignificant ownership percentage interest. As such, the
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Corporation will continue to account for its interest in these partnerships on the cost or equity method. Exposure to loss as a result of its involvement with these entities at December 31, 2003 was limited to approximately $153 million of book basis of the Corporation’s investment, which includes unfunded commitments for future investments.
      For further information on the adoption of FIN 46(R), see Note 1 on page 62.
Note 25 — Estimated Fair Value 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 typically holds 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 believes the imprecision of an estimate could be significant.
      The Corporation used the following methods and assumptions in estimating fair value disclosures for financial instruments:
      Cash and short-term investments: The carrying amount approximates the estimated fair value of these instruments, which consists of cash and due from banks, interest-bearing deposits with banks and federal funds sold.
      Trading 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 current 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 business 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 current market values of international loans with similar characteristics.
      Retail loans: This category consists of residential mortgage and consumer 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 and acceptances outstanding: The carrying amount approximates the estimated fair value.
      Loan servicing rights: The estimated fair value is representative of a discounted cash flow analyses, using interest rates and prepayment speed assumptions currently quoted for comparable instruments.
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      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.
      Short-term borrowings: The carrying amount of federal funds purchased, securities sold under agreements to repurchase and other borrowings approximates 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. All derivative financial instruments and foreign exchange contracts are carried at fair value on the balance sheet.
      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.
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      The estimated fair values of the Corporation’s financial instruments are as follows:

December 31

2003 2002

Carrying Estimated Carrying Estimated

Amount Fair Value Amount Fair Value

(in millions)

Assets

Cash and short-term investments
$ 5,288 $ 5,288 $ 4,033 $ 4,033

Trading securities
29 29 30 30

Loans held-for-sale
223 223 285 285

Investment securities available-for-sale
4,489 4,489 3,053 3,053

Commercial loans
22,974 22,509 25,242 24,872

Real estate construction loans
3,397 3,394 3,457 3,463

Commercial mortgage loans
7,878 7,931 7,194 7,353

Residential mortgage loans
875 885 789 801

Consumer loans
1,568 1,588 1,538 1,563

Lease financing
1,301 1,275 1,296 1,288

International loans
2,309 2,218 2,765 2,635

Total loans
40,302 39,800 42,281 41,975

Less allowance for loan losses
(803 ) — (791 ) —

Net loans
39,499 39,800 41,490 41,975

Customers’ liability on acceptances outstanding
27 27 33 33

Loan servicing rights
17 17 11 11

Liabilities

Demand deposits (noninterest-bearing)
14,104 14,104 16,335 16,335

Interest-bearing deposits
27,359 27,440 25,440 25,543

Total deposits
41,463 41,544 41,775 41,878

Short-term borrowings
262 262 540 540

Acceptances outstanding
27 27 33 33

Medium- and long-term debt
4,801 4,841 5,216 5,031

Derivative financial instruments and foreign exchange contracts

Risk management:

Unrealized gains
371 371 758 758

Unrealized losses
(4 ) (4 ) (1 ) (1 )

Customer-initiated and other:

Unrealized gains
69 69 68 68

Unrealized losses
(62 ) (62 ) (67 ) (67 )

Credit-related financial instruments
(87 ) (59 ) (56 ) (27 )

Note 26 — Business Segment Information
      The Corporation has strategically aligned its operations into three major lines of business: the Business Bank, Small Business and Personal Financial Services, and Wealth and Institutional Management. 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 business unit structure of the Corporation, which was modified in the third quarter 2003. Information presented is not necessarily comparable with similar information for any other financial institution. The
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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 lines of business and methodologies in effect at December 31, 2003. 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 management accounting system also produces results by four primary regions: Midwest, Western, Texas and Florida. Approximately half of the Corporation’s net income for the year ended December 31, 2003 was generated in the Midwest Region.
      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 allowance for loan losses is assigned in two ways. For commercial loans, it is recorded in business units based on the non-standard specifically calculated amount or the credit score of each loan outstanding. For consumer loans, general reserves are allocated based on historical loan loss experience, economic outlook and other factors. The related loan loss provision is assigned based on the amount necessary to maintain an allowance for loan 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. Equity is attributed based on credit, operational and interest rate risks. Most of the equity attributed relates to credit risk, which is determined based on the credit score and expected life of each loan, letter of credit and unused commitment recorded in the business unit. Operational risk is allocated based on the nature and extent of expenses incurred by business units. Virtually all interest rate risk is assigned to Finance, and is calculated based on the extent of the Corporation’s hedging activities.
      The following discussion provides information about the activities of each line of business. A discussion of the financial results and the factors impacting 2003 performance can be found in the section entitled “Strategic Lines of Business” in the financial review on page 37.
      The Business Bank is comprised of middle market, commercial real estate, national dealer services, global finance, large corporate, leasing, financial services group, and technology and life sciences lending. 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.
      Small Business and Personal Financial Services includes small business banking (annual sales under $10 million) and personal financial services, consisting of consumer lending, consumer deposit gathering and mortgage loan origination. This line of business offers a variety of consumer products, including deposit accounts, installment loans, credit cards, student loans, home equity lines of credit, and residential mortgage loans. In addition, a full range of financial services is provided to small businesses and municipalities.
      Wealth and Institutional Management is responsible for private banking, personal and institutional trust, retirement plans, and asset management (including Munder Capital Management, investment adviser to the Munder funds, and Wilson Kemp & Associates). This division also includes Comerica Securities, which offers institutional, retail and discount brokerage, and investment banking services, as well as Comerica Insurance, which is a full line insurance agency.
      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 liquidity, interest rate risk, and foreign exchange risk.
      The Other category includes divested business lines, the income and expense impact of cash and loan loss reserves not assigned to specific business lines and miscellaneous other items of a corporate nature.
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      Lines of business/segment financial results are as follows:

Years Ended December 31

Small Business and Personal Wealth and Institutional

Business Bank Financial Services* Management

2003 2002 2001 2003 2002 2001 2003 2002 2001

(dollar amounts in millions)

Earnings Summary:

Net interest income (expense) (FTE)
$ 1,622 $ 1,592 $ 1,365 $ 671 $ 665 $ 650 $ 145 $ 127 $ 103

Provision for loan losses
262 482 249 33 46 16 23 7 6

Noninterest income
286 252 269 208 199 219 289 294 223

Noninterest expenses
572 551 547 545 515 519 315 397 335

Provision (benefit) for income taxes (FTE)
411 311 309 88 92 108 35 8 (2 )

Net income (loss)
$ 663 $ 500 $ 529 $ 213 $ 211 $ 226 $ 61 $ 9 $ (13 )

