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0000950124-06-000963.txt : 20060303
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20060303122131
ACCESSION NUMBER: 0000950124-06-000963
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 12
CONFORMED PERIOD OF REPORT: 20051231
FILED AS OF DATE: 20060303
DATE AS OF CHANGE: 20060303
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: 06662530
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
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z02267e10vk.htm
ANNUAL REPORT FOR FISCAL YEAR ENDED DECEMBER 31, 2005
e10vk
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2005.
Commission file number 1-10706
COMERICA INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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38-1998421 |
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(State or other Jurisdiction of Incorporation)
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(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
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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 if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
þ Yes o No
Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
o Yes þ No
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
(§229.405 of this chapter) 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 Yes þ No
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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer o
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Non-accelerated filer o |
At June 30, 2005 (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 $9,310,183,263 based on the closing price on the New York Stock Exchange on that
date of $57.80 per share and 161,075,835 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 24, 2006, the registrant had outstanding 162,781,289 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, 2005.
2. Part III:
Items 10-14Proxy Statement for the Annual Meeting of Shareholders to be held May 16, 2006.
TABLE OF CONTENTS
PART I
Item 1. Business.
GENERAL
Comerica Incorporated (Comerica) is a financial services company, incorporated under the laws of
the State of Delaware, and headquartered in Detroit, Michigan. As of December 31, 2005, it was
among the 21 largest commercial banking companies in the United States. 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, 2005, Comerica owned directly or
indirectly all the outstanding common stock of 3 active banking and 48 non-banking subsidiaries.
At December 31, 2005, Comerica had total assets of approximately $53.0 billion, total deposits of
approximately $42.4 billion, total loans (net of unearned income) of approximately $43.2 billion
and common shareholders equity of approximately $5.1 billion.
BUSINESS STRATEGY
Comerica has strategically aligned its operations into 3 major lines of business: The Business
Bank, The Retail Bank (formerly known as Small Business & Personal Financial Services), and Wealth
& 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 businesses: middle market, commercial
real estate, national dealer services, global finance, large corporate, leasing, financial
services, and technology and life sciences. This business segment meets the needs of medium-size
businesses, multinational corporations and governmental entities by offering various products and
services, including commercial loans and lines of credit, deposits, cash management, capital market
products, international trade finance, letters of credit, foreign exchange management services and
loan syndication services.
The Retail Bank 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
businesses and their owners, this business segment offers a variety of consumer products, including
deposit accounts, installment loans, credit and debit cards, student loans, home equity loans and
lines of credit, and residential mortgage loans.
Wealth & 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 banking, institutional trust, retirement services, investment
management and advisory services (including Munder Capital Management), investment banking, and
discount securities brokerage
services. This business segment also offers the sale of mutual funds and annuity products, as well
as life, disability and long-term care insurance products.
The Finance segment includes Comericas securities portfolio and asset and liability management
activities. This segment is responsible for managing Comericas funding, liquidity and capital
needs,
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performing interest sensitivity analysis, and executing various strategies to manage
Comericas 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 markets: Midwest & Other Markets, Western, Texas, and Florida. Midwest & Other Markets
includes all markets in which Comerica has operations, except for the Western, Texas and Florida
markets. Substantially all of Comericas international operations are included in the Midwest &
Other Markets segment. Currently, Michigan operations represent the significant majority of the
Midwest & Other Markets geographic market.
The Western market consists of the states of California, Arizona, Nevada, Colorado and Washington.
Currently, California operations represent the significant majority of the Western market.
The Texas and Florida markets consist of the states of Texas and Florida, respectively.
We provide financial information for our segments and information about our non-U.S. revenues and
long-lived assets: (1) under the caption, Strategic Lines of Business on pages 35 through 37 of
Comericas Annual Report to Shareholders for the year ended December 31, 2005, which pages are
hereby incorporated by reference; and (2) in Note 23 of the Notes to Consolidated Financial
Statements located on pages 107 through 111 of Comericas Annual Report to Shareholders for the
year ended December 31, 2005, 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 Fully Taxable Equivalent (FTE) on page 24 of Comericas Annual Report to Shareholders for
the year ended December 31, 2005, which page is hereby incorporated by reference; and (2) under the
caption Noninterest Income on pages 30 through 32 of Comericas Annual Report to Shareholders for
the year ended December 31, 2005, which pages are hereby incorporated by reference.
We provide information on risks attendant to foreign operations under the caption, Provision and
Allowance for Credit Losses on pages 28 through 30 of Comericas Annual Report to Shareholders for
the year ended December 31, 2005, which pages are hereby incorporated by reference.
COMPETITION
The financial services business is highly competitive. Comericas 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, Delaware,
Florida, Illinois, Massachusetts, Michigan, Minnesota, North Carolina, Nevada, New Jersey, New
York, Ohio, Tennessee, Texas, Virginia
and Washington, Comerica competes with other financial institutions for various deposits, loans and
other products and services.
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
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loan associations, consumer finance companies, leasing companies, credit
unions, investment banks, insurance companies and securities firms.
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).
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
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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 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 Comericas ability to conduct the broader financial activities permissible for
financial holding companies or impose limitations or conditions on the conduct or activities of
Comerica 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 Banking and Branching Efficiency Act (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
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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, 2006, Comericas subsidiary banks, without obtaining prior governmental approvals,
could declare aggregate dividends of approximately $240 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, 2006 through the date of
declaration. Comericas subsidiary banks declared dividends of $793 million in 2005, $691 million
in 2004 and $354 million in 2003 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 such a subsidiary in danger
of failure), the other banking subsidiaries may be assessed for the FDICs loss, subject to certain
exceptions.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) requires, among other
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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, 2005, Comerica and its U.S. 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.
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
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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.
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 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.
Comerica, 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, 2005, Comerica met both requirements, with Tier 1 and total
capital equal to 8.46% and 11.75% of its total risk-weighted assets.
Comerica 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. Comericas leverage
ratio of 9.99% at December 31, 2005 reflects the nature of Comericas 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.
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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, 2005,
Comericas banking subsidiaries held approximately $39.9 billion and $1.0 billion, respectively, of
BIF- and SAIF-assessable deposits. Comerica currently pays no deposit insurance assessments on the
BIF- or SAIF-assessable deposits under the FDICs risk related assessment system but paid the FDIC
$5.6 million in the year ended December 31, 2005 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 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 and criminal penalties.
Future Legislation
Changes to the laws of the states and countries in which Comerica 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 Comerica.
EMPLOYEES
As of December 31, 2005, Comerica and its subsidiaries had 10,207 full-time and 1,136 part-time
employees.
AVAILABLE INFORMATION
Comerica 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
for Employees, the Code of Business Conduct and Ethics for Members of the Board of Directors and
the Senior Financial Officer Code of Ethics adopted by Comerica 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.
Item 1A. Risk Factors.
This Report includes forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. In addition, Comerica may make other written and oral communications from
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time to time that contain such statements. All statements regarding Comericas expected financial position,
strategies and growth prospects and general economic conditions Comerica expects 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 Comerica or its management, are intended to
identify forward-looking statements.
Comerica 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 Comerica 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 Comericas SEC
reports (accessible on the SECs website at www.sec.gov or on Comericas website at
www.comerica.com), the factors contained below, among others, could cause actual results to
differ materially from forward-looking statements, and future results could differ materially from
historical performance.
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General political, economic or industry conditions, either domestically or
internationally, may be less favorable than expected. |
|
|
|
|
Local, domestic, and international economic, political and industry-specific conditions, and
governmental monetary and fiscal policies affect the financial services industry, directly
and indirectly. Conditions such as inflation, recession, unemployment, volatile interest
rates, tight money supply, real estate values, international conflicts and other factors
outside of Comericas control may adversely affect Comerica. Economic downturns could
result in the delinquency of outstanding loans, which could have a material adverse impact
on Comericas earnings. |
|
|
|
|
Unfavorable developments concerning credit quality could affect Comericas financial
results. |
|
|
|
|
Although Comerica regularly reviews credit exposure related to its customers and various
industry sectors in which it has business relationships, default risk may arise from events
or circumstances that are difficult to detect or foresee. Under such circumstances,
Comerica could experience an increase in the level of provision for credit losses,
nonperforming assets, net charge-offs and reserve for credit losses. |
11
|
|
|
Industries in which Comerica has lending concentrations, including, but not limited to,
automotive production, could suffer a significant decline which could adversely affect
Comerica. |
|
|
|
|
Comericas business customer base consists, in part, of lending concentrations in volatile
industries such as automotive production. In the event of a downturn in the economy or
general decline in any one of those industries, Comerica could experience increased credit
losses, and its business could be adversely affected. |
|
|
|
|
The introductions, withdrawal, success and timing of business initiatives and
strategies, including, but not limited to, the opening of new banking centers, and plans to
grow personal financial services and wealth management, may be less successful or may be
different than anticipated. Such a result could adversely affect Comericas business. |
|
|
|
|
Comerica makes certain projections and develops plans and strategies for its banking and
financial products. If Comerica does not accurately determine demand for its banking and
financial product needs, it could result in Comerica incurring significant expenses without
the anticipated increases in revenue, which could result in an adverse effect on its
earnings. |
|
|
|
|
Fluctuations in interest rates could affect Comericas net interest income and balance
sheet. |
|
|
|
|
The operations of financial institutions such as Comerica are dependent to a large degree on
net interest income, which is the difference between interest income from loans and
investments and interest expense on deposits and borrowings. Prevailing economic
conditions, the fiscal and monetary policies of the federal government and the policies of
various regulatory agencies all affect market rates of interest, which in turn significantly
affect financial institutions net interest income. Fluctuations in interest rates affect
Comericas balance sheet, as they do for all financial institutions. Volatility in interest
rates can also result in disintermediation, which is the flow of funds away from financial
institutions into direct investments, such as federal government and corporate securities
and other investment vehicles, which, because of the absence of federal insurance premiums
and reserve requirements, generally pay higher rates of return than financial institutions. |
|
|
|
|
Customer borrowing, repayment, investment and deposit practices generally may be
different than anticipated. |
|
|
|
|
Comerica uses a variety of financial tools, models and other methods to anticipate customer
behavior as a part of its strategic planning and to meet certain regulatory requirements.
Individual, economic, political, industry-specific conditions and other factors outside of
Comericas control could alter predicted customer borrowing, repayment, investment and
deposit practices. Such a change in these practices could adversely affect Comericas
ability to anticipate business needs and meet regulatory requirements. |
12
|
|
|
Managements ability to maintain and expand customer relationships may differ from
expectations. |
|
|
|
|
The financial services industry is very competitive. Comerica not only vies for business
opportunities with new customers, but also competes to maintain and expand the relationships
it has with its own customers. While management believes that it can continue to grow many
of these relationships, Comerica will continue to experience pressures to maintain these
relationships as its competitors attempt to capture its customers. |
|
|
|
|
Managements ability to retain key officers and employees may change. |
|
|
|
|
Comericas future operating results depend substantially upon the continued service of
Comericas executive officers and key personnel. Comericas future operating results also
depend in significant part upon Comericas ability to attract and retain qualified
management, financial, technical, marketing, sales and support personnel. Competition for
qualified personnel is intense, and Comerica cannot ensure success in attracting or
retaining qualified personnel. There may be only a limited number of persons with the
requisite skills to serve in these positions, and it may be increasingly difficult for
Comerica to hire personnel over time. Comericas business, financial condition and results
of operations could be materially adversely affected by the loss of any of its key
employees, by the failure of any key employee to perform in his or her current position, or
by Comericas inability to attract and retain skilled employees. |
|
|
|
|
Competitive product and pricing pressures among financial institutions within Comericas
markets may change. |
|
|
|
|
Comerica operates in a very competitive environment, which is characterized by competition
from a number of other financial institutions in each market in which it operates. Comerica
competes with large national and regional financial institutions and with smaller financial
institutions in terms of products and pricing. If
Comerica is unable to compete effectively in products and pricing
in its markets, business could decline. |
|
|
|
|
Legal and regulatory proceedings and related matters with respect to the financial
services industry, including those directly involving Comerica and its subsidiaries, could
adversely affect Comerica or the financial services industry in general. |
|
|
|
|
Comerica has been, and may in the future be, subject to various legal and regulatory
proceedings. It is inherently difficult to assess the outcome of these matters, and there
can be no assurance that Comerica will prevail in any proceeding or litigation. Any such
matter could result in substantial cost and diversion of Comericas efforts, which by itself
could have a material adverse effect on Comericas financial condition and operating
results. Further, adverse determinations in such matters could result in actions by
Comericas regulators that could materially adversely affect Comericas business, financial
condition or results of operations. |
13
|
|
|
Changes in regulation or oversight may have a material adverse impact on Comericas
operations. |
|
|
|
|
Comerica is subject to extensive regulation, supervision and examination by the Michigan
Office of Financial and Insurance Services, the Federal Deposit Insurance Corporation, the
Board of Governors of the Federal Reserve System, the Securities and Exchange Commission and
other regulatory bodies. Such regulation and supervision governs the activities in which
Comerica may engage. Regulatory authorities have extensive discretion in their supervisory
and enforcement activities, including the imposition of restrictions on Comericas
operations, investigations and limitations related to Comericas securities, the
classification of Comericas assets and determination of the level of Comericas allowance
for loan losses. Any change in such regulation and oversight, whether in the form of
regulatory policy, regulations, legislation or supervisory action, may have a material
adverse impact on Comericas operations. |
|
|
|
|
Methods of reducing risk exposures might not be effective. |
|
|
|
|
Instruments, systems and strategies used to hedge or otherwise manage exposure to various
types of credit, market and liquidity, operational, compliance, business risks and
enterprise-wide risk could be less effective than anticipated. As a result, Comerica 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 Comerica. |
|
|
|
|
The terrorist attacks in September 2001 in the United States and ensuing events, as well as
the resulting decline in consumer confidence, has had a material adverse effect on the
economy. Any similar future events may disrupt Comericas operations or those of its
customers. In addition, these events have had and may continue to have an adverse impact on
the U.S. and world economy in general and consumer confidence and spending in particular,
which could harm Comericas operations. Any of these events could increase volatility in the
U.S. and world financial markets, which could harm Comericas stock price and may limit the
capital resources available to its customers and Comerica. This could have a significant
impact on Comericas operating results, revenues and costs and may result in increased
volatility in the market price of Comericas common stock. |
|
|
|
|
There could be natural disasters, including, but not limited to, hurricanes, tornadoes,
earthquakes, fires and floods, which may adversely affect the general economy, financial
and capital markets, specific industries, and Comerica. |
|
|
|
|
Comerica has significant operations and customer base in California, Texas, Florida and
other regions where natural disasters may occur. These regions are known for being
vulnerable to natural disasters and other risks, such as tornadoes,
hurricanes, earthquakes, fires and |
14
|
|
|
floods. These types of natural
disasters at times have disrupted the local economy, Comericas business and customers and
have posed physical risks to Comericas property. A significant natural disaster could
materially affect Comericas operating results. |
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
The executive offices of Comerica are located in the Comerica Tower at Detroit Center, 500 Woodward
Avenue, Detroit, Michigan 48226. Comerica and its subsidiaries occupy 15 floors of the building,
which is leased through Comerica Bank from an unaffiliated third party. The leases at this
building extend through January 2012. As of December 31, 2005, Comerica, through its banking
affiliates, operated a total of 434 banking centers, trust services locations, and loan production
or other financial services offices, primarily in the States of Michigan, California, Texas and
Florida. Of these offices, 232 were owned and 202 were leased. As of
December 31, 2005, affiliates also operated from
leased spaces in Mesa and Phoenix, Arizona; Denver, Colorado; Wilmington, Delaware; Barrington,
Chicago and Oakbrook Terrace, Illinois; Boston, Massachusetts; Minneapolis, Minnesota; Princeton
and Sea Girt, New Jersey; Las Vegas, Nevada; New York, New York; Rocky Mount, North Carolina;
Cleveland and West Chester, Ohio; Memphis, Tennessee; Reston, Virginia; Bellevue, Washington; Sao
Paulo, Brazil; Guadalajara, Mexico; Mexico City, Mexico; Monterey, Mexico; Queretaro, Mexico;
Wanchai, Hong Kong; Toronto, Ontario, Canada and Windsor, Ontario, Canada.
Comerica and its subsidiaries own, among other properties, a check processing center in Livonia,
Michigan, a 10-story building in the central business district of Detroit that houses certain
departments of Comerica and Comerica Bank, and two buildings in Auburn Hills, Michigan, used mainly
for lending functions and operations.
Item 3. Legal Proceedings.
Comerica 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, Comerica 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 Comericas
consolidated financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
Comerica did not submit any matters for a shareholders vote in the fourth quarter of 2005.
15
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 24, 2006, there were approximately
14,770 record holders of
Comericas common stock.
Sales Prices and Dividends
Quarterly cash dividends were declared during 2005 and 2004 totaling $2.20 and $2.08 per common
share per year, respectively. The following table sets forth, for the periods indicated, the high
and low sale prices per share of Comericas common stock as reported on the NYSE Composite
Transactions Tape for all quarters of 2005 and 2004, as well as dividend information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
|
Dividend* |
Quarter |
|
High |
|
Low |
|
Per Share |
|
Yield |
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth |
|
$ |
60.25 |
|
|
$ |
53.60 |
|
|
$ |
0.55 |
|
|
|
3.9 |
% |
Third |
|
|
63.38 |
|
|
|
56.80 |
|
|
|
0.55 |
|
|
|
3.7 |
|
Second |
|
|
59.29 |
|
|
|
53.17 |
|
|
|
0.55 |
|
|
|
3.9 |
|
First |
|
|
61.40 |
|
|
|
53.70 |
|
|
|
0.55 |
|
|
|
3.8 |
|
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 |
|
|
|
|
* |
|
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. |
16
Securities Authorized for Issuance under Equity Compensation Plans
As of December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
securities |
|
|
|
|
|
|
|
|
|
|
remaining |
|
|
Number of |
|
|
|
|
|
available for |
|
|
securities to be |
|
Weighted- |
|
future issuance |
|
|
issued upon |
|
average |
|
under equity |
|
|
exercise of |
|
exercise price |
|
compensation |
|
|
outstanding |
|
of outstanding |
|
plans (excluding |
|
|
options, |
|
options, |
|
securities |
|
|
warrants and |
|
warrants and |
|
reflected in |
|
|
rights |
|
rights |
|
column (a)) |
Plan Category |
|
(a) |
|
(b) |
|
(c) |
Equity compensation
plans approved by
security holders
(1) |
|
|
18,000,629 |
|
|
$ |
53.65 |
|
|
|
5,024,123 |
(2)(3) |
Equity compensation
plans not approved
by security holders
(4) |
|
|
290,286 |
|
|
|
53.25 |
|
|
|
|
|
Total |
|
|
18,290,915 |
|
|
$ |
53.64 |
|
|
|
5,024,123 |
|
(1)
Consists of options to acquire shares of common stock, par value $5.00 per
share, issued under Comericas 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 Comerica in connection with
its acquisition of Imperial Bank), and the Metrobank 1988 Stock Option Plan (assumed by Comerica in
connection with its acquisition of Metrobank). Does not include 15,166 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, 2005, or 837,910 shares of restricted
stock issued under Comericas Amended and Restated 1997 Long-Term Incentive Plan and outstanding as
of December 31, 2005. 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 Comericas
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, 2005, 1,162,830 shares had been purchased by or contributed on behalf of employees, leaving
3,837,170 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 8,861,293.
(3)
These shares are available for future issuance under Comericas Amended and Restated
1997 Long-Term Incentive Plan in the form of options, stock appreciation rights, restricted stock
or other performance or non-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
17
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 (terminated March 2004).
Most of the equity awards made by Comerica are granted under the shareholder-approved Amended
and Restated 1997 Long-Term Incentive Plan. Plans not approved by Comericas 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, Comerica 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 Comerica who
was not an employee of Comerica or of any of its subsidiaries nor a director of Comerica (the
Eligible Directors) automatically was granted an option to purchase 2,500 shares of the common
stock of Comerica. 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 Comerica maintains two deferred compensation plans
for non-employee directors of Comerica, 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 correlate to, and are functionally equivalent to, shares of common stock of
Comerica, while the Director Fee Deferral Plan allows directors to invest in units that correlate
to, and are functionally equivalent to, the shares of certain mutual funds offered under such plan.
The Common Stock Deferral Plan previously provided for the mandatory deferral
18
of 50% of the annual retainer of each director of Comerica into shares of common stock of Comerica,
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 Comericas 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 Comerica common stock to reflect the number of additional shares of Comericas
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 Comerica
stock unit account under the Common Stock Deferral Plan is made in Comericas 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 Comerica maintains two deferred compensation plans
for eligible employees of Comerica 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 that correlate to, and are functionally equivalent to, shares of
common stock of Comerica. The employees accounts under the Employee Common Stock Deferral Plan
are increased in connection with the payment of dividends paid on Comericas common stock to
reflect the number of additional shares of Comericas 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 Comericas 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 that correlate to, and
are functionally equivalent to, shares of funds offered under the Employee Deferral Plan.
Beginning in 1999, no such funds are Comerica stock funds. The employees accounts under the
Employee Deferral Plan are increased in connection with the payment of dividends paid on the fund
shares to reflect the number of additional shares of the fund stock that could have been purchased
had the dividends been paid on each share of fund stock underlying then-outstanding stock units in
the employees accounts. The deferred compensation under the Employee Deferral Plan is payable in
cash following termination of service as an employee.
19
For additional information regarding Comericas equity compensation plans, please refer to Note 15
on pages 88 through 93 of the Consolidated Financial Statements contained in Comericas Annual
Report to Shareholders for the year ended December 31, 2005.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The Board of Directors of the Corporation (the Board) authorized the purchase of up to 10 million
shares of Comerica Incorporated outstanding common stock on
March 23, 2004, and again on July 26,
2005. Substantially all shares purchased as part of Comericas 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. There is no expiration date for Comericas share repurchase program. The following table
summarizes Comericas share repurchase activity for the quarter ended December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Shares that May |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
Yet Be |
|
(Shares in millions) |
|
|
|
|
|
|
|
|
|
Part of Publicly |
|
|
Purchased under |
|
|
|
Total Number of |
|
|
Average Price Paid |
|
|
Announced Plans or |
|
|
the Plans or |
|
Month Ended |
|
Shares Purchased |
|
|
Per Share |
|
|
Programs |
|
|
Programs |
|
October 31, 2005 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
11.7 |
|
November 30, 2005 |
|
|
1.3 |
|
|
|
58.71 |
|
|
|
1.3 |
|
|
|
10.4 |
|
December 31, 2005 |
|
|
1.2 |
|
|
|
57.40 |
|
|
|
1.2 |
|
|
|
9.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2.5 |
|
|
$ |
58.09 |
|
|
|
2.5 |
|
|
|
9.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For additional information regarding Comericas share repurchase program, please refer to Note
11 on pages 82 through 83 of the Consolidated Financial Statements contained in Comericas Annual
Report to Shareholders for the year ended December 31, 2005.
Item 6. Selected Financial Data.
The response to this item is included on page 20 of Comericas Annual Report to Shareholders for
the year ended December 31, 2005, which page is hereby incorporated by reference.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The response to this item is included on pages 21 through 62 of Comericas Annual Report to
Shareholders for the year ended December 31, 2005, which pages are hereby incorporated by
reference.
20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The
response to this item is included on pages 48 through 55 of Comericas Annual Report to
Shareholders for the year ended December 31, 2005, which pages are hereby incorporated by
reference.
Item 8. Financial Statements and Supplementary Data.
The response to this item is included on pages 63 through 123 of Comericas Annual Report to
Shareholders for the year ended December 31, 2005, and in the Statistical Disclosure by Bank
Holding Companies on pages 24 through 51 and 75 through 80 of Comericas Annual Report to
Shareholders for the year ended December 31, 2005, 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 Comericas 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 Comericas registered public accounting firm are included on pages 119 through 120 of
Comericas Annual Report to Shareholders for the year ended December 31, 2005, which pages are
hereby incorporated by reference.
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, Comericas 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, Comericas internal control over financial reporting.
21
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, Chief Accounting Officer, 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 Comericas definitive Proxy Statement relating to the Annual Meeting of Shareholders
to be held on May 16, 2006, 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 Comericas definitive Proxy Statement relating to the Annual Meeting of Shareholders
to be held on May 16, 2006, 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 Management
of Comericas definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held
on May 16, 2006, 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 Comericas definitive Proxy Statement
relating to the Annual Meeting of Shareholders to be held on May 16, 2006, which sections are
hereby incorporated by reference.
22
Item 14. Principal Accountant Fees and Services.
The response to this item will be included under the section captioned Independent Auditors of
Comericas definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on
May 16, 2006, which section is hereby incorporated by reference.
23
Comerica Incorporated and Subsidiaries
FORM 10-K CROSS-REFERENCE INDEX
|
|
|
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Certain information required to be |
|
The following cross-reference index |
|
All other sections of the 2005 Annual |
included in this Form 10-K is |
|
shows the page location in the 2005 |
|
Report to Shareholders or the 2006 |
Included in the 2005 Annual Report |
|
Annual Report to Shareholders or the |
|
Proxy Statement are not required in |
to
Shareholders or in the 2006 Proxy |
|
section of the 2006 Proxy Statement |
|
this Form 10-K and are not to be |
Statement used in connection with |
|
of only that information which is to |
|
considered a part of this Form 10-K. |
the 2006 Annual Meeting of |
|
be incorporated by reference into this |
|
|
Shareholders to be held on May 16, |
|
Form 10-K. |
|
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2006. |
Page Number of 2005 Annual
Report to Shareholders or
Section of 2006 Proxy Statement
PART I
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ITEM 1. |
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Business |
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24; 28-32; 35-37; 107-111 |
|
ITEM 1A. |
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Risk Factors |
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Included herein |
ITEM 1B. |
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Unresolved Staff Comments |
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Included herein |
ITEM 2. |
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Properties |
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Included herein |
ITEM 3. |
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Legal Proceedings |
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Included herein |
ITEM 4. |
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Submission of Matters to a Vote of Security Holders |
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Included herein |
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PART II |
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|
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ITEM 5. |
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Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities |
|
Included herein |
ITEM 6. |
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Selected Financial Data |
|
|
20 |
|
ITEM 7. |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
|
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21-62 |
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ITEM 7A. |
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Quantitative and Qualitative Disclosures About Market Risk |
|
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48-55 |
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ITEM 8. |
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Financial Statements and Supplementary Data: |
|
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63-123 |
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Comerica Incorporated and Subsidiaries
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|
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Consolidated Balance Sheets |
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63 |
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Consolidated Statements of Income |
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64 |
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Consolidated Statements of Changes in Shareholders Equity |
|
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65 |
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Consolidated Statements of Cash Flows |
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66 |
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Notes to Consolidated Financial Statements |
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67-117 |
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Report of Management |
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118 |
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Report of Independent Registered Public Accounting Firm |
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120 |
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Managements Report on Internal Control Over Financial Reporting |
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118 |
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Attestation Report of Independent Registered Public Accounting Firm |
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119 |
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Statistical Disclosure by Bank Holding Companies: |
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Analysis of Net Interest Income Fully Taxable Equivalent |
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24 |
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Rate-Volume Analysis Fully Taxable Equivalent |
|
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25 |
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Analysis of the Allowance for Loan Losses |
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27 |
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Allocation of the Allowance for Loan Losses |
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28 |
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Analysis of Investment Securities and Loans |
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38 |
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Loan Maturities and Interest Rate Sensitivity |
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39 |
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Analysis of Investment Securities Portfolio Fully Taxable Equivalent |
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40 |
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International Cross-Border Outstandings |
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41 |
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Summary of Nonperforming Assets and Past Due Loans |
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44, 75-77 |
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Remaining Expected Maturity of Risk Management Interest Rate Swaps |
|
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51 |
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Deposits Maturity Distribution of Domestic Certificates of Deposit of $100,000 and Over |
|
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79 |
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Short-Term Borrowings |
|
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79-80 |
|
ITEM 9. |
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Included herein |
24
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|
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ITEM 9A. |
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Controls and Procedures: |
|
|
|
|
|
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Managements Report on Internal Control Over Financial Reporting |
|
|
118 |
|
|
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Attestation Report of Independent Registered Public Accounting Firm |
|
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119 |
|
|
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Other information called for by this item |
|
Included herein |
ITEM 9B. |
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Other Information |
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Included herein |
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PART III |
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ITEM 10. |
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Directors and Executive Officers of the Registrant: |
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Information about Senior Financial Officer Code of Ethics |
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Included herein |
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Other information called for by this item |
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Information About Nominees and Incumbent |
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Directors, Committees and Meetings of |
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Directors, Committee Assignments, |
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Executive Officers and Section 16(a) |
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Beneficial Ownership Reporting
Compliance |
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ITEM 11. |
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Executive Compensation |
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Compensation Committee Interlocks
and Insider Participation, Compensation of
Directors and Compensation of Executive
Officers |
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ITEM 12. |
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Security Ownership of Certain Beneficial Owners and |
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Management and Related Stockholder Matters: |
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Information about securities authorized for issuance under equity compensation plans |
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Included herein |
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Other information called for by this item |
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Security Ownership of Certain |
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Beneficial Owners and Security |
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Ownership of Management |
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ITEM 13. |
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Certain Relationships and Related Transactions |
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Director Independence and Transactions of |
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Directors with Comerica, Transactions |
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of Executive Officers with Comerica |
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and Information about Nominees |
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and Incumbent Directors |
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ITEM 14. |
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Principal Accountant Fees and Services |
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Independent Auditors |
25
PART IV
Item 15. Exhibits and Financial Statement Schedules
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 24-25.
