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0000950124-05-001234.txt : 20050303
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20050303152246
ACCESSION NUMBER: 0000950124-05-001234
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 13
CONFORMED PERIOD OF REPORT: 20041231
FILED AS OF DATE: 20050303
DATE AS OF CHANGE: 20050303
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: 05657727
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
k92690e10vk.htm
ANNUAL REPORT FOR YEAR ENDED DECEMBER 31, 2004
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 (the Exchange Act)
For the fiscal year ended December 31, 2004.
Commission file number 1-10706
COMERICA INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
|
|
|
Delaware
(State or other Jurisdiction of Incorporation)
|
|
38-1998421
(IRS Employer Identification Number) |
Comerica Tower at Detroit Center
500 Woodward Avenue, MC 3391
Detroit, Michigan 48226
(Address of Principal Executive Offices)(Zip Code)
(248) 371-5000
(Registrants Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange 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 Exchange 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 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 I became a
wholly-owned indirect subsidiary of the registrant. |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No
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 of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). þ Yes o No
At June 30, 2004 (the last business day of the registrants most recently completed second fiscal
quarter), the registrants common stock, $5 par value, held by non-affiliates had an aggregate
market value of $8,915,533,034 based on the closing price on the New York Stock Exchange on that
date of $54.88 per share and 162,455,048 shares of common stock held by non-affiliates. For
purposes of this Form 10-K only, it has been assumed that all common shares Comericas Trust
Department holds for Comerica and Comericas employee plans, and all common shares the registrants
directors and executive officers hold, are held by affiliates.
At February 25, 2005,
the registrant had outstanding 170,197,221 shares of its common stock, $5 par
value.
Documents Incorporated
by Reference:
1. Parts I and II:
Items 1, 6-8 and 9AAnnual Report to Shareholders for the year ended December 31, 2004.
2. Part III:
Items 10-14Proxy Statement for the Annual Meeting of Shareholders to be held May 17, 2005.
TABLE OF CONTENTS
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, and headquartered in Detroit, Michigan. As
of December 31, 2004, it was among the 20 largest commercial banking companies in the United States
and the largest financial 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 Michigans oldest banks (Comerica Bank).
As of December 31, 2004, Comerica owned directly or indirectly all the outstanding common stock of
three active banking and 49 non-banking subsidiaries. At December 31, 2004, Comerica had total
assets of approximately $51.8 billion, total deposits of approximately $40.9 billion, total loans (net of unearned income) of approximately $40.8 billion
and common shareholders equity of approximately $5.1 billion.
1
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. In
addition to the three major lines of business, the Finance Division is also reported as a segment.
The Business Bank is primarily comprised of the following business units: middle market,
commercial real estate, national dealer services, global finance, large corporate, leasing,
financial services group, and technology and life sciences. This line of business meets the needs
of medium-size businesses, multinational corporations and governmental entities by offering a
variety of financial 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 (entities with
annual sales under $10 million) and personal financial services, consisting of consumer lending,
consumer deposit gathering and mortgage loan origination. In addition to a full range of financial
services provided to small business customers, 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.
Wealth and Institutional Management offers products and services consisting of personal trust,
which is designed to meet the personal financial needs of affluent individuals (as defined by
individual net income or wealth), private lending, institutional trust, retirement services,
investment management and advisory services (including Munder Capital Management), investment
banking, and discount securities brokerage services. This line of business also offers the sale of
mutual fund and annuity products, as well as life, disability and long-term care insurance
products.
The Finance segment includes the Corporations securities portfolio and asset and liability
management activities. This segment is responsible for managing the Corporations funding,
liquidity and capital needs, performing interest sensitivity gap and earnings simulation analysis,
and executing various strategies to manage the Corporations exposure to liquidity, interest rate
risk, and foreign exchange risk.
In addition, Comerica has positioned itself to deliver financial services in its four primary
geographic regions: Midwest and Other Markets, Western, Texas, and Florida. Midwest and Other
Markets includes all markets in which the Corporation has operations except for the Western, Texas
and Florida regions, as described below. Substantially all of the Corporations international
operations are included in the Midwest and Other Markets segment. Currently, Michigan operations
represent the significant majority of the Midwest and Other Markets geographic region.
2
The Western region consists of the states of California, Arizona, Nevada, Colorado and Washington.
Currently, California operations represent the significant majority of the Western region.
The Texas and Florida regions consist of the states of Texas and Florida, respectively.
We provide financial information for our segments: (1) under the caption, Strategic Lines of
Business on pages 35 through 37 of the Corporations Annual Report to Shareholders for the year
ended December 31, 2004, which pages are hereby incorporated by reference; and (2) in Note 24 of
the Notes to Financial Statements located on pages 104 through 108 of the Corporations Annual
Report to Shareholders for the year ended December 31, 2004, which pages are hereby incorporated by
reference.
We provide information about the net interest income and noninterest income we received from our
various classes of products and services: (1) under the caption, Table 2: Analysis of Net Interest
Income on page 25 of the Corporations Annual Report to Shareholders for the year ended December
31, 2004, which page is hereby incorporated by reference; and (2) under the caption Noninterest
Income on pages 31 through 33 of the Corporations Annual Report to Shareholders for the year
ended December 31, 2004, which pages are hereby incorporated by reference.
We provide information on risks attendant to foreign operations under the caption, Provision and
Allowance for Loan Losses on pages 29 through 31 of the Corporations Annual Report to
Shareholders for the year ended December 31, 2004, which pages are hereby incorporated by
reference.
COMPETITION
The financial services business is highly competitive. The Corporations 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, California, Colorado,
Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Massachusetts, Michigan, Minnesota,
North Carolina, Nevada, New Jersey, New York, Ohio, Oregon, Pennsylvania, Tennessee, Texas,
Virginia and Washington, Comerica competes with other financial institutions for various deposits,
loans and other products and services.
At year-end 2004, Comerica was the largest financial holding company headquartered in Michigan in
terms of total assets and deposits. Based on the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the Interstate Act) and the Gramm-Leach-Bliley Act as described below,
Comerica believes that the level of competition in all geographic markets will increase in the
future. In addition to banks, Comericas banking subsidiaries also face competition from other
financial intermediaries, including savings and loan associations, consumer finance companies,
leasing companies, credit unions, insurance companies and securities firms.
3
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 at the federal level by the Board
of Governors of the Federal Reserve System (FRB) under the Bank Holding Company Act of 1956, as
amended.
The Gramm-Leach-Bliley Act 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 include,
among others, 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, 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; securities 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 at this level is primarily supervised and
regulated by the Division of Financial Institutions, Office of Financial and Insurance Services of
the Michigan Department of Labor and Economic Growth. 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 both the foregoing
banks are insured by the Bank Insurance Fund 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.
The FRB supervises non-banking activities conducted by companies directly and indirectly owned by
Comerica Incorporated. In addition, Comericas 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 Comerica Securities, Inc., Comerica Capital Markets Corporation, and Munder Capital
Management, the Corporations investment advisory subsidiary).
In most cases, no FRB approval is required for Comerica to acquire a company 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, however, is required before Comerica may acquire the
beneficial ownership or control of more than 5% of the voting shares or substantially all of
4
the assets of a bank holding company or bank. If any subsidiary bank of Comerica were to receive a
rating under the Community Reinvestment Act of 1977 of less than satisfactory, Comerica would be
prohibited from engaging in certain activities. If any subsidiary bank of Comerica were to cease
being well capitalized or well managed under applicable regulatory standards, the FRB could
place limitations on the Corporations ability to conduct the broader financial activities
permissible for financial holding companies or impose limitations or conditions on the conduct or
activities of the Corporation or its affiliates. If the deficiencies persisted, the FRB could
order Comerica to divest any subsidiary bank or to cease engaging in any activities permissible for
financial holding companies that are not permissible for bank holding companies, or Comerica could
elect to conform its non-banking activities to those permissible for a bank holding company that is
not also a financial holding company.
Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act and
Regulation W of the FRB, 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 the
aggregate outstanding amount of any insured depository institutions loans and other covered
transactions with any particular nonbank affiliate to no more than 10% of the institutions total
capital and limits the aggregate outstanding amount of any insured depository institutions covered
transactions with all of its nonbank affiliates to no more than 20% of its total capital. Section
23A of the Federal Reserve Act also generally requires that an insured depository institutions
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 institutions 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
domestic banks and other subsidiaries. The summaries are not complete, are qualified in their
entirety by references to the particular statutes and regulations, and are not intended as legal
advice. A change in applicable law or regulation could have a material effect on the business of
Comerica.
Interstate Banking and Branching
Pursuant to 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 10% of the total amount of deposits of
insured depository institutions in the United States and no more than 30% of such deposits in that
state (or such amount as established by state law if such amount is lower than 30%).
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, such state must have opted-in to the Interstate Act by enacting a law
5
permitting such branch purchases or de novo branching and, in the case of mergers, such state must
not have opted-out of that portion of the Interstate Act.
As permitted by the Interstate Act, Comerica has consolidated most of its banking business into one
bank, Comerica Bank, with branches in Michigan, California, Texas, Florida, and Arizona.
Dividends
Comerica is a legal entity separate and distinct from its banking and other subsidiaries. Most of
Comericas 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.
Comerica Bank and Comerica Bank & Trust, National Association are 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 banks 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 Bank is 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, 2005, Comericas subsidiary banks, without obtaining prior governmental approvals,
could declare aggregate dividends of approximately $470 million from retained net profits of the
preceding two years, plus an amount approximately equal to the retained net profits (as measured
under current regulations), if any, earned for the period from January 1, 2005 through the date of
declaration. Comericas subsidiary banks declared dividends of $691 million in 2004, $354 million
in 2003 and $647 million in 2002 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 FDICs loss, subject to certain exceptions.
6
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 institutions 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.
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% and a Tier 1
risk-based capital ratio of at least 6%, a Tier 1 leverage ratio of at least 5% 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%, a Tier 1 risk-based capital ratio of at
least 4%, and a Tier 1 leverage ratio of at least 4% (and in some cases 3%). 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, 2004, 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 institutions capital. In addition, for a capital restoration
plan to be acceptable, the depository institutions 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% of the depository institutions 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, or 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.
7
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.
Comericas subsidiary banks are all well-capitalized and may accept brokered deposits, as permitted
by their charters.
Capital Requirements
Comerica and its bank subsidiaries are subject to risk-based capital requirements and guidelines
imposed by the FRB and/or the OCC.
For this purpose, a depository institutions or holding companys 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
institutions or holding companys 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, 2004, the Corporation met both requirements, with Tier 1
and total capital equal to 8.77% and 12.75% of its total risk-weighted assets.
The Corporation is also required to maintain a minimum leverage ratio (Tier 1 capital to adjusted
total assets) of 3% to 5%, depending upon criteria defined and assessed by the FRB. The
Corporations leverage ratio of 10.37% at December 31, 2004 reflects the nature of the
Corporations balance sheet and demonstrates a commitment to capital adequacy.
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 any such agency supervises. 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.
8
FDIC Insurance Assessments
Comericas subsidiary banks are subject to FDIC deposit insurance assessments to maintain the Bank
Insurance Fund (BIF) and the Savings Insurance Fund (the SAIF). As of December 31, 2004, the
Corporations banking subsidiaries held approximately $38.4 billion and $1.0 billion, respectively,
of BIF- and SAIF-assessable deposits. The Corporation currently pays no deposit insurance
assessments on the BIF- or SAIF-assessable deposits under the FDICs risk related assessment system
but paid the FDIC $6.2 million in the year ended December 31, 2004 on the BIF- and SAIF-assessable
deposits under a separate assessment program.
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 or regulations 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 could 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.
EMPLOYEES
As of December 31, 2004, Comerica and its subsidiaries had 10,275 full-time and 1,239 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 or furnished to the U.S. Securities and Exchange Commission. The Code of Business
Conduct and Ethics and the Senior Financial Officer Code of Ethics adopted by the Corporation are
also available on the Internet website and are available in print to any shareholder who requests
them. Such requests should be made in writing to the Corporate Secretary at Comerica Incorporated,
Comerica Tower at Detroit Center, 500 Woodward Avenue, MC 3381, Detroit, Michigan 48226.
9
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. The leases at
this building extend through January 2007. As of December 31, 2004, Comerica, through its banking
affiliates, operated a total of 435 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, 222 were owned and 213 were leased. Affiliates also operate from
leased spaces in Phoenix, Arizona; Denver, Colorado; Darien, Connecticut; Wilmington, Delaware;
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 and West Chester, Ohio; Portland, Oregon;
King of Prussia, Pennsylvania; Memphis, Tennessee; Reston, Virginia; 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 and its subsidiaries own, among other properties, 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.
An unaffiliated third party holds title to Comericas operations center building in Auburn Hills,
Michigan under a sale/leaseback agreement, though Comerica has entered into an agreement with such
third party to purchase the operations center building. The operations center 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 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 believes that current reserves, determined in
accordance with SFAS No. 5, Accounting for Contingencies, are adequate and the amount of any
incremental liability arising from these matters is not expected to have a material adverse effect
on the Corporations consolidated financial condition or results of 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 2004.
10
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Holders of Common Stock
The common stock of Comerica Incorporated is traded on the New York Stock Exchange (NYSE Trading
Symbol: CMA). At February 25, 2005, there were approximately 15,376 record holders of the
Corporations common stock.
Sales Prices and Dividends
Quarterly cash dividends were declared during 2004 and 2003 totaling $2.08 and $2.00 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 Corporations common stock as reported on the NYSE Composite
Transactions Tape for all quarters of 2004 and 2003, as well as dividend information.
|
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|
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|
|
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|
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|
|
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|
|
|
|
|
|
|
Dividends |
|
|
Dividend* |
|
Quarter |
|
High |
|
|
Low |
|
|
Per Share |
|
|
Yield |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth |
|
$ |
63.80 |
|
|
$ |
57.81 |
|
|
$ |
0.52 |
|
|
|
3.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third |
|
|
61.48 |
|
|
|
53.00 |
|
|
|
0.52 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second |
|
|
56.99 |
|
|
|
50.45 |
|
|
|
0.52 |
|
|
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
59.23 |
|
|
|
52.30 |
|
|
|
0.52 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
* |
|
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. |
11
|
|
Securities Authorized for Issuance under Equity Compensation Plans |
As of December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities to be |
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
|
issued upon |
|
|
|
Weighted-average |
|
|
|
remaining available for |
|
|
|
|
|
|
exercise of |
|
|
|
exercise price of |
|
|
|
future issuance under |
|
|
|
|
|
|
outstanding |
|
|
|
outstanding |
|
|
|
equity compensation plans |
|
|
|
|
|
|
options, warrants |
|
|
|
options, warrants |
|
|
|
(excluding securities |
|
|
|
Plan Category |
|
|
and rights |
|
|
|
and rights |
|
|
|
reflected in column (a)) |
|
|
|
|
|
|
(a) |
|
|
|
(b) |
|
|
|
(c) |
|
|
|
Equity compensation
plans
approved by
security holders (1) |
|
|
|
16,769,614 |
|
|
|
$ |
52.03 |
|
|
|
|
7,882,393 |
(2)(3) |
|
|
Equity compensation
plans not approved
by security holders
(4) |
|
|
|
304,286 |
|
|
|
$ |
52.37 |
|
|
|
|
0 |
|
|
|
Total |
|
|
|
17,073,900 |
|
|
|
$ |
52.04 |
|
|
|
|
7,882,393 |
|
|
|
(1)
Consists of options to acquire shares of common stock, par value $5.00 per
share, issued under the Corporations 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
4,472 restricted stock units equivalent to shares of common stock issued under the Comerica
Incorporated Incentive Plan for Non-Employee Directors and outstanding as of December 31, 2004, or
630,267 shares of restricted stock issued under the Corporations Amended and Restated 1997
Long-Term Incentive Plan and outstanding as of December 31, 2004. There are no shares available
for future issuances under any of these plans other than the Comerica Incorporated Incentive Plan
for Non-Employee Directors and the Corporations Amended and Restated 1997 Long-Term Incentive
Plan. The Comerica Incorporated Incentive Plan for Non-Employee Directors was approved by the
shareholders on May 18, 2004. 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 that
required shareholder approval approved on May 22, 2001. |
|
(2)
Does not include shares of common stock purchased by employees under the Amended and
Restated Employee Stock Purchase Plan, or contributed by Comerica on behalf of the employees. The
Amended and Restated Employee Stock Purchase Plan was ratified and approved by the shareholders on
May 18, 2004. Five million shares of Comericas common stock have been registered for sale or
awards to employees under the Amended and Restated Employee Stock Purchase Plan. As of December
31, 2004, 1,044,163 shares had been purchased by or contributed on behalf of employees, leaving
3,955,837 shares available for future sale or awards. If these shares available for future sale or
awards under the Employee Stock Purchase Plan were included, the number shown in column (c) would
be 11,838,230. |
|
(3)
These shares are available for future issuance under the Corporations Amended and
Restated 1997 Long-Term Incentive Plan in the form of options, stock appreciation rights,
restricted stock or other performance or non- |
12
performance related awards and under the Incentive Plan for Non-Employee Directors in the form of
options, stock appreciation rights, restricted stock, restricted stock units or other equity-based
awards. 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 shares 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. This plan was terminated on March
23, 2004, and consequently, no shares are available for future issuance. |
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 Corporations
shareholders include:
Amended and Restated Comerica Incorporated Stock Option Plan for Non-Employee Directors of
Comerica Bank and Affiliated Banks (Terminated March 2004) Under the plan, the Corporation
granted 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 was not an employee of the Corporation or of any of its subsidiaries nor a
director of the Corporation (the Eligible Directors) automatically was granted an option to
purchase 2,500 shares of the common stock of the Corporation. Option grants under the plan were 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 and did not have
discretion as 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 could grant options to the Eligible Directors in its discretion.
The exercise price of each option granted was the fair market value of each share of common stock
subject to the option on the date the option was 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. This plan was terminated by the
Board of Directors on March 23, 2004. Accordingly, no new options may be granted under this plan.
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
13
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 Corporations 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 participants
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 participants 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 Corporations common stock to reflect the
number of additional shares of the Corporations 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 Corporations 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, bonus and 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
14
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 Corporations equity compensation plans, please refer to
Note 15 on pages 83 through 85 of the Consolidated Financial Statements contained in the
Corporations Annual Report to Shareholders for the year ended December 31, 2004.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On December 1, 2003, the Corporation announced it would resume its share repurchase program
pursuant to its August 16, 2001 Board of Directors resolutions, authorizing the repurchase of up
to 10 million shares of the Corporations outstanding common stock. On March 23, 2004, the Board
of Directors of the Corporation authorized the additional purchase of up to 10 million shares of
Comerica Incorporated outstanding common stock. Substantially all shares purchased as part of the
Corporations publicly announced repurchase program were transacted in the open market and were
within the scope of Rule 10b-18, which provides a safe harbor for purchases in a given day if an
issuer of equity securities satisfies the manner, timing, price and volume conditions of the rule
when purchasing its own common shares in the open market. The Corporations share repurchase
program has no expiration date. The following table summarizes the Corporations share repurchase
activity for the quarter ended December 31, 2004.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
Total |
|
|
|
|
|
|
Total Number of Shares |
|
|
Shares that May |
|
|
|
Number of |
|
|
|
|
|
|
Purchased as Part of |
|
|
Yet be Purchased |
|
(shares in millions) |
|
Shares |
|
|
Average Price |
|
|
Publicly Announced Plans |
|
|
under the Plans |
|
Month Ended |
|
Purchased(1) |
|
|
Paid Per Share |
|
|
or Programs |
|
|
or Programs |
|
October 31, 2004 |
|
|
0.1 |
|
|
$ |
60.29 |
|
|
|
0.1 |
|
|
|
8.6 |
|
November 30, 2004 |
|
|
0.4 |
|
|
|
62.28 |
|
|
|
0.4 |
|
|
|
8.2 |
|
December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
0.5 |
|
|
$ |
61.74 |
|
|
|
0.5 |
|
|
|
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Corporation purchased a nominal number of shares from an employee under
the terms of an employee stock-based compensation plan. |
For additional information regarding the Corporations share repurchase program, please refer to
Note 12 on pages 80 through 81 of the Consolidated Financial Statements contained in the
Corporations Annual Report to Shareholders for the year ended December 31, 2004.
Item 6. Selected Financial Data
The response to this item is included on page 22 of the Corporations Annual Report to Shareholders
for the year ended December 31, 2004, which page is hereby incorporated by reference.
15
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
The response to this item is included on pages 23 through 59 of the Corporations Annual Report to
Shareholders for the year ended December 31, 2004, 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 47 through 54 of the Corporations Annual Report to
Shareholders for the year ended December 31, 2004, which pages are hereby incorporated by
reference.
Item 8. Financial Statements and Supplementary Data
The response to this item is included on pages 60 through 119 of the Corporations Annual Report to
Shareholders for the year ended December 31, 2004, and in the Statistical Disclosure by Bank
Holding Companies on pages 25 through 48 and 73 through 77 of the Corporations Annual Report to Shareholders for the
year ended December 31, 2004, 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
Disclosure 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 on Form 10-K, 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 Corporations disclosure controls and procedures were
effective as of the end of the period covered by this Annual Report on Form 10-K.
Internal Control Over Financial Reporting
Managements annual report on internal control over financial reporting and the related attestation
report of the Corporations registered public accounting firm are included on pages 114 through 115
of the Corporations Annual Report to Shareholders for the year ended December 31, 2004, which
pages are hereby incorporated by reference.
16
As required by Rule 13a-15(d), management, including the Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of our internal control over financial reporting to
determine whether any changes occurred during the period covered by this Annual Report on Form 10-K
that have materially affected, or are reasonably likely to materially affect, the Corporations
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 last quarter of
the fiscal year covered by this Annual Report on Form 10-K that has materially affected, or is
reasonably likely to materially affect, the Corporations internal control over financial
reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Comerica has a Senior Financial Officer Code of Ethics that applies to the Chief Executive Officer,
Chief Financial Officer, Controller, and Treasurer of Comerica. The Senior Financial Officer Code
of Ethics is available on Comericas website at www.comerica.com.
The remainder of 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 Corporations definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 17, 2005, 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 Corporations definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 17, 2005, which sections are hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information called for by this item with respect to securities authorized for issuance under
equity compensation plans is included under Part II, Item 5 of this Annual Report on Form 10-K.
The response to the remaining requirements of this item will be included under the sections
captioned Security Ownership of Certain Beneficial Owners and Security Ownership of
17
Management of the Corporations definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 17, 2005, 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 Corporations definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 17, 2005, which sections
are hereby incorporated by reference.
Item 14. Principal Accountant Fees and Services
The response to this item will be included under the section captioned Independent Auditors of
the Corporations definitive Proxy Statement relating to the Annual Meeting of Shareholders to be
held on May 17, 2005, which section is hereby incorporated by reference.
FORWARD-LOOKING STATEMENTS
This Report includes 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. All statements regarding the Corporations
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, objective and
variations of such words and similar expressions, or future or conditional verbs such as will,
would, should, could, might, can, may or similar expressions, as they relate to the
Corporation or its management, are intended to identify forward-looking statements.
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
Corporations SEC reports (accessible on the SECs website at www.sec.gov or on the
Corporations 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. The Corporation cautions that these factors are not
exclusive.
18
|
|
|
§
|
|
general political, economic or industry conditions, either
domestically or internationally, may be less favorable than
expected; |
|
|
|
§
|
|
developments concerning credit quality in various industry sectors
may result in an increase in the level of the Corporations
provision for credit losses, nonperforming assets, net charge-offs
and reserve for credit losses; |
|
|
|
§
|
|
industries in which the Corporation has lending concentrations,
including, but not limited to, the automotive industry, could
suffer a significant decline which could adversely affect the
Corporation; |
|
|
|
§
|
|
demand for commercial loans and investment advisory products may
not accelerate as expected; |
|
|
|
§
|
|
the mix of interest rates and maturities of the Corporations
interest earning assets and interest-bearing liabilities
(primarily loans and deposits) may be less favorable than
expected; |
|
|
|
§
|
|
interest rate margin changes may be greater than expected; |
|
|
|
§
|
|
there could be fluctuations in inflation or interest rates; |
|
|
|
§
|
|
there could be changes in trade, monetary and fiscal policies,
including, but not limited to, the interest rate policies of the
Board of Governors of the Federal Reserve System; |
|
|
|
§
|
|
customer borrowing, repayment, investment and deposit practices
generally may be different than anticipated; |
|
|
|
§
|
|
managements ability to maintain and expand customer relationships
may differ from expectations; |
|
|
|
§
|
|
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, and plans to
grow personal financial services and wealth management, may be
less successful or may be different than anticipated; |
|
|
|
§
|
|
competitive product and pricing pressures among financial
institutions within the Corporations markets may change; |
|
|
|
§
|
|
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; |
|
|
|
§
|
|
instruments, systems and strategies used to hedge or otherwise
manage exposure to various types of credit, market and liquidity,
operational, compliance, business risk and enterprise- |
19
|
|
|
|
|
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; |
|
|
|
§
|
|
there could be terrorist activities or other hostilities, which
may adversely affect the general economy, financial and capital
markets, specific industries, and the Corporation; |
|
|
|
§
|
|
there could be changes in applicable laws and regulations,
including, but not limited to, those concerning taxes, banking,
securities, and insurance; and |
|
|
|
§
|
|
there could be adverse conditions in the stock market. |
20
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 2004 Annual Report
to Shareholders or in the 2005 Proxy Statement used in connection with the 2005 Annual Meeting of
Shareholders to be held on May 17, 2005.
The following cross-reference index shows the page location in the 2004 Annual Report to
Shareholders or the section of the 2005 Proxy Statement of only that information which is to be
incorporated by reference into this Form 10-K.
All other sections of the 2004 Annual Report to Shareholders or the 2005 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 2004 Annual
Report to Shareholders or
Section of 2005 Proxy Statement
|
|
|
|
|
|
|
PART I |
|
|
|
|
|
|
|
ITEM 1.
|
|
Business
|
|
25; 29-33; 35-37; 104-108 |
ITEM 2.
|
|
Properties
|
|
Included herein |
ITEM 3.
|
|
Legal Proceedings
|
|
Included herein |
ITEM 4.
|
|
Submission of Matters to a Vote of Security Holders
|
|
Included herein |
|
|
|
PART II |
|
|
|
|
|
|
|
ITEM 5.
|
|
Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
|
|
Included herein |
ITEM 6.
|
|
Selected Financial Data
|
|
22 |
ITEM 7.
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
|
23-59 |
ITEM 7A.
|
|
Quantitative and Qualitative Disclosures About Market Risk
|
|
47-54 |
ITEM 8.
|
|
Financial Statements and Supplementary Data:
|
|
60-119 |
|
|
Comerica
Incorporated and Subsidiaries |
|
|
|
|
Consolidated Balance Sheets
|
|
60 |
|
|
Consolidated Statements of Income
|
|
61 |
|
|
Consolidated Statements of Changes in Shareholders Equity
|
|
62 |
|
|
Consolidated Statements of Cash Flows
|
|
63 |
|
|
Notes
to Consolidated Financial Statements
|
|
64-113 |
|
|
Report
of Management
|
|
114 |
|
|
Report
of Independent Registered Public Accounting Firm
|
|
116 |
|
|
Managements
Report on Internal Control Over Financial Reporting
|
|
114 |
|
|
Attestation
Report of Independent Registered Public Accounting Firm
|
|
115 |
|
|
Statistical Disclosure by Bank Holding Companies: |
|
|
|
|
Analysis
of Net Interest Income Fully Taxable Equivalent
|
|
25 |
|
|
Rate-Volume
Analysis Fully Taxable Equivalent
|
|
26 |
|
|
Analysis
of the Allowance for Loan Losses
|
|
28 |
|
|
Allocation
of the Allowance for Loan Losses
|
|
29 |
|
|
Analysis
of Investment Securities and Loans
|
|
38 |
|
|
Loan
Maturities and Interest Rate Sensitivity
|
|
38 |
|
|
Analysis
of Investment Securities Portfolio Fully Taxable
Equivalent
|
|
39 |
|
|
International
Cross-Border Outstandings
|
|
40 |
|
|
Summary
of Nonperforming Assets and Past Due Loans
|
|
43 |
|
|
Remaining
Expected Maturity of Risk Management Interest Rate Swaps
|
|
48, 73 |
|
|
Deposits
Maturity Distribution of Domestic Certificates of Deposit
of $100,000 and Over
|
|
76 |
|
|
Short-Term Borrowings
|
|
77 |
ITEM 9.
|
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
|
Included herein |
ITEM 9A.
|
|
Controls and Procedures: |
|
|
|
|
Managements Report on Internal Control Over Financial Reporting
|
|
114 |
|
|
Attestation Report of Independent Registered Public Accounting Firm
|
|
115 |
21
|
|
|
|
|
|
|
Other information called for by this item
|
|
Included herein |
ITEM 9B.
|
|
Other Information
|
|
Included herein |
|
|
|
|
|
|
|
PART III |
|
|
|
ITEM 10.
|
|
Directors and Executive Officers of
the Registrant: |
|
|
|
|
Information about Senior Financial Officer Code of Ethics
|
|
Included herein |
|
|
Other information called for by this item
|
|
Information About Nominees and Incumbent |
|
|
|
|
Directors, Committees and Meetings of |
|
|
|
|
Directors, Committee Assignments, |
|
|
|
|
Executive Officers 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 and Related Stockholder Matters: |
|
|
|
|
Information about securities authorized for issuance under equity compensation plans
|
|
Included herein |
|
|
Other information called for by this item
|
|
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 Accountant Fees and Services |
|
Independent Auditors |
|
|
|
PART IV |
|
|
|
ITEM 15. |
|
Exhibits and Financial Statement Schedules |
|
|
(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 pages 21-22. |
|
|
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. |
22
Exhibits:
Exhibit Document Number
|
|
|
|
|
|
|
|
|
|
2 |
|
|
(not applicable) |
|
|
|
|
|
|
|
|
|
|
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 (amended
and restated January 25, 2005)(3) |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
(not applicable) |
|
|
|
|
|
|
|
|
|
|
9 |
|
|
(not applicable) |
|
|
|
|
|
|
|
|
|
|
10.1 |
|
|
Rights Agreement between Comerica Incorporated and Comerica
Bank(4) |
|
|
|
|
|
|
|
|
|
|
10.2 |
|
|
Amended and Restated Comerica Incorporated 1997 Long-Term
Incentive Plan (amended and restated May 22, 2001)(5) |
|
|
|
|
|
|
|
|
|
|
10.3 |
|
|
Amended and Restated Comerica Incorporated Management
Incentive Plan (amended and restated May 22, 2001)(6) |
|
|
|
|
|
|
|
|
|
|
10.4 |
|
|
Benefit Equalization Plan for Employees of Comerica
Incorporated(7) |
|
|
|
|
|
|
|
|
|
|
10.5 |
|
|
Comerica Incorporated Amended and Restated Employee Stock
Purchase Plan (amended and restated effective June 30, 2003) (8) |
|
|
|
|
|
|
|
|
|
|
10.6 |
|
|
1986 Stock Option Plan of Imperial Bancorp (as amended)(9) |
|
|
|
|
|
|
|
|
|
|
10.7 |
|
|
Form of Standard Comerica Incorporated Non-Qualified Stock
Option Agreement under the Amended and Restated Comerica Incorporated 1997
Long-Term Incentive Plan (10) |
|
|
|
|
|
|
|
|
|
|
10.8 |
|
|
Form of Standard Comerica Incorporated Restricted Stock Award
Agreement (Cliff Vesting) under the Amended and Restated Comerica Incorporated
1997 Long-Term Incentive Plan (11) |
|
|
|
|
|
|
|
|
|
|
10.9 |
|
|
Form of Standard Comerica Incorporated Restricted Stock Award
Agreement (Non-Cliff Vesting) under the Amended and Restated Comerica
Incorporated 1997 Long-Term Incentive Plan (12) |
|
|
|
|
|
|
|
|
|
|
10.10 |
|
|
Form of Standard Comerica Incorporated No Sale Agreement under the Amended
and Restated Comerica Incorporated Management Incentive Plan (13) |
|
|
|
|
|
|
|
|
|
|
10.11 |
|
|
Form of Employment Agreement (Exec. Off.)(14) |
|
|
|
|
|
|
|
|
|
|
10.12 |
|
|
Form of Director Indemnification Agreement between Comerica Incorporated and
its directors(15) |
|
|
|
|
|
|
|
|
|
|
10.13 |
|
|
Supplemental Benefit Agreement with Eugene A. Miller(16) |
|
|
|
|
|
|
|
|
|
|
10.14 |
|
|
Employment Agreement with Ralph W. Babb, Jr.(17) |
23
|
|
|
|
|
|
|
|
|
|
10.15 |
|
|
Supplemental Pension and Retiree Medical Agreement with Ralph W. Babb
Jr.(18) |
|
|
|
|
|
|
|
|
|
|
10.16 |
|
|
1999 Comerica Incorporated Deferred Compensation Plan (effective January 1,
1999)(19) |
|
|
|
|
|
|
|
|
|
|
10.17 |
|
|
1999 Comerica Incorporated Amended and Restated Deferred Compensation Plan
(amended and restated January 25, 2005) |
|
|
|
|
|
|
|
|
|
|
10.18 |
|
|
1999 Comerica Incorporated Amended and Restated Common Stock Deferred
Incentive Award Plan (amended and restated January 25, 2005) |
|
|
|
|
|
|
|
|
|
|
10.19 |
|
|
Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee
Directors (amended and restated May 22, 2001)(20) |
|
|
|
|
|
|
|
|
|
|
10.20 |
|
|
Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee
Directors of Comerica Bank and Affiliated Banks (amended and restated May 22,
2001)(21) |
|
|
|
|
|
|
|
|
|
|
10.21 |
|
|
Comerica Incorporated Director Fee Deferral Plan (1997 Amendment and
Restatement)(22) |
|
|
|
|
|
|
|
|
|
|
10.22 |
|
|
Amended and Restated Comerica Incorporated Non-Employee Director Fee Deferral
Plan (amended and restated January 27, 2004)(23) |
|
|
|
|
|
|
|
|
|
|
10.23 |
|
|
Amended and Restated Comerica Incorporated Common Stock Non-Employee Director
Fee Deferral Plan (amended and restated January 27, 2004)(24) |
|
|
|
|
|
|
|
|
|
|
10.24 |
|
|
Comerica Incorporated Incentive Plan for Non-Employee
Directors(25) |
|
|
|
|
|
|
|
|
|
|
10.25 |
|
|
Form of Standard Comerica Incorporated Non-Employee Director Restricted Stock
Unit Agreement under the Comerica Incorporated Incentive Plan for Non-Employee
Directors (26) |
|
|
|
|
|
|
|
|
|
|
11 |
|
|
Statement regarding Computation of Net Income Per Common
Share(27) |
|
|
|
|
|
|
|
|
|
|
12 |
|
|
(not applicable) |
|
|
|
|
|
|
|
|
|
|
13 |
|
|
Incorporated Sections of Registrants 2004 Annual Report to
Shareholders |
|
|
|
|
|
|
|
|
|
|
14 |
|
|
(not applicable) |
|
|
|
|
|
|
|
|
|
|
16 |
|
|
(not applicable) |
|
|
|
|
|
|
|
|
|
|
18 |
|
|
(not applicable) |
|
|
|
|
|
|
|
|
|
|
21 |
|
|
Subsidiaries of Registrant |
|
|
|
|
|
|
|
|
|
|
22 |
|
|
(not applicable) |
|
|
|
|
|
|
|
|
|
|
23 |
|
|
Consent of Ernst & Young LLP |
|
|
|
|
|
|
|
|
|
|
24 |
|
|
(not applicable) |
24
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
Chairman, President and CEO Rule 13a-14(a)/15d-14(a)
Certification of Periodic Report (pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002) |
|
|
|
|
|
|
|
|
|
|
31.2 |
|
|
Executive Vice President, CFO and Treasurer Rule
13a-14(a)/15d-14(a) Certification of Periodic Report (pursuant to Section 302
of the Sarbanes-Oxley Act of 2002) |
|
|
|
|
|
|
|
|
|
|
32 |
|
|
Section 1350 Certification of Periodic Report (pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002) |
|
|
|
|
|
|
|
|
|
|
99 |
|
|
(not applicable) |
(1) |
|
Filed as Exhibit 3.1 to Registrants Annual Report on Form 10-K
for the year ended December 31, 1996, and incorporated herein by reference. |
|
(2) |
|
Filed as Exhibit 3.2 to Registrants Registrant Statement on Form
S-4, filed December 1, 2000, File No. 333-51042, and incorporated herein by
reference. |
|
(3) |
|
Filed as Exhibit 3 to Registrants Current Report on Form 8-K dated
January 24, 2005, regarding the Registrants Bylaws, and incorporated herein by
reference. |
|
(4) |
|
Filed as Exhibit 4 to Registrants Current Report on Form 8-K dated
June 18, 1996, regarding the Registrants Rights Agreement with Comerica Bank,
and incorporated herein by reference. |
|
(5) |
|
Filed as Exhibit 10.1 to Registrants Annual Report on Form 10-K for
the year ended December 31, 2001, and incorporated herein by
reference. |
|
(6) |
|
Filed as Exhibit 10.2 to Registrants Annual Report on Form 10-K for
the year ended December 31, 2001, and incorporated herein by
reference. |
|
(7) |
|
Filed as Exhibit 10.4 to Registrants Annual Report
on Form 10-K for the year ended December 31, 1996, and incorporated herein by
reference. |
|
(8) |
|
Filed as Exhibit 10.6 to Registrants Quarterly Report on Form 10-Q
for the quarter ended September 30, 2004, and incorporated herein by reference. |
|
(9) |
|
Filed as Exhibit 10.23 to Registrants Annual Report on Form 10-K for
the year ended December 31, 2001, and incorporated herein by reference. |
|
(10) |
|
Filed as Exhibit 10.4 to Registrants Quarterly Report on Form 10-Q
for the quarter ended September 30, 2004, and incorporated herein by reference. |
|
(11) |
|
Filed as Exhibit 10.2 to Registrants Quarterly Report on Form 10-Q
for the quarter ended September 30, 2004, and incorporated herein by reference. |
|
(12) |
|
Filed as Exhibit 10.3 to Registrants Quarterly Report on Form 10-Q
for the quarter ended September 30, 2004, and incorporated herein by reference. |
|
(13) |
|
Filed as Exhibit 10.5 to Registrants Quarterly Report on Form 10-Q
for the quarter ended September 30, 2004, and incorporated herein by reference. |
25
(14) |
|
Filed as Exhibit 10.5 to Registrants Annual Report on Form 10-K
for the year ended December 31, 2002, and incorporated herein by reference. |
|
(15) |
|
Filed as Exhibit 10.6 to Registrants Annual Report on Form 10-K
for the year ended December 31, 2002, and incorporated herein by reference. |
|
(16) |
|
Filed as Exhibit 10.1 to Registrants Quarterly Report on Form 10-Q
for the quarter ended September 30, 2002, and incorporated herein by reference. |
|
(17) |
|
Filed as Exhibit 10.1 to Registrants Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998, and incorporated herein by reference. |
|
(18) |
|
Filed as Exhibit 10.2 to Registrants Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998, and incorporated herein by reference. |
|
(19) |
|
Filed as Exhibit 10.18 to Registrants Annual Report on Form
10-K for the year ended December 31, 1999, and incorporated herein by
reference. |
|
(20) |
|
Filed as Exhibit 10.12 to Registrants Annual Report on Form
10-K for the year ended December 31, 2002, and incorporated herein by
reference. |
|
(21) |
|
Filed as Exhibit 10.13 to Registrants Annual Report on Form
10-K for the year ended December 31, 2002, and incorporated herein by
reference. |
|
(22) |
|
Filed as Exhibit 10.3 to Registrants Annual Report on Form 10-K for
the year ended December 31, 1996, and incorporated herein by reference. |
|
(23) |
|
Filed as Exhibit 10.14 to Registrants Annual Report on Form
10-K for the year ended December 31, 2003, and incorporated herein by
reference. |
|
(24) |
|
Filed as Exhibit 10.15 to Registrants Annual Report on Form
10-K for the year ended December 31, 2003, and incorporated herein by
reference. |
|
(25) |
|
Filed as Exhibit 10.1 to Registrants Quarterly Report on Form 10-Q
for the quarter ended June 30, 2004, and incorporated herein by reference. |
|
(26) |
|
Filed as Exhibit 10.1 to Registrants Quarterly Report on Form 10-Q
for the quarter ended September 30, 2004, and incorporated herein by reference. |
|
(27) |
|
Incorporated by reference from Note 14 on page 83 of Registrants
2004 Annual Report to Shareholders attached hereto as Exhibit 13. |
|
|
|
Management compensation plan. |
File No. for all filings under Exchange Act: 1-10706.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 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 as of the 3rd day of March, 2005.
|
|
|
|
|
COMERICA INCORPORATED
|
|
|
By: /s/ Ralph W. Babb, Jr.
|
|
|
Ralph W. Babb, Jr. |
|
|
|
Chairman, President and Chief Executive Officer |
|
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by
the following persons on behalf of the registrant in the capacities indicated as of the 3rd day of
March, 2005.