Net charge-offs
$ 321 $ 457 $ 181 $ 34 $ 23 $ 5 $ 10 $ 1 $ 3

Selected Average Balances:

Assets
$ 34,845 $ 35,344 $ 35,815 $ 6,346 $ 5,990 $ 5,633 $ 3,132 $ 2,900 $ 2,646

Loans
33,857 34,268 34,020 5,631 5,259 5,138 2,882 2,564 2,213

Deposits
18,464 14,723 11,171 18,174 17,292 17,272 2,104 1,498 1,205

Attributed equity
2,691 2,983 2,799 805 765 713 389 403 449

Statistical Data:

Return on average assets
1.90 % 1.42 % 1.48 % 1.11 % 1.16 % 1.25 % 1.93 % 0.30 % (0.50 )%

Return on average attributed equity
24.66 16.79 18.91 26.38 27.62 31.72 15.53 2.15 (2.97 )

Efficiency ratio
30.06 29.58 33.43 62.03 59.60 59.76 72.68 94.38 102.91

Years Ended December 31

Finance* Other Total

2003 2002 2001 2003 2002 2001 2003 2002 2001

Earnings Summary:

Net interest income (expense) (FTE)
$ (524 ) $ (223 ) $ 1 $ 15 $ (25 ) $ (13 ) $ 1,929 $ 2,136 $ 2,106

Provision for loan losses
— — — 59 100 (30 ) 377 635 241

Noninterest income
104 139 99 — 16 27 887 900 837

Noninterest expenses
8 8 8 43 44 178 1,483 1,515 1,587

Provision (benefit) for income taxes (FTE)
(189 ) (59 ) 28 (50 ) (67 ) (38 ) 295 285 405

Net income (loss)
$ (239 ) $ (33 ) $ 64 $ (37 ) $ (86 ) $ (96 ) $ 661 $ 601 $ 710

Net charge-offs
$ — $ — $ — $ — $ — $ — $ 365 $ 481 $ 189

Selected Average Balances:

Assets
$ 7,516 $ 5,746 $ 4,726 $ 1,141 $ 1,150 $ 868 $ 52,980 $ 51,130 $ 49,688

Loans
— — — — — — 42,370 42,091 41,371

Deposits
2,687 4,072 5,564 90 127 100 41,519 37,712 35,312

Attributed equity
841 925 752 307 (192 ) (108 ) 5,033 4,884 4,605

Statistical Data:

Return on average assets
(2.60 )% (0.18 )% 0.36 % n/m n/m n/m 1.25 % 1.18 % 1.43 %

Return on average attributed equity
(28.38 ) (3.60 ) 8.49 n/m n/m n/m 13.12 12.31 15.16

Efficiency ratio
(1.71 ) (5.98 ) 10.28 n/m n/m n/m 53.64 50.59 54.30

* Return on average assets for the Small Business and Personal Financial Services and Finance segments are calculated based on total average liabilities and attributed equity.

n/m — not meaningful
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Comerica Incorporated and Subsidiaries
Note 27 — Parent Company Financial Statements
     Balance Sheets — Comerica Incorporated

December 31

2003 2002

(in millions,

except share data)

ASSETS

Cash and due from subsidiary bank
$ — $ 17

Short-term investments with subsidiary bank
296 28

Investment in subsidiaries, principally banks
5,599 5,421

Premises and equipment
3 3

Other assets
262 357

Total assets
$ 6,160 $ 5,826

LIABILITIES AND SHAREHOLDERS’ EQUITY

Commercial paper
— 130

Long-term debt
826 176

Subordinated debt issued to and advances from subsidiaries
— 352

Other liabilities
224 221

Total liabilities
1,050 879

Common stock — $5 par value:

Authorized — 325,000,000 shares

Issued — 178,735,252 at 12/31/03 and 12/31/02
894 894

Capital surplus
384 363

Accumulated other comprehensive income
74 237

Retained earnings
3,973 3,684

Less cost of common stock in treasury — 3,735,163 shares at 12/31/03 and 3,960,149 shares at 12/31/02
(215 ) (231 )

Total shareholders’ equity
5,110 4,947

Total liabilities and shareholders’ equity
$ 6,160 $ 5,826

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Comerica Incorporated and Subsidiaries
Statements of Income — Comerica Incorporated

Years Ended December 31

2003 2002 2001

(in millions)

INCOME

Income from subsidiaries

Dividends from subsidiaries
$ 355 $ 648 $ 580

Other interest income
1 1 2

Intercompany management fees
120 149 132

Other noninterest income
2 12 25

Total income
478 810 739

EXPENSES

Interest on commercial paper
— 3 4

Interest on long-term debt
22 3 8

Interest on subordinated debt issued to subsidiaries
15 30 13

Salaries and employee benefits
78 82 69

Occupancy expense
7 6 4

Equipment expense
1 1 1

Other noninterest expenses
44 34 24

Total expenses
167 159 123

Income before provision (benefit) of income taxes and equity in undistributed earnings (losses) of subsidiaries
311 651 616

Provision (benefit) for income taxes
(18 ) (1 ) 12

Income before equity in undistributed earnings (losses) of subsidiaries
329 652 604

Equity in undistributed earnings (losses) of subsidiaries, principally banks
332 (51 ) 106

NET INCOME
$ 661 $ 601 $ 710

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Comerica Incorporated and Subsidiaries
Statements of Cash Flows — Comerica Incorporated

Years Ended December 31

2003 2002 2001

(in millions)

OPERATING ACTIVITIES

Net income
$ 661 $ 601 $ 710

Adjustments to reconcile net income to net cash provided by operating activities

Undistributed (earnings) losses of subsidiaries, principally banks
(332 ) 51 (106 )

Depreciation and software amortization
1 1 1

Net gain on sales of businesses
— (12 ) (21 )

Decrease (increase) in dividends receivable from subsidiary
85 (85 ) —

Other, net
38 (70 ) 18

Total adjustments
(208 ) (115 ) (108 )

Net cash provided by operating activities
453 486 602

INVESTING ACTIVITIES

Purchases of fixed assets
(1 ) (1 ) (1 )

Net (increase) decrease in short-term investments with subsidiary bank
(268 ) (16 ) 100

Net decrease (increase) in private equity and venture capital investments
5 (26 ) (23 )

Net cash provided by sales of businesses
— 8 33

Capital transactions with subsidiaries
(18 ) (27 ) (421 )

Net cash used in investing activities
(282 ) (62 ) (312 )

FINANCING ACTIVITIES

Net (decrease) increase in subordinated debt issued to and advances from subsidiaries
— (7 ) 360

Net issuance of long-term debt
300 — —

Net (decrease) increase in commercial paper
(130 ) (10 ) 60

Redemption of preferred stock
— — (250 )

Proceeds from issuance of common stock
16 50 66

Purchase of common stock for treasury and retirement
(27 ) (210 ) (121 )

Dividends paid
(347 ) (331 ) (314 )

Net cash used in financing activities
(188 ) (508 ) (199 )

Net (decrease) increase in cash on deposit at bank subsidiary
(17 ) (84 ) 91

Cash on deposit at bank subsidiary at beginning of year
17 101 10

Cash on deposit at bank subsidiary at end of year
$ — $ 17 $ 101

Interest paid
$ 37 $ 37 $ 19

Income taxes (recovered) paid
$ (8 ) $ 12 $ 17

103

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Comerica Incorporated and Subsidiaries
Note 28 — Summary of Quarterly Financial Statements
      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.