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.
3. Exhibits:
Exhibit Number
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2
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(not applicable) |
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3.1(a)
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Restated Certificate of Incorporation of Comerica Incorporated (as
amended)(1) |
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3.1(b)
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Certificate of Amendment to Restated Certificate of Incorporation of Comerica
Incorporated(2) |
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3.2
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Amended and Restated Bylaws of Comerica Incorporated (amended and
restated January 25, 2005)(3) |
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4
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(not applicable) [Note: In accordance with Regulation S-K Item No.
601(b)(4)(iii), the registrant is not filing copies of instruments defining the
rights of holders of long-term debt because none of those instruments authorizes
debt in excess of 10% of the total consolidated assets of the registrant and its
consolidated subsidiaries. The registrant hereby agrees to furnish a copy of any
such instrument to the Securities and Exchange Commission upon request.] |
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9
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(not applicable) |
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10.1
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Rights Agreement between Comerica Incorporated and Comerica
Bank(4) |
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10.2
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Amended and Restated Comerica Incorporated 1997 Long-Term Incentive
Plan (amended and restated May 22, 2001)(5) |
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10.3
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Amended and Restated Comerica Incorporated Management Incentive Plan
(amended and restated May 22, 2001)(6) |
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10.4
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Benefit Equalization Plan for Employees of Comerica
Incorporated(7) |
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10.5
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Comerica Incorporated Amended and Restated Employee Stock Purchase
Plan (amended and restated effective June 30, 2003)(8) |
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10.6
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1986 Stock Option Plan of Imperial Bancorp (as amended)(9) |
26
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10.7
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Form of Standard Comerica Incorporated Non-Qualified Stock Option
Agreement under the Amended and Restated Comerica Incorporated 1997 Long-Term
Incentive Plan(10) |
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10.8
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Form of Standard Comerica Incorporated Restricted Stock Award
Agreement (Cliff Vesting) under the Amended and Restated Comerica Incorporated 1997
Long-Term Incentive Plan(11) |
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10.9
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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) |
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10.10
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Form of Standard Comerica Incorporated No Sale Agreement under the Amended and
Restated Comerica Incorporated Management Incentive Plan(13) |
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10.11
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Form of Employment Agreement (Executive Vice President)(14)
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10.12
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Form of Employment Agreement (Senior Vice President)(15) |
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10.13
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Form of Director Indemnification Agreement between Comerica Incorporated and its
directors(16) |
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10.14
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Supplemental Benefit Agreement with Eugene A. Miller(17)
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10.15
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Employment Agreement with Ralph W. Babb, Jr.(18) |
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10.16
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Supplemental Pension and Retiree Medical Agreement with Ralph W. Babb
Jr.(19) |
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10.17
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1999 Comerica Incorporated Deferred Compensation Plan (effective January 1,
1999)(20) |
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10.18
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1999 Comerica Incorporated Amended and Restated Deferred Compensation Plan
(amended and restated January 25, 2005) |
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10.19
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1999 Comerica Incorporated Amended and Restated Common Stock Deferred Incentive
Award Plan (amended and restated January 25, 2005) |
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10.20
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Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee
Directors (amended and restated May 22, 2001)(21) |
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10.21
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Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee
Directors of Comerica Bank and Affiliated Banks (amended and restated May 22,
2001)(22) |
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10.22
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Amended and Restated Comerica Incorporated Non-Employee Director Fee Deferral
Plan (amended and restated January 27,
2004)(23) |
|
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10.23
|
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Amended and Restated Comerica Incorporated Common Stock Non-Employee Director Fee
Deferral Plan (amended and restated January 27,
2004)(24) |
|
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10.24
|
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Amended and Restated Comerica Incorporated Incentive Plan for Non-Employee
Directors (amended and restated July 26,
2005)(25) |
27
|
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10.25
|
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Form of Standard Comerica Incorporated Non-Employee Director Restricted Stock
Unit Agreement under the Comerica Incorporated Incentive Plan for Non-Employee
Directors(26) |
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10.26
|
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Implementation Agreement dated July 28, 2005 between Framlington
Holdings Limited, Guarantors as named in the Agreement and AXA Investment Managers
SA (restated to reflect amendments on September 7,
2005)(27) |
|
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10.27
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Second Amendment Agreement dated October 31, 2005 in relation to an
Implementation Agreement dated July 28, 2005 (as amended on September 7,
2005)(28) |
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10.28
|
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Cash Offer dated July 27, 2005 by AXA Investment Managers S.A.
(29) |
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10.29
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Form of Acceptance relating to the Cash Offer by AXA Investment
Managers S.A. for the Entire Issued Share Capital of Framlington Group Limited
(30) |
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|
10.30
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Form of Employment Agreement
(Executive Vice President Version 2) |
|
|
|
11
|
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Statement regarding Computation of
Net Income Per Common Share(31) |
|
|
|
12
|
|
(not applicable) |
|
|
|
13
|
|
Incorporated Sections of Registrants 2005 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) |
|
|
|
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) |
|
|
|
33
|
|
(not applicable) |
|
|
|
34
|
|
(not applicable) |
|
|
|
35
|
|
(not applicable) |
|
|
|
99
|
|
(not applicable) |
|
|
|
100
|
|
(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. |
28
|
|
|
(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 10.2 to Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005, and incorporated herein by reference. |
|
(15) |
|
Filed as Exhibit 10.3 to Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005, and incorporated herein by reference. |
|
(16) |
|
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. |
|
(17) |
|
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. |
|
(18) |
|
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. |
|
(19) |
|
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. |
|
(20) |
|
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. |
|
(21) |
|
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. |
|
(22) |
|
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. |
|
(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. |
29
|
|
|
(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 September 30, 2005, and incorporated herein by reference. |
|
(26) |
|
Filed as Exhibit 10.2 to Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2005, and incorporated herein by reference. |
|
(27) |
|
Filed as Exhibit 10.4 to Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005, and incorporated herein by reference. |
|
(28) |
|
Filed as Exhibit 10.5 to Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005, and incorporated herein by reference. |
|
(29) |
|
Filed as Exhibit 10.6 to Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005, and incorporated herein by reference. |
|
(30) |
|
Filed as Exhibit 10.7 to Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005, and incorporated herein by reference. |
|
(31) |
|
Incorporated by reference from Note 13 on page 84 of Registrants 2005 Annual
Report to Shareholders attached hereto as Exhibit 13. |
|
|
|
|
|
Management compensation plan. |
File No. for all filings under Exchange Act: 1-10706.
30
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, 2006.
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, 2006.
|
|
|
/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 and |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
|
|
|
|
|
/s/ Marvin J. Elenbaas
Marvin J. Elenbaas
|
|
|
Senior Vice President and Chief Accounting Officer |
|
|
(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 |
|
|
|
|
|
/s/ Peter D. Cummings
Peter D. Cummings
|
|
|
Director |
|
|
31
|
|
|
/s/ J. Philip DiNapoli
J. Philip DiNapoli
|
|
|
Director |
|
|
|
|
|
/s/ Anthony F. Earley, Jr.
Anthony F. Earley, Jr.
|
|
|
Director |
|
|
|
|
|
/s/ Roger Fridholm
Roger 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 |
|
|
|
|
|
/s/ Gail L. Warden
Gail L. Warden
|
|
|
Director |
|
|
|
|
|
/s/ Kenneth L. Way
Kenneth L. Way
|
|
|
Director |
|
|
32
|
|
|
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) [Note: In accordance with Regulation S-K Item No.
601(b)(4)(iii), the registrant is not filing copies of instruments defining the
rights of holders of long-term debt because none of those instruments authorizes
debt in excess of 10% of the total consolidated assets of the registrant and its
consolidated subsidiaries. The registrant hereby agrees to furnish a copy of any
such instrument to the Securities and Exchange Commission upon request.] |
|
|
|
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 (Executive Vice President)(14)
|
|
|
|
10.12
|
|
Form of Employment Agreement (Senior Vice President)(15) |
|
|
|
10.13
|
|
Form of Director Indemnification Agreement between Comerica Incorporated and its
directors(16) |
|
|
|
10.14
|
|
Supplemental Benefit Agreement with Eugene A. Miller(17)
|
|
|
|
10.15
|
|
Employment Agreement with Ralph W. Babb, Jr.(18) |
|
|
|
10.16
|
|
Supplemental Pension and Retiree Medical Agreement with Ralph W. Babb
Jr.(19) |
|
|
|
10.17
|
|
1999 Comerica Incorporated Deferred Compensation Plan (effective January 1,
1999)(20) |
|
|
|
10.18
|
|
1999 Comerica Incorporated Amended and Restated Deferred Compensation Plan
(amended and restated January 25, 2005) |
|
|
|
10.19
|
|
1999 Comerica Incorporated Amended and Restated Common Stock Deferred Incentive
Award Plan (amended and restated January 25, 2005) |
|
|
|
10.20
|
|
Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee
Directors (amended and restated May 22, 2001)(21) |
|
|
|
10.21
|
|
Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee
Directors of Comerica Bank and Affiliated Banks (amended and restated May 22,
2001)(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
|
|
Amended and Restated Comerica Incorporated Incentive Plan for Non-Employee
Directors (amended and restated July 26,
2005)(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) |
|
|
|
10.26
|
|
Implementation Agreement dated July 28, 2005 between Framlington
Holdings Limited, Guarantors as named in the Agreement and AXA Investment Managers
SA (restated to reflect amendments on September 7,
2005)(27) |
|
|
|
10.27
|
|
Second Amendment Agreement dated October 31, 2005 in relation to an
Implementation Agreement dated July 28, 2005 (as amended on September 7,
2005)(28) |
|
|
|
10.28
|
|
Cash Offer dated July 27, 2005 by AXA Investment Managers S.A.
(29) |
|
|
|
10.29
|
|
Form of Acceptance relating to the Cash Offer by AXA Investment
Managers S.A. for the Entire Issued Share Capital of Framlington Group Limited
(30) |
|
|
|
10.30
|
|
Form of Employment Agreement
(Executive Vice President Version 2) |
|
|
|
11
|
|
Statement regarding Computation of
Net Income Per Common Share
(31) |
|
|
|
12
|
|
(not applicable) |
|
|
|
13
|
|
Incorporated Sections of Registrants 2005 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) |
|
|
|
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) |
|
|
|
33
|
|
(not applicable) |
|
|
|
34
|
|
(not applicable) |
|
|
|
35
|
|
(not applicable) |
|
|
|
99
|
|
(not applicable) |
|
|
|
100
|
|
(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 10.2 to Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005, and incorporated herein by reference. |
|
(15) |
|
Filed as Exhibit 10.3 to Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005, and incorporated herein by reference. |
|
(16) |
|
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. |
|
(17) |
|
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. |
|
(18) |
|
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. |
|
(19) |
|
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. |
|
(20) |
|
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. |
|
(21) |
|
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. |
|
(22) |
|
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. |
|
(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 September 30, 2005, and incorporated herein by reference. |
|
(26) |
|
Filed as Exhibit 10.2 to Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2005, and incorporated herein by reference. |
|
(27) |
|
Filed as Exhibit 10.4 to Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005, and incorporated herein by reference. |
|
(28) |
|
Filed as Exhibit 10.5 to Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005, and incorporated herein by reference. |
|
(29) |
|
Filed as Exhibit 10.6 to Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005, and incorporated herein by reference. |
|
(30) |
|
Filed as Exhibit 10.7 to Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005, and incorporated herein by reference. |
|
(31) |
|
Incorporated by reference from Note 13 on page 84 of Registrants 2005 Annual
Report to Shareholders attached hereto as Exhibit 13. |
|
|
|
|
|
Management compensation plan. |
File No. for all filings under Exchange Act: 1-10706.
EX-10.30
2
z02267exv10w30.htm
FORM OF EMPLOYMENT AGREEMENT (EXECUTIVE VICE PRESIDENT-VERSION 2)
exv10w30
Exhibit 10.30
EMPLOYMENT AGREEMENT (EXEC. OFF.)
AGREEMENT, dated as of the ___day of , by and between COMERICA INCORPORATED, a
Delaware corporation (the Company), and (the Executive).
The Board of Directors of the Company (the Board) has determined that it is in the
best interests of the Company and its shareholders to assure that the Company will have the
continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a
Change of Control (as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and
risks created by a pending or threatened Change of Control and to encourage the Executives full
attention and dedication to the Company currently and in the event of any threatened or pending
Change of Control, and to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations. Therefore, in order
to accomplish these objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The Effective Date shall mean the first date
during the Agreement Period (as defined in Section 1(b)) on which a Change of Control (as defined
in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of
Control occurs and if the Executives employment with the Company is terminated prior to the date
on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that
such termination of employment (i) was at the request of a third party who has taken steps
reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or
anticipation of a Change of Control, then for all purposes of this Agreement the Effective Date
shall mean the date immediately prior to the date of such termination of employment. For purposes
of this Agreement, a termination of employment must satisfy the definition of a separation from service (as determined
under Section 409A(2)(A)(i) of the Internal Revenue Code of 1986, as amended (the Code)),
with the Company or its Successor (if after a Change in Control).
(b) The Agreement Period shall mean the period commencing on the date hereof and
ending on the third anniversary of the date hereof; provided, however, that
commencing on the date one year after the date hereof, and on each annual anniversary of such date
(such date and each annual anniversary thereof shall be hereinafter referred to as the Renewal
Date), unless previously terminated, the Agreement Period shall be automatically extended so
as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal
Date the Company shall give notice to the Executive that the Agreement Period shall not be so
extended.
2. Change of Control. For the purpose of this Agreement, a Change of Control shall
mean:
-1-
(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) (a
Person) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the
Company (the Outstanding Company Common Stock) or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in the election of
directors (the Outstanding Company Voting Securities); provided, however,
that for purposes of this subsection (a), the following acquisitions shall not constitute a Change
of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the Incumbent
Board) cease for any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Companys shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of
all or substantially all of the assets of the Company (a Business Combination), in each
case, unless, following such Business Combination, (i) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a corporation which as a
result of such transaction owns the Company or all or substantially all of the Companys assets
either directly or through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the combined voting power of
the then outstanding voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination, and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
-2-
(d) Approval by the shareholders of the Company of a complete liquidation or dissolution of
the Company.
3. Employment Period. The Company hereby agrees to continue the Executive in its
employ, subject to the terms and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the last day of the thirtieth consecutive month following such date
(the Employment Period).
4. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, (A) the Executives position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and assigned at any time
during the 120-day period immediately preceding the Effective Date and (B) the Executives services
shall be performed at the location where the Executive was employed immediately preceding the
Effective Date or any office or location less than 60 miles from such location.
(ii) During the Employment Period, and excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive agrees to devote reasonable attention and time
during normal business hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the Executive hereunder, to use the
Executives reasonable best efforts to perform faithfully and efficiently such responsibilities.
During the Employment Period it shall not be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill
speaking engagements or teach at educational institutions and (C) manage personal investments, so
long as such activities do not significantly interfere with the performance of the Executives
responsibilities as an employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executives responsibilities to the
Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary (Annual Base Salary), which shall be paid
at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable,
including any base salary which has been earned but deferred, to the Executive by the Company and
its affiliated companies in respect of the twelve-month period immediately preceding the month in
which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the Executive prior to
the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in
this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the
term affiliated companies shall include any company controlled by, controlling or under common
control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded,
for each fiscal year ending during the Employment Period, an annual bonus (the Annual
-3-
Bonus) in cash at least equal to the Executives highest bonus under the Companys
Management Incentive Plan, Long-Term Incentive Plan and/or business unit incentive plan (or any
predecessor or successor plan to any thereof) as applicable, for the last three full fiscal years
prior to the Effective Date (annualized in the event that the Executive was not employed by the
Company for the whole of such fiscal year and not otherwise paid a full years bonus for such year)
(the Recent Annual Bonus). Each such Annual Bonus shall be paid no later than two and a
half months after the end of the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus pursuant to the Companys deferred
compensation plans as may be in effect from time to time.
(iii) Incentive, Savings and Retirement Plans. During the Employment Period, the
Executive shall be entitled to participate in all incentive, savings and retirement plans,
practices, policies and programs applicable generally to other peer executives of the Company and
its affiliated companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such distinction is applicable),
savings opportunities and retirement benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the Company and its affiliated companies
for the Executive under such plans, practices, policies and programs as in effect at any time
during the 120-day period immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to other peer executives
of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the
Executives family, as the case may be, shall be eligible for participation in and shall receive
all benefits under welfare benefit plans, practices, policies and programs provided by the Company
and its affiliated companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices, policies and programs provide
the Executive with benefits which are less favorable, in the aggregate, than the most favorable of
such plans, practices, policies and programs in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to the Executive,
those provided generally at any time after the Effective Date to other peer executives of the
Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance
with the most favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled
to fringe benefits, including, without limitation, tax and financial planning services, payment of
club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance
with the most favorable plans, practices, programs and policies of the Company and its affiliated
-4-
companies
in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the Executive shall be
entitled to an office or offices of a size and with furnishings and other appointments, and to
exclusive personal secretarial and other assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive,
as provided generally at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall be entitled to
paid vacation in accordance with the most favorable plans, policies, programs and practices of the
Company and its affiliated companies as in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of the Company and
its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The Executives
employment shall terminate automatically upon the Executives death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has occurred during
the Employment Period (pursuant to the definition of Disability set forth below), it may give to
the Executive written notice in accordance with Section 12(d) of this Agreement of its intention to
terminate the Executives employment. In such event, the Executives employment with the Company
shall terminate effective on the 30th day after receipt of such notice by the Executive (the
Disability Effective Date), provided that, within the 30 days after such receipt,
the Executive shall not have returned to full-time performance of the Executives duties. For
purposes of this Agreement, Disability shall mean the absence of the Executive from the
Executives duties with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable to the Executive or
the Executives legal representative.
(b) Cause. The Company may terminate the Executives employment during the Employment
Period for Cause. For purposes of this Agreement, Cause shall mean:
(i) the willful and continued failure of the Executive to perform substantially the
Executives duties with the Company or one of its affiliated companies (other than any such
failure resulting from incapacity due to physical or mental illness), after a written demand
for substantial performance is delivered to the Executive by the Board or the Chief
Executive Officer of the Company which specifically identifies the manner in which the Board
or Chief Executive Officer believes that the Executive has not substantially performed the
Executives duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross misconduct which
is materially and demonstrably injurious to the Company.
-5-
For purposes of this provision, no act or failure to act, on the part of the Executive, shall be
considered willful unless it is done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executives action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board, or if the Company is not the ultimate parent corporation of the Affiliated
Companies and is not publicly-traded, the board of directors of the ultimate parent of the Company
(the Applicable Board), (B) the instructions of the Chief Executive Officer or a senior
officer of the Company, or (C) the advice of counsel for the Company shall be conclusively presumed
to be done, or omitted to be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless
and until there shall have been delivered to the Executive a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters of the entire membership of the Applicable
Board at a meeting of the Applicable Board called and held for such purpose (after reasonable
notice is provided to the Executive and the Executive is given an opportunity, together with
counsel, to be heard before the Applicable Board), finding that, in the good faith opinion of the
Applicable Board, the Executive is guilty of the conduct described in clauses (i) or (ii) above,
and specifying the particulars thereof in detail.
(c) Good Reason. The Executives employment may be terminated by the Executive for
Good Reason. For purposes of this Agreement, Good Reason shall mean:
(i) the assignment to the Executive of any duties inconsistent in any respect with the
Executives position (including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or
any other action by the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of Section 4(b) of
this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring
in bad faith and which is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(iii) the Companys requiring the Executive to be based at any office or location other
than as provided in Section 4(a)(i)(B) hereof or the Companys requiring the Executive to
travel on Company business to a substantially greater extent than required immediately prior
to the Effective Date;
(iv) any purported termination by the Company of the Executives employment otherwise
than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c) of this
Agreement.
-6-
For purposes of this Section 5(c), any good faith determination of Good Reason made by the
Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the
first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement. The Executives mental or physical incapacity following the occurrence
of an event described above in clauses (i) through (v) shall not affect the Executives ability to
terminate employment for Good Reason.
(d) Notice of Termination. Any termination by the Company for Cause, or by the
Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto
given in accordance with Section 12(d) of this Agreement. For purposes of this Agreement, a
Notice of Termination means a written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of the Executives
employment under the provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date (which date shall
be not more than thirty days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such
fact or circumstance in enforcing the Executives or the Companys rights hereunder.
(e) Date of Termination. Date of Termination means (i) if the Executives
employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii)
if the Executives employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the Executive of such
termination and (iii) if the Executives employment is terminated by reason of death or Disability,
the Date of Termination shall be the date of death of the Executive or the Disability Effective
Date, as the case may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other Than for
Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the
Executives employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash the aggregate of the
following amounts:
A. the sum of (1) the Executives Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the higher of
(I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any
bonus or portion thereof which has been earned but deferred (and annualized for any
fiscal year consisting of less than twelve (12) full months or during which the
Executive was employed for less than twelve (12) full months and not otherwise paid a
full years bonus for such year), for the most recently completed fiscal year during
the
-7-
Employment Period, if any (such higher amount being referred to as the
Highest Annual Bonus) and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination, and the
denominator of which is 365 and (3) any accrued vacation pay, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses (1), (2), and (3) shall be
hereinafter referred to as the Accrued Obligations); and
B. the amount equal to the product of (1) three and (2) the sum of (x) the
Executives Annual Base Salary and (y) the Highest Annual Bonus; and
C. an amount equal to the excess of (a) the actuarial equivalent of the benefit
under the Companys qualified defined benefit retirement plan (the Retirement
Plan) (utilizing actuarial assumptions no less favorable to the Executive than
those in effect under the Companys Retirement Plan immediately prior to the
Effective Date), and any excess or supplemental retirement plan in which the Executive
participates (together, the SERP) which the Executive would receive if the
Executives employment continued for three years after the Date of Termination
assuming for this purpose that (x) all accrued benefits are fully vested, (y) the
Executive is three years older and (z) the Executive is credited with three more years
of service, and, assuming that the Executives compensation in each of the three years
is that required by Section 4(b)(i) and Section 4(b)(ii) payable in equal monthly
installments for such three-year period, over (b) the actuarial equivalent of the
Executives actual benefit (paid or payable), if any, under the Retirement Plan and
the SERP as of the Date of Termination.
Payments under this Section 6(a)(i) shall be made within 30 days after the Date of
Termination; provided, that to the extent required in order to avoid the imposition of taxes
and penalties on the Executive under Section 409A of the Code, cash amounts that would
otherwise be payable under this Section 6(a)(i) during the six-month period immediately
following the Date of Termination shall instead be paid, with interest on any delayed
payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Code
(Interest), on the first business day after the date that is six (6) months
following the Executives separation from service within the meaning of Section 409A of
the Code.
(ii) from the Executives Date of Termination until the last day of the second calendar
year following the year in which the Executives separation from service within the
meaning of Section 409A of the Code occurs (the Benefit Continuation Period), the
Company shall continue benefits to the Executive and/or the Executives family at least
equal to, and at the same cost to the Executive and/or the Executives family, as those
which would have been provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement
(excepting any plan or insurance coverage that contains an
active at work requirement) if the Executives employment had
not been terminated or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company and its affiliated
companies and their families, provided, however, that if the Executive
becomes reemployed with another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to
-8-
those provided under such other plan during such
applicable period of eligibility. For purposes of determining eligibility (but not the time
of commencement of benefits) of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to have remained
employed until three years after the Date of Termination and to have retired on the last day of such period. The Executives
entitlement to COBRA continuation coverage under Section 4980B of the Code (COBRA
Coverage) shall not be offset by the provision of benefits under this Section 6(a)(ii)
and the period of COBRA Coverage shall commence at the end of the Benefit Continuation
Period;
(iii) the Company shall, at its sole expense as incurred, provide the Executive with
outplacement services the scope and provider of which shall be selected by the Executive in
his sole discretion; provided, that such outplacement benefits shall end not later than the
last day of the second calendar year that begins after the Date of Termination; and
(iv) to the extent not theretofore paid or provided, the Company shall timely pay or
provide to the Executive any other amounts or benefits required to be paid or provided or
which the Executive is eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies (such other amounts and
benefits shall be hereinafter referred to as the Other Benefits).
(b) Death. If the Executives employment is terminated by reason of the Executives
death during the Employment Period, this Agreement shall terminate without further obligations to
the Executives legal representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be
paid to the Executives estate or beneficiary, as applicable, in a lump sum in cash within 30 days
of the Date of Termination. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executives
estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most
favorable benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies under such plans,
programs, practices and policies relating to death benefits, if any, as in effect with respect to
other peer executives and their beneficiaries at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executives estate and/or the Executives
beneficiaries, as in effect on the date of the Executives death with respect to other peer
executives of the Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executives employment is terminated by reason of the
Executives Disability during the Employment Period, this Agreement shall terminate without further
obligations to the Executive, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination, provided, that to the extent required in order
to comply with Section 409A of the Code, amounts and benefits to be paid or provided under this
Section 6(c) shall be paid, with Interest, or provided to the Executive on the first business day
after the date that is six (6) months following the Executives separation from service within
the meaning of Section 409A of the Code. With respect to the provision of Other Benefits, the term
Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled
after the Disability Effective Date
-9-
to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated companies to disabled
executives and/or their families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other peer executives and
their families at any time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive and/or the Executives family, as in effect at any time thereafter generally with
respect to other peer executives of the Company and its affiliated companies and their families.
(d) Cause, Etc.; Other than for Good Reason. If the Executives employment shall be
terminated for Cause during the Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base
Salary through the Date of Termination, and (y) Other Benefits, in each case to the extent
theretofore unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination, provided, that to the extent
required in order to comply with Section 409A of the Code, amounts and benefits to be paid or
provided under this sentence of Section 6(d) shall be paid, with Interest, or provided to the
Executive on the first business day after the date that is six (6) months following the Executives
separation from service within the meaning of Section 409A of the Code.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the
Executives continuing or future participation in any plan, program, policy or practice provided by
the Company or any of its affiliated companies and for which the Executive may qualify, nor,
subject to Section 12(h), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or agreement except
as explicitly modified by this Agreement. Without limiting the generality of the foregoing, the
Executives resignation under this Agreement with or without Good Reason, shall in no way affect
the Executives ability to terminate employment by reason of the Executives retirement under any
compensation and benefits plans, programs or arrangements of the Affiliated Companies, including
without limitation any retirement or pension plans or arrangements or to be eligible to receive
benefits under any compensation or benefit plans, programs or arrangements of the Affiliated
Companies, including without limitation any retirement or pension plan or arrangement of the
Affiliated Companies or substitute plans adopted by the Company or its successors, and any
termination which otherwise qualifies as Good Reason shall be treated as such even if it is also a
retirement for purposes of any such plan. Notwithstanding the foregoing, if the Executive
receives payments and benefits pursuant to Section 6(a) of this Agreement, the Executive shall not
be entitled to any severance pay or benefits under any severance plan, program or policy of the
Company and the affiliated companies, unless otherwise specifically provided therein in a specific
reference to this Agreement.
-10-
8. Full Settlement. The Companys obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may
have against the Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and such amounts shall not be reduced whether or not
the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the Company, the Executive or others
of the validity or enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the Executive about the
amount of any payment pursuant to this Agreement), plus, in each case, Interest.
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise, but determined without regard to any additional payments
required under this Section 9) (a Payment) would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the Excise Tax), then the Executive shall be entitled to
receive an additional payment (a Gross-Up Payment) in an amount such that after payment
by the Executive of all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and penalties imposed
with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, but excluding any income
taxes and penalties imposed pursuant to Section 409A of the Code, the Executive retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 9(a), if it shall be determined that the Executive is entitled
to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the
Reduced Amount) that could be paid to the Executive such that the receipt of Payments
would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and
the Payments, in the aggregate, shall be reduced to the Reduced Amount. The reduction of the
amounts payable hereunder, if applicable, shall be made by first reducing the payments under
Section 6(a)(i), unless an alternative method of reduction is elected by the Executive, and in any
event shall be made in such a manner as to maximize the economic present value of all Payments
actually made to the Executive, as determined by the Accounting Firm using the discount rate
required by Section 280G(d)(4) of the Code. For purposes of reducing the Payments to the Reduced
Amount, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the
reduction of the amount payable under this Agreement would not result in a reduction of the
Parachute Value of all Payments to the Reduced Amount, no amounts payable under the Agreement shall
be reduced pursuant to this Section 9(a). The Companys obligation to make Gross-Up Payments under
this Section 9 shall not be conditioned upon the Executives termination of employment.
-11-
(b) Subject to the provisions of Section 9(c), all determinations required to be made under
this Section 9, including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be
made by such nationally recognized certified public accounting firm (other than the firm then
serving as the independent auditor of the Company or the firm then serving as the independent
auditor of the acquiring Person in a Change of Control) as may be designated by the Executive (the
Accounting Firm) which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the receipt of notice from the Executive that there
has been a Payment, or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the
Change of Control, the Executive shall appoint another nationally recognized accounting firm to
make the determinations required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by
the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the
Company to the Executive within five days of the receipt of the Accounting Firms determination.
Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made (Underpayment), consistent with
the calculations required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no later than ten business days after
the Executive is informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company relating to
such claim,
(ii) take such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order effectively to contest such
claim, and
(iv) permit the Company to participate in any proceedings relating to such claim;
-12-
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an aftertax basis, for
any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 9(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company pays such claim and directs the
Executive to sue for a refund, the Company shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such payment or with respect to any imputed income with respect to
such payment; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the
Companys control of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of a Gross-Up Payment or a payment by the Company
pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such
claim, the Executive shall (subject to the Companys complying with the requirements of Section
9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after payment of an amount on the
Executives behalf by the Company pursuant to Section 9(c), a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then the amount of such payment shall offset, to
the extent thereof, by the amount of Gross-Up Payment required to be paid.
(e) Notwithstanding any other provision of this Section 9, the Company may, in its sole
discretion, withhold and pay over to the Internal Revenue Service or any other applicable taxing
authority, for the benefit of the Executive, all or any portion of any Gross-Up Payment, and the
Executive hereby consents to such withholding.
10. Confidential Information. The Executive shall hold in a fiduciary capacity for
the benefit of the Company all secret or confidential information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during the Executives employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement). After termination
of the Executives employment with the Company, the Executive shall not, without the prior written
-13-
consent of the Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of this Section 10
constitute a basis for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive otherwise than by
will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executives legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns. Except as provided in Section 11(c), without the prior written consent of
the Executive, this Agreement shall not be assignable by the Company.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession had taken place. As
used in this Agreement, Company shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to principles of conflict of
laws.
(b) The captions of this Agreement are not part of the provisions hereof and shall have no
force or effect.
(c) This Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal representatives.
Notwithstanding the foregoing, if any compensation or benefits provided by this Agreement may
result in the application of Section 409A of the Code, the Company shall, in consultation with the
Executive, modify the Agreement in the least restrictive manner necessary in order to exclude such
compensation from the definition of deferred compensation within the meaning of such Section 409A
or in order to comply with the provisions of Section 409A, other applicable provision(s) of the
Code and/or any rules, regulations or other regulatory guidance issued under such statutory
provisions and without any diminution in the value of the payments and benefits to the Executive.
(d) All notices and other communications hereunder shall be in writing and shall be given by
hand delivery to the other party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
At the most recent address on file for the Executive at the Company.
-14-
If to the Company:
Comerica Incorporated
Comerica Tower at Detroit Center
500 Woodward Avenue, 31st Floor
Detroit, Michigan 48226
Attention: Executive Vice President
or to such other address as either party shall have furnished to the other in writing in accordance
herewith. Notice and communications shall be effective when actually received by the addressee.
(e) The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
(f) The Company may withhold from any amounts payable under this Agreement such Federal,
state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or
regulation.
(g) The Executives or the Companys failure to insist upon strict compliance with any
provision of this Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to terminate employment
for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this Agreement.
(h) The Executive and the Company acknowledge that, except as may otherwise be provided under
any other written agreement between the Executive and the Company, the employment of the Executive
by the Company is at will and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executives employment and/or this Agreement may be terminated by either the Executive or the
Company at any time prior to the Effective Date, in which case the Executive shall have no further
rights under this Agreement. From and after the Effective Date this Agreement shall supersede any
other agreement between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executives hand and, pursuant to the
authorization from its Board of Directors, the Company has caused these presents to be executed in
its name on its behalf, all as of the day and year first above written.
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Date Signed |
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[Name of Executive] |
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COMERICA INCORPORATED |
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By: |
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-15-
SCHEDULE
EMPLOYMENT AGREEMENTS (EXECUTIVE VICE PRESIDENT VERSION 2)
Each of the executive officers of the Corporation named below executed an Employment Agreement on
the date set forth across from his or her name in substantially the form attached hereto.
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Executive Officer |
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Date of Agreement |
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Jacquelyn H. Wolf
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March 2, 2006 |
-16-
EX-13
3
z02267exv13.htm
INCORPORATED SECTIONS OF REGISTRANT'S 2005 ANNUAL REPORT TO SHAREHOLDERS
exv13
FINANCIAL REVIEW AND REPORTS
Comerica Incorporated and
Subsidiaries
|
|
|
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Financial Results and Key Corporate Initiatives
|
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21 |
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Overview/ Earnings Performance
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|
22 |
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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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38 |
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Risk Management
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43 |
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Critical Accounting Policies
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57 |
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Forward-Looking Statements
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61 |
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Consolidated Financial Statements:
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Consolidated Balance Sheets
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63 |
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|
Consolidated Statements of Income
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|
64 |
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|
Consolidated Statements of Changes in
Shareholders Equity
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65 |
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Consolidated Statements of Cash Flows
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66 |
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Notes to Consolidated Financial Statements
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67 |
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Report of Management
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118 |
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Reports of Independent Registered Public
Accounting Firm
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119 |
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Historical Review
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121 |
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19
TABLE 1: SELECTED FINANCIAL
DATA
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions, except per share data) | |
EARNINGS SUMMARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$ |
2,726 |
|
|
$ |
2,237 |
|
|
$ |
2,412 |
|
|
$ |
2,797 |
|
|
$ |
3,393 |
|
Net interest income
|
|
|
1,956 |
|
|
|
1,810 |
|
|
|
1,926 |
|
|
|
2,132 |
|
|
|
2,102 |
|
Provision for loan losses
|
|
|
(47 |
) |
|
|
64 |
|
|
|
377 |
|
|
|
635 |
|
|
|
241 |
|
Net securities gains
|
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
41 |
|
|
|
20 |
|
Noninterest income (excluding net securities
gains)
|
|
|
942 |
|
|
|
857 |
|
|
|
837 |
|
|
|
859 |
|
|
|
817 |
|
Noninterest expenses
|
|
|
1,666 |
|
|
|
1,493 |
|
|
|
1,483 |
|
|
|
1,515 |
|
|
|
1,587 |
|
Provision for income taxes
|
|
|
418 |
|
|
|
353 |
|
|
|
292 |
|
|
|
281 |
|
|
|
401 |
|
Net income
|
|
|
861 |
|
|
|
757 |
|
|
|
661 |
|
|
|
601 |
|
|
|
710 |
|
PER SHARE OF COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income
|
|
$ |
5.17 |
|
|
$ |
4.41 |
|
|
$ |
3.78 |
|
|
$ |
3.43 |
|
|
$ |
3.93 |
|
Diluted net income
|
|
|
5.11 |
|
|
|
4.36 |
|
|
|
3.75 |
|
|
|
3.40 |
|
|
|
3.88 |
|
Cash dividends declared
|
|
|
2.20 |
|
|
|
2.08 |
|
|
|
2.00 |
|
|
|
1.92 |
|
|
|
1.76 |
|
Common shareholders equity
|
|
|
31.11 |
|
|
|
29.94 |
|
|
|
29.20 |
|
|
|
28.31 |
|
|
|
27.17 |
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Market value
|
|
|
56.76 |
|
|
|
61.02 |
|
|
|
56.06 |
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|
|
43.24 |
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|
|
57.30 |
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YEAR-END BALANCES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
53,013 |
|
|
$ |
51,766 |
|
|
$ |
52,592 |
|
|
$ |
53,301 |
|
|
$ |
50,750 |
|
Total earning assets
|
|
|
48,646 |
|
|
|
48,016 |
|
|
|
48,804 |
|
|
|
47,780 |
|
|
|
46,566 |
|
Total loans
|
|
|
43,247 |
|
|
|
40,843 |
|
|
|
40,302 |
|
|
|
42,281 |
|
|
|
41,196 |
|
Total deposits
|
|
|
42,431 |
|
|
|
40,936 |
|
|
|
41,463 |
|
|
|
41,775 |
|
|
|
37,570 |
|
Total borrowings
|
|
|
4,263 |
|
|
|
4,479 |
|
|
|
5,063 |
|
|
|
5,756 |
|
|
|
7,489 |
|
Total medium- and long-term debt
|
|
|
3,961 |
|
|
|
4,286 |
|
|
|
4,801 |
|
|
|
5,216 |
|
|
|
5,503 |
|
Total common shareholders equity
|
|
|
5,068 |
|
|
|
5,105 |
|
|
|
5,110 |
|
|
|
4,947 |
|
|
|
4,807 |
|
AVERAGE BALANCES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
52,506 |
|
|
$ |
50,948 |
|
|
$ |
52,980 |
|
|
$ |
51,130 |
|
|
$ |
49,688 |
|
Total earning assets
|
|
|
48,232 |
|
|
|
46,975 |
|
|
|
48,841 |
|
|
|
47,053 |
|
|
|
45,722 |
|
Total loans
|
|
|
43,816 |
|
|
|
40,733 |
|
|
|
42,370 |
|
|
|
42,091 |
|
|
|
41,371 |
|
Total deposits
|
|
|
40,640 |
|
|
|
40,145 |
|
|
|
41,519 |
|
|
|
37,712 |
|
|
|
35,312 |
|
Total borrowings
|
|
|
5,637 |
|
|
|
4,815 |
|
|
|
5,624 |
|
|
|
7,725 |
|
|
|
8,782 |
|
Total medium- and long-term debt
|
|
|
4,186 |
|
|
|
4,540 |
|
|
|
5,074 |
|
|
|
5,763 |
|
|
|
6,198 |
|
Total common shareholders equity
|
|
|
5,097 |
|
|
|
5,041 |
|
|
|
5,033 |
|
|
|
4,884 |
|
|
|
4,605 |
|
CREDIT QUALITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$ |
516 |
|
|
$ |
673 |
|
|
$ |
803 |
|
|
$ |
791 |
|
|
$ |
637 |
|
Allowance for credit losses on lending-related
commitments
|
|
|
33 |
|
|
|
21 |
|
|
|
33 |
|
|
|
35 |
|
|
|
18 |
|
Total allowance for credit losses
|
|
|
549 |
|
|
|
694 |
|
|
|
836 |
|
|
|
826 |
|
|
|
655 |
|
Total nonperforming assets
|
|
|
162 |
|
|
|
339 |
|
|
|
538 |
|
|
|
579 |
|
|
|
627 |
|
Net loans charged-off
|
|
|
110 |
|
|
|
194 |
|
|
|
365 |
|
|
|
481 |
|
|
|
189 |
|
Net loans charged-off as a percentage of average
total loans
|
|
|
0.25 |
% |
|
|
0.48 |
% |
|
|
0.86 |
% |
|
|
1.14 |
% |
|
|
0.46 |
% |
Allowance for loan losses as a percentage of
total period-end loans
|
|
|
1.19 |
|
|
|
1.65 |
|
|
|
1.99 |
|
|
|
1.87 |
|
|
|
1.55 |
|
Allowance for loan losses as a percentage of
total nonperforming assets
|
|
|
319 |
|
|
|
198 |
|
|
|
149 |
|
|
|
136 |
|
|
|
102 |
|
RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
4.06 |
% |
|
|
3.86 |
% |
|
|
3.95 |
% |
|
|
4.55 |
% |
|
|
4.61 |
% |
Return on average assets
|
|
|
1.64 |
|
|
|
1.49 |
|
|
|
1.25 |
|
|
|
1.18 |
|
|
|
1.43 |
|
Return on average common shareholders equity
|
|
|
16.90 |
|
|
|
15.03 |
|
|
|
13.12 |
|
|
|
12.31 |
|
|
|
15.16 |
|
Efficiency ratio
|
|
|
57.40 |
|
|
|
55.90 |
|
|
|
53.64 |
|
|
|
50.59 |
|
|
|
54.30 |
|
Dividend payout ratio
|
|
|
43.05 |
|
|
|
47.71 |
|
|
|
53.33 |
|
|
|
56.47 |
|
|
|
45.36 |
|
Average common shareholders equity as a
percentage of average assets
|
|
|
9.71 |
|
|
|
9.90 |
|
|
|
9.50 |
|
|
|
9.55 |
|
|
|
9.27 |
|
Tier 1 common capital as a percentage of
risk-weighted assets
|
|
|
7.86 |
|
|
|
8.13 |
|
|
|
8.04 |
|
|
|
7.39 |
|
|
|
7.30 |
|
20
2005 FINANCIAL RESULTS AND KEY CORPORATE
INITIATIVES
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|
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|
|
Reported net income of $861 million, or
$5.11 per diluted share, compared to $757 million, or
$4.36 per diluted share, for 2004
|
|
|
|
Returned 16.90 percent on average common
shareholders equity and 1.64 percent on average assets
|
|
|
|
Raised the quarterly cash dividend six percent,
to $0.55 per share, an annual rate of $2.20 per share,
for an annual dividend payout ratio of 43 percent
|
|
|
|
Repurchased 9.0 million shares of
outstanding common stock for $525 million, which combined
with dividends, returned 104 percent of earnings to
shareholders
|
|
|
|
Generated growth from December 31, 2004 to
December 31, 2005 of $2.4 billion in loans and
$2.3 billion in unused commitments to extend credit
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|
|
Generated growth in average loans, excluding
Financial Services Division loans, from 2004 to 2005, including
growth in the Midwest & Other (3 percent), Western (7
percent) and Texas (11 percent) markets
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|
Improved credit quality, resulting in an
$84 million decline in net loan charge-offs, a
$174 million decline in total nonaccrual loans and a
$328 million decline in watch list loans (generally
consistent with regulatory special mention and substandard loans)
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|
Experienced growth in investment advisory revenue
of 43 percent in 2005, resulting primarily from an increase
in assets under management at Munder Capital Management to
$41 billion at December 31, 2005, from
$38 billion at December 31, 2004
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|
Key Corporate Initiatives |
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|
Continued organic growth focused in high growth
markets, including the opening of 18 new banking centers in
2005; banking center expansion in 2006 is expected to be
comparable to 2005
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Sold Framlington Group Limited (a London, England
based investment manager), and actively pursuing the sale of our
Mexican bank charter, businesses not central to our initiatives
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|
Continued to refine and develop the
enterprise-wide risk management program, including improvement
of analytics and systems used to enhance credit and operational
risk management
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Experienced a slight decline in full-time
equivalent staff, in spite of 102 additional FTE employees added
to support new banking center openings
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21
OVERVIEW/EARNINGS PERFORMANCE
Comerica Incorporated (the Corporation) is a
financial holding company headquartered in Detroit, Michigan.
The Corporations major business segments are the Business
Bank, Small Business & Personal Financial Services
(renamed the Retail Bank in 2006), and Wealth &
Institutional Management. The core businesses are tailored to
each of the Corporations four primary geographic markets:
Midwest & Other Markets, Western, Texas and Florida.
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 67 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 57 of this financial review.
As a financial institution, the
Corporations 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. The
Corporation also provides other products and services that meet
the financial needs of customers and which generate noninterest
income, the Corporations secondary source of revenue.
Growth in loans, deposits and noninterest income are affected by
many factors, including the economic growth in the markets the
Corporation serves, the financial requirements and health of
customers, and successfully adding new customers and/or
increasing the number of products used by current customers.
Success in providing products and services depends on the
financial needs of customers and the types of products desired.
The Corporation generated growth of
$2.4 billion in loans and $2.3 million in unused
commitments to extend credit from December 31, 2004 to
December 31, 2005. Average loans grew in the
Corporations Specialty Businesses (42 percent),
Private Banking (9 percent), and Middle Market
(6 percent) loan portfolios in 2005, compared to 2004. The
Specialty Businesses loan portfolio includes loans in the
Corporations Financial Services Division (FSD), where
customers deposit large balances (primarily noninterest-bearing)
and the Corporation pays certain customer services expenses
(included in noninterest expenses on the consolidated statements
of income) and/or makes low-rate loans (included in net interest
income on the consolidated statements of income) to such
customers. Average deposits increased $495 million, or one
percent, in 2005, compared to 2004. Average FSD deposits
increased $1.1 billion in 2005 compared to 2004, primarily
due to continued strong mortgage business activity. FSD deposit
levels may change with the direction of mortgage activity
changes, the desirability of such deposits, and competition for
the deposits. Net interest income increased eight percent in
2005, compared to 2004, primarily due to loan growth. Net
interest income in 2005 was also impacted by the warrant
accounting change discussed in Note 1 to the consolidated
financial statements on page 67. Noninterest income,
excluding net securities gains and net gains on sale of
businesses, increased four percent in 2005, compared to 2004.
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 2005, with improving credit quality trends resulting in a
significant decline in both net loan charge-offs and total
nonperforming assets in 2005, compared to 2004. The tools
developed in 2004 and 2005 for evaluating the adequacy of the
allowance for loan losses, and the resulting information gained
from these processes, continue to help the Corporation monitor
and manage credit risk.
Noninterest expenses in 2005 increased
12 percent compared to 2004. Approximately half of the
12 percent increase in 2005 related to customer services
expense in the Financial Services Division ($46 million),
and credit-related costs ($39 million), including the
provision for credit losses on lending-related commitments and
other real estate expense. Customer services expense represents
expenses paid on behalf of Financial Services Division
customers, and is one method to attract and retain title and
escrow deposits in that division. Other factors contributing to
the increase in noninterest expenses in 2005 included
profitability-based incentives ($41 million), pension and
staff insurance ($20 million) and new banking centers
($12 million). Full-time equivalent employees declined by
approximately 75 employees from year-end 2004 to year-end
2005, in spite of 102 additional FTE employees added to support
new banking center openings.
22
A majority of the Corporations revenues are
generated by the Business Bank business 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
18 banking centers in 2005 and plans to continue banking center
expansion in markets with favorable demographics. This is
expected to provide opportunity for growth in the Small
Business & Personal Financial Services and the
Wealth & Institutional Management business segments as
the Corporation penetrates existing relationships through
cross-selling and develops new relationships.
For 2006, management expects the following,
compared to 2005:
|
|
|
|
|
Mid-to-high single digit average loan growth
|
|
|
Mid-single digit average loan growth excluding
Financial Services Division loans
|
|
|
Average full year net interest margin of about
4.00%
|
|
|
Provision for credit losses consistent with
credit-related charge-offs of 25 to 30 basis points of
average loans
|
|
|
Low-single digit noninterest income growth,
excluding net gain on sales of businesses
|
|
|
Noninterest expenses relatively unchanged,
excluding the provision for credit losses on lending-related
commitments (included in the above outlook for the provision for
credit losses) and excluding any future changes in the value of
subsidiary share-based compensation awards and minority-owned
shares classified as liabilities (see the Other Market
Risks section of this financial review on page 54)
|
|
|
Active capital management
|
23
TABLE 2: ANALYSIS OF NET INTEREST
INCOME-Fully Taxable Equivalent (FTE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
Average | |
|
|
|
Average | |
|
Average | |
|
|
|
Average | |
|
Average | |
|
|
|
Average | |
|
|
Balance | |
|
Interest | |
|
Rate | |
|
Balance | |
|
Interest | |
|
Rate | |
|
Balance | |
|
Interest | |
|
Rate | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Commercial loans(1)(2)(3)
|
|
$ |
24,575 |
|
|
$ |
1,381 |
|
|
|
5.62 |
% |
|
$ |
22,139 |
|
|
$ |
933 |
|
|
|
4.22 |
% |
|
$ |
23,764 |
|
|
$ |
978 |
|
|
|
4.11 |
% |
Real estate construction loans
|
|
|
3,194 |
|
|
|
231 |
|
|
|
7.23 |
|
|
|
3,264 |
|
|
|
177 |
|
|
|
5.43 |
|
|
|
3,540 |
|
|
|
178 |
|
|
|
5.04 |
|
Commercial mortgage loans(1)
|
|
|
8,566 |
|
|
|
534 |
|
|
|
6.23 |
|
|
|
7,991 |
|
|
|
415 |
|
|
|
5.19 |
|
|
|
7,521 |
|
|
|
403 |
|
|
|
5.35 |
|
Residential mortgage loans
|
|
|
1,388 |
|
|
|
80 |
|
|
|
5.74 |
|
|
|
1,237 |
|
|
|
70 |
|
|
|
5.68 |
|
|
|
1,192 |
|
|
|
73 |
|
|
|
6.12 |
|
Consumer loans
|
|
|
2,696 |
|
|
|
159 |
|
|
|
5.89 |
|
|
|
2,668 |
|
|
|
126 |
|
|
|
4.73 |
|
|
|
2,474 |
|
|
|
122 |
|
|
|
4.94 |
|
Lease financing
|
|
|
1,283 |
|
|
|
49 |
|
|
|
3.81 |
|
|
|
1,272 |
|
|
|
52 |
|
|
|
4.06 |
|
|
|
1,283 |
|
|
|
59 |
|
|
|
4.59 |
|
International loans
|
|
|
2,114 |
|
|
|
126 |
|
|
|
5.98 |
|
|
|
2,162 |
|
|
|
102 |
|
|
|
4.69 |
|
|
|
2,596 |
|
|
|
115 |
|
|
|
4.44 |
|
Business loan swap income(4)
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans(2)(3)(5)
|
|
|
43,816 |
|
|
|
2,558 |
|
|
|
5.84 |
|
|
|
40,733 |
|
|
|
2,057 |
|
|
|
5.05 |
|
|
|
42,370 |
|
|
|
2,213 |
|
|
|
5.22 |
|
Investment securities available-for-sale(6)
|
|
|
3,861 |
|
|
|
148 |
|
|
|
3.76 |
|
|
|
4,321 |
|
|
|
147 |
|
|
|
3.36 |
|
|
|
4,529 |
|
|
|
166 |
|
|
|
3.65 |
|
Short-term investments
|
|
|
555 |
|
|
|
24 |
|
|
|
4.45 |
|
|
|
1,921 |
|
|
|
36 |
|
|
|
1.88 |
|
|
|
1,942 |
|
|
|
36 |
|
|
|
1.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
48,232 |
|
|
|
2,730 |
|
|
|
5.65 |
|
|
|
46,975 |
|
|
|
2,240 |
|
|
|
4.76 |
|
|
|
48,841 |
|
|
|
2,415 |
|
|
|
4.94 |
|
Cash and due from banks
|
|
|
1,721 |
|
|
|
|
|
|
|
|
|
|
|
1,685 |
|
|
|
|
|
|
|
|
|
|
|
1,811 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(623 |
) |
|
|
|
|
|
|
|
|
|
|
(787 |
) |
|
|
|
|
|
|
|
|
|
|
(831 |
) |
|
|
|
|
|
|
|
|
Accrued income and other assets
|
|
|
3,176 |
|
|
|
|
|
|
|
|
|
|
|
3,075 |
|
|
|
|
|
|
|
|
|
|
|
3,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
52,506 |
|
|
|
|
|
|
|
|
|
|
$ |
50,948 |
|
|
|
|
|
|
|
|
|
|
$ |
52,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market and NOW deposits(1)
|
|
$ |
17,282 |
|
|
|
337 |
|
|
|
1.95 |
|
|
$ |
17,768 |
|
|
|
188 |
|
|
|
1.06 |
|
|
$ |
17,359 |
|
|
|
204 |
|
|
|
1.18 |
|
Savings deposits(1)
|
|
|
1,545 |
|
|
|
7 |
|
|
|
0.49 |
|
|
|
1,629 |
|
|
|
6 |
|
|
|
0.39 |
|
|
|
1,571 |
|
|
|
8 |
|
|
|
0.50 |
|
Certificates of deposit(1)(4)(7)
|
|
|
5,929 |
|
|
|
167 |
|
|
|
2.81 |
|
|
|
5,962 |
|
|
|
104 |
|
|
|
1.74 |
|
|
|
8,061 |
|
|
|
139 |
|
|
|
1.72 |
|
Foreign office time deposits(8)
|
|
|
877 |
|
|
|
37 |
|
|
|
4.18 |
|
|
|
664 |
|
|
|
17 |
|
|
|
2.60 |
|
|
|
618 |
|
|
|
19 |
|
|
|
3.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
25,633 |
|
|
|
548 |
|
|
|
2.14 |
|
|
|
26,023 |
|
|
|
315 |
|
|
|
1.21 |
|
|
|
27,609 |
|
|
|
370 |
|
|
|
1.34 |
|
Short-term borrowings
|
|
|
1,451 |
|
|
|
52 |
|
|
|
3.59 |
|
|
|
275 |
|
|
|
4 |
|
|
|
1.25 |
|
|
|
550 |
|
|
|
7 |
|
|
|
1.20 |
|
Medium- and long-term debt(4)(7)
|
|
|
4,186 |
|
|
|
170 |
|
|
|
4.05 |
|
|
|
4,540 |
|
|
|
108 |
|
|
|
2.39 |
|
|
|
5,074 |
|
|
|
109 |
|
|
|
2.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing sources
|
|
|
31,270 |
|
|
|
770 |
|
|
|
2.46 |
|
|
|
30,838 |
|
|
|
427 |
|
|
|
1.38 |
|
|
|
33,233 |
|
|
|
486 |
|
|
|
1.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits(1)
|
|
|
15,007 |
|
|
|
|
|
|
|
|
|
|
|
14,122 |
|
|
|
|
|
|
|
|
|
|
|
13,910 |
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
|
1,132 |
|
|
|
|
|
|
|
|
|
|
|
947 |
|
|
|
|
|
|
|
|
|
|
|
804 |
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
5,097 |
|
|
|
|
|
|
|
|
|
|
|
5,041 |
|
|
|
|
|
|
|
|
|
|
|
5,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
52,506 |
|
|
|
|
|
|
|
|
|
|
$ |
50,948 |
|
|
|
|
|
|
|
|
|
|
$ |
52,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/rate spread (FTE)
|
|
|
|
|
|
$ |
1,960 |
|
|
|
3.19 |
|
|
|
|
|
|
$ |
1,813 |
|
|
|
3.38 |
|
|
|
|
|
|
$ |
1,929 |
|
|
|
3.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTE adjustment(9)
|
|
|
|
|
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of net noninterest-bearing sources of funds
|
|
|
|
|
|
|
|
|
|
|
0.87 |
|
|
|
|
|
|
|
|
|
|
|
0.48 |
|
|
|
|
|
|
|
|
|
|
|
0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (as a percentage of average
earning assets) (FTE)(2)(3)
|
|
|
|
|
|
|
|
|
|
|
4.06 |
% |
|
|
|
|
|
|
|
|
|
|
3.86 |
% |
|
|
|
|
|
|
|
|
|
|
3.95 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) FSD balances included above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (primarily low-rate)
|
|
$ |
1,893 |
|
|
$ |
8 |
|
|
|
0.45 |
% |
|
$ |
885 |
|
|
$ |
5 |
|
|
|
0.53 |
% |
|
$ |
1,048 |
|
|
$ |
4 |
|
|
|
0.42 |
% |
|
|
Interest-bearing deposits
|
|
|
2,600 |
|
|
|
76 |
|
|
|
2.91 |
|
|
|
2,027 |
|
|
|
31 |
|
|
|
1.53 |
|
|
|
2,259 |
|
|
|
29 |
|
|
|
1.28 |
|
|
|
Noninterest-bearing deposits
|
|
|
5,851 |
|
|
|
|
|
|
|
|
|
|
|
5,280 |
|
|
|
|
|
|
|
|
|
|
|
5,891 |
|
|
|
|
|
|
|
|
|
(2) Impact of FSD loans (primarily low-rate)
on the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
(0.43 |
)% |
|
|
|
|
|
|
|
|
|
|
(0.15 |
)% |
|
|
|
|
|
|
|
|
|
|
(0.17 |
)% |
|
|
Total loans
|
|
|
|
|
|
|
|
|
|
|
(0.24 |
) |
|
|
|
|
|
|
|
|
|
|
(0.10 |
) |
|
|
|
|
|
|
|
|
|
|
(0.13 |
) |
|
|
Net interest margin (FTE) (assuming loans were
funded by noninterest bearing deposits)
|
|
|
|
|
|
|
|
|
|
|
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
(0.08 |
) |
(3) Impact of third quarter 2005 warrant
accounting change on the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
$ |
20 |
|
|
|
0.08 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
|
|
|
|
20 |
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (FTE)
|
|
|
|
|
|
|
20 |
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) 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 $58 million in 2005, is included in the related
interest expense line items.
|
(5) Nonaccrual loans are included in average
balances reported and are used to calculate rates.
|
(6) Average rate based on average historical
cost.
|
(7) 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.
|
(8) Includes substantially all deposits by
foreign domiciled depositors; deposits are primarily in excess
of $100,000.
|
(9) The FTE adjustment is computed using a
federal income tax rate of 35%.
|
24
TABLE 3: RATE-VOLUME ANALYSIS-Fully
Taxable Equivalent (FTE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005/2004 | |
|
2004/2003 | |
|
|
| |
|
| |
|
|
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
|
|
$ |
311 |
|
|
$ |
137 |
|
|
$ |
448 |
|
|
$ |
24 |
|
|
$ |
(69 |
) |
|
$ |
(45 |
) |
|
Real estate construction loans
|
|
|
59 |
|
|
|
(5 |
) |
|
|
54 |
|
|
|
14 |
|
|
|
(15 |
) |
|
|
(1 |
) |
|
Commercial mortgage loans
|
|
|
83 |
|
|
|
36 |
|
|
|
119 |
|
|
|
(12 |
) |
|
|
24 |
|
|
|
12 |
|
|
Residential mortgage loans
|
|
|
1 |
|
|
|
9 |
|
|
|
10 |
|
|
|
(6 |
) |
|
|
3 |
|
|
|
(3 |
) |
|
Consumer loans
|
|
|
31 |
|
|
|
2 |
|
|
|
33 |
|
|
|
(5 |
) |
|
|
9 |
|
|
|
4 |
|
|
Lease financing
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
(7 |
) |
|
International loans
|
|
|
27 |
|
|
|
(3 |
) |
|
|
24 |
|
|
|
7 |
|
|
|
(20 |
) |
|
|
(13 |
) |
|
Business loan swap income (expense)
|
|
|
(184 |
) |
|
|
|
|
|
|
(184 |
) |
|
|
(103 |
) |
|
|
|
|
|
|
(103 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
325 |
|
|
|
176 |
|
|
|
501 |
|
|
|
(88 |
) |
|
|
(68 |
) |
|
|
(156 |
) |
Investment securities available-for-sale
|
|
|
19 |
|
|
|
(18 |
) |
|
|
1 |
|
|
|
(12 |
) |
|
|
(7 |
) |
|
|
(19 |
) |
Short-term investments
|
|
|
35 |
|
|
|
(47 |
) |
|
|
(12 |
) |
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income (FTE)
|
|
|
379 |
|
|
|
111 |
|
|
|
490 |
|
|
|
(95 |
) |
|
|
(80 |
) |
|
|
(175 |
) |
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market and NOW deposits
|
|
|
159 |
|
|
|
(10 |
) |
|
|
149 |
|
|
|
(21 |
) |
|
|
5 |
|
|
|
(16 |
) |
|
Savings deposits
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
|
Certificates of deposit
|
|
|
64 |
|
|
|
(1 |
) |
|
|
63 |
|
|
|
2 |
|
|
|
(37 |
) |
|
|
(35 |
) |
|
Foreign office time deposits
|
|
|
11 |
|
|
|
9 |
|
|
|
20 |
|
|
|
(3 |
) |
|
|
1 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
235 |
|
|
|
(2 |
) |
|
|
233 |
|
|
|
(24 |
) |
|
|
(31 |
) |
|
|
(55 |
) |
Short-term borrowings
|
|
|
6 |
|
|
|
42 |
|
|
|
48 |
|
|
|
|
|
|
|
(3 |
) |
|
|
(3 |
) |
Medium- and long-term debt
|
|
|
76 |
|
|
|
(14 |
) |
|
|
62 |
|
|
|
12 |
|
|
|
(13 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
317 |
|
|
|
26 |
|
|
|
343 |
|
|
|
(12 |
) |
|
|
(47 |
) |
|
|
(59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (FTE)
|
|
$ |
62 |
|
|
$ |
85 |
|
|
$ |
147 |
|
|
$ |
(83 |
) |
|
$ |
(33 |
) |
|
$ |
(116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
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 net
income. Net interest income on a fully taxable equivalent
(FTE) basis comprised 68 percent of net revenues in
2005, compared to 68 percent in 2004 and 69 percent in
2003. Table 2 on page 24 of this financial review provides
an analysis of net interest income for the years ended
December 31, 2005, 2004 and 2003. 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, 2005, compared to 2004 and December 31,
2004, compared to 2003.