|
/s/ Ralph W. Babb, Jr. |
|
Ralph W. Babb, Jr. |
Chairman, President and Chief Executive |
Officer and Director |
(Principal Executive Officer) |
|
/s/ Elizabeth S. Acton |
|
Elizabeth S. Acton |
Executive Vice President, |
Chief Financial Officer and Treasurer |
(Principal Financial Officer) |
|
/s/ Marvin J. Elenbaas |
|
Marvin J. Elenbaas |
Senior Vice President and Controller |
(Principal Accounting Officer) |
|
/s/ Lillian Bauder |
|
Lillian Bauder |
Director |
|
/s/ Joseph J. Buttigieg, III |
|
Joseph J. Buttigieg, III |
Director |
|
/s/ James F. Cordes |
|
James F. Cordes |
Director |
27
|
/s/ Peter D. Cummings |
|
Peter D. Cummings |
Director |
|
/s/ J. Philip DiNapoli |
|
J. Philip DiNapoli |
Director |
|
/s/ Anthony F. Earley, Jr. |
|
Anthony F. Earley, Jr. |
Director |
|
|
Max M. Fisher |
Director |
|
/s/ Roger T. Fridholm |
|
Roger T. Fridholm |
Director |
|
/s/ Todd W. Herrick |
|
Todd W. Herrick |
Director |
|
/s/ Alfred A. Piergallini |
|
Alfred A. Piergallini |
Director |
|
/s/ Robert S. Taubman |
|
Robert S. Taubman |
Director |
|
/s/ Reginald M. Turner, Jr. |
|
Reginald M. Turner, Jr. |
Director |
|
/s/ William P. Vititoe |
|
William P. Vititoe |
Director |
|
/s/ Patricia M. Wallington |
|
Patricia M. Wallington |
Director |
28
|
/s/ Gail L. Warden |
|
Gail L. Warden |
Director |
|
/s/ Kenneth L. Way |
|
Kenneth L. Way |
Director |
29
EXHIBIT INDEX
|
|
Exhibit No. |
|
Description |
2
|
|
(not applicable) |
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 (amended and restated
January 25, 2005)(3) |
4
|
|
(not applicable) |
9
|
|
(not applicable) |
10.1
|
|
Rights Agreement between Comerica Incorporated and Comerica Bank(4) |
10.2
|
|
Amended and Restated Comerica Incorporated 1997 Long-Term
Incentive Plan (amended and restated May 22, 2001)(5) |
10.3
|
|
Amended and Restated Comerica Incorporated Management Incentive Plan (amended
and restated May 22, 2001)(6) |
10.4
|
|
Benefit Equalization Plan for Employees of Comerica Incorporated(7) |
10.5
|
|
Comerica Incorporated Amended and Restated Employee Stock Purchase Plan
(amended and restated effective June 30, 2003) (8) |
10.6
|
|
1986 Stock Option Plan of Imperial Bancorp (as amended)(9) |
10.7
|
|
Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement
under the Amended and Restated Comerica Incorporated 1997 Long-Term Incentive
Plan (10) |
10.8
|
|
Form of Standard Comerica Incorporated Restricted Stock Award Agreement (Cliff
Vesting) under the Amended and Restated Comerica Incorporated 1997 Long-Term
Incentive Plan
(11) |
10.9
|
|
Form of Standard Comerica Incorporated Restricted Stock Award Agreement
(Non-Cliff Vesting) under the Amended and Restated Comerica Incorporated 1997
Long-Term Incentive Plan
(12) |
10.10
|
|
Form of Standard Comerica Incorporated No Sale Agreement under the Amended and
Restated Comerica Incorporated Management Incentive Plan
(13) |
10.11
|
|
Form of Employment Agreement (Exec. Off.) (14) |
10.12
|
|
Form of Director Indemnification Agreement between Comerica Incorporated and
its directors (15) |
10.13
|
|
Supplemental Benefit Agreement with Eugene A. Miller(16) |
10.14
|
|
Employment Agreement with Ralph W. Babb, Jr. (17) |
|
|
Exhibit No. |
|
Description |
10.15
|
|
Supplemental Pension and Retiree Medical Agreement with Ralph W. Babb
Jr.(18) |
10.16
|
|
1999 Comerica Incorporated Deferred Compensation Plan (effective January 1,
1999)(19) |
10.17
|
|
1999 Comerica Incorporated Amended and Restated Deferred Compensation Plan
(amended and restated January 25, 2005) |
10.18
|
|
1999 Comerica Incorporated Amended and Restated Common Stock Deferred
Incentive Award Plan (amended and restated January 25, 2005) |
10.19
|
|
Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee
Directors (amended and restated May 22, 2001) (20) |
10.20
|
|
Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee
Directors of Comerica Bank and Affiliated Banks (amended and restated May 22,
2001)(21) |
10.21
|
|
Comerica Incorporated Director Fee Deferral Plan (1997 Amendment and
Restatement)(22) |
10.22
|
|
Amended and Restated Comerica Incorporated Non-Employee Director Fee Deferral
Plan (amended and restated January 27, 2004)(23) |
10.23
|
|
Amended and Restated Comerica Incorporated Common Stock Non- Employee
Director Fee Deferral Plan (amended and restated January 27,
2004)(24) |
10.24
|
|
Comerica Incorporated Incentive Plan for Non-Employee Directors(25) |
10.25
|
|
Form of Standard Comerica Incorporated Non-Employee Director Restricted Stock
Unit Agreement under the Comerica Incorporated Incentive Plan for
Non-Employee Directors (26) |
11
|
|
Statement regarding Computation of Net Income Per Common Share(27) |
12
|
|
(not applicable) |
13
|
|
Incorporated Sections of Registrants 2004 Annual Report to Shareholders |
14
|
|
(not applicable) |
16
|
|
(not applicable) |
18
|
|
(not applicable) |
21
|
|
Subsidiaries of Registrant |
22
|
|
(not applicable) |
23
|
|
Consent of Ernst & Young LLP |
24
|
|
(not applicable) |
|
|
Exhibit No. |
|
Description |
31.1
|
|
Chairman, President and CEO Rule 13a-14(a)/15d-14(a)
Certification of Periodic Report (pursuant to Section 302 of
the Sarbanes-Oxley Act
of 2002) |
31.2
|
|
Executive Vice President, CFO and Treasurer Rule
13a-14(a)/15d- 14(a) Certification of Periodic Report
(pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) |
32
|
|
Section 1350 Certification of Periodic Report (pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002) |
99
|
|
(not applicable) |
(1) |
|
Filed as Exhibit 3.1 to Registrants Annual
Report on Form 10-K for the year ended December
31, 1996, and incorporated herein by reference. |
|
(2) |
|
Filed as Exhibit 3.2 to Registrants Registrant
Statement on Form S-4, filed December 1, 2000,
File No. 333-51042, and incorporated herein by
reference. |
|
(3) |
|
Filed as Exhibit 3 to Registrants Current
Report on Form 8-K dated January 24, 2005,
regarding the Registrants Bylaws, and
incorporated herein by reference. |
|
(4) |
|
Filed as Exhibit 4 to Registrants Current
Report on Form 8-K dated June 18, 1996,
regarding the Registrants Rights Agreement
with Comerica Bank, and incorporated herein by
reference. |
|
(5) |
|
Filed as Exhibit 10.1 to Registrants Annual
Report on Form 10-K for the year ended December
31, 2001, and incorporated herein by reference. |
|
(6) |
|
Filed as Exhibit 10.2 to Registrants Annual
Report on Form 10-K for the year ended December
31, 2001, and incorporated herein by reference. |
|
(7) |
|
Filed as Exhibit 10.4 to Registrants Annual
Report on Form 10-K for the year ended December
31, 1996, and incorporated herein by reference. |
|
(8) |
|
Filed as Exhibit 10.6 to Registrants Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2004, and incorporated herein by
reference. |
|
(9) |
|
Filed as Exhibit 10.23 to Registrants Annual
Report on Form 10-K for the year ended December
31, 2001, and incorporated herein by reference. |
|
(10) |
|
Filed as Exhibit 10.4 to Registrants Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2004, and incorporated herein by
reference. |
|
(11) |
|
Filed as Exhibit 10.2 to
Registrants Quarterly
Report on Form 10-Q for
the quarter ended
September 30, 2004, and
incorporated herein by
reference. |
|
(12) |
|
Filed as Exhibit 10.3 to Registrants Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004, and incorporated herein by reference. |
|
(13) |
|
Filed as Exhibit 10.5 to Registrants Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004, and incorporated herein by reference. |
(14) |
|
Filed as Exhibit 10.5 to Registrants Annual Report on Form 10-K for the year ended December 31, 2002, and incorporated
herein by reference. |
|
(15) |
|
Filed as Exhibit 10.6 to Registrants Annual Report on
Form 10-K for the year ended December 31, 2002, and incorporated herein by reference. |
|
(16) |
|
Filed as Exhibit 10.1 to Registrants Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002, and incorporated herein by reference. |
|
(17) |
|
Filed as Exhibit 10.1 to Registrants Quarterly Report on Form 10-Q for the quarter ended June 30,
1998, and incorporated herein by reference. |
|
(18) |
|
Filed as Exhibit 10.2 to Registrants
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998, and incorporated herein by
reference. |
|
(19) |
|
Filed as Exhibit 10.18 to Registrants Annual Report on Form 10-K
for the year ended December 31, 1999, and incorporated herein by reference. |
|
(20) |
|
Filed as Exhibit 10.12 to Registrants Annual Report on Form 10-K
for the year ended December 31, 2002, and incorporated herein by reference. |
|
(21) |
|
Filed as Exhibit 10.13 to Registrants Annual Report on Form 10-K
for the year ended December 31, 2002, and incorporated herein by reference. |
|
(22) |
|
Filed as Exhibit 10.3 to Registrants Annual Report on Form 10-K for
the year ended December 31, 1996, and incorporated herein by reference. |
|
(23) |
|
Filed as Exhibit 10.14 to Registrants Annual Report on Form 10-K for
the year ended December 31, 2003, and incorporated herein by reference. |
|
(24) |
|
Filed as Exhibit 10.15 to Registrants Annual Report on Form 10-K for
the year ended December 31, 2003, and incorporated herein by reference. |
|
(25) |
|
Filed as Exhibit 10.1 to Registrants Quarterly Report on Form 10-Q
for the quarter ended June 30, 2004, and incorporated herein by reference. |
|
(26) |
|
Filed as Exhibit 10.1 to Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2004, and incorporated herein by reference. |
|
(27) |
|
Incorporated by
reference from Note 14 on page 83 of Registrants 2004 Annual Report to Shareholders attached
hereto as Exhibit 13. |
|
|
|
Management compensation plan. |
File No. for all filings under Exchange Act: 1-10706.
EX-10.17
2
k92690exv10w17.htm
1999 AMENDED AND RESTATED DEFERRED COMPENSATION PLAN
exv10w17
Exhibit 10.17
Approved by the Compensation Committee: January 24, 2005
Approved by the Board of Directors: January 25, 2005
1999 COMERICA INCORPORATED
AMENDED AND RESTATED
DEFERRED COMPENSATION PLAN
1999 COMERICA INCORPORATED
AMENDED AND RESTATED
DEFERRED COMPENSATION PLAN
|
|
|
|
|
ARTICLE I PURPOSE AND INTENT |
|
I-1 |
|
ARTICLE II DEFINITIONS |
|
|
|
|
A. Definitions |
|
II-1 |
(1) Account Balance Plan |
|
II-1 |
(2) Account(s) |
|
II-1 |
(3) Annual Base Compensation |
|
II-1 |
(4) Beneficiary(ies) |
|
II-1 |
(5) Board |
|
II-1 |
(6) Change in Control |
|
II-1 |
(7) Code |
|
II-1 |
(8) Comerica Stock |
|
II-1 |
(9) Comerica Stock Fund |
|
II-1 |
(10) Committee |
|
II-2 |
(11) Compensation |
|
II-2 |
(12) Compensation Deferral(s) |
|
II-2 |
(13) Corporation |
|
II-2 |
(14) Deferral Period |
|
II-2 |
(15) Disabled and Disability |
|
II-2 |
(16) Eligible Employee |
|
II-3 |
(17) Employer |
|
II-3 |
(18) ERISA |
|
II-3 |
(19) Exchange Act |
|
II-3 |
(20) Incentive Award |
|
II-3 |
(21) Irrevocable Election Form |
|
II-4 |
(22) Management Incentive Plan |
|
II-4 |
(23) Participant |
|
II-4 |
(24) Performance Period |
|
II-4 |
(25) Plan |
|
II-4 |
(26) Plan Administrator(s) |
|
II-4 |
(27) Retirement |
|
II-4 |
(28) Section 16 Insider |
|
II-4 |
(29) Section 409A Performance Based Compensation |
|
II-4 |
(30) Specified Employee |
|
II-5 |
(31) Trust |
|
II-5 |
(32) Trustee |
|
II-5 |
(33) Unforeseeable Emergency |
|
II-5 |
|
ARTICLE III ELECTION TO PARTICIPATE IN THE PLAN |
|
|
|
|
A. Completion of Irrevocable Election Form |
|
III-1 |
(1) Deferrals of Ordinary Compensation |
|
III-1 |
(2) Deferrals of Performance Based Incentive Awards |
|
III-1 |
- i -
|
|
|
|
|
B. Contents of Irrevocable Election Form |
|
III-1 |
C. Effect of Submitting an Irrevocable Election Form |
|
III-1 |
D. Special Rules Applicable to Irrevocable Election Forms
and Deferral of Compensation |
|
III-2 |
(1) Deferral Election to be Made Before
Compensation is Earned |
|
III-2 |
(2) Irrevocability of Deferral Election |
|
III-2 |
E. Deferrals By Committee |
|
III-3 |
F. Deferred Compensation Transferred into the Plan |
|
III-4 |
G. Subsequent Elections |
|
III-5 |
|
ARTICLE IV DEFERRED COMPENSATION ACCOUNTS AND
INVESTMENT OF DEFERRED COMPENSATION |
|
|
|
|
A. Deferred Compensation Accounts |
|
IV-1 |
B. Earnings on Compensation Deferrals |
|
IV-1 |
C. Contribution of Compensation Deferrals to Trust |
|
IV-2 |
D. Insulation from Liability |
|
IV-2 |
E. Ownership of Compensation Deferrals |
|
IV-2 |
F. Special Rule Application to Certain Reallocations |
|
IV-3 |
G. Adjustment of Accounts Upon Changes In Capitalization |
|
IV-4 |
|
ARTICLE V DISTRIBUTION OF COMPENSATION DEFERRALS |
|
|
|
|
A. In General |
|
V-1 |
(1) Employment Through Deferral Period |
|
V-1 |
(2) Termination Prior to End of Deferral Period |
|
V-2 |
(3) Death of Participant Prior to End of
Installment Distribution Period |
|
V-3 |
(4) Hardship Distributions |
|
V-3 |
(5) Cash Out Distributions |
|
V-5 |
(6) Change in Control |
|
V-5 |
B. Designation of Beneficiary |
|
V-6 |
(1) Beneficiary Designation Must be Filed Prior to
Participants Death |
|
V-6 |
(2) Absence of Beneficiary |
|
V-6 |
|
ARTICLE VI AMENDMENT OR TERMINATION |
|
|
|
|
A. Amendment and Termination of Plan |
|
VI-1 |
|
ARTICLE VII AUDITING OF ACCOUNTS AND STATEMENTS
TO PARTICIPANTS |
|
|
|
|
A. Auditing of Accounts |
|
VII-1 |
B. Statements to Participants |
|
VII-1 |
C. Fees and Expenses of Administration |
|
VII-1 |
D. Noncompliance |
|
VII-1 |
- ii -
|
|
|
|
|
ARTICLE VIII MISCELLANEOUS PROVISIONS |
|
|
|
|
A. Vesting of Participant Accounts |
|
VIII-1 |
B. Prohibition Against Assignment |
|
VIII-1 |
C. No Employment Contract |
|
VIII-1 |
D. Successors Bound |
|
VIII-1 |
E. Prohibition Against Loans |
|
VIII-2 |
F. Administration By Committee |
|
VIII-2 |
G. Governing Law and Rules of Construction |
|
VIII-2 |
H. Power to Interpret |
|
VIII-2 |
I. Compliance & Severability |
|
VIII-3 |
J. Claims Procedures |
|
VIII-3 |
K. Effective Date |
|
VIII-3 |
- iii -
ARTICLE I
PURPOSE AND INTENT
The 1999 Comerica Incorporated Amended and Restated Deferred Compensation Plan (the Plan)
enables Participants to defer receipt of all or a portion of their Compensation to provide
additional income for their subsequent retirement, disability or termination of employment. It is
the intention of the Corporation 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.
l-1
ARTICLE II
DEFINITIONS
A. Definitions. The following words and phrases, wherever capitalized, shall have the
following meanings respectively:
(1) Account Balance Plan means any deferred compensation plan under which
Participants may elect to defer compensation into a deferred compensation account for the benefit
of that Participant.
(2) Account(s) means the account established for each Participant under Article
IV(A) hereof.
(3) Annual Base Compensation means all ordinary and regular compensation earned by a
Participant during a calendar year, including overtime and commissions.
(4) 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
Participants beneficiary under Article V(B)(2) hereof.
(5) Board means the Board of Directors of the Corporation.
(6) Change in Control means a change in control as defined in Code Section 409A and
any interpretive authorities promulgated thereunder.
(7) Code means the Internal Revenue Code of 1986, as amended.
(8) Comerica Stock means shares of common stock of the Corporation, $5.00 par value.
(9) Comerica Stock Fund means the deemed investment established under the
Plan pursuant to which a Participant may have requested such deemed investment
ll-1
prior to January 1, 1999, of sums deferred under the Plan in units whose value is tied to
the market value of shares of Comerica Stock.
(10) Committee means the Compensation Committee of the Board, or such other
committee appointed by the Board to administer the Plan.
(11) Compensation means gross salary from the Employer including base salary,
incentive compensation, bonuses, overtime, commissions, any Incentive Award and any other form of
cash remuneration approved by the Committee.
(12) Compensation Deferral(s) means both the amount of Compensation a Participant
has elected to defer pursuant to an Irrevocable Election Form, as well as the amount of any
Compensation deferred under another deferred compensation plan that is transferred into the Plan
pursuant to Article III(F), and where the context requires, shall include earnings on said amounts.
(13) Corporation means Comerica Incorporated, a Delaware corporation, and any
successor entity.
(14) Deferral Period means the period during which a Participant elects to defer
receipt of Compensation under the Plan, which period shall end coincident with the Participants
Retirement.
(15) Disabled or Disability means a Participant who is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or can be expected to last for a continuous period of not
less than 12 months, or is by reason of any medically determinable physical or mental impairment which can be expected to
result in death or can be expected to last for a continuous period of not less than 12 months,
receiving
II-2
income replacement benefits for a period of not less than 3 months under an accident and
health plan covering employees of the Participants Employer.
(16) Eligible Employee means an individual employed by an Employer who is: (i)
eligible to receive compensation under the Comerica Incorporated Management Incentive Plan; (ii)
eligible to receive compensation under an incentive program sponsored by any business unit of the
Employer, provided the Compensation the individual expects to earn in the year his deferral
election is operative is approximately $100,000; or (iii) approved for participation by the
Committee on the basis of high earning potential and other relevant factors consistent with the
Plan.
(17) Employer means Comerica Incorporated, a Delaware corporation, and its
subsidiary corporations, and any successor entity which may succeed the Employer and its subsidiary
corporations.
(18) ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
(19) Exchange Act means the Securities Exchange Act of 1934, as amended.
(20) Incentive Award means a business unit incentive or an incentive award granted
to Participants pursuant to the Management Incentive Plan which qualifies as Section 409A
Performance Based Compensation and which is related to the Corporations performance, including,
but not limited to, three year performance.
(21) Irrevocable Election Form means the Irrevocable Election Form used to make
deferral elections under this Plan, as adopted by the Corporation, as it may be revised from time
to time.
(22) Management Incentive Plan means the Amended and Restated Comerica Incorporated
Management Incentive Plan, as amended.
ll-3
(23) Participant means an employee whose Irrevocable Election Form has been timely
received by the Corporation pursuant to Article III(A) hereof, and who either has a deferral
election currently in effect or an Account balance under the Plan.
(24) Performance Period means, with respect to Compensation, the time period
specified by the Committee, which cannot be less than 12 months, during which Participants can earn
such Compensation.
(25) Plan means the unfunded, nonqualified elective 1999 Comerica Incorporated
Amended and Restated Deferred Compensation Plan, the provisions of which are set forth herein, as
they may be amended from time to time.
(26) Plan Administrator(s) means the individual(s) appointed by the Committee to
handle the day to day administration of the Plan.
(27) Retirement means the later of the first date that a Participant is entitled to
receive an immediate benefit under the Comerica Incorporated Retirement Plan, or such Participants
separation from service as defined in Code Section 409A and any interpretive authorities
promulgated thereunder.
(28) Section 16 Insider means any Participant who is designated by the Corporation
as a reporting person under Section 16 of the Exchange Act.
(29) Section 409A Performance Based Compensation means any Incentive Award which
qualifies as performance based compensation within the meaning of Code Section 409A, Notice
2005-1, and any other interpretive authorities promulgated thereunder. Notwithstanding any other
provision herein, no Incentive Award will be deemed to constitute performance based compensation if
the performance conditions that serve as the basis for the Incentive Award are substantially
certain to be satisfied at the time a Participant makes an election to defer the Incentive Award
under Article III hereof.
ll-4
(30) Specified Employee means a key employee of the Corporation as defined in Code
Section 416(i) without regard to paragraph (5) thereof, and as contemplated in Code Section 409A
and any interpretive authorities promulgated thereunder.
(31) Trust means a rabbi trust, as may be established by the Corporation 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 (other than with respect to employment taxes
imposed under Code Section 3121(v)(2)) to employees at the time contributions are made, but
instead, at the time the benefits are received or otherwise made available to the employee.
(32) Trustee means the entity selected by the Corporation as trustee of the Trust.
(33) Unforeseeable Emergency means a severe financial hardship to the Participant
resulting from an illness or accident of the Participant, the Participants spouse, or a dependent
(as defined in Code Section 152(a)) of the Participant, loss of the Participants property due to
casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant. This definition shall be construed in a manner that is consistent
with Code Section 409A and any interpretive authorities promulgated thereunder.
ll-5
ARTICLE III
ELECTION TO PARTICIPATE IN THE PLAN
A. Completion of Irrevocable Election Form.
(1) Deferrals of Annual Base Compensation. An Eligible Employee who wishes to become
a Participant in the Plan must submit a signed Irrevocable Election Form, indicating the amount of
Annual Base Compensation the Participant wishes to defer, before the first day of the calendar year
in which such Annual Base Compensation is earned, or earlier if the Plan Administrator so
determines.
(2) Deferrals of Performance Based Incentive Awards. Notwithstanding the preceding
subparagraph, any Eligible Employee who wishes to defer an Incentive Award must submit a signed
Irrevocable Election Form no later than six months prior to the end of the applicable Performance
Period, or earlier if the Plan Administrator so requires.
The participant will be deemed to have made an election under this Plan on the date that the
Corporation receives the Irrevocable Election Form. An Eligible Employee must timely file an
Irrevocable Election Form with respect to each years Compensation and each Performance Periods
Incentive Award that he or she wishes to defer.
B. Contents of Irrevocable Election Form. Each Irrevocable Election Form shall: (i)
designate the amount of Compensation to be deferred in whole percentages or in whole dollars; (ii)
request that the Employer defer payment of Compensation to the Participant until the year the
Participant reaches Retirement; (iii) state how the Participant wishes to receive payment of the
Compensation Deferrals at Retirement; and (iv) contain other provisions the Committee deems
appropriate.
C. Effect of Submitting an Irrevocable Election Form. Upon Participants submission
of his or her 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
lll-1
assumed the risks of deferral, including, without limitation, the risk of poor investment performance and the risk that the Corporation may
become insolvent.
D. Special Rules Applicable to Irrevocable Election Forms and Deferral of
Compensation.
(1) Deferral Election to be Made Before Compensation is Earned. Compensation may only
be deferred to the extent that it has not yet been earned by a Participant. An election to defer
Annual Base Compensation must be received by the Corporation before the first day of the calendar
year in which the Compensation is earned, however, with respect to an Incentive Award, the election
to defer must be received by the Corporation no later than six months prior to the end of the
applicable Performance Period. Notwithstanding the preceding sentence, an Irrevocable Election Form
received by the Corporation within thirty (30) days of the date an individual first becomes
eligible to participate in the Plan may defer Compensation 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 Compensation and may impose rules prohibiting the deferral of less
than 100% of any award under any incentive compensation plan of the Employer that permits deferral
of awards thereunder.
(2) Irrevocability of Deferral Election. Except as provided in Articles III(G) and
V(A)(4) below, the provisions of the Irrevocable Election Form relating to a Participants election to defer Compensation and the
Participants selection of the time and manner of payment of the Compensation Deferrals shall be
irrevocable.
E. Deferrals By Committee. At its discretion, the Committee may defer any
portion of Compensation payable to a Participant pursuant to a notice to the Participant provided
such notification is given before the first day of the calendar year in which the
lll-2
Annual Base Compensation will be earned; however, with respect to an Incentive Award, the Committee must give
such notice no later than six months prior to the end of the applicable Performance Period.
Notwithstanding the preceding sentence, such a deferral election by the Committee will be permitted
only if the Committees election does not cause any portion of the Plan to violate Code § 409A or
any of the interpretive authorities promulgated thereunder. The notice must (1) include the amount
of Compensation to be deferred in whole percentages or whole dollars, (2) designate that such
deferral will not become payable until the Participants Retirement, and (3) state whether the
Participant shall receive such distribution in a lump sum or installments. Any Compensation
deferred under the Plan by the Committee shall be deemed invested in the investment option under
the Plan which most closely approximates a money market fund pending the Employers receipt of an
investment request from the Eligible Employee. It shall be the Eligible Employees obligation to
submit an investment request to the Employer if any Compensation deferred by the Committee is to be
invested in any fund other than a money market fund. Notwithstanding anything to the contrary, no
Compensation, other than Compensation placed in the Account prior to January 1, 1999, shall be
invested in or reallocated to Comerica Stock.
Upon the death of the Participant on behalf of whom the Compensation is deferred, unless the
Participant has delivered a beneficiary designation form to the Corporation 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 Corporation with respect to any other
Compensation deferred by the Participant under the Plan. If the Participant has not submitted a
beneficiary designation form with respect to
lll-3
such other deferrals, the Compensation deferred by the Committee and any earnings thereon shall be payable in cash to the Participants estate upon his or
her death.
F. Deferred Compensation Transferred into the Plan.
(1) At the discretion of the Committee, a Participant may be permitted to transfer previously
deferred compensation into the Plan, so long as such amounts were deferred pursuant to the terms of
a nonqualified deferred compensation plan of the Corporation and/or its subsidiary corporations.
Further, such transfer will only be permitted if the Committee determines (1) that the transfer
will meet the applicable requirements of the Plan, and will not adversely affect the Plans status
as an unfunded Plan for income tax purposes and for purposes of Title I of ERISA; and (2) the
Participant has had no right, in conjunction with said transfer, to receive such deferred
compensation in cash. Compensation Deferrals that are transferred into the Plan will be allocated
to a book reserve account on behalf of the Participant and, unless otherwise stated, will be
subject to all of the terms and conditions of the Plan for Compensation Deferrals, including, but
not limited to the provisions of Article IV.
(2) Amounts transferred from the Imperial Bancorp Deferred Compensation Plan effective
November 30, 2001, were accepted into this Plan pursuant to Resolutions of the Compensation Committee of the Board of Directors of Comerica, signed January 21, 2002. If any
Participant, prior to November 30, 2001, had elected to receive a Short-Term Payout from such
plan pursuant to its Article 4, Section 4.1, such election shall be honored. Short-Term Payouts
are not permitted under any other circumstances.
G. Subsequent Elections. If a Participant wishes to extend a deferral period to a
later date, or make a change in the method of payment with respect to Compensation
lll-4
deferred after December 31, 2004, he or she may do so provided that such a subsequent deferral election (1) may
not be made less than 12 months prior to the date of such Participants first scheduled payment;
and (2) will extend the deferral period for a minimum of 5 years from the date that each such
payment would have otherwise have been made to such Participant (except in the case of death,
Disability or an Unforeseeable Emergency). Furthermore, a Participant may extend a deferral period
to a later date, or make a change in the method of payment with respect to Compensation deferred
prior December 31, 2004, only to the extent allowed by Code Section 409A and any interpretive
authorities promulgated thereunder.
lll-5
ARTICLE IV
DEFERRED COMPENSATION ACCOUNTS
AND INVESTMENT OF DEFERRED COMPENSATION
A. Deferred Compensation Accounts. The Plan Administrator shall establish a book
reserve account in the name of each Participant. As soon as is administratively feasible following
the date Compensation subject to a Participants deferral election would otherwise be paid to the
Participant, the Plan Administrator shall credit the Compensation being deferred to the
Participants Account. From time to time, at intervals to be determined by the Committee, each
Participants Account shall be credited with earnings or charged with losses resulting from the
deemed investment of the Compensation Deferrals credited to the Account as though the Compensation
Deferrals had been hypothetically invested in the investments selected by the Participant as
provided below, and shall be charged with any distributions, any federal and state income tax
withholdings, any social security tax as may be required by law and by any further amounts,
including administrative fees and expenses, the Employer is either required to withhold or
determines are appropriate charges to such Participants Account.
B. Earnings on Compensation Deferrals. At the time a Participant submits an
Irrevocable Election Form, and from time to time thereafter at intervals to be determined by the
Committee, each Participant shall select, in a form approved by and in accordance with procedures
established by the Committee, how the Participant chooses the balance (and any earnings and
dividends credited thereon) to be deemed to be invested among investment options (which shall not
include Comerica Stock) to be made available by the Committee for record-keeping purposes. In lieu
of making investment options available to
IV-1
Participants, the Corporation may credit deferred sums
with a reasonable rate of interest to reflect the time value of money.
The Corporation shall be under no obligation to acquire any of the investments selected
by any Participant, and any investments actually made by the Corporation with Compensation
Deferrals will be acquired solely in the name of the Corporation, and will remain the sole property
of the Corporation, except to the extent held in a Trust.
C. Contribution of Compensation Deferrals to Trust. In the sole discretion of the
Corporation, all or any portion of the Compensation Deferrals credited to any Participants Account
may be contributed to a Trust established by the Corporation in connection with the Plan. No
Participant or Beneficiary shall have the right to direct or require that the Corporation
contribute the Participants Compensation Deferrals to the Trust. Any Compensation Deferrals so
contributed shall be held, invested and administered to provide benefits under the Plan except as
otherwise required in the agreement governing the Trust.
D. Insulation from Liability. No member of the Committee or officer, employee or
director of any Employer shall be liable to any person for any action taken or omitted in
connection with the administration of this Plan or Trust unless attributable to such individuals
own fraud or willful misconduct.
E. Ownership of Compensation Deferrals. Title to and beneficial ownership of any
assets, of whatever nature, which may be allocated by the Corporation to any Account in the name of
any Participant shall at all times remain with the Corporation, and no Participant or Beneficiary
shall have any property interest whatsoever in any specific assets of the Corporation by reason of
the establishment of the Plan nor shall the rights of any
IV-2
Participant or Beneficiary to payments under the Plan be increased by reason of the Corporations contribution of Compensation Deferrals
to the Trust. The rights of each Participant and Beneficiary hereunder shall be limited to
enforcing the unfunded, unsecured promise of the Participants Employer 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. Participants and Beneficiaries shall not be deemed to be parties to
any trust agreement the Corporation enters into with the Trustee.
F. Special Rule Applicable To Certain Reallocations.
(1) Notwithstanding the foregoing, effective January 1, 1999, a Participant may not direct a
reallocation out of any investment fund into the Comerica Stock Fund. A Participant may however,
reallocate out of the Comerica Stock Fund into any other investment fund (which shall not include
the Comerica Stock Fund), except as provided in subsection (2) of this section.
(2) A Section 16 Insider may not direct a reallocation out of the Comerica Stock Fund into any
other investment funds if, within the previous six months, he or she (or any other person whose
transactions are attributed to the Section 16 Insider under Section 16 of the Exchange Act) either (i) acquired shares of Comerica Stock in the open market or
pursuant to a private transaction, or (ii) made an election under the Plan (or under any other plan
sponsored by the Corporation) that resulted in an acquisition of equity securities of the
Corporation within the meaning of that term under Section 16 of the Exchange Act.
To the extent consistent with rules under Section 16 of the Exchange Act, the foregoing
prohibitions shall not be applicable if the reallocation is in connection with the Section 16
Insiders death, Disability, Retirement or termination of employment.
IV-3
Notwithstanding any other provision of the Plan, effective January 1, 1999, except in
the circumstances of death, Disability, Retirement or other termination of employment, a Section 16
Insider shall not be permitted to receive a cash distribution from the Plan which is funded to any
extent by a disposition of his or her interest.
G. Adjustment of Accounts Upon Changes In Capitalization. With respect to Accounts
that are deemed to be invested in whole or in part in the Comerica Stock Fund, in the event the
number of outstanding shares of Comerica Stock changes as a result of any stock split, stock
dividend, recapitalization, merger, consolidation, reorganization, combination, or exchange of
shares, split-up, split-off, spin-off, liquidation or other similar change in capitalization, or
any distribution made to common stockholders other than cash dividends, the number or kind of
shares of Comerica Stock in which such Accounts are deemed to be invested shall be automatically
adjusted, and the Committee shall be authorized to make such other equitable adjustment of any
Account, so that the value of the Account shall not be decreased by reason of the occurrence of
such event. Any such adjustment shall be conclusive and binding.
IV-4
ARTICLE V
DISTRIBUTION OF COMPENSATION DEFERRALS
A. In General. The benefits payable hereunder as deferred compensation shall be paid
to the Participant or to the Participants Beneficiary as follows:
(1) Employment Through Deferral Period. If the Participants employment with Employer
continues until the last day of the Deferral Period, the Corporation shall, as soon as
administratively feasible following the end of the Deferral Period, distribute, or commence to
distribute, the balance of the Account in the name of the Participant, in cash, in any manner
described below which is selected by the Participant in the Participants Irrevocable Election
Form: (i) a lump sum; (ii) five (5) annual installments; (iii) ten (10) annual installments; or
(iv) fifteen (15) annual installments, however, in the case of a Specified Employee, distributions
may not be made until at least six months after the date of such Specified Employees Retirement
(or, if earlier, the date of death of the Specified Employee) to the extent that it complies with
Code Section 409A and any interpretive authorities promulgated thereunder. Notwithstanding the
preceding sentence, with respect to any and all Compensation transferred into the Plan from the
Imperial Entertainment Group Equity Appreciation Rights Program, and earnings thereon, if the
Participants employment with Employer continues until the last day of the Deferral Period, the
Corporation shall, as soon as administratively feasible following the end of the Deferral Period,
distribute said transferred amounts in a lump sum only.
For purposes of determining the amount of annual installments, X shall equal the number of
years over which benefits will be paid as elected by the Participant. The Corporation shall pay to
the Participant or to the Participants Beneficiary an amount equal
V-1
to 1/X of the fair market value of the Account in the Participants name, such value to be based on the closing price of the
corresponding investment fund on the exchange on which such fund is listed or the market on which
such fund is traded, on the trading day prior to the distribution of the installment payment. On
approximately the same date of the following year, the Corporation shall pay to the Participant or
to the Participants Beneficiary an amount equal to 1/X-1 of the fair market value of such Account,
such value to be determined as stated in the preceding sentence. On approximately the same date of
the following year, the Corporation shall pay to the Participant or to the Participants
Beneficiary an amount equal to 1/X-2 of the fair market value of such Account (as determined
above), and similar payments shall continue to be made on approximately the same date of each
succeeding year until a total of X annual payments have been made.
(2) Termination Prior to End of Deferral Period. If the Participants employment with
the Employer terminates prior to the last day of the Deferral Period (unless such termination is
due to the Participants Disability), then notwithstanding the manner of distribution selected by
the Participant in the Participants Irrevocable Election Form, the Corporation shall distribute
(or direct the Trustee to distribute) in a lump sum payment, an amount equal to the fair market
value of the Account in the name of the Participant, such value to be determined as of the earliest
convenient date, as determined by the Committee, which occurs subsequent to the date the
Participants employment terminates, provided such date is within 30 days from the Participants termination. Notwithstanding the preceding sentence, in the case of a
Specified Employee, distributions may not be made until at least six months after the date of such
Specified Employees termination (or, if earlier, the date of death of such Specified Employee).
Notwithstanding the acceleration
V-2
of payment as described in this subparagraph V(A)(2), such
acceleration will only be permitted to the extent that it complies with Code Section 409A and any
interpretive authorities promulgated thereunder.
If the Participants employment with the Employer terminates prior to the last day of the
Deferral Period because the Participant has become Disabled, the Participants Account 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 Participants Irrevocable Election Form.
(3) Death of Participant Prior to End of Installment Distribution Period. If the
Participant dies before a distribution of all of the Participants Account is made, then the
remaining balance of the Participants Account shall be distributed in a lump sum payment in an
amount equal to the fair market value of the Account as of the earliest convenient date as
determined by the Committee which occurs subsequent to the date of the Participants death,
provided such date is within 30 days of the Participants death. Notwithstanding the acceleration
of payment as described in this subparagraph V(A)(3), such acceleration will only be permitted to
the extent that it complies with Code Section 409A and any interpretive authorities promulgated
thereunder.
(4) Hardship Distributions. In the event of an Unforeseeable Emergency involving a
Participant, the Committee may, in its sole discretion:
(a) make a single distribution to the Participant from the Participants Account not to
exceed the amount sufficient to cover the emergency, plus amounts necessary to pay the taxes
anticipated as a result of the distribution. The amount distributed must take into account the
extent to which the hardship is or may be relieved through reimbursement or
V-3
compensation by insurance or otherwise or by liquidation of the Participants assets (to the extent the liquidation
of such assets would not itself cause severe financial hardship); and/or
(b) 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. Notwithstanding the cancellation
of future deferral elections as described in this subparagraph V(A)(4)(b), such cancellation will
only be permitted to the extent that it complies with Code Section 409A and any interpretive
authorities promulgated thereunder.
Any Participant desiring a distribution or seeking to cancel a deferral 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 amount of cash 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 Code Section 409A and any interpretive authorities promulgated thereunder. 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, assuming the foregoing provision complies
with Code Section 409A and any interpretive authorities promulgated thereunder.
If a Participant receives a hardship distribution under this Article V(A)(4) and/or under the
Comerica Incorporated Preferred Savings Plan, the Participants deferral election
V-4
hereunder shall be automatically canceled to the extent it would defer the Participants receipt of any Incentive
Award earned during the twelve-month period following the date of the Participants 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. Notwithstanding a Participants receipt of a hardship distribution or the
cancellation of future deferral elections as described in this subparagraph V(A)(4)(b), such
receipt or cancellation will only be permitted to the extent that it complies with Code Section
409A and any interpretive authorities promulgated thereunder.
(5) Cash Out Distributions. If, at the time an installment distribution of a
Participants 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 such Account shall be distributed to the Participant in a
lump sum distribution on or about the date the first installment is scheduled to be made. For
amounts payable after January 1, 2005, the acceleration of payment as described in this paragraph Article V(A)(5), will not be
permitted except as provided under Code Section 409A and any interpretive authorities promulgated
thereunder.
(6) Change in Control. Upon the occurrence of a Change in Control, the remaining
balance of a Specified Employees Account, shall be distributed to the Specified Employee, in a
lump sum, as soon as is administratively feasible following the date of such Specified Employees
termination after a Change in Control; however, a distribution upon a
V-5
Change in Control will not occur if the Specified Employee remains employed with the surviving entity 60 days after the date
of the Change in Control. Notwithstanding the acceleration of payment as described in this
subparagraph V(A)(6), such acceleration will only be permitted to the extent that it complies with
Code Section 409A and any interpretive authorities promulgated thereunder. Notwithstanding
anything to the contrary in this subparagraph V(A)(6), the acceleration following a Change in
Control provided for herein only applies to Compensation deferred after December 31, 2004.
B. Designation of Beneficiary. A Participant shall deliver to the Corporation 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.
(1) Beneficiary Designation Must be Filed Prior to Participants Death. No
designation of Beneficiary, and no amendment or revocation thereof, shall become effective if
delivered to the Corporation after such Participants 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 Participants estate.
V-6
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 to
the extent that such termination or amendment complies with applicable laws including Code Section
409A and any interpretive authorities promulgated thereunder. No such amendment shall affect the
time of payment of any Compensation earned prior to the time of such amendment or termination
except as the Committee may determine to be necessary to carry out the purpose of the Plan.
Written notice of any such amendment or termination shall be given to each Participant. Upon
termination of the Plan, the Corporation 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 Participants 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.
D. Noncompliance. Compensation deferred for a Participant under any Account Balance
Plan for the taxable year and all preceding years in which any such Account Balance Plan, with
respect to that Participant, fails to meet the requirements, or fails to be operated in accordance
with applicable laws, is includible in gross income for the taxable year it was earned to the
extent it is not subject to a substantial risk of forfeiture. The income tax will be calculated
from the time a participant first became eligible in a defective plan, or from the time the plan
failed to comply, adding a late fee using the appropriate late income tax payment interest factor,
plus 1%. A 20% excise tax will also be assessed. The Corporation intends to operate the Plan in
accordance with all applicable laws, but in the event that any Account Balance Plan fails to meet
the requirements or fails to be operated in accordance with applicable laws, the Corporation will
not be responsible for any assessment of income tax, late fee, and/or excise tax. Such amounts will be the
responsibility of each affected Plan Participant and shall be deducted from each Participants
Account.
VII-1
ARTICLE VIII
MISCELLANEOUS PROVISIONS
A. Vesting of Participant Accounts. Each Participant shall be fully vested in his or
her Account, which includes Compensation Deferrals transferred into the Plan from the Imperial
Entertainment Group Equity Appreciation Rights Program, notwithstanding the vesting schedule set
forth in the Imperial Entertainment Group Equity Appreciation Rights Program.
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 Employers right to discharge any Participant for any reason or
for no reason.
D. Successors Bound. The contractual agreement between the Corporation and each
Participant resulting from the execution of an Irrevocable 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 Participants heirs,
executors, administrators and other legal representatives.
VIII-1
E. Prohibition Against Loans. The Participant may not borrow any Compensation
Deferrals from the Corporation nor utilize his or her Account as security for any loan from the
Employer.
F. Administration By Committee. Responsibility for administration of the Plan shall
be vested in the Committee. To the extent permitted by law, the Committee may delegate any
authority it possesses to the Plan Administrator(s). This includes the power and authority to
comply with the withholding and reporting requirements of Code Section 409A and Regulations
promulgated thereunder. 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 and also in
accordance with Code Section 409A and any interpretive authorities promulgated thereunder. It is
the intention of the Corporation 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 byreference. 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
VIII-2
benefits and the amount, manner and time of payment of benefits, any such
construction and interpretation by the Committee and any action taken thereon in good faith by the
Plan Administrator(s) to be final and conclusive upon any affected party. The Committee shall also
have power to correct any defect, supply any omission, or reconcile any inconsistency 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. Compliance & Severability. It is the Corporations intent to comply with all
applicable tax and other laws, including Code Section 409A and any interpretive authorities
promulgated thereunder, so that all rights under the Plan will be limited as necessary in the
judgment of the Committee to conform therewith. Therefore, consistent with the effectuation of the
purposes hereof, 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.
J. 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.
K. Effective Date. The effective date of this amendment and restatement shall be
January 1, 2005, except as otherwise expressly stated herein.