2003

Fourth Third Second First

Quarter Quarter Quarter Quarter

(in millions, except per share data)

Interest income
$ 560 $ 579 $ 627 $ 646

Interest expense
103 114 134 135

Net interest income
457 465 493 511

Provision for loan losses
77 83 111 106

Net securities gains
4 4 29 13

Noninterest income (excluding net securities gains)
216 217 197 207

Noninterest expenses
379 377 360 367

Provision for income taxes
63 69 78 82

Net income
$ 158 $ 157 $ 170 $ 176

Basic net income per common share
$ 0.90 $ 0.90 $ 0.98 $ 1.01

Diluted net income per common share
0.89 0.89 0.97 1.00

2002

Fourth Third Second First

Quarter Quarter Quarter(1) Quarter

Interest income
$ 686 $ 694 $ 705 $ 712

Interest expense
153 166 174 172

Net interest income
533 528 531 540

Provision for loan losses
115 275 170 75

Net securities gains (losses)
57 (6 ) (9 ) (1 )

Noninterest income (excluding net securities gains (losses))
197 222 231 209

Noninterest expenses
373 443 352 347

Provision for income taxes
93 2 74 112

Net income
$ 206 $ 24 $ 157 $ 214

Basic net income per common share
$ 1.18 $ 0.14 $ 0.89 $ 1.22

Diluted net income per common share
1.18 0.14 0.88 1.20

(1) Second quarter 2002 results are adjusted for the third quarter 2002 restatement of second quarter 2002 earnings to reflect additional provision for loan losses and to record the effect of the third quarter adoption of SFAS No. 123 (see Notes 1 and 16 on pages 62 and 80, respectively).

Note 29 — Pending Accounting Pronouncements
      In January 2004, the FASB issued a FASB Staff Position (FSP), “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”. The FSP permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) and requires certain disclosures pending further consideration of the underlying accounting issues. The Act introduces a Medicare prescription drug benefit as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the Medicare benefit. The Corporation is in the process of analyzing the impact the Act will have on its employee benefit plans. The FSP is effective for financial statements of interim or
104

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Comerica Incorporated and Subsidiaries
annual periods ending after December 7, 2003. If an entity elects deferral, that election may not be changed, and the deferral continues to apply until authoritative guidance on the accounting for the federal subsidy resulting from the Act is issued, or until a significant event occurs that would ordinarily call for remeasurement of a plan’s assets and obligations (i.e. plan amendment, settlement or curtailment). The FASB plans to issue authoritative guidance on the accounting for subsidies later in 2004, which could require the Corporation to modify its postretirement disclosures. In accordance with the FSP, the Corporation elected to defer accounting for the effects of the Act.
105

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REPORT OF MANAGEMENT
      Management is responsible for the accompanying consolidated financial statements and all other financial information in this Annual Report. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States 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 consolidated financial statements.
      In meeting its responsibility for the reliability of the consolidated 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 consolidated financial statements have been audited by independent auditors Ernst & Young LLP. Their role is to render an independent professional opinion on management’s consolidated financial statements based upon performance of procedures they deem appropriate under auditing standards generally accepted in the United States.
      The Corporation’s Board of Directors oversees management’s internal control and financial reporting responsibilities through its Audit and Legal Committee as well as various other committees. The Audit and 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.

Ralph W. Babb Jr.

Chairman, President and Chief Executive Officer

Elizabeth S. Acton

Executive Vice President and Chief Financial Officer

Marvin J. Elenbaas

Senior Vice President and Controller

106

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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, 2003 and 2002, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2003. 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, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States.
      As discussed in Note 8 to the consolidated financial statements, in 2002 Comerica Incorporated and subsidiaries changed their method of accounting for goodwill and other intangible assets. Also, as discussed in Note 16 to the consolidated financial statements, in 2002 Comerica Incorporated and subsidiaries changed their method of accounting for stock-based compensation.

Detroit, Michigan

January 15, 2004

107

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HISTORICAL REVIEW — AVERAGE BALANCE SHEETS

Comerica Incorporated and Subsidiaries
CONSOLIDATED FINANCIAL INFORMATION

December 31

2003 2002 2001 2000 1999

(in millions)

ASSETS

Cash and due from banks
$ 1,811 $ 1,800 $ 1,835 $ 1,842 $ 1,896

Short-term investments
1,942 602 442 978 650

Investment securities
4,529 4,360 3,909 3,688 3,107

Commercial loans
25,084 25,460 26,401 25,313 23,069

Real estate construction loans
3,540 3,353 3,090 2,554 1,729

Commercial mortgage loans
7,521 6,786 5,695 5,142 4,583

Residential mortgage loans
831 758 795 833 930

Consumer loans
1,515 1,504 1,479 1,434 1,853

Lease financing
1,283 1,242 1,111 870 699

International loans
2,596 2,988 2,800 2,552 2,627

Total loans
42,370 42,091 41,371 38,698 35,490

Less allowance for loan losses
(831 ) (739 ) (654 ) (595 ) (531 )

Net loans
41,539 41,352 40,717 38,103 34,959

Accrued income and other assets
3,159 3,016 2,785 2,266 2,050

Total assets
$ 52,980 $ 51,130 $ 49,688 $ 46,877 $ 42,662

LIABILITIES AND SHAREHOLDERS’ EQUITY

Noninterest-bearing deposits
$ 13,910 $ 11,841 $ 10,253 $ 9,068 $ 8,661

Interest-bearing deposits
27,609 25,871 25,059 21,272 18,817

Total deposits
41,519 37,712 35,312 30,340 27,478

Short-term borrowings
550 1,962 2,584 3,323 3,562

Accrued expenses and other liabilities
804 809 823 703 522

Medium- and long-term debt
5,074 5,763 6,198 8,298 7,441

Total liabilities
47,947 46,246 44,917 42,664 39,003

Shareholders’ equity
5,033 4,884 4,771 4,213 3,659

Total liabilities and shareholders’ equity
$ 52,980 $ 51,130 $ 49,688 $ 46,877 $ 42,662