25
Net interest income (FTE) was
$2.0 billion in 2005, an increase of $147 million, or
eight percent, from 2004. The net interest margin (FTE), which
is net interest income (FTE) expressed as a percentage of
average earning assets, increased to 4.06 percent in 2005,
from 3.86 percent in 2004. The increases in net interest
income and net interest margin resulted primarily from a greater
contribution from noninterest-bearing deposits in a higher rate
environment and loan growth. Net interest income in 2005 was
also impacted by the warrant accounting change discussed in
Note 1 to the consolidated financial statements on
page 67, which resulted in a $20 million increase in
net interest income and a four basis point increase in the net
interest margin in 2005. Average earning assets increased
$1.3 billion, or three percent, to $48.2 billion in
2005, compared to 2004, primarily as a result of a
$3.1 billion increase in average loans, partially offset by
a $1.4 billion decline in average short-term investments
and a $460 million decline in average investment securities
available-for-sale. The Corporation expects, on average, net
interest margin in 2006 to be about 4.00 percent for the
full year.
Net interest income and net interest margin are
impacted by the operations of the Corporations Financial
Services Division (FSD). FSD customers deposit large balances
(primarily noninterest-bearing) and the Corporation pays certain
customer services expenses (included in noninterest
expenses on the consolidated statements of income) and/or
makes low-rate loans (included in net interest
income on the consolidated statements of income) to such
customers. Footnote (1) to Table 2 on page 24 of this
financial review displays average FSD loans and deposits, with
related interest income/expense and average rates. As shown in
Footnote (2) to Table 2 on page 24 of this financial
review, the impact of FSD loans (primarily low-rate) on net
interest margin (assuming the loans were funded by FSD
noninterest-bearing deposits) was a decrease of 15 basis
points and six basis points in 2005 and 2004, respectively.
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 48 of this financial review for additional information
regarding the Corporations asset and liability management
policies.
In 2004, net interest income (FTE) was
$1.8 billion, a decrease of $116 million, or six
percent, from 2003. The net interest margin (FTE) 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
late 2002 and 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.
26
TABLE 4: ANALYSIS OF THE ALLOWANCE FOR LOAN
LOSSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Balance at beginning of year
|
|
$ |
673 |
|
|
$ |
803 |
|
|
$ |
791 |
|
|
$ |
637 |
|
|
$ |
585 |
|
Loans charged-off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
91 |
|
|
|
201 |
|
|
|
302 |
|
|
|
423 |
|
|
|
198 |
|
|
|
Real estate construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction business line
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
2 |
|
|
|
Commercial mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate business line
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
6 |
|
|
|
|
|
|
|
|
Other
|
|
|
13 |
|
|
|
19 |
|
|
|
18 |
|
|
|
4 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial mortgage
|
|
|
17 |
|
|
|
23 |
|
|
|
22 |
|
|
|
10 |
|
|
|
3 |
|
|
|
Residential mortgage
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
15 |
|
|
|
14 |
|
|
|
11 |
|
|
|
11 |
|
|
|
7 |
|
|
|
Lease financing
|
|
|
37 |
|
|
|
13 |
|
|
|
4 |
|
|
|
9 |
|
|
|
7 |
|
|
International
|
|
|
11 |
|
|
|
14 |
|
|
|
67 |
|
|
|
63 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans charged-off
|
|
|
174 |
|
|
|
268 |
|
|
|
408 |
|
|
|
517 |
|
|
|
232 |
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
55 |
|
|
|
52 |
|
|
|
28 |
|
|
|
27 |
|
|
|
35 |
|
|
|
Real estate construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage
|
|
|
3 |
|
|
|
3 |
|
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
Consumer
|
|
|
5 |
|
|
|
2 |
|
|
|
3 |
|
|
|
3 |
|
|
|
5 |
|
|
|
Lease financing
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
3 |
|
|
|
1 |
|
|
International
|
|
|
1 |
|
|
|
16 |
|
|
|
11 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
64 |
|
|
|
74 |
|
|
|
43 |
|
|
|
36 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans charged-off
|
|
|
110 |
|
|
|
194 |
|
|
|
365 |
|
|
|
481 |
|
|
|
189 |
|
Provision for loan losses
|
|
|
(47 |
) |
|
|
64 |
|
|
|
377 |
|
|
|
635 |
|
|
|
241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
516 |
|
|
$ |
673 |
|
|
$ |
803 |
|
|
$ |
791 |
|
|
$ |
637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percentage of
total loans at end of year
|
|
|
1.19 |
% |
|
|
1.65 |
% |
|
|
1.99 |
% |
|
|
1.87 |
% |
|
|
1.55 |
% |
Net loans charged-off during the year as a
percentage of average loans outstanding during the year
|
|
|
0.25 |
|
|
|
0.48 |
|
|
|
0.86 |
|
|
|
1.14 |
|
|
|
0.46 |
|
The following table
provides an analysis of the changes in the allowance for credit
losses on lending-related commitments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Balance at beginning of year
|
|
$ |
21 |
|
|
$ |
33 |
|
|
$ |
35 |
|
|
$ |
18 |
|
|
$ |
23 |
|
Charge-offs on lending-related commitments*
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses on lending-related
commitments
|
|
|
18 |
|
|
|
(12 |
) |
|
|
(2 |
) |
|
|
17 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
33 |
|
|
$ |
21 |
|
|
$ |
33 |
|
|
$ |
35 |
|
|
$ |
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Charge-offs
result from the sale of unfunded lending-related commitments.
27
TABLE 5: ALLOCATION OF THE ALLOWANCE FOR LOAN
LOSSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Amount | |
|
% | |
|
Amount | |
|
% | |
|
Amount | |
|
% | |
|
Amount | |
|
% | |
|
Amount | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$ |
302 |
|
|
|
55 |
% |
|
$ |
411 |
|
|
|
54 |
% |
|
$ |
487 |
|
|
|
54 |
% |
|
$ |
476 |
|
|
|
57 |
% |
|
$ |
410 |
|
|
|
58 |
% |
|
Real estate construction
|
|
|
16 |
|
|
|
8 |
|
|
|
23 |
|
|
|
8 |
|
|
|
31 |
|
|
|
8 |
|
|
|
26 |
|
|
|
8 |
|
|
|
17 |
|
|
|
8 |
|
|
Commercial mortgage
|
|
|
62 |
|
|
|
21 |
|
|
|
76 |
|
|
|
20 |
|
|
|
95 |
|
|
|
20 |
|
|
|
86 |
|
|
|
17 |
|
|
|
61 |
|
|
|
15 |
|
|
Residential mortgage
|
|
|
1 |
|
|
|
3 |
|
|
|
2 |
|
|
|
3 |
|
|
|
5 |
|
|
|
3 |
|
|
|
2 |
|
|
|
3 |
|
|
|
1 |
|
|
|
3 |
|
|
Consumer
|
|
|
24 |
|
|
|
6 |
|
|
|
25 |
|
|
|
7 |
|
|
|
27 |
|
|
|
6 |
|
|
|
25 |
|
|
|
6 |
|
|
|
14 |
|
|
|
6 |
|
|
Lease financing
|
|
|
28 |
|
|
|
3 |
|
|
|
44 |
|
|
|
3 |
|
|
|
26 |
|
|
|
3 |
|
|
|
8 |
|
|
|
3 |
|
|
|
9 |
|
|
|
3 |
|
International
|
|
|
27 |
|
|
|
4 |
|
|
|
40 |
|
|
|
5 |
|
|
|
91 |
|
|
|
6 |
|
|
|
130 |
|
|
|
6 |
|
|
|
88 |
|
|
|
7 |
|
Unallocated
|
|
|
56 |
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
516 |
|
|
|
100 |
% |
|
$ |
673 |
|
|
|
100 |
% |
|
$ |
803 |
|
|
|
100 |
% |
|
$ |
791 |
|
|
|
100 |
% |
|
$ |
637 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount allocated allowance
% loans outstanding as a percentage
of total loans
Provision and Allowance for Credit
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 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 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 international
risks inherent in certain portfolios, including portfolio
exposures to automotive, retail, contractor, technology-related,
entertainment, air transportation and healthcare industries,
Small Business Administration loans and Mexican 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 for all portfolios 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 on migration and loss given default studies from
each of the three major domestic geographic markets, as well as
mapping to bond tables. The total allowance for loan losses was
$516 million at December 31, 2005, compared to
$673 million at December 31, 2004. The allocated
portion of the allowance was $460 million at
December 31, 2005, a decrease of $161 million from
year-end 2004. The decrease resulted primarily from the impact
of favorable migration data on projected loss factors, a
decrease in loan specific reserves and a decrease in the reserve
associated with industry specific and international risks.
Actual loss ratios experienced in the future may
vary from those projected. The uncertainty occurs because
factors may exist, which affect the determination of probable
losses inherent in the loan portfolio and are not necessarily
captured by the application of projected loss ratios or
identified industry specific and international 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
28
process of estimating expected loan losses.
Factors that were considered in the evaluation of the adequacy
of the Corporations unallocated allowance include the
inherent imprecision in the risk rating system and the risk
associated with new customer relationships. The unallocated
allowance associated with the margin for inherent imprecision
covers probable loan losses as a result of an inaccuracy in
assigning risk ratings or stale ratings which may not have been
updated for recent negative trends in the particular credits.
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 $56 million at
December 31, 2005, an increase of $4 million from
year-end 2004. This increase was due, in part, to an increase in
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 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 international 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 a credit of
$47 million in 2005, compared to a provision of
$64 million and $377 million in 2004 and 2003,
respectively. The $111 million decrease in the provision
for loan losses in 2005, compared to 2004, was primarily the
result of improving credit quality trends in net loan
charge-offs, nonperforming loans and watch list loans. These
trends reflect improving economic conditions in certain of the
Corporations primary geographic markets. While the
economic conditions in the Corporations Michigan market
deteriorated slightly over the last year, the economic
conditions in both the Western and Texas markets have continued
to improve in line with, or slightly better than, growth in the
national economy. The average 2005 Michigan Business
Activity index compiled by the Corporation declined
approximately three percent when compared to the average for
2004. The struggling automotive industry contributed, in part,
to the decline. Forward-looking indicators suggest these
economic conditions should continue in 2006. The decrease in the
provision for loan losses in 2004, compared to 2003, was
primarily the result of improving credit quality trends, which
reflected improved economic conditions in all of the
Corporations primary geographic markets in 2004.
Net loan charge-offs in 2005 were
$110 million, or 0.25 percent of average total loans,
compared to $194 million, or 0.48 percent, in 2004 and
$365 million, or 0.86 percent, in 2003. 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 27 of this financial review.
Nonperforming assets at December 31, 2005
were $162 million, as compared to $339 million at
December 31, 2004. During 2005, $222 million of loans
with balances greater than $2 million were transferred to
nonaccrual, compared to $332 million in 2004, and
$154 million of nonaccrual business loans were charged-off,
compared to $248 million in 2004. The carrying value of
nonaccrual loans as a percentage of contractual value was
54 percent at both December 31, 2005 and 2004. For
further information on changes in nonperforming assets, see the
Nonperforming Assets section of this financial
review on page 44.
The allowance as a percentage of total loans,
nonperforming assets and annual net loan charge-offs is provided
in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended | |
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Allowance for loan losses as a percentage of
total loans at end of year
|
|
|
1.19 |
% |
|
|
1.65 |
% |
|
|
1.99 |
% |
Allowance for loan losses as a percentage of
total nonperforming assets at end of year
|
|
|
319 |
|
|
|
198 |
|
|
|
149 |
|
Allowance for loan losses as a percentage of
total net loan charge-offs for the year
|
|
|
469 |
|
|
|
346 |
|
|
|
220 |
|
The allowance for loan losses as a percentage of
total period-end loans decreased to 1.19 percent at
December 31, 2005, from 1.65 percent at
December 31, 2004. The allowance for loan losses as a
percentage of nonperforming assets increased to 319 percent
at December 31, 2005, from 198 percent at
December 31, 2004.
29
The decrease in allowance coverage of total loans
and increase in allowance coverage of nonperforming assets
resulted primarily from improved credit quality trends in 2005.
The increase in the allowance for loan losses as a percentage of
net loan charge-offs for the year ended December 31, 2005,
when compared to the prior year, resulted from lower levels of
net loan charge-offs in 2005.
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. Lending-related commitments
for which it is probable that the commitment will be drawn (or
sold) are reserved with the same projected loss rates as loans,
or with specific reserves. In general, the probability of draw
is considered certain once the credit becomes a watch list
credit. Non-watch list credits have a lower probability of draw,
to which standard loan loss rates are applied. The allowance for
credit losses on lending-related commitments was
$33 million at December 31, 2005, compared to
$21 million at December 31, 2004, an increase of
$12 million, resulting primarily from an increase in
specific reserves related to unused commitments to extend credit
to customers in the automotive industry. An analysis of the
changes in the allowance for credit losses on lending-related
commitments is presented on page 27 of this financial
review.
Management expects the full-year 2006 provision
for credit losses, which encompasses both loan losses and credit
losses on lending-related commitments, to be consistent with
credit-related charge-offs, or between 25 to 30 basis
points of full-year average loans.
Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Service charges on deposit accounts
|
|
$ |
218 |
|
|
$ |
231 |
|
|
$ |
238 |
|
Fiduciary income
|
|
|
177 |
|
|
|
171 |
|
|
|
169 |
|
Commercial lending fees
|
|
|
63 |
|
|
|
55 |
|
|
|
63 |
|
Letter of credit fees
|
|
|
70 |
|
|
|
66 |
|
|
|
65 |
|
Foreign exchange income
|
|
|
37 |
|
|
|
37 |
|
|
|
36 |
|
Brokerage fees
|
|
|
36 |
|
|
|
36 |
|
|
|
34 |
|
Investment advisory revenue, net
|
|
|
51 |
|
|
|
35 |
|
|
|
30 |
|
Card fees
|
|
|
39 |
|
|
|
32 |
|
|
|
27 |
|
Bank-owned life insurance
|
|
|
38 |
|
|
|
34 |
|
|
|
42 |
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
16 |
|
|
|
12 |
|
|
|
6 |
|
Warrant income
|
|
|
9 |
|
|
|
7 |
|
|
|
4 |
|
Net securities gains
|
|
|
|
|
|
|
|
|
|
|
50 |
|
Net gain on sales of businesses
|
|
|
56 |
|
|
|
7 |
|
|
|
|
|
Other noninterest income
|
|
|
132 |
|
|
|
134 |
|
|
|
123 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
$ |
942 |
|
|
$ |
857 |
|
|
$ |
887 |
|
|
|
|
|
|
|
|
|
|
|
Noninterest income increased $85 million, or
10 percent, to $942 million in 2005, compared to
$857 million in 2004, and decreased $30 million, or
three percent, in 2004, compared to $887 million in 2003.
Excluding net securities gains and net gain on sales of
businesses ($56 million, $7 million and
$50 million in 2005, 2004 and 2003, respectively),
noninterest income increased four percent in 2005 and two
percent in 2004. An analysis of increases and decreases by
individual line item is presented below.
Service charges on deposit accounts decreased
$13 million, or six percent, in 2005, compared to a
decrease of $7 million, or three percent, in 2004. The
decreases in 2005 and 2004 were primarily due to higher earnings
credit allowances, driven by a higher interest rate environment,
provided to business customers, and the popularity of free
checking accounts which were marketed beginning in mid-2004.
Fiduciary income increased $6 million, or
four percent, in 2005 and increased $2 million, or one
percent, in 2004. Personal and institutional trust fees are the
two major components of fiduciary income. These fees are
30
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 increases in 2005 and 2004 are
primarily due to improvements in equity markets. There was also
$3 million in fees recovered in 2005 that were previously
reversed in 2004.
Commercial lending fees increased
$8 million, or 16 percent, in 2005, compared to a
decrease of $8 million, or 13 percent, in 2004. The
increase in 2005 was primarily due to an increase in fees
resulting from increased opportunities in 2005 to lead or
co-lead syndicated lending arrangements. The decline in 2004 was
primarily 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 commercial loans. The decline in
agent bank fees in 2004 was primarily due to a decline in the
volume of loan participations. The decrease in commitment fees
in arrears and service charges on commercial loans in 2004 was
primarily due to the impact that improvements in the credit
quality of customers had on fees earned.
Letter of credit fees increased $4 million,
or six percent, in 2005, compared to an increase of
$1 million, or less than one percent, in 2004. The increase
in 2005 was primarily due to an adjustment of deferred fee
amortization to more closely align the amortization periods with
actual terms of the letters of credit. The increase in 2004
related to the demand for international trade services from new
and existing Middle Market and National Dealer Services
customers.
Foreign exchange income remained flat at
$37 million in 2005, compared to an increase of
$1 million, or two percent, in 2004.
Brokerage fees remained flat at $36 million
in 2005, compared to an increase of $2 million, or eight
percent, in 2004. 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.
Investment advisory revenue, which mainly
includes revenue generated by the Corporations asset
management reporting unit (Munder Capital Management or Munder),
increased $16 million, or 43 percent, in 2005,
compared to an increase of $5 million, or 16 percent,
in 2004. The increase in 2005 resulted primarily from growth in
assets under management, due to new customer relationships. The
increase in 2004 resulted from continued market growth. Assets
under management at Munder totaled $41 billion,
$38 billion and $34 billion at December 31, 2005,
2004 and 2003, respectively.
Card fees, which consist primarily of interchange
fees earned on debit and commercial cards, increased
$7 million, or 22 percent, to $39 million,
compared to $32 million in 2004, and increased
$5 million, or 20 percent, compared to
$27 million in 2003. Growth in both 2005 and 2004 was
primarily due to an increase in transaction volume, due in part
to new customer accounts.
Bank-owned life insurance income increased
$4 million, to $38 million in 2005, compared to a
decrease of $8 million, to $34 million in 2004. The
increase in 2005 was primarily due to an increase in earnings
and death benefits received on policies held. The decrease in
2004 was primarily due to a decline in earnings and death
benefits received on policies held.
Equity in earnings of unconsolidated subsidiaries
increased $4 million, to $16 million in 2005, compared
to an increase of $6 million, to $12 million in 2004.
The increases in both 2005 and 2004 were largely due to an
increase in income from a United Kingdom subsidiary, Framlington
Group Limited (Framlington) (a London, England based investment
manager), of which Munder was a minority owner. Munder sold its
interest in Framlington in the fourth quarter 2005. Framlington
income included in equity of earnings of unconsolidated
subsidiaries totaled $8 million in 2005, $4 million in
2004 and $1 million in 2003, and is exclusive of the net
gain on sale of Framlington, which is included in net gain
on sales of businesses on the consolidated statements of
income and discussed below. For further information, see
Note 25 to the consolidated financial statements on
page 115.
Warrant income was $9 million in 2005,
compared to $7 million in 2004 and $4 million in 2003.
In the third quarter 2005, the Corporation changed its
accounting for warrants so as to recognize in warrant income the
changes in the fair value of warrants held. For a further
discussion of the warrant accounting change, see Note 1 to
the consolidated financial statements on page 67.
31
The Corporations net revenue from sales and
write-downs related to its investment securities portfolio was
nominal in both 2005 and 2004. A net gain of $50 million
was recognized in 2003. The significant net gain in 2003
resulted primarily from a restructuring of the investment
portfolio in late 2002 and 2003, designed to achieve more
consistent cash flows.
The net gain on sales of businesses in 2005
included a net gain of $55 million on the sale of
Framlington, while the net gain in 2004 included a net gain of
$7 million on the sale of a portion of the
Corporations merchant card processing business. For
further information on the sale of Framlington, see Note 25
to the consolidated financial statements on page 115.
Other noninterest income decreased
$2 million, or one percent, in 2005, compared to an
increase of $11 million, or eight percent, in 2004. Other
noninterest income in 2005 included $8 million of income
(net of write-downs) from unconsolidated venture capital and
private equity investments, $3 million of risk management
hedge ineffectiveness gains and $25 million of amortization
expense on low income housing investments (netted against
noninterest income). Other noninterest income in 2004 included
$13 million of income distributions (net of write-downs)
from unconsolidated venture capital and private equity
investments, $4 million of risk management hedge
ineffectiveness losses and $20 million of amortization
expense on low income housing investments (netted against
noninterest income). Other noninterest income in 2003 included
$9 million of write-downs (net of income distributions) of
unconsolidated venture capital and private equity investments,
$3 million of risk management hedge ineffectiveness losses
and $13 million of amortization expense on low income
housing investments (netted against noninterest income).
Management expects a low-single digit growth in
noninterest income in 2006 from 2005 levels, excluding net gains
on sales of businesses.
Noninterest Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Salaries
|
|
$ |
820 |
|
|
$ |
760 |
|
|
$ |
736 |
|
Employee benefits
|
|
|
184 |
|
|
|
159 |
|
|
|
161 |
|
|
|
|
|
|
|
|
|
|
|
|
Total salaries and employee benefits
|
|
|
1,004 |
|
|
|
919 |
|
|
|
897 |
|
Net occupancy expense
|
|
|
121 |
|
|
|
125 |
|
|
|
128 |
|
Equipment expense
|
|
|
56 |
|
|
|
58 |
|
|
|
61 |
|
Outside processing fee expense
|
|
|
78 |
|
|
|
68 |
|
|
|
71 |
|
Software expense
|
|
|
49 |
|
|
|
43 |
|
|
|
37 |
|
Customer services
|
|
|
69 |
|
|
|
23 |
|
|
|
25 |
|
Litigation and operational losses
|
|
|
18 |
|
|
|
24 |
|
|
|
18 |
|
Provision for credit losses on lending-related
commitments
|
|
|
18 |
|
|
|
(12 |
) |
|
|
(2 |
) |
Other noninterest expenses
|
|
|
253 |
|
|
|
245 |
|
|
|
248 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
$ |
1,666 |
|
|
$ |
1,493 |
|
|
$ |
1,483 |
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses increased $173 million,
or 12 percent, to $1,666 million in 2005, compared to
$1,493 million in 2004, and increased $10 million, or
less than one percent, in 2004, compared to $1,483 million
in 2003. Approximately half of the 12 percent increase in
2005 related to customer services expense in the Financial
Services Division ($46 million), and credit-related costs
($39 million), including the provision for credit losses on
lending-related commitments and other real estate expense. An
analysis of increases and decreases by individual line item is
presented below.
Salaries expense increased $60 million, or
eight percent, in 2005, compared to an increase of
$24 million, or three percent, in 2004. The increase in
2005 was primarily due to a $42 million increase in
business unit and executive incentives, including an accrual of
$4 million related to the warrant accounting change
discussed in Note 1 to the consolidated financial
statements on page 67, annual merit increases of
approximately $18 million and an increase of
$11 million in stock-based compensation expense. These
increases were
32
partially offset by a full-time equivalent
employee reduction in staff size of approximately 75 employees
from year-end 2004 to year-end 2005 and a $5 million
decline in severance expense. 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 expense. These increases were partially
offset by a full-time equivalent employee reduction in staff
size of approximately 300 employees from year-end 2003 to
year-end 2004. Severance expense was $6 million in 2005,
compared to $11 million and $2 million in 2004 and
2003, respectively. For further information on stock-based
compensation, refer to Notes 1 and 14 to the consolidated
financial statements on pages 67 and 85, respectively.
Employee benefits expense increased
$25 million, or 15 percent, in 2005, compared to a
decrease of $2 million, or one percent, in 2004. The
increase in 2005 and decrease in 2004 resulted primarily from
changes in pension expense. For a further discussion of pension
expense, refer to Note 15 to the consolidated financial
statements on page 88.
Net occupancy and equipment expense, on a
combined basis, decreased $6 million, or three percent, to
$177 million in 2005, compared to a decrease of
$6 million, or three percent, in 2004. Net occupancy
expense declined in spite of new banking centers added in the
last year, due to the purchase of a previously leased operations
center in March 2005, which results in annual savings of
$7 million, beginning in April 2005, and other lease
re-negotiations. The decrease in 2004 resulted primarily from
lease termination costs associated with the consolidation of
Western region facilities in 2003.
Outside processing fee expense increased
$10 million, or 15 percent, to $78 million in
2005, from $68 million in 2004, and decreased
$3 million, or five percent, in 2004, compared to
$71 million in 2003. The 2005 increase in outside
processing fees resulted, in part, from the outsourcing of
certain retirement services processing in the second quarter
2005.
Software expense increased $6 million, or
13 percent, in 2005, compared to an increase of
$6 million, or 16 percent in 2004. The increases in
both 2005 and 2004 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 expense increased
$46 million, or 203 percent, to $69 million in
2005, from $23 million in 2004, and decreased
$2 million, or 10 percent, in 2004, compared to
$25 million in 2003. Customer services expense represents
compensation provided to customers, and is one method to attract
and retain title and escrow deposits in the Corporations
Financial Services Division. The amount of customer services
expense varies from period to period as a result of changes in
the level of noninterest-bearing deposits in the
Corporations Financial Services Division and the earnings
credit allowances provided on these deposits, as well as a
competitive environment.
Litigation and operational losses decreased
$6 million, or 23 percent, to $18 million in
2005, from $24 million in 2004, and increased
$6 million, or 30 percent, in 2004, compared to
$18 million in 2003. 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.
The provision for credit losses on
lending-related commitments was $18 million in 2005,
compared to a credit of $12 million in 2004 and a credit of
$2 million in 2003. For additional information on the
provision for credit losses on lending-related commitments,
refer to Notes 1 and 19 to the consolidated financial
statements on pages 67 and 96, respectively and the
Provision and Allowance for Credit Losses section on
page 28 of this financial review.
Other noninterest expenses increased
$8 million, or four percent, in 2005, compared to a
$3 million decrease, or two percent, in 2004. The increase
in other noninterest expenses in 2005 was primarily due to a
$9 million increase in other real estate expenses,
resulting from a large write-down and operating costs incurred
on a single Michigan property in the Private Banking business.
The decline in other noninterest expenses in 2004, compared to
2003, was primarily due to a decrease in state taxes of
$7 million, a decline in consulting fees of $5 million
and a decline in telecommunications expense of $5 million.
These decreases were partially offset by an increase in interest
expense recorded on tax liabilities of $14 million in 2004,
compared to 2003.