VIII-3
EX-10.18
3
k92690exv10w18.htm
1999 AMENDED/RESTATED COMMON STOCK DEFERRED INCENTIVE AWARD PLAN
exv10w18
Exhibit 10.18
As approved by the Compensation Committee on January 24, 2005
As approved by the Board of Directors on January 25, 2005
1999 COMERICA INCORPORATED
AMENDED AND RESTATED
COMMON STOCK DEFERRED INCENTIVE AWARD PLAN
TABLE OF CONTENTS
Page
1999 COMERICA INCORPORATED
AMENDED AND RESTATED
COMMON STOCK DEFERRED INCENTIVE AWARD PLAN
|
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ARTICLE I PURPOSE AND INTENT |
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I-1 |
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ARTICLE II DEFINITIONS |
|
II-1 |
A. Definitions |
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II-1 |
(1) Account Balance Plan |
|
II-1 |
(2) Account(s) |
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II-1 |
(3) Beneficiary(ies) |
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II-1 |
(4) Board |
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II-1 |
(5) Change in Control |
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II-1 |
(6) Code |
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II-1 |
(7) Comerica Stock |
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II-1 |
(8) Comerica Stock Fund |
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II-1 |
(9) Committee |
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II-1 |
(10) Corporation |
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II-2 |
(11) Deferral Period |
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II-2 |
(12) Disabled or Disability |
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II-2 |
(13) Employer |
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II-2 |
(14) ERISA |
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II-2 |
(15) Exchange Act |
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II-2 |
(16) Incentive Award |
|
II-2 |
(17) Incentive Award Deferral(s) |
|
II-3 |
(18) Irrevocable Election Form |
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II-3 |
(19) Management Incentive Plan |
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II-3 |
(20) Participant |
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II-3 |
(21) Performance Period |
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II-3 |
(22) Plan |
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II-3 |
(23) Plan Administrator(s) |
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II-3 |
(24) Retirement |
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II-4 |
(25) Section 409A Performance Based Compensation |
|
II-4 |
(26) Specified Employee |
|
II-4 |
(27) Trust |
|
II-4 |
(28) Trustee |
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II-5 |
(29) Unforeseeable Emergency |
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II-5 |
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ARTICLE III ELECTION TO PARTICIPATE IN THE PLAN |
|
III-1 |
A. Completion of Irrevocable Election Form |
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III-1 |
B. Contents of Irrevocable Election Form |
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III-1 |
C. Effect of Submitting an Irrevocable Election Form |
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III-1 |
-i-
TABLE OF CONTENTS
(continued)
Page
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D. Special Rules Applicable to Irrevocable Election
Forms and Deferral of the Incentive Award |
|
III-2 |
(1) Deferral Election to be Made Before the Incentive
Award is Earned |
|
III-2 |
(2) Irrevocability of Deferral Election |
|
III-2 |
E. Deferrals By Committee |
|
III-2 |
F. Subsequent Elections |
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III-3 |
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ARTICLE IV DEFERRED INCENTIVE AWARD ACCOUNTS AND
INVESTMENT OF DEFERRED INCENTIVE AWARD |
|
IV-1 |
A. Deferred Incentive Award Accounts |
|
IV-1 |
B. Earnings on Incentive Award Deferrals |
|
IV-1 |
C. Contribution of Incentive Award Deferrals to Trust |
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IV-2 |
D. Insulation from Liability |
|
IV-2 |
E. Ownership of Incentive Award Deferrals |
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IV-2 |
F. [Intentionally left blank] |
|
IV-3 |
G. Adjustment of Accounts Upon Changes In Capitalization |
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IV-3 |
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ARTICLE V DISTRIBUTION OF INCENTIVE AWARD DEFERRALS |
|
V-1 |
A. In General |
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V-1 |
(1) Employment Through Deferral Period |
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V-1 |
(2) Termination Prior to End of Deferral Period |
|
V-1 |
(3) Death of Participant Prior to End of Installment Distribution
Period |
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V-2 |
(4) Hardship Distributions/Cancellation of Deferral Election |
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V-2 |
(5) Stock Distributions |
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V-4 |
(6) Change in Control |
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V-4 |
B. Designation of Beneficiary |
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V-4 |
(1) Beneficiary Designation Must be Filed Prior to Participants
Death |
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V-5 |
(2) Absence of Beneficiary |
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V-5 |
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ARTICLE VI AMENDMENT OR TERMINATION |
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VI-1 |
A. Amendment and Termination of Plan |
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VI-1 |
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ARTICLE VII AUDITING OF ACCOUNTS AND STATEMENTS TO PARTICIPANTS |
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VII-1 |
A. Auditing of Accounts |
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VII-1 |
B. Statements to Participants |
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VII-1 |
C. Fees and
Expenses of Administration |
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VII-1 |
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ARTICLE VIII MISCELLANEOUS PROVISIONS |
|
VIII-1 |
A. Nonforfeitability of Participant Accounts |
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VIII-1 |
B. Prohibition Against Assignment |
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VIII-1 |
C. No Employment Contract |
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VIII-1 |
- ii -
TABLE OF CONTENTS
(continued)
Page
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D. Successors Bound |
|
VIII-1 |
E. Prohibition Against Loans |
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VIII-1 |
F. Administration By Committee |
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VIII-2 |
G. Governing Law and Rules of Construction |
|
VIII-2 |
H. Power to Interpret |
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VIII-2 |
I. Compliance & Severability |
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VIII-3 |
J. Claims Procedures |
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VIII-3 |
K. Effective Date |
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VIII-3 |
-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 the Corporation 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.
l-1
ARTICLE II
DEFINITIONS
A. Definitions. The following words and phrases, wherever capitalized, shall have the
following meanings respectively:
(1) Account Balance Plan means any deferred compensation plan under which
Participants may elect to defer compensation into a deferred compensation account for the benefit
of that Participant.
(2) Account(s) means the account established for each Participant under Article
IV(A) hereof.
(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 Participants beneficiary under Article V(B)(2) hereof.
(4) Board means the Board of Directors of the Corporation.
(5) Code means the Internal Revenue Code of 1986, as amended.
(6) Change in Control means a change in control as defined in Code Section 409A and
any interpretive authorities promulgated thereunder.
(7) Comerica Stock means shares of common stock of the Corporation, $5.00 par value.
(8) 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.
(9) Committee means the Compensation Committee of the Board, or such other committee
appointed by the Board to administer the Plan.
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(10) Corporation means Comerica Incorporated, a Delaware corporation, and any
successor entity.
(11) 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
Participants Retirement.
(12) Disabled or Disability means a Participant
who is unable to engage in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or can be expected to last
for a continuous period of not less than 12 months, or is by reason of any medically determinable
physical or mental impairment which can be expected to result in death or can be expected to last
for a continuous period of not less than 12 months, receiving income replacement benefits for a
period of not less than 3 months under an accident and health plan covering employees of the
Participants Employer.
(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) Incentive Award means a business unit incentive or an incentive award granted
to Participants pursuant to the Management Incentive Plan which qualifies as Section 409A
Performance Based Compensation and which is related to the Corporations performance, including,
but not limited to, three year performance. Notwithstanding the
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preceding sentence, only business
unit incentives that are (i) paid to Participants holding a position of corporate First Vice
President or above, (ii) paid no more often than annually and (iii) paid at or about the same time
as incentive awards under the Management Incentive Plan, will be deemed to constitute Incentive
Awards.
(17) Incentive Award Deferral(s) means the amount of an Incentive Award a
Participant has elected to defer pursuant to a timely filed Irrevocable Election Form and, where
the context requires, shall also include earnings on such amounts.
(18) Irrevocable Election Form means the Irrevocable Election Form used to make
deferral elections under this Plan, as adopted by the Corporation, as it may be revised from time
to time.
(19) Management Incentive Plan means the Amended and Restated Comerica Incorporated
Management Incentive Plan, as amended from time to time.
(20) Participant means an employee whose Irrevocable Election Form has been timely
received by the Corporation pursuant to Article III(A) hereof, and who either has a deferral
election currently in effect or an Account balance under the Plan.
(21) Performance Period means, with respect to Incentive Awards, the period, not to
be less than 12 months, specified by the Committee during which Participants can earn such
Incentive Awards.
(22) 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.
(23) Plan Administrator(s) means the individual(s) appointed by the Committee to
handle the day-to-day administration of the Plan.
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(24) Retirement means the later of the first date that a Participant is entitled to
receive an immediate benefit under the Comerica Incorporated Retirement Plan, or such Participants
separation from service as defined in Code Section 409A and any interpretive authorities
promulgated thereunder.
(25) Section 409A Performance Based Compensation means any Incentive Award which
qualifies as performance based compensation within the meaning of Code Section 409A, Notice
2005-1, and any other interpretive authorities promulgated thereunder. Notwithstanding any other
provision herein, no Incentive Award will be deemed to constitute performance based compensation if
the performance conditions that
serve as the basis for the Incentive Award are substantially certain to be satisfied at the
time a Participant makes an election to defer the Incentive Award under Article III hereof.
(26) Specified Employee means a key employee of the Corporation as defined in Code
Section 416(i) without regard to paragraph (5) thereof, and as contemplated in Code Section 409A
and any interpretive authorities promulgated thereunder.
(27) Trust means a rabbi trust, as may be established by the Corporation 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 (other than with respect to employment taxes
imposed under Code Section 3121(v)(2)) to employees at the time contributions are made, but
instead, at the time the benefits are received or otherwise made available to the employee.
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(28) Trustee means the entity selected by the Corporation as trustee of the Trust.
(29) Unforeseeable Emergency means severe financial
hardship to the Participant resulting from an illness or accident of the Participant, the
Participants spouse, or a dependent (as defined in Code Section 152(a)) of the Participant, loss
of the Participants property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the Participant. This definition
shall be construed in a manner that is consistent with Code Section 409A and any interpretive
authorities promulgated thereunder.
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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 amount of
the Incentive Award the Participant wishes to defer, no later than six months prior to the end of
the applicable Performance Period during which the Incentive Award may be earned, or earlier if the
Plan Administrator so determines. The participant will be deemed to have made an election under
this Plan on the date that the Corporation receives the Irrevocable Election Form. A Participant
must timely file an Irrevocable Election Form with respect to each Performance Periods Incentive
Award that 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 reaches Retirement; (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 Participants submission
of his or her Irrevocable Election Form, the Participant shall be (i) bound by the provisions of
the Plan and by the provisions of any agreement governing the Trust; (ii) bound by the provisions
of the Irrevocable Election Form; and (iii) deemed to have assumed the risks of
deferral, including, without limitation, the risk of poor investment performance and the risk
that the Corporation may become insolvent.
III-1
D. Special Rules Applicable to Irrevocable Election Forms and Deferral of Incentive
Awards.
(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 received by the Corporation no later than six months
before the end of the applicable Performance Period during which the Incentive Award may be earned.
Notwithstanding the preceding sentence, an Irrevocable Election Form received by the Corporation
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 Articles III(F) and
V(A)(4) below, the provisions of the Irrevocable Election Form relating to a Participants election
to defer the Incentive Award and the Participants selection of the time and manner of payment of
the Incentive Award Deferrals shall be irrevocable.
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, provided such
notification is given no later than six months before the end of the applicable Performance Period
during which the Incentive Award may be earned. Notwithstanding the preceding sentence, such a
deferral election by the Committee will be
III-2
permitted only if the Committees election does not
cause any portion of the Plan to violate Code § 409A or any of the interpretive authorities
promulgated thereunder. The notice must (1) include the amount of Incentive Award to be deferred
in whole percentages or whole dollars, (2) designate that such deferral will not become payable
until the Participant Retires, and (3) state whether the Participant shall receive such
distribution in a lump sum or installments of Comerica Stock. Any Incentive Award deferred under
the Plan by the Committee shall be deemed 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 Corporation 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 Corporation 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
Participants estate upon his or her death.
F. Subsequent Elections. If a Participant wishes to extend a deferral period to a
later date, or make a change in the method of payment with respect to Incentive Awards deferred
after December 31, 2004, he or she may do so provided that such a subsequent
deferral election (1) may not be made less than 12 months prior to the date of such
Participants first scheduled payment; and (2) will extend the deferral period for a minimum of 5
years from the date that each such payment would have otherwise have been made to such Participant
(except in the case of death, Disability or an Unforeseeable Emergency). Furthermore, a Participant
may extend a deferral period to a later date, or make a change
III-3
in the method of payment with
respect to Incentive Awards deferred prior December 31, 2004, only to the extent allowed by Code
Section 409A and any interpretive authorities promulgated thereunder.
III-4
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 Participants deferral election would otherwise be paid
to the Participant, the Plan Administrator shall credit the Incentive Award being deferred to the
Participants Account. From time to time, at intervals to be determined by the Committee, each
Participants 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 hypothetically 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 Participants
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 Participants Account, and any earnings and dividends thereon shall
be deemed invested in Comerica Stock.
The Corporation 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 the Corporation, and will remain the sole
property of the Corporation, except to the extent held in a Trust.
IV-1
C. Contribution of Incentive Award Deferrals to Trust. In the sole discretion of the
Corporation, all or any portion of the Incentive Award Deferrals credited to any Participants
Account may be contributed to a Trust established by the Corporation in connection with the Plan.
No Participant or Beneficiary shall have the right to direct or require that the Corporation
contribute the Participants 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 individuals
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 the Corporation to any Account in the name of
any Participant shall at all times remain with the Corporation, and no Participant or Beneficiary
shall have any property interest whatsoever in any specific assets of the Corporation 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 the Corporations 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 Participants Employer to pay benefits under
the Plan, and the status of any Participant or Beneficiary shall be that of an unsecured general creditor of the
IV-2
Corporation. Participants
and Beneficiaries shall not be deemed to be parties to any trust agreement the Corporation 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 Participants Beneficiary as follows:
(1) Employment Through Deferral Period. If the Participants employment with an
Employer continues until the last day of the Deferral Period, the Corporation 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 Participants Irrevocable
Election Form: (i) a single sum; (ii) five (5) annual installments; (iii) ten (10) annual
installments; or (iv) fifteen (15) annual installments. Notwithstanding the preceding sentence, in
the case of a Specified Employee, distributions may not be made until at least six months after the
date of such Specified Employees Retirement (or, if earlier, the date of death of the Specified
Employee) to the extent that it complies with Code Section 409A and any interpretive authorities
promulgated thereunder.
(2) Termination Prior to End of Deferral Period. If the Participants employment with
the Employer terminates prior to the last day of the Deferral Period (unless such termination is
due to the Participants Disability), then notwithstanding the manner of distribution selected by
the Participant, the Corporation shall distribute (or direct the Trustee to distribute) Comerica
Stock to the Participant or to the Participants Beneficiary in a single distribution as soon as is
administratively feasible following the Participants termination date. Notwithstanding the
preceding sentence, in the case of a Specified Employee, distributions may not be made until
at least six months after the date of such
V-1
Specified Employees termination (or, if earlier, the
date of death of such Specified Employee). Notwithstanding the acceleration of payment as
described in this subparagraph V(A)(2), such acceleration will only be permitted to the extent that
it complies with Code Section 409A and any interpretive authorities promulgated thereunder.
If the Participants 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 Participants
Irrevocable Election Form.
(3) Death of Participant Prior to End of Installment Distribution Period. If the
Participant dies before a distribution of all the Comerica Stock is made, then the remaining
Comerica Stock certificates in such Participants Account shall be distributed to the Participants
Beneficiary, in a lump sum, as soon as is administratively feasible following the date of the
Participants death. Notwithstanding the acceleration of payment as described in this subparagraph
V(A)(3), such acceleration will only be permitted to the extent that it complies with Code Section
409A and any interpretive authorities promulgated thereunder.
(4) Hardship Distributions/Cancellation of Deferral Election. In the event of an
Unforeseeable Emergency involving a Participant, the Committee may, in its sole discretion:
(a) make a single distribution of Comerica Stock, to the Participant from the Participants
Account not to exceed the amount sufficient to cover the emergency, plus amounts necessary to pay
the taxes anticipated as a result of the distribution. The amount
V-2
distributed must take into
account the extent to which the hardship is or may be relieved through reimbursement or
compensation by insurance or otherwise or by liquidation of the Participants assets (to the extent
the liquidation of such assets would not itself cause severe financial hardship); and/or
(b) 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. Notwithstanding the cancellation
of future deferral elections as described in this subparagraph V(A)(4)(b), such cancellation will
only be permitted to the extent that it complies with Code Section 409A and any interpretive
authorities promulgated thereunder.
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 estimated amount of Account distribution, 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 Code Section 409A and any interpretive
authorities promulgated thereunder. 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, assuming the foregoing provision complies with Code Section 409A and any interpretive
V-3
authorities promulgated thereunder.
If a Participant receives a hardship distribution under this Article V(A)(4) and/or under the
Comerica Incorporated Preferred Savings Plan, the Participants deferral election hereunder shall
be automatically canceled to the extent it would defer the Participants receipt of any Incentive
Award earned during the twelve-month period following the date of the Participants 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. Notwithstanding a Participants receipt of a hardship distribution or the
cancellation of future deferral elections as described in this subparagraph V(A)(4)(b), such
receipt or cancellation will only be permitted to the extent that it complies with Code Section
409A and any interpretive authorities promulgated thereunder.
(5) Stock Distributions. If, at the time an installment distribution of a
Participants 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. For
amounts deferred after December 31, 2004, the acceleration of payment as described in this
subparagraph V(A)(5), such acceleration will only be permitted to the extent that it complies with
Code Section 409A and any interpretive authorities promulgated thereunder.
(6) Change in Control. Upon the occurrence of a Change in Control, the
V-4
remaining
Comerica Stock certificates in a Specified Employees Account, shall be distributed to the
Specified Employee, in a lump sum, as soon as is administratively feasible following the date of
such Specified Employees termination after a Change in Control; however, a distribution upon a
Change in Control will not occur if the Specified Employee remains employed with the surviving
entity 60 days after the date of the Change in Control. Notwithstanding the acceleration of
payment as described in this subparagraph V(A)(6), such acceleration will only be permitted to the
extent that it complies with Code Section 409A and any interpretive authorities promulgated
thereunder. Notwithstanding anything to the contrary in this subparagraph V(A)(6), the
acceleration following a Change in Control provided for herein only applies to Incentive Awards
deferred after December 31, 2004.
B. Designation of Beneficiary. A Participant shall deliver to the Corporation 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.
(1) Beneficiary Designation Must be Filed Prior to Participants Death. No
designation of Beneficiary, and no amendment or revocation thereof, shall become effective if
delivered to the Corporation after such Participants 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 Participants estate.
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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 to
the extent that such termination or amendment complies with applicable laws including Code Section
409A and any interpretive authorities promulgated thereunder. No such amendment shall affect the
time of distribution of any of the Incentive Awards 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, the Corporation 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 Participants employment with an Employer
terminated at the time of termination of the Plan. In addition, no such amendment shall make the
Trust revocable.
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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.
D. Noncompliance. Incentive Awards deferred for a Participant under any Account
Balance Plan for the taxable year and all preceding years in which any such Account Balance Plan,
with respect to that Participant, fails to meet the requirements, or fails to be operated in
accordance with applicable laws, are includible in gross income for the taxable year they were
earned to the extent they are not subject to a substantial risk of forfeiture and pursuant with
Code Section 409A and any interpretive authorities promulgated thereunder. The income tax will be
calculated from the time a Participant first became eligible in a defective plan, or from the time
the plan failed to comply, adding a late fee using the appropriate late income tax payment interest
factor, plus 1%. A 20% excise tax will also be assessed. The Corporation intends to operate the
Plan in accordance with all applicable laws, but in the event that any Account Balance Plan fails
to meet the requirements or fails to be operated in accordance with applicable laws, the
Corporation will not be responsible for any assessment of income tax, late fee, and/or excise tax. Such
amounts will be the responsibility of each affected Participant and shall be deducted from
Accounts.
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ARTICLE VIII
MISCELLANEOUS PROVISIONS
A. Vesting. 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 Employers right to discharge any Participant for any reason or
for no reason.
D. Successors Bound. The contractual agreement between the Corporation and each
Participant resulting from the execution of an Irrevocable 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 Participants heirs, executors, administrators and other legal representatives.
E. Prohibition Against Loans. The Participant may not borrow any Incentive Award
Deferrals from the Corporation 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). This includes the power and authority to
comply with the withholding and reporting requirements of Code Section 409A and interpretive
authorities promulgated thereunder. 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 and also in
accordance with Code Section 409A and any interpretive authorities promulgated thereunder. It is
the intention of the Corporation 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. Compliance & Severability. It is the Corporations intent to comply with all
applicable tax and other laws, including Code Section 409A and any interpretive authorities
promulgated thereunder, so that all rights under the Plan will be limited as necessary in the
judgment of the Committee to conform therewith. Therefore, consistent with the effectuation of the
purposes hereof, 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.
J. 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.
K. Effective Date. The effective date of this amendment and restatement shall be
January 1, 2005 except as otherwise expressly stated herein.
VIII-3
EX-13
4
k92690exv13.htm
INCORPORATED SECTIONS OF 2004 ANNUAL REPORT TO SHAREHOLDERS
exv13
Exhibit 13
FINANCIAL REVIEW AND REPORTS
Comerica Incorporated and
Subsidiaries
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Financial Results and Key Corporate Initiatives
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23 |
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Overview/Earnings Performance
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23 |
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Strategic Lines of Business
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35 |
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Balance Sheet and Capital Funds Analysis
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37 |
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Risk Management
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42 |
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Critical Accounting Policies
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54 |
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Consolidated Financial Statements:
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Consolidated Balance Sheets
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|
|
60 |
|
|
Consolidated Statements of Income
|
|
|
61 |
|
|
Consolidated Statements of Changes in
Shareholders Equity
|
|
|
62 |
|
|
Consolidated Statements of Cash Flows
|
|
|
63 |
|
Notes to Consolidated Financial Statements
|
|
|
64 |
|
Report of Management
|
|
|
114 |
|
Reports of Independent Registered Public
Accounting Firm
|
|
|
115 |
|
Historical Review
|
|
|
117 |
|
21
TABLE 1: SELECTED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions, except per share data) | |
EARNINGS SUMMARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$ |
2,237 |
|
|
$ |
2,412 |
|
|
$ |
2,797 |
|
|
$ |
3,393 |
|
|
$ |
3,716 |
|
Net interest income
|
|
|
1,810 |
|
|
|
1,926 |
|
|
|
2,132 |
|
|
|
2,102 |
|
|
|
2,004 |
|
Provision for loan losses
|
|
|
64 |
|
|
|
377 |
|
|
|
635 |
|
|
|
241 |
|
|
|
251 |
|
Net securities gains
|
|
|
|
|
|
|
50 |
|
|
|
41 |
|
|
|
20 |
|
|
|
16 |
|
Noninterest income (excluding net securities
gains)
|
|
|
857 |
|
|
|
837 |
|
|
|
859 |
|
|
|
817 |
|
|
|
964 |
|
Noninterest expenses
|
|
|
1,493 |
|
|
|
1,483 |
|
|
|
1,515 |
|
|
|
1,587 |
|
|
|
1,511 |
|
Provision for income taxes
|
|
|
353 |
|
|
|
292 |
|
|
|
281 |
|
|
|
401 |
|
|
|
431 |
|
Net income
|
|
|
757 |
|
|
|
661 |
|
|
|
601 |
|
|
|
710 |
|
|
|
791 |
|
PER SHARE OF COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income
|
|
$ |
4.41 |
|
|
$ |
3.78 |
|
|
$ |
3.43 |
|
|
$ |
3.93 |
|
|
$ |
4.38 |
|
Diluted net income
|
|
|
4.36 |
|
|
|
3.75 |
|
|
|
3.40 |
|
|
|
3.88 |
|
|
|
4.31 |
|
Cash dividends declared
|
|
|
2.08 |
|
|
|
2.00 |
|
|
|
1.92 |
|
|
|
1.76 |
|
|
|
1.60 |
|
Common shareholders equity
|
|
|
29.94 |
|
|
|
29.20 |
|
|
|
28.31 |
|
|
|
27.17 |
|
|
|
23.98 |
|
Market value
|
|
|
61.02 |
|
|
|
56.06 |
|
|
|
43.24 |
|
|
|
57.30 |
|
|
|
59.38 |
|
YEAR-END BALANCES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
51,766 |
|
|
$ |
52,592 |
|
|
$ |
53,301 |
|
|
$ |
50,750 |
|
|
$ |
49,557 |
|
Total earning assets
|
|
|
48,016 |
|
|
|
48,804 |
|
|
|
47,780 |
|
|
|
46,566 |
|
|
|
45,791 |
|
Total loans
|
|
|
40,843 |
|
|
|
40,302 |
|
|
|
42,281 |
|
|
|
41,196 |
|
|
|
40,170 |
|
Total deposits
|
|
|
40,936 |
|
|
|
41,463 |
|
|
|
41,775 |
|
|
|
37,570 |
|
|
|
33,854 |
|
Total borrowings
|
|
|
4,479 |
|
|
|
5,063 |
|
|
|
5,756 |
|
|
|
7,489 |
|
|
|
10,353 |
|
Total medium- and long-term debt
|
|
|
4,286 |
|
|
|
4,801 |
|
|
|
5,216 |
|
|
|
5,503 |
|
|
|
8,259 |
|
Total common shareholders equity
|
|
|
5,105 |
|
|
|
5,110 |
|
|
|
4,947 |
|
|
|
4,807 |
|
|
|
4,250 |
|
DAILY AVERAGE BALANCES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
50,948 |
|
|
$ |
52,980 |
|
|
$ |
51,130 |
|
|
$ |
49,688 |
|
|
$ |
46,877 |
|
Total earning assets
|
|
|
46,975 |
|
|
|
48,841 |
|
|
|
47,053 |
|
|
|
45,722 |
|
|
|
43,364 |
|
Total loans
|
|
|
40,733 |
|
|
|
42,370 |
|
|
|
42,091 |
|
|
|
41,371 |
|
|
|
38,698 |
|
Total deposits
|
|
|
40,145 |
|
|
|
41,519 |
|
|
|
37,712 |
|
|
|
35,312 |
|
|
|
30,340 |
|
Total borrowings
|
|
|
4,815 |
|
|
|
5,624 |
|
|
|
7,725 |
|
|
|
8,782 |
|
|
|
11,621 |
|
Total medium- and long-term debt
|
|
|
4,540 |
|
|
|
5,074 |
|
|
|
5,763 |
|
|
|
6,198 |
|
|
|
8,298 |
|
Total common shareholders equity
|
|
|
5,041 |
|
|
|
5,033 |
|
|
|
4,884 |
|
|
|
4,605 |
|
|
|
3,963 |
|
CREDIT QUALITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$ |
673 |
|
|
$ |
803 |
|
|
$ |
791 |
|
|
$ |
637 |
|
|
$ |
585 |
|
Total nonperforming assets
|
|
|
339 |
|
|
|
538 |
|
|
|
579 |
|
|
|
627 |
|
|
|
339 |
|
Net loans charged-off
|
|
|
194 |
|
|
|
365 |
|
|
|
481 |
|
|
|
189 |
|
|
|
195 |
|
Net loans charged-off as a percentage of average
total loans
|
|
|
0.48 |
% |
|
|
0.86 |
% |
|
|
1.14 |
% |
|
|
0.46 |
% |
|
|
0.50 |
% |
Allowance for loan losses as a percentage of
total period-end loans
|
|
|
1.65 |
|
|
|
1.99 |
|
|
|
1.87 |
|
|
|
1.55 |
|
|
|
1.46 |
|
Allowance for loan losses as a percentage of
total nonperforming assets
|
|
|
198 |
|
|
|
149 |
|
|
|
136 |
|
|
|
102 |
|
|
|
172 |
|
RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
3.86 |
% |
|
|
3.95 |
% |
|
|
4.55 |
% |
|
|
4.61 |
% |
|
|
4.63 |
% |
Return on average assets
|
|
|
1.49 |
|
|
|
1.25 |
|
|
|
1.18 |
|
|
|
1.43 |
|
|
|
1.69 |
|
Return on average common shareholders equity
|
|
|
15.03 |
|
|
|
13.12 |
|
|
|
12.31 |
|
|
|
15.16 |
|
|
|
19.52 |
|
Efficiency ratio
|
|
|
55.90 |
|
|
|
53.64 |
|
|
|
50.59 |
|
|
|
54.30 |
|
|
|
50.88 |
|
Dividend payout ratio
|
|
|
47.71 |
|
|
|
53.33 |
|
|
|
56.47 |
|
|
|
45.36 |
|
|
|
37.12 |
|
Average common shareholders equity as a
percentage of average assets
|
|
|
9.90 |
|
|
|
9.50 |
|
|
|
9.55 |
|
|
|
9.27 |
|
|
|
8.45 |
|
Tier 1 common capital as a percentage of
risk-weighted assets
|
|
|
8.13 |
|
|
|
8.04 |
|
|
|
7.39 |
|
|
|
7.30 |
|
|
|
6.80 |
|
22
2004 FINANCIAL RESULTS AND KEY CORPORATE
INITIATIVES
|
|
|
|
|
Reported net income of $757 million, or
$4.36 per diluted share, compared to $661 million, or $3.75
per diluted share, for 2003
|
|
|
|
Returned 15.03 percent on average common
shareholders equity and 1.49 percent on average assets
|
|
|
|
Raised the quarterly cash dividend four percent,
to $0.52 per share, an annual rate of $2.08 per share, for an
annual dividend payout ratio of 48 percent
|
|
|
|
Repurchased 6.5 million shares of
outstanding common stock
|
|
|
|
Experienced growth between June 30 and
December 31 of $744 million in loans and
$1.8 billion in unused commitments to extend credit
|
|
|
|
Continued improvement in credit quality resulting
in a $171 million decline in net chargeoffs and a
$1.0 billion decline in total nonaccrual and watch list
loans
|
|
|
|
Key Corporate Initiatives |
|
|
|
|
|
Continued organic growth, including the opening
of 17 new branches in 2004; branch expansion in 2005 is expected
to be comparable to 2004
|
|
|
|
Strengthened and built relationships by providing
customers convenient access to all Comerica products and
services across all regions and platforms; completed systems
conversions allowing customers to conduct transactions
nationwide and standardized deposit products to better serve
customers
|
|
|
|
Increased corporate awareness of Connectivity, a
national initiative of building successful customer
relationships through cross-selling
|
|
|
|
Focused on diversity by establishing it as a core
value of the Corporation and creating a position to be
responsible for defining and driving business strategies that
establish Comerica as a leader in diversity practices
|
|
|
|
Refined the enterprise-wide risk management
program and continued to improve upon the analytics and systems
to enhance credit and operational risk management
|
|
|
|
Held noninterest expenses, excluding severance
expense, flat in 2004 compared to 2003
|
|
|
|
Continued commitment to strong corporate
governance as evidenced by the Corporations report on
internal controls over financial reporting
|
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 U.S. generally accepted accounting
principles and prevailing practices within the banking industry.
The Corporations consolidated financial statements are
prepared based on the application of accounting policies, the
most significant of which are described on page 64 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 54 of this financial review.
The Corporations 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 Corporations four
primary geographic markets: Midwest and Other Markets, Western,
Texas and Florida.
As a financial institution, Comericas
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, Comericas secondary
source of revenue. Growth in loans, deposits and noninter-
23
est income are affected by many factors,
including the economic growth in the markets Comerica serves,
the financial requirements and health of customers, which
influence Comericas ability to identify and 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 the first half of 2004
resulted in declines in both loan balances and unused
commitments to extend credit. These declines were more than
offset by growth experienced in the second half of the year.
Average loans in Comericas Private Banking and National
Dealer Services loan portfolios increased by nine percent and
six percent, respectively, in 2004, when compared to 2003. These
increases, however, were offset by declines in other loan
portfolios, as well as decisions 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 21 percent
in 2004. Average loans in the Commercial Real Estate loan
portfolio also decreased 10 percent in 2004. Average
deposits decreased three percent, with a majority of the
decrease attributable to certificates of deposit issued through
brokers or to institutional investors, which matured and were
not replaced. Low interest rates and narrow interest spreads
during 2004 contributed to declining net interest income in
2004. Noninterest income, excluding net securities gains,
increased two percent in 2004 compared to 2003.
The Corporations 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. Loan quality showed continued improvement
during 2004, with improving credit quality trends resulting in a
significant decline in both net charge-offs and total
nonperforming assets in 2004 when compared to 2003. The tools
developed in 2003 and 2004 for evaluating the adequacy of the
allowance for loan losses, and the resulting information gained
from these processes, continue to help the Corporation gain
operational efficiencies and reduce expenses in the credit area.
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. Excluding severance expenses,
noninterest expenses in 2004 remained flat compared to 2003
levels. Full-time equivalent employees declined by approximately
300 employees from year end 2003 to year end 2004.
A majority of the Corporations revenues are
generated by the Business Bank segment, making the Corporation
highly sensitive to changes in the business environment in its
primary geographic markets. To facilitate better balance among
business segments, the Corporation opened 17 branches in 2004
and plans to continue branch expansion in markets with favorable
demographics. As part of this effort, the Corporation
standardized product platforms and delivery systems in all
regions, and established a national branding and marketing
program, thus making the customer experience seamless across all
markets. This will provide opportunity for targeted growth in
the Small Business and Personal Financial Services and the
Wealth and Institutional Management segments as the Corporation
penetrates existing relationships through cross-selling.
For 2005, management expects the following
compared to 2004:
|
|
|
|
|
average loan growth in the low to mid-single
digit range
|
|
|
|
average earning assets unchanged, with a decline
in short-term investments funding expected loan growth
|
|
|
|
net interest margin approximately four percent
|
|
|
|
low single digit growth in non-interest income
and expenses
|
|
|
|
stable credit quality with net charge-offs to
average loans of approximately 35-40 basis points.
|
24
TABLE 2: ANALYSIS OF NET INTEREST INCOME-Fully
Taxable Equivalent (FTE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
Average | |
|
|
|
Average | |
|
Average | |
|
|
|
Average | |
|
Average | |
|
|
|
Average | |
|
|
Balance | |
|
Interest | |
|
Rate | |
|
Balance | |
|
Interest | |
|
Rate | |
|
Balance | |
|
Interest | |
|
Rate | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Commercial loans
|
|
$ |
22,139 |
|
|
$ |
933 |
|
|
|
4.22 |
% |
|
$ |
23,764 |
|
|
$ |
978 |
|
|
|
4.11 |
% |
|
$ |
24,266 |
|
|
$ |
1,135 |
|
|
|
4.67 |
% |
Real estate construction loans
|
|
|
3,264 |
|
|
|
177 |
|
|
|
5.43 |
|
|
|
3,540 |
|
|
|
178 |
|
|
|
5.04 |
|
|
|
3,353 |
|
|
|
193 |
|
|
|
5.74 |
|
Commercial mortgage loans
|
|
|
7,991 |
|
|
|
415 |
|
|
|
5.19 |
|
|
|
7,521 |
|
|
|
403 |
|
|
|
5.35 |
|
|
|
6,786 |
|
|
|
416 |
|
|
|
6.12 |
|
Residential mortgage loans
|
|
|
1,237 |
|
|
|
70 |
|
|
|
5.68 |
|
|
|
1,192 |
|
|
|
73 |
|
|
|
6.12 |
|
|
|
1,101 |
|
|
|
76 |
|
|
|
6.88 |
|
Consumer loans
|
|
|
2,668 |
|
|
|
126 |
|
|
|
4.73 |
|
|
|
2,474 |
|
|
|
122 |
|
|
|
4.94 |
|
|
|
2,355 |
|
|
|
139 |
|
|
|
5.94 |
|
Lease financing
|
|
|
1,272 |
|
|
|
52 |
|
|
|
4.06 |
|
|
|
1,283 |
|
|
|
59 |
|
|
|
4.59 |
|
|
|
1,242 |
|
|
|
67 |
|
|
|
5.37 |
|
International loans
|
|
|
2,162 |
|
|
|
102 |
|
|
|
4.69 |
|
|
|
2,596 |
|
|
|
115 |
|
|
|
4.44 |
|
|
|
2,988 |
|
|
|
140 |
|
|
|
4.70 |
|
Business loan swap income(1)
|
|
|
|
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
285 |
|
|
|
|
|
|
|
|
|
|
|
361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans(2)
|
|
|
40,733 |
|
|
|
2,057 |
|
|
|
5.05 |
|
|
|
42,370 |
|
|
|
2,213 |
|
|
|
5.22 |
|
|
|
42,091 |
|
|
|
2,527 |
|
|
|
6.00 |
|
Investment securities
available-for-sale(3)
|
|
|
4,321 |
|
|
|
147 |
|
|
|
3.36 |
|
|
|
4,529 |
|
|
|
166 |
|
|
|
3.65 |
|
|
|
4,360 |
|
|
|
247 |
|
|
|
5.74 |
|
Short-term investments
|
|
|
1,921 |
|
|
|
36 |
|
|
|
1.88 |
|
|
|
1,942 |
|
|
|
36 |
|
|
|
1.85 |
|
|
|
602 |
|
|
|
27 |
|
|
|
4.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
46,975 |
|
|
|
2,240 |
|
|
|
4.76 |
|
|
|
48,841 |
|
|
|
2,415 |
|
|
|
4.94 |
|
|
|
47,053 |
|
|
|
2,801 |
|
|
|
5.96 |
|
Cash and due from banks
|
|
|
1,685 |
|
|
|
|
|
|
|
|
|
|
|
1,811 |
|
|
|
|
|
|
|
|
|
|
|
1,800 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(787 |
) |
|
|
|
|
|
|
|
|
|
|
(831 |
) |
|
|
|
|
|
|
|
|
|
|
(739 |
) |
|
|
|
|
|
|
|
|
Accrued income and other assets
|
|
|
3,075 |
|
|
|
|
|
|
|
|
|
|
|
3,159 |
|
|
|
|
|
|
|
|
|
|
|
3,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
50,948 |
|
|
|
|
|
|
|
|
|
|
$ |
52,980 |
|
|
|
|
|
|
|
|
|
|
$ |
51,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market and NOW deposits
|
|
$ |
17,768 |
|
|
|
188 |
|
|
|
1.06 |
|
|
$ |
17,359 |
|
|
|
204 |
|
|
|
1.18 |
|
|
$ |
13,081 |
|
|
|
192 |
|
|
|
1.47 |
|
Savings deposits
|
|
|
1,629 |
|
|
|
6 |
|
|
|
0.39 |
|
|
|
1,571 |
|
|
|
8 |
|
|
|
0.50 |
|
|
|
1,643 |
|
|
|
16 |
|
|
|
1.01 |
|
Certificates of deposit(1)(4)
|
|
|
5,962 |
|
|
|
104 |
|
|
|
1.74 |
|
|
|
8,061 |
|
|
|
139 |
|
|
|
1.72 |
|
|
|
10,376 |
|
|
|
245 |
|
|
|
2.36 |
|
Foreign office time deposits(5)
|
|
|
664 |
|
|
|
17 |
|
|
|
2.60 |
|
|
|
618 |
|
|
|
19 |
|
|
|
3.15 |
|
|
|
771 |
|
|
|
26 |
|
|
|
3.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
26,023 |
|
|
|
315 |
|
|
|
1.21 |
|
|
|
27,609 |
|
|
|
370 |
|
|
|
1.34 |
|
|
|
25,871 |
|
|
|
479 |
|
|
|
1.85 |
|
Short-term borrowings
|
|
|
275 |
|
|
|
4 |
|
|
|
1.25 |
|
|
|
550 |
|
|
|
7 |
|
|
|
1.20 |
|
|
|
1,962 |
|
|
|
37 |
|
|
|
1.85 |
|
Medium- and long-term debt(1)(4)
|
|
|
4,540 |
|
|
|
108 |
|
|
|
2.39 |
|
|
|
5,074 |
|
|
|
109 |
|
|
|
2.14 |
|
|
|
5,763 |
|
|
|
149 |
|
|
|
2.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing sources
|
|
|
30,838 |
|
|
|
427 |
|
|
|
1.38 |
|
|
|
33,233 |
|
|
|
486 |
|
|
|
1.46 |
|
|
|
33,596 |
|
|
|
665 |
|
|
|
1.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
|
14,122 |
|
|
|
|
|
|
|
|
|
|
|
13,910 |
|
|
|
|
|
|
|
|
|
|
|
11,841 |
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
|
947 |
|
|
|
|
|
|
|
|
|
|
|
804 |
|
|
|
|
|
|
|
|
|
|
|
809 |
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
5,041 |
|
|
|
|
|
|
|
|
|
|
|
5,033 |
|
|
|
|
|
|
|
|
|
|
|
4,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
50,948 |
|
|
|
|
|
|
|
|
|
|
$ |
52,980 |
|
|
|
|
|
|
|
|
|
|
$ |
51,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/rate spread
(FTE)
|
|
|
|
|
|
$ |
1,813 |
|
|
|
3.38 |
|
|
|
|
|
|
$ |
1,929 |
|
|
|
3.48 |
|
|
|
|
|
|
$ |
2,136 |
|
|
|
3.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTE adjustment(6)
|
|
|
|
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of net noninterest-bearing sources of funds
|
|
|
|
|
|
|
|
|
|
|
0.48 |
|
|
|
|
|
|
|
|
|
|
|
0.47 |
|
|
|
|
|
|
|
|
|
|
|
0.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (as a percentage of average
earning assets) (FTE)
|
|
|
|
|
|
|
|
|
|
|
3.86 |
% |
|
|
|
|
|
|
|
|
|
|
3.95 |
% |
|
|
|
|
|
|
|
|
|
|
4.55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The gain or loss attributable to the effective
portion of cash flow hedges of loans is shown in Business
loan swap income. The gain or loss attributable to the
effective portion of fair value hedges of deposits and medium-
and long-term debt, which totaled a net gain of $97 million
in 2004, is included in the related interest expense line items.
|
|
(2) |
Nonaccrual loans are included in average balances
reported and are used to calculate rates.
|
|
(3) |
Average rate based on average historical cost.
|
|
(4) |
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.
|
|
(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%.
|
25
TABLE 3: RATE-VOLUME ANALYSIS-Fully Taxable
Equivalent (FTE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 / 2003 | |
|
2003 / 2002 | |
|
|
| |
|
| |
|
|
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
|
|
$ |
24 |
|
|
$ |
(69 |
) |
|
$ |
(45 |
) |
|
$ |
(136 |
) |
|
$ |
(21 |
) |
|
$ |
(157 |
) |
|
Real estate construction loans
|
|
|
14 |
|
|
|
(15 |
) |
|
|
(1 |
) |
|
|
(24 |
) |
|
|
9 |
|
|
|
(15 |
) |
|
Commercial mortgage loans
|
|
|
(12 |
) |
|
|
24 |
|
|
|
12 |
|
|
|
(52 |
) |
|
|
39 |
|
|
|
(13 |
) |
|
Residential mortgage loans
|
|
|
(6 |
) |
|
|
3 |
|
|
|
(3 |
) |
|
|
(8 |
) |
|
|
5 |
|
|
|
(3 |
) |
|
Consumer loans
|
|
|
(5 |
) |
|
|
9 |
|
|
|
4 |
|
|
|
(23 |
) |
|
|
6 |
|
|
|
(17 |
) |
|
Lease financing
|
|
|
(7 |
) |
|
|
|
|
|
|
(7 |
) |
|
|
(10 |
) |
|
|
2 |
|
|
|
(8 |
) |
|
International loans
|
|
|
7 |
|
|
|
(20 |
) |
|
|
(13 |
) |
|
|
(8 |
) |
|
|
(17 |
) |
|
|
(25 |
) |
|
Business loan swap income (expense)
|
|
|
(103 |
) |
|
|
|
|
|
|
(103 |
) |
|
|
(76 |
) |
|
|
|
|
|
|
(76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
(88 |
) |
|
|
(68 |
) |
|
|
(156 |
) |
|
|
(337 |
) |
|
|
23 |
|
|
|
(314 |
) |
Investment securities
|
|
|
(12 |
) |
|
|
(7 |
) |
|
|
(19 |
) |
|
|
(87 |
) |
|
|
6 |
|
|
|
(81 |
) |
Short-term investments
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
13 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income (FTE)
|
|
|
(95 |
) |
|
|
(80 |
) |
|
|
(175 |
) |
|
|
(428 |
) |
|
|
42 |
|
|
|
(386 |
) |
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market and NOW deposits
|
|
|
(21 |
) |
|
|
5 |
|
|
|
(16 |
) |
|
|
(38 |
) |
|
|
50 |
|
|
|
12 |
|
|
Savings deposits
|
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
(8 |
) |
|
Certificates of deposit
|
|
|
2 |
|
|
|
(37 |
) |
|
|
(35 |
) |
|
|
(66 |
) |
|
|
(40 |
) |
|
|
(106 |
) |
|
Foreign office time deposits
|
|
|
(3 |
) |
|
|
1 |
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(5 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
(24 |
) |
|
|
(31 |
) |
|
|
(55 |
) |
|
|
(114 |
) |
|
|
5 |
|
|
|
(109 |
) |
Short-term borrowings
|
|
|
|
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(13 |
) |
|
|
(17 |
) |
|
|
(30 |
) |
Medium- and long-term debt
|
|
|
12 |
|
|
|
(13 |
) |
|
|
(1 |
) |
|
|
(25 |
) |
|
|
(15 |
) |
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
(12 |
) |
|
|
(47 |
) |
|
|
(59 |
) |
|
|
(152 |
) |
|
|
(27 |
) |
|
|
(179 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (FTE)
|
|
$ |
(83 |
) |
|
$ |
(33 |
) |
|
$ |
(116 |
) |
|
$ |
(276 |
) |
|
$ |
69 |
|
|
$ |
(207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
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 68 percent of net revenues in 2004,
compared to 69 percent in 2003 and 70 percent in 2002.
Table 2 on page 25 provides an analysis of net
interest income for the years ended December 31, 2004, 2003
and 2002. 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, 2004 compared to 2003 and
December 31, 2003 compared to 2002.
26
Net interest income (FTE) was
$1.8 billion in 2004, a decrease of $116 million, or six
percent, from 2003. The net interest margin, which is net
interest income (FTE) expressed as a percentage of average
earning assets, decreased to 3.86 percent in 2004 from
3.95 percent in 2003. The declines in net interest income
and net interest margin were the result of the impact of
high-spread interest rate swap maturities and a restructuring of
the investment portfolio in 2003, designed to achieve more
consistent cash flows. Average earning assets decreased
$1.9 billion, or four percent, to $47.0 billion, primarily
as the result of a $1.6 billion decrease in average loans.