108

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HISTORICAL REVIEW — STATEMENTS OF INCOME
Comerica Incorporated and Subsidiaries
CONSOLIDATED FINANCIAL INFORMATION

Years Ended December 31

2003 2002 2001 2000 1999

(in millions, except per share data)

INTEREST INCOME

Interest and fees on loans
$ 2,211 $ 2,524 $ 3,121 $ 3,379 $ 2,859

Interest on investment securities
165 246 246 259 199

Interest on short-term investments
36 27 26 78 39

Total interest income
2,412 2,797 3,393 3,716 3,097

INTEREST EXPENSE

Interest on deposits
370 479 888 951 693

Interest on short-term borrowings
7 37 105 215 183

Interest on medium- and long-term debt
109 149 298 546 404

Total interest expense
486 665 1,291 1,712 1,280

Net interest income
1,926 2,132 2,102 2,004 1,817

Provision for loan losses
377 635 241 251 144

Net interest income after provision for loan losses
1,549 1,497 1,861 1,753 1,673

NONINTEREST INCOME

Service charges on deposit accounts
238 227 211 189 177

Fiduciary income
169 171 180 181 183

Commercial lending fees
63 69 67 61 55

Letter of credit fees
65 60 58 52 46

Foreign exchange income
35 40 35 27 21

Brokerage fees
34 38 44 44 36

Investment advisory revenue, net
30 27 12 119 61

Bank-owned life insurance
42 53 33 23 26

Equity in earnings of unconsolidated subsidiaries
6 8 (43 ) 14 15

Warrant income
4 5 5 30 33

Net securities gains
50 41 20 16 9

Net gain on sales of businesses
— 12 31 50 76

Other noninterest income
151 149 184 174 155

Total noninterest income
887 900 837 980 893

NONINTEREST EXPENSES

Salaries and employee benefits
897 844 842 874 804

Net occupancy expense
128 122 115 110 104

Equipment expense
61 62 70 76 73

Outside processing fee expense
71 65 61 59 60

Software expense
37 33 34 28 24

Customer services
25 26 41 37 40

Goodwill impairment
— 86 — — —

Restructuring charges
— — 152 — —

Other noninterest expenses
264 277 272 327 282

Total noninterest expenses
1,483 1,515 1,587 1,511 1,387

Income before income taxes
953 882 1,111 1,222 1,179

Provision for income taxes
292 281 401 431 420

NET INCOME
$ 661 $ 601 $ 710 $ 791 $ 759

Net income applicable to common stock
$ 661 $ 601 $ 698 $ 774 $ 742

Basic net income per common share
$ 3.78 $ 3.43 $ 3.93 $ 4.38 $ 4.20

Diluted net income per common share
3.75 3.40 3.88 4.31 4.13

Cash dividends declared on common stock
350 335 313 250 225

Cash dividends declared per common share
2.00 1.92 1.76 1.60 1.44

109

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HISTORICAL REVIEW-STATISTICAL DATA
Comerica Incorporated and Subsidiaries
CONSOLIDATED FINANCIAL INFORMATION

Years Ended December 31

2003 2002 2001 2000 1999

AVERAGE RATES (FULLY TAXABLE EQUIVALENT BASIS)

Short-term investments
1.85 % 4.45 % 6.02 % 7.97 % 6.06 %

Investment securities
3.65 5.74 6.37 6.99 6.42

Commercial loans
4.13 4.70 6.85 8.87 7.71

Real estate construction loans
5.04 5.74 7.95 10.09 9.21

Commercial mortgage loans
5.35 6.12 7.65 8.80 8.27

Residential mortgage loans
6.47 7.15 7.59 7.64 7.47

Consumer loans
5.41 6.55 8.39 9.09 9.95

Lease financing
4.59 5.37 6.25 6.24 6.91

International loans
4.44 4.70 7.38 9.21 7.86

Total loans
5.22 6.00 7.55 8.74 8.06

Interest income as a percentage of earning assets
4.94 5.96 7.44 8.57 7.90

Domestic deposits
1.30 1.81 3.48 4.34 3.55

Deposits in foreign offices
3.15 3.36 5.97 7.75 7.05

Total interest-bearing deposits
1.34 1.85 3.54 4.47 3.68

Short-term borrowings
1.20 1.85 4.08 6.48 5.14

Medium- and long-term debt
2.14 2.58 4.80 6.57 5.44

Interest expense as a percentage of interest-bearing sources
1.46 1.98 3.82 5.20 4.29

Interest rate spread
3.48 3.98 3.62 3.37 3.61

Impact of net noninterest-bearing sources of funds
0.47 0.57 0.99 1.26 1.03

Net interest margin as a percentage of earning assets
3.95 4.55 4.61 4.63 4.64

RATIOS

Return on average common shareholders’ equity
13.12 % 12.31 % 15.16 % 19.52 % 21.78 %

Return on average assets
1.25 1.18 1.43 1.69 1.78

Efficiency ratio
53.64 50.59 54.30 50.88 51.26

Tier 1 common capital as a percentage of risk-weighted assets
8.04 7.39 7.30 6.80 6.70