33
Management expects noninterest expenses in 2006
to be relatively unchanged from 2005 levels, excluding the
provision for credit losses on lending-related commitments and
excluding any future changes in the value of subsidiary
share-based compensation awards and minority-owned shares
classified as liabilities (see the Other Market
Risks section of this financial review on page 54).
Inherent in this outlook are incremental expenses, compared to
2005, of about $20 million for share-based compensation awards,
$18 million for pensions and $20 million for new banking
centers. For further discussion of subsidiary share-based
compensation awards classified as liabilities, see Note 27 to
the consolidated financial statements on page 117. Customer
services expense and incentive compensation are expected to be
lower in 2006, compared to 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 57.40 percent in
2005, compared to 55.90 percent in 2004 and
53.64 percent in 2003. The efficiency ratio increased in
2005 primarily due to higher expense levels and increased in
2004 primarily due to changes in net revenues.
Income Taxes
The provision for income taxes was
$418 million in 2005, compared to $353 million in 2004
and $292 million in 2003. The effective tax rate, computed
by dividing the provision for income taxes by income before
income taxes, was 32.7 percent in 2005, 31.8 percent
in 2004 and 30.7 percent in 2003. The effective tax rate
increase in 2005, from 2004 levels was primarily due to an
increase in state tax expense as a percentage of pre-tax income.
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 Corporations net deferred income
taxes was a liability of $160 million at December 31,
2005. Included in net deferred taxes were deferred tax assets of
$445 million, which the Corporations management
believes will be realized in future periods. 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.
34
STRATEGIC LINES OF BUSINESS
Business Segments
The Corporations operations are
strategically aligned into three major business segments: the
Business Bank, Small Business & Personal Financial
Services, and Wealth & Institutional Management. These
business segments are differentiated based upon the products and
services provided. In addition to the three major business
segments, the Finance Division is also reported as a segment.
The Other category includes items not directly associated with
these business segments or the Finance Division. Note 23 to
the consolidated financial statements on page 107 describes
the business activities of each business segment and the
methodologies which form the basis for these results, and
presents financial results of these business segments for the
years ended December 31, 2005, 2004 and 2003.
The following table presents net income (loss) by
business segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar amounts in millions) | |
Business Bank
|
|
$ |
649 |
|
|
|
71 |
% |
|
$ |
684 |
|
|
|
73 |
% |
|
$ |
614 |
|
|
|
72 |
% |
Small Business & Personal Financial
Services
|
|
|
161 |
|
|
|
18 |
|
|
|
176 |
|
|
|
19 |
|
|
|
179 |
|
|
|
21 |
|
Wealth & Institutional Management
|
|
|
103 |
|
|
|
11 |
|
|
|
75 |
|
|
|
8 |
|
|
|
57 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
913 |
|
|
|
100 |
% |
|
|
935 |
|
|
|
100 |
% |
|
|
850 |
|
|
|
100 |
% |
Finance
|
|
|
(71 |
) |
|
|
|
|
|
|
(158 |
) |
|
|
|
|
|
|
(139 |
) |
|
|
|
|
Other
|
|
|
19 |
|
|
|
|
|
|
|
(20 |
) |
|
|
|
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
861 |
|
|
|
|
|
|
$ |
757 |
|
|
|
|
|
|
$ |
661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Business Banks net income decreased
$35 million, or five percent, to $649 million in 2005,
compared to an increase of $70 million, or 11 percent,
to $684 million in 2004. Net interest income
(FTE) increased $8 million in 2005, compared to 2004,
primarily due to a $20 million adjustment related to the
change in warrant accounting discussed in Note 1 to the
consolidated financial statements on page 67. Net interest
income was also impacted by an increase in average loan balances
of eight percent (five percent, excluding Financial Services
Division (FSD) loans), an increase in average deposit
balances of four percent (a decrease of three percent, excluding
FSD deposits), and an increase in deposit spreads, partially
offset by a decline in loan spreads. The provision for loan
losses decreased $26 million in 2005, primarily due to an
improvement in credit quality trends, as discussed in the
Provision and Allowance for Credit Losses section of
this financial review on page 28, partially offset by
higher loan growth. Noninterest income of $282 million in
2005 increased $4 million from 2004, reflecting a
$9 million increase in commercial lending fees partially
offset by a $6 million decrease in service charges on
deposit accounts. In addition, 2004 noninterest income included
a $7 million gain on the sale of a portion of the
Corporations merchant card processing business.
Noninterest expenses increased $121 million in 2005,
primarily due to a $46 million increase in customer
services expense in FSD, a $30 million increase in salaries
and employee benefits expense, and a $23 million increase
in the provision for credit losses on lending-related
commitments. The salaries and employee benefits expense increase
included a $4 million business unit incentive accrual
related to the warrant accounting change discussed in
Note 1 to the consolidated financial statements on
page 67.
Small Business & Personal Financial
Services net income decreased $15 million, or eight
percent, to $161 million in 2005, compared to a decrease of
$3 million, or two percent, to $176 million in 2004.
Net interest income (FTE) increased $24 million, or
four percent, in 2005, primarily due to an increase in deposit
balances, deposit spreads, and loan balances, partially offset
by declines in loan spreads. The provision for loan losses
increased $2 million in 2005, primarily due to an increase
in net loan charge-offs. Noninterest income decreased
$5 million in 2005, primarily due to a decrease in service
charges on deposits. Noninterest expenses increased
$43 million in 2005, primarily due to a $13 million
increase in salaries and employee benefits expense, due in part,
from the opening of 18 new banking centers in 2005, and a
$19 million increase in allocated net corporate overhead
expenses.
35
Wealth & Institutional Managements
net income increased $28 million, or 37 percent, to
$103 million in 2005, compared to an increase of
$18 million, or 32 percent, to $75 million in
2004. Net interest income (FTE) remained unchanged at
$149 million in 2005, as increases in loan balances were
offset by declines in both loan and deposit spreads and deposit
balances. The provision for loan losses declined $4 million
in 2005, primarily due to an improvement in credit quality
trends. Noninterest income increased $77 million in 2005,
primarily due to a $55 million net gain on the sale of
Framlington, a $16 million increase in investment advisory
fees and an $8 million increase in personal trust fees.
Noninterest expenses increased $39 million in 2005,
primarily due to an $11 million increase in other real
estate expenses, a $10 million increase in allocated net
corporate overhead expenses and a $9 million increase in
salaries and employee benefits expense.
The net loss in the Finance Division was
$71 million in 2005, compared to a net loss of
$158 million in 2004. Contributing to the 2005 decline in
net loss was a $108 million increase in net interest income
(FTE) in 2005, primarily due to the rising rate environment
in which interest income received from the lending-related
business units rises more quickly than the longer-term value
attributed to deposits generated by the business units. In
addition, noninterest income increased $8 million in 2005,
mainly due to a $6 million increase in risk management
hedge income.
Net income for the Other category was
$19 million in 2005, compared to a net loss of
$20 million in 2004. The increase in net income in 2005 was
primarily due to an $83 million decrease in the provision
for loan losses not assigned to the other segments. The decrease
in the provision for loan losses was due, in part, to a decline
in the reserve associated with industry specific and
international risks.
Geographic Market Segments
The Corporations management accounting
system also produces market segment results for the
Corporations four primary geographic markets:
Midwest & Other Markets, Western, Texas and Florida.
Note 23 to the consolidated financial statements on
page 107 presents financial results of these market
segments for the years ended December 31, 2005, 2004 and
2003.
The following table presents net income (loss) by
market segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar amounts in millions) | |
Midwest & Other Markets
|
|
$ |
495 |
|
|
|
54 |
% |
|
$ |
531 |
|
|
|
57 |
% |
|
$ |
457 |
|
|
|
54 |
% |
Western
|
|
|
314 |
|
|
|
34 |
|
|
|
295 |
|
|
|
31 |
|
|
|
289 |
|
|
|
34 |
|
Texas
|
|
|
88 |
|
|
|
10 |
|
|
|
91 |
|
|
|
10 |
|
|
|
92 |
|
|
|
11 |
|
Florida
|
|
|
16 |
|
|
|
2 |
|
|
|
18 |
|
|
|
2 |
|
|
|
12 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
913 |
|
|
|
100 |
% |
|
|
935 |
|
|
|
100 |
% |
|
|
850 |
|
|
|
100 |
% |
Finance & Other Businesses
|
|
|
(52 |
) |
|
|
|
|
|
|
(178 |
) |
|
|
|
|
|
|
(189 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
861 |
|
|
|
|
|
|
$ |
757 |
|
|
|
|
|
|
$ |
661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midwest & Other Markets net income
decreased $36 million, or seven percent, to
$495 million in 2005, compared to an increase of
$74 million, or 16 percent, in 2004. Net interest
income (FTE) increased $8 million in 2005, as
increases in deposit spreads and average loan balances (three
percent) were partially offset by decreases in loan spreads and
average deposit balances (one percent). The provision for loan
losses increased $45 million, primarily due to higher loan
growth in 2005 and a smaller benefit from an improvement in
credit quality trends in 2005, compared to 2004, as discussed in
the Provision and Allowance for Credit Losses
section of this financial review on page 28. Noninterest
income increased $84 million in 2005, primarily due to a
$55 million net gain on the sale of Framlington, a
$15 million increase in investment advisory fees, a
$7 million increase in personal trust fees and a
$6 million increase in card fees, partially offset by a
$5 million decline in service charges on deposits.
Noninterest expenses increased $103 million in 2005,
primarily due to a $29 million increase in allocated net
corporate overhead expenses, a $27 million increase in
salaries and employee benefits expense and a $26 million
increase in the provision for credit losses on lending-related
commitments. In addition, there was a $10 million increase
in other real estate expenses, and a $9 million
36
increase in outside processing fees which
resulted, in part, from the outsourcing of certain retirement
services processing in the second quarter of 2005.
The Western markets net income increased
$19 million, or six percent, to $314 million in 2005,
compared to an increase of $6 million, or two percent, to
$295 million in 2004. Net interest income
(FTE) increased $18 million in 2005, primarily due to
a $20 million adjustment related to the warrant accounting
change discussed in Note 1 to the consolidated financial
statements on page 67. Net interest income was also
impacted by an increase in average loan balances of
15 percent (seven percent, excluding FSD loans) and an
increase in average deposit balances of seven percent (excluding
FSD deposits, average deposits remained flat). The provision for
loan losses decreased $64 million in 2005, primarily due to
an improvement in credit quality trends. Noninterest income
declined $10 million in 2005, primarily due to a
$7 million gain on the sale of a portion of the
Corporations merchant card processing business in 2004 and
a $5 million decline in service charges on deposits in
2005. Noninterest expenses increased $75 million in 2005,
primarily due to a $46 million increase in customer
services expenses in FSD, a $15 million increase in
salaries and employee benefits expense, and a $12 million
increase in allocated net corporate overhead expenses. The
increase in salaries and employee benefits expense resulted, in
part, from the opening of 10 new banking centers in 2005 and a
$4 million business unit incentive accrual related to the
warrant accounting change discussed above.
The Texas markets net income decreased
$3 million, or four percent, to $88 million in 2005,
compared to a decrease of $1 million, or one percent, to
$91 million in 2004. Net interest income
(FTE) increased $3 million due to an increase in
average loan balances (11 percent) and deposit spreads,
partially offset by a decrease in average deposit balances (four
percent) and loan spreads. The provision for loan losses
decreased $6 million, primarily due to an improvement in
credit quality trends, partially offset by an increase in loan
balances. Noninterest expenses increased $16 million in
2005, primarily due to an $8 million increase in salaries
and employee benefits expense, due in part, from the opening of
7 new banking centers in 2005, and a $7 million increase in
allocated net corporate overhead expenses.
The Florida markets net income decreased
$2 million, or seven percent, to $16 million in 2005,
compared to an increase of $6 million, or 46 percent,
to $18 million in 2004. Net interest income
(FTE) increased $3 million in 2005, primarily due to
an increase in loan balances (nine percent). The provision for
loan losses decreased $3 million in 2005, primarily due to
an improvement in credit quality trends. Noninterest income
increased $1 million in 2005, while noninterest expenses
increased $9 million due, in part, to a $3 million
increase in operational losses and a $2 million increase in
salaries and employee benefits expense.
The net loss for the Finance & Other
Businesses segment was $52 million in 2005, compared to a
net loss of $178 million in 2004. Contributing to the
decline in net loss in 2005, was a $115 million decrease in
net interest expense (FTE), primarily due to the rising rate
environment in which interest income received from the
lending-related business units rises more quickly than the
longer-term value attributed to deposits generated by the
business units. In addition, the provision for loan losses
decreased $83 million in 2005, primarily due to a decrease
in the loan loss provision not assigned to the other segments.
The decrease in the provision for loan losses not assigned to
the other segments was due, in part, to a decline in the reserve
associated with industry specific and international risks.
Noninterest income increased $9 million in 2005, primarily
due to a $6 million increase in risk management hedge
income.
The following table lists the Corporations
banking centers by geographic market segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Midwest & Other Markets
|
|
|
255 |
|
|
|
268 |
|
|
|
261 |
|
Western
|
|
|
61 |
|
|
|
51 |
|
|
|
43 |
|
Texas
|
|
|
59 |
|
|
|
52 |
|
|
|
50 |
|
Florida
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
381 |
|
|
|
377 |
|
|
|
360 |
|
|
|
|
|
|
|
|
|
|
|
37
BALANCE SHEET AND CAPITAL FUNDS
ANALYSIS
Total assets were $53.0 billion at
December 31, 2005, an increase of $1.2 billion from
$51.8 billion at December 31, 2004. On an average
basis, total assets increased to $52.5 billion in 2005,
from $50.9 billion in 2004, an increase of
$1.6 billion. The Corporation also experienced a
$495 million increase in average deposits and a
$354 million decline in average medium- and long-term debt
in 2005, compared to 2004.
TABLE 6: ANALYSIS OF INVESTMENT
SECURITIES AND LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other Government agency
securities
|
|
$ |
124 |
|
|
$ |
192 |
|
|
$ |
188 |
|
|
$ |
46 |
|
|
$ |
209 |
|
|
Government-sponsored enterprise securities
|
|
|
3,954 |
|
|
|
3,564 |
|
|
|
4,121 |
|
|
|
2,702 |
|
|
|
3,711 |
|
|
State and municipal securities
|
|
|
4 |
|
|
|
7 |
|
|
|
11 |
|
|
|
23 |
|
|
|
32 |
|
|
Other securities
|
|
|
158 |
|
|
|
180 |
|
|
|
169 |
|
|
|
282 |
|
|
|
339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available-for-sale
|
|
$ |
4,240 |
|
|
$ |
3,943 |
|
|
$ |
4,489 |
|
|
$ |
3,053 |
|
|
$ |
4,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$ |
23,545 |
|
|
$ |
22,039 |
|
|
$ |
21,579 |
|
|
$ |
23,961 |
|
|
$ |
24,069 |
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction business line
|
|
|
2,831 |
|
|
|
2,461 |
|
|
|
2,754 |
|
|
|
2,900 |
|
|
|
2,824 |
|
|
Other
|
|
|
651 |
|
|
|
592 |
|
|
|
643 |
|
|
|
557 |
|
|
|
434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction loans
|
|
|
3,482 |
|
|
|
3,053 |
|
|
|
3,397 |
|
|
|
3,457 |
|
|
|
3,258 |
|
Commercial mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate business line
|
|
|
1,450 |
|
|
|
1,556 |
|
|
|
1,655 |
|
|
|
1,626 |
|
|
|
1,421 |
|
|
Other
|
|
|
7,417 |
|
|
|
6,680 |
|
|
|
6,223 |
|
|
|
5,568 |
|
|
|
4,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial mortgage loans
|
|
|
8,867 |
|
|
|
8,236 |
|
|
|
7,878 |
|
|
|
7,194 |
|
|
|
6,267 |
|
Residential mortgage loans
|
|
|
1,485 |
|
|
|
1,294 |
|
|
|
1,228 |
|
|
|
1,143 |
|
|
|
1,110 |
|
Consumer loans
|
|
|
2,697 |
|
|
|
2,751 |
|
|
|
2,610 |
|
|
|
2,465 |
|
|
|
2,260 |
|
Lease financing
|
|
|
1,295 |
|
|
|
1,265 |
|
|
|
1,301 |
|
|
|
1,296 |
|
|
|
1,217 |
|
International loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government and official institutions
|
|
|
3 |
|
|
|
4 |
|
|
|
12 |
|
|
|
9 |
|
|
|
9 |
|
|
Banks and other financial institutions
|
|
|
46 |
|
|
|
11 |
|
|
|
45 |
|
|
|
199 |
|
|
|
427 |
|
|
Commercial and industrial
|
|
|
1,827 |
|
|
|
2,190 |
|
|
|
2,252 |
|
|
|
2,557 |
|
|
|
2,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total international loans
|
|
|
1,876 |
|
|
|
2,205 |
|
|
|
2,309 |
|
|
|
2,765 |
|
|
|
3,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$ |
43,247 |
|
|
$ |
40,843 |
|
|
$ |
40,302 |
|
|
$ |
42,281 |
|
|
$ |
41,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
TABLE 7: LOAN MATURITIES AND
INTEREST RATE SENSITIVITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
|
| |
|
|
|
|
|
Loans Maturing | |
|
|
| |
|
|
|
|
After One | |
|
|
|
|
Within | |
|
But Within | |
|
After Five | |
|
|
|
|
One Year* | |
|
Five Years | |
|
Years | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Commercial loans
|
|
$ |
18,045 |
|
|
$ |
4,530 |
|
|
$ |
970 |
|
|
$ |
23,545 |
|
Real estate construction loans
|
|
|
2,506 |
|
|
|
764 |
|
|
|
212 |
|
|
|
3,482 |
|
Commercial mortgage loans
|
|
|
3,056 |
|
|
|
4,239 |
|
|
|
1,572 |
|
|
|
8,867 |
|
International loans
|
|
|
1,711 |
|
|
|
159 |
|
|
|
6 |
|
|
|
1,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
25,318 |
|
|
$ |
9,692 |
|
|
$ |
2,760 |
|
|
$ |
37,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sensitivity of Loans to Changes in Interest Rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predetermined (fixed) interest rates
|
|
|
|
|
|
$ |
3,649 |
|
|
$ |
2,294 |
|
|
|
|
|
|
Floating interest rates
|
|
|
|
|
|
|
6,043 |
|
|
|
466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$ |
9,692 |
|
|
$ |
2,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Includes demand loans, loans having no stated
repayment schedule or maturity and overdrafts
|
Earning Assets
Total earning assets were $48.6 billion at
December 31, 2005, an increase of $630 million from
$48.0 billion at December 31, 2004. The
Corporations average earning assets balances are reflected
in Table 2 on page 24. On an average basis, total earning
assets were $48.2 billion in 2005, compared to
$47.0 billion in 2004. Total loans were $43.2 billion
at December 31, 2005, an increase of $2.4 billion from
$40.8 billion at December 31, 2004. Total loans, on an
average basis, increased $3.1 billion ($2.1 billion,
excluding FSD loans), or eight percent (five percent, excluding
FSD loans), to $43.8 billion in 2005, from
$40.7 billion in 2004. The Corporation generated growth, on
an average basis, in the Specialty Businesses (42 percent),
Private Banking (9 percent), and Middle Market
(6 percent) loan portfolios, from 2004 to 2005. The
increase in average loans in the Specialty Businesses loan
portfolio was primarily due to increases in average Financial
Services Division (114 percent), Energy (39 percent),
and Technology and Life Sciences (35 percent) loans. The
Corporation generated loan growth, on an average basis, in all
its geographic markets, including Western (15 percent) and
Texas (11 percent), from 2004 to 2005.
Management currently expects average loan growth
for 2006 to be in the mid-to-high single digit range, (excluding
FSD, in the mid-single digit range), compared to 2005.
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 declined
$1.4 billion to $555 million during 2005, compared to
2004. 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. In addition, as a result of
the Corporations decision to sell its Mexican bank
charter, a portion of the Corporations Mexican loan
portfolio was included in loans held-for-sale at
December 31, 2005. For further information, refer to
Note 25 to the consolidated financial statements on
page 115.
39
TABLE 8: ANALYSIS OF INVESTMENT
SECURITIES PORTFOLIO-(Fully Taxable Equivalent)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
|
| |
|
|
|
|
|
|
|
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
|
|
$ |
76 |
|
|
|
3.86 |
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
47 |
|
|
|
3.40 |
% |
|
$ |
123 |
|
|
|
3.69 |
% |
|
|
8/7 |
|
|
Government-sponsored enterprise securities
|
|
|
|
|
|
|
|
|
|
|
510 |
|
|
|
3.99 |
|
|
|
1,005 |
|
|
|
4.21 |
|
|
|
2,439 |
|
|
|
4.07 |
|
|
|
3,954 |
|
|
|
4.10 |
|
|
|
10/6 |
|
|
State and municipal securities
|
|
|
1 |
|
|
|
7.52 |
|
|
|
3 |
|
|
|
8.88 |
|
|
|
1 |
|
|
|
9.82 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
8.78 |
|
|
|
3/5 |
|
|
Other securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other bonds, notes and debentures
|
|
|
51 |
|
|
|
3.58 |
|
|
|
6 |
|
|
|
7.11 |
|
|
|
1 |
|
|
|
5.10 |
|
|
|
|
|
|
|
|
|
|
|
58 |
|
|
|
3.97 |
|
|
|
0/5 |
|
|
|
Other investments**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
|
|
|
|
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available-for-sale
|
|
$ |
128 |
|
|
|
3.77 |
% |
|
$ |
519 |
|
|
|
4.05 |
% |
|
$ |
1,007 |
|
|
|
4.22 |
% |
|
$ |
2,586 |
|
|
|
4.06 |
% |
|
$ |
4,240 |
|
|
|
4.09 |
% |
|
|
10/4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Based on final contractual maturity.
|
|
|
** |
Balances are excluded from the calculation of
total yield.
|
Investment securities available-for-sale
increased $297 million to $4.2 billion at
December 31, 2005, from $3.9 billion at
December 31, 2004. Average investment securities
available-for-sale declined $460 million to
$3.9 billion in 2005, compared to $4.3 billion in
2004, primarily due to a $438 million decrease in average
U.S. Treasury, Government agency, and Government-sponsored
enterprise securities. Changes in U.S. Treasury, Government
agency, and Government-sponsored enterprise securities resulted
from interest rate risk and balance sheet management decisions.
Average other securities decreased $20 million to
$184 million in 2005, and consisted largely of money market
and other fund investments at December 31, 2005.
Average commercial real estate loans, consisting
of real estate construction and commercial mortgage loans,
increased $505 million, or four percent, from
$11.3 billion in 2004 to $11.8 billion in 2005.
Commercial mortgage loans are loans where the primary collateral
is a lien on any real property. Real property is generally
considered primary collateral if the value of that collateral
represents more than 50 percent of the facility at loan
approval. Average loans to borrowers included in the
Corporations Real Estate Construction or Commercial Real
Estate business lines represented $4.1 billion, or
35 percent, of the 2005 $11.8 billion average
commercial real estate loans, as compared to $4.3 billion, or 38
percent, of the 2004 $11.3 billion average commercial real
estate loans.
Average residential mortgage loans increased
$151 million, or 12 percent, from 2004, due to
managements decision to retain mortgages originated for
certain relationship customers.
40
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
$ |
3 |
|
|
$ |
|
|
|
$ |
905 |
|
|
$ |
908 |
|
|
2004
|
|
|
4 |
|
|
|
|
|
|
|
937 |
|
|
|
941 |
|
|
2003
|
|
|
12 |
|
|
|
3 |
|
|
|
1,106 |
|
|
|
1,121 |
|
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
$908 million, or 1.71 percent of total assets at
December 31, 2005 and was the only country with
outstandings exceeding 1.00 percent of total assets at
December 31, 2005. There were no countries with
cross-border outstandings between 0.75 and 1.00 percent of
total assets at year-end 2005. 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, 2005 is
provided in Table 9 above.
Deposits And Borrowed Funds
Average deposits were $40.6 billion during
2005, an increase of $495 million, or one percent, from
2004. Average noninterest-bearing deposits grew
$885 million, or six percent, from 2004.
Noninterest-bearing deposits include title and escrow deposits
in the Corporations Financial Services Division, which
benefit from home mortgage financing and refinancing activity.
Deposit levels may change with the direction of mortgage
activity changes, the desirability of such deposits, and
competition for the deposits. Average interest-bearing
transaction, savings and money market deposits decreased
$570 million, or three percent, during 2005, to
$18.8 billion. Average certificates of deposit decreased
$33 million in 2005, or one percent, from 2004. This
decrease in average certificates of deposit was primarily due to
certificates of deposit issued in denominations in excess of
$100,000 including those issued through brokers or to
institutional investors (institutional CDs),
which matured and were not replaced. An increase in average
noninterest-bearing deposits contributed to the reduced level of
average institutional CDs.
Average short-term borrowings increased
$1.2 billion to $1.5 billion in 2005, compared to
$275 million in 2004. 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 that 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
$354 million. Further information on medium- and long-term
debt is provided in Note 10 to the consolidated financial
statements on page 80.
41
Capital
Common shareholders equity was
$5.1 billion at both December 31, 2005 and 2004. The
following table presents a summary of changes in common
shareholders equity in 2005:
|
|
|
|
|
|
|
(in millions) | |
|
|
| |
Balance at January 1, 2005
|
|
$ |
5,105 |
|
Retention of retained earnings (net income less
cash dividends declared)
|
|
|
494 |
|
Change in accumulated other comprehensive income
(loss)*
|
|
|
(101 |
) |
Repurchase of approximately 9.0 million
common shares
|
|
|
(525 |
) |
Net issuance of common stock under employee stock
plans
|
|
|
51 |
|
Recognition of stock-based compensation expense
|
|
|
44 |
|
|
|
|
|
Balance at December 31, 2005
|
|
$ |
5,068 |
|
|
|
|
|
|
|
* |
Includes an increase in accumulated net losses on
cash flow hedges ($75 million) and an increase in net
unrealized losses on investment securities available-for-sale
($35 million), due to changes in the interest rate
environment.
|
Further information on the change in other
comprehensive income (loss) is provided in Note 12 to the
consolidated financial statements on page 83.
The Corporation declared common dividends
totaling $367 million, or $2.20 per share, on net
income applicable to common stock of $861 million. The
dividend payout ratio calculated on a per share basis, was
43 percent in 2005 versus 48 percent in 2004 and
53 percent in 2003.
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. In
March 2004, and again in July 2005, the Board of Directors of
the Corporation (the Board) authorized the 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 and capital
levels relative to internal targets and regulatory minimums. The
Corporation repurchased 9.0 million shares in the open
market in 2005 for $525 million, compared to
6.5 million in 2004 for $370 million. Comerica
Incorporated common stock available for repurchase under Board
authority totaled 9.2 million shares at December 31,
2005. Refer to Note 11 to the consolidated financial
statements on page 82 for additional information on the
Corporations share repurchase program.
At December 31, 2005, the Corporation and
its U.S. banking subsidiaries exceeded the capital ratios
required for an institution to be considered well
capitalized by the standards developed under the Federal
Deposit Insurance Corporation Improvement Act of 1991. Refer to
Note 18 to the consolidated financial statements on
page 95 for the capital ratios.
42
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.
The Corporation continues to enhance its risk
management capabilities with additional processes, tools and
systems designed to provide management with deeper insight into
the Corporations various risks, enhance the
Corporations ability to control those risks, and ensure
that appropriate compensation is received for the risks taken.
Specialized risk managers, along with the risk
management committees in credit, market and liquidity,
operational and compliance are responsible for the day-to-day
management of those respective risks. The Corporations
Enterprise-Wide Risk Management Committee is responsible for
establishing the governance over the risk management process as
well as providing oversight in managing the Corporations
aggregate risk position. The Enterprise-Wide Risk Management
Committee is principally made up of the various managers from
the different risk areas and reports to the Enterprise Risk
Committee of the Board.
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 2005, the Corporation continued its focus
on the credit components of the previously announced
enterprise-wide risk management program. A two-factor risk
rating system was implemented across all business segments in
2005. As of December 2005, substantially all of the loan
portfolios were rated using the two-factor system which will be
phased into the Corporations decision making process
throughout 2006. The evaluation of the Corporations loan
portfolios with the new tools is anticipated to provide improved
measurement of the potential risks within the loan portfolios.
Other enhancements in portfolio analytics were made in 2005,
building a foundation upon which the trend analysis of the new
ratings will be added.