The Corporation expects, on average, net interest margin in 2005
to be four percent for the full year.
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 Corporations asset and liability management
policies.
In 2003, net interest income (FTE) was
$1.9 billion, a decrease of $207 million, or
10 percent, from 2002. The net interest margin 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 in late
2002 and 2003, designed to achieve more consistent cash flows;
the impact of high-spread 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 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
Corporations Financial Services Group. A portion of these
deposits was not long-lived, and therefore, invested on a
short-term basis. The spreads on these short-term investments
negatively impacted net interest margin in 2003.
27
TABLE 4: ANALYSIS OF THE ALLOWANCE FOR LOAN
LOSSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Balance at beginning of year
|
|
$ |
803 |
|
|
$ |
791 |
|
|
$ |
637 |
|
|
$ |
585 |
|
|
$ |
529 |
|
Loans charged-off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
201 |
|
|
|
302 |
|
|
|
423 |
|
|
|
198 |
|
|
|
199 |
|
|
|
Real estate construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction business line
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
Commercial mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate business line
|
|
|
4 |
|
|
|
4 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
19 |
|
|
|
18 |
|
|
|
4 |
|
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial mortgage
|
|
|
23 |
|
|
|
22 |
|
|
|
10 |
|
|
|
3 |
|
|
|
1 |
|
|
|
Residential mortgage
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
14 |
|
|
|
11 |
|
|
|
11 |
|
|
|
7 |
|
|
|
12 |
|
|
|
Lease financing
|
|
|
13 |
|
|
|
4 |
|
|
|
9 |
|
|
|
7 |
|
|
|
1 |
|
|
International
|
|
|
14 |
|
|
|
67 |
|
|
|
63 |
|
|
|
15 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans charged-off
|
|
|
268 |
|
|
|
408 |
|
|
|
517 |
|
|
|
232 |
|
|
|
224 |
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
52 |
|
|
|
28 |
|
|
|
27 |
|
|
|
35 |
|
|
|
20 |
|
|
|
Real estate construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage
|
|
|
3 |
|
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
Consumer
|
|
|
2 |
|
|
|
3 |
|
|
|
3 |
|
|
|
5 |
|
|
|
7 |
|
|
|
Lease financing
|
|
|
1 |
|
|
|
|
|
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
International
|
|
|
16 |
|
|
|
11 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
74 |
|
|
|
43 |
|
|
|
36 |
|
|
|
43 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans charged-off
|
|
|
194 |
|
|
|
365 |
|
|
|
481 |
|
|
|
189 |
|
|
|
195 |
|
Provision for loan losses
|
|
|
64 |
|
|
|
377 |
|
|
|
635 |
|
|
|
241 |
|
|
|
251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
673 |
|
|
$ |
803 |
|
|
$ |
791 |
|
|
$ |
637 |
|
|
$ |
585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of allowance for loan losses to total loans
at end of year
|
|
|
1.65 |
% |
|
|
1.99 |
% |
|
|
1.87 |
% |
|
|
1.55 |
% |
|
|
1.46 |
% |
Ratio of net loans charged-off during the year to
average loans outstanding during the year
|
|
|
0.48 |
% |
|
|
0.86 |
% |
|
|
1.14 |
% |
|
|
0.46 |
% |
|
|
0.50 |
% |
Allowance for credit losses on lending-related
commitments*
|
|
$ |
21 |
|
|
$ |
33 |
|
|
$ |
35 |
|
|
$ |
18 |
|
|
$ |
23 |
|
|
|
* |
Included in Accrued expenses and other
liabilities on the consolidated balance sheets.
|
28
TABLE 5: ALLOCATION OF THE ALLOWANCE FOR LOAN
LOSSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Amount | |
|
% | |
|
Amount | |
|
% | |
|
Amount | |
|
% | |
|
Amount | |
|
% | |
|
Amount | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$ |
411 |
|
|
|
54 |
% |
|
$ |
487 |
|
|
|
54 |
% |
|
$ |
476 |
|
|
|
57 |
% |
|
$ |
410 |
|
|
|
58 |
% |
|
$ |
349 |
|
|
|
63 |
% |
|
Real estate construction
|
|
|
23 |
|
|
|
8 |
|
|
|
31 |
|
|
|
8 |
|
|
|
26 |
|
|
|
8 |
|
|
|
17 |
|
|
|
8 |
|
|
|
11 |
|
|
|
7 |
|
|
Commercial mortgage
|
|
|
76 |
|
|
|
20 |
|
|
|
95 |
|
|
|
20 |
|
|
|
86 |
|
|
|
17 |
|
|
|
61 |
|
|
|
15 |
|
|
|
59 |
|
|
|
13 |
|
|
Residential mortgage
|
|
|
2 |
|
|
|
3 |
|
|
|
5 |
|
|
|
3 |
|
|
|
2 |
|
|
|
3 |
|
|
|
1 |
|
|
|
3 |
|
|
|
1 |
|
|
|
3 |
|
|
Consumer
|
|
|
25 |
|
|
|
7 |
|
|
|
27 |
|
|
|
6 |
|
|
|
25 |
|
|
|
6 |
|
|
|
14 |
|
|
|
6 |
|
|
|
11 |
|
|
|
5 |
|
|
Lease financing
|
|
|
44 |
|
|
|
3 |
|
|
|
26 |
|
|
|
3 |
|
|
|
8 |
|
|
|
3 |
|
|
|
9 |
|
|
|
3 |
|
|
|
5 |
|
|
|
3 |
|
International
|
|
|
40 |
|
|
|
5 |
|
|
|
91 |
|
|
|
6 |
|
|
|
130 |
|
|
|
6 |
|
|
|
88 |
|
|
|
7 |
|
|
|
105 |
|
|
|
6 |
|
Unallocated
|
|
|
52 |
|
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
37 |
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
673 |
|
|
|
100 |
% |
|
$ |
803 |
|
|
|
100 |
% |
|
$ |
791 |
|
|
|
100 |
% |
|
$ |
637 |
|
|
|
100 |
% |
|
$ |
585 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount allocated allowance
% loans outstanding as a percentage
of total loans
Provision and Allowance for Loan
Losses
The provision for loan losses reflects
managements evaluation of the adequacy of the allowance
for loan losses. The allowance for loan losses represents
managements assessment of probable losses inherent in the
Corporations 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
Corporations senior management. The Corporation performs a
detailed quarterly credit quality review on both large business
and certain large personal purpose consumer and residential
mortgage 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, retailers, contractors, technology-related,
entertainment, air transportation and healthcare industries,
Small Business Administration loans and certain Latin American
risks. The portion of the allowance allocated to all other
consumer and residential mortgage loans is determined by
applying projected loss ratios to various segments of the loan
portfolio. Projected loss ratios incorporate various factors,
such as recent charge-off experience, current economic
conditions and trends, and trends with respect to past due and
nonaccrual amounts, and are supported by underlying analysis,
including information on migration and loss given default
studies from each geographic market. The total allowance for
loan losses was $673 million at December 31, 2004,
compared to $803 million at December 31, 2003. The
allocated portion of the allowance was $621 million at
December 31, 2004, a decrease of $141 million from
year-end 2003. The decrease in the allocated allowance resulted
primarily from a $1.0 billion decrease in total nonaccrual
and watch list loans at December 31, 2004, as compared to
year-end 2003.
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
managements view that the allowance should recognize the
margin for error inherent in the
29
process of estimating expected loan losses.
Factors that were considered in the evaluation of the adequacy
of the Corporations unallocated allowance include the
imprecision in the risk rating system and the risk associated
with new customer relationships. The unallocated allowance
associated with the margin for imprecision in the risk rating
system is based on a historical evaluation of the accuracy of
the risk ratings associated with loans, while the unallocated
allowance due to new business migration risk is based on an
evaluation of the risk of rating downgrades associated with
loans that do not have a full year of payment history. The
unallocated allowance was $52 million at December 31,
2004, an increase of $11 million from 2003.
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 instability 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
$64 million in 2004, compared to $377 million and
$635 million in 2003 and 2002, respectively. The decrease
in provision for loan losses in 2004 compared to 2003 is
primarily the result of improving credit quality trends, that
reflect improved economic conditions in all of the
Corporations primary geographic regions. The
Corporations largest geographic concentration of credit is
in the Michigan market. Upturns in the Southeast Michigan
Purchasing Management Survey and Michigan Business Activity
Indices began in the fourth quarter of 2003 and accelerated in
the first half of 2004 with positive movement continuing into
the second half of 2004. Forward-looking indicators suggest this
positive movement should continue, but not accelerate, in 2005.
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 Corporations customers, and managements
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 Corporations exposure
in those countries.
Net charge-offs in 2004 were $194 million,
or 0.48 percent of average total loans, compared to
$365 million, or 0.86 percent, in 2003 and $481
million, or 1.14 percent, in 2002. 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 28.
Nonperforming assets at December 31, 2004
were $339 million, as compared to $538 million at
December 31, 2003. During the year, $332 million of
loans with balances greater than $2 million were
transferred to nonaccrual, compared to $660 million in
2003, and $248 million of nonaccrual business loans were
charged-off, compared to $399 million in 2003. The carrying
value of nonaccrual loans as a percentage of contractual value
declined to 54 percent at December 31, 2004 compared to
58 percent at December 31, 2003. 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 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Allowance for loan losses as a percentage of
total loans at end of year
|
|
|
1.65 |
% |
|
|
1.99 |
% |
|
|
1.87 |
% |
Allowance for loan losses as a percentage of
total nonperforming assets at end of year
|
|
|
198 |
|
|
|
149 |
|
|
|
136 |
|
Allowance for loan losses as a percentage of
total net charge-offs for the year
|
|
|
347 |
|
|
|
220 |
|
|
|
164 |
|
30
The allowance for loan losses as a percentage of
total period-end loans decreased to 1.65 percent at
December 31, 2004, from 1.99 percent at December 31,
2003. The allowance for loan losses as a percentage of
nonperforming assets increased to 198 percent at
December 31, 2004, from 149 percent at
December 31, 2003. The decrease in allowance coverage of
total loans and increase in allowance coverage of nonperforming
assets resulted primarily from improved credit quality trends in
2004. The increase in the allowance for loan losses as a
percentage of net charge-offs for the year ended
December 31, 2004, when compared to the prior year,
resulted from lower levels of net charge-offs in 2004.
Management expects stable credit quality in 2005 with full year
average net charge-offs of approximately 35-40 basis points.
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, 2004
and 2003, the allowance for credit losses on lending-related
commitments was $21 million and $33 million,
respectively.
Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Service charges on deposit accounts
|
|
$ |
231 |
|
|
$ |
238 |
|
|
$ |
227 |
|
Fiduciary income
|
|
|
171 |
|
|
|
169 |
|
|
|
171 |
|
Commercial lending fees
|
|
|
55 |
|
|
|
63 |
|
|
|
69 |
|
Letter of credit fees
|
|
|
66 |
|
|
|
65 |
|
|
|
60 |
|
Foreign exchange income
|
|
|
37 |
|
|
|
36 |
|
|
|
38 |
|
Brokerage fees
|
|
|
36 |
|
|
|
34 |
|
|
|
38 |
|
Investment advisory revenue, net
|
|
|
35 |
|
|
|
30 |
|
|
|
27 |
|
Card fees
|
|
|
32 |
|
|
|
27 |
|
|
|
23 |
|
Bank-owned life insurance
|
|
|
34 |
|
|
|
42 |
|
|
|
53 |
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
12 |
|
|
|
6 |
|
|
|
8 |
|
Warrant income
|
|
|
7 |
|
|
|
4 |
|
|
|
5 |
|
Net securities gains
|
|
|
|
|
|
|
50 |
|
|
|
41 |
|
Net gain on sales of businesses
|
|
|
7 |
|
|
|
|
|
|
|
12 |
|
Other noninterest income
|
|
|
134 |
|
|
|
123 |
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
$ |
857 |
|
|
$ |
887 |
|
|
$ |
900 |
|
|
|
|
|
|
|
|
|
|
|
Noninterest income decreased $30 million, or
three percent, to $857 million in 2004, compared to
$887 million in 2003 and decreased $13 million, or one
percent, in 2003, compared to $900 million in 2002. An
analysis of increases and decreases by individual line item is
presented below.
Service charges on deposit accounts decreased
$7 million, or three percent, in 2004 compared to an
increase of $11 million, or five percent, in 2003. The
decrease in 2004 was primarily due to higher earnings credit
allowances provided to business customers and free checking
accounts offered. The increase in 2003 was due to 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 increased $2 million, or
one percent, in 2004 and decreased $2 million, or one
percent, in 2003. Personal and institutional trust fees are the
two major components of fiduciary income. These fees are based
on services provided and assets managed. Fluctuations in the
market values of the underlying assets managed, which include
both equity and fixed income securities, impact fiduciary
income. The increase in 2004 is primarily due to improvements in
equity markets. The income decline in 2003 reflects the effect
that less favorable equity market conditions experienced during
the year had on assets managed.
Commercial lending fees decreased
$8 million, or 13 percent, in 2004 compared to a
decrease of $6 million, or 10 percent, in 2003. The
decline in 2004 was due to a decline in all three of the major
components of commercial lending fees: agent bank fees,
commitment fees in arrears and service charges on
31
commercial loans. The decline in 2003 resulted
primarily from a decrease in agent bank fee income from 2002
levels. Income earned on agent bank fees decreased in both 2004
and 2003 as a result of a decline in the volume of loan
participations that met the Corporations underwriting
standards. The decrease in commitment fees in arrears and
service charges on commercial loans in 2004 was due primarily to
the impact that changes in the customer base had on fees earned.
Letter of credit fees increased $1 million,
or less than one percent, in 2004 compared to an increase of
$5 million, or nine percent, in 2003. The increase in 2003
related to the demand for international trade services from new
and existing Middle Market and National Dealer Services
customers.
Foreign exchange income increased
$1 million, or two percent, in 2004 compared to a decrease
of $2 million, or five percent, in 2003. 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.
Brokerage fees increased $2 million, or
eight percent, to $36 million, in 2004, compared to a
decrease of $4 million, or 12 percent, in 2003.
Brokerage fees include commissions from retail broker
transactions and mutual fund sales and are subject to changes in
the level of market activity. The increase in 2004 was primarily
due to increased transaction volumes as a result of improved
market conditions. Reduced transaction volumes as a result of
market conditions contributed to the decline in 2003.
Investment advisory revenue, which includes
revenue generated by the Corporations asset management
reporting unit (Munder Capital Management or Munder), increased
$5 million, or 16 percent, in 2004, compared to an
increase of $3 million, or 10 percent, in 2003. The
increase in 2004 revenue, when compared to 2003, resulted from
continued market growth. Assets under management at Munder,
which generate both fiduciary income and investment advisory
revenue, totaled $38 billion, $34 billion and
$32 billion at December 31, 2004, 2003 and 2002,
respectively. The increase in 2003 revenue, when compared to
2002, resulted from a 2002 impairment charge of $5 million
on deferred distribution costs. This charge resulted from an
assessment of the recoverability of unamortized commission costs
paid to brokers for selling Class B mutual fund shares.
Card fees, which consist primarily of interchange
fees earned on debit and commercial cards, increased
$5 million, or 20 percent, to $32 million,
compared to $27 million in 2003 and increased
$4 million, or 17 percent, compared to
$23 million in 2002. Growth in 2004 and 2003 is due to an
increase in transaction volume.
Bank-owned life insurance income decreased
$8 million to $34 million in 2004, compared to a
decrease of $11 million to $42 million in 2003. The
decrease in 2004 was primarily due to a decline in earnings and
death benefits received on policies held. The decrease in 2003
resulted primarily from 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.
Equity in earnings of unconsolidated subsidiaries
increased $6 million in 2004, compared to a decrease of
$2 million in 2003. The increase in 2004 was primarily due
to an increase in income from a United Kingdom subsidiary,
Framlington (a London, England based investment manager), of
which Munder is a minority owner. The decrease in 2003 was a
result of the July 1, 2003 adoption of FASB Interpretation
No. 46(R), Consolidation of Variable Interest
Entities (FIN 46(R)), which required the Corporation
to consolidate its interest in The Peninsula Fund Limited
Partnership (PFLP), a venture capital fund. Prior to the
adoption of FIN 46(R), the Corporations 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
Corporations 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 22 to the consolidated financial statements on
pages 64 and 99, respectively.
32
Warrant income was $7 million in 2004
compared to $4 million in 2003 and $5 million in 2002.
The Corporation generally recognizes warrant income when the
warrant positions become marketable as a result of a public
equity offering.
The Corporations net revenue from sales and
write-downs related to its investment securities portfolio was
nominal in 2004. Net gains of $50 million and
$41 million were recognized in 2003 and 2002, respectively.
The significant gains in 2003 and 2002 resulted primarily from a
restructuring of the investment portfolio in late 2002 and 2003,
designed to achieve more consistent cash flows. The 2002 gain
was net of $14 million in write-downs of Argentine
securities recorded in 2002.
The net gain on sales of businesses in 2004
included a net gain of $7 million on the sale of a portion
of the Corporations merchant card processing business,
while the net gain in 2002 included a gain of $12 million
related to the sale of the Corporations Official Payments
Corporation (OPAY) subsidiary.
Other noninterest income increased
$11 million, or eight percent, in 2004 compared to a
decrease of $5 million, or four percent, in 2003. Other
noninterest income in 2004 included $13 million of income
distributions (net of write-downs) recognized on unconsolidated
venture capital and private equity investments, offset by
$3 million of risk management hedge ineffectiveness losses,
and an increase of $7 million in amortization expense on
low income housing investments (netted against noninterest
income), when compared to 2003. Other noninterest income in 2003
included $9 million of write-downs (net of income
distributions) recognized on unconsolidated venture capital and
private equity investments and $3 million of risk
management hedge ineffectiveness losses. Other noninterest
income in 2002 included $10 million of write-downs (net of
income distributions) recognized on unconsolidated venture
capital and private equity investments and $4 million of
cash flow hedge ineffectiveness gains. Other noninterest income
in 2002 also included $5 million of net losses on the sale
of commercial loans held-for-sale. Comparisons of other
noninterest income were impacted by the divestiture of OPAY in
the third quarter of 2002. This divestiture resulted in a
reduction of other noninterest income of $5 million in 2003,
when compared to 2002.
Management expects a low single-digit growth in
noninterest income in 2005 from 2004 levels.
Noninterest Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Salaries
|
|
$ |
760 |
|
|
$ |
736 |
|
|
$ |
699 |
|
Employee benefits
|
|
|
159 |
|
|
|
161 |
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
|
Total salaries and employee benefits
|
|
|
919 |
|
|
|
897 |
|
|
|
844 |
|
Net occupancy expense
|
|
|
125 |
|
|
|
128 |
|
|
|
122 |
|
Equipment expense
|
|
|
58 |
|
|
|
61 |
|
|
|
62 |
|
Outside processing fee expense
|
|
|
68 |
|
|
|
71 |
|
|
|
65 |
|
Software expense
|
|
|
43 |
|
|
|
37 |
|
|
|
33 |
|
Customer services
|
|
|
23 |
|
|
|
25 |
|
|
|
26 |
|
Litigation and operational losses
|
|
|
24 |
|
|
|
18 |
|
|
|
20 |
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
86 |
|
Other noninterest expenses
|
|
|
233 |
|
|
|
246 |
|
|
|
257 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
$ |
1,493 |
|
|
$ |
1,483 |
|
|
$ |
1,515 |
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses increased $10 million,
or less than one percent, to $1,493 million in 2004,
compared to $1,483 million in 2003 and decreased $32
million, or two percent, in 2003, compared to
$1,515 million in 2002. An analysis of increases and
decreases by individual line item is presented below.
Salaries expense increased $24 million, or
three percent, in 2004 versus an increase of $37 million,
or five percent, in 2003. The increase in 2004 was primarily due
to merit increases of approximately $17 million and an
increase of $9 million in severance expense,
$9 million in executive incentives, and $6 million in
stock-based compensation, when compared to 2003. These increases
were partially offset by a full-time equivalent
33
employee reduction in staff size of approximately
300 employees from year end 2003 to year end 2004. The increase
in salaries expense in 2003 from 2002 was primarily due to an
increase of $27 million in business unit and executive
incentives, and approximately $17 million in merit
increases, partially offset by a $5 million decline in
salary expense resulting from the Corporations 2002 sale
of its OPAY subsidiary. Business unit incentives are tied to new
business and business unit profitability, while executive
incentives are tied to peer-based comparisons of corporate
results. Severance expense was $11 million in 2004,
compared to $2 million and $6 million in 2003 and
2002, respectively. For further information on stock-based
compensation, refer to Notes 1 and 15 to the consolidated
financial statements on pages 64 and 83, respectively.
Employee benefits expense decreased
$2 million, or one percent, in 2004 compared to an increase
of $16 million, or 11 percent, in 2003. The decrease
in 2004, when compared to 2003, and the increase in 2003, when
compared to 2002, resulted from changes in pension expense. For
a further discussion of pension expense, refer to Note 16
to the consolidated financial statements on page 85.
Net occupancy and equipment expenses, on a
combined basis, decreased $6 million, or three percent, to
$183 million in 2004, compared to an increase of
$5 million, or three percent, in 2003. The decrease in
2004, when compared to 2003, and the increase in 2003 compared
to 2002, resulted primarily from lease termination costs
associated with the consolidation of Western region facilities
in 2003.
Outside processing fees decreased
$3 million, or five percent, to $68 million in 2004,
from $71 million in 2003 and increased $6 million, or
nine percent, in 2003, compared to $65 million in 2002.
Software expense increased $6 million, or
16 percent, in 2004 compared to an increase of
$4 million, or 12 percent in 2003. The increases in
2004 and 2003 were 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 $2 million, or
10 percent, to $23 million in 2004, from
$25 million in 2003 and decreased $1 million, or four
percent, in 2003, compared to $26 million in 2002. Customer
services represent expenses paid on behalf of customers, and are
one method to attract and retain title and escrow deposits in
the Corporations Financial Services Group.
Litigation and operational losses increased
$6 million, or 30 percent, to $24 million in
2004, from $18 million in 2003 and decreased
$2 million, or 10 percent, in 2003, compared to
$20 million in 2002. Litigation and operational losses
include traditionally defined operating losses, such as fraud or
processing problems, as well as uninsured losses and litigation
losses. These expenses are subject to fluctuation due to timing
of authorized and actual litigation settlements as well as
insurance settlements.
A goodwill impairment charge of $86 million
was recorded in 2002 as a result of the Corporations
evaluation of goodwill. This charge resulted from a decline in
equity markets, and its related impact on the valuation of the
Corporations Munder subsidiary. 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 54 of this financial review
and Note 7 to the consolidated financial statements on
page 75.
Other noninterest expenses decreased
$13 million, or five percent, in 2004 compared to an
$11 million decrease, or four percent, in 2003. The decline
in other noninterest expenses in 2004, when compared to 2003,
was primarily due to an $8 million change in the provision
for credit losses on lending-related commitments, which was a
credit of $11 million in 2004 and a credit of $3 million in
2003. In addition, State of Michigan taxes decreased
$7 million and consulting fees decreased $5 million in
2004 when compared to 2003. These decreases were partially
offset by an increase in interest expense recorded on tax
liabilities of $14 million in 2004, compared to 2003. The
decrease in noninterest expense in 2003, compared to 2002, was
due to a $14 million change in the provision for 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 credit
losses on lending-related commitments, refer to Notes 1 and 20
to the consolidated financial statements on pages 64 and
93, respectively.
Management expects a low-single digit increase in
noninterest expenses while continuing to make important
investments for the Corporations future growth. Included
in this outlook is an incremental $45 million in
34
expenses, compared to 2004; $32 million
related to employee benefits expense, including both stock-based
compensation and pension expense, and $13 million related
to new branches opened in 2004 and 2005.
The Corporations efficiency ratio is
defined as total noninterest expenses divided by the sum of net
interest income (FTE) and noninterest income, excluding net
securities gains. The ratio increased to 55.90 percent in
2004, compared to 53.64 percent in 2003 and
50.59 percent in 2002. The efficiency ratio increased in
2004 and 2003 primarily due to the decline in net revenues from
2003 and 2002 levels.
Income Taxes
The provision for income taxes was
$353 million in 2004, compared to $292 million in 2003 and
$281 million in 2002. The effective tax rate, computed by
dividing the provision for income taxes by income before income
taxes, was 31.8 percent in 2004, 30.7 percent in 2003 and
31.8 percent in 2002. The effective tax rate increase in
2004 from 2003 levels resulted, in part, from foreign tax
credits recognized in 2003 and a decrease in non-taxable revenue
on bank-owned life insurance policies. The effective tax rate
decline in 2003 from 2002 levels resulted, in part, from foreign
tax credits recognized in 2003. The Corporations
$239 million deferred income tax liability at
December 31, 2004 was net of a deferred tax asset of
$402 million, which the Corporations management
believes will 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 2004, 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 Corporations 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 24 to the consolidated
financial statements on page 104 describes the business
activities of each line of business and the methodologies, which
form the basis for these results, and presents financial results
of these businesses for the years ended December 31, 2004,
2003 and 2002.
The following table presents net income
(loss) by line of business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar amounts in millions) | |
Business Bank
|
|
$ |
688 |
|
|
|
73 |
% |
|
$ |
606 |
|
|
|
72 |
% |
|
$ |
511 |
|
|
|
71 |
% |
Small Business and Personal Financial Services
|
|
|
175 |
|
|
|
19 |
|
|
|
178 |
|
|
|
21 |
|
|
|
200 |
|
|
|
28 |
|
Wealth and Institutional Management
|
|
|
76 |
|
|
|
8 |
|
|
|
57 |
|
|
|
7 |
|
|
|
9 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
939 |
|
|
|
100 |
% |
|
|
841 |
|
|
|
100 |
% |
|
|
720 |
|
|
|
100 |
% |
Finance
|
|
|
(158 |
) |
|
|
|
|
|
|
(139 |
) |
|
|
|
|
|
|
(33 |
) |
|
|
|
|
Other
|
|
|
(24 |
) |
|
|
|
|
|
|
(41 |
) |
|
|
|
|
|
|
(86 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
757 |
|
|
|
|
|
|
$ |
661 |
|
|
|
|
|
|
$ |
601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Business Banks net income increased
$82 million, or 14 percent, to $688 million in
2004, compared to an increase of $95 million, or
19 percent, to $606 million in 2003. Contributing to
the 2004 increase was a significant decrease in the provision
for loan losses, partially offset by a significant decline in
net interest income. Net interest income declined
$160 million, or 11 percent, in 2004 primarily due to
a $2.0 billion, or six percent, decline in average loans
and lower funding credits received on deposits and equity. The
provision for loan losses declined $253 million in 2004,
primarily the result of improving credit quality trends as
discussed in the Provision and Allowance for Loan
Losses section of this financial review on page 29. An
35
increase in noninterest income of
$10 million in 2004 was primarily due to a $21 million
increase in income distributions (net of write-downs) from
unconsolidated venture capital and private equity investments
and a $7 million gain on the sale of the Corporations
merchant card processing business, partially offset by an
$8 million decrease in net securities gains, a
$5 million decrease in commercial lending fees and a
$4 million decrease in service charges on deposit accounts.
A decrease in noninterest expenses of $21 million in 2004
was primarily due to a $13 million decline in salaries and
employee benefits expense and a $4 million decrease in the
provision for credit losses on lending-related commitments.
Small Business and Personal Financial
Servicess net income decreased $3 million, or two percent,
to $175 million in 2004, compared to a decrease of $22
million, or 11 percent, to $178 million in 2003. The
decrease in net income in 2004 was from a decline in net
interest income partially offset by a decline in the provision
for loan losses. Net interest income declined $35 million,
or six percent, in 2004 primarily due to lower funding credits
received on deposits and equity. The provision for loan losses
declined $20 million in 2004, primarily the result of
improving credit quality trends. The decline in noninterest
income in 2004 was primarily the result of lower mortgage fees
and the decline in noninterest expenses in 2004 was, in part,
due to a $7 million decrease in mortgage and check
processing expenses and a $4 million decrease in the
provision for credit losses on lending related commitments.
Wealth and Institutional Managements net
income increased $19 million, or 33 percent, to
$76 million in 2004, compared to net income of
$57 million in 2003, and $9 million in 2002. The
increase in net income in 2004 was principally due to a decrease
in the provision for loan losses and an increase in noninterest
income. Net interest income was flat in 2004, in spite of a nine
percent increase in loans due to lower funding credits. The
provision for loan losses declined $22 million in 2004,
primarily the result of improving credit quality trends. A
$12 million increase in noninterest income in 2004 was
primarily due to increases in fiduciary income and investment
advisory fees.
The net loss in the Finance Division was
$158 million in 2004, $139 million in 2003, and
$33 million in 2002. The larger loss in 2004, compared to
2003, was the result of a $42 million decline in gains on
the sales of securities and a lower effective tax benefit,
partially offset by a $67 million increase in net interest
income, resulting primarily from lower funding credits paid to
deposit related businesses on indeterminate life deposits.
The net loss for the Other category was
$24 million in 2004, compared to a net loss of
$41 million in 2003 and $86 million in 2002. The lower
net loss in 2004 was primarily due to an $18 million
decline in the loan loss provision not assigned to the other
segments.
Market Segments
The Corporations management accounting
system also produces market segment results for the
Corporations four primary geographic regions: Midwest and
Other Markets, Western, Texas, and Florida. Note 24 to the
consolidated financial statements on page 104 presents
financial results of these market segments for the years ended
December 31, 2004, 2003 and 2002.
The following table presents net income
(loss) by market segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar amounts in millions) | |
Midwest and Other Markets
|
|
$ |
536 |
|
|
|
57 |
% |
|
$ |
447 |
|
|
|
53 |
% |
|
$ |
326 |
|
|
|
46 |
% |
Western
|
|
|
295 |
|
|
|
31 |
|
|
|
291 |
|
|
|
35 |
|
|
|
290 |
|
|
|
40 |
|
Texas
|
|
|
91 |
|
|
|
10 |
|
|
|
92 |
|
|
|
11 |
|
|
|
88 |
|
|
|
12 |
|
Florida
|
|
|
17 |
|
|
|
2 |
|
|
|
11 |
|
|
|
1 |
|
|
|
16 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
939 |
|
|
|
100 |
% |
|
|
841 |
|
|
|
100 |
% |
|
|
720 |
|
|
|
100 |
% |
Finance and Other Businesses
|
|
|
(182 |
) |
|
|
|
|
|
|
(180 |
) |
|
|
|
|
|
|
(119 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
757 |
|
|
|
|
|
|
$ |
661 |
|
|
|
|
|
|
$ |
601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Midwest and Other Markets net income
increased $89 million, or 20 percent, to $536 million
in 2004, compared to an increase of $121 million, or
37 percent, in 2003. Contributing to the increase in 2004
was a significant decline in the provision for loan losses,
partially offset by a significant decline in net interest
income. Net interest income declined $108 million in 2004
due to a $1.6 billion, or seven percent, decline in average
loans and lower funding credits received on deposits and equity.
The provision for loan losses declined $220 million in
2004, primarily the result of improving credit quality trends as
discussed in the Provision and Allowance for Loan
Losses section of this financial review on page 29.
An increase in noninterest income of $12 million in 2004
was primarily due to a $21 million increase in income
distributions (net of write-downs) from unconsolidated venture
capital and private equity investments, partially offset by a
$10 million decrease in net securities gains. A decrease in
noninterest expenses of $8 million in 2004 was primarily
due to a $10 million decline in the provision for credit
losses on lending-related commitments.
The Western Regions net income increased
$4 million, or one percent, to $295 million in 2004,
compared to an increase of $1 million to $291 million
in 2003. Contributing to the Western Regions modest income
growth in 2004 was a decline in the provision for loan losses,
partially offset by a decline in net interest income. Net
interest income declined $70 million in 2004, primarily due
to lower funding credits paid on deposits and equity. The
provision for loan losses declined $59 million in 2004,
primarily the result of improving credit quality trends.
Noninterest expenses decreased $19 million in 2004, which
included a $9 million decline in salaries and related
employee benefits expense and a $2 million decrease in
customer services expense.
The Texas Regions net income decreased
$1 million, or one percent, to $91 million in 2004,
compared to an increase of $4 million, or five percent, to
$92 million in 2003. The decrease in net income in 2004 was due
to a decrease in net interest income, partially offset by a
decrease in the provision for loan losses. Net interest income
declined $19 million in 2004, resulting from a decline in
funding credits paid on deposits and equity and a
$324 million, or eight percent, decline in average
deposits. The provision for loan losses decreased
$13 million in 2004, primarily the result of improving
credit quality trends.
The Florida Regions net income increased
$6 million, or 55 percent, to $17 million in
2004, compared to a decrease of $5 million to
$11 million in 2003. Contributing to the Florida
Regions increase in net income in 2004 was a
$3 million increase in net interest income, primarily due
to an increase in average loan and deposit balances, and a
$2 million decline in noninterest expenses, primarily due
to insurance proceeds related to a legal settlement.
The net loss for the Finance and Other Businesses
segment was $182 million in 2004, $180 million in
2003, and $119 million in 2002. The larger loss in 2004 was
primarily the result of a $42 million decline in net
securities gains and a lower effective tax benefit, offset by a
$78 million increase in net interest income, resulting
primarily from lower funding credits paid to deposit related
businesses on indeterminate life deposits, and an
$18 million decline in the loan loss provision not assigned
to the other segments.
BALANCE SHEET AND CAPITAL FUNDS
ANALYSIS
Total assets were $51.8 billion at
December 31, 2004, a decrease of $826 million from
$52.6 billion at December 31, 2003. On an average
basis, total assets decreased to $50.9 billion in 2004 from
$53.0 billion in 2003, a decrease of $2.1 billion. The
Corporation also experienced a $1.4 billion decline in
average deposits and a $534 million decline in average
medium- and long-term debt in 2004, when compared to 2003.
37
TABLE 6: ANALYSIS OF INVESTMENT SECURITIES AND
LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other Government agency
securities
|
|
$ |
3,756 |
|
|
$ |
4,309 |
|
|
$ |
2,748 |
|
|
$ |
3,920 |
|
|
$ |
3,135 |
|
|
State and municipal securities
|
|
|
7 |
|
|
|
11 |
|
|
|
23 |
|
|
|
32 |
|
|
|
46 |
|
|
Other securities
|
|
|
180 |
|
|
|
169 |
|
|
|
282 |
|
|
|
339 |
|
|
|
710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available-for-sale
|
|
$ |
3,943 |
|
|
$ |
4,489 |
|
|
$ |
3,053 |
|
|
$ |
4,291 |
|
|
$ |
3,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$ |
22,039 |
|
|
$ |
21,579 |
|
|
$ |
23,961 |
|
|
$ |
24,069 |
|
|
$ |
25,062 |
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction business line
|
|
|
2,461 |
|
|
|
2,754 |
|
|
|
2,900 |
|
|
|
2,824 |
|
|
|
n/a |
|
|
Other
|
|
|
592 |
|
|
|
643 |
|
|
|
557 |
|
|
|
434 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction loans
|
|
|
3,053 |
|
|
|
3,397 |
|
|
|
3,457 |
|
|
|
3,258 |
|
|
|
2,915 |
|
Commercial mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate business line
|
|
|
1,556 |
|
|
|
1,655 |
|
|
|
1,626 |
|
|
|
1,421 |
|
|
|
n/a |
|
|
Other
|
|
|
6,680 |
|
|
|
6,223 |
|
|
|
5,568 |
|
|
|
4,846 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial mortgage loans
|
|
|
8,236 |
|
|
|
7,878 |
|
|
|
7,194 |
|
|
|
6,267 |
|
|
|
5,361 |
|
Residential mortgage loans
|
|
|
1,294 |
|
|
|
1,228 |
|
|
|
1,143 |
|
|
|
1,110 |
|
|
|
1,088 |
|
Consumer loans
|
|
|
2,751 |
|
|
|
2,610 |
|
|
|
2,465 |
|
|
|
2,260 |
|
|
|
2,144 |
|
Lease financing
|
|
|
1,265 |
|
|
|
1,301 |
|
|
|
1,296 |
|
|
|
1,217 |
|
|
|
1,029 |
|
International loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government and official institutions
|
|
|
3 |
|
|
|
6 |
|
|
|
9 |
|
|
|
9 |
|
|
|
2 |
|
|
Banks and other financial institutions
|
|
|
11 |
|
|
|
45 |
|
|
|
199 |
|
|
|
427 |
|
|
|
402 |
|
|
Commercial and industrial
|
|
|
2,191 |
|
|
|
2,258 |
|
|
|
2,557 |
|
|
|
2,579 |
|
|
|
2,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total international loans
|
|
|
2,205 |
|
|
|
2,309 |
|
|
|
2,765 |
|
|
|
3,015 |
|
|
|
2,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$ |
40,843 |
|
|
$ |
40,302 |
|
|
$ |
42,281 |
|
|
$ |
41,196 |
|
|
$ |
40,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a not available
TABLE 7: LOAN MATURITIES AND INTEREST RATE
SENSITIVITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 | |
|
|
| |
|
|
|
|
|
Loans Maturing | |
|
|
| |
|
|
|
|
After One | |
|
|
|
|
Within | |
|
But Within | |
|
After Five | |
|
|
|
|
One Year* | |
|
Five Years | |
|
Years | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Commercial loans
|
|
$ |
16,907 |
|
|
$ |
4,177 |
|
|
$ |
955 |
|
|
$ |
22,039 |
|
Real estate construction loans
|
|
|
2,087 |
|
|
|
793 |
|
|
|
173 |
|
|
|
3,053 |
|
Commercial mortgage loans
|
|
|
2,665 |
|
|
|
4,182 |
|
|
|
1,389 |
|
|
|
8,236 |
|
International loans
|
|
|
1,860 |
|
|
|
337 |
|
|
|
8 |
|
|
|
2,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
23,519 |
|
|
$ |
9,489 |
|
|
$ |
2,525 |
|
|
$ |
35,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sensitivity of Loans to Changes in Interest Rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predetermined (fixed) interest rates
|
|
|
|
|
|
$ |
3,585 |
|
|
$ |
2,059 |
|
|
|
|
|
|
Floating interest rates
|
|
|
|
|
|
|
5,904 |
|
|
|
466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$ |
9,489 |
|
|
$ |
2,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Includes demand loans, loans having no stated
repayment schedule or maturity and overdrafts
|
38
Earning Assets
Total earning assets were $48.0 billion at
December 31, 2004, a decrease of $788 million from
$48.8 billion at December 31, 2003. The
Corporations average earning assets balances are reflected
in Table 2 on page 25. On an average basis, total
earning assets were $47.0 billion in 2004, compared to
$48.8 billion in 2003. Total loans were $40.8 billion
at December 31, 2004, an increase of $541 million from
$40.3 billion at December 31, 2003. However, total
loans, on an average basis, decreased four percent to
$40.7 billion in 2004, from $42.4 billion in 2003.
Although certain business loan categories continued to show
growth in 2004, weak loan demand and managements strategy
to reduce large corporate non-relationship loans resulted in a
decline in total loans, on an average basis. The Corporation
experienced growth, on an average basis, in the Private Banking
(9 percent) and National Dealer Services (6 percent) loan
portfolios, from 2003 to 2004. Average loans in the Global
Corporate Banking portfolio, which includes Large Corporate and
Global Finance, declined 21 percent over the same period as
a result of maturing non-relationship loans that were not
renewed. Average loans in the Commercial Real Estate loan
portfolio also decreased 10 percent in 2004.
Management currently expects average loan growth
in the low to mid-single digit range for 2005, when compared to
2004, with average earning assets virtually unchanged. In
addition, management anticipates the mix of earning assets will
change as the excess liquidity will be used to fund loan growth,
thus resulting in a decline in 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 remained flat at
$1.9 billion during 2004, compared to 2003. 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.
TABLE 8: ANALYSIS OF INVESTMENT SECURITIES
PORTFOLIO-Fully Taxable Equivalent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 | |
|
|
| |
|
|
|
|
|
|
|
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
|
|
$ |
773 |
|
|
|
3.13 |
% |
|
$ |
92 |
|
|
|
3.93 |
% |
|
$ |
1,013 |
|
|
|
3.56 |
% |
|
$ |
1,878 |
|
|
|
3.70 |
% |
|
$ |
3,756 |
|
|
|
3.55 |
% |
|
|
8/4 |
|
|
State and municipal securities
|
|
|
3 |
|
|
|
5.79 |
|
|
|
2 |
|
|
|
5.24 |
|
|
|
2 |
|
|
|
6.41 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
5.75 |
|
|
|
2/11 |
|
|
Other securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other bonds, notes and debentures
|
|
|
92 |
|
|
|
4.62 |
|
|
|
9 |
|
|
|
6.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101 |
|
|
|
4.80 |
|
|
|
0/10 |
|
|
|
Other investments**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available-for-sale
|
|
$ |
868 |
|
|
|
3.30 |
% |
|
$ |
103 |
|
|
|
4.21 |
% |
|
$ |
1,015 |
|
|
|
3.57 |
% |
|
$ |
1,957 |
|
|
|
3.70 |
% |
|
$ |
3,943 |
|
|
|
3.59 |
% |
|
|
8/2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Based on final contractual maturity.
|
|
|
** |
Balances are excluded from the calculation of
total yield.
|
39
Investment securities available-for-sale declined
$546 million to $3.9 billion at December 31, 2004 from
$4.5 billion at December 31, 2003. Average investment
securities available-for-sale declined to $4.3 billion in
2004, compared to $4.5 billion in 2003. Average U.S.
Government and agency securities decreased $167 million to
$4.1 billion at December 31, 2004, while average state
and municipal securities decreased $7 million to
$9 million in 2004. Decreases 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 $34 million
to $204 million in 2004. Other securities at
December 31, 2004 consisted primarily of collateralized
mortgage obligations (CMOs), Brady bonds and Eurobonds.
Average commercial real estate loans, consisting
of real estate construction and commercial mortgage loans,
increased $194 million, or two percent, from
$11.1 billion in 2003 to $11.3 billion in 2004.
Average loans to borrowers not primarily engaged in the business
of commercial real estate represented $7.0 billion, or
62 percent, of the 2004 $11.3 billion average
commercial real estate loans, as compared to $6.5 billion,
or 59 percent, of the 2003 $11.1 billion average
commercial real estate loans.
Average residential mortgage loans increased
$45 million, or four percent, from 2003, due to
managements 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 | |
|
|
| |
|
|
|
|
Banks and | |
|
|
|
|
Government | |
|
Other | |
|
Commercial | |
|
|
|
|
and Official | |
|
Financial | |
|
and | |
|
|
|
|
Institutions | |
|
Institutions | |
|
Industrial | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Mexico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
$ |
4 |
|
|
$ |
|
|
|
$ |
937 |
|
|
$ |
941 |
|
|
2003
|
|
|
12 |
|
|
|
3 |
|
|
|
1,106 |
|
|
|
1,121 |
|
|
2002
|
|
|
15 |
|
|
|
7 |
|
|
|
1,168 |
|
|
|
1,190 |
|
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 borrowers country. Accordingly, such international
outstandings are excluded from the cross-border risk of that
country. Mexico had cross-border outstandings of
$941 million, or 1.82 percent of total assets at
December 31, 2004 and was the only country with
outstandings exceeding 1.00 percent of total assets at
December 31, 2004. The United Kingdom had cross-border
outstandings of $410 million, or 0.79 percent of total
assets at December 31, 2004 and was the only country with
cross-border outstandings between 0.75 and 1.00 percent of
total assets at year-end 2004. Additional information on the
Corporations international cross-border risk in countries
where the Corporations 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, 2004 is
provided in Table 9 above.