PER SHARE DATA

Book value at year-end
$ 29.20 $ 28.31 $ 27.17 $ 23.98 $ 20.87

Market value at year-end
56.06 43.24 57.30 59.38 46.69

Market value for the year

High
56.34 66.09 65.15 61.13 70.00

Low
37.10 35.20 44.02 32.94 44.00

OTHER DATA

Number of banking offices
360 352 342 354 348

Number of employees (full-time equivalent)
11,282 11,358 11,406 11,444 11,484

110 EX-21 7 k83434exv21.txt SUBSIDIARIES OF REGISTRANT . . . EXHIBIT 21 SUBSIDIARIES OF REGISTRANT AS OF DECEMBER 31, 2003
Name State or Jurisdiction of Incorporation - ---- --------------------------------------- or 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 Financial Incorporated Michigan (f/n/a/ Comerica AutoLease, Inc.) Comerica 10A Financial LLC Michigan (f/n/a Project 10A, LLC) VRB Corp. Michigan Comerica International Corporation U.S. Comerica (Bermuda), Ltd. Bermuda (f/k/a Comerica Trust Company of Bermuda, Ltd.) CMA Insurance Services of Texas Incorporated Texas (f/k/a CMA Insurance Services, Inc.) Comerica Holdings Incorporated Delaware CMT Holdings, Inc. Texas Comerica Merchant Services, Inc. Delaware Interstate Select Insurance Services, Inc. California Comerica Assurance Ltd. Bermuda 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 Equities Incorporated Delaware Comerica West Incorporated Delaware Comerica West Financial Incorporated Delaware Comerica West Enterprises Incorporated Delaware Munder Capital Management Delaware Munder UK, L.L.C. Delaware Comerica Bank-Mexico, S.A. Mexico Comerica Bank & Trust, National Association United States Comerica Bank-Canada Canada Comerica Bank Michigan Imperial Capital Trust I Delaware ROC Technologies, Inc. Delaware Imperial Bank Realty Company, Incorporated California Pacific Bancard Association, Inc. California Comerica Ventures Incorporated California (f/n/a Imperial Ventures, Inc.) Imperial Management, Inc. Delaware Comerica do Brasil Participacoes e Servicos Ltda. Brazil Comerica Coastal Incorporated Delaware Comerica Preferred Capital, LLC Delaware Comerica Dealer Finance, LLC Delaware Comerica Auto Floorplan, LLC Delaware DFP Cayman LP Cayman Islands DFP Luxembourg S.A. Luxembourg Comerica Capital Advisors Incorporated Delaware Comerica Capital Trust I Delaware Comerica Capital Trust II Delaware CDV I Incorporated Delaware Comerica California Preferred Capital, LLC Delaware Comerica Texas Preferred Capital, LLC Delaware
EX-23 8 k83434exv23.txt CONSENT OF ERNST & YOUNG LLP 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 15, 2004, included in this Annual Report on Form 10-K for the year ended December 31, 2003: 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. 333-04297 on Form S-3 dated May 22, 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 Registration Statement No. 333-48118 on Form S-8 dated October 18, 2000 Registration Statement No. 333-48120 on Form S-8 dated October 18, 2000 Registration Statement No. 333-48122 on Form S-8 dated October 18, 2000 Registration Statement No. 333-48124 on Form S-8 dated October 18, 2000 Registration Statement No. 333-48126 on Form S-8 dated October 18, 2000 Registration Statement No. 333-50966 on Form S-8 dated November 30, 2000 Registration Statement No. 333-51042 on Form S-8 to Form S-4 dated February 6, 2001 Registration Statement No. 333-104163 on Form S-8 dated March 30, 2003 Registration Statement No. 333-104164 on Form S-8 dated March 30, 2003 Registration Statement No. 333-48124 on Form S-8 dated August 14, 2003 Registration Statement No. 333-107962 on Form S-8 dated August 14, 2003 Registration Statement No. 333-110791 on Form S-8 dated November 26, 2003 Registration Statement No. 333-110792 on Form S-8 dated November 26, 2003 /s/ Ernst & Young LLP March 5, 2004 Detroit, Michigan EX-31.1 9 k83434exv31w1.txt CERTIFICATION PURSUANT TO SECTION 302 EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Ralph W. Babb, Jr., Chairman, President and Chief Executive Officer of Comerica Incorporated (the "Registrant"), certify that: 1. I have reviewed this annual report on Form 10-K of the Registrant for the year ended December 31, 2003 (the "Annual Report"); 2. Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Annual Report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report based on such evaluation; and c) disclosed in this Annual Report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit 28 committee of the Registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: March 8, 2004 /s/ Ralph W. Babb, Jr - --------------------------- Ralph W. Babb, Jr. Chairman, President and Chief Executive Officer 29 EX-31.2 10 k83434exv31w2.txt CERTIFICATION PURSUANT TO SECTION 302 EXHIBIT 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Elizabeth S. Acton, Executive Vice President and Chief Financial Officer of Comerica Incorporated (the "Registrant"), certify that: 1. I have reviewed this annual report on Form 10-K of the Registrant for the year ended December 31, 2003 (the "Annual Report"); 2. Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Annual Report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report based on such evaluation; and c) disclosed in this Annual Report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 30 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: March 8, 2004 /s/ Elizabeth S. Acton - ------------------------------- Elizabeth S. Acton Executive Vice President and Chief Financial Officer 31 EX-32 11 k83434exv32.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 32 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), each of the undersigned officers of Comerica Incorporated (the "Corporation"), does hereby certify with respect to the Annual Report of the Corporation on Form 10-K for the year ended December 31, 2003 (the "Report") that: The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 8, 2004 /s/ Ralph W. Babb ------------------------------- Ralph W. Babb, Jr. Chairman, President and Chief Executive Officer Date: March 8, 2004 /s/ Elizabeth S. Acton ------------------------------- Elizabeth S. Acton Executive Vice President and Chief Financial Officer The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document. 32 GRAPHIC 12 k83434rwbabb.gif GRAPHIC begin 644 k83434rwbabb.gif M1TE&.#EAX``\`,0```\/#Q\?'R\O+S\_/_#P\(^/C^#@X._O[]#0T*^OKU]? 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•		general political and economic conditions, either domestically or internationally, may be less favorable that expected;

•		the mix of interest rates and maturities of the Corporation’s interest earning assets and interest bearing liabilities (primarily loans and deposits) may be less favorable than expected;

•		interest rate margin compression may be greater than expected;

•		developments concerning credit quality in various industry sectors may result in an increase in the level of the Corporation’s provision for credit losses, nonperforming assets, net charge-offs and reserve for credit losses;

•		demand for commercial loan and investment advisory products may continue to be weak;

•		customer borrowing, repayment, investment and deposit practices generally may be less favorable than anticipated;

•		interest rate and currency fluctuations, equity and bond market fluctuations, and inflation may be greater than expected;

•		global capital markets in general, and the technology industry in particular, may continue to exhibit weakness, adversely affecting the Corporation’s investment advisory business line, as well as the Corporation’s private banking and brokerage business lines, and the availability and terms of funding necessary to meet the Corporation’s liquidity needs;

•		the introductions, withdrawal, success and timing of business initiatives and strategies, including, but not limited to, the opening of new branches or private banking offices or plans to grow personal financial services and wealth management;

•		competitive product and pricing pressures among financial institutions within the Corporation’s markets may increase;

•		legislative or regulatory developments, including changes in laws or regulations concerning taxes, banking, securities, capital requirements and risk-based capital guidelines, reserve methodologies, deposit insurance and other aspects of the financial services industry, may adversely affect the business in which the Corporation is engaged or the Corporation’s financial results;

•		legal and regulatory proceedings and related matters with respect to the financial services industry, including those directly involving the Corporation and its subsidiaries, could adversely affect the Corporation or the financial services industry generally;

•		pending and proposed changes in accounting rules, policies, guidance, practices and procedures could adversely affect the Corporation’s financial results;

•		instruments, systems and strategies used to hedge or otherwise manage exposure to various types of market, credit , operational and enterprise wide risk could be less effective than anticipated, and the Corporation may not be able to effectively mitigate its risk exposures in particular market environments or against particular types of risk;

•		terrorist activities or other hostilities, which may adversely affect the general economy, financial and capital markets, specific industries, and the Corporation; and

•		technological changes may be more difficult or expensive than anticipated.