43
TABLE 10: SUMMARY OF NONPERFORMING ASSETS
AND PAST DUE LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
NONPERFORMING ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$ |
65 |
|
|
$ |
161 |
|
|
$ |
295 |
|
|
$ |
368 |
|
|
$ |
466 |
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction business line
|
|
|
3 |
|
|
|
31 |
|
|
|
21 |
|
|
|
17 |
|
|
|
8 |
|
|
|
|
Other
|
|
|
|
|
|
|
3 |
|
|
|
3 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
3 |
|
|
|
34 |
|
|
|
24 |
|
|
|
19 |
|
|
|
10 |
|
|
|
Commercial mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate business line
|
|
|
6 |
|
|
|
6 |
|
|
|
3 |
|
|
|
8 |
|
|
|
1 |
|
|
|
|
Other
|
|
|
29 |
|
|
|
58 |
|
|
|
84 |
|
|
|
45 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial mortgage
|
|
|
35 |
|
|
|
64 |
|
|
|
87 |
|
|
|
53 |
|
|
|
18 |
|
|
|
Residential mortgage
|
|
|
2 |
|
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
Consumer
|
|
|
2 |
|
|
|
1 |
|
|
|
7 |
|
|
|
5 |
|
|
|
6 |
|
|
|
Lease financing
|
|
|
13 |
|
|
|
15 |
|
|
|
24 |
|
|
|
5 |
|
|
|
8 |
|
|
|
International
|
|
|
18 |
|
|
|
36 |
|
|
|
68 |
|
|
|
114 |
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans
|
|
|
138 |
|
|
|
312 |
|
|
|
507 |
|
|
|
565 |
|
|
|
617 |
|
|
Reduced-rate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
138 |
|
|
|
312 |
|
|
|
507 |
|
|
|
565 |
|
|
|
617 |
|
|
Other real estate
|
|
|
24 |
|
|
|
27 |
|
|
|
30 |
|
|
|
10 |
|
|
|
10 |
|
|
Nonaccrual debt securities
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$ |
162 |
|
|
$ |
339 |
|
|
$ |
538 |
|
|
$ |
579 |
|
|
$ |
627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a percentage of total loans
|
|
|
0.32 |
% |
|
|
0.76 |
% |
|
|
1.26 |
% |
|
|
1.34 |
% |
|
|
1.50 |
% |
Nonperforming assets as a percentage of total
loans, other real estate and nonaccrual debt securities
|
|
|
0.37 |
|
|
|
0.83 |
|
|
|
1.33 |
|
|
|
1.37 |
|
|
|
1.52 |
|
Allowance for loan losses as a percentage of
total nonperforming assets
|
|
|
319 |
|
|
|
198 |
|
|
|
149 |
|
|
|
136 |
|
|
|
102 |
|
Loans past due 90 days or more and still
accruing
|
|
$ |
16 |
|
|
$ |
15 |
|
|
$ |
32 |
|
|
$ |
43 |
|
|
$ |
44 |
|
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
44
is received and where the future collection of
principal is probable. Loans that have been restructured to
yield a rate that was equal to or greater than the rate charged
for new loans with comparable risk and have met the requirements
for a return to accrual status are not included in nonperforming
assets. However, such loans may be required to be evaluated for
impairment. Refer to Note 3 of the consolidated financial
statements on page 75 for a further discussion of impaired
loans.
Nonperforming assets decreased $177 million,
or 52 percent, to $162 million at December 31,
2005, from $339 million at December 31, 2004. As shown
in Table 10 above, nonaccrual loans decreased $174 million,
or 56 percent, to $138 million at December 31,
2005, from $312 million at December 31, 2004. ORE
decreased $3 million, to $24 million at
December 31, 2005, from $27 million at
December 31, 2004. There were no nonaccrual debt securities
at December 31, 2005, and a nominal amount at
December 31, 2004. The $174 million reduction in
nonaccrual loans at December 31, 2005 from year-end 2004
levels resulted primarily from a $96 million decline in
nonaccrual commercial loans, a $31 million decline in
nonaccrual real estate construction loans, a $29 million
decline in nonaccrual commercial mortgage loans and an
$18 million decline in nonaccrual international loans. An
analysis of nonaccrual loans at December 31, 2005, based on
the Standard Industrial Classification (SIC) code, is
presented on page 46. Loans past due 90 days or more
and still on accrual status increased $1 million, to
$16 million at December 31, 2005, from
$15 million at December 31, 2004. Nonperforming assets
as a percentage of total loans, other real estate and nonaccrual
debt securities was 0.37 percent and 0.83 percent at
December 31, 2005 and 2004, respectively.
The following table presents a summary of changes
in nonaccrual loans.
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Balance at January 1
|
|
$ |
312 |
|
|
$ |
507 |
|
Loans transferred to nonaccrual (1)
|
|
|
222 |
|
|
|
332 |
|
Nonaccrual business loan gross charge-offs (2)
|
|
|
(154 |
) |
|
|
(248 |
) |
Loans transferred to accrual status (1)
|
|
|
(15 |
) |
|
|
(7 |
) |
Nonaccrual business loans sold (3)
|
|
|
(37 |
) |
|
|
(96 |
) |
Payments/ Other (4)
|
|
|
(190 |
) |
|
|
(176 |
) |
|
|
|
|
|
|
|
Balance at December 31
|
|
$ |
138 |
|
|
$ |
312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Based on an analysis of nonaccrual loans with
book balances greater than $2 million
|
|
|
|
(2) |
Analysis of gross loans charged-off:
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual business loans
|
|
$ |
154 |
|
|
$ |
248 |
|
Performing watch list loans (as defined below)
|
|
|
4 |
|
|
|
5 |
|
Consumer and residential mortgage loans
|
|
|
16 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
Total gross loans charged-off
|
|
$ |
174 |
|
|
$ |
268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
Analysis of loans sold:
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual business loans
|
|
$ |
37 |
|
|
$ |
96 |
|
Performing watch list loans (as defined below)
sold
|
|
|
60 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
Total loans sold
|
|
$ |
97 |
|
|
$ |
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $110 million, or
33 percent, to $222 million in 2005, compared with
$332 million in 2004. There were 4 loans greater than
$10 million transferred to nonaccrual in 2005. These loans
totaled $85 million and were to companies in the airline
($36 million), automotive ($30 million), and consumer
nondurables ($19 million) industries.
45
The Corporation sold $37 million of
nonaccrual business loans in 2005. These loans were to customers
in the wholesale trade ($11 million), manufacturing
($7 million), automotive ($6 million) and other
($13 million) industries. In addition, the Corporation sold
$65 million of unfunded commitments with customers in the
automotive sector. The losses associated with the sale of the
unfunded commitments were charged to the provision for
credit losses on lending-related commitments on the
consolidated statements of income.
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, 2005. Consistent with
the decrease in nonaccrual loans from December 31, 2004 to
December 31, 2005, total combined nonaccrual and watch list
loans declined both in dollars and as a percentage of the total
loan portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
|
(dollar amounts | |
|
|
in millions) | |
Total nonaccrual and watch list loans
|
|
$ |
1,917 |
|
|
$ |
2,245 |
|
As a percentage of total loans
|
|
|
4.4 |
% |
|
|
5.5 |
% |
The following table presents a summary of
nonaccrual loans at December 31, 2005 and loans transferred
to nonaccrual and net loan charge-offs during the year ended
December 31, 2005, based on the SIC code.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
|
|
2005 | |
|
Year Ended December 31, 2005 | |
|
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Loan | |
|
|
|
|
Nonaccrual | |
|
Transferred to | |
|
Net | |
SIC Category |
|
Loans | |
|
Nonaccrual (1) | |
|
Charge-Offs | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar amounts in millions) | |
Automotive
|
|
$ |
22 |
|
|
|
16 |
% |
|
$ |
50 |
|
|
|
23 |
% |
|
$ |
16 |
|
|
|
15 |
% |
Manufacturing
|
|
|
21 |
|
|
|
15 |
|
|
|
21 |
|
|
|
9 |
|
|
|
4 |
|
|
|
4 |
|
Services
|
|
|
20 |
|
|
|
15 |
|
|
|
18 |
|
|
|
8 |
|
|
|
12 |
|
|
|
10 |
|
Real Estate
|
|
|
15 |
|
|
|
11 |
|
|
|
24 |
|
|
|
11 |
|
|
|
8 |
|
|
|
8 |
|
Entertainment
|
|
|
14 |
|
|
|
10 |
|
|
|
13 |
|
|
|
6 |
|
|
|
4 |
|
|
|
3 |
|
Air Transportation
|
|
|
14 |
|
|
|
10 |
|
|
|
44 |
|
|
|
20 |
|
|
|
39 |
|
|
|
35 |
|
Contractors
|
|
|
7 |
|
|
|
5 |
|
|
|
11 |
|
|
|
5 |
|
|
|
9 |
|
|
|
9 |
|
Consumer non-durables
|
|
|
4 |
|
|
|
3 |
|
|
|
30 |
|
|
|
13 |
|
|
|
6 |
|
|
|
5 |
|
Other
|
|
|
21 |
|
|
|
15 |
|
|
|
11 |
|
|
|
5 |
|
|
|
12 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
138 |
|
|
|
100 |
% |
|
$ |
222 |
|
|
|
100 |
% |
|
$ |
110 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Based on an analysis of nonaccrual loans with
book balances greater than $2 million.
|
Shared National Credit Program (SNC) loans
comprised approximately 10 percent and 11 percent of
total nonaccrual loans at December 31, 2005 and 2004,
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 13 percent of total loans
at December 31, 2005 and 2004, respectively. SNC loans
comprised approximately 3 percent of 2005 total net loan
charge-offs.
The following nonaccrual loans table indicates
the percentage of nonaccrual loan value to contractual value,
which exhibits the degree to which loans reported as nonaccrual
have been partially charged-off.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
|
(dollar amounts | |
|
|
in millions) | |
Carrying value of nonaccrual loans
|
|
$ |
138 |
|
|
$ |
312 |
|
Contractual value of nonaccrual loans
|
|
|
258 |
|
|
|
578 |
|
Carrying value as a percentage of contractual
value
|
|
|
54 |
% |
|
|
54 |
% |
46
Key credit quality measures, including nonaccrual
and watch list loans as a percentage of total loans, new loans
transferred to nonaccrual and net loan charge-offs, improved in
2005. Management expects full-year 2006 credit-related
charge-offs as a percentage of average loans to be approximately
25 to 30 basis points.
Concentration
of Credit
Loans to borrowers in the automotive industry
represented the largest significant industry concentration at
December 31, 2005 and 2004. Loans to dealers and to
borrowers involved with automotive production are reported as
automotive, since management believes these loans react
similarly to changes in economic conditions. This aggregation
involves the exercise of judgment. Included in automotive
production are: (a) original equipment manufacturers and
Tier 1 and Tier 2 suppliers that produce components
used in vehicles and whose primary revenue source is
automotive-related (primary defined as greater than 50%) and
(b) other manufacturers that produce components used in
vehicles and whose primary revenue source is automotive-related.
Loans less than $1 million and loans recorded in the Small
Business division were excluded from the definition. Foreign
ownership consists of North American affiliates of foreign
automakers and suppliers.
A summary of exposure and outstandings from
loans, unused commitments and standby letters of credit and
financial guarantees to companies related to the automotive
industry follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Exposure | |
|
Outstandings | |
|
Exposure | |
|
Outstandings | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Production:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
$ |
1,530 |
|
|
$ |
672 |
|
|
$ |
1,780 |
|
|
$ |
730 |
|
|
Domestic
|
|
|
3,323 |
|
|
|
2,048 |
|
|
|
3,719 |
|
|
|
2,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production
|
|
|
4,853 |
|
|
|
2,720 |
|
|
|
5,499 |
|
|
|
2,775 |
|
Dealer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor plan
|
|
|
3,898 |
|
|
|
2,800 |
|
|
|
3,537 |
|
|
|
2,531 |
|
|
Other
|
|
|
2,668 |
|
|
|
2,029 |
|
|
|
2,055 |
|
|
|
1,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dealer
|
|
|
6,566 |
|
|
|
4,829 |
|
|
|
5,592 |
|
|
|
4,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive
|
|
$ |
11,419 |
|
|
$ |
7,549 |
|
|
$ |
11,091 |
|
|
$ |
6,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans to automotive borrowers
comprised approximately 16 percent of total nonaccrual
loans at December 31, 2005. The largest automotive loan on
nonaccrual status at December 31, 2005, was
$14 million. Total automotive net loan charge-offs were
$16 million in 2005. The largest automotive loan charge-off
during 2005 was $3 million. The following table presents a
summary of automotive net loan charge-offs for the year ended
December 31, 2005.
|
|
|
|
|
|
|
|
December 31, | |
|
|
2005 | |
|
|
| |
|
|
(in millions) | |
Production
|
|
$ |
16 |
|
Dealer
|
|
|
|
|
|
|
|
|
|
Total automotive net loan charge-offs
|
|
$ |
16 |
|
|
|
|
|
Foreign ownership
|
|
$ |
5 |
|
Domestic ownership
|
|
|
11 |
|
|
|
|
|
|
Total automotive net loan charge-offs
|
|
$ |
16 |
|
|
|
|
|
In addition, the Corporation recorded automotive
charge-offs of $6 million in 2005 from the sale of unfunded
commitments, primarily related to domestic owned production
companies.
All other industry concentrations, as defined by
management, individually represented less than 10 percent
of total loans at year-end 2005.
47
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
$12.3 billion at December 31, 2005, of which
$4.2 billion, or 35 percent, was to borrowers included in
the Corporations Real Estate Construction or Commercial
Real Estate business lines.
The real estate construction loan portfolio
contains loans primarily made to long-time customers with
satisfactory completion experience. The portfolio totaled
$3.5 billion and included approximately 1,750 loans, of
which 56 percent had balances less than $1 million at
December 31, 2005. The largest real estate construction
loan had a balance of approximately $14 million at
December 31, 2005. The commercial mortgage loan portfolio
totaled $8.8 billion at December 31, 2005. The
portfolio included approximately 8,750 loans, of which
75 percent had balances of less than $1 million, at
December 31, 2005. The largest commercial mortgage loan had
a balance of approximately $75 million at December 31,
2005.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
|
| |
|
|
|
|
|
|
|
Real Estate | |
|
Commercial | |
|
|
Construction | |
|
Mortgage | |
|
|
| |
|
| |
|
|
Amount | |
|
% | |
|
Amount | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Michigan
|
|
$ |
1,291 |
|
|
|
37 |
% |
|
$ |
5,184 |
|
|
|
59 |
% |
California
|
|
|
1,389 |
|
|
|
40 |
|
|
|
1,782 |
|
|
|
20 |
|
Texas
|
|
|
572 |
|
|
|
16 |
|
|
|
736 |
|
|
|
8 |
|
Florida
|
|
|
100 |
|
|
|
3 |
|
|
|
279 |
|
|
|
3 |
|
Other
|
|
|
130 |
|
|
|
4 |
|
|
|
886 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,482 |
|
|
|
100 |
% |
|
$ |
8,867 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Risk
Market risk represents the risk of loss due to
adverse movements in market rates or prices, which include
interest rates, foreign exchange rates, and equity prices; the
failure to meet financial obligations coming due because of an
inability to liquidate assets or 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.
The Asset and Liability Policy Committee
(ALPC) establishes and monitors compliance with the
policies and risk limits pertaining to market risk management
activities. The ALPC meets regularly to discuss and review
market risk management strategies and is comprised of executive
and senior management from various areas of the Corporation,
including finance, lending, deposit gathering and risk
management.
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 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.
48
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 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. The most likely interest rate
environment is derived from managements forecast for the
next 12 months. This base net interest income
is then evaluated against non-parallel interest rate scenarios
that increase and decrease 200 basis points (but no lower
than zero percent) from the most likely rate environment. Since
movement is from the most likely rate environment, actual
movement from the current rates may be more or less than
200 basis points. For this analysis, the rise or decline in
interest rates occurs equally over four months. In addition,
adjustments to asset prepayment levels, yield curves, and
overall balance sheet mix and growth assumptions are made to be
consistent with each interest rate environment. These
assumptions are inherently uncertain and, as a result, the model
cannot precisely predict the impact of higher or lower interest
rates on net interest income. Actual results may differ from
simulated results due to timing, magnitude and frequency of
interest rate changes and changes in market conditions and
management strategies, among other factors. However, the model
can indicate the likely direction of change. Derivative
instruments entered into for risk management purposes are
included in these analyses. The table below as of
December 31, 2005 and December 31, 2004 displays the
estimated impact on net interest income during the next
12 months as it relates to the most likely scenario results
from the 200 basis point non-parallel shock as described
above.
|
|
|
Sensitivity of Net Interest Income to
Changes in Interest Rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Amount | |
|
% | |
|
Amount | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Change in Interest Rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+200 basis points
|
|
$ |
84 |
|
|
|
4 |
% |
|
$ |
99 |
|
|
|
5 |
% |
|
-200 basis points
|
|
|
(51 |
) |
|
|
(2 |
) |
|
|
(74 |
) |
|
|
(4 |
) |
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. The change in interest rate sensitivity from
December 31, 2004 to December 31, 2005 was primarily a
result of loan growth, activities in the Financial Services
Division and active hedging. In addition, a variety of
alternative scenarios are performed to assist in the portrayal
of the corporations interest rate risk position,
including, but not limited to, flat balance sheet and rates,
200 basis point parallel rate shocks and yield curve
twists. Changes in interest rates will continue to impact the
Corporations net interest income in 2006. This interest
rate risk will be actively managed through the use of on- and
off-balance sheet financial instruments so that the desired risk
profile is achieved.
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 adverse change to 10 percent of book equity
as a result of a non-parallel 200-basis point increase or
decrease in interest rates. The Corporation is operating within
this policy parameter.
49
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.
The Corporation uses 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.
Risk Management Derivative
Instruments
Risk
Management Notional Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest | |
|
Foreign | |
|
|
|
|
Rate | |
|
Exchange | |
|
|
|
|
Contracts | |
|
Contracts | |
|
Totals | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Balance at January 1, 2004
|
|
$ |
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 |
|
Additions
|
|
|
3,450 |
|
|
|
17,162 |
|
|
|
20,612 |
|
Maturities/amortizations
|
|
|
(4,082 |
) |
|
|
(17,156 |
) |
|
|
(21,238 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$ |
11,455 |
|
|
$ |
440 |
|
|
$ |
11,895 |
|
|
|
|
|
|
|
|
|
|
|
The notional amount of risk management interest
rate swaps totaled $11.5 billion at December 31, 2005,
and $12.1 billion at December 31, 2004. The decrease
in notional amount of $632 million from December 31,
2004 to December 31, 2005 reflects diminished interest rate
risk in the core balance sheet when compared to the same period
in 2004, as indicated in the rate shock simulation results on
page 49, due to growth in the securities portfolio and
changes in balance sheet mix. The fair value of risk management
interest rate swaps was a net unrealized loss of
$41 million at December 31, 2005, compared to a net
unrealized gain of $159 million at December 31, 2004.
For the year ended December 31, 2005, risk
management interest rate swaps generated $57 million of net
interest income, compared to $279 million of net interest
income for the year ended December 31, 2004. The lower swap
income for 2005 over 2004 was primarily due to the higher
short-term rate environment in 2005, reducing spreads on swaps
that receive a fixed rate and pay a floating rate.
In 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 January 2006, the period during which
the related hedged loans affect earnings. At December 31,
2005, $2 million of the pretax gain realized remains in
other comprehensive income (loss).
Table 11 on page 51 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, 2005. Swaps have been grouped by the asset and
liability designation.
In addition to interest rate swaps, the
Corporation employs various other types of derivative
instruments 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 derivative instruments at
December 31, 2005 and 2004 were $440 million and
$434 million, respectively.
50
Further information regarding risk management
derivative instruments is provided in Notes 1, 10, and
19 to the consolidated financial statements on pages 67, 80 and
96, respectively.
TABLE 11: REMAINING EXPECTED
MATURITY OF RISK MANAGEMENT INTEREST RATE SWAPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec. 31, | |
|
Dec. 31, | |
|
|
|
|
|
|
|
|
|
|
|
|
2011- | |
|
2005 | |
|
2004 | |
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
2026 | |
|
Total | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Variable rate asset designation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Generic receive fixed swaps
|
|
$ |
3,000 |
|
|
$ |
3,000 |
|
|
$ |
3,200 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,200 |
|
|
$ |
9,800 |
|
|
Weighted average:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive rate
|
|
|
4.01 |
% |
|
|
4.97 |
% |
|
|
7.02 |
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
5.37 |
% |
|
|
5.12 |
% |
|
|
Pay rate
|
|
|
5.67 |
|
|
|
6.04 |
|
|
|
7.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.30 |
|
|
|
4.37 |
|
Fixed rate asset designation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay fixed swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizing
|
|
$ |
2 |
|
|
$ |
2 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5 |
|
|
$ |
7 |
|
|
Weighted average:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive rate
|
|
|
3.28 |
% |
|
|
3.27 |
% |
|
|
3.26 |
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
3.27 |
% |
|
|
2.55 |
% |
|
|
Pay rate
|
|
|
3.54 |
|
|
|
3.53 |
|
|
|
3.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.53 |
|
|
|
3.53 |
|
Fixed rate deposit designation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Generic receive fixed swaps
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
30 |
|
|
Weighted average:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive rate
|
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
2.55 |
% |
|
|
Pay rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.44 |
|
Medium- and long-term debt
designation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Generic receive fixed swaps
|
|
$ |
100 |
|
|
$ |
450 |
|
|
$ |
350 |
|
|
$ |
100 |
|
|
$ |
|
|
|
$ |
1,250 |
|
|
$ |
2,250 |
|
|
$ |
2,250 |
|
|
Weighted average:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive rate
|
|
|
2.95 |
% |
|
|
5.82 |
% |
|
|
6.17 |
% |
|
|
6.06 |
% |
|
|
|
% |
|
|
5.98 |
% |
|
|
5.85 |
% |
|
|
6.05 |
% |
|
|
Pay rate
|
|
|
4.41 |
|
|
|
4.34 |
|
|
|
4.18 |
|
|
|
4.05 |
|
|
|
|
|
|
|
4.41 |
|
|
|
4.34 |
|
|
|
2.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notional amount
|
|
$ |
3,102 |
|
|
$ |
3,452 |
|
|
$ |
3,551 |
|
|
$ |
100 |
|
|
$ |
|
|
|
$ |
1,250 |
|
|
$ |
11,455 |
|
|
$ |
12,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Variable rates paid on receive fixed swaps are
based on prime and LIBOR (with various maturities) rates in
effect at December 31, 2005.
|
|
(2) |
Variable rates received are based on three-month
and six-month LIBOR or one-month Canadian Dollar Offered Rates
in effect at December 31, 2005.
|
51
Customer-Initiated and Other Derivative
Instruments
|
|
|
Customer-Initiated and Other Notional
Activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest | |
|
Foreign | |
|
Energy | |
|
|
|
|
Rate | |
|
Exchange | |
|
Derivative | |
|
|
|
|
Contracts | |
|
Contracts | |
|
Contracts | |
|
Totals | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Balance at January 1, 2004
|
|
$ |
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 |
|
Additions
|
|
|
2,300 |
|
|
|
114,783 |
|
|
|
979 |
|
|
|
118,062 |
|
Maturities/amortizations
|
|
|
(570 |
) |
|
|
(112,484 |
) |
|
|
|
|
|
|
(113,054 |
) |
Terminations
|
|
|
(302 |
) |
|
|
(31 |
) |
|
|
|
|
|
|
(333 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$ |
3,804 |
|
|
$ |
5,589 |
|
|
$ |
979 |
|
|
$ |
10,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation writes and purchases interest
rate caps and enters into foreign exchange contracts, interest
rate swaps and energy derivative contracts to accommodate the
needs of customers requesting such services. Customer-initiated
and other notional activity represented 47 percent at
December 31, 2005, and 31 percent at December 31,
2004, of total derivative instruments, including commitments to
purchase and sell securities. Refer to Notes 1 and 19 of
the consolidated financial statements on pages 67 and 96,
respectively, for further information regarding
customer-initiated and other derivative instruments.
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 may require future cash payments.
The following contractual obligations table summarizes the
Corporations noncancelable contractual obligations and
future required minimum payments. Refer to Notes 6, 9 and
10 of the financial statements on pages 77, 79 and 80,
respectively, for a further discussion of these contractual
obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
|
| |
|
|
|
|
|
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*
|
|
$ |
34,184 |
|
|
$ |
34,184 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Certificates of deposit and other deposits with a
stated maturity*
|
|
|
8,247 |
|
|
|
5,445 |
|
|
|
2,442 |
|
|
|
279 |
|
|
|
81 |
|
Short-term borrowings*
|
|
|
302 |
|
|
|
302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium- and long-term debt*
|
|
|
3,830 |
|
|
|
200 |
|
|
|
1,790 |
|
|
|
115 |
|
|
|
1,725 |
|
Operating leases
|
|
|
284 |
|
|
|
50 |
|
|
|
81 |
|
|
|
60 |
|
|
|
93 |
|
Commitments to fund low income housing
partnerships
|
|
|
109 |
|
|
|
53 |
|
|
|
50 |
|
|
|
5 |
|
|
|
1 |
|
Other long-term obligations
|
|
|
223 |
|
|
|
31 |
|
|
|
23 |
|
|
|
12 |
|
|
|
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$ |
47,179 |
|
|
$ |
40,265 |
|
|
$ |
4,386 |
|
|
$ |
471 |
|
|
$ |
2,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Deposits and borrowings exclude interest
|
52
The Corporation has other commercial commitments
that impact liquidity. These commitments include commitments to
purchase and sell earning assets, commitments to fund private
equity and venture capital investments, unused commitments to
extend credit, standby letters of credit and financial
guarantees and commercial letters of credit. The following
commercial commitments table summarizes the Corporations
commercial commitments and expected expiration dates by period.
Commercial
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
|
| |
|
|
|
|
|
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
|
|
$ |
6 |
|
|
$ |
6 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Commitments to sell investment securities
|
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to fund private equity and venture
capital investments
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
35 |
|
Unused commitments to extend credit
|
|
|
30,609 |
|
|
|
13,853 |
|
|
|
7,605 |
|
|
|
6,978 |
|
|
|
2,173 |
|
Standby letters of credit and financial guarantees
|
|
|
6,433 |
|
|
|
4,376 |
|
|
|
1,091 |
|
|
|
854 |
|
|
|
112 |
|
Commercial letters of credit
|
|
|
269 |
|
|
|
234 |
|
|
|
18 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$ |
37,363 |
|
|
$ |
18,475 |
|
|
$ |
8,714 |
|
|
$ |
7,854 |
|
|
$ |
2,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 19 of the consolidated
financial statements on page 96 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 67 for a summarization of this interpretation. Also
refer to Note 21 of the consolidated financial statements
on page 103 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, 2005, 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
$3.5 billion, compared to $2.9 billion and
$4.0 billion at December 31, 2004 and
December 31, 2003, 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 30 years. At year-end 2005, unissued debt
relating to the two medium-term note programs totaled
$16.7 billion. A third source, if needed, would be liquid
assets, including cash and due from banks, short-term
investments and investment securities available-for-sale, which
totaled $7.0 billion at December 31, 2005.
Additionally, the Corporation also had available
$14.9 billion from a collateralized borrowing account with
the Federal Reserve Bank at December 31, 2005.
53
The parent company held $11 million of cash
and cash equivalents and $264 million of short-term
investments with a subsidiary bank at December 31, 2005. In
addition, the parent company had available $250 million of
borrowing capacity under an unused commercial paper facility at
December 31, 2005. Refer to Note 9 of the consolidated
financial statements on page 79 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 18 to the consolidated
financial statements on page 95, banking subsidiaries are
subject to regulation and may be limited in their ability to pay
dividends or transfer funds to the holding company. During 2006,
the banking subsidiaries can pay dividends up to
$240 million plus 2006 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, 2005, the ratio was
110 percent.
The Corporation regularly evaluates its ability
to meet funding needs in unanticipated, stress environments. In
conjunction with the quarterly 200 basis point interest
rate shock analyses, discussed in the Interest Rate
Sensitivity section on page 49 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.
The fair value of share-based compensation as of
the date of grant is recognized as compensation expense on a
straight-line basis over the vesting period. In 2005, the
Corporation recognized total share-based compensation expense of
$45 million. The fair value of restricted stock is based on
the market price of the Corporations stock at the grant
date. Using the number of restricted stock awards issued in
2005, each $5.00 per share increase in stock price would
result in an increase in pretax expense of approximately
$1 million, from the assumed base, over the awards
vesting period. 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 2005 and the Corporations stock
price at December 31, 2005, 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
14 of the consolidated financial statements on pages 67 and 85,
respectively, for further discussion of the adoption of
SFAS No. 123. The expense associated with subsidiary
share-based compensation plans and minority-owned shares
accounted for as liabilities is affected by changes in the fair
value of that subsidiary. At the current level of minority-owned
options, unvested restricted shares and owned shares, a 10
percent increase in the subsidiarys fair value would
increase expense by approximately $4 million. For further
discussion of subsidiary share-based compensation awards
classified as liabilities, see Note 27 to the consolidated
financial statements on page 117.