Deposits And Borrowed Funds
Average deposits were $40.1 billion during
2004, a decrease of $1.4 billion, or three percent, from 2003.
Average noninterest-bearing deposits grew $212 million, or
two percent, from 2003. Noninterest-bearing deposits include
title and escrow deposits in the Corporations Financial
Services Group, which benefit from high home mortgage financing
and refinancing activity and some of which are not expected to
be long-lived. 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 two
percent during 2004, to $19.4 billion. Average certificates
of deposit decreased $2.1 billion in 2004, or
26 percent, from 2003. This decrease was primarily from
certificates of deposit issued in denominations in excess of
$100,000 through brokers or to institutional investors
(institutional CDs), which matured and were
not replaced. Excess funds, caused by a decline in
40
average loans in 2004 and increases in other
deposit categories contributed to the reduced level of
institutional CDs.
Average short-term borrowings decreased
$275 million, or 50 percent, as a decline in average
loans 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 Corporations 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
$534 million as a decline in average loans reduced the need
for these funding sources. Further information on medium- and
long-term debt is provided in Note 11 to the consolidated
financial statements on page 78.
Capital
Common shareholders equity was
$5.1 billion at both December 31, 2004 and
December 31, 2003. The following table presents a summary
of changes in common shareholders equity in 2004:
|
|
|
|
|
|
|
(in millions) | |
|
|
| |
Balance at January 1, 2004
|
|
$ |
5,110 |
|
Retention of retained earnings (net income less
cash dividends declared)
|
|
|
401 |
|
Recognition of stock-based compensation expense
|
|
|
35 |
|
Net issuance of common stock under employee stock
plans
|
|
|
72 |
|
Change in accumulated other comprehensive income
(loss)*
|
|
|
(143 |
) |
Repurchase of approximately 6.5 million
common shares
|
|
|
(370 |
) |
|
|
|
|
Balance at December 31, 2004
|
|
$ |
5,105 |
|
|
|
|
|
|
|
* |
Includes a decrease in accumulated net gains on
cash flow hedges ($130 million) and an increase in net
unrealized losses on investment securities available-for-sale
($11 million), due to changes in the interest rate
environment.
|
Further information on the change in other
comprehensive income (loss) is provided in Note 13 to the
consolidated financial statements on page 81.
The Corporation declared common dividends
totaling $356 million, or $2.08 per share, on net income
applicable to common stock of $757 million. The dividend
payout ratio calculated on a per share basis, was
48 percent in 2004 versus 53 percent in 2003 and
56 percent in 2002.
When capital exceeds necessary levels, the
Corporations common stock can be repurchased as a way to
return excess capital to shareholders. Repurchasing common stock
offers a flexible way to control capital levels by adjusting the
capital deployed in reaction to core balance sheet growth. On
December 1, 2003, the Corporation announced it would resume
its share repurchase program under an existing authorization. In
March 2004, the Board of Directors of the Corporation authorized
the additional purchase of up to 10 million shares of
Comerica Incorporated outstanding common stock in the open
market. In addition to limits that result from the Board
authorization, the share repurchase program is constrained by
holding company liquidity, internal targets for total return to
shareholders and capital levels relative to internal targets and
regulatory minimums. The Corporation repurchased
6.5 million shares in the open market in 2004 for
$370 million compared to 0.5 million in 2003 for $27
million. Comerica Incorporated common stock available for
repurchase under Board authority totaled 8.2 million shares
at December 31, 2004. Refer to Note 12 to the consolidated
financial statements on page 80 for additional information on
the Corporations share repurchase program.
At December 31, 2004, the Corporation and
its banking subsidiaries exceeded the capital ratios required
for an institution to be considered well capitalized
by the standards developed under the Federal Deposit
41
Insurance Corporation Improvement Act of 1991.
Refer to Note 19 to the consolidated financial statements on
page 92 for the capital ratios.
RISK MANAGEMENT
The Corporation assumes various types of risk in
the normal course of business. Management classifies the risk
exposures into five areas: (1) credit, (2) market and
liquidity, (3) operational, (4) compliance and
(5) 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 Corporations 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
Corporations risks, enhance the Corporations ability
to control risks, and ensure that appropriate compensation is
received for risks taken. As part of the overall risk governance
process, the Corporation established an Enterprise-Wide Risk
Management Committee made up of various risk managers throughout
the Corporation that is responsible for managing the
Corporations aggregated risk position. In order to
facilitate this effort, a Risk Management Office was established
that is responsible for measuring and monitoring the aggregated
risk pool. In addition, the Risk Management Office, in concert
with the Corporate Audit Department, is expected to 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 and
liquidity, operational, compliance 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 independent view of the Corporations
aggregated risk position.
Management completed its assessment of the
internal controls over financial reporting as of
December 31, 2004 and issued its assessment (see
page 114).
Credit Risk
Credit risk represents the risk of loss due to
failure of a customer or counterparty to meet its financial
obligations in accordance with contractual terms. The
Corporation manages credit risk through underwriting,
periodically reviewing, and approving its credit exposures using
Board committee approved credit policies and guidelines.
Additionally, the Corporation manages credit risk through loan
sales and 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 2004, the Corporation continued its focus
on the credit components of the previously announced
enterprise-wide risk management program. The new risk rating
system designed in 2003 was successfully implemented across all
lines of business. The evaluation of the Corporations loan
portfolio with these tools is anticipated to provide improved
measurement of the potential risks within the loan portfolio.
Other enhancements in portfolio analytics were made in 2004,
building a foundation upon which the trend analysis of the new
ratings will be added. Further progress was made in the credit
technology investment program, establishing data collection
mechanisms for further enhancement of risk metrics.
42
TABLE 10: SUMMARY OF NONPERFORMING ASSETS AND
PAST DUE LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
NONPERFORMING ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$ |
161 |
|
|
$ |
295 |
|
|
$ |
368 |
|
|
$ |
466 |
|
|
$ |
232 |
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction business line
|
|
|
31 |
|
|
|
21 |
|
|
|
17 |
|
|
|
8 |
|
|
|
5 |
|
|
|
|
Other
|
|
|
3 |
|
|
|
3 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
34 |
|
|
|
24 |
|
|
|
19 |
|
|
|
10 |
|
|
|
5 |
|
|
|
Commercial mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate business line
|
|
|
6 |
|
|
|
3 |
|
|
|
8 |
|
|
|
1 |
|
|
|
|
|
|
|
|
Other
|
|
|
58 |
|
|
|
84 |
|
|
|
45 |
|
|
|
17 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial mortgage
|
|
|
64 |
|
|
|
87 |
|
|
|
53 |
|
|
|
18 |
|
|
|
17 |
|
|
|
Residential mortgage
|
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
1 |
|
|
|
7 |
|
|
|
5 |
|
|
|
6 |
|
|
|
4 |
|
|
|
Lease financing
|
|
|
15 |
|
|
|
24 |
|
|
|
5 |
|
|
|
8 |
|
|
|
4 |
|
|
|
International
|
|
|
36 |
|
|
|
68 |
|
|
|
114 |
|
|
|
109 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans
|
|
|
312 |
|
|
|
507 |
|
|
|
565 |
|
|
|
617 |
|
|
|
331 |
|
|
Reduced-rate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
312 |
|
|
|
507 |
|
|
|
565 |
|
|
|
617 |
|
|
|
333 |
|
|
Other real estate
|
|
|
27 |
|
|
|
30 |
|
|
|
10 |
|
|
|
10 |
|
|
|
6 |
|
|
Nonaccrual debt securities
|
|
|
|
|
|
|
1 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$ |
339 |
|
|
$ |
538 |
|
|
$ |
579 |
|
|
$ |
627 |
|
|
$ |
339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a percentage of total loans
|
|
|
0.76 |
% |
|
|
1.26 |
% |
|
|
1.34 |
% |
|
|
1.50 |
% |
|
|
0.83 |
% |
Nonperforming assets as a percentage of total
loans, other real estate and nonaccrual debt securities
|
|
|
0.83 |
|
|
|
1.33 |
|
|
|
1.37 |
|
|
|
1.52 |
|
|
|
0.84 |
|
Allowance for loan losses as a percentage of
total nonperforming assets
|
|
|
198 |
|
|
|
149 |
|
|
|
136 |
|
|
|
102 |
|
|
|
172 |
|
Loans past due 90 days or more and still
accruing
|
|
$ |
15 |
|
|
$ |
32 |
|
|
$ |
43 |
|
|
$ |
44 |
|
|
$ |
36 |
|
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 borrowers 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, except for certain large personal
purpose consumer and residential mortgage 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
43
be required to be evaluated for impairment. Refer
to Note 3 of the consolidated financial statements on
page 73 for a further discussion of impaired loans.
Nonperforming assets decreased $199 million,
or 37 percent, to $339 million at December 31, 2004
from $538 million at December 31, 2003. As shown in
Table 10 above, nonaccrual loans decreased $195 million, or
38 percent, to $312 million at December 31, 2004,
from $507 million at December 31, 2003. ORE decreased
$3 million to $27 million at December 31, 2004
from $30 million at December 31, 2003. There were
nominal nonaccrual debt securities at December 31, 2004 compared
to $1 million at December 31, 2003. The
$195 million reduction in nonaccrual loans at
December 31, 2004 from year-end 2003 levels resulted
primarily from a $134 million decline in nonaccrual
commercial loans, a $32 million decline in nonaccrual
international loans and a $23 million decline in nonaccrual
commercial mortgage loans. An analysis on nonaccrual loans at
December 31, 2004, based on the Standard Industrial
Classification (SIC) code, is presented on page 45.
Loans past due 90 days or more and still on accrual status
decreased $17 million to $15 million at
December 31, 2004, from $32 million at
December 31, 2003. Nonperforming assets as a percentage of
total loans, other real estate and nonaccrual debt securities
was 0.83 percent and 1.33 percent at December 31,
2004 and 2003, respectively.
The following table presents a summary of changes
in nonaccrual loans.
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Balance at January 1
|
|
$ |
507 |
|
|
$ |
565 |
|
Loans transferred to nonaccrual (1)
|
|
|
332 |
|
|
|
660 |
|
Nonaccrual business loan gross charge-offs (2)
|
|
|
(248 |
) |
|
|
(396 |
) |
Loans transferred to accrual status (1)
|
|
|
(7 |
) |
|
|
(15 |
) |
Nonaccrual business loans sold (3)
|
|
|
(96 |
) |
|
|
(144 |
) |
Payments/Other (4)
|
|
|
(176 |
) |
|
|
(163 |
) |
|
|
|
|
|
|
|
Balance at December 31
|
|
$ |
312 |
|
|
$ |
507 |
|
|
|
|
|
|
|
|
|
|
(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
|
|
$ |
248 |
|
|
$ |
396 |
|
Performing watch list loans (as defined below)
|
|
|
5 |
|
|
|
1 |
|
Consumer and residential mortgage loans
|
|
|
15 |
|
|
|
11 |
|
|
Total gross loan charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
268 |
|
|
$ |
408 |
|
|
|
|
|
|
|
|
|
|
(3) |
Analysis of loans sold:
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual business loans
|
|
$ |
96 |
|
|
$ |
144 |
|
Performing watch list loans (as defined below)
sold
|
|
|
69 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
Total loans sold
|
|
$ |
165 |
|
|
$ |
159 |
|
|
|
|
|
|
|
|
|
|
(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 $328 million, or
50 percent, to $332 million in 2004, compared with
$660 million in 2003. There were 8 loans greater than
$10 million transferred to nonaccrual in 2004. These loans
totaled $130 million and were to companies in the
automotive ($58 million), services ($21 million),
transportation (shipping) ($20 million), technology-related
($16 million), and contractor ($15 million) sectors.
The Corporation sold $96 million of
nonaccrual business loans in 2004. These loans were to customers
in the services ($27 million), utilities ($15 million),
non-automotive manufacturing ($12 million), transportation
44
($8 million), wholesale trade ($8 million),
automotive ($7 million), contractor ($7 million) and other
($12 million) sectors.
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, 2004. Consistent with
the decrease in nonaccrual loans from December 31, 2003 to
December 31, 2004, total combined nonaccrual and watch list
loans declined both in dollars and as a percentage of the total
loan portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
|
|
|
(dollar amounts | |
|
|
in millions) | |
Total nonaccrual and watch list loans
|
|
$ |
2,245 |
|
|
$ |
3,284 |
|
As a percentage of total loans
|
|
|
5.5 |
% |
|
|
8.2 |
% |
The following table presents a summary of
nonaccrual loans at December 31, 2004 and loans transferred
to nonaccrual and net charge-offs during the year ended
December 31, 2004, based on the SIC code.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
|
|
2004 | |
|
Year Ended December 31, 2004 | |
|
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Loans | |
|
|
|
|
Nonaccrual | |
|
Transferred to | |
|
Net | |
SIC Category |
|
Loans | |
|
Nonaccrual | |
|
Charge-Offs | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar amounts in millions) | |
Automotive
|
|
$ |
81 |
|
|
|
26 |
% |
|
$ |
86 |
|
|
|
26 |
% |
|
$ |
33 |
|
|
|
17 |
% |
Real estate
|
|
|
54 |
|
|
|
17 |
|
|
|
20 |
|
|
|
6 |
|
|
|
8 |
|
|
|
4 |
|
Services
|
|
|
34 |
|
|
|
11 |
|
|
|
31 |
|
|
|
9 |
|
|
|
26 |
|
|
|
13 |
|
Non-automotive manufacturing
|
|
|
34 |
|
|
|
11 |
|
|
|
45 |
|
|
|
14 |
|
|
|
16 |
|
|
|
9 |
|
Retail trade
|
|
|
16 |
|
|
|
5 |
|
|
|
5 |
|
|
|
1 |
|
|
|
18 |
|
|
|
9 |
|
Air transportation
|
|
|
15 |
|
|
|
5 |
|
|
|
7 |
|
|
|
2 |
|
|
|
12 |
|
|
|
6 |
|
Wholesale trade
|
|
|
14 |
|
|
|
5 |
|
|
|
18 |
|
|
|
6 |
|
|
|
19 |
|
|
|
10 |
|
Transportation
|
|
|
12 |
|
|
|
4 |
|
|
|
33 |
|
|
|
10 |
|
|
|
4 |
|
|
|
2 |
|
Contractors
|
|
|
11 |
|
|
|
3 |
|
|
|
40 |
|
|
|
12 |
|
|
|
27 |
|
|
|
14 |
|
Entertainment
|
|
|
10 |
|
|
|
3 |
|
|
|
3 |
|
|
|
1 |
|
|
|
3 |
|
|
|
1 |
|
Technology-related
|
|
|
7 |
|
|
|
2 |
|
|
|
23 |
|
|
|
7 |
|
|
|
23 |
|
|
|
12 |
|
Other
|
|
|
24 |
|
|
|
8 |
|
|
|
21 |
|
|
|
6 |
|
|
|
5 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
312 |
|
|
|
100 |
% |
|
$ |
332 |
|
|
|
100 |
% |
|
$ |
194 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Based on an analysis of nonaccrual loans with
book balances greater than $2 million.
|
Shared National Credit Program (SNC) loans
comprised approximately 11 percent and 20 percent of total
nonaccrual loans at December 31, 2004 and 2003,
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 15 percent and 14 percent of total loans
at December 31, 2004 and 2003, respectively. SNC loans
comprised approximately 19 percent of 2004 total net
charge-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 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
|
|
|
(dollar amounts | |
|
|
in millions) | |
Carrying value
|
|
$ |
312 |
|
|
$ |
507 |
|
Contractual value
|
|
|
578 |
|
|
|
874 |
|
Carrying value as a percentage of contractual
value
|
|
|
54 |
% |
|
|
58 |
% |
45
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 2004.
Management expects stable credit quality in 2005 and full-year
2005 average net charge-offs as a percentage of average loans to
be approximately 35-40 basis points.
Concentration
of Credit
Loans to borrowers involved with the automotive
industry represented the largest significant industry
concentration at December 31, 2004 and 2003. These loans
totaled $6.6 billion, or 16 percent, of total loans at
December 31, 2004 and December 31, 2003. Included in
these totals are automotive dealer loans of $4.2 billion
and $4.3 billion at December 31, 2004 and 2003,
respectively, of which $2.6 billion and $2.7 billion
at December 31, 2004 and 2003, respectively, were floor
plan loans. All other industry concentrations individually
represented less than 10 percent of total loans at year-end
2004.
Nonperforming assets to borrowers involved with
the automotive industry comprised approximately 25 percent
of total nonperforming assets at December 31, 2004. The largest
automotive industry loan on nonaccrual status at December 31,
2004, was $19 million. Total automotive industry-related
net charge-offs were approximately $33 million in 2004. The
largest automotive industry-related charge-off during 2004 was
$7 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, 2004, of which
$7.3 billion, or 64 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
$3.1 billion and had approximately 1,582 loans, of which
57 percent had balances less than $1 million at
December 31, 2004. The largest real estate construction
loan had a balance of approximately $39 million at
December 31, 2004. The commercial mortgage loan portfolio
totaled $8.2 billion at December 31, 2004. The portfolio
had approximately 8,611 loans, of which 77 percent had
balances of less than $1 million, at December 31,
2004. The largest commercial mortgage loan had a balance of
approximately $56 million at December 31, 2004.
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 location of lending office, the
diversification of the Corporations real estate
construction and commercial mortgage loan portfolio.
Geographic
Distribution of Borrowers (by location of lending
office)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 | |
|
|
| |
|
|
|
|
|
|
|
Real Estate | |
|
Commercial | |
|
|
Construction | |
|
Mortgage | |
|
|
| |
|
| |
|
|
Amount | |
|
% | |
|
Amount | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Michigan
|
|
$ |
1,279 |
|
|
|
42 |
% |
|
$ |
4,871 |
|
|
|
59 |
% |
California
|
|
|
1,078 |
|
|
|
35 |
|
|
|
1,604 |
|
|
|
20 |
|
Texas
|
|
|
484 |
|
|
|
16 |
|
|
|
760 |
|
|
|
9 |
|
Florida
|
|
|
127 |
|
|
|
4 |
|
|
|
251 |
|
|
|
3 |
|
Other
|
|
|
85 |
|
|
|
3 |
|
|
|
750 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,053 |
|
|
|
100 |
% |
|
$ |
8,236 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
46
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 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
Net interest income is the predominant source of
revenue for the Corporation. Interest rate risk arises primarily
through the Corporations 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 Risk Asset Quality Review
Committee of the Corporations Board of Directors and the
Corporations Asset and Liability Policy Committee
(ALPC) establish and monitor compliance with the policies
and risk limits pertaining to interest rate risk management
activities. 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. For purposes of
this analysis, the rise or decline in short-term interest rates
occurs ratably over four months. 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 2004, for a decline in short-term interest rates by 200
basis points identified approximately $74 million, or four
percent, of forecasted net interest income at risk during 2005.
If short-term interest rates rise 200 basis points, forecasted
net interest income would be enhanced during 2005 by
approximately $99 million, or five percent. Corresponding
measures of risk exposure for year-end 2003 were approximately
$41 million, or two percent, of net interest income at risk
for a decline in short-term rates to zero percent and an
approximately $82 million enhancement, or four percent, of
net interest income for a 200 basis point rise in rates.
Corporate policy limits adverse change to no more than five
percent of managements most likely net interest income
forecast and the Corporation is operating within this policy
guideline. Management anticipates balance sheet dynamics in 2005
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.
47
In addition to the simulation analysis, an
economic value of equity analysis and a traditional interest
sensitivity gap analysis are performed as alternative measures
of interest rate risk exposure. The economic value of equity
analysis begins with an estimate of the mark-to-market valuation
of the Corporations 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 sensitivity 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.
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, | |
|
|
|
|
|
|
|
|
|
|
|
|
2010- | |
|
2004 | |
|
2003 | |
|
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2026 | |
|
Total | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Variable rate asset designation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Generic receive fixed swaps
|
|
$ |
3,800 |
|
|
$ |
3,000 |
|
|
$ |
3,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,800 |
|
|
$ |
8,800 |
|
|
Weighted average:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive rate
|
|
|
6.11 |
% |
|
|
4.01 |
% |
|
|
4.97 |
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
5.12 |
% |
|
|
6.17 |
% |
|
|
Pay rate
|
|
|
5.18 |
|
|
|
3.70 |
|
|
|
4.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.37 |
|
|
|
4.00 |
|
Fixed rate asset designation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay fixed swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Generic
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
13 |
|
|
|
Amortizing
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
5 |
|
|
Weighted average:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive rate
|
|
|
2.54 |
% |
|
|
2.54 |
% |
|
|
2.55 |
% |
|
|
2.56 |
% |
|
|
|
% |
|
|
|
% |
|
|
2.55 |
% |
|
|
3.41 |
% |
|
|
Pay rate
|
|
|
3.54 |
|
|
|
3.54 |
|
|
|
3.53 |
|
|
|
3.52 |
|
|
|
|
|
|
|
|
|
|
|
3.53 |
|
|
|
4.12 |
|
Fixed rate deposit designation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Generic receive fixed swaps
|
|
$ |
30 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
30 |
|
|
$ |
|
|
|
Weighted average:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive rate
|
|
|
1.42 |
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
1.42 |
% |
|
|
|
% |
|
|
Pay rate
|
|
|
2.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.44 |
|
|
|
|
|
Medium- and long-term debt
designation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Generic receive fixed swaps
|
|
$ |
250 |
|
|
$ |
100 |
|
|
$ |
450 |
|
|
$ |
350 |
|
|
$ |
100 |
|
|
$ |
1,000 |
|
|
$ |
2,250 |
|
|
$ |
2,000 |
|
|
Weighted average:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive rate
|
|
|
7.04 |
% |
|
|
2.95 |
% |
|
|
5.82 |
% |
|
|
6.17 |
% |
|
|
6.06 |
% |
|
|
6.18 |
% |
|
|
6.05 |
% |
|
|
6.09 |
% |
|
|
Pay rate
|
|
|
2.29 |
|
|
|
2.36 |
|
|
|
2.35 |
|
|
|
2.12 |
|
|
|
2.01 |
|
|
|
2.37 |
|
|
|
2.30 |
|
|
|
1.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notional amount
|
|
$ |
4,082 |
|
|
$ |
3,102 |
|
|
$ |
3,452 |
|
|
$ |
351 |
|
|
$ |
100 |
|
|
$ |
1,000 |
|
|
$ |
12,087 |
|
|
$ |
10,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Variable rates paid on receive fixed swaps are
based on prime and LIBOR (with various maturities) rates in
effect at December 31, 2004.
|
|
(2) |
Variable rates received are based on three-month
and six-month LIBOR or one-month and three-month Canadian Dollar
Offered Rates in effect at December 31, 2004.
|
48
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, 2003
|
|
$ |
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 |
|
Additions
|
|
|
4,781 |
|
|
|
15,136 |
|
|
|
19,917 |
|
Maturities/amortizations
|
|
|
(3,512 |
) |
|
|
(15,141 |
) |
|
|
(18,653 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
12,087 |
|
|
$ |
434 |
|
|
$ |
12,521 |
|
|
|
|
|
|
|
|
|
|
|
The notional amount of risk management interest
rate swaps totaled $12.1 billion at December 31, 2004, and
$10.8 billion at December 31, 2003. The increase in
notional amount of $1.3 billion was, in part, due to a
$1.0 billion increase in hedged total loans from
December 31, 2003 to December 31, 2004. The fair value
of risk management interest rate swaps was an asset of
$159 million at December 31, 2004, compared to an
asset of $346 million at December 31, 2003.
For the year ended December 31, 2004, risk
management interest rate swaps generated $279 million of
net interest income, compared to $378 million of net
interest income for the year ended December 31, 2003. The
lower swap income for 2004 over 2003 was primarily due to the
2004 maturity of swaps with fixed receivable rates that were
significantly higher than new swap rates available in the market.
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, 2004, $20 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, 2004. 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, 2004 and 2003,
were $434 million and $439 million, respectively.
Further information regarding risk management
financial instruments and foreign currency exchange contracts is
provided in Notes 1, 11, and 20 to the consolidated financial
statements on pages 64, 78 and 93, respectively.
49
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, 2003
|
|
$ |
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 |
|
Additions
|
|
|
828 |
|
|
|
94,286 |
|
|
|
95,114 |
|
Maturities/amortizations
|
|
|
(538 |
) |
|
|
(92,869 |
) |
|
|
(93,407 |
) |
Terminations
|
|
|
(216 |
) |
|
|
|
|
|
|
(216 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
2,376 |
|
|
$ |
3,321 |
|
|
$ |
5,697 |
|
|
|
|
|
|
|
|
|
|
|
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 31 percent at
December 31, 2004, and 27 percent at December 31,
2003, of total derivative and foreign exchange contracts,
including commitments to purchase and sell securities. Refer to
Notes 1 and 20 of the consolidated financial statements on
pages 64 and 93, respectively, for further information
regarding customer-initiated and other derivative financial
instruments and foreign exchange contracts.
Liquidity
Risk and Off-Balance Sheet Arrangements
Liquidity is the ability to meet financial
obligations through the maturity or sale of existing assets or
the 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
Corporations noncancelable contractual obligations and
future required minimum payments. Refer to Notes 6, 10 and 11 of
the financial statements on pages 75, 77 and 78,
respectively, for a further discussion of these contractual
obligations.
Contractual
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 | |
|
|
| |
|
|
|
|
|
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*
|
|
$ |
34,941 |
|
|
$ |
34,941 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Certificates of deposit and other deposits with a
stated maturity*
|
|
|
5,995 |
|
|
|
4,871 |
|
|
|
760 |
|
|
|
285 |
|
|
|
79 |
|
Short-term borrowings*
|
|
|
193 |
|
|
|
193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium- and long-term debt*
|
|
|
4,083 |
|
|
|
285 |
|
|
|
1,605 |
|
|
|
468 |
|
|
|
1,725 |
|
Operating leases
|
|
|
278 |
|
|
|
53 |
|
|
|
87 |
|
|
|
64 |
|
|
|
74 |
|
Commitments to fund low income housing
partnerships
|
|
|
91 |
|
|
|
48 |
|
|
|
40 |
|
|
|
2 |
|
|
|
1 |
|
Other long-term obligations
|
|
|
234 |
|
|
|
31 |
|
|
|
28 |
|
|
|
13 |
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$ |
45,815 |
|
|
$ |
40,422 |
|
|
$ |
2,520 |
|
|
$ |
832 |
|
|
$ |
2,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Deposits and borrowings exclude interest
|
50
The Corporation has other commercial commitments
that impact liquidity. These commitments are primarily
off-balance sheet arrangements and 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
Corporations commercial commitments and expected
expiration dates by period.
Commercial
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 | |
|
|
| |
|
|
|
|
|
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
|
|
$ |
4 |
|
|
$ |
4 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Commitments to sell investment securities
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to fund private equity and venture
capital investments
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
50 |
|
Unused commitments to extend credit
|
|
|
28,349 |
|
|
|
13,711 |
|
|
|
7,625 |
|
|
|
4,659 |
|
|
|
2,354 |
|
Standby letters of credit and financial guarantees
|
|
|
6,326 |
|
|
|
4,426 |
|
|
|
1,224 |
|
|
|
570 |
|
|
|
106 |
|
Commercial letters of credit
|
|
|
340 |
|
|
|
298 |
|
|
|
22 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$ |
35,074 |
|
|
$ |
18,443 |
|
|
$ |
8,871 |
|
|
$ |
5,250 |
|
|
$ |
2,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 20 of the consolidated
financial statements on page 93 for a further discussion of
these commercial commitments.
The Corporation also holds a significant interest
in certain variable interest entities (VIEs), in which it
is not the primary beneficiary, and in accordance with FASB
Interpretation No. 46(R), Consolidation of Variable
Interest Entities (FIN 46(R)), does not consolidate. The
Corporation defines a significant interest in a VIE as a
subordinated interest that exposes it to a significant portion
of the VIEs expected losses or residual returns. In
general, a VIE is an entity that either (1) has an
insufficient amount of equity to carry out its principal
activities without additional subordinated financial support,
(2) has a group of equity owners that are unable to make
significant decisions about its activities, or (3) has a
group of equity owners that do not have the obligation to absorb
losses or the right to receive returns generated by its
operations. If any 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 entitys outstanding voting stock.
Variable interests are defined as contractual, ownership, or
other monetary interests in an entity that change with
fluctuations in the entitys net asset value. According to
FIN 46(R), a company must consolidate an entity depending on
whether the entity is a voting rights entity or a VIE. Refer to
the principles of consolidation section in Note 1 of
the consolidated financial statements on page 64 for a
summarization of this interpretation. Also refer to Note 22 of
the consolidated financial statements on page 99 for a
discussion of the Corporations involvement in VIEs,
including those in which it holds a significant interest but for
which it is not the primary beneficiary.
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, 2004, 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
$2.9 billion, compared to $4.0 billion and
$6.0 billion at December 31, 2003 and
December 31, 2002, respectively. Second, two medium-term
note programs, a $15 billion senior note program and a
$2 billion European note program, allow the principal
banking subsidiary to issue debt with maturities between one
month and 15 years. At year-end 2004, unissued debt
relating to the two medium-term note programs totaled
$16.6 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
$8.3 billion at December 31, 2004. Additionally, the
Corporation also had available $13.8 billion from a
collateralized borrowing account with the Federal Reserve Bank
at December 31, 2004.
51
The parent company held $1 million of cash
and cash equivalents and $289 million of short-term investments
with a subsidiary bank at December 31, 2004. In addition,
the parent company had available $250 million of borrowing
capacity under an unused commercial paper facility at
December 31, 2004. Refer to Note 10 of the consolidated
financial statements on page 77 for further information on
the unused commercial paper facility. Another source of
liquidity for the parent company is dividends from its
subsidiaries. As discussed in Note 19 to the financial
statements on page 92, subsidiary banks are subject to
regulation and may be limited in their ability to pay dividends
or transfer funds to the holding company. During 2005, the
subsidiary banks can pay dividends up to $470 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, 2004, the ratio was 109 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 Corporations market risk related to
trading instruments is not significant, as trading activities
are limited. Certain components of the Corporations
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, 2004, the Corporation had a
$128 million portfolio of indirect (through funds) private
equity and venture capital investments, and had commitments of
$51 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 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
funds 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. Total distributions
which qualify as income on unconsolidated indirect private
equity and venture capital investments in 2004 were
$18 million, which was partially offset by $5 million
of write-downs recognized on such investments in 2004. No
generic assumption is applied to all investments when evaluating
for impairment. The uncertainty in the economy and equity
markets may affect the values of the fund investments. The
following table provides information on the Corporations
indirect private equity and venture capital investments
portfolio.
52
Indirect
Private Equity and Venture Capital Investments
|
|
|
|
|
|
|
December 31, 2004 | |
|
|
| |
|
|
(dollar amounts | |
|
|
in millions) | |
Number of investments
|
|
|
106 |
|
Balance of investments
|
|
$ |
128 |
|
Largest single investment
|
|
|
37 |
|
Commitments to fund additional investments
|
|
|
51 |
|
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 2004 the Corporation recognized total
stock-based compensation expense of $34 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
Corporations 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 2004 and the Corporations stock price at
December 31, 2004, each $5.00 per share increase in stock
price would result in an increase in pretax expense of
approximately $3 million, from the assumed base, over the
options vesting period. Refer to Notes 1 and 15 of the
consolidated financial statements on pages 64 and 83,
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 institutions
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 concern and seeks to
limit their impact to a level deemed appropriate by management
after considering the nature of the Corporations 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 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 Corporations 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 oversight
process. The Audit and Legal Committee serves as an independent
extension of the Board of Directors. Meetings are scheduled
periodically to provide more detail on relevant operational
risks.
Compliance Risk
Compliance risk represents the risk of regulatory
sanctions or financial loss the Corporation may suffer as a
result of its failure to comply with regulations and standards
of good practice. Activities which may expose the Corporation to
compliance risk include, but are not limited to, those dealing
with the prevention of money laundering, privacy and data
protection, community reinvestment initiatives, fair lending
challenges resulting from the Corporations expansion of
its branch network, and employment and tax matters.
A priority that began in 2004 was expanding and
strengthening the Corporations Anti-Money Laundering
(AML) program. Efforts around this program will result in a
system of stronger measures and safeguards. The
Corporations intent is to create a comprehensive program
that embeds AML procedures in the Corporations
53
culture through the use of sophisticated
Know Your Customer analytical software tools, the
implementation of software tools needed to identify potentially
suspicious transactions, and ongoing AML training for employees.
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, market and
liquidity, operational or compliance 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 intends to use situational analysis and other
testing techniques to appreciate the scope and extent of these
risks.
CRITICAL ACCOUNTING POLICIES
The Corporations consolidated financial
statements are prepared based on the application of accounting
policies, the most significant of which are described on
page 64 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 Corporations
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 Corporations 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. Managements 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, and 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, retailers,
contractors, technology-related, entertainment, air
transportation and healthcare industries, Small Business
Administration loans and certain Latin American 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
54
system, limited historical perspective in the
application of the Corporations recently enhanced
portfolio analytical tools 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, 2004 would change by
approximately $12 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 section in this financial review on
page 29, and Note 1 to the consolidated financial
statements on page 64. 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 industry
specific and geographic allowance, and unallocated allowance for
loan losses are 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.
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 the
Moodys Investors Service Aa Corporate Bond Index in
December, the last month prior to the year of recording the
expense. The Corporation utilizes the Aa Corporate Bond Index
from Moodys Investors Service as this rate approximates
the aggregation of rates on bonds matching the plans cash
flows. 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 16 on
page 85. 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
years increase. The Corporation reviews its pension plan
assumptions on an annual basis with its actuarial consultants 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 2005 expense for the defined benefit pension plans
are a discount rate of 5.75%, a long-term rate of return on
assets of 8.75%, and a rate of compensation increase of 4%.
Pension expense in 2005 is expected to be approximately
$32 million, an increase of $16 million from the
$16 million recorded in 2004, primarily due to changes in
the discount rate, the normal retirement age, and plan
demographics and progression.
Changing 2005 key assumptions in 25 basis point
increments would have had the following impact on pension
expense:
Key
Assumptions
|
|
|
|
|
|
|
(in millions) | |
Discount rate
|
|
$ |
5.0 |
|
Long-term rate of return
|
|
|
2.5 |
|
Rate of compensation
|
|
|
2.2 |
|
If the assumed long-term return on assets differs
from the actual return on assets, the asset gains and losses are
incorporated in the market-related value, which is used to
determine the expected return on assets, over a
55
five-year period. 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 16 on page 85 to the consolidated
financial statements contains a table showing the funded status
of the qualified defined benefit plan at year-end which was
$54 million at December 31, 2004. As the table
illustrates, the actuarial loss in the qualified defined benefit
plan at December 31, 2004 increased to $295 million,
compared to an actuarial loss of $284 million at
December 31, 2003. Unless recovered in the market, this
loss will be amortized to pension expense in future years. For
further information, refer to Note 1 to the consolidated
financial statements on page 64. In 2004, the actual return
on assets was $112 million, compared to a return on assets
of $130 million in 2003. The Corporation contributed
$62 million and $46 million, in 2004 and 2003,
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
segments share of salaries expense. Given the salaries
expense included in 2004 segment results, pension expense was
allocated approximately 42%, 30%, 27% and 1% to the Small
Business and Personal Financial Services, Business Bank, Wealth
and Institutional Management and Finance segments, respectively,
in 2004.
A minimum pension liability is required to be
recorded in shareholders equity as part of accumulated
other comprehensive income (loss) for pension plans where
the accrued benefit cost is less than the accumulated benefit
obligation. An after-tax minimum pension liability of
$13 million for the non-qualified defined benefit pension
plan was included in shareholders equity as part of
accumulated other comprehensive income (loss) at
December 31, 2004 and 2003.
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 Corporations
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 Corporations
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 Corporations 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, 2004, 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 2004. For a further discussion of the Corporations
goodwill, refer to Note 7 to the consolidated financial
statements on page 75.
56
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
(Munders U.K. unconsolidated subsidiary). Increasing each
of the discount rates by 200 basis points would result in a
decrease in the valuation of approximately $21 million at
the midpoint of the valuation range. The market growth rate
assumptions used for Munder were approximately 7% for equity, 2%
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 $46 million at
the midpoint of the valuation range. The new business growth
assumption used for Munder was approximately 4% (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
$23 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, 2004,
management estimates that it would take a decline in the fair
value of the asset management reporting unit of
$125 million to trigger impairment.
57
FORWARD-LOOKING STATEMENTS
This report includes 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. All statements regarding the Corporations
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, objective and variations of such
words and similar expressions, or future or conditional verbs
such as will, would, should,
could, might, can,
may or similar expressions as they relate to the
Corporation or its management, are intended to identify
forward-looking statements.
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 Corporations
SEC reports (accessible on the SECs website at
www.sec.gov or on the Corporations 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. The Corporation cautions
that these factors are not exclusive.
|
|
|
|
|
general political, economic or industry
conditions, either domestically or internationally, may be less
favorable than expected;
|
|
|
|
developments concerning credit quality in various
industry sectors may result in an increase in the level of the
Corporations provision for credit losses, nonperforming
assets, net charge-offs and reserve for credit losses;
|
|
|
|
industries in which the Corporation has lending
concentrations, including, but not limited to, the automotive
industry, could suffer a significant decline which could
adversely affect the Corporation;
|
|
|
|
demand for commercial loans and investment
advisory products may not accelerate as expected;
|
|
|
|
the mix of interest rates and maturities of the
Corporations interest earning assets and interest-bearing
liabilities (primarily loans and deposits) may be less favorable
than expected;
|
|
|
|
interest rate margin changes may be greater than
expected;
|
|
|
|
there could be fluctuations in inflation or
interest rates;
|
|
|
|
there could be changes in trade, monetary and
fiscal policies, including, but not limited to, the interest
rate policies of the Board of Governors of the Federal Reserve
System;
|
|
|
|
customer borrowing, repayment, investment and
deposit practices generally may be different than anticipated;
|
|
|
|
managements ability to maintain and expand
customer relationships may differ from expectations;
|
|
|
|
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, and plans to grow personal financial services and
wealth management, may be less successful or may be different
than anticipated;
|
|
|
|
competitive product and pricing pressures among
financial institutions within the Corporations markets may
change;
|
|
|
|
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;
|
58
|
|
|
|
|
instruments, systems and strategies used to hedge
or otherwise manage exposure to various types of credit, market
and liquidity, operational, compliance and business risks 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;
|
|
|
|
there could be terrorist activities or other
hostilities, which may adversely affect the general economy,
financial and capital markets, specific industries, and the
Corporation;
|
|
|
|
there could be changes in applicable laws and
regulations, including, but not limited to, those concerning
taxes, banking, securities, and insurance; and
|
|
|
|
there could be adverse conditions in the stock
market.
|
59
CONSOLIDATED BALANCE SHEETS
Comerica Incorporated and
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions, except | |
|
|
share data) | |
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$ |
1,139 |
|
|
$ |
1,527 |
|
Short-term investments
|
|
|
3,230 |
|
|
|
4,013 |
|
Investment securities available-for-sale
|
|
|
3,943 |
|
|
|
4,489 |
|
|
Commercial loans
|
|
|
22,039 |
|
|
|
21,579 |
|
Real estate construction loans
|
|
|
3,053 |
|
|
|
3,397 |
|
Commercial mortgage loans
|
|
|
8,236 |
|
|
|
7,878 |
|
Residential mortgage loans
|
|
|
1,294 |
|
|
|
1,228 |
|
Consumer loans
|
|
|
2,751 |
|
|
|
2,610 |
|
Lease financing
|
|
|
1,265 |
|
|
|
1,301 |
|
International loans
|
|
|
2,205 |
|
|
|
2,309 |
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
40,843 |
|
|
|
40,302 |
|
Less allowance for loan losses
|
|
|
(673 |
) |
|
|
(803 |
) |
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
40,170 |
|
|
|
39,499 |
|
Premises and equipment
|
|
|
415 |
|
|
|
374 |
|
Customers liability on acceptances
outstanding
|
|
|
57 |
|
|
|
27 |
|
Accrued income and other assets
|
|
|
2,812 |
|
|
|
2,663 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
51,766 |
|
|
$ |
52,592 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
$ |
15,164 |
|
|
$ |
14,104 |
|
Interest-bearing deposits
|
|
|
25,772 |
|
|
|
27,359 |
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
40,936 |
|
|
|
41,463 |
|
Short-term borrowings
|
|
|
193 |
|
|
|
262 |
|
Acceptances outstanding
|
|
|
57 |
|
|
|
27 |
|
Accrued expenses and other liabilities
|
|
|
1,189 |
|
|
|
929 |
|
Medium- and long-term debt
|
|
|
4,286 |
|
|
|
4,801 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
46,661 |
|
|
|
47,482 |
|
Common stock $5 par value:
|
|
|
|
|
|
|
|
|
|
Authorized 325,000,000 shares
|
|
|
|
|
|
|
|
|
|
Issued 178,735,252 shares at 12/31/04
and 12/31/03
|
|
|
894 |
|
|
|
894 |
|
Capital surplus
|
|
|
421 |
|
|
|
384 |
|
Accumulated other comprehensive income (loss)
|
|
|
(69 |
) |
|
|
74 |
|
Retained earnings
|
|
|
4,331 |
|
|
|
3,973 |
|
Less cost of common stock in treasury
8,259,328 shares at 12/31/04 and 3,735,163 shares at 12/31/03
|
|
|
(472 |
) |
|
|
(215 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
5,105 |
|
|
|
5,110 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
51,766 |
|
|
$ |
52,592 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
60
CONSOLIDATED STATEMENTS OF INCOME
Comerica Incorporated and
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions, except per share data) | |
INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$ |
2,054 |
|
|
$ |
2,211 |
|
|
$ |
2,524 |
|
Interest on investment securities
|
|
|
147 |
|
|
|
165 |
|
|
|
246 |
|
Interest on short-term investments
|
|
|
36 |
|
|
|
36 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
2,237 |
|
|
|
2,412 |
|
|
|
2,797 |
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
315 |
|
|
|
370 |
|
|
|
479 |
|
Interest on short-term borrowings
|
|
|
4 |
|
|
|
7 |
|
|
|
37 |
|
Interest on medium- and long-term debt
|
|
|
108 |
|
|
|
109 |
|
|
|
149 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
427 |
|
|
|
486 |
|
|
|
665 |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
1,810 |
|
|
|
1,926 |
|
|
|
2,132 |
|
Provision for loan losses
|
|
|
64 |
|
|
|
377 |
|
|
|
635 |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan
losses
|
|
|
1,746 |
|
|
|
1,549 |
|
|
|
1,497 |
|
NONINTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
231 |
|
|
|
238 |
|
|
|
227 |
|
Fiduciary income
|
|
|
171 |
|
|
|
169 |
|
|
|
171 |
|
Commercial lending fees
|
|
|
55 |
|
|
|
63 |
|
|
|
69 |
|
Letter of credit fees
|
|
|
66 |
|
|
|
65 |
|
|
|
60 |
|
Foreign exchange income
|
|
|
37 |
|
|
|
36 |
|
|
|
38 |
|
Brokerage fees
|
|
|
36 |
|
|
|
34 |
|
|
|
38 |
|
Investment advisory revenue, net
|
|
|
35 |
|
|
|
30 |
|
|
|
27 |
|
Card fees
|
|
|
32 |
|
|
|
27 |
|
|
|
23 |
|
Bank-owned life insurance
|
|
|
34 |
|
|
|
42 |
|
|
|
53 |
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
12 |
|
|
|
6 |
|
|
|
8 |
|
Warrant income
|
|
|
7 |
|
|
|
4 |
|
|
|
5 |
|
Net securities gains
|
|
|
|
|
|
|
50 |
|
|
|
41 |
|
Net gain on sales of businesses
|
|
|
7 |
|
|
|
|
|
|
|
12 |
|
Other noninterest income
|
|
|
134 |
|
|
|
123 |
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
857 |
|
|
|
887 |
|
|
|
900 |
|
NONINTEREST EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
919 |
|
|
|
897 |
|
|
|
844 |
|
Net occupancy expense
|
|
|
125 |
|
|
|
128 |
|
|
|
122 |
|
Equipment expense
|
|
|
58 |
|
|
|
61 |
|
|
|
62 |
|
Outside processing fee expense
|
|
|
68 |
|
|
|
71 |
|
|
|
65 |
|
Software expense
|
|
|
43 |
|
|
|
37 |
|
|
|
33 |
|
Customer services
|
|
|
23 |
|
|
|
25 |
|
|
|
26 |
|
Litigation and operational losses
|
|
|
24 |
|
|
|
18 |
|
|
|
20 |
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
86 |
|
Other noninterest expenses
|
|
|
233 |
|
|
|
246 |
|
|
|
257 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
1,493 |
|
|
|
1,483 |
|
|
|
1,515 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,110 |
|
|
|
953 |
|
|
|
882 |
|
Provision for income taxes
|
|
|
353 |
|
|
|
292 |
|
|
|
281 |
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$ |
757 |
|
|
$ |
661 |
|
|
$ |
601 |
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$ |
4.41 |
|
|
$ |
3.78 |
|
|
$ |
3.43 |
|
Diluted net income per common share
|
|
|
4.36 |
|
|
|
3.75 |
|
|
|
3.40 |
|
Cash dividends declared on common stock
|
|
|
356 |
|
|
|
350 |
|
|
|
335 |
|
Cash dividends declared per common share
|
|
|
2.08 |
|
|
|
2.00 |
|
|
|
1.92 |
|
See notes to consolidated financial statements.