	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 21.

	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.

	1.		A report on Form 8-K, dated October 15, 2003, was submitted under items 9 and 11, announcing the Corporation’s earnings for the quarter ended September 30, 2003.

	2.		A report on Form 8-K, dated November 18, 2003, was submitted under item 9, announcing the Corporation’s investor conference to be held on November 18, 2003.

	3.		A report on Form 8-K, dated December 1, 2003, was submitted under item 9, announcing the Corporation’s resumption of its stock repurchase program.


FINANCIAL REVIEW AND REPORTS
2003 FINANCIAL RESULTS AND KEY CORPORATE INITIATIVES
OVERVIEW/EARNINGS PERFORMANCE
STRATEGIC LINES OF BUSINESS
BALANCE SHEET AND CAPITAL FUNDS ANALYSIS
RISK MANAGEMENT
CRITICAL ACCOUNTING POLICIES
FORWARD-LOOKING STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
	CONSOLIDATED BALANCE SHEETS
	CONSOLIDATED STATEMENTS OF INCOME
	CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
	CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF MANAGEMENT
REPORT OF INDEPENDENT AUDITORS
HISTORICAL REVIEW
1999 Common Stock Deferred Incentive Award Plan
Non-Employee Director Fee Deferral Plan
Common Stock Non-Employee Director Fee Deferral
Annual Report to Shareholders
Subsidiaries of Registrant
Consent of Ernst & Young LLP
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906


		Page

Financial Results and Key Corporate Initiatives			25
Overview/ Earnings Performance			25
Strategic Lines of Business			37
Balance Sheet and Capital Funds Analysis			38
Risk Management			42
Critical Accounting Policies			53
Forward-Looking Statements			56
Consolidated Financial Statements:
	Consolidated Balance Sheets		58
	Consolidated Statements of Income		59
	Consolidated Statements of Changes in Shareholders’ Equity		60
	Consolidated Statements of Cash Flows		61
Notes to Consolidated Financial Statements			62
Report of Management			106
Report of Independent Auditors			107
Historical Review			108



	Years Ended December 31

	2003			2002			2001			2000			1999


	(dollar amounts in millions, except per share data)
EARNINGS SUMMARY
Total interest income	$	2,412		$	2,797		$	3,393		$	3,716		$	3,097
Net interest income		1,926			2,132			2,102			2,004			1,817
Provision for loan losses		377			635			241			251			144
Net securities gains		50			41			20			16			9
Noninterest income (excluding net securities gains)		837			859			817			964			884
Noninterest expenses		1,483			1,515			1,587			1,511			1,387
Provision for income taxes		292			281			401			431			420
Net income		661			601			710			791			759
PER SHARE OF COMMON STOCK
Basic net income	$	3.78		$	3.43		$	3.93		$	4.38		$	4.20
Diluted net income		3.75			3.40			3.88			4.31			4.13
Cash dividends declared		2.00			1.92			1.76			1.60			1.44
Common shareholders’ equity		29.20			28.31			27.17			23.98			20.87
Market value		56.06			43.24			57.30			59.38			46.69
YEAR-END BALANCES
Total assets	$	52,592		$	53,301		$	50,750		$	49,557		$	45,529
Total earning assets		48,804			47,780			46,566			45,791			42,426
Total loans		40,302			42,281			41,196			40,170			36,305
Total deposits		41,463			41,775			37,570			33,854			29,196
Total borrowings		5,063			5,756			7,489			10,353			11,682
Total medium- and long-term debt		4,801			5,216			5,503			8,259			8,757
Total common shareholders’ equity		5,110			4,947			4,807			4,250			3,698
DAILY AVERAGE BALANCES
Total assets	$	52,980		$	51,130		$	49,688		$	46,877		$	42,662
Total earning assets		48,841			47,053			45,722			43,364			39,247
Total loans		42,370			42,091			41,371			38,698			35,490
Total deposits		41,519			37,712			35,312			30,340			27,478
Total borrowings		5,624			7,725			8,782			11,621			11,003
Total medium- and long-term debt		5,074			5,763			6,198			8,298			7,441
Total common shareholders’ equity		5,033			4,884			4,605			3,963			3,409
CREDIT QUALITY
Allowance for loan losses	$	803		$	791		$	637		$	585		$	529
Total nonperforming assets		538			579			627			339			213
Net loans charged-off		365			481			189			195			109
Net loans charged-off as a percentage of average total loans		0.86	%		1.14	%		0.46	%		0.50	%		0.31	%
Allowance for loan losses as a percentage of total period-end loans		1.99			1.87			1.55			1.46			1.46
RATIOS
Net interest margin		3.95	%		4.55	%		4.61	%		4.63	%		4.64	%
Return on average assets		1.25			1.18			1.43			1.69			1.78
Return on average common shareholders’ equity		13.12			12.31			15.16			19.52			21.78
Efficiency ratio		53.64			50.59			54.30			50.88			51.26
Dividend payout ratio		53.33			56.47			45.36			37.12			34.87
Average common shareholders’ equity as a percentage of average assets		9.50			9.55			9.27			8.45			7.99
Tier 1 common capital as a percentage of risk-weighted assets		8.04			7.39			7.30			6.80			6.70


	•	Reported net income of $661 million, or $3.75 per diluted share, compared to $601 million, or $3.40 per diluted share, for 2002

	•	Returned 13.12 percent on average common shareholders’ equity

	•	Returned 1.25 percent on average assets

	•	Raised the quarterly cash dividend four percent, to $0.50 per share, an annual rate of $2.00 per share

	•	Increased allowance for loan losses as a percentage of total loans to 1.99 percent at December 31, 2003, an addition of $12 million from December 31, 2002


	•	Completed several milestones of the enterprise-wide risk management program to improve analytics and systems to enhance operational and credit risk management

	•	Improved core capital ratios, as evidenced by an increase in the Tier 1 common capital ratio to 8.04%

	•	Continued to focus on Connectivity, a national initiative of building successful customer relationships through cross-selling

	•	Continued to invest in and expand our delivery network, including the opening of 10 new branches in 2003; plan to continue branch expansion process with the opening of approximately 50 new branches over the next three years, including about 15 branches in 2004, with a focus on the California and Texas markets

	•	Consolidated the California and Texas banking subsidiaries into the Michigan banking subsidiary, to better serve customers and to increase efficiency in capital management

	•	Designed a Franchise Model to strengthen our growth opportunities outside of the Midwest, by defining our best practices and implementing them in all of our markets


(1)	Nonaccrual loans are included in average balances reported and are used to calculate rates.