Indirect Private
Equity and Venture Capital Investments
At December 31, 2005, the Corporation had a
$96 million portfolio of indirect (through funds) private
equity and venture capital investments, and had commitments of
$40 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
54
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. At December 31, 2005, the
Corporation had automotive exposure of about $20 million in
indirect equity exposure (approximately 24 percent of the
indirect equity portfolio) and $1 million in indirect debt
exposure (approximately three percent of the indirect debt
portfolio). With the exception of a single fund investment, the
automotive-related positions do not represent a majority of any
one funds investments, and therefore, the exposure related
to these positions is mitigated by the performance of other
investment interests within the funds portfolio of
companies. Income from unconsolidated indirect private equity
and venture capital investments in 2005 was $26 million,
which was partially offset by $18 million of write-downs
recognized on such investments in 2005. 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.
|
|
|
|
|
|
|
December 31, 2005 | |
|
|
| |
|
|
(dollar amounts | |
|
|
in millions) | |
Number of investments
|
|
|
109 |
|
Balance of investments
|
|
$ |
96 |
|
Largest single investment
|
|
|
22 |
|
Commitments to fund additional investments
|
|
|
40 |
|
The Corporation holds a portfolio of
approximately 800 warrants for generally non-marketable
equity securities. These warrants are primarily from high
technology, non-public companies obtained as part of the loan
origination process. The warrant portfolio is recorded at fair
value, as discussed in Note 1 to the consolidated financial
statements. Fair value was determined using a Black-Scholes
valuation model, which has four inputs: risk free rate, term,
volatility, and stock price. Key assumptions used in the
valuation were as follows. The risk free rate was estimated
using the US treasury rate, as of the valuation date,
corresponding with the expected term of the warrant. The
Corporation used an expected term of one half of the remaining
contractual term of each warrant, which averages approximately
seven years. Volatility was estimated using an index of
comparable publicly traded companies, based on the Standard
Industrial Classification codes. For a substantial majority of
the subject companies, an index method was utilized to estimate
the current value of the underlying company. Under the index
method, the subject companies values were
rolled-forward from the inception date through the
valuation date based on the change in value of an underlying
index of guideline public companies. For the remaining
companies, where sufficient financial data exists, a market
approach method was utilized. The value of all warrants
($30 million at December 31, 2005) is at risk to
changes in equity markets, general economic conditions and a
variety of other factors.
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 the need to identify and
control operational losses, 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 Corporations operational
risk program was enhanced in 2005 to include an updated
framework for
55
evaluating the risk associated with external
service providers. 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 Committee of
the Board. The internal audit staff independently supports the
Audit Committee oversight process. The Audit Committee serves as
an independent extension of the Board.
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 banking center network, and employment and tax matters.
The Enterprise-Wide Compliance Committee,
comprised of senior business unit managers as well as managers
responsible for compliance, audit and overall risk, oversees
compliance risk throughout the Corporation. This enterprise-wide
approach provides a consistent view of compliance across the
organization. The Enterprise-Wide Compliance Committee also
ensures that appropriate actions are implemented in business
units to mitigate risk to an acceptable level.
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.
56
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 67 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 credit losses,
pension plan accounting and goodwill. These policies are
reviewed with the Audit Committee of the Board and are discussed
more fully below.
Allowance for Credit Losses
The allowance for credit losses (combined
allowance for loan losses and allowance for credit losses on
lending-related commitments) is calculated with the objective of
maintaining a reserve sufficient to absorb estimated probable
losses. Managements determination of the adequacy of the
allowance is based on periodic evaluations of the loan
portfolio, lending-related commitments, 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, an estimate of the value
of collateral, including the market value of thinly traded or
nonmarketable equity securities, and an estimate of the
probability of drawing on unfunded commitments.
Allowance For Loan Losses
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 (with the exception of residential mortgage and consumer
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 on a quarterly basis. 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 on migration and loss
given default studies from each of the three major domestic
geographic markets, as well as mapping to bond tables. 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 international risks inherent in certain portfolios,
including portfolio exposures to automotive, retailers,
contractors, technology-related, entertainment, air
transportation and healthcare industries, Small Business
Administration loans and Mexican 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 the application of projected loss ratios or identified
industry specific and international risks. The unallocated
allowance considers the imprecision in the risk rating system
and the risk associated with new customer relationships.
The principal assumption used in deriving the
allowance for loan losses is the estimate of loss content for
each risk rating. To illustrate, if recent loss experience
dictated that the projected loss ratios would be changed by five
percent (of the estimate) across all risk ratings, the allocated
allowance as of December 31, 2005 would change by
approximately $14 million.
Allowance for Credit Losses on Lending-Related
Commitments
Lending-related commitments for which it is
probable that the commitment will be drawn (or sold) are
reserved with the same projected loss rates as loans, or with
specific reserves. In general, the probability of draw
57
is considered certain once the credit becomes a
watch list credit. Non-watch list credits have a lower
probability of draw, to which standard loan loss rates are
applied.
Automotive Industry Concentration
A concentration in loans to the automotive
industry could result in significant changes to the allowance
for credit losses if assumptions underlying the expected losses
differed from actual results. For example, a bankruptcy by a
domestic automotive manufacturer could adversely affect the risk
ratings of its suppliers, causing actual losses to differ from
those expected. The allowance for loan losses included a
component for automotive suppliers, which assumed that suppliers
whose largest customer was a domestic manufacturer would be
downgraded by one risk rating in the event of bankruptcy. If
that component were to cover all suppliers to that manufacturer
(not just those suppliers whose largest customer was that
manufacturer), the allowance for loan losses would increase by
about $14 million at December 31, 2005. In addition,
the allowance for credit losses on lending-related commitments
included reserves for losses on certain unfunded commitments to
that same manufacturer. Each five percentage point fluctuation
in the market price (used to determine expected loss) of those
unfunded commitments would change the allowance for credit
losses on lending-related commitments by about $5 million
at December 31, 2005.
For further discussion of the methodology used in
the determination of the allowance for credit losses, refer to
the discussion of Provision and Allowance for Credit
Losses section in this financial review on page 28,
and Note 1 to the consolidated financial statements on
page 67. To the extent actual outcomes differ from
management estimates, additional provision for credit 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 international 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
expected 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 15 on page 88. 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. Treasury and other Government agency securities,
Government-sponsored enterprise 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 future increases. 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 2006 expense for the defined benefit pension plans
are a discount rate of 5.50 percent, a long-term rate of
return on assets of 8.25 percent, and a rate of
compensation increase of 4.00 percent. Pension expense in
2006 is expected to be approximately $50 million, an
increase of $19 million from the $31 million recorded
in 2005, primarily due to changes in the discount rate, the
normal retirement age, plan demographics and progression, and
updated mortality tables.
58
Changing the 2006 key actuarial assumptions
discussed above in 25 basis point increments would have the
following impact on pension expense in 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 Basis Point | |
|
|
| |
|
|
Increase | |
|
Decrease | |
Key Actuarial Assumption: |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Discount rate
|
|
$ |
(6.4 |
) |
|
$ |
6.4 |
|
Long-term rate of return
|
|
|
(2.7 |
) |
|
|
2.7 |
|
Rate of compensation
|
|
|
2.8 |
|
|
|
(2.8 |
) |
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 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. Actual asset allocations are
compared to target allocations by asset category and investment
returns for each class of investment are compared to expected
results based on broad market indices.
Note 15 on page 88 to the consolidated
financial statements contains a table showing the funded status
of the qualified defined benefit plan at year-end which was
$27 million at December 31, 2005. Due to the long-term
nature of pension plan assumptions, actual results may differ
significantly from the actuarial-based estimates. Differences
between estimates and experience are required to be deferred and
amortized to pension expense in future years. As the table
illustrates, the actuarial loss in the qualified defined benefit
plan at December 31, 2005 increased to $349 million,
compared to an actuarial loss of $295 million at
December 31, 2004. Unless recovered in the market or by
future assumption changes, 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 67. In 2005, the actual return on plan assets was
$66 million, compared to a return on plan assets of
$112 million in 2004. The Corporation contributed
$58 million and $62 million, in 2005 and 2004,
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 employee
benefits expense on the consolidated statements of income,
and is allocated to segments based on the segments share
of salaries expense. Given the salaries expense included in 2005
segment results, pension expense was allocated approximately
36 percent, 35 percent, 24 percent and
5 percent to the Small Business & Personal
Financial Services, Business Bank, Wealth &
Institutional Management and Finance segments, respectively, in
2005.
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
$3 million and $13 million, primarily for the
non-qualified defined benefit pension plan, was included in
shareholders equity as part of accumulated other
comprehensive income (loss) at December 31, 2005 and 2004,
respectively.
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.
59
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 & 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
Corporations 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, 2005, in
accordance with SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142), did not
indicate that an impairment charge was required. In the fourth
quarter 2005, Munder sold its interest in Framlington Group
Limited, an indirectly owned unconsolidated subsidiary. Goodwill
of $34 million was allocated to the sale in accordance with
SFAS No. 142. Following the sale, the goodwill that
remained on Munder was tested for impairment. The test did not
indicate that an impairment charge was required. For a further
discussion of the Corporations goodwill, refer to
Note 7 to the consolidated financial statements on
page 78.
The valuation model for Munder 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 assumption used in the
valuation model was 13 percent. Increasing the discount
rate by 200 basis points would result in a decrease in the
valuation of approximately $15 million at the midpoint of
the valuation range. The market growth rate assumptions used
were approximately 7 percent for equity, 3 percent for
fixed and 4 percent for cash investments. Decreasing the
market growth rates by 50 percent would result in a
decrease in the valuation of approximately $21 million at
the midpoint of the valuation range. The new business growth
assumption used was approximately 5 percent (compound
annual growth rate) and the redemption (business attrition) rate
used was approximately 3 percent. Decreasing the new
business growth assumption and increasing the redemption rate by
10 percent would result in a combined decrease in the
valuation of approximately $13 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 Munder is inherent in the
valuation.
The fair value estimate is updated whenever there
are indicators of impairment. At December 31, 2005,
management estimates that it would take a decline in the fair
value of Munder of $206 million to trigger impairment.
60
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 communication 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, automotive
production, could suffer a significant decline which could
adversely affect the Corporation;
|
|
|
|
demand for commercial loans and investment
advisory products may not increase 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 different
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;
|
|
|
|
managements ability to retain key officers
and employees may change;
|
|
|
|
the introductions, withdrawal, success and timing
of business initiatives and strategies, including, but not
limited to the opening of new banking centers, 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;
|
61
|
|
|
|
|
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 in general;
|
|
|
|
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 natural disasters, including, but
not limited to, hurricanes, tornadoes, earthquakes and floods,
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.
|
62
CONSOLIDATED BALANCE SHEETS
Comerica Incorporated and
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions, except | |
|
|
share data) | |
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$ |
1,609 |
|
|
$ |
1,139 |
|
Short-term investments
|
|
|
1,159 |
|
|
|
3,230 |
|
Investment securities available-for-sale
|
|
|
4,240 |
|
|
|
3,943 |
|
|
Commercial loans
|
|
|
23,545 |
|
|
|
22,039 |
|
Real estate construction loans
|
|
|
3,482 |
|
|
|
3,053 |
|
Commercial mortgage loans
|
|
|
8,867 |
|
|
|
8,236 |
|
Residential mortgage loans
|
|
|
1,485 |
|
|
|
1,294 |
|
Consumer loans
|
|
|
2,697 |
|
|
|
2,751 |
|
Lease financing
|
|
|
1,295 |
|
|
|
1,265 |
|
International loans
|
|
|
1,876 |
|
|
|
2,205 |
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
43,247 |
|
|
|
40,843 |
|
Less allowance for loan losses
|
|
|
(516 |
) |
|
|
(673 |
) |
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
42,731 |
|
|
|
40,170 |
|
Premises and equipment
|
|
|
510 |
|
|
|
415 |
|
Customers liability on acceptances
outstanding
|
|
|
59 |
|
|
|
57 |
|
Accrued income and other assets
|
|
|
2,705 |
|
|
|
2,812 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
53,013 |
|
|
$ |
51,766 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
$ |
15,666 |
|
|
$ |
15,164 |
|
Interest-bearing deposits
|
|
|
26,765 |
|
|
|
25,772 |
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
42,431 |
|
|
|
40,936 |
|
Short-term borrowings
|
|
|
302 |
|
|
|
193 |
|
Acceptances outstanding
|
|
|
59 |
|
|
|
57 |
|
Accrued expenses and other liabilities
|
|
|
1,192 |
|
|
|
1,189 |
|
Medium- and long-term debt
|
|
|
3,961 |
|
|
|
4,286 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
47,945 |
|
|
|
46,661 |
|
Common stock $5 par value:
|
|
|
|
|
|
|
|
|
|
Authorized 325,000,000 shares
|
|
|
|
|
|
|
|
|
|
Issued 178,735,252 shares at
12/31/05 and 12/31/04
|
|
|
894 |
|
|
|
894 |
|
Capital surplus
|
|
|
461 |
|
|
|
421 |
|
Accumulated other comprehensive loss
|
|
|
(170 |
) |
|
|
(69 |
) |
Retained earnings
|
|
|
4,796 |
|
|
|
4,331 |
|
Less cost of common stock in treasury
15,834,985 shares at 12/31/05 and 8,259,328 shares at
12/31/04
|
|
|
(913 |
) |
|
|
(472 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
5,068 |
|
|
|
5,105 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
53,013 |
|
|
$ |
51,766 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
63
CONSOLIDATED STATEMENTS OF INCOME
Comerica Incorporated and
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions, except per share data) | |
INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$ |
2,554 |
|
|
$ |
2,054 |
|
|
$ |
2,211 |
|
Interest on investment securities
|
|
|
148 |
|
|
|
147 |
|
|
|
165 |
|
Interest on short-term investments
|
|
|
24 |
|
|
|
36 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
2,726 |
|
|
|
2,237 |
|
|
|
2,412 |
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
548 |
|
|
|
315 |
|
|
|
370 |
|
Interest on short-term borrowings
|
|
|
52 |
|
|
|
4 |
|
|
|
7 |
|
Interest on medium- and long-term debt
|
|
|
170 |
|
|
|
108 |
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
770 |
|
|
|
427 |
|
|
|
486 |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
1,956 |
|
|
|
1,810 |
|
|
|
1,926 |
|
Provision for loan losses
|
|
|
(47 |
) |
|
|
64 |
|
|
|
377 |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan
losses
|
|
|
2,003 |
|
|
|
1,746 |
|
|
|
1,549 |
|
NONINTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
218 |
|
|
|
231 |
|
|
|
238 |
|
Fiduciary income
|
|
|
177 |
|
|
|
171 |
|
|
|
169 |
|
Commercial lending fees
|
|
|
63 |
|
|
|
55 |
|
|
|
63 |
|
Letter of credit fees
|
|
|
70 |
|
|
|
66 |
|
|
|
65 |
|
Foreign exchange income
|
|
|
37 |
|
|
|
37 |
|
|
|
36 |
|
Brokerage fees
|
|
|
36 |
|
|
|
36 |
|
|
|
34 |
|
Investment advisory revenue, net
|
|
|
51 |
|
|
|
35 |
|
|
|
30 |
|
Card fees
|
|
|
39 |
|
|
|
32 |
|
|
|
27 |
|
Bank-owned life insurance
|
|
|
38 |
|
|
|
34 |
|
|
|
42 |
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
16 |
|
|
|
12 |
|
|
|
6 |
|
Warrant income
|
|
|
9 |
|
|
|
7 |
|
|
|
4 |
|
Net securities gains
|
|
|
|
|
|
|
|
|
|
|
50 |
|
Net gain on sales of businesses
|
|
|
56 |
|
|
|
7 |
|
|
|
|
|
Other noninterest income
|
|
|
132 |
|
|
|
134 |
|
|
|
123 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
942 |
|
|
|
857 |
|
|
|
887 |
|
NONINTEREST EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
|
|
|
820 |
|
|
|
760 |
|
|
|
736 |
|
Employee benefits
|
|
|
184 |
|
|
|
159 |
|
|
|
161 |
|
|
|
|
|
|
|
|
|
|
|
|
Total salaries and employee benefits
|
|
|
1,004 |
|
|
|
919 |
|
|
|
897 |
|
Net occupancy expense
|
|
|
121 |
|
|
|
125 |
|
|
|
128 |
|
Equipment expense
|
|
|
56 |
|
|
|
58 |
|
|
|
61 |
|
Outside processing fee expense
|
|
|
78 |
|
|
|
68 |
|
|
|
71 |
|
Software expense
|
|
|
49 |
|
|
|
43 |
|
|
|
37 |
|
Customer services
|
|
|
69 |
|
|
|
23 |
|
|
|
25 |
|
Litigation and operational losses
|
|
|
18 |
|
|
|
24 |
|
|
|
18 |
|
Provision for credit losses on lending-related
commitments
|
|
|
18 |
|
|
|
(12 |
) |
|
|
(2 |
) |
Other noninterest expenses
|
|
|
253 |
|
|
|
245 |
|
|
|
248 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
1,666 |
|
|
|
1,493 |
|
|
|
1,483 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,279 |
|
|
|
1,110 |
|
|
|
953 |
|
Provision for income taxes
|
|
|
418 |
|
|
|
353 |
|
|
|
292 |
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$ |
861 |
|
|
$ |
757 |
|
|
$ |
661 |
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$ |
5.17 |
|
|
$ |
4.41 |
|
|
$ |
3.78 |
|
Diluted net income per common share
|
|
|
5.11 |
|
|
|
4.36 |
|
|
|
3.75 |
|
Cash dividends declared on common stock
|
|
|
367 |
|
|
|
356 |
|
|
|
350 |
|
Cash dividends declared per common share
|
|
|
2.20 |
|
|
|
2.08 |
|
|
|
2.00 |
|
See notes to consolidated financial statements.
64
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY
Comerica Incorporated and
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
Common Stock | |
|
|
|
Other | |
|
|
|
|
|
Total | |
|
|
| |
|
Capital | |
|
Comprehensive | |
|
Retained | |
|
Treasury | |
|
Shareholders | |
|
|
In Shares | |
|
Amount | |
|
Surplus | |
|
Income (Loss) | |
|
Earnings | |
|
Stock | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions, except per share data) | |
BALANCE AT JANUARY 1, 2003
|
|
|
174.8 |
|
|
$ |
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 common stock
|
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27 |
) |
|
|
(27 |
) |
Net issuance of common stock under employee stock
plans
|
|
|
0.7 |
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
(22 |
) |
|
|
43 |
|
|
|
16 |
|
Recognition of stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2003
|
|
|
175.0 |
|
|
$ |
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 common stock
|
|
|
(6.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(370 |
) |
|
|
(370 |
) |
Net issuance of common stock under employee stock
plans
|
|
|
2.0 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
(43 |
) |
|
|
113 |
|
|
|
72 |
|
Recognition of stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2004
|
|
|
170.5 |
|
|
$ |
894 |
|
|
$ |
421 |
|
|
$ |
(69 |
) |
|
$ |
4,331 |
|
|
$ |
(472 |
) |
|
$ |
5,105 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
861 |
|
|
|
|
|
|
|
861 |
|
Other comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101 |
) |
|
|
|
|
|
|
|
|
|
|
(101 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
760 |
|
Cash dividends declared on common stock
($2.20 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(367 |
) |
|
|
|
|
|
|
(367 |
) |
Purchase of common stock
|
|
|
(9.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(525 |
) |
|
|
(525 |
) |
Net issuance of common stock under employee stock
plans
|
|
|
1.4 |
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(29 |
) |
|
|
84 |
|
|
|
51 |
|
Recognition of stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2005
|
|
|
162.9 |
|
|
$ |
894 |
|
|
$ |
461 |
|
|
$ |
(170 |
) |
|
$ |
4,796 |
|
|
$ |
(913 |
) |
|
$ |
5,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
65
CONSOLIDATED STATEMENTS OF CASH
FLOWS
Comerica Incorporated and
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
861 |
|
|
$ |
757 |
|
|
$ |
661 |
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
(47 |
) |
|
|
64 |
|
|
|
377 |
|
|
Provision for credit losses on lending-related
commitments
|
|
|
18 |
|
|
|
(12 |
) |
|
|
(2 |
) |
|
Depreciation and software amortization
|
|
|
73 |
|
|
|
70 |
|
|
|
69 |
|
|
Amortization of stock-based compensation expense
|
|
|
45 |
|
|
|
34 |
|
|
|
28 |
|
|
Net amortization of securities
|
|
|
8 |
|
|
|
24 |
|
|
|
29 |
|
|
Net amortization of intangibles
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
Net gain on sale of investment securities
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
(50 |
) |
|
Net gain on sales of businesses
|
|
|
(56 |
) |
|
|
(7 |
) |
|
|
|
|
|
Contributions to pension plan fund
|
|
|
(58 |
) |
|
|
(62 |
) |
|
|
(46 |
) |
|
Net (increase) decrease in trading securities
|
|
|
|
|
|
|
(9 |
) |
|
|
1 |
|
|
Net (increase) decrease in loans held-for-sale
|
|
|
(1 |
) |
|
|
115 |
|
|
|
62 |
|
|
Net decrease (increase) in accrued income
receivable
|
|
|
93 |
|
|
|
(145 |
) |
|
|
18 |
|
|
Net (decrease) increase in accrued expenses
|
|
|
(81 |
) |
|
|
241 |
|
|
|
92 |
|
|
Other, net
|
|
|
(9 |
) |
|
|
(43 |
) |
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
(15 |
) |
|
|
271 |
|
|
|
660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
846 |
|
|
|
1,028 |
|
|
|
1,321 |
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease (increase) in other short-term
investments
|
|
|
2,115 |
|
|
|
677 |
|
|
|
(1,630 |
) |
Proceeds from sales of investment securities
available-for-sale
|
|
|
|
|
|
|
337 |
|
|
|
4,030 |
|
Proceeds from maturities of investment securities
available-for-sale
|
|
|
1,302 |
|
|
|
1,032 |
|
|
|
4,987 |
|
Purchases of investment securities
available-for-sale
|
|
|
(1,647 |
) |
|
|
(867 |
) |
|
|
(10,416 |
) |
Decrease in receivables for securities sold
pending settlement
|
|
|
|
|
|
|
|
|
|
|
1,110 |
|
Net (increase) decrease in loans
|
|
|
(2,611 |
) |
|
|
(773 |
) |
|
|
1,589 |
|
Net increase in fixed assets
|
|
|
(132 |
) |
|
|
(95 |
) |
|
|
(59 |
) |
Net (increase) decrease in customers
liability on acceptances outstanding
|
|
|
(2 |
) |
|
|
(30 |
) |
|
|
6 |
|
Proceeds from sales of businesses
|
|
|
97 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing
activities
|
|
|
(878 |
) |
|
|
289 |
|
|
|
(383 |
) |
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits
|
|
|
1,524 |
|
|
|
(527 |
) |
|
|
(307 |
) |
Net increase (decrease) in short-term borrowings
|
|
|
109 |
|
|
|
(69 |
) |
|
|
(278 |
) |
Net increase (decrease) in acceptances outstanding
|
|
|
2 |
|
|
|
30 |
|
|
|
(6 |
) |
Proceeds from issuance of medium- and long-term
debt
|
|
|
283 |
|
|
|
364 |
|
|
|
511 |
|
Repayments of medium- and long-term debt
|
|
|
(576 |
) |
|
|
(848 |
) |
|
|
(875 |
) |
Proceeds from issuance of common stock and other
capital transactions
|
|
|
51 |
|
|
|
72 |
|
|
|
16 |
|
Purchase of common stock for treasury
|
|
|
(525 |
) |
|
|
(370 |
) |
|
|
(27 |
) |
Dividends paid
|
|
|
(366 |
) |
|
|
(357 |
) |
|
|
(347 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities
|
|
|
502 |
|
|
|
(1,705 |
) |
|
|
(1,313 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and due from banks
|
|
|
470 |
|
|
|
(388 |
) |
|
|
(375 |
) |
Cash and due from banks at beginning of year
|
|
|
1,139 |
|
|
|
1,527 |
|
|
|
1,902 |
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks at end of year
|
|
$ |
1,609 |
|
|
$ |
1,139 |
|
|
$ |
1,527 |
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
733 |
|
|
$ |
413 |
|
|
$ |
457 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$ |
340 |
|
|
$ |
186 |
|
|
$ |
148 |
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans transferred to other real estate
|
|
$ |
33 |
|
|
$ |
33 |
|
|
$ |
32 |
|
|
Loans transferred to held-for-sale
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
Deposits transferred to held-for-sale
|
|
|
29 |
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
66
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 business segments are the Business
Bank, Small Business & Personal Financial Services, and
Wealth & Institutional Management. For further
discussion of each business segment, refer to Note 23 on
page 107. The core businesses are tailored to each of the
Corporations four primary geographic markets:
Midwest & 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.
The Corporation consolidates variable interest
entities (VIEs) in which it is the primary beneficiary. 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 which is included in other noninterest
expenses on the consolidated statements of income was
approximately $4 million for the year ended
December 31, 2005 and was not significant for the years
ended December 31, 2004 and 2003.
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, which is generally presumed to
exist if the Corporation owns more than 20 percent 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
67
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
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
(losses) 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.
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. The substantial majority of short-term
investments at December 31, 2005 and 2004 were federal
funds sold.
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 as of the balance
sheet dates. Investment securities held-to-maturity are stated
at cost, adjusted for amortization of premium and accretion of
discount.
Investment securities that are not considered
held-to-maturity 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 (loss). Unrealized
losses on securities available-for-sale are recognized in
earnings if the Corporation does not have the ability or intent
to hold the securities until market recovery or if full
collection of the amounts due according to the contractual terms
of the debt is not expected.
Gains or losses on the sale of securities are
computed based on the adjusted cost of the specific security
sold.
Allowance for
Loan Losses
The allowance for loan losses represents
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 the Corporations 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 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 international risks inherent in certain portfolios,
including portfolio exposures to automotive, retail, contractor,
technology-related, entertainment, air transportation and
healthcare industries, Small Business Administration loans and
Mexican 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 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 of the three major domestic geographic markets, as well as
mapping to bond tables.
68
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Management maintains an unallocated allowance to
recognize the uncertainty and inherent 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 inherent
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 ratings downgrades associated with
loans that do not have a full year of payment history.
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 international 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 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
managements assessment of probable credit losses inherent
in lending-related commitments, including commitments to extend
credit, letters of credit and guarantees. Lending-related
commitments for which it is probable that the commitment will be
drawn (or sold) are reserved with the same projected loss rates
as loans, or with specific reserves. In general, the probability
of draw is considered certain once the credit becomes a watch
list credit. Non-watch list credits have a lower probability of
draw, to which standard loan loss rates are applied. The
allowance for credit losses on lending-related commitments is
included in accrued expenses and other liabilities
on the consolidated balance sheets, with the corresponding
charge reflected in provision for credit losses on
lending-related commitments on the consolidated statements
of income.
Nonperforming
Assets
Nonperforming assets are comprised of loans and
debt securities for which the accrual of interest has been
discontinued, loans for which the terms have been renegotiated
to less than market rates due to a serious weakening of the
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 75 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
69
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
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 status 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 three to eight 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 five 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 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, other intangible assets and
impairment policies can be found in Note 7 on page 78.
70
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Share-based
Compensation
In 2002, the Corporation adopted the fair value
recognition provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for
Share-based Compensation (as amended by
SFAS No. 148, Accounting for Share-based
Compensation-Transition and Disclosure), which the
Corporation is applying prospectively to new share-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 share-based compensation included in the
determination of net income for 2005, 2004 and 2003 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 2005, 2004 and 2003 net income
was a decrease of $22 million, $18 million and
$13 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, 2005, is presented in the
table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions, except per | |
|
|
share data) | |
Net income applicable to common stock, as reported
|
|
$ |
861 |
|
|
$ |
757 |
|
|
$ |
661 |
|
Add: Stock-based compensation expense included in
reported net income, net of related tax effects
|
|
|
29 |
|
|
|
22 |
|
|
|
18 |
|
Deduct: Total stock-based compensation expense
determined under fair value method for all awards, net of
related tax effects
|
|
|
(29 |
) |
|
|
(27 |
) |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net income applicable to common stock
|
|
$ |
861 |
|
|
$ |
752 |
|
|
$ |
653 |
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$ |
5.17 |
|
|
$ |
4.41 |
|
|
$ |
3.78 |
|
|
Basic pro forma
|
|
|
5.17 |
|
|
|
4.38 |
|
|
|
3.74 |
|
|
Diluted as reported
|
|
|
5.11 |
|
|
|
4.36 |
|
|
|
3.75 |
|
|
Diluted pro forma
|
|
|
5.11 |
|
|
|
4.32 |
|
|
|
3.70 |
|
Further information on the Corporations
share-based compensation plans is included in Note 14 on
page 85.
Pension
Costs
Pension costs are charged to employee
benefits expense on the consolidated statements of income
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
71
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
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
employee benefits expense on the consolidated
statements of income during the employees active service
period.
Derivative
Instruments
Derivative instruments are carried at fair value
in either, accrued income and other assets or
accrued expenses and other liabilities on the
consolidated balance sheets. 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 foreign currency
investment in a foreign subsidiary, 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, interest rate swap
agreements and energy derivative contracts 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 in noninterest income.
Warrants
The Corporation holds a portfolio of
approximately 800 warrants for non-marketable equity securities.