61
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY
Comerica Incorporated and
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
|
|
|
|
Total | |
|
|
Common | |
|
Capital | |
|
Comprehensive | |
|
Retained | |
|
Treasury | |
|
Shareholders | |
|
|
Stock | |
|
Surplus | |
|
Income (Loss) | |
|
Earnings | |
|
Stock | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions, except share data) | |
BALANCE AT JANUARY 1, 2002
|
|
$ |
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
757 |
|
|
|
|
|
|
|
757 |
|
Other comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
(143 |
) |
|
|
|
|
|
|
|
|
|
|
(143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
614 |
|
Cash dividends declared on common stock ($2.08
per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(356 |
) |
|
|
|
|
|
|
(356 |
) |
Purchase of 6,526,911 shares of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(370 |
) |
|
|
(370 |
) |
Net issuance of common stock under employee stock
plans
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
(43 |
) |
|
|
113 |
|
|
|
72 |
|
Recognition of stock-based compensation expense
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2004
|
|
$ |
894 |
|
|
$ |
421 |
|
|
$ |
(69 |
) |
|
$ |
4,331 |
|
|
$ |
(472 |
) |
|
$ |
5,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
62
CONSOLIDATED STATEMENTS OF CASH
FLOWS
Comerica Incorporated and
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
757 |
|
|
$ |
661 |
|
|
$ |
601 |
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
64 |
|
|
|
377 |
|
|
|
635 |
|
|
Depreciation and software amortization
|
|
|
70 |
|
|
|
69 |
|
|
|
69 |
|
|
Amortization of stock-based compensation expense
|
|
|
34 |
|
|
|
28 |
|
|
|
25 |
|
|
Net amortization of securities
|
|
|
24 |
|
|
|
29 |
|
|
|
13 |
|
|
Net amortization of intangibles
|
|
|
1 |
|
|
|
1 |
|
|
|
4 |
|
|
Merger-related and restructuring charges
|
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
Net gain on sale of investment securities
available-for-sale
|
|
|
|
|
|
|
(50 |
) |
|
|
(41 |
) |
|
Net gain on sales of businesses
|
|
|
(7 |
) |
|
|
|
|
|
|
(12 |
) |
|
Contributions to pension plan fund
|
|
|
(62 |
) |
|
|
(46 |
) |
|
|
(175 |
) |
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
86 |
|
|
Net (increase) decrease in trading securities
|
|
|
(9 |
) |
|
|
1 |
|
|
|
71 |
|
|
Net decrease in loans held-for-sale
|
|
|
115 |
|
|
|
62 |
|
|
|
118 |
|
|
Net (increase) decrease in accrued income
receivable
|
|
|
(145 |
) |
|
|
18 |
|
|
|
45 |
|
|
Net increase (decrease) in accrued expenses
|
|
|
229 |
|
|
|
90 |
|
|
|
(19 |
) |
|
Other, net
|
|
|
(43 |
) |
|
|
81 |
|
|
|
(184 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
271 |
|
|
|
660 |
|
|
|
627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,028 |
|
|
|
1,321 |
|
|
|
1,228 |
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease (increase) in other short-term
investments
|
|
|
677 |
|
|
|
(1,630 |
) |
|
|
(1,436 |
) |
Proceeds from sales of investment securities
available-for-sale
|
|
|
337 |
|
|
|
4,030 |
|
|
|
2,871 |
|
Proceeds from maturities of investment securities
available-for-sale
|
|
|
1,032 |
|
|
|
4,987 |
|
|
|
2,042 |
|
Purchases of investment securities
available-for-sale
|
|
|
(867 |
) |
|
|
(10,416 |
) |
|
|
(3,691 |
) |
Decrease (increase) in receivables for
securities sold pending settlement
|
|
|
|
|
|
|
1,110 |
|
|
|
(1,110 |
) |
Net (increase) decrease in loans
|
|
|
(773 |
) |
|
|
1,589 |
|
|
|
(1,673 |
) |
Fixed assets, net
|
|
|
(95 |
) |
|
|
(59 |
) |
|
|
(80 |
) |
Purchase of bank-owned life insurance
|
|
|
|
|
|
|
|
|
|
|
(8 |
) |
Net (increase) decrease in customers
liability on acceptances outstanding
|
|
|
(30 |
) |
|
|
6 |
|
|
|
(4 |
) |
Proceeds from sales of businesses
|
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities
|
|
|
289 |
|
|
|
(383 |
) |
|
|
(3,081 |
) |
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in deposits
|
|
|
(527 |
) |
|
|
(307 |
) |
|
|
4,212 |
|
Net decrease in short-term borrowings
|
|
|
(69 |
) |
|
|
(278 |
) |
|
|
(1,446 |
) |
Net increase (decrease) in acceptances
outstanding
|
|
|
30 |
|
|
|
(6 |
) |
|
|
4 |
|
Proceeds from issuance of medium- and long-term
debt
|
|
|
364 |
|
|
|
511 |
|
|
|
1,106 |
|
Repayments of medium- and long-term debt
|
|
|
(848 |
) |
|
|
(875 |
) |
|
|
(1,555 |
) |
Proceeds from issuance of common stock and other
capital transactions
|
|
|
72 |
|
|
|
16 |
|
|
|
50 |
|
Purchase of common stock for treasury and
retirement
|
|
|
(370 |
) |
|
|
(27 |
) |
|
|
(210 |
) |
Dividends paid
|
|
|
(357 |
) |
|
|
(347 |
) |
|
|
(331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing
activities
|
|
|
(1,705 |
) |
|
|
(1,313 |
) |
|
|
1,830 |
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and due from banks
|
|
|
(388 |
) |
|
|
(375 |
) |
|
|
(23 |
) |
Cash and due from banks at beginning of year
|
|
|
1,527 |
|
|
|
1,902 |
|
|
|
1,925 |
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks at end of year
|
|
$ |
1,139 |
|
|
$ |
1,527 |
|
|
$ |
1,902 |
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
413 |
|
|
$ |
457 |
|
|
$ |
693 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$ |
186 |
|
|
$ |
148 |
|
|
$ |
244 |
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans transferred to other real estate
|
|
$ |
33 |
|
|
$ |
32 |
|
|
$ |
9 |
|
|
Loans transferred to loans held-for-sale
|
|
|
|
|
|
|
|
|
|
|
120 |
|
See notes to consolidated financial statements.
63
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
Corporations 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 24 on page 104. The
core businesses are tailored to each of the Corporations
four primary geographic regions: Midwest and Other Markets,
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 U.S. generally accepted accounting
principles and prevailing practices within the banking industry.
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles 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. The financial statements for prior years have been
reclassified to conform with current financial statement
presentation.
In January 2003, the Financial Accounting
Standards Board (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 companys 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 22 on page 99.
In general, a VIE is an entity that either
(1) has an insufficient amount of equity to carry out its
principal activities without additional subordinated financial
support, (2) has a group of equity owners that are unable
to make significant decisions about its activities, or
(3) has a group of equity owners that do not have the
obligation to absorb losses or the right to receive returns
generated by its operations. If any 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 entitys outstanding
voting stock. Variable interests are defined as contractual,
ownership, or other money interests in an entity that change
with fluctuations in the entitys 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 VIEs when it
holds a majority (controlling) interest in the entitys
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
VIEs where the Corporation owns less than a majority
(controlling) interest and equity investments in entities that
are VIEs 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 a corporate joint
venture and investments where the Corporation has the ability to
exercise significant influence over the investees
operation and financial policies,
64
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
which is generally presumed to exist if the
Corporation owns more than 20% of the voting interest 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. Unconsolidated 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 distributions
(net of 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 distributions (net of
write-downs) recorded in other noninterest income on
the consolidated statements of income.
Reclassifications
The Corporation issues personal purpose loans to
individuals associated with commercial lending relationships.
These loans, and their associated interest income, were
previously classified with commercial loans. In the second
quarter of 2004, the Corporation reclassified its personal
purpose loans to residential mortgage loans and consumer loans.
The financial statements and associated schedules for prior
years have been adjusted to reflect this reclassification. The
impact on loan balances at December 31, 2003 was a decrease
in commercial loans of approximately $1.4 billion, offset
by increases in residential mortgage loans and consumer loans of
approximately $0.4 billion and $1.0 billion,
respectively.
The Corporation has foreign currency denominated
assets and liabilities and hedges the resulting foreign currency
exposure with forward foreign exchange contracts. The exchange
rate related adjustments required to reflect the foreign
currency denominated assets and liabilities at current U.S.
dollar equivalent values and to reflect the related forward
foreign exchange contracts at market value were previously
classified with foreign exchange income. In the third quarter of
2004, the Corporation combined this risk management income with
other risk management income, which resulted in a
reclassification from foreign exchange income to
other noninterest income on the consolidated
statements of income. The impact on foreign exchange
income was an increase of $1 million in 2003 and a
decrease of $2 million in 2002, with offsets to other
noninterest income. The financial statements for prior
years have been adjusted to reflect this reclassification.
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.
65
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
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
managements assessment of probable losses inherent in the
Corporations loan portfolio. The allowance provides for
probable losses that have been identified with specific customer
relationships and for probable losses believed to be inherent in
the loan portfolio, 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 senior management. The Corporation performs
a detailed credit quality review quarterly on both large
business and certain large personal purpose consumer and
residential mortgage loans to individuals 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 other consumer and residential mortgage 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 certain portfolios on migration and
loss given default studies from each geographic market.
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
Corporations 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 instability 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
66
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
weakening of the borrowers 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 3 on page 73 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.
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.
Goodwill and
Other Intangible Assets
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
67
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
impairment test involves assigning tangible
assets and liabilities, identified intangible assets and
goodwill to reporting units, which are a subset of the
Corporations 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.
Other intangible assets that do not have
indefinite lives are amortized over their useful lives. Core
deposit intangible assets are amortized on an accelerated method
over 10 years.
Additional information regarding the
Corporations goodwill, intangible assets and impairment
policies can be found in Notes 7 and 8 on pages 75 and
76, respectively.
Stock-Based
Compensation
In 2002, the Corporation adopted the fair value
recognition provisions of Statement of Financial Accounting
Standards (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 Corporations 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 2004, 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
2004, 2003 and 2002 net income was a decrease of
$18 million, $13 million and $11 million,
respectively. 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, 2004, is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions, except | |
|
|
per share data) | |
Net income applicable to common stock, as reported
|
|
$ |
757 |
|
|
$ |
661 |
|
|
$ |
601 |
|
Add: Stock-based compensation expense included in
reported net income, net of related tax effects
|
|
|
22 |
|
|
|
18 |
|
|
|
17 |
|
Deduct: Total stock-based compensation expense
determined under fair value method for all awards, net of
related tax effects
|
|
|
(27 |
) |
|
|
(26 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net income applicable to common stock
|
|
$ |
752 |
|
|
$ |
653 |
|
|
$ |
588 |
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$ |
4.41 |
|
|
$ |
3.78 |
|
|
$ |
3.43 |
|
|
Basic pro forma
|
|
|
4.38 |
|
|
|
3.74 |
|
|
|
3.36 |
|
|
Diluted as reported
|
|
|
4.36 |
|
|
|
3.75 |
|
|
|
3.40 |
|
|
Diluted pro forma
|
|
|
4.32 |
|
|
|
3.70 |
|
|
|
3.32 |
|
Further information on the Corporations
stock-based compensation plans is included in Note 15 on
page 83.
68
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Pension
Costs
Pension costs are charged to salaries and
employee benefits expense and are funded consistent with the
requirements of federal law and regulations. Inherent in the
determination of pension costs are assumptions concerning future
events that will affect the amount and timing of required
benefit payments under the plans. These assumptions include
demographic assumptions such as retirement age and death, a
compensation rate increase, a discount rate used to determine
the current benefit obligation, and a long-term expected return
on plan assets. Net periodic pension expense includes service
cost, interest costs based on the assumed discount rate, an
expected return on plan assets based on an actuarially derived
market-related value of assets, and amortization of unrecognized
liabilities such as prior service cost and actuarial gains and
losses. The market-related value used to determine the expected
return on plan assets is based on fair value adjusted for the
difference between expected returns and actual asset
performance. The asset gains and losses are incorporated in the
market-related value over a five-year period. Prior service
costs include the impact of plan amendments on the liabilities
and are amortized over the future service periods of active
employees expected to receive benefits under the plan. Actuarial
gains and losses result from experience different from that
assumed and from changes in assumptions (excluding asset gains
and losses not yet reflected in market-related value).
Amortization of actuarial gains and losses is included as a
component of net periodic pension cost for a year if the
unrecognized net gain or loss exceeds 10 percent of the
greater of the projected benefit obligation or the
market-related value of plan assets. If amortization is
required, the excess is amortized over the average remaining
service period of participating employees expected to receive
benefits under the plan.
Postretirement
Benefits
Postretirement benefits are recognized in
salaries and employee benefits on the consolidated
statements of income during the employees 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 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.
69
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Standby and
Commercial Letters of Credit and Financial
Guarantees
In November 2002, the FASB issued Interpretation
No. 45, Guarantors 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 Corporations obligations
under guarantees is included in Note 20 on page 93.
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 generally recorded as a reduction
to the capitalized costs, unless there is evidence that, on an
ongoing basis, amounts collected will exceed the unamortized
deferred fee asset.
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 (Loss)
The Corporation has elected to present
information on comprehensive income in the Consolidated
Statements of Changes in Shareholders Equity on
page 62 and in Note 13 on page 81.
70
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 2 Investment
Securities
A summary of the Corporations investment
securities available-for-sale follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
|
Gross | |
|
|
|
|
Amortized | |
|
Unrealized | |
|
Unrealized | |
|
|
|
|
Cost | |
|
Gains | |
|
Losses | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
(in millions) | |
|
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other Government agency
securities
|
|
$ |
3,810 |
|
|
$ |
1 |
|
|
$ |
55 |
|
|
$ |
3,756 |
|
|
State and municipal securities
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
Other securities
|
|
|
179 |
|
|
|
1 |
|
|
|
|
|
|
|
180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available-for-sale
|
|
$ |
3,996 |
|
|
$ |
2 |
|
|
$ |
55 |
|
|
$ |
3,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the Corporations temporarily
impaired investment securities available-for-sale follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 | |
|
|
| |
|
|
|
|
|
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
|
|
$ |
920 |
|
|
$ |
12 |
|
|
$ |
2,513 |
|
|
$ |
43 |
|
|
$ |
3,433 |
|
|
$ |
55 |
|
State and municipal securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$ |
920 |
|
|
$ |
12 |
|
|
$ |
2,513 |
|
|
$ |
43 |
|
|
$ |
3,433 |
|
|
$ |
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004, the Corporation had 86
U.S. Treasury and other Government agency securities in an
unrealized loss position. The unrealized losses resulted from
changes in market interest rates, not credit quality. The
Corporation has the ability and intent to hold these
available-for-sale investment securities until maturity or
market price recovery, and full collection of the amounts due
according to the contractual terms of the debt is expected;
therefore, the Corporation does not consider these investments
to be other than temporarily impaired at December 31, 2004.
71
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
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, 2004 | |
|
|
| |
|
|
Amortized | |
|
Fair | |
|
|
Cost | |
|
Value | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Contractual maturity
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$ |
181 |
|
|
$ |
181 |
|
|
After one year through five years
|
|
|
11 |
|
|
|
12 |
|
|
After five year through ten years
|
|
|
2 |
|
|
|
2 |
|
|
After ten years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
194 |
|
|
|
195 |
|
|
Mortgage-backed securities
|
|
|
3,723 |
|
|
|
3,669 |
|
|
Equity and other nondebt securities
|
|
|
79 |
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
Total securities available-for-sale
|
|
$ |
3,996 |
|
|
$ |
3,943 |
|
|
|
|
|
|
|
|
Sales, calls and write-downs of investment
securities available-for-sale resulted in realized gains and
losses as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended | |
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Securities gains
|
|
$ |
6 |
|
|
$ |
64 |
|
|
$ |
78 |
|
Securities losses
|
|
|
(6 |
) |
|
|
(14 |
) |
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
|
|
|
$ |
50 |
|
|
$ |
41 |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004, investment securities
having a carrying value of $1.3 billion were pledged where
permitted or required by law to secure liabilities and public
and other deposits of $402 million. This included
securities of $837 million pledged with the Federal Reserve
Bank to secure actual treasury tax and loan borrowings of
$3 million at December 31, 2004, and potential
borrowings of up to an additional $810 million. The
remaining pledged securities of $509 million are primarily
with state and local government agencies to secure
$399 million of deposits and other liabilities, including
deposits of the State of Michigan of $138 million at
December 31, 2004.
72
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 3 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Nonaccrual loans:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$ |
161 |
|
|
$ |
295 |
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
Real estate construction business line
|
|
|
31 |
|
|
|
21 |
|
|
|
Other
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
34 |
|
|
|
24 |
|
|
Commercial mortgage:
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate business line
|
|
|
6 |
|
|
|
3 |
|
|
|
Other
|
|
|
58 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
Total commercial mortgage
|
|
|
64 |
|
|
|
87 |
|
|
Residential mortgage
|
|
|
1 |
|
|
|
2 |
|
|
Consumer
|
|
|
1 |
|
|
|
7 |
|
|
Lease financing
|
|
|
15 |
|
|
|
24 |
|
|
International
|
|
|
36 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans
|
|
|
312 |
|
|
|
507 |
|
Reduced-rate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
312 |
|
|
|
507 |
|
Other real estate
|
|
|
27 |
|
|
|
30 |
|
Nonaccrual debt securities
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$ |
339 |
|
|
$ |
538 |
|
|
|
|
|
|
|
|
Loans past due 90 days and still accruing
|
|
$ |
15 |
|
|
$ |
32 |
|
|
|
|
|
|
|
|
Gross interest income that would have been
recorded had the nonaccrual and reduced-rate loans performed in
accordance with original terms
|
|
$ |
34 |
|
|
$ |
59 |
|
|
|
|
|
|
|
|
Interest income recognized
|
|
$ |
5 |
|
|
$ |
12 |
|
|
|
|
|
|
|
|
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, 2004 were
$318 million, $8 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.
73
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Average impaired loans for the year
|
|
$ |
424 |
|
|
$ |
593 |
|
|
$ |
628 |
|
|
|
|
|
|
|
|
|
|
|
Total year-end impaired loans
|
|
$ |
318 |
|
|
$ |
512 |
|
|
$ |
578 |
|
Less: Loans restructured during the year on
accrual status at year-end
|
|
|
(8 |
) |
|
|
(14 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
Total year-end nonaccrual business loans
|
|
$ |
310 |
|
|
$ |
498 |
|
|
$ |
559 |
|
|
|
|
|
|
|
|
|
|
|
Year-end impaired loans requiring an allowance
|
|
$ |
306 |
|
|
$ |
468 |
|
|
$ |
512 |
|
|
|
|
|
|
|
|
|
|
|
Allowance allocated to impaired loans
|
|
$ |
88 |
|
|
$ |
167 |
|
|
$ |
197 |
|
|
|
|
|
|
|
|
|
|
|
Those impaired loans not requiring an allowance
represent loans for which the fair value exceeded the recorded
investments in such loans. At December 31, 2004,
approximately 90 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 loans effective interest rate
or observable market value.
Note 4 Allowance for Loan
Losses
An analysis of changes in the allowance for loan
losses follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Balance at January 1
|
|
$ |
803 |
|
|
$ |
791 |
|
|
$ |
637 |
|
Loans charged-off
|
|
|
(268 |
) |
|
|
(408 |
) |
|
|
(517 |
) |
Recoveries on loans previously charged-off
|
|
|
74 |
|
|
|
43 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
Net loans charged-off
|
|
|
(194 |
) |
|
|
(365 |
) |
|
|
(481 |
) |
Provision for loan losses
|
|
|
64 |
|
|
|
377 |
|
|
|
635 |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$ |
673 |
|
|
$ |
803 |
|
|
$ |
791 |
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total loans
|
|
|
1.65 |
% |
|
|
1.99 |
% |
|
|
1.87 |
% |
Note 5 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,
California and Texas. In addition, the Corporation has an
industry concentration with the automotive industry.
At December 31, 2004 and 2003, exposure from
loans, unused commitments and standby letters of credit and
financial guarantees to companies related to the automotive
industry totaled $11.0 billion and $10.7 billion,
respectively. Additionally, commercial real estate loans,
including real estate construction and commercial mortgage
loans, totaled $11.3 billion at both December 31, 2004
and 2003. Of the commercial real estate loans at
December 31, 2004, $7.3 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 $3.1 billion and
$2.8 billion at December 31, 2004 and 2003,
respectively.
74
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 6 Premises &
Equipment
A summary of premises and equipment by major
category follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Land
|
|
$ |
67 |
|
|
$ |
57 |
|
Buildings and improvements
|
|
|
486 |
|
|
|
441 |
|
Furniture and equipment
|
|
|
384 |
|
|
|
377 |
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
937 |
|
|
|
875 |
|
Less: Accumulated depreciation and amortization
|
|
|
(522 |
) |
|
|
(501 |
) |
|
|
|
|
|
|
|
|
Net book value
|
|
$ |
415 |
|
|
$ |
374 |
|
|
|
|
|
|
|
|
The Corporation conducts a portion of its
business from leased facilities and leases certain equipment.
Rental expense for leased properties and equipment amounted to
$66 million, $70 million and $59 million in 2004,
2003 and 2002, respectively. As of December 31, 2004,
future minimum payments under operating leases and other
long-term obligations are as follows:
|
|
|
|
|
|
|
|
Years Ending | |
|
|
December 31 | |
|
|
| |
|
|
(in millions) | |
2005
|
|
$ |
84 |
|
2006
|
|
|
69 |
|
2007
|
|
|
46 |
|
2008
|
|
|
41 |
|
2009
|
|
|
36 |
|
Thereafter
|
|
|
236 |
|
|
|
|
|
|
Total
|
|
$ |
512 |
|
|
|
|
|
Note 7 Goodwill and Other
Intangible Assets
In accordance with the Corporations
adoption of SFAS No. 142, Goodwill and Other
Intangible Assets, 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 Corporations 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 impairment test of
goodwill and indefinite-lived intangible assets, performed as of
July 1, 2004 and 2003, did not indicate an impairment
charge was required.
75
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
The changes in the carrying amount of goodwill
for the years ended December 31, 2004, 2003 and 2002, are
shown in the following table. Amounts in all periods are based
on lines of business in effect at December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business | |
|
Wealth and | |
|
|
|
|
Business | |
|
and Personal | |
|
Institutional | |
|
|
|
|
Bank | |
|
Financial Services | |
|
Management | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Balance at January 1, 2002
|
|
$ |
90 |
|
|
$ |
47 |
|
|
$ |
196 |
|
|
$ |
333 |
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
(86 |
) |
|
|
(86 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
$ |
90 |
|
|
$ |
47 |
|
|
$ |
110 |
|
|
$ |
247 |
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
$ |
90 |
|
|
$ |
47 |
|
|
$ |
110 |
|
|
$ |
247 |
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
90 |
|
|
$ |
47 |
|
|
$ |
110 |
|
|
$ |
247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8 Acquired Intangible
Assets
Amortized intangible assets consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
Gross | |
|
|
|
Gross | |
|
|
|
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
Accumulated | |
Amortized Intangible Assets |
|
Amount | |
|
Amortization | |
|
Amount | |
|
Amortization | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Core deposit intangibles
|
|
$ |
3 |
|
|
$ |
3 |
|
|
$ |
14 |
|
|
$ |
13 |
|
Other
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
4 |
|
|
$ |
3 |
|
|
$ |
15 |
|
|
$ |
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortization expense related to acquired
intangible assets amounted to $1 million in both 2004 and
2003 and $4 million in 2002. The remaining $1 million of
amortization expense related to acquired intangible assets will
be recognized in 2005.
Note 9 Deposits
A maturity distribution of domestic certificates
of deposit of $100,000 and over follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Three months or less
|
|
$ |
1,154 |
|
|
$ |
1,733 |
|
Over three months to six months
|
|
|
443 |
|
|
|
345 |
|
Over six months to twelve months
|
|
|
555 |
|
|
|
1,102 |
|
Over twelve months
|
|
|
453 |
|
|
|
639 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
2,605 |
|
|
$ |
3,819 |
|
|
|
|
|
|
|
|
76
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 10 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, 2004
|
|
|
|
|
|
|
|
|
|
Amount outstanding at year-end
|
|
$ |
161 |
|
|
$ |
32 |
|
|
Weighted average interest rate at year-end
|
|
|
2.14 |
% |
|
|
2.60 |
% |
|
Maximum month-end balance during the year
|
|
$ |
253 |
|
|
$ |
154 |
|
|
Average balance outstanding during the year
|
|
|
215 |
|
|
|
60 |
|
|
Weighted average interest rate during the year
|
|
|
1.31 |
% |
|
|
1.06 |
% |
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 |
% |
At December 31, 2004, 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 2005.
At December 31, 2004, the Corporations
subsidiary banks had pledged loans totaling $18 billion to
secure a $14 billion collateralized borrowing account with
the Federal Reserve Bank.
77
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 11 Medium- & Long-Term
Debt
Medium- and long-term debt are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Parent company
|
|
|
|
|
|
|
|
|
|
7.25% subordinated note due 2007
|
|
$ |
163 |
|
|
$ |
170 |
|
|
4.80% subordinated note due 2015
|
|
|
304 |
|
|
|
301 |
|
|
7.60% subordinated note due 2050
|
|
|
357 |
|
|
|
355 |
|
|
|
|
|
|
|
|
Total parent company
|
|
|
824 |
|
|
|
826 |
|
Subsidiaries
|
|
|
|
|
|
|
|
|
Subordinated notes:
|
|
|
|
|
|
|
|
|
|
7.25% subordinated note due 2007
|
|
|
216 |
|
|
|
225 |
|
|
6.00% subordinated note due 2008
|
|
|
270 |
|
|
|
276 |
|
|
6.875% subordinated note due 2008
|
|
|
109 |
|
|
|
114 |
|
|
8.50% subordinated note due 2009
|
|
|
107 |
|
|
|
110 |
|
|
7.65% subordinated note due 2010
|
|
|
256 |
|
|
|
270 |
|
|
7.125% subordinated note due 2013
|
|
|
169 |
|
|
|
172 |
|
|
5.70% subordinated note due 2014
|
|
|
262 |
|
|
|
|
|
|
8.375% subordinated note due 2024
|
|
|
197 |
|
|
|
198 |
|
|
7.875% subordinated note due 2026
|
|
|
200 |
|
|
|
197 |
|
|
9.98% subordinated note due 2026
|
|
|
58 |
|
|
|
59 |
|
|
|
|
|
|
|
|
Total subordinated notes
|
|
|
1,844 |
|
|
|
1,621 |
|
Medium-term notes:
|
|
|
|
|
|
|
|
|
|
Floating rate based on LIBOR indices
|
|
|
385 |
|
|
|
1,135 |
|
|
2.95% fixed rate note
|
|
|
99 |
|
|
|
100 |
|
|
2.85% fixed rate note
|
|
|
99 |
|
|
|
100 |
|
Variable rate secured debt financing due 2007
|
|
|
1,017 |
|
|
|
997 |
|
Variable rate note payable due 2009
|
|
|
18 |
|
|
|
22 |
|
|
|
|
|
|
|
|
Total subsidiaries
|
|
|
3,462 |
|
|
|
3,975 |
|
|
|
|
|
|
|
|
Total medium- and long-term debt
|
|
$ |
4,286 |
|
|
$ |
4,801 |
|
|
|
|
|
|
|
|
78
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
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 | |
|
12/31/04 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Parent company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.25% subordinated note due 2007
|
|
$ |
150 |
|
|
|
6-month LIBOR |
|
|
|
2.78 |
% |
|
4.80% subordinated note due 2015
|
|
|
300 |
|
|
|
6-month LIBOR |
|
|
|
2.78 |
|
Subsidiaries Subordinated notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.25% subordinated note due 2007
|
|
|
200 |
|
|
|
6-month LIBOR |
|
|
|
2.78 |
|
|
6.00% subordinated note due 2008
|
|
|
250 |
|
|
|
6-month LIBOR |
|
|
|
2.78 |
|
|
6.875% subordinated note due 2008
|
|
|
100 |
|
|
|
6-month LIBOR |
|
|
|
2.78 |
|
|
8.50% subordinated note due 2009
|
|
|
100 |
|
|
|
3-month LIBOR |
|
|
|
2.56 |
|
|
7.65% subordinated note due 2010
|
|
|
250 |
|
|
|
3-month LIBOR |
|
|
|
2.56 |
|
|
7.125% subordinated note due 2013
|
|
|
150 |
|
|
|
6-month LIBOR |
|
|
|
2.78 |
|
|
5.70% subordinated note due 2014
|
|
|
250 |
|
|
|
6-month LIBOR |
|
|
|
2.78 |
|
|
8.375% subordinated note due 2024
|
|
|
150 |
|
|
|
6-month LIBOR |
|
|
|
2.78 |
|
|
7.875% subordinated note due 2026
|
|
|
150 |
|
|
|
6-month LIBOR |
|
|
|
2.78 |
|
Medium-term notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.95% fixed rate note
|
|
|
100 |
|
|
|
3-month LIBOR |
|
|
|
2.56 |
|
|
2.85% fixed rate note
|
|
|
100 |
|
|
|
3-month LIBOR |
|
|
|
2.56 |
|
In May 2004, Comerica Bank, a subsidiary of
Comerica Incorporated, issued $250 million of 5.70%
Subordinated Notes which are classified in medium- and long-term
debt. The notes pay interest on June 1 and December 1 of each
year, beginning with December 1, 2004 and mature
June 1, 2014. Comerica Bank used the 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). In accordance with
current guidance from the banking regulators these notes
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 minus 0.06% to three-month LIBOR plus 0.245%.
The medium-term notes are due from 2005 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 $1.0 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.
79
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
The principal maturities of medium- and long-term
debt are as follows:
|
|
|
|
|
|
|
|
Years Ending | |
|
|
December 31 | |
|
|
| |
|
|
(in millions) | |
2005
|
|
$ |
285 |
|
2006
|
|
|
200 |
|
2007
|
|
|
1,405 |
|
2008
|
|
|
350 |
|
2009
|
|
|
118 |
|
Thereafter
|
|
|
1,725 |
|
|
|
|
|
|
Total
|
|
$ |
4,083 |
|
|
|
|
|
Note 12 Shareholders
Equity
On December 1, 2003, the Corporation
announced it would resume its share repurchase program pursuant
to its August 2001 Board of Directors resolutions,
authorizing the repurchase of up to 10 million shares of
the Corporations outstanding common stock. On
March 23, 2004, the Board of Directors of the Corporation
authorized the additional purchase of up to 10 million
shares of Comerica Incorporated outstanding common stock.
Substantially all shares purchased as part of the
Corporations publicly announced repurchase plan were
transacted in the open market and were within the scope of
Rule 10b-18, which provides a safe harbor for purchases in
a given day if an issuer of equity securities satisfies the
manner, timing, price and volume conditions of the rule when
purchasing its own common shares in the open market. Repurchases
totaled 6.5 million shares, 0.5 million shares and
3.5 million shares in the years ended December 31,
2004, 2003 and 2002, respectively. The following table
summarizes the Corporations share repurchase activity for
the year ended December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares Purchased as | |
|
Remaining Share | |
|
|
Total Shares | |
|
Average Price | |
|
Part of Publicly Announced | |
|
Repurchase | |
Month ending |
|
Purchased (1) | |
|
Paid Per Share | |
|
Repurchase Plan | |
|
Authorization | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(shares in millions) | |
January 31, 2004
|
|
|
0.5 |
|
|
$ |
57.62 |
|
|
|
0.5 |
|
|
|
4.3 |
|
February 29, 2004
|
|
|
0.7 |
|
|
|
56.93 |
|
|
|
0.7 |
|
|
|
3.6 |
|
March 31, 2004 (2)
|
|
|
1.2 |
|
|
|
54.83 |
|
|
|
1.2 |
|
|
|
12.4 |
|
April 30, 2004
|
|
|
0.3 |
|
|
|
52.10 |
|
|
|
0.3 |
|
|
|
12.1 |
|
May 31, 2004
|
|
|
0.4 |
|
|
|
53.23 |
|
|
|
0.4 |
|
|
|
11.7 |
|
June 30, 2004
|
|
|
1.4 |
|
|
|
55.29 |
|
|
|
1.4 |
|
|
|
10.3 |
|
July 31, 2004
|
|
|
0.3 |
|
|
|
58.12 |
|
|
|
0.3 |
|
|
|
10.0 |
|
August 31, 2004
|
|
|
0.6 |
|
|
|
58.66 |
|
|
|
0.6 |
|
|
|
9.4 |
|
September 30, 2004
|
|
|
0.6 |
|
|
|
59.81 |
|
|
|
0.6 |
|
|
|
8.8 |
|
October 31, 2004
|
|
|
0.1 |
|
|
|
60.29 |
|
|
|
0.1 |
|
|
|
8.6 |
|
November 30, 2004
|
|
|
0.4 |
|
|
|
62.28 |
|
|
|
0.4 |
|
|
|
8.2 |
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6.5 |
|
|
$ |
56.70 |
|
|
|
6.5 |
|
|
|
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The Corporation purchased a nominal number of
shares from an employee under the terms of an employee
stock-based compensation plan.
|
|
(2) |
Total remaining share repurchase authorization
includes the 10 million share repurchase resolution
announced on March 23, 2004.
|
80
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
At December 31, 2004, the Corporation had
reserved 25.6 million shares of common stock for issuance
to employees and directors under the long-term incentive plans.
Note 13 Accumulated Other
Comprehensive Income (Loss)
Other comprehensive income (loss) includes
the change in net 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 the accumulated minimum pension liability adjustment.
The Consolidated Statements of Changes in Shareholders
Equity on page 62 include only combined other comprehensive
income (loss), net of tax. The following table presents
reconciliations of the components of accumulated other
comprehensive income (loss) for the years ended
December 31, 2004, 2003 and 2002. Total comprehensive
income totaled $614 million, $498 million and
$613 million, for the years ended December 31, 2004,
2003 and 2002, respectively. The $116 million increase in
total comprehensive income in the year ended December 31,
2004 when compared to the same period in the prior year resulted
principally from an increase in net income ($96 million)
and a decrease in net unrealized losses on investment securities
available-for-sale ($27 million), due to changes in the
interest rate environment.
81
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
For a further discussion of the effect of
derivative instruments on other comprehensive income see Notes 1
and 20 on pages 64 and 93, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Net unrealized gains (losses) on
investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$ |
(23 |
) |
|
$ |
15 |
|
|
$ |
16 |
|
|
|
Net unrealized holding gains
(losses) arising during the year
|
|
|
(17 |
) |
|
|
(8 |
) |
|
|
39 |
|
|
|
Less: Reclassification adjustment for gains
(losses) included in net income
|
|
|
|
|
|
|
50 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gains
(losses) before income taxes
|
|
|
(17 |
) |
|
|
(58 |
) |
|
|
(2 |
) |
|
|
Less: Provision for income taxes
|
|
|
(6 |
) |
|
|
(20 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gains (losses) on
investment securities available-for-sale, net of tax
|
|
|
(11 |
) |
|
|
(38 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
(34 |
) |
|
$ |
(23 |
) |
|
$ |
15 |
|
Accumulated net gains (losses) on cash
flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$ |
114 |
|
|
$ |
241 |
|
|
$ |
209 |
|
|
|
Net cash flow hedge gains (losses) arising
during the year
|
|
|
(18 |
) |
|
|
90 |
|
|
|
410 |
|
|
|
Less: Reclassification adjustment for gains
(losses) included in net income
|
|
|
182 |
|
|
|
285 |
|
|
|
361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash flow hedges before income taxes
|
|
|
(200 |
) |
|
|
(195 |
) |
|
|
49 |
|
|
|
Less: Provision for income taxes
|
|
|
(70 |
) |
|
|
(68 |
) |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash flow hedges, net of tax
|
|
|
(130 |
) |
|
|
(127 |
) |
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
(16 |
) |
|
$ |
114 |
|
|
$ |
241 |
|
Accumulated foreign currency translation
adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$ |
(4 |
) |
|
$ |
(3 |
) |
|
$ |
|
|
|
|
Net translation gains (losses) arising
during the year
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
Less: Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency translation
adjustment, net of tax
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
(6 |
) |
|
$ |
(4 |
) |
|
$ |
(3 |
) |
Accumulated minimum pension liability
adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$ |
(13 |
) |
|
$ |
(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 |
) |
|
$ |
(13 |
) |
|
$ |
(16 |
) |
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
(loss), net of taxes, at end of year
|
|
$ |
(69 |
) |
|
$ |
74 |
|
|
$ |
237 |
|
|
|
|
|
|
|
|
|
|
|
82
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 14 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
Corporations stock plans, using the treasury stock method.
A computation of basic and diluted net income per common share
is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions, except | |
|
|
per share data) | |
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock
|
|
$ |
757 |
|
|
$ |
661 |
|
|
$ |
601 |
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
172 |
|
|
|
175 |
|
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$ |
4.41 |
|
|
$ |
3.78 |
|
|
$ |
3.43 |
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock
|
|
$ |
757 |
|
|
$ |
661 |
|
|
$ |
601 |
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
172 |
|
|
|
175 |
|
|
|
175 |
|
|
Common stock equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of the assumed exercise of stock
options
|
|
|
2 |
|
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average common shares
|
|
|
174 |
|
|
|
176 |
|
|
|
177 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$ |
4.36 |
|
|
$ |
3.75 |
|
|
$ |
3.40 |
|
|
|
|
|
|
|
|
|
|
|
Options to purchase an average 6.2 million,
9.2 million and 6.1 million shares of common stock at
exercise prices ranging from $57.60 $71.58,
$46.25 $71.58 and $55.73 $71.58 were
outstanding during the years ended December 31, 2004, 2003
and 2002, 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 15 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 16.5 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 2004, 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 vesting period. Awards
under the Corporations 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 64.
83
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
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 Corporations 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 the Black-Scholes option pricing model with the
following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Risk-free interest rate
|
|
|
3.52 |
% |
|
|
3.08 |
% |
|
|
4.68 |
% |
Expected dividend yield
|
|
|
3.28 |
|
|
|
2.83 |
|
|
|
2.65 |
|
Expected volatility factors of the market price
of Comerica common stock
|
|
|
31 |
|
|
|
33 |
|
|
|
33 |
|
Expected option life (in years)
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
4.8 |
|
A summary of the Corporations stock option
activity, and related information for each of the three years in
the period ended December 31, 2004 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average | |
|
|
|
|
per Share | |
|
|
|
|
| |
|
|
Number of | |
|
Exercise | |
|
Market | |
|
|
Options | |
|
Price | |
|
Price | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
|
|
|
|
Outstanding January 1, 2002
|
|
|
13,099 |
|
|
$ |
46.81 |
|
|
$ |
57.30 |
|
|
Granted (weighted-average grant fair value of
$17.64)
|
|
|
3,197 |
|
|
|
63.14 |
|
|
|
63.14 |
|
|
Forfeited
|
|
|
(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 |
|
|
Forfeited
|
|
|
(651 |
) |
|
|
56.13 |
|
|
|
45.87 |
|
|
Exercised
|
|
|
(533 |
) |
|
|
24.99 |
|
|
|
46.34 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2003
|
|
|
16,683 |
|
|
$ |
50.12 |
|
|
$ |
56.06 |
|
|
Granted (weighted-average grant fair value of
$12.33)
|
|
|
2,817 |
|
|
|
52.64 |
|
|
|
52.64 |
|
|
Forfeited
|
|
|
(657 |
) |
|
|
55.59 |
|
|
|
56.70 |
|
|
Exercised
|
|
|
(1,769 |
) |
|
|
32.79 |
|
|
|
57.79 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2004
|
|
|
17,074 |
|
|
$ |
52.04 |
|
|
$ |
61.02 |
|
|
|
|
|
|
|
|
|
|
|
Exercisable December 31, 2003
|
|
|
10,901 |
|
|
$ |
50.73 |
|
|
|
|
|
Exercisable December 31, 2004
|
|
|
10,933 |
|
|
|
52.86 |
|
|
|
|
|
Available for grant December 31,
2004
|
|
|
7,882 |
|
|
|
|
|
|
|
|
|
84
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
The table below summarizes information about
stock options outstanding at December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
338 |
|
|
|
0.4 |
|
|
$ |
18.20 |
|
|
|
338 |
|
|
$ |
18.20 |
|
25.42 38.85
|
|
|
830 |
|
|
|
1.5 |
|
|
|
26.20 |
|
|
|
826 |
|
|
|
26.15 |
|
40.09 49.87
|
|
|
4,989 |
|
|
|
6.1 |
|
|
|
40.88 |
|
|
|
3,090 |
|
|
|
41.19 |
|
51.02 58.44
|
|
|
4,806 |
|
|
|
8.0 |
|
|
|
52.32 |
|
|
|
1,659 |
|
|
|
52.10 |
|
60.09 66.81
|
|
|
4,580 |
|
|
|
6.1 |
|
|
|
64.55 |
|
|
|
3,489 |
|
|
|
65.01 |
|
69.00 71.58
|
|
|
1,531 |
|
|
|
3.2 |
|
|
|
71.58 |
|
|
|
1,531 |
|
|
|
71.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17,074 |
|
|
|
6.0 |
|
|
$ |
52.04 |
|
|
|
10,933 |
|
|
$ |
52.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Weighted average contractual life remaining in
years.
|
In addition, the Corporation awarded 257
thousand, 225 thousand and 123 thousand shares of restricted
stock in 2004, 2003 and 2002, respectively. The fair value of
these shares at grant date was $14 million in 2004,
$9 million in 2003 and $8 million in 2002.