(2)	Average rate based on average historical cost.

(3)	Certificates of deposit and medium- and long-term debt average balances have been adjusted to reflect the gain or loss attributable to the risk hedged by risk management swaps that qualify as a fair value hedge.

(4)	The gain or loss attributable to the effective portion of cash flow hedges of loans is shown in “Business loan swap income (expense)”. The gain or loss attributable to the effective portion of fair value hedges of deposits and medium- and long-term debt, which totaled a gain of $92 million in 2003, is included in the related interest expense line items.

(5)	Includes substantially all deposits by foreign domiciled depositors; deposits are primarily in excess of $100,000.

(6)	The FTE adjustment is computed using a federal income tax rate of 35%.



			2003 / 2002									2002 / 2001

			Increase			Increase			Net			Increase			Increase			Net
			(Decrease)			(Decrease)			Increase			(Decrease)			(Decrease)			Increase
			Due to Rate			Due to Volume*			(Decrease)			Due to Rate			Due to Volume*			(Decrease)


			(in millions)
Interest income (FTE):
Loans:
	Commercial loans		$	(145	)	$	(16	)	$	(161	)	$	(565	)	$	(44	)	$	(609	)
	Real estate construction loans			(24	)		9			(15	)		(68	)		15			(53	)
	Commercial mortgage loans			(52	)		39			(13	)		(86	)		67			(19	)
	Residential mortgage loans			(5	)		5			—			(4	)		(2	)		(6	)
	Consumer loans			(17	)		1			(16	)		(27	)		1			(26	)
	Lease financing			(10	)		2			(8	)		(9	)		7			(2	)
	International loans			(8	)		(17	)		(25	)		(75	)		8			(67	)
	Business loan swap income (expense)			(76	)		—			(76	)		186			—			186

		Total loans		(337	)		23			(314	)		(648	)		52			(596	)
Investment securities				(87	)		6			(81	)		(25	)		25			—
Short-term investments				(4	)		13			9			(7	)		7			—

		Total interest income (FTE)		(428	)		42			(386	)		(680	)		84			(596	)
Interest expense:
Interest-bearing deposits:
	Money market and NOW deposits			(38	)		50			12			(104	)		47			(57	)
	Savings deposits			(8	)		—			(8	)		(5	)		2			(3	)
	Certificates of deposit			(66	)		(40	)		(106	)		(273	)		(65	)		(338	)
	Foreign office time deposits			(2	)		(5	)		(7	)		(16	)		5			(11	)

		Total interest-bearing deposits		(114	)		5			(109	)		(398	)		(11	)		(409	)
Short-term borrowings				(13	)		(17	)		(30	)		(57	)		(11	)		(68	)
Medium- and long-term debt				(25	)		(15	)		(40	)		(138	)		(11	)		(149	)

		Total interest expense		(152	)		(27	)		(179	)		(593	)		(33	)		(626	)

		Net interest income (FTE)	$	(276	)	$	69		$	(207	)	$	(87	)	$	117		$	30


*	Rate/volume variances are allocated to variances due to volume.


*	Included in “Accrued expenses and other liabilities” on the consolidated balance sheets.



			December 31


			2003					2002					2001					2000					1999

			Amount		%			Amount		%			Amount		%			Amount		%			Amount		%


			(dollar amounts in millions)
Domestic
	Commercial		$	500		57	%	$	485		60	%	$	414		61	%	$	353		65	%	$	309		65	%
	Real estate construction			31		8			26		8			17		8			11		7			12		6
	Commercial mortgage			95		20			86		17			61		15			59		13			35		14
	Residential mortgage			—		2			—		2			—		2			—		2			—		2
	Consumer			19		4			18		4			11		4			8		4			18		4
	Lease financing			26		3			8		3			9		3			5		3			8		2
International				91		6			130		6			88		7			105		6			95		7
Unallocated				41					38					37					44					52

		Total	$	803		100	%	$	791		100	%	$	637		100	%	$	585		100	%	$	529		100	%



	Years Ended
	December 31

	2003			2002			2001

Allowance for loan losses as a percentage of total loans at end of year		1.99	%		1.87	%		1.55	%
Allowance for loan losses as a percentage of nonperforming assets at end of year		149			136			102
Allowance for loan losses as a percentage of total net charge-offs for the year		220			164			337



			December 31,

			2003		2002		2001		2000		1999


			(in millions)
Investment securities available-for-sale
	U.S. Treasury and other Government agency securities		$	4,309	$	2,748	$	3,920	$	3,135	$	2,950
	State and municipal securities			11		23		32		46		73
	Other securities			169		282		339		710		760

		Total investment securities available-for-sale	$	4,489	$	3,053	$	4,291	$	3,891	$	3,783

Commercial loans			$	22,974	$	25,242	$	25,176	$	26,009	$	23,629
Real estate construction loans:
	Real estate construction business line			2,754		2,900		2,824		n/a		n/a
	Other			643		557		434		n/a		n/a

		Total real estate construction loans		3,397		3,457		3,258		2,915		2,167
Commercial mortgage loans:
	Commercial real estate business line			1,655		1,626		1,421		n/a		n/a
	Other			6,223		5,568		4,846		n/a		n/a

		Total commercial mortgage loans		7,878		7,194		6,267		5,361		4,873
Residential mortgage loans				875		789		779		808		871
Consumer loans				1,568		1,538		1,484		1,477		1,389
Lease financing				1,301		1,296		1,217		1,029		803
International loans:
	Government and official institutions			6		9		9		2		10
	Banks and other financial institutions			45		199		427		402		391
	Commercial and industrial			2,258		2,557		2,579		2,167		2,172

		Total international loans		2,309		2,765		3,015		2,571		2,573

		Total loans	$	40,302	$	42,281	$	41,196	$	40,170	$	36,305


*	Includes demand loans, loans having no stated repayment schedule or maturity and overdrafts



			December 31, 2003


			Maturity*

																												Weighted
			Within 1 Year					1 - 5 Years					5 - 10 Years					After 10 Years					Total					Average
																												Maturity
			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Yrs./Mos.