Total compensation cost recognized for
stock-based employee compensation was $34 million,
$28 million and $25 million in 2004, 2003 and 2002,
respectively.
Note 16 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
$16 million, $26 million and $5 million in 2004,
2003 and 2002, respectively, 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 Corporations postretirement benefits
plan continues to provide 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 January 2004, the FASB issued FASB Staff Position (FSP)
106-1, Accounting and Disclosure Requirements Related to
the Medicare Prescription Drug, Improvement and Modernization
Act of 2003, subsequently revised in April 2004. FSP 106-1
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 Act and requires
certain disclosures pending issuance of accounting guidance for
the federal subsidy resulting from the Act. 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 elected to defer the accounting for the
Act in accordance with FSP 106-1.
85
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
In May 2004, the FASB issued FSP 106-2, which
provides guidance on the accounting for the federal subsidy
resulting from the Act. FSP 106-2 requires the subsidy to be
accounted for under current guidance for other postretirement
benefits. As such, the effects of the subsidy on the benefits
attributable to past services are accounted for as an actuarial
gain. The Corporations entire postretirement prescription
drug related liability is attributable to past services as the
benefits were only provided to employees that retired prior to
December 31, 1992. The Corporation adopted the provisions
of FSP 106-2 in the quarter ended September 30, 2004. In
accordance with FSP 106-2, the Corporation determined its
postretirement drug benefits to be actuarially
equivalent. However, the enactment of the Act was not
considered a significant event. Therefore, the
effects of the Act were incorporated at December 31, 2004,
the regularly scheduled measurement date for the plan assets and
obligation, resulting in a reduction in the accumulated
postretirement plan benefit obligation of $9 million at
December 31, 2004.
The following table sets forth reconciliations of
the Corporations qualified pension plan, non-qualified
pension plan and postretirement plan benefit obligations and
plan assets. The Corporation used a measurement date of
December 31, 2004 for these plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified | |
|
Non-Qualified | |
|
|
|
|
Defined Benefit | |
|
Defined Benefit | |
|
Postretirement | |
|
|
Pension Plan | |
|
Pension Plan | |
|
Benefit Plan | |
|
|
| |
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at January 1
|
|
$ |
831 |
|
|
$ |
726 |
|
|
$ |
92 |
|
|
$ |
83 |
|
|
$ |
82 |
|
|
$ |
84 |
|
Service cost
|
|
|
24 |
|
|
|
20 |
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
50 |
|
|
|
47 |
|
|
|
6 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
Immediate recognition of benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss
|
|
|
52 |
|
|
|
64 |
|
|
|
3 |
|
|
|
2 |
|
|
|
(3 |
) |
|
|
(1 |
) |
Benefits paid
|
|
|
(28 |
) |
|
|
(26 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(6 |
) |
|
|
(6 |
) |
Plan change
|
|
|
16 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at December 31
|
|
$ |
945 |
|
|
$ |
831 |
|
|
$ |
103 |
|
|
$ |
92 |
|
|
$ |
78 |
|
|
$ |
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1
|
|
$ |
853 |
|
|
$ |
703 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
82 |
|
|
$ |
79 |
|
Actual return on plan assets
|
|
|
112 |
|
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
8 |
|
Employer contributions
|
|
|
62 |
|
|
|
46 |
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
|
|
1 |
|
Benefits paid
|
|
|
(28 |
) |
|
|
(26 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(6 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at December 31
|
|
$ |
999 |
|
|
$ |
853 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
84 |
|
|
$ |
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$ |
828 |
|
|
$ |
731 |
|
|
$ |
82 |
|
|
$ |
74 |
|
|
$ |
78 |
|
|
$ |
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The normal retirement age was changed to 65 for
retirements or terminations from active service on or after
January 1, 2005, resulting in an additional projected
benefit obligation at December 31, 2004 of $16 million
and $2 million for the qualified and non-qualified pension
plans, respectively.
The non-qualified pension plan was the only
pension plan with an accumulated benefit obligation in excess of
plan assets.
86
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
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
Corporations consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified | |
|
Non-Qualified | |
|
|
|
|
Defined Benefit | |
|
Defined Benefit | |
|
Postretirement | |
|
|
Pension Plan | |
|
Pension Plan | |
|
Benefit Plan | |
|
|
| |
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Funded status at December 31*
|
|
$ |
54 |
|
|
$ |
22 |
|
|
$ |
(103 |
) |
|
$ |
(92 |
) |
|
$ |
6 |
|
|
$ |
|
|
Unrecognized net loss
|
|
|
295 |
|
|
|
284 |
|
|
|
40 |
|
|
|
36 |
|
|
|
15 |
|
|
|
19 |
|
Unrecognized net transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34 |
|
|
|
38 |
|
Unrecognized prior service cost
|
|
|
32 |
|
|
|
17 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid (accrued) benefit cost
|
|
$ |
381 |
|
|
$ |
323 |
|
|
$ |
(60 |
) |
|
$ |
(56 |
) |
|
$ |
55 |
|
|
$ |
57 |
|
Accrued minimum benefit liability
|
|
|
|
|
|
|
|
|
|
|
(21 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
Intangible asset
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$ |
381 |
|
|
$ |
323 |
|
|
$ |
(60 |
) |
|
$ |
(56 |
) |
|
$ |
55 |
|
|
$ |
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Based on projected benefit obligation
|
Components of net periodic benefit cost
(income) are as follows:
Qualified and
Non-Qualified Defined Benefit Pension Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
Qualified | |
|
Non-Qualified | |
|
|
Defined Benefit | |
|
Defined Benefit | |
|
|
Pension Plan | |
|
Pension Plan | |
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Service cost
|
|
$ |
24 |
|
|
$ |
20 |
|
|
$ |
17 |
|
|
$ |
3 |
|
|
$ |
3 |
|
|
$ |
2 |
|
Interest cost
|
|
|
50 |
|
|
|
47 |
|
|
|
46 |
|
|
|
6 |
|
|
|
5 |
|
|
|
5 |
|
Expected return on plan assets
|
|
|
(84 |
) |
|
|
(69 |
) |
|
|
(71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized prior service cost
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Immediate recognition of benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
Amortization of unrecognized net loss
|
|
|
12 |
|
|
|
13 |
|
|
|
|
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (income)
|
|
$ |
4 |
|
|
$ |
13 |
|
|
$ |
(6 |
) |
|
$ |
12 |
|
|
$ |
13 |
|
|
$ |
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in minimum liability
included in other comprehensive income/loss
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(3 |
) |
|
$ |
21 |
|
Actual return (loss) on plan assets
|
|
|
112 |
|
|
|
130 |
|
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
87
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Postretirement
Benefit Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Interest cost
|
|
$ |
5 |
|
|
$ |
5 |
|
|
$ |
6 |
|
Expected return on plan assets
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(5 |
) |
Amortization of unrecognized transition obligation
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
Amortization of unrecognized net loss
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$ |
6 |
|
|
$ |
5 |
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
Additional information:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in minimum liability included
in other comprehensive income/loss
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Actual return (loss) on plan assets
|
|
|
5 |
|
|
|
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
period end benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
|
|
|
|
|
Qualified and | |
|
|
|
|
Non-Qualified | |
|
|
|
|
Defined Benefit | |
|
Postretirement | |
|
|
Pension Plans | |
|
Benefit Plan | |
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Discount rate used in determining benefit
obligation
|
|
|
5.8 |
% |
|
|
6.1 |
% |
|
|
6.8 |
% |
|
|
5.8 |
% |
|
|
6.1 |
% |
|
|
6.8 |
% |
Rate of compensation increase
|
|
|
4.0 |
|
|
|
4.0 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine
net cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
Qualified and | |
|
|
|
|
Non-Qualified | |
|
|
|
|
Defined Benefit | |
|
Postretirement | |
|
|
Pension Plans | |
|
Benefit Plan | |
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Discount rate used in determining net cost
|
|
|
6.1 |
% |
|
|
6.8 |
% |
|
|
7.4 |
% |
|
|
6.1 |
% |
|
|
6.8 |
% |
|
|
7.4 |
% |
Expected return on plan assets
|
|
|
8.8 |
|
|
|
8.8 |
|
|
|
10.0 |
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
5.0 |
|
Rate of compensation increase
|
|
|
4.0 |
|
|
|
4.0 |
|
|
|
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
actuarial consultants to determine if assumptions are reasonable
and adjusts the assumptions to reflect changes in future
expectations.
88
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Assumed healthcare and prescription drug cost
trend rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
Prescription | |
|
|
Healthcare | |
|
Drug | |
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
Cost trend rate assumed for next year
|
|
|
7 |
% |
|
|
7 |
% |
|
|
12 |
% |
|
|
8 |
% |
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
|
|
|
2010 |
|
|
|
2007 |
|
|
|
2010 |
|
|
|
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 2004
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 Corporations qualified defined benefit
pension plan asset allocations at December 31, 2004 and
2003 and target allocation for 2005 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 | |
|
|
Target | |
|
Plan Assets at | |
|
|
Allocation | |
|
December 31, | |
|
|
| |
|
| |
Asset Category |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Equity securities
|
|
|
55 65 |
% |
|
|
64 |
% |
|
|
64 |
% |
Fixed income, including cash
|
|
|
30 40 |
|
|
|
34 |
|
|
|
34 |
|
Alternative assets
|
|
|
0 5 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
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
Corporations 2005 target allocation percentages by asset
category are noted in the table above. Given the mix of equity
securities and fixed income (including 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
Corporations 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.
89
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 | |
|
|
| |
|
|
Qualified | |
|
Non-qualified | |
|
|
|
|
Defined Benefit | |
|
Defined Benefit | |
|
Postretirement | |
Estimated Future Employer Contributions |
|
Pension Plan | |
|
Pension Plan | |
|
Benefit Plan* | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
2005
|
|
$ |
62 |
|
|
$ |
4 |
|
|
$ |
7 |
|
|
|
* |
Estimated employer contributions in the
postretirement benefit plan do not include settlements on death
claims.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
Qualified | |
|
Non-qualified | |
|
|
|
|
Defined Benefit | |
|
Defined Benefit | |
|
Postretirement | |
Estimated Future Benefit Payments |
|
Pension Plan | |
|
Pension Plan | |
|
Benefit Plan* | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
2005
|
|
$ |
31 |
|
|
$ |
4 |
|
|
$ |
7 |
|
2006
|
|
|
33 |
|
|
|
4 |
|
|
|
6 |
|
2007
|
|
|
36 |
|
|
|
5 |
|
|
|
6 |
|
2008
|
|
|
38 |
|
|
|
5 |
|
|
|
6 |
|
2009
|
|
|
41 |
|
|
|
5 |
|
|
|
6 |
|
2010 2014
|
|
|
268 |
|
|
|
36 |
|
|
|
27 |
|
|
|
* |
Estimated benefit payments in the postretirement
benefit plan are net of estimated Medicare subsidies.
|
The Corporation also maintains defined
contribution plans (including 401(k) plans) for various groups
of its employees. All of the Corporations employees are
eligible to participate in one or more of the plans. Under the
Corporations principal 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
Corporations financial performance. The Corporations
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
Corporations stock to other investments at any time.
Employee benefits expense included expense of $15 million
in 2004, $13 million in 2003 and $11 million in 2002 for
the plans.
Note 17 Income Taxes
The current and deferred components of the
provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
230 |
|
|
$ |
201 |
|
|
$ |
209 |
|
|
Foreign
|
|
|
6 |
|
|
|
18 |
|
|
|
8 |
|
|
State and local
|
|
|
(2 |
) |
|
|
23 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
234 |
|
|
|
242 |
|
|
|
233 |
|
Deferred federal, state and local
|
|
|
119 |
|
|
|
50 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
353 |
|
|
$ |
292 |
|
|
$ |
281 |
|
|
|
|
|
|
|
|
|
|
|
There was no net income tax provision on
securities transactions in 2004, compared to tax provisions of
$18 million and $14 million in 2003 and 2002,
respectively.
90
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
The principal components of deferred tax assets
and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$ |
240 |
|
|
$ |
276 |
|
Deferred loan origination fees and costs
|
|
|
42 |
|
|
|
43 |
|
Other comprehensive income
|
|
|
33 |
|
|
|
|
|
Employee benefits
|
|
|
6 |
|
|
|
7 |
|
Other temporary differences, net
|
|
|
81 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
402 |
|
|
|
422 |
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Lease financing transactions
|
|
|
627 |
|
|
|
565 |
|
Allowance for depreciation
|
|
|
14 |
|
|
|
11 |
|
Other comprehensive income
|
|
|
|
|
|
|
43 |
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
641 |
|
|
|
619 |
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$ |
239 |
|
|
$ |
197 |
|
|
|
|
|
|
|
|
A reconciliation of expected income tax expense
at the federal statutory rate of 35 percent to the
Corporations provision for income taxes and effective tax
rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
Amount | |
|
Rate | |
|
Amount | |
|
Rate | |
|
Amount | |
|
Rate | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Tax based on federal statutory rate
|
|
$ |
389 |
|
|
|
35.0 |
% |
|
$ |
333 |
|
|
|
35.0 |
% |
|
$ |
309 |
|
|
|
35.0 |
% |
State income taxes
|
|
|
6 |
|
|
|
0.6 |
|
|
|
12 |
|
|
|
1.2 |
|
|
|
15 |
|
|
|
1.7 |
|
Affordable housing credit
|
|
|
(22 |
) |
|
|
(1.9 |
) |
|
|
(19 |
) |
|
|
(2.0 |
) |
|
|
(15 |
) |
|
|
(1.7 |
) |
Bank-owned life insurance
|
|
|
(14 |
) |
|
|
(1.2 |
) |
|
|
(16 |
) |
|
|
(1.7 |
) |
|
|
(20 |
) |
|
|
(2.3 |
) |
Effect of tax-exempt interest income
|
|
|
(2 |
) |
|
|
(0.2 |
) |
|
|
(2 |
) |
|
|
(0.2 |
) |
|
|
(2 |
) |
|
|
(0.2 |
) |
United Kingdom tax credit
|
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
Other
|
|
|
(4 |
) |
|
|
(0.5 |
) |
|
|
(7 |
) |
|
|
(0.7 |
) |
|
|
(6 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$ |
353 |
|
|
|
31.8 |
% |
|
$ |
292 |
|
|
|
30.7 |
% |
|
$ |
281 |
|
|
|
31.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 18 Transactions With Related
Parties
The bank subsidiaries have had, and expect to
have in the future, transactions with the Corporations
directors and executive officers, and companies with which they
are associated. Such transactions were made in the ordinary
course of business and included extensions of credit, leases and
professional services. With respect to 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
managements 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, 2004, totaled
$287 million at the beginning and $248 million at the
end of 2004. During 2004, new loans to related parties
aggregated $537 million and repayments totaled
$576 million.
91
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 19 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 Corporations subsidiary
banks. The average required reserve balances were
$264 million and $250 million for the years ended
December 31, 2004 and 2003, 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 $470 million at
January 1, 2005, plus current years earnings.
Substantially all the assets of the Corporations bank
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 $691 million,
$354 million and $647 million in 2004, 2003 and 2002,
respectively.
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
Corporations financial statements. At December 31,
2004 and 2003, the Corporation and all of its banking
subsidiaries exceeded the ratios required for an institution to
be considered well capitalized (total risk-based
capital, tier 1 risk-based capital and leverage ratios greater
than 10 percent, 6 percent and 5 percent,
respectively). The following is a summary of the capital
position of the Corporation and its significant banking
subsidiary.
92
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
Comerica Incorporated | |
|
Comerica | |
|
|
(Consolidated) | |
|
Bank | |
|
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
December 31, 2004
|
|
|
|
|
|
|
|
|
|
Tier 1 common capital
|
|
$ |
4,916 |
|
|
$ |
5,032 |
|
|
Tier 1 capital
|
|
|
5,301 |
|
|
|
5,352 |
|
|
Total capital
|
|
|
7,707 |
|
|
|
7,387 |
|
|
Risk-weighted assets
|
|
|
60,451 |
|
|
|
60,118 |
|
|
Average assets (fourth quarter)
|
|
|
51,101 |
|
|
|
50,606 |
|
|
Tier 1 common capital to risk-weighted assets
|
|
|
8.13 |
% |
|
|
8.37 |
% |
|
Tier 1 capital to risk-weighted assets
(minimum-4.0%)
|
|
|
8.77 |
|
|
|
8.90 |
|
|
Total capital to risk-weighted assets
(minimum-8.0%)
|
|
|
12.75 |
|
|
|
12.29 |
|
|
Tier 1 capital to average assets (minimum-3.0%)
|
|
|
10.37 |
|
|
|
10.58 |
|
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 |
|
Note 20 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 managements credit evaluation. Collateral
varies, but may include cash, investment securities, accounts
receivable, 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
93
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
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. These interest rate swap
agreements effectively modify the Corporations 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, 2004.
As part of a cash flow hedging strategy, the
Corporation entered into predominantly 2 to 3 year interest
rate swap agreements (weighted average original maturity of
2.8 years) 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 2 to 3 years.
Approximately 24 percent ($10 billion) of the
Corporations outstanding loans were designated as the
hedged items to interest rate swap agreements at
December 31, 2004. For the year ended December 31,
2004, interest rate swap agreements designated as cash flow
hedges increased interest and fees on loans by $182 million
compared with $285 million for the year ended
December 31, 2003. Other noninterest income in the year
ended December 31, 2004 included $3 million of
ineffective cash flow hedge net losses. If interest rates,
interest yield curves and notional amounts remain at their
current levels, the Corporation expects to reclassify
$8 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 foreign
exchange forward and option contracts to protect the value of
its foreign currency investment in 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 year ended December 31, 2004, the
Corporation recognized $2 million of net losses in
accumulated foreign currency translation adjustment, related to
the foreign exchange forward and option contracts, compared to
an immaterial amount during the year ended December 31,
2003.
Management believes these strategies achieve the
desired relationship between the rate maturities of assets and
funding sources which, in turn, reduces the overall exposure of
net interest income to interest rate risk, although, there can
be no assurance that such strategies will be successful. 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, foreign exchange option contracts and foreign
exchange cross-currency swaps.
94
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
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, 2004 and 2003. 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, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
$ |
12,087 |
|
|
$ |
218 |
|
|
$ |
59 |
|
|
$ |
159 |
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spot and forwards
|
|
|
376 |
|
|
|
19 |
|
|
|
1 |
|
|
|
18 |
|
|
|
Swaps
|
|
|
58 |
|
|
|
|
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreign exchange contracts
|
|
|
434 |
|
|
|
19 |
|
|
|
2 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk management
|
|
$ |
12,521 |
|
|
$ |
237 |
|
|
$ |
61 |
|
|
$ |
176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 83 percent and 86 percent of
the notional amount of interest rate derivative contracts at
December 31, 2004 and 2003, 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,
2004, 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.
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.
95
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
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, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-initiated and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caps and floors written
|
|
$ |
301 |
|
|
$ |
|
|
|
$ |
2 |
|
|
$ |
(2 |
) |
|
|
Caps and floors purchased
|
|
|
349 |
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
Swaps
|
|
|
1,726 |
|
|
|
20 |
|
|
|
16 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest rate contracts
|
|
|
2,376 |
|
|
|
22 |
|
|
|
18 |
|
|
|
4 |
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spot, forwards, futures and options
|
|
|
3,290 |
|
|
|
117 |
|
|
|
112 |
|
|
|
5 |
|
|
|
Swaps
|
|
|
31 |
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreign exchange contracts
|
|
|
3,321 |
|
|
|
118 |
|
|
|
112 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total customer-initiated and other
|
|
$ |
5,697 |
|
|
$ |
140 |
|
|
$ |
130 |
|
|
$ |
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. The following
table provides the average unrealized gains and unrealized
losses and noninterest income generated on customer-initiated
and other interest rate contracts and foreign exchange contracts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended | |
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Average unrealized gains
|
|
$ |
81 |
|
|
$ |
74 |
|
Average unrealized losses
|
|
|
71 |
|
|
|
67 |
|
Noninterest income
|
|
|
34 |
|
|
|
35 |
|
96
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
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 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 Corporations 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.
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 $4 million at
December 31, 2004 and $3 million at December 31,
2003. Commitments to sell investment securities related to the
trading account totaled $4 million at December 31,
2004 and $2 million at December 31, 2003. Outstanding
commitments expose the Corporation to both credit and market
risk.
97
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Credit-Related
Financial Instruments
The Corporation issues off-balance sheet
financial instruments in connection with commercial and consumer
lending activities. The Corporations credit risk
associated with these instruments is represented by the
contractual amounts indicated in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Unused commitments to extend credit
|
|
$ |
28,349 |
|
|
$ |
27,049 |
|
Standby letters of credit and financial guarantees
|
|
|
6,326 |
|
|
|
6,045 |
|
Commercial letters of credit
|
|
|
340 |
|
|
|
261 |
|
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, 2004 and 2003, the allowance
for credit losses on lending-related commitments, which is
recorded in accrued expenses and other liabilities
on the consolidated balance sheets, was $21 million and
$33 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 both
December 31, 2004 and 2003. Other unused commitments,
primarily variable rate, totaled $26 billion and
$25 billion at December 31, 2004 and 2003,
respectively.
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 2015, and were
$1,900 million and $1,832 million at December 31,
2004 and 2003, respectively.
The remaining standby letters of credit and
financial guarantees, which mature within one year, totaled
$4,426 million and $4,213 million at December 31, 2004
and 2003, 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 $471 million of the
$6,326 million standby letters of credit outstanding at
December 31, 2004. At December 31, 2004, the carrying
value of the Corporations standby and commercial letters
of credit and financial guarantees, which is included in
accrued expenses and other liabilities on the
consolidated balance sheet, totaled $79 million.
98
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 21 Contingent
Liabilities
Legal
Proceedings
The Corporation and certain of its subsidiaries
are subject to various pending and threatened legal proceedings
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
believes that current reserves, determined in accordance with
SFAS No. 5, Accounting for Contingencies, are
adequate and the amount of any incremental liability arising
from these matters is not expected to have a material adverse
effect on the Corporations consolidated financial
condition or results of operations.
Tax
Contingency
In the ordinary course of business, the
Corporation enters into certain transactions that have tax
consequences. From time to time, the Internal Revenue Service
(IRS) questions and/or challenges the tax position taken by
the Corporation with respect to those transactions. The
Corporation engaged in certain types of structured leasing
transactions and a series of loans to foreign borrowers that the
IRS is challenging. The Corporation believes that its tax
position related to both transaction groups referred to above is
proper based upon applicable statutes, regulations and case law
in effect at the time of the transactions. The Corporation
intends to defend its position vigorously in accordance with its
view of the law controlling these activities. However, a court,
or administrative authority, if presented with the transactions,
could disagree with the Corporations interpretation of the
tax law. The ultimate outcome is not known.
Based on current knowledge and probability
assessment of various potential outcomes, management believes
that the current tax reserves, determined in accordance with
SFAS No. 5, are adequate to cover the above matters and are
not expected to have a material adverse effect on the
Corporations consolidated financial condition or results
of operations. Probabilities and outcomes are reviewed as events
unfold, and adjustments to the reserves are made when necessary.
Lease
Accounting Contingency
There is current uncertainty related to the
accounting for structured lease transactions, when such
transactions are examined by the IRS and resolved, either with
the IRS or by a court, for an amount which is less than what was
previously reported in the Corporations tax return. The
staff of the FASB have recently discussed interpretations of the
accounting literature that would require a recalculation of
lease income based on cash flows as resolved, which would change
reported lease income. Prior to resolution with the IRS, and
prior to consensus on the accounting, the impact on the
Corporation is not known.
Note 22 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
variable interest entity (VIE). The Corporation evaluated
various entities in which it held an interest to determine if
these entities met the definition of a 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 VIEs 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 outstanding common securities. These
entities met 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, 2004)
were previously classified in medium- and long-term
debt on the Corporations consolidated balance
sheets. Deconsolidation of these entities did not change the
classifica-
99
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
tion 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 VIEs.
In accordance with current guidance from the banking regulators,
this debt continues 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 PFLPs 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 met 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 Corporations 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, noninterest
income (net securities gains) 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, 2004 was limited to approximately
$5 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
1998, 1999 and 2000, where 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 met the FIN 46(R) definition of a VIE.
However, the Corporation is not the primary beneficiary of the
entities. As such, the Corporation continues to account for its
interest in these partnerships on the cost method. These three
entities had approximately $181 million in assets at
December 31, 2004. Exposure to loss as a result of
involvement with these three entities at December 31, 2004
was limited to approximately $9 million of book basis of
the Corporations investments and approximately
$3 million of commitments for future investments.
The Corporation, as a limited partner, also holds
an insignificant ownership percentage interest in 102 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,
2004 was limited to approximately $114 million of book
basis of the Corporations investments and approximately
$46 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 met the FIN 46(R) definition of
a VIE. In the investment fund partnership formed in 1999, the
Corporation is not the primary beneficiary of the entity. As
such, the Corporation will continue to account for its indirect
interests in this partnership on the cost method. This
investment partnership had approximately $173 million in
assets at December 31, 2004 and was structured so that the
Corporations exposure to loss as a result of its interest
should be limited to the book basis of the Corporations
investment in the limited liability subsidiary, which was
insignificant at December 31, 2004. In the investment fund
partnership formed in 2003, the Corporation is the primary
beneficiary of the entity and would be required to consolidate
the entity, if material. This investment partnership had assets
of approximately $9 million at December 31, 2004 and
was structured so that the Corporations exposure to loss
as a result of its interest should be limited to the book basis
of the Corporations investment in the limited liability
subsidiary, which was insignificant at December 31, 2004.
The Corporation has a significant limited partner
interest in 25 low income housing tax credit/historic
rehabilitation tax credit partnerships, acquired at various
times from 1992 to 2003. These entities met the FIN 46(R)
definition of a VIE. However, the Corporation is not the primary
beneficiary of the entities and, as
100
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
such, will continue to account for its interest
in these partnerships on the cost or equity method. These
entities had approximately $163 million in assets at
December 31, 2004. Exposure to loss as a result of its
involvement with these entities at December 31, 2004 was
limited to approximately $30 million of book basis of the
Corporations investment, which includes unfunded
commitments for future investments.
The Corporation, as a limited partner, also holds
an insignificant ownership percentage interest in 79 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
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,
2004 was limited to approximately $108 million of book
basis of the Corporations investment, which includes
unfunded commitments for future investments.
For further information on the adoption of
FIN 46(R), see Note 1 on page 64.
Note 23 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
Corporations 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.
101
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
International loans:
The estimated fair value of the
Corporations 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.
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
Corporations 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.
102
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
The estimated fair values of the
Corporations financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
Carrying | |
|
Estimated | |
|
Carrying | |
|
Estimated | |
|
|
Amount | |
|
Fair Value | |
|
Amount | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term investments
|
|
$ |
4,223 |
|
|
$ |
4,223 |
|
|
$ |
5,288 |
|
|
$ |
5,288 |
|
Trading securities
|
|
|
38 |
|
|
|
38 |
|
|
|
29 |
|
|
|
29 |
|
Loans held-for-sale
|
|
|
108 |
|
|
|
108 |
|
|
|
223 |
|
|
|
223 |
|
Investment securities available-for-sale
|
|
|
3,943 |
|
|
|
3,943 |
|
|
|
4,489 |
|
|
|
4,489 |
|
Commercial loans
|
|
|
22,039 |
|
|
|
21,622 |
|
|
|
21,579 |
|
|
|
21,114 |
|
Real estate construction loans
|
|
|
3,053 |
|
|
|
3,047 |
|
|
|
3,397 |
|
|
|
3,394 |
|
Commercial mortgage loans
|
|
|
8,236 |
|
|
|
8,253 |
|
|
|
7,878 |
|
|
|
7,931 |
|
Residential mortgage loans
|
|
|
1,294 |
|
|
|
1,278 |
|
|
|
1,228 |
|
|
|
1,238 |
|
Consumer loans
|
|
|
2,751 |
|
|
|
2,746 |
|
|
|
2,610 |
|
|
|
2,630 |
|
Lease financing
|
|
|
1,265 |
|
|
|
1,221 |
|
|
|
1,301 |
|
|
|
1,275 |
|
International loans
|
|
|
2,205 |
|
|
|
2,165 |
|
|
|
2,309 |
|
|
|
2,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
40,843 |
|
|
|
40,332 |
|
|
|
40,302 |
|
|
|
39,800 |
|
Less allowance for loan losses
|
|
|
(673 |
) |
|
|
|
|
|
|
(803 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
40,170 |
|
|
|
40,332 |
|
|
|
39,499 |
|
|
|
39,800 |
|
Customers liability on acceptances
outstanding
|
|
|
57 |
|
|
|
57 |
|
|
|
27 |
|
|
|
27 |
|
Loan servicing rights
|
|
|
20 |
|
|
|
20 |
|
|
|
17 |
|
|
|
17 |
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits (noninterest-bearing)
|
|
|
15,164 |
|
|
|
15,164 |
|
|
|
14,104 |
|
|
|
14,104 |
|
Interest-bearing deposits
|
|
|
25,772 |
|
|
|
25,812 |
|
|
|
27,359 |
|
|
|
27,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
40,936 |
|
|
|
40,976 |
|
|
|
41,463 |
|
|
|
41,544 |
|
Short-term borrowings
|
|
|
193 |
|
|
|
193 |
|
|
|
262 |
|
|
|
262 |
|
Acceptances outstanding
|
|
|
57 |
|
|
|
57 |
|
|
|
27 |
|
|
|
27 |
|
Medium- and long-term debt
|
|
|
4,286 |
|
|
|
4,265 |
|
|
|
4,801 |
|
|
|
4,841 |
|
Derivative financial instruments and foreign
exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains
|
|
|
237 |
|
|
|
237 |
|
|
|
371 |
|
|
|
371 |
|
|
|
Unrealized losses
|
|
|
(61 |
) |
|
|
(61 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
Customer-initiated and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains
|
|
|
140 |
|
|
|
140 |
|
|
|
69 |
|
|
|
69 |
|
|
|
Unrealized losses
|
|
|
(130 |
) |
|
|
(130 |
) |
|
|
(62 |
) |
|
|
(62 |
) |
Credit-related financial instruments
|
|
|
(87 |
) |
|
|
(71 |
) |
|
|
(87 |
) |
|
|
(59 |
) |
103
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 24 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 type of customer and the related
products and services provided. In addition to the three major
lines of business, the Finance Division is also reported as a
segment. Lines of business results are produced by the
Corporations internal management accounting system. This
system measures financial results based on the internal business
unit structure of the Corporation. Information presented is not
necessarily comparable with similar information for any other
financial institution. The management accounting system assigns
balance sheet and income statement items to each line of
business using certain methodologies, which are regularly
reviewed and refined. For comparability purposes, amounts in all
periods are based on lines of business and methodologies in
effect at December 31, 2004. 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.
The Corporations 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. In the second quarter of
2004, the Corporation changed the assumptions used in allocating
internal funding credits for deposits to better capture the
value of deposits in line of business and market segment
reports. Accordingly, the Corporation has adjusted current and
prior year information to reflect these new assumptions. The
allowance for loan losses is allocated to both large business
and certain large personal purpose consumer and residential
mortgage loans that have deteriorated below certain levels of
credit risk based on a non-standard, specifically calculated
amount. For other business loans, it is recorded in business
units based on the credit score of each loan outstanding. For
other consumer and residential mortgage loans, the allowance for
loan losses is allocated based on applying projected loss ratios
to various segments of the loan portfolio. The related loan loss
provision is assigned based on the amount necessary to maintain
an allowance for loan losses adequate for each product category.
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 Corporations 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 2004 performance
can be found in the section entitled Strategic Lines of
Business in the financial review on page 35.
The Business Bank is primarily comprised of the
following business units: middle market, commercial real estate,
national dealer services, global finance, large corporate,
leasing, financial services group, and technology and life
sciences. 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 (entities with annual sales
under $10 million) and personal financial services,
consisting of consumer lending, consumer deposit gathering and
mortgage loan origination. In addition to a full range of
financial services provided to small business customers, 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.
104
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Wealth and Institutional Management offers
products and services consisting of personal trust, which is
designed to meet the personal financial needs of affluent
individuals (as defined by individual net income or wealth),
private lending, institutional trust, retirement services,
investment management and advisory services (including Munder),
investment banking and discount securities brokerage services.
This line of business also offers the sale of mutual fund and
annuity products, as well as life, disability and long-term care
insurance products.
The Finance segment includes the
Corporations securities portfolio and asset and liability
management activities. This segment is responsible for managing
the Corporations funding, liquidity and capital needs,
performing interest sensitivity gap and earnings simulation
analysis and executing various strategies to manage the
Corporations 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, tax benefits
not assigned to specific business lines and miscellaneous other
expenses of a corporate nature. The loan loss reserves include
the unallocated allowance for loan losses and the portion of the
allowance allocated based on industry specific and geographic
risks.
105
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
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 | |
|
|
| |
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Earnings Summary:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) (FTE)
|
|
$ |
1,363 |
|
|
$ |
1,523 |
|
|
$ |
1,602 |
|
|
$ |
576 |
|
|
$ |
611 |
|
|
$ |
655 |
|
|
$ |
149 |
|
|
$ |
148 |
|
|
$ |
127 |
|
Provision for loan losses
|
|
|
9 |
|
|
|
262 |
|
|
|
482 |
|
|
|
13 |
|
|
|
33 |
|
|
|
46 |
|
|
|
1 |
|
|
|
23 |
|
|
|
7 |
|
Noninterest income
|
|
|
285 |
|
|
|
275 |
|
|
|
244 |
|
|
|
213 |
|
|
|
218 |
|
|
|
207 |
|
|
|
302 |
|
|
|
290 |
|
|
|
293 |
|
Noninterest expenses
|
|
|
571 |
|
|
|
592 |
|
|
|
561 |
|
|
|
502 |
|
|
|
518 |
|
|
|
506 |
|
|
|
330 |
|
|
|
325 |
|
|
|
396 |
|
Provision (benefit) for income taxes (FTE)
|
|
|
380 |
|
|
|
338 |
|
|
|
292 |
|
|
|
99 |
|
|
|
100 |
|
|
|
110 |
|
|
|
44 |
|
|
|
33 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
688 |
|
|
$ |
606 |
|
|
$ |
511 |
|
|
$ |
175 |
|
|
$ |
178 |
|
|
$ |
200 |
|
|
$ |
76 |
|
|
$ |
57 |
|
|
$ |
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
$ |
169 |
|
|
$ |
321 |
|
|
$ |
457 |
|
|
$ |
19 |
|
|
$ |
34 |
|
|
$ |
23 |
|
|
$ |
6 |
|
|
$ |
10 |
|
|
$ |
1 |
|
Selected Average Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$ |
33,152 |
|
|
$ |
35,097 |
|
|
$ |
35,535 |
|
|
$ |
6,388 |
|
|
$ |
6,390 |
|
|
$ |
5,798 |
|
|
$ |
3,440 |
|
|
$ |
3,184 |
|
|
$ |
2,900 |
|
Loans
|
|
|
31,874 |
|
|
|
33,879 |
|
|
|
34,271 |
|
|
|
5,675 |
|
|
|
5,572 |
|
|
|
5,256 |
|
|
|
3,184 |
|
|
|
2,919 |
|
|
|
2,564 |
|
Deposits
|
|
|
19,616 |
|
|
|
19,676 |
|
|
|
15,583 |
|
|
|
16,752 |
|
|
|
16,855 |
|
|
|
16,432 |
|
|
|
2,537 |
|
|
|
2,264 |
|
|
|
1,498 |
|
Liabilities
|
|
|
20,303 |
|
|
|
20,246 |
|
|
|
16,029 |
|
|
|
16,745 |
|
|
|
16,849 |
|
|
|
16,433 |
|
|
|
2,546 |
|
|
|
2,279 |
|
|
|
1,535 |
|
Attributed equity
|
|
|
2,463 |
|
|
|
2,704 |
|
|
|
2,997 |
|
|
|
782 |
|
|
|
788 |
|
|
|
750 |
|
|
|
415 |
|
|
|
392 |
|
|
|
403 |
|
Statistical Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets (1)
|
|
|
2.07 |
% |
|
|
1.73 |
% |
|
|
1.44 |
% |
|
|
1.00 |
% |
|
|
1.01 |
% |
|
|
1.17 |
% |
|
|
2.22 |
% |
|
|
1.79 |
% |
|
|
0.30 |
% |
Return on average attributed equity
|
|
|
27.92 |
|
|
|
22.40 |
|
|
|
17.07 |
|
|
|
22.44 |
|
|
|
22.62 |
|
|
|
26.72 |
|
|
|
18.35 |
|
|
|
14.50 |
|
|
|
2.15 |
|
Efficiency ratio
|
|
|
34.57 |
|
|
|
33.06 |
|
|
|
30.05 |
|
|
|
63.59 |
|
|
|
62.46 |
|
|
|
58.64 |
|
|
|
73.16 |
|
|
|
74.16 |
|
|
|
94.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
Finance | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Earnings Summary:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) (FTE)
|
|
$ |
(294 |
) |
|
$ |
(361 |
) |
|
$ |
(223 |
) |
|
$ |
19 |
|
|
$ |
8 |
|
|
$ |
(25 |
) |
|
$ |
1,813 |
|
|
$ |
1,929 |
|
|
$ |
2,136 |
|
Provision for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41 |
|
|
|
59 |
|
|
|
100 |
|
|
|
64 |
|
|
|
377 |
|
|
|
635 |
|
Noninterest income
|
|
|
57 |
|
|
|
104 |
|
|
|
139 |
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
857 |
|
|
|
887 |
|
|
|
900 |
|
Noninterest expenses
|
|
|
9 |
|
|
|
8 |
|
|
|
8 |
|
|
|
81 |
|
|
|
40 |
|
|
|
44 |
|
|
|
1,493 |
|
|
|
1,483 |
|
|
|
1,515 |
|
Provision (benefit) for income taxes (FTE)
|
|
|
(88 |
) |
|
|
(126 |
) |
|
|
(59 |
) |
|
|
(79 |
) |
|
|
(50 |
) |
|
|
(66 |
) |
|
|
356 |
|
|
|
295 |
|
|
|
285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(158 |
) |
|
$ |
(139 |
) |
|
$ |
(33 |
) |
|
$ |
(24 |
) |
|
$ |
(41 |
) |
|
$ |
(86 |
) |
|
$ |
757 |
|
|
$ |
661 |
|
|
$ |
601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
194 |
|
|
$ |
365 |
|
|
$ |
481 |
|
Selected Average Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$ |
7,134 |
|
|
$ |
7,516 |
|
|
$ |
5,747 |
|
|
$ |
834 |
|
|
$ |
793 |
|
|
$ |
1,150 |
|
|
$ |
50,948 |
|
|
$ |
52,980 |
|
|
$ |
51,130 |
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,733 |
|
|
|
42,370 |
|
|
|
42,091 |
|
Deposits
|
|
|
1,208 |
|
|
|
2,687 |
|
|
|
4,072 |
|
|
|
32 |
|
|
|
37 |
|
|
|
127 |
|
|
|
40,145 |
|
|
|
41,519 |
|
|
|
37,712 |
|
Liabilities
|
|
|
6,022 |
|
|
|
8,334 |
|
|
|
17,110 |
|
|
|
291 |
|
|
|
239 |
|
|
|
(4,861 |
) |
|
|
45,907 |
|
|
|
47,947 |
|
|
|
46,246 |
|
Attributed equity
|
|
|
661 |
|
|
|
841 |
|
|
|
925 |
|
|
|
720 |
|
|
|
308 |
|
|
|
(191 |
) |
|
|
5,041 |
|
|
|
5,033 |
|
|
|
4,884 |
|
Statistical Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets (1)
|
|
|
(2.21 |
)% |
|
|
(1.52 |
)% |
|
|
(0.18 |
)% |
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
1.49 |
% |
|
|
1.25 |
% |
|
|
1.18 |
% |
Return on average attributed equity
|
|
|
(23.88 |
) |
|
|
(16.57 |
) |
|
|
(3.60 |
) |
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
15.03 |
|
|
|
13.12 |
|
|
|
12.31 |
|
Efficiency ratio
|
|
|
(3.68 |
) |
|
|
(2.63 |
) |
|
|
(5.98 |
) |
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
55.90 |
|
|
|
53.64 |
|
|
|
50.59 |
|
|
|
(1) |
Return on average assets is calculated based on
the greater of average assets or average liabilities and
attributed equity.
|
n/m-not meaningful
106
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
The Corporations management accounting
system also produces market segment results for the
Corporations four primary geographic regions: Midwest and
Other Markets, Western, Texas, and Florida. The following
discussion provides information about the activities of each
market segment. A discussion of the financial results and the
factors impacting 2004 performance can be found in the section
entitled Market Segments in the financial review on
page 36.
Midwest and Other Markets includes all markets in
which the Corporation has operations except for the Western,
Texas and Florida regions, as described below. Substantially all
of the Corporations international operations are included
in the Midwest and Other Markets segment. Currently, Michigan
operations represent the significant majority of this geographic
region.
The Western region consists of the states of
California, Arizona, Nevada, Colorado and Washington. Currently,
California operations represent the significant majority of the
Western region.
The Texas and Florida regions consist of the
states of Texas and Florida, respectively.
The Finance and Other Businesses segment includes
the Corporations securities portfolio, asset and liability
management activities, divested business lines, the income and
expense impact of equity, cash and loan loss reserves not
assigned to specific business lines/market segments, tax
benefits not assigned to specific business lines/market segments
and miscellaneous other expenses of a corporate nature. This
segment includes responsibility for managing the
Corporations funding, liquidity and capital needs,
performing interest sensitivity gap and earnings simulation
analysis and executing various strategies to manage the
Corporations exposure to liquidity, interest rate risk and
foreign exchange risk.
The Corporations total revenues from
customers attributed to and long-lived assets (excluding certain
intangible assets) located in foreign countries in which the
Corporation holds assets were less than five percent of the
Corporations consolidated revenues and long-lived assets
(excluding certain intangible assets) in each of the years ended
December 31, 2004, 2003 and 2002.