			(dollar amounts in millions)
Available-for-sale
	U.S. Treasury and other Government agency securities		$	183		1.97	%	$	728		2.97	%	$	1,182		3.59	%	$	2,216		3.69	%	$	4,309		3.47	%		9/9
	State and municipal securities			3		6.35			5		5.48			3		6.27			—		—			11		5.92			2/11
	Other securities
		Other bonds, notes and debentures		8		6.71			73		4.90			—		—			—		—			81		5.05			2/1
		Other investments**		—		—			—		—			—		—			88		—			88		—			—

Total investment securities available-for-sale			$	194		2.23	%	$	806		3.16	%	$	1,185		3.59	%	$	2,304		3.69	%	$	4,489		3.50	%		9/7


**	Balances are excluded from the calculation of total yield.



	December 31

			Government		Banks and
			and Official		Other Financial		Commercial
			Institutions		Institutions		and Industrial		Total


	(in millions)
Mexico		2003	$	12	$	3	$	1,106	$	1,121
		2002		15		7		1,168		1,190
		2001		17		25		1,207		1,249

Brazil		2001	$	31	$	322	$	236	$	589



		December 31


		Argentina				Brazil

		2003		2002		2003		2002


		(in millions)
Loans		$	46	$	70	$	193	$	412
Securities			1		6		10		51
Unfunded commitments			—		9		—		48

	Total exposure	$	47	$	85	$	203	$	511

Nonperforming loans		$	24	$	37	$	7	$	3
Nonperforming securities			—		4		1		—

	Total nonperforming assets	$	24	$	41	$	8	$	3


(1)	Based on an analysis of nonaccrual loans with book balances greater than $2 million.
(2)	Analysis of gross loan charge-offs:
	Nonaccrual business loans		$	399	$	508
	Performing business loans			1		—
	Consumer loans			8		9

		Total gross loan charge-offs	$	408	$	517

(3)	Analysis of loans sold:
	Nonaccrual business loans		$	144	$	134
	Performing watch list loans (as defined below) sold			15		—

		Total loans sold	$	159	$	134

(4)	Net change related to nonaccrual loans with balances less than $2 million, other than business loan gross charge-offs and nonaccrual loans sold, are included in Payments/Other.



		December 31,
		2003				Year Ended December 31, 2003


						Loans
		Nonaccrual				Transferred				Net
SIC Category		Loans				to Nonaccrual*				Charge-Offs



		(dollar amounts in millions)
Automotive		$	87	17	%	$	117	18	%	$	73	20	%
Services			75	15			98	15			25	7
Non-automotive manufacturing			57	11			94	14			46	12
Retail trade			55	11			46	7			22	6
Wholesale trade			42	8			83	12			40	11
Real estate			42	8			34	5			10	3
Transportation			36	7			61	9			10	3
Technology-related			33	7			61	9			56	15
Utilities			28	6			26	4			7	2
Entertainment			17	3			3	1			24	7
Finance			2	1			18	3			19	5
Other			33	6			19	3			33	9

	Total	$	507	100	%	$	660	100	%	$	365	100	%



		December 31, 2003


		Real Estate					Commercial
		Construction					Mortgage

		Amount		%			Amount		%


		(in millions)
Michigan		$	1,453		43	%	$	4,711		60	%
California			1,155		34			1,461		19
Texas			460		13			730		9
Florida			160		5			274		3
Other			169		5			702		9

	Total	$	3,397		100	%	$	7,878		100	%


																					Dec. 31,			Dec. 31,
																		2009-			2003			2002
			2004			2005			2006			2007			2008			2026			Total			Total


			(dollar amounts in millions)
Variable rate asset designation:
	Generic receive fixed swaps		$	3,500		$	3,800		$	1,500		$	—		$	—		$	—		$	8,800		$	10,616
	Weighted Average:(1)
		Receive Rate		6.59	%		6.11	%		5.36	%		—	%		—	%		—	%		6.17	%		7.44	%
		Pay Rate		4.00			4.00			4.00			—			—			—			4.00			3.71
Fixed rate asset designation:
	Pay fixed swaps
		Generic	$	13		$	—		$	—		$	—		$	—		$	—		$	13		$	14
		Amortizing		5			—			—			—			—			—			5			5
	Weighted Average:(2)
		Receive Rate		3.43	%		1.18	%		1.18	%		1.18	%		—	%		—	%		3.41	%		3.72	%
		Pay Rate		4.12			4.15			4.15			4.15			—			—			4.12			3.96
Fixed rate deposit designation:
	Generic receive fixed swaps		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	1,467
	Weighted Average:(1)
		Receive Rate		—	%		—	%		—	%		—	%		—	%		—	%		—	%		4.22	%
		Pay Rate		—			—			—			—			—			—			—			3.12
Medium- and long-term debt designation:
	Generic receive fixed swaps		$	—		$	250		$	100		$	450		$	350		$	850		$	2,000		$	1,500
	Weighted Average:(1)
		Receive Rate		—	%		7.04	%		2.95	%		5.82	%		6.17	%		6.30	%		6.09	%		6.78	%
		Pay Rate		—			1.13			1.24			1.21			1.19			1.11			1.16			1.67

Total notional amount			$	3,518		$	4,050		$	1,600		$	450		$	350		$	850		$	10,818		$	13,602


(1)	Variable rates paid on receive fixed swaps are based on prime, LIBOR with various maturities or one-month Canadian Dollar Offered Rate (CDOR) rates in effect at December 31, 2003.

(2)	Variable rates received are based on three-month and six-month LIBOR or one-month and three-month CDOR rates in effect at December 31, 2003.


	Interest			Foreign
	Rate			Exchange
	Contracts			Contracts			Totals


	(in millions)
Balance at January 1, 2002	$	14,497		$	820		$	15,317
Additions		4,014			16,433			20,447
Maturities/ amortizations		(4,909	)		(16,515	)		(21,424	)

Balance at December 31, 2002	$	13,602		$	738		$	14,340
Additions		4,146			17,598			21,744
Maturities/ amortizations		(6,030	)		(17,897	)		(23,927	)
Terminations		(900	)		—			(900	)

Balance at December 31, 2003	$	10,818		$	439		$	11,257



		December 31, 2003


		Expected Expiration Dates by Period

				Less than		1-3		3-5		More than
		Total		1 Year		Years		Years		5 Years


		(in millions)
Commitments to purchase investment securities		$	3	$	3	$	—	$	—	$	—
Commitments to sell investment securities			2		2		—		—		—
Commitments to fund private equity and venture capital investments			65		—		—		—		65
Unused commitments to extend credit			27,049		13,974		8,212		2,842		2,021
Standby letters of credit and financial guarantees			6,045		4,213		1,318		382		132
Commercial letters of credit			261		231		7		3		20
Credit default swaps			—		—		—		—		—

	Total commercial commitments	$	33,425	$	18,423	$	9,537	$	3,227	$	2,238


	*Indirect Private Equity and Venture Capital Investments*


	December 31, 2003

	(dollars in millions)
Number of investments		100
Balance of investments	$	118
Largest single investment		37
Commitments to fund additional investments		65