107
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Market segment financial results are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Midwest and Other | |
|
|
|
|
|
|
Markets | |
|
Western | |
|
Texas | |
|
|
| |
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Earnings Summary:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) (FTE)
|
|
$ |
1,056 |
|
|
$ |
1,164 |
|
|
$ |
1,209 |
|
|
$ |
757 |
|
|
$ |
827 |
|
|
$ |
877 |
|
|
$ |
236 |
|
|
$ |
255 |
|
|
$ |
264 |
|
Provision for loan losses
|
|
|
(16 |
) |
|
|
204 |
|
|
|
348 |
|
|
|
37 |
|
|
|
96 |
|
|
|
164 |
|
|
|
(1 |
) |
|
|
12 |
|
|
|
24 |
|
Noninterest income
|
|
|
576 |
|
|
|
564 |
|
|
|
528 |
|
|
|
133 |
|
|
|
131 |
|
|
|
130 |
|
|
|
76 |
|
|
|
74 |
|
|
|
72 |
|
Noninterest expenses
|
|
|
855 |
|
|
|
863 |
|
|
|
911 |
|
|
|
350 |
|
|
|
369 |
|
|
|
349 |
|
|
|
173 |
|
|
|
176 |
|
|
|
177 |
|
Provision (benefit) for income taxes (FTE)
|
|
|
257 |
|
|
|
214 |
|
|
|
152 |
|
|
|
208 |
|
|
|
202 |
|
|
|
204 |
|
|
|
49 |
|
|
|
49 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
536 |
|
|
$ |
447 |
|
|
$ |
326 |
|
|
$ |
295 |
|
|
$ |
291 |
|
|
$ |
290 |
|
|
$ |
91 |
|
|
$ |
92 |
|
|
$ |
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
$ |
95 |
|
|
$ |
217 |
|
|
$ |
298 |
|
|
$ |
90 |
|
|
$ |
127 |
|
|
$ |
146 |
|
|
$ |
9 |
|
|
$ |
20 |
|
|
$ |
33 |
|
Selected Average Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$ |
24,337 |
|
|
$ |
25,999 |
|
|
$ |
26,028 |
|
|
$ |
12,615 |
|
|
$ |
12,833 |
|
|
$ |
12,267 |
|
|
$ |
4,700 |
|
|
$ |
4,677 |
|
|
$ |
4,823 |
|
Loans
|
|
|
22,956 |
|
|
|
24,593 |
|
|
|
24,724 |
|
|
|
11,926 |
|
|
|
12,103 |
|
|
|
11,539 |
|
|
|
4,535 |
|
|
|
4,518 |
|
|
|
4,712 |
|
Deposits
|
|
|
19,059 |
|
|
|
18,764 |
|
|
|
16,936 |
|
|
|
15,770 |
|
|
|
15,680 |
|
|
|
12,327 |
|
|
|
3,832 |
|
|
|
4,156 |
|
|
|
4,109 |
|
Liabilities
|
|
|
19,750 |
|
|
|
19,352 |
|
|
|
17,450 |
|
|
|
15,777 |
|
|
|
15,679 |
|
|
|
12,311 |
|
|
|
3,825 |
|
|
|
4,148 |
|
|
|
4,097 |
|
Attributed equity
|
|
|
2,134 |
|
|
|
2,276 |
|
|
|
2,452 |
|
|
|
1,023 |
|
|
|
1,090 |
|
|
|
1,149 |
|
|
|
439 |
|
|
|
455 |
|
|
|
478 |
|
Statistical Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets (1)
|
|
|
2.20 |
% |
|
|
1.72 |
% |
|
|
1.25 |
% |
|
|
1.76 |
% |
|
|
1.73 |
% |
|
|
2.16 |
% |
|
|
1.94 |
% |
|
|
1.98 |
% |
|
|
1.83 |
% |
Return on average attributed equity
|
|
|
25.14 |
|
|
|
19.62 |
|
|
|
13.28 |
|
|
|
28.82 |
|
|
|
26.65 |
|
|
|
25.30 |
|
|
|
20.76 |
|
|
|
20.33 |
|
|
|
18.46 |
|
Efficiency ratio
|
|
|
52.38 |
|
|
|
49.94 |
|
|
|
52.48 |
|
|
|
39.37 |
|
|
|
38.56 |
|
|
|
34.64 |
|
|
|
55.30 |
|
|
|
53.51 |
|
|
|
52.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Finance and Other | |
|
|
|
|
Florida | |
|
Businesses | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Earnings Summary:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) (FTE)
|
|
$ |
39 |
|
|
$ |
36 |
|
|
$ |
34 |
|
|
$ |
(275 |
) |
|
$ |
(353 |
) |
|
$ |
(248 |
) |
|
$ |
1,813 |
|
|
$ |
1,929 |
|
|
$ |
2,136 |
|
Provision for loan losses
|
|
|
3 |
|
|
|
6 |
|
|
|
(1 |
) |
|
|
41 |
|
|
|
59 |
|
|
|
100 |
|
|
|
64 |
|
|
|
377 |
|
|
|
635 |
|
Noninterest income
|
|
|
15 |
|
|
|
14 |
|
|
|
15 |
|
|
|
57 |
|
|
|
104 |
|
|
|
155 |
|
|
|
857 |
|
|
|
887 |
|
|
|
900 |
|
Noninterest expenses
|
|
|
25 |
|
|
|
27 |
|
|
|
26 |
|
|
|
90 |
|
|
|
48 |
|
|
|
52 |
|
|
|
1,493 |
|
|
|
1,483 |
|
|
|
1,515 |
|
Provision (benefit) for income taxes (FTE)
|
|
|
9 |
|
|
|
6 |
|
|
|
8 |
|
|
|
(167 |
) |
|
|
(176 |
) |
|
|
(126 |
) |
|
|
356 |
|
|
|
295 |
|
|
|
285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
17 |
|
|
$ |
11 |
|
|
$ |
16 |
|
|
$ |
(182 |
) |
|
$ |
(180 |
) |
|
$ |
(119 |
) |
|
$ |
757 |
|
|
$ |
661 |
|
|
$ |
601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
4 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
194 |
|
|
$ |
365 |
|
|
$ |
481 |
|
Selected Average Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$ |
1,328 |
|
|
$ |
1,162 |
|
|
$ |
1,115 |
|
|
$ |
7,968 |
|
|
$ |
8,309 |
|
|
$ |
6,897 |
|
|
$ |
50,948 |
|
|
$ |
52,980 |
|
|
$ |
51,130 |
|
Loans
|
|
|
1,316 |
|
|
|
1,156 |
|
|
|
1,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,733 |
|
|
|
42,370 |
|
|
|
42,091 |
|
Deposits
|
|
|
244 |
|
|
|
195 |
|
|
|
141 |
|
|
|
1,240 |
|
|
|
2,724 |
|
|
|
4,199 |
|
|
|
40,145 |
|
|
|
41,519 |
|
|
|
37,712 |
|
Liabilities
|
|
|
242 |
|
|
|
194 |
|
|
|
138 |
|
|
|
6,313 |
|
|
|
8,574 |
|
|
|
12,250 |
|
|
|
45,907 |
|
|
|
47,947 |
|
|
|
46,246 |
|
Attributed equity
|
|
|
64 |
|
|
|
64 |
|
|
|
71 |
|
|
|
1,381 |
|
|
|
1,148 |
|
|
|
734 |
|
|
|
5,041 |
|
|
|
5,033 |
|
|
|
4,884 |
|
Statistical Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets (1)
|
|
|
1.26 |
% |
|
|
0.99 |
% |
|
|
1.44 |
% |
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
1.49 |
% |
|
|
1.25 |
% |
|
|
1.18 |
% |
Return on average attributed equity
|
|
|
26.06 |
|
|
|
17.84 |
|
|
|
22.68 |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
15.03 |
|
|
|
13.12 |
|
|
|
12.31 |
|
Efficiency ratio
|
|
|
46.05 |
|
|
|
53.52 |
|
|
|
52.37 |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
55.90 |
|
|
|
53.64 |
|
|
|
50.59 |
|
|
|
(1) |
Return on average assets is calculated based on
the greater of average assets or average liabilities and
attributed equity.
|
n/m-not meaningful
108
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 25 Parent Company Financial
Statements
Balance
Sheets Comerica Incorporated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions, except | |
|
|
share data) | |
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from subsidiary bank
|
|
$ |
1 |
|
|
$ |
|
|
Short-term investments with subsidiary bank
|
|
|
289 |
|
|
|
296 |
|
Investment in subsidiaries, principally banks
|
|
|
5,585 |
|
|
|
5,599 |
|
Premises and equipment
|
|
|
3 |
|
|
|
3 |
|
Other assets
|
|
|
304 |
|
|
|
262 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
6,182 |
|
|
$ |
6,160 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$ |
824 |
|
|
$ |
826 |
|
Other liabilities
|
|
|
253 |
|
|
|
224 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,077 |
|
|
|
1,050 |
|
Common stock $5 par value:
|
|
|
|
|
|
|
|
|
|
Authorized 325,000,000 shares
|
|
|
|
|
|
|
|
|
|
Issued 178,735,252 at 12/31/04 and
12/31/03
|
|
|
894 |
|
|
|
894 |
|
Capital surplus
|
|
|
421 |
|
|
|
384 |
|
Accumulated other comprehensive income
|
|
|
(69 |
) |
|
|
74 |
|
Retained earnings
|
|
|
4,331 |
|
|
|
3,973 |
|
Less cost of common stock in treasury
8,259,328 shares at 12/31/04 and 3,735,163 shares at 12/31/03
|
|
|
(472 |
) |
|
|
(215 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
5,105 |
|
|
|
5,110 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
6,182 |
|
|
$ |
6,160 |
|
|
|
|
|
|
|
|
109
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Statements of
Income Comerica Incorporated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiaries
|
|
$ |
691 |
|
|
$ |
355 |
|
|
$ |
648 |
|
|
Other interest income
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
Intercompany management fees
|
|
|
75 |
|
|
|
120 |
|
|
|
149 |
|
Other noninterest income
|
|
|
12 |
|
|
|
2 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
780 |
|
|
|
478 |
|
|
|
810 |
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on commercial paper
|
|
|
|
|
|
|
|
|
|
|
3 |
|
Interest on long-term debt
|
|
|
37 |
|
|
|
22 |
|
|
|
3 |
|
Interest on subordinated debt issued to
subsidiaries
|
|
|
|
|
|
|
15 |
|
|
|
30 |
|
Salaries and employee benefits
|
|
|
84 |
|
|
|
78 |
|
|
|
82 |
|
Occupancy expense
|
|
|
7 |
|
|
|
7 |
|
|
|
6 |
|
Equipment expense
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
Other noninterest expenses
|
|
|
48 |
|
|
|
44 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
177 |
|
|
|
167 |
|
|
|
159 |
|
|
|
|
|
|
|
|
|
|
|
Income before provision (benefit) of income
taxes and equity in undistributed earnings (losses) of
subsidiaries
|
|
|
603 |
|
|
|
311 |
|
|
|
651 |
|
Provision (benefit) for income taxes
|
|
|
(34 |
) |
|
|
(18 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
Income before equity in undistributed earnings
(losses) of subsidiaries
|
|
|
637 |
|
|
|
329 |
|
|
|
652 |
|
Equity in undistributed earnings (losses) of
subsidiaries, principally banks
|
|
|
120 |
|
|
|
332 |
|
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$ |
757 |
|
|
$ |
661 |
|
|
$ |
601 |
|
|
|
|
|
|
|
|
|
|
|
110
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
|
|
|
Statements of Cash Flows
Comerica Incorporated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
757 |
|
|
$ |
661 |
|
|
$ |
601 |
|
Adjustments to reconcile net income to net cash
provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed (earnings) losses of
subsidiaries, principally banks
|
|
|
(120 |
) |
|
|
(332 |
) |
|
|
51 |
|
|
Depreciation and software amortization
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
Amortization of stock-based compensation expense
|
|
|
14 |
|
|
|
11 |
|
|
|
22 |
|
|
Net gain on sales of businesses
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
Decrease (increase) in dividends receivable
from subsidiary
|
|
|
|
|
|
|
85 |
|
|
|
(85 |
) |
|
Other, net
|
|
|
(1 |
) |
|
|
27 |
|
|
|
(92 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
(106 |
) |
|
|
(208 |
) |
|
|
(115 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
651 |
|
|
|
453 |
|
|
|
486 |
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease (increase) in short-term
investments with subsidiary bank
|
|
|
7 |
|
|
|
(268 |
) |
|
|
(16 |
) |
Net decrease (increase) in private equity
and venture capital investments
|
|
|
8 |
|
|
|
5 |
|
|
|
(26 |
) |
Proceeds from sales of businesses
|
|
|
|
|
|
|
|
|
|
|
8 |
|
Capital transactions with subsidiaries
|
|
|
(9 |
) |
|
|
(18 |
) |
|
|
(27 |
) |
Fixed assets, net
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities
|
|
|
5 |
|
|
|
(282 |
) |
|
|
(62 |
) |
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in subordinated debt issued to and
advances from subsidiaries
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
Net issuance of long-term debt
|
|
|
|
|
|
|
300 |
|
|
|
|
|
Net decrease in commercial paper
|
|
|
|
|
|
|
(130 |
) |
|
|
(10 |
) |
Proceeds from issuance of common stock
|
|
|
72 |
|
|
|
16 |
|
|
|
50 |
|
Purchase of common stock for treasury and
retirement
|
|
|
(370 |
) |
|
|
(27 |
) |
|
|
(210 |
) |
Dividends paid
|
|
|
(357 |
) |
|
|
(347 |
) |
|
|
(331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(655 |
) |
|
|
(188 |
) |
|
|
(508 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash on deposit at
bank subsidiary
|
|
|
1 |
|
|
|
(17 |
) |
|
|
(84 |
) |
Cash on deposit at bank subsidiary at beginning
of year
|
|
|
|
|
|
|
17 |
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
Cash on deposit at bank subsidiary at end of year
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
17 |
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
36 |
|
|
$ |
37 |
|
|
$ |
37 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes (recovered) paid
|
|
$ |
(36 |
) |
|
$ |
(8 |
) |
|
$ |
12 |
|
|
|
|
|
|
|
|
|
|
|
111
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 26 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
|
| |
|
|
Fourth | |
|
Third | |
|
Second | |
|
First | |
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions, except per share data) | |
Interest income
|
|
$ |
591 |
|
|
$ |
558 |
|
|
$ |
545 |
|
|
$ |
543 |
|
Interest expense
|
|
|
125 |
|
|
|
107 |
|
|
|
97 |
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
466 |
|
|
|
451 |
|
|
|
448 |
|
|
|
445 |
|
Provision for loan losses
|
|
|
(21 |
) |
|
|
|
|
|
|
20 |
|
|
|
65 |
|
Net securities gains (losses)
|
|
|
|
|
|
|
(6 |
) |
|
|
1 |
|
|
|
5 |
|
Noninterest income (excluding net securities
gains (losses))
|
|
|
203 |
|
|
|
212 |
|
|
|
227 |
|
|
|
215 |
|
Noninterest expenses
|
|
|
380 |
|
|
|
372 |
|
|
|
372 |
|
|
|
369 |
|
Provision for income taxes
|
|
|
103 |
|
|
|
89 |
|
|
|
92 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
207 |
|
|
$ |
196 |
|
|
$ |
192 |
|
|
$ |
162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$ |
1.22 |
|
|
$ |
1.15 |
|
|
$ |
1.11 |
|
|
$ |
0.93 |
|
Diluted net income per common share
|
|
|
1.21 |
|
|
|
1.13 |
|
|
|
1.10 |
|
|
|
0.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
|
| |
|
|
Fourth | |
|
Third | |
|
Second | |
|
First | |
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
|
| |
|
| |
|
| |
|
| |
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 |
|
112
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 27 Pending Accounting
Pronouncements
In December 2004, the FASB issued SFAS
No. 123(R), Share-Based Payment, a revision of
SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123(R) requires all
stock-based compensation awards granted to employees be
recognized in the financial statements at fair value. SFAS
No. 123(R) will allow for two transition alternatives for
public entities: modified-prospective transition or
modified-retrospective transition. Under the
modified-prospective transition method, companies would be
required to recognize compensation cost for share-based payments
to employees based on their grant-date fair value from the
beginning of the fiscal period in which the recognition
provisions are first applied. Measurement and attribution of
compensation cost for awards that were granted prior to, but not
vested as of the date SFAS No. 123(R) is adopted would be
based on the same estimate of the grant-date fair value and the
same attribution method used previously under SFAS No. 123.
Prior periods would not be restated. Under the
modified-retrospective transition method, companies would be
allowed to restate prior periods by recognizing compensation
cost in the amounts previously reported in the pro forma
footnote disclosures under the provisions of SFAS No. 123. New
awards and unvested awards would be accounted for in the same
manner for both the modified-prospective and
modified-retrospective methods. SFAS No. 123(R) is
effective for public companies at the beginning of the first
interim or annual period beginning after June 15, 2005.
Early adoption will be permitted in periods in which financial
statements have not yet been issued. In 2002, the Corporation
adopted the fair value recognition provisions of SFAS
No. 123 on a prospective basis. As a result, the adoption
of SFAS No. 123(R) is not expected to have a material
impact on the Corporations financial position or results
of operations. However, if the modified-retrospective transition
method is adopted, prior reporting periods will be restated upon
adoption, based on previously reported proforma footnote
disclosures. See Note 1 on page 64 for proforma
footnote disclosures reported for the years ended
December 31, 2004, 2003 and 2002.
In March 2004, the Emerging Issues Task Force
(EITF), a standard setting body working under the FASB, reached
a revised consensus on EITF No. 03-01, The Meaning of
Other-than-Temporary-Impairment and its Application to Certain
Investments. The revised consensus contained a model to be
used in determining whether an investment is
other-than-temporarily impaired and guidance on the recognition
of other-than-temporary impairment. The other-than-temporary
impairment evaluation and recognition guidance was to be
effective on July 1, 2004. In September 2004, the FASB
issued FSP 03-1-1, which delayed the effective date of the
guidance in EITF 03-01 related to the evaluation and
recognition of impairment on investments. The FASB plans to
issue final authoritative guidance on this topic in the first
half of 2005. When this occurs, the effect of this guidance on
the Corporations financial condition and results of
operations, if any, will be determined.
113
REPORT OF MANAGEMENT
The management of Comerica Incorporated (the
Corporation) 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 U.S. generally accepted accounting
principles and include amounts which of necessity are based on
managements 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 effective internal controls, including those over
financial reporting, as defined in the Securities and Exchange
Act of 1934, as amended. The Corporations internal control
over financial reporting includes policies and procedures that
(1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Corporation; (2) provide
reasonable assurance that transactions are recorded as necessary
to permit preparation of the consolidated financial statements
in conformity with U.S. generally accepted accounting
principles, and that receipts and expenditures of the
Corporation are being made only in accordance with
authorizations of management and directors of the Corporation;
and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition
of the Corporations assets that could have a material
effect on the consolidated financial statements.
Management assessed, with participation of the
Corporations Chief Executive Officer and Chief Financial
Officer, the Corporations internal control over financial
reporting as it relates to its consolidated financial statements
presented in conformity with U.S. generally accepted accounting
principles as of December 31, 2004. The assessment was
based on criteria for effective internal control over financial
reporting described in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this
assessment, management determined that internal control over
financial reporting is effective as it relates to the
Corporations consolidated financial statements presented
in conformity with U.S. generally accepted accounting principles
as of December 31, 2004.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.
The consolidated financial statements as of
December 31, 2004 have been audited by Ernst & Young
LLP, an independent registered public accounting firm. The audit
was conducted in accordance with the standards of the Public
Company Accounting Oversight Board (United States), which
require the independent public accountants to obtain reasonable
assurance about whether the consolidated financial statements
are free of material misstatement and whether effective internal
control over financial reporting is maintained in all material
respects. In addition, managements assessment of the
effectiveness of internal control over financial reporting as of
December 31, 2004 has been audited by Ernst & Young
LLP, as stated in their report which is included herein.
The Corporations Board of Directors
oversees managements internal control over financial
reporting and financial reporting responsibilities through its
Audit and Legal Committee as well as various other committees.
The Audit and Legal Committee (the Committee), which consists of
directors who are not officers or employees of the Corporation,
meets periodically with management, internal audit and the
independent public accountants to assure that the Committee,
management, internal auditors and the independent public
accountants 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
|
114
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Board of Directors and Shareholders
Comerica Incorporated
We have audited managements assessment,
included in the accompanying Report of Management, that Comerica
Incorporated maintained effective internal control over
financial reporting as of December 31, 2004, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
The Corporations management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion
on managements assessment and an opinion on the
effectiveness of the Corporations internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was
maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A companys internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles. A
companys internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the Corporation; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of consolidated financial statements in accordance
with U.S. generally accepted accounting principles, and that
receipts and expenditures of the Corporation are being made only
in accordance with authorizations of management and directors of
the Corporation; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Corporations
assets that could have a material effect on the consolidated
financial statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.
In our opinion, managements assessment that
Comerica Incorporated maintained effective internal control over
financial reporting as of December 31, 2004, is fairly stated,
in all material respects, based on the COSO criteria. Also, in
our opinion, Comerica Incorporated maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2004, based on the COSO criteria.
We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Comerica
Incorporated as of December 31, 2004 and 2003, 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, 2004 and our report
dated February 18, 2005 expressed an unqualified opinion
thereon.
Detroit, Michigan
February 18, 2005
115
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Board of Directors and Shareholders
Comerica Incorporated
We have audited the accompanying consolidated
balance sheets of Comerica Incorporated and subsidiaries as of
December 31, 2004 and 2003, 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, 2004. These financial statements are the
responsibility of the Corporations management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(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, 2004 and 2003, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31,
2004, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of Comerica
Incorporateds internal control over financial reporting as
of December 31, 2004, based on criteria established in
Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 18, 2005,
expressed an unqualified opinion thereon.
Detroit, Michigan
February 18, 2005
116
HISTORICAL REVIEW AVERAGE
BALANCE SHEETS
Comerica Incorporated and
Subsidiaries
CONSOLIDATED FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$ |
1,685 |
|
|
$ |
1,811 |
|
|
$ |
1,800 |
|
|
$ |
1,835 |
|
|
$ |
1,842 |
|
Short-term investments
|
|
|
1,921 |
|
|
|
1,942 |
|
|
|
602 |
|
|
|
442 |
|
|
|
978 |
|
Investment securities
|
|
|
4,321 |
|
|
|
4,529 |
|
|
|
4,360 |
|
|
|
3,909 |
|
|
|
3,688 |
|
|
Commercial loans
|
|
|
22,139 |
|
|
|
23,764 |
|
|
|
24,266 |
|
|
|
25,374 |
|
|
|
24,441 |
|
Real estate construction loans
|
|
|
3,264 |
|
|
|
3,540 |
|
|
|
3,353 |
|
|
|
3,090 |
|
|
|
2,554 |
|
Commercial mortgage loans
|
|
|
7,991 |
|
|
|
7,521 |
|
|
|
6,786 |
|
|
|
5,695 |
|
|
|
5,142 |
|
Residential mortgage loans
|
|
|
1,237 |
|
|
|
1,192 |
|
|
|
1,101 |
|
|
|
1,101 |
|
|
|
1,098 |
|
Consumer loans
|
|
|
2,668 |
|
|
|
2,474 |
|
|
|
2,355 |
|
|
|
2,200 |
|
|
|
2,041 |
|
Lease financing
|
|
|
1,272 |
|
|
|
1,283 |
|
|
|
1,242 |
|
|
|
1,111 |
|
|
|
870 |
|
International loans
|
|
|
2,162 |
|
|
|
2,596 |
|
|
|
2,988 |
|
|
|
2,800 |
|
|
|
2,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
40,733 |
|
|
|
42,370 |
|
|
|
42,091 |
|
|
|
41,371 |
|
|
|
38,698 |
|
Less allowance for loan losses
|
|
|
(787 |
) |
|
|
(831 |
) |
|
|
(739 |
) |
|
|
(654 |
) |
|
|
(595 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
39,946 |
|
|
|
41,539 |
|
|
|
41,352 |
|
|
|
40,717 |
|
|
|
38,103 |
|
Accrued income and other assets
|
|
|
3,075 |
|
|
|
3,159 |
|
|
|
3,016 |
|
|
|
2,785 |
|
|
|
2,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
50,948 |
|
|
$ |
52,980 |
|
|
$ |
51,130 |
|
|
$ |
49,688 |
|
|
$ |
46,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
$ |
14,122 |
|
|
$ |
13,910 |
|
|
$ |
11,841 |
|
|
$ |
10,253 |
|
|
$ |
9,068 |
|
Interest-bearing deposits
|
|
|
26,023 |
|
|
|
27,609 |
|
|
|
25,871 |
|
|
|
25,059 |
|
|
|
21,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
40,145 |
|
|
|
41,519 |
|
|
|
37,712 |
|
|
|
35,312 |
|
|
|
30,340 |
|
Short-term borrowings
|
|
|
275 |
|
|
|
550 |
|
|
|
1,962 |
|
|
|
2,584 |
|
|
|
3,323 |
|
Accrued expenses and other liabilities
|
|
|
947 |
|
|
|
804 |
|
|
|
809 |
|
|
|
823 |
|
|
|
703 |
|
Medium- and long-term debt
|
|
|
4,540 |
|
|
|
5,074 |
|
|
|
5,763 |
|
|
|
6,198 |
|
|
|
8,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
45,907 |
|
|
|
47,947 |
|
|
|
46,246 |
|
|
|
44,917 |
|
|
|
42,664 |
|
Shareholders equity
|
|
|
5,041 |
|
|
|
5,033 |
|
|
|
4,884 |
|
|
|
4,771 |
|
|
|
4,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
50,948 |
|
|
$ |
52,980 |
|
|
$ |
51,130 |
|
|
$ |
49,688 |
|
|
$ |
46,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117
HISTORICAL REVIEW STATEMENTS
OF INCOME
Comerica Incorporated and
Subsidiaries
CONSOLIDATED FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions, except per share data) | |
INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$ |
2,054 |
|
|
$ |
2,211 |
|
|
$ |
2,524 |
|
|
$ |
3,121 |
|
|
$ |
3,379 |
|
Interest on investment securities
|
|
|
147 |
|
|
|
165 |
|
|
|
246 |
|
|
|
246 |
|
|
|
259 |
|
Interest on short-term investments
|
|
|
36 |
|
|
|
36 |
|
|
|
27 |
|
|
|
26 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
2,237 |
|
|
|
2,412 |
|
|
|
2,797 |
|
|
|
3,393 |
|
|
|
3,716 |
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
315 |
|
|
|
370 |
|
|
|
479 |
|
|
|
888 |
|
|
|
951 |
|
Interest on short-term borrowings
|
|
|
4 |
|
|
|
7 |
|
|
|
37 |
|
|
|
105 |
|
|
|
215 |
|
Interest on medium- and long-term debt
|
|
|
108 |
|
|
|
109 |
|
|
|
149 |
|
|
|
298 |
|
|
|
546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
427 |
|
|
|
486 |
|
|
|
665 |
|
|
|
1,291 |
|
|
|
1,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
1,810 |
|
|
|
1,926 |
|
|
|
2,132 |
|
|
|
2,102 |
|
|
|
2,004 |
|
Provision for loan losses
|
|
|
64 |
|
|
|
377 |
|
|
|
635 |
|
|
|
241 |
|
|
|
251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan
losses
|
|
|
1,746 |
|
|
|
1,549 |
|
|
|
1,497 |
|
|
|
1,861 |
|
|
|
1,753 |
|
NONINTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
231 |
|
|
|
238 |
|
|
|
227 |
|
|
|
211 |
|
|
|
189 |
|
Fiduciary income
|
|
|
171 |
|
|
|
169 |
|
|
|
171 |
|
|
|
180 |
|
|
|
181 |
|
Commercial lending fees
|
|
|
55 |
|
|
|
63 |
|
|
|
69 |
|
|
|
67 |
|
|
|
61 |
|
Letter of credit fees
|
|
|
66 |
|
|
|
65 |
|
|
|
60 |
|
|
|
58 |
|
|
|
52 |
|
Foreign exchange income
|
|
|
37 |
|
|
|
36 |
|
|
|
38 |
|
|
|
35 |
|
|
|
27 |
|
Brokerage fees
|
|
|
36 |
|
|
|
34 |
|
|
|
38 |
|
|
|
44 |
|
|
|
44 |
|
Investment advisory revenue, net
|
|
|
35 |
|
|
|
30 |
|
|
|
27 |
|
|
|
12 |
|
|
|
119 |
|
Card fees
|
|
|
32 |
|
|
|
27 |
|
|
|
23 |
|
|
|
27 |
|
|
|
34 |
|
Bank-owned life insurance
|
|
|
34 |
|
|
|
42 |
|
|
|
53 |
|
|
|
33 |
|
|
|
23 |
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
12 |
|
|
|
6 |
|
|
|
8 |
|
|
|
(43 |
) |
|
|
14 |
|
Warrant income
|
|
|
7 |
|
|
|
4 |
|
|
|
5 |
|
|
|
5 |
|
|
|
30 |
|
Net securities gains
|
|
|
|
|
|
|
50 |
|
|
|
41 |
|
|
|
20 |
|
|
|
16 |
|
Net gain on sales of businesses
|
|
|
7 |
|
|
|
|
|
|
|
12 |
|
|
|
31 |
|
|
|
50 |
|
Other noninterest income
|
|
|
134 |
|
|
|
123 |
|
|
|
128 |
|
|
|
157 |
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
857 |
|
|
|
887 |
|
|
|
900 |
|
|
|
837 |
|
|
|
980 |
|
NONINTEREST EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
919 |
|
|
|
897 |
|
|
|
844 |
|
|
|
842 |
|
|
|
874 |
|
Net occupancy expense
|
|
|
125 |
|
|
|
128 |
|
|
|
122 |
|
|
|
115 |
|
|
|
110 |
|
Equipment expense
|
|
|
58 |
|
|
|
61 |
|
|
|
62 |
|
|
|
70 |
|
|
|
76 |
|
Outside processing fee expense
|
|
|
68 |
|
|
|
71 |
|
|
|
65 |
|
|
|
61 |
|
|
|
59 |
|
Software expense
|
|
|
43 |
|
|
|
37 |
|
|
|
33 |
|
|
|
34 |
|
|
|
28 |
|
Customer services
|
|
|
23 |
|
|
|
25 |
|
|
|
26 |
|
|
|
41 |
|
|
|
37 |
|
Litigation and operational losses
|
|
|
24 |
|
|
|
18 |
|
|
|
20 |
|
|
|
16 |
|
|
|
24 |
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
86 |
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152 |
|
|
|
|
|
Other noninterest expenses
|
|
|
233 |
|
|
|
246 |
|
|
|
257 |
|
|
|
256 |
|
|
|
303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
1,493 |
|
|
|
1,483 |
|
|
|
1,515 |
|
|
|
1,587 |
|
|
|
1,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,110 |
|
|
|
953 |
|
|
|
882 |
|
|
|
1,111 |
|
|
|
1,222 |
|
Provision for income taxes
|
|
|
353 |
|
|
|
292 |
|
|
|
281 |
|
|
|
401 |
|
|
|
431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$ |
757 |
|
|
$ |
661 |
|
|
$ |
601 |
|
|
$ |
710 |
|
|
$ |
791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock
|
|
$ |
757 |
|
|
$ |
661 |
|
|
$ |
601 |
|
|
$ |
698 |
|
|
$ |
774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$ |
4.41 |
|
|
$ |
3.78 |
|
|
$ |
3.43 |
|
|
$ |
3.93 |
|
|
$ |
4.38 |
|
Diluted net income per common share
|
|
|
4.36 |
|
|
|
3.75 |
|
|
|
3.40 |
|
|
|
3.88 |
|
|
|
4.31 |
|
Cash dividends declared on common stock
|
|
|
356 |
|
|
|
350 |
|
|
|
335 |
|
|
|
313 |
|
|
|
250 |
|
Cash dividends declared per common share
|
|
|
2.08 |
|
|
|
2.00 |
|
|
|
1.92 |
|
|
|
1.76 |
|
|
|
1.60 |
|
118
HISTORICAL REVIEW STATISTICAL
DATA
Comerica Incorporated and
Subsidiaries
CONSOLIDATED FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
AVERAGE RATES (FULLY TAXABLE EQUIVALENT
BASIS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
1.88 |
% |
|
|
1.85 |
% |
|
|
4.45 |
% |
|
|
6.02 |
% |
|
|
7.97 |
% |
Investment securities
|
|
|
3.36 |
|
|
|
3.65 |
|
|
|
5.74 |
|
|
|
6.37 |
|
|
|
6.99 |
|
Commercial loans
|
|
|
4.22 |
|
|
|
4.11 |
|
|
|
4.67 |
|
|
|
6.83 |
|
|
|
8.87 |
|
Real estate construction loans
|
|
|
5.43 |
|
|
|
5.04 |
|
|
|
5.74 |
|
|
|
7.95 |
|
|
|
10.09 |
|
Commercial mortgage loans
|
|
|
5.19 |
|
|
|
5.35 |
|
|
|
6.12 |
|
|
|
7.65 |
|
|
|
8.80 |
|
Residential mortgage loans
|
|
|
5.68 |
|
|
|
6.12 |
|
|
|
6.88 |
|
|
|
7.57 |
|
|
|
7.78 |
|
Consumer loans
|
|
|
4.73 |
|
|
|
4.94 |
|
|
|
5.94 |
|
|
|
8.08 |
|
|
|
9.06 |
|
Lease financing
|
|
|
4.06 |
|
|
|
4.59 |
|
|
|
5.37 |
|
|
|
6.25 |
|
|
|
6.24 |
|
International loans
|
|
|
4.69 |
|
|
|
4.44 |
|
|
|
4.70 |
|
|
|
7.38 |
|
|
|
9.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
5.05 |
|
|
|
5.22 |
|
|
|
6.00 |
|
|
|
7.55 |
|
|
|
8.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income as a percentage of earning assets
|
|
|
4.76 |
|
|
|
4.94 |
|
|
|
5.96 |
|
|
|
7.44 |
|
|
|
8.57 |
|
Domestic deposits
|
|
|
1.17 |
|
|
|
1.30 |
|
|
|
1.81 |
|
|
|
3.48 |
|
|
|
4.34 |
|
Deposits in foreign offices
|
|
|
2.60 |
|
|
|
3.15 |
|
|
|
3.36 |
|
|
|
5.97 |
|
|
|
7.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
1.21 |
|
|
|
1.34 |
|
|
|
1.85 |
|
|
|
3.54 |
|
|
|
4.47 |
|
Short-term borrowings
|
|
|
1.25 |
|
|
|
1.20 |
|
|
|
1.85 |
|
|
|
4.08 |
|
|
|
6.48 |
|
Medium- and long-term debt
|
|
|
2.39 |
|
|
|
2.14 |
|
|
|
2.58 |
|
|
|
4.80 |
|
|
|
6.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense as a percentage of
interest-bearing sources
|
|
|
1.38 |
|
|
|
1.46 |
|
|
|
1.98 |
|
|
|
3.82 |
|
|
|
5.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
3.38 |
|
|
|
3.48 |
|
|
|
3.98 |
|
|
|
3.62 |
|
|
|
3.37 |
|
Impact of net noninterest-bearing sources of funds
|
|
|
0.48 |
|
|
|
0.47 |
|
|
|
0.57 |
|
|
|
0.99 |
|
|
|
1.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin as a percentage of earning
assets
|
|
|
3.86 |
% |
|
|
3.95 |
% |
|
|
4.55 |
% |
|
|
4.61 |
% |
|
|
4.63 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average common shareholders equity
|
|
|
15.03 |
% |
|
|
13.12 |
% |
|
|
12.31 |
% |
|
|
15.16 |
% |
|
|
19.52 |
% |
Return on average assets
|
|
|
1.49 |
|
|
|
1.25 |
|
|
|
1.18 |
|
|
|
1.43 |
|
|
|
1.69 |
|
Efficiency ratio
|
|
|
55.90 |
|
|
|
53.64 |
|
|
|
50.59 |
|
|
|
54.30 |
|
|
|
50.88 |
|
Tier 1 common capital as a percentage of risk-
weighted assets
|
|
|
8.13 |
|
|
|
8.04 |
|
|
|
7.39 |
|
|
|
7.30 |
|
|
|
6.80 |
|
PER SHARE DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value at year-end
|
|
$ |
29.94 |
|
|
$ |
29.20 |
|
|
$ |
28.31 |
|
|
$ |
27.17 |
|
|
$ |
23.98 |
|
Market value at year-end
|
|
|
61.02 |
|
|
|
56.06 |
|
|
|
43.24 |
|
|
|
57.30 |
|
|
|
59.38 |
|
Market value for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
63.80 |
|
|
|
56.34 |
|
|
|
66.09 |
|
|
|
65.15 |
|
|
|
61.13 |
|
|
Low
|
|
|
50.45 |
|
|
|
37.10 |
|
|
|
35.20 |
|
|
|
44.02 |
|
|
|
32.94 |
|
OTHER DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of banking offices
|
|
|
376 |
|
|
|
360 |
|
|
|
352 |
|
|
|
342 |
|
|
|
354 |
|
Number of employees (full-time equivalent)
|
|
|
10,968 |
|
|
|
11,282 |
|
|
|
11,358 |
|
|
|
11,406 |
|
|
|
11,444 |
|
119
EX-21
5
k92690exv21.htm
SUBSIDIARIES OF REGISTRANT
exv21
Exhibit 21
Subsidiaries of Registrant
As of December 31, 2004
|
|
|
Name |
|
State or Jurisdiction of Incorporation or Organization |
CDV I Incorporated
|
|
Delaware |
CMT Holdings, Inc.
|
|
Texas |
Comerica Assurance Ltd.
|
|
Bermuda |
Comerica Auto Floorplan, LLC
|
|
Delaware |
Comerica Bank
|
|
Michigan |
Comerica Bank Mexico, S.A.
|
|
Mexico |
Comerica Bank & Trust, National Association |
|
United States |
Comerica (Bermuda), Ltd.
|
|
Bermuda |
(f/k/a Comerica Trust Company of Bermuda, Ltd.) |
|
|
Comerica California Preferred Capital, LLC
|
|
Delaware |
Comerica Capital Advisors Incorporated
|
|
Delaware |
Comerica Capital Markets Corporation
|
|
Michigan |
Comerica Capital Trust I
|
|
Delaware |
Comerica Capital Trust II
|
|
Delaware |
Comerica Coastal Incorporated
|
|
Delaware |
Comerica Dealer Finance, LLC
|
|
Delaware |
Comerica do Brasil Participacoes e Servicos Ltda. |
|
Brazil |
Comerica Equities Incorporated
|
|
Delaware |
Comerica Financial Incorporated
|
|
Michigan |
(f/k/a/ Comerica AutoLease, Inc.) |
|
|
Comerica 10A Financial, LLC
|
|
Michigan |
(f/k/a Project 10A, LLC) |
|
|
Comerica Holdings Incorporated
|
|
Delaware |
Comerica Insurance Group, Inc.
|
|
Michigan |
Comerica Insurance Services, Inc.
|
|
Michigan |
Comerica Insurance Services of Texas Incorporated |
|
Texas |
(f/k/a CMA Insurance Services, Inc.) |
|
|
Comerica International Corporation
|
|
U.S. |
Comerica Investment Services, Inc.
|
|
Michigan |
Comerica Leasing Corporation
|
|
Michigan |
(f/k/a CMCA Lease, Inc.) |
|
|
Comerica Management Company
|
|
Michigan |
Comerica Merchant Services, Inc.
|
|
Delaware |
Comerica Preferred Capital, LLC
|
|
Delaware |
Comerica Properties Corporation
|
|
Michigan |
Comerica Securities, Inc.
|
|
Michigan |
Comerica Texas Preferred Capital, LLC
|
|
Delaware |
Comerica Trade Services Limited
|
|
Hong Kong |
Comerica Ventures Incorporated
|
|
California |
(f/k/a Imperial Ventures, Inc.) |
|
|
Comerica West Enterprises Incorporated
|
|
Delaware |
Comerica West Financial Incorporated
|
|
Delaware |
Comerica West Incorporated
|
|
Delaware |
DFP Cayman LP
|
|
Cayman Islands |
DFP Luxembourg S.A.
|
|
Luxembourg |
Imperial Capital Trust I
|
|
Delaware |
Imperial International, Inc.
|
|
California |
Imperial Management, Inc.
|
|
Delaware |
(f/k/a Imperial Financial Group, Inc.) |
|
|
Interstate Select Insurance Services, Inc.
|
|
California |
Munder Capital Management
|
|
Delaware |
Munder UK, L.L.C.
|
|
Delaware |
Pacific Bancard Association, Inc.
|
|
California |
Professional Life Underwriters Services, Inc.
|
|
Michigan |
ROC Technologies Inc.
|
|
Delaware |
VRB Corp.
|
|
Michigan |
WAM Holdings, Inc.
|
|
Delaware |
WAM Holdings II, Inc.
|
|
Delaware |
Wilson, Kemp & Associates, Inc.
|
|
Michigan |
EX-23
6
k92690exv23.htm
CONSENT OF ERNST & YOUNG LLP
exv23
Exhibit 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements listed below of our
reports dated February 18, 2005, with respect to the consolidated financial statements of Comerica
Incorporated and subsidiaries, Comerica Incorporateds managements assessment of the effectiveness
of internal control over financial reporting, and the effectiveness of internal control over
financial reporting of Comerica Incorporated, included in this Annual Report on Form 10-K for the
year ended December 31, 2004:
|
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 31, 2003 |
Registration Statement No. 333-104164 on Form S-8 dated March 31, 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 |
Registration Statement No. 333-117788 on Form S-8 dated July 30, 2004 |
/s/ Ernst & Young LLP
March 3, 2005
Detroit, Michigan
EX-31.1
7
k92690exv31w1.htm
CHAIRMAN, PRESIDENT AND CEO SECTION 302 CERTIFICATION
exv31w1
Exhibit (31.1) - Chairman, President and CEO Rule 13a-14(a)/15d-14(a) Certification of
Periodic Report (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
CERTIFICATION OF PERIODIC REPORT
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, 2004; |
|
2. |
Based on my knowledge, this 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 report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in
this 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
report; |
|
4. |
The Registrants other certifying officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15(d)-15(f)) for the Registrant and 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 Report is being prepared; |
|
|
(b) |
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
(c) |
Evaluated the effectiveness of the Registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
|
(d) |
Disclosed in this report any change in the Registrants internal control over
financial reporting that occurred during the Registrants most recent fiscal
quarter (the Registrans fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially
affect, the Registrants internal control over
financial reporting; and |
5. |
The Registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the Registrants auditors and the
audit committee of the Registrants board of directors: |
|
(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 Registrants 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 Registrants internal control over financial
reporting. |
|
|
|
Date: March 3, 2005
|
|
/s/ Ralph W. Babb, Jr.
|
|
|
Ralph W. Babb, Jr. |
|
|
Chairman, President and |
|
|
Chief Executive Officer |
EX-31.2
8
k92690exv31w2.htm
EXECUTIVE VP, CFO AND TREASURER SECTION 302 CERTIFICATION
exv31w2
Exhibit (31.2) - Executive Vice President, CFO and Treasurer Rule 13a-14(a)/15d-14(a)
Certification of Periodic Report (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
CERTIFICATION OF PERIODIC REPORT
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Elizabeth S. Acton, Executive Vice President, Chief Financial Officer and Treasurer 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, 2004; |
|
2. |
Based on my knowledge, this 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 report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in
this 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
report; |
|
4. |
The Registrants other certifying officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15(d)-15(f)) for the Registrant and 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 Report is being prepared; |
|
|
(b) |
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
|
|
(c) |
Evaluated the effectiveness of the Registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and |
|
|
(d) |
Disclosed in this report any change in the Registrants
internal control over financial reporting that occurred during the
Registrants
most recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
Registrants internal control over financial reporting; and |
5. |
The Registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the Registrants auditors and the
audit committee of the Registrants board of directors: |
|
(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 Registrants 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 Registrants internal control over financial
reporting. |
|
|
|
Date: March 3, 2005 |
|
/s/ Elizabeth S. Acton
|
|
|
Elizabeth S. Acton |
|
|
Executive Vice President, |
|
|
Chief Financial Officer and Treasurer |
EX-32
9
k92690exv32.htm
SECTION 1350 CERTIFICATION
exv32
Exhibit (32) - Section 1350 Certification of Periodic Report (pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002)
CERTIFICATION OF PERIODIC REPORT
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned, Ralph W. Babb, Jr., Chairman, President and Chief Executive Officer, and
Elizabeth S. Acton, Executive Vice President, Chief Financial Officer and Treasurer, of Comerica
Incorporated (the Company), certifies, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, 18 U.S.C. Section 1350, that to his or her knowledge:
(1) |
the Annual Report on Form 10-K of the Company for the year
ended December 31, 2004 (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
|
(2) |
the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
|
|
|
Dated: March 3, 2005 |
|
/s/ Ralph W. Babb, Jr.
|
|
|
Name: Ralph W. Babb, Jr. |
|
|
Chairman, President and Chief Executive |
|
|
Officer |
|
|
|
|
|
|
|
|
/s/ Elizabeth S. Acton
|
|
|
Name: Elizabeth S. Acton |
|
|
Executive Vice President, Chief Financial |
|
|
Officer and Treasurer |
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