These warrants are primarily from high technology, non-public
companies obtained as part of the loan origination process. The
Corporation historically recognized income related to these
warrants approximately 30 days prior to the warrant
issuers publicly traded stock becoming free of
restrictions, when a publicly traded company acquired the
warrant issuer, or when cash was received. In third quarter
2005, the Corporation determined that, due to a net exercise
provision embedded in the warrant agreements, the warrant
portfolio should have been recorded at fair value in accordance
with Implementation Issue 17a of SFAS 133, Accounting
for Derivative Instruments and Hedging Activities,
(SFAS 133) since 2001. The required cumulative adjustments
to record the portfolio at fair value were not material to the
current or any prior reporting periods, and were recorded as of
September 30, 2005. The adjustments included recording a
$24 million warrant asset in accrued income and other
assets on the consolidated balance sheet. The adjustments
also included recording $20 million in interest and
fees on loans, $4 million in incentive compensation
expense in
72
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
salaries expense and $5 million
in provision for income taxes on the consolidated
statements of income. Under the Corporations new
accounting, the fair value of warrants covered by Implementation
issue 17a of SFAS 133 that are received as part of the
loan origination process is deferred and amortized into interest
and fees on loans over the life of the loan, in accordance with
SFAS 91, Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial
Direct Costs of Leases. In addition, beginning in the
fourth quarter 2005, the fair value of these warrants is
adjusted on a quarterly basis, with any changes in the fair
value recorded in warrant income on the consolidated
statements of income.
Standby and
Commercial Letters of Credit and Financial
Guarantees
A liability related to certain guarantee
contracts or indemnification agreements that contingently
require the guarantor to make payments to the guaranteed party
is 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 19 on page 96.
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 includes 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 and certain
costs 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 65 and in Note 12 on page 83.
73
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, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other Government agency
securities
|
|
$ |
125 |
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
124 |
|
|
Government-sponsored enterprise securities
|
|
|
4,059 |
|
|
|
2 |
|
|
|
107 |
|
|
|
3,954 |
|
|
State and municipal securities
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
Other securities
|
|
|
157 |
|
|
|
1 |
|
|
|
|
|
|
|
158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available-for-sale
|
|
$ |
4,345 |
|
|
$ |
3 |
|
|
$ |
108 |
|
|
$ |
4,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other Government agency
securities
|
|
$ |
193 |
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
192 |
|
|
Government-sponsored enterprise securities
|
|
|
3,617 |
|
|
|
1 |
|
|
|
54 |
|
|
|
3,564 |
|
|
State and municipal securities
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
Other securities
|
|
|
179 |
|
|
|
1 |
|
|
|
|
|
|
|
180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available-for-sale
|
|
$ |
3,996 |
|
|
$ |
2 |
|
|
$ |
55 |
|
|
$ |
3,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the Corporations temporarily
impaired investment securities available-for-sale follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired | |
|
|
| |
|
|
|
|
|
|
|
|
|
Less than 12 Months | |
|
Over 12 Months | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
Fair | |
|
Unrealized | |
|
Fair | |
|
Unrealized | |
|
Fair | |
|
Unrealized | |
|
|
Value | |
|
Losses | |
|
Value | |
|
Losses | |
|
Value | |
|
Losses | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other Government agency
securities
|
|
$ |
36 |
|
|
$ |
|
|
|
$ |
47 |
|
|
$ |
1 |
|
|
$ |
83 |
|
|
$ |
1 |
|
|
Government-sponsored enterprise securities
|
|
|
1,085 |
|
|
|
15 |
|
|
|
2,535 |
|
|
|
92 |
|
|
|
3,620 |
|
|
|
107 |
|
|
State and municipal securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$ |
1,121 |
|
|
$ |
15 |
|
|
$ |
2,582 |
|
|
$ |
93 |
|
|
$ |
3,703 |
|
|
$ |
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other Government agency
securities
|
|
$ |
35 |
|
|
$ |
|
|
|
$ |
104 |
|
|
$ |
1 |
|
|
$ |
139 |
|
|
$ |
1 |
|
|
Government-sponsored enterprise securities
|
|
|
885 |
|
|
|
12 |
|
|
|
2,409 |
|
|
|
42 |
|
|
|
3,294 |
|
|
|
54 |
|
|
State and municipal securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$ |
920 |
|
|
$ |
12 |
|
|
$ |
2,513 |
|
|
$ |
43 |
|
|
$ |
3,433 |
|
|
$ |
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005, the Corporation had
115 securities in an unrealized loss position, including 110
Government-sponsored enterprise securities (i.e., FMNA, FHLMC).
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
74
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
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, 2005.
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, 2005 | |
|
|
| |
|
|
Amortized | |
|
Fair | |
|
|
Cost | |
|
Value | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Contractual maturity
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$ |
128 |
|
|
$ |
128 |
|
|
After one year through five years
|
|
|
8 |
|
|
|
9 |
|
|
After five year through ten years
|
|
|
1 |
|
|
|
1 |
|
|
After ten years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
137 |
|
|
|
138 |
|
Mortgage-backed securities
|
|
|
4,108 |
|
|
|
4,001 |
|
Equity and other nondebt securities
|
|
|
100 |
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
Total securities available-for-sale
|
|
$ |
4,345 |
|
|
$ |
4,240 |
|
|
|
|
|
|
|
|
Sales, calls and write-downs of investment
securities available-for-sale resulted in realized gains and
losses as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended | |
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Securities gains
|
|
$ |
1 |
|
|
$ |
6 |
|
|
$ |
64 |
|
Securities losses
|
|
|
(1 |
) |
|
|
(6 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net securities gains (losses)
|
|
$ |
|
|
|
$ |
|
|
|
$ |
50 |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005, investment securities
having a carrying value of $1.8 billion were pledged where
permitted or required by law to secure $818 million of
liabilities, including public and other deposits, and derivative
contracts. This included securities of $1.1 billion pledged
with the Federal Reserve Bank to secure actual treasury tax and
loan borrowings of $181 million at December 31, 2005,
and potential borrowings of up to an additional
$669 million. The remaining pledged securities of
$692 million are primarily with state and local government
agencies to secure $637 million of deposits and other
liabilities, including deposits of the State of Michigan of
$294 million at December 31, 2005.
Note 3 Nonperforming
Assets
The following table summarizes nonperforming
assets and loans, which generally 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.
75
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Nonaccrual loans:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$ |
65 |
|
|
$ |
161 |
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
Real estate construction business line
|
|
|
3 |
|
|
|
31 |
|
|
|
Other
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
3 |
|
|
|
34 |
|
|
Commercial mortgage:
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate business line
|
|
|
6 |
|
|
|
6 |
|
|
|
Other
|
|
|
29 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
Total commercial mortgage
|
|
|
35 |
|
|
|
64 |
|
|
Residential mortgage
|
|
|
2 |
|
|
|
1 |
|
|
Consumer
|
|
|
2 |
|
|
|
1 |
|
|
Lease financing
|
|
|
13 |
|
|
|
15 |
|
|
International
|
|
|
18 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans
|
|
|
138 |
|
|
|
312 |
|
Reduced-rate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
138 |
|
|
|
312 |
|
Other real estate
|
|
|
24 |
|
|
|
27 |
|
Nonaccrual debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$ |
162 |
|
|
$ |
339 |
|
|
|
|
|
|
|
|
Loans past due 90 days and still accruing
|
|
$ |
16 |
|
|
$ |
15 |
|
|
|
|
|
|
|
|
Gross interest income that would have been
recorded had the nonaccrual and reduced-rate loans performed in
accordance with original terms
|
|
$ |
21 |
|
|
$ |
34 |
|
|
|
|
|
|
|
|
Interest income recognized
|
|
$ |
5 |
|
|
$ |
5 |
|
|
|
|
|
|
|
|
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, 2005 were
$149 million, $15 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Average impaired loans for the year
|
|
$ |
221 |
|
|
$ |
424 |
|
|
$ |
593 |
|
|
|
|
|
|
|
|
|
|
|
Total year-end impaired loans
|
|
$ |
149 |
|
|
$ |
318 |
|
|
$ |
512 |
|
Less: Loans restructured during the year on
accrual status at year-end
|
|
|
(15 |
) |
|
|
(8 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
Total year-end nonaccrual business loans
|
|
$ |
134 |
|
|
$ |
310 |
|
|
$ |
498 |
|
|
|
|
|
|
|
|
|
|
|
Year-end impaired loans requiring an allowance
|
|
$ |
129 |
|
|
$ |
306 |
|
|
$ |
468 |
|
|
|
|
|
|
|
|
|
|
|
Allowance allocated to impaired loans
|
|
$ |
42 |
|
|
$ |
88 |
|
|
$ |
167 |
|
|
|
|
|
|
|
|
|
|
|
76
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Those impaired loans not requiring an allowance
represent loans for which the fair value of expected repayments
or collateral exceeded the recorded investments in such loans.
At December 31, 2005, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Balance at January 1
|
|
$ |
673 |
|
|
$ |
803 |
|
|
$ |
791 |
|
Loans charged-off
|
|
|
(174 |
) |
|
|
(268 |
) |
|
|
(408 |
) |
Recoveries on loans previously charged-off
|
|
|
64 |
|
|
|
74 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
Net loans charged-off
|
|
|
(110 |
) |
|
|
(194 |
) |
|
|
(365 |
) |
Provision for loan losses
|
|
|
(47 |
) |
|
|
64 |
|
|
|
377 |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$ |
516 |
|
|
$ |
673 |
|
|
$ |
803 |
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total loans
|
|
|
1.19 |
% |
|
|
1.65 |
% |
|
|
1.99 |
% |
|
|
|
|
|
|
|
|
|
|
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, 2005 and 2004, exposure from
loans, unused commitments and standby letters of credit and
financial guarantees to companies related to the automotive
industry totaled $11.4 billion and $11.1 billion,
respectively. Additionally, commercial real estate loans,
including real estate construction and commercial mortgage
loans, totaled $12.3 billion and $11.3 billion at
December 31, 2005 and 2004, respectively. Unused
commitments on commercial real estate loans were
$3.8 billion and $3.1 billion at December 31,
2005 and 2004, respectively.
Note 6 Premises and
Equipment
A summary of premises and equipment by major
category follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Land
|
|
$ |
85 |
|
|
$ |
67 |
|
Buildings and improvements
|
|
|
579 |
|
|
|
486 |
|
Furniture and equipment
|
|
|
414 |
|
|
|
384 |
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
1,078 |
|
|
|
937 |
|
Less: Accumulated depreciation and amortization
|
|
|
(568 |
) |
|
|
(522 |
) |
|
|
|
|
|
|
|
|
Net book value
|
|
$ |
510 |
|
|
$ |
415 |
|
|
|
|
|
|
|
|
In March 2005, a subsidiary of the Corporation
purchased an operations center building in Auburn Hills,
Michigan. The Corporation previously leased the building from a
third party. The purchase resulted in the addition of fixed
assets of $36 million and a reduction in deferred rent
credits of $26 million.
77
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
The Corporation conducts a portion of its
business from leased facilities and leases certain equipment.
Rental expense for leased properties and equipment amounted to
$58 million, $66 million and $70 million in 2005,
2004 and 2003, respectively. As of December 31, 2005,
future minimum payments under operating leases and other
long-term obligations are as follows:
|
|
|
|
|
|
|
|
Years Ending | |
|
|
December 31 | |
|
|
| |
|
|
(in millions) | |
2006
|
|
$ |
81 |
|
2007
|
|
|
58 |
|
2008
|
|
|
46 |
|
2009
|
|
|
40 |
|
2010
|
|
|
32 |
|
Thereafter
|
|
|
250 |
|
|
|
|
|
|
Total
|
|
$ |
507 |
|
|
|
|
|
Note 7 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 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 annual test of
goodwill and intangible assets that have an indefinite-life,
performed as of July 1, 2005 and 2004 did not indicate that
an impairment charge was required.
In the fourth quarter 2005, the Corporation sold
its interest in Framlington Group Limited, an indirectly owned
unconsolidated subsidiary that was part of the
Corporations asset management reporting unit (Munder).
Goodwill of $34 million was allocated to the sale in
accordance with SFAS No. 142, Goodwill and Other
Intangible Assets. Following the sale, the goodwill that
remained on Munder, which is part of the Wealth &
Institutional Management segment for business segment reporting
purposes, was tested for impairment. The test did not indicate
that an impairment charge was required.
The changes in the carrying amount of goodwill
for the years ended December 31, 2005 and 2004, are shown
in the following table. Amounts in all periods are based on
business segments in effect at December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business | |
|
Wealth & | |
|
|
|
|
Business | |
|
& Personal | |
|
Institutional | |
|
|
|
|
Bank | |
|
Financial Services | |
|
Management | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Balance at January 1, 2004
|
|
$ |
90 |
|
|
$ |
47 |
|
|
$ |
110 |
|
|
$ |
247 |
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
90 |
|
|
$ |
47 |
|
|
$ |
110 |
|
|
$ |
247 |
|
Goodwill allocated to the sale of Framlington
Group Limited
|
|
|
|
|
|
|
|
|
|
|
(34 |
) |
|
|
(34 |
) |
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$ |
90 |
|
|
$ |
47 |
|
|
$ |
76 |
|
|
$ |
213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 8 Deposits
At December 31, 2005, the scheduled
maturities of certificates of deposit and other deposits with a
stated maturity were as follows:
|
|
|
|
|
|
|
|
Years Ending | |
|
|
December 31 | |
|
|
| |
|
|
(in millions) | |
2006
|
|
$ |
5,445 |
|
2007
|
|
|
1,895 |
|
2008
|
|
|
547 |
|
2009
|
|
|
210 |
|
2010
|
|
|
69 |
|
Thereafter
|
|
|
81 |
|
|
|
|
|
|
Total
|
|
$ |
8,247 |
|
|
|
|
|
A maturity distribution of domestic certificates
of deposit of $100,000 and over follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Three months or less
|
|
$ |
1,247 |
|
|
$ |
1,154 |
|
Over three months to six months
|
|
|
573 |
|
|
|
443 |
|
Over six months to twelve months
|
|
|
530 |
|
|
|
555 |
|
Over twelve months
|
|
|
2,125 |
|
|
|
453 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
4,475 |
|
|
$ |
2,605 |
|
|
|
|
|
|
|
|
Note 9 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, 2005
|
|
|
|
|
|
|
|
|
|
Amount outstanding at year-end
|
|
$ |
90 |
|
|
$ |
212 |
|
|
Weighted average interest rate at year-end
|
|
|
4.08 |
% |
|
|
3.84 |
% |
|
Maximum month-end balance during the year
|
|
$ |
304 |
|
|
$ |
212 |
|
|
Average balance outstanding during the year
|
|
|
1,358 |
|
|
|
93 |
|
|
Weighted average interest rate during the year
|
|
|
3.59 |
% |
|
|
3.59 |
% |
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 |
% |
79
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
At December 31, 2005, the Corporation had
available a $250 million commercial paper facility, with no
outstanding borrowings. This facility is supported by a
$245 million line of credit agreement. Under the current
agreement, the line will expire in May 2006.
At December 31, 2005, the Corporations
subsidiary banks had pledged loans totaling $19 billion to
secure a $15 billion collateralized borrowing account with
the Federal Reserve Bank.
Note 10 Medium- and
Long-Term Debt
Medium- and long-term debt are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Parent company
|
|
|
|
|
|
|
|
|
|
7.25% subordinated note due 2007
|
|
$ |
155 |
|
|
$ |
163 |
|
|
4.80% subordinated note due 2015
|
|
|
298 |
|
|
|
304 |
|
|
7.60% subordinated note due 2050
|
|
|
360 |
|
|
|
357 |
|
|
|
|
|
|
|
|
Total parent company
|
|
|
813 |
|
|
|
824 |
|
Subsidiaries
|
|
|
|
|
|
|
|
|
Subordinated notes:
|
|
|
|
|
|
|
|
|
|
7.25% subordinated note due 2007
|
|
|
205 |
|
|
|
216 |
|
|
6.00% subordinated note due 2008
|
|
|
257 |
|
|
|
270 |
|
|
6.875% subordinated note due 2008
|
|
|
104 |
|
|
|
109 |
|
|
8.50% subordinated note due 2009
|
|
|
103 |
|
|
|
107 |
|
|
7.65% subordinated note due 2010
|
|
|
|
|
|
|
256 |
|
|
7.125% subordinated note due 2013
|
|
|
160 |
|
|
|
169 |
|
|
5.70% subordinated note due 2014
|
|
|
255 |
|
|
|
262 |
|
|
5.20% subordinated note due 2017
|
|
|
250 |
|
|
|
|
|
|
8.375% subordinated note due 2024
|
|
|
189 |
|
|
|
197 |
|
|
7.875% subordinated note due 2026
|
|
|
200 |
|
|
|
200 |
|
|
9.98% subordinated note due 2026
|
|
|
58 |
|
|
|
58 |
|
|
|
|
|
|
|
|
Total subordinated notes
|
|
|
1,781 |
|
|
|
1,844 |
|
Medium-term notes due 2005 to 2007:
|
|
|
|
|
|
|
|
|
|
Floating rate based on LIBOR indices
|
|
|
100 |
|
|
|
385 |
|
|
2.95% fixed rate note
|
|
|
98 |
|
|
|
99 |
|
|
2.85% fixed rate note
|
|
|
98 |
|
|
|
99 |
|
Variable rate secured debt financing due 2007
|
|
|
1,056 |
|
|
|
1,017 |
|
Variable rate note payable due 2009
|
|
|
15 |
|
|
|
18 |
|
|
|
|
|
|
|
|
Total subsidiaries
|
|
|
3,148 |
|
|
|
3,462 |
|
|
|
|
|
|
|
|
Total medium- and long-term debt
|
|
$ |
3,961 |
|
|
$ |
4,286 |
|
|
|
|
|
|
|
|
80
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 | |
|
12/31/05 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Parent company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.25% subordinated note due 2007
|
|
$ |
150 |
|
|
|
6-month LIBOR |
|
|
|
4.70 |
% |
|
4.80% subordinated note due 2015
|
|
|
300 |
|
|
|
6-month LIBOR |
|
|
|
4.70 |
|
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.25% subordinated note due 2007
|
|
|
200 |
|
|
|
6-month LIBOR |
|
|
|
4.70 |
|
|
6.00% subordinated note due 2008
|
|
|
250 |
|
|
|
6-month LIBOR |
|
|
|
4.70 |
|
|
6.875% subordinated note due 2008
|
|
|
100 |
|
|
|
6-month LIBOR |
|
|
|
4.70 |
|
|
8.50% subordinated note due 2009
|
|
|
100 |
|
|
|
3-month LIBOR |
|
|
|
4.54 |
|
|
7.125% subordinated note due 2013
|
|
|
150 |
|
|
|
6-month LIBOR |
|
|
|
4.70 |
|
|
5.70% subordinated note due 2014
|
|
|
250 |
|
|
|
6-month LIBOR |
|
|
|
4.70 |
|
|
5.20% subordinated note due 2017
|
|
|
250 |
|
|
|
6-month LIBOR |
|
|
|
4.70 |
|
|
8.375% subordinated note due 2024
|
|
|
150 |
|
|
|
6-month LIBOR |
|
|
|
4.70 |
|
|
7.875% subordinated note due 2026
|
|
|
150 |
|
|
|
6-month LIBOR |
|
|
|
4.70 |
|
Medium-term notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.95% fixed rate note
|
|
|
100 |
|
|
|
3-month LIBOR |
|
|
|
4.54 |
|
|
2.85% fixed rate note
|
|
|
100 |
|
|
|
3-month LIBOR |
|
|
|
4.54 |
|
In August 2005, Comerica Bank (the
Bank), a subsidiary of the Corporation, exercised
its option to redeem, at par, a $250 million,
7.65% Subordinated Note, which was classified in medium-
and long-term debt and had a maturity date of 2010.
In August 2005, the Bank issued $250 million
of 5.20% Subordinated Notes, which are classified in
medium- and long-term debt. The notes pay interest on February
22 and August 22 of each year, beginning with February 22,
2006, and mature August 22, 2017. The 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). These notes 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 30 years. The interest rate on the
floating rate medium-term note based on LIBOR at
December 31, 2005 was three-month LIBOR plus 0.11%. The
medium-term notes are due from 2006 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
81
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
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.
The principal maturities of medium- and long-term
debt are as follows:
|
|
|
|
|
|
|
|
Years Ending | |
|
|
December 31 | |
|
|
| |
|
|
(in millions) | |
2006
|
|
$ |
200 |
|
2007
|
|
|
1,440 |
|
2008
|
|
|
350 |
|
2009
|
|
|
115 |
|
2010
|
|
|
|
|
Thereafter
|
|
|
1,725 |
|
|
|
|
|
|
Total
|
|
$ |
3,830 |
|
|
|
|
|
Note 11 Shareholders
Equity
The Board of Directors of the Corporation
authorized the purchase of up to 10 million shares of
Comerica Incorporated outstanding common stock on
March 23, 2004, and again on July 26, 2005.
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. There is no
expiration date for the Corporations share repurchase
program. Repurchases totaled 9.0 million shares,
6.5 million shares and 0.5 million shares in the years
ended December 31, 2005, 2004 and 2003, respectively. The
following table summarizes the Corporations share
repurchase activity for the year ended December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares Purchased as | |
|
Remaining Share | |
|
|
Total Shares | |
|
Average Price | |
|
Part of Publicly Announced | |
|
Repurchase | |
Month ending |
|
Purchased | |
|
Paid Per Share | |
|
Repurchase Plan | |
|
Authorization (1) | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(shares in millions) | |
January 31, 2005
|
|
|
0.2 |
|
|
$ |
57.11 |
|
|
|
0.2 |
|
|
|
8.1 |
|
February 28, 2005
|
|
|
0.7 |
|
|
|
57.90 |
|
|
|
0.7 |
|
|
|
7.4 |
|
March 31, 2005
|
|
|
1.2 |
|
|
|
55.91 |
|
|
|
1.2 |
|
|
|
6.2 |
|
April 30, 2005
|
|
|
0.2 |
|
|
|
56.25 |
|
|
|
0.2 |
|
|
|
6.0 |
|
May 31, 2005
|
|
|
0.9 |
|
|
|
56.70 |
|
|
|
0.9 |
|
|
|
5.1 |
|
June 30, 2005
|
|
|
0.9 |
|
|
|
57.43 |
|
|
|
0.9 |
|
|
|
4.2 |
|
July 31, 2005 (2)
|
|
|
|
|
|
|
62.39 |
|
|
|
|
|
|
|
14.1 |
|
August 31, 2005
|
|
|
0.8 |
|
|
|
60.10 |
|
|
|
0.8 |
|
|
|
13.3 |
|
September 30, 2005
|
|
|
1.6 |
|
|
|
60.17 |
|
|
|
1.6 |
|
|
|
11.7 |
|
October 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.7 |
|
November 30, 2005
|
|
|
1.3 |
|
|
|
58.71 |
|
|
|
1.3 |
|
|
|
10.4 |
|
December 31, 2005
|
|
|
1.2 |
|
|
|
57.40 |
|
|
|
1.2 |
|
|
|
9.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9.0 |
|
|
$ |
58.09 |
|
|
|
9.0 |
|
|
|
9.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Maximum number of shares that may yet be
purchased under the plans or programs.
|
|
(2) |
Remaining share repurchase authorization includes
the July 26, 2005 Board of Directors resolution for the
repurchase of an additional 10 million shares.
|
82
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
At December 31, 2005, the Corporation had
23.3 million shares of common stock reserved for issuance
and 838 thousand shares of restricted stock outstanding to
employees and directors under the long-term incentive plans.
Note 12 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 65 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, 2005, 2004 and 2003. Total comprehensive
income totaled $760 million, $614 million and
$498 million, for the years ended December 31, 2005,
2004 and 2003, respectively. The $146 million increase in
total comprehensive income in the year ended December 31,
2005, when compared to the same period in the prior year,
resulted principally from an increase in net income
($104 million) and a decrease in net losses on cash flow
hedges ($55 million), partially offset by an increase in
net unrealized losses on investment securities
available-for-sale ($24 million), due to changes in the
interest rate environment.
For a further discussion of the effect of
derivative instruments on other comprehensive income (loss) see
Notes 1 and 19 on pages 67 and 96, respectively.
83
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Accumulated net unrealized gains (losses) on
investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year, net of tax
|
|
$ |
(34 |
) |
|
$ |
(23 |
) |
|
$ |
15 |
|
|
|
Net unrealized holding gains (losses) arising
during the year
|
|
|
(53 |
) |
|
|
(17 |
) |
|
|
(8 |
) |
|
|
Less: Reclassification adjustment for gains
(losses) included in net income
|
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gains (losses) before
income taxes
|
|
|
(53 |
) |
|
|
(17 |
) |
|
|
(58 |
) |
|
|
Less: Provision for income taxes
|
|
|
(18 |
) |
|
|
(6 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gains (losses) on
investment securities available-for-sale, net of tax
|
|
|
(35 |
) |
|
|
(11 |
) |
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year, net of tax
|
|
$ |
(69 |
) |
|
$ |
(34 |
) |
|
$ |
(23 |
) |
Accumulated net gains (losses) on cash flow
hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year, net of tax
|
|
$ |
(16 |
) |
|
$ |
114 |
|
|
$ |
241 |
|
|
|
Net cash flow hedge gains (losses) arising during
the year
|
|
|
(117 |
) |
|
|
(18 |
) |
|
|
90 |
|
|
|
Less: Reclassification adjustment for gains
(losses) included in net income
|
|
|
(2 |
) |
|
|
182 |
|
|
|
285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net cash flow hedge gains (losses)
before income taxes
|
|
|
(115 |
) |
|
|
(200 |
) |
|
|
(195 |
) |
|
|
Less: Provision for income taxes
|
|
|
(40 |
) |
|
|
(70 |
) |
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Change in net cash flow hedge gains (losses), net
of tax
|
|
|
(75 |
) |
|
|
(130 |
) |
|
|
(127 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year, net of tax
|
|
$ |
(91 |
) |
|
$ |
(16 |
) |
|
$ |
114 |
|
Accumulated foreign currency translation
adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$ |
(6 |
) |
|
$ |
(4 |
) |
|
$ |
(3 |
) |
|
|
Net translation gains (losses) arising during the
year
|
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustment
|
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
(7 |
) |
|
$ |
(6 |
) |
|
$ |
(4 |
) |
Accumulated minimum pension liability
adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year, net of tax
|
|
$ |
(13 |
) |
|
$ |
(13 |
) |
|
$ |
(16 |
) |
|
|
Minimum pension liability adjustment arising
during the year before income taxes
|
|
|
15 |
|
|
|
|
|
|
|
5 |
|
|
|
Less: Provision for income taxes
|
|
|
5 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in minimum pension liability, net of tax
|
|
|
10 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year, net of tax
|
|
$ |
(3 |
) |
|
$ |
(13 |
) |
|
$ |
(13 |
) |
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
(loss) at end of year,
net of tax
|
|
$ |
(170 |
) |
|
$ |
(69 |
) |
|
$ |
74 |
|
|
|
|
|
|
|
|
|
|
|
Note 13 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
84
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
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 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions, except per | |
|
|
share data) | |
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock
|
|
$ |
861 |
|
|
$ |
757 |
|
|
$ |
661 |
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
167 |
|
|
|
172 |
|
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$ |
5.17 |
|
|
$ |
4.41 |
|
|
$ |
3.78 |
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock
|
|
$ |
861 |
|
|
$ |
757 |
|
|
$ |
661 |
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
167 |
|
|
|
172 |
|
|
|
175 |
|
|
Nonvested stock
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Common stock equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of the assumed exercise of stock
options
|
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average common shares
|
|
|
169 |
|
|
|
174 |
|
|
|
176 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$ |
5.11 |
|
|
$ |
4.36 |
|
|
$ |
3.75 |
|
|
|
|
|
|
|
|
|
|
|
Options to purchase an
average 6.1 million, 6.2 million and
9.2 million shares of common stock at exercise prices
ranging from $57.99 $71.58, $57.60
$71.58 and $46.25 $71.58 were outstanding during the
years ended December 31, 2005, 2004 and 2003, 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 14 Share-Based
Compensation
The Corporation has share-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 share-based compensation included in the
determination of net income for 2005, 2004 and 2003 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 share-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 67.
In the second quarter 2005, the Corporation
changed the model used to value its stock option grants from a
Black-Scholes option pricing model to a binomial option pricing
model for all stock options granted subsequent to March 31,
2005. The binomial model considers characteristics of fair value
option pricing that
85
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
are not recognized under the Black-Scholes model,
and thus provides an estimated fair value option pricing that is
more representative of actual experience and future expected
experience. The after-tax decrease in compensation expense as a
result of this change was nominal in the year ended
December 31, 2005.
The fair value of stock options granted prior to
April 1, 2005 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.
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 subsequent
to March 31, 2005 was estimated using the binomial option
pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
Period from | |
|
|
April 1, 2005 | |
|
|
to December 31, 2005 | |
|
|
| |
Risk-free interest rates
|
|
|
4.44 |
% |
Expected dividend yield
|
|
|
3.85 |
|
Expected volatility factors of the market price
of Comerica common stock
|
|
|
29 |
|
Expected option life (in years)
|
|
|
6.5 |
|
The fair value of the options granted prior to
April 1, 2005 was estimated using the Black-Scholes option
pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended | |
|
|
Period from | |
|
December 31 | |
|
|
January 1, 2005 | |
|
| |
|
|
to March 31, 2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Risk-free interest rate
|
|
|
4.06 |
% |
|
|
3.52 |
% |
|
|
3.08 |
% |
Expected dividend yield
|
|
|
3.51 |
|
|
|
3.28 |
|
|
|
2.83 |
|
Expected volatility factors of the market price
of Comerica common stock
|
|
|
28 |
|
|
|
31 |
|
|
|
33 |
|
Expected option life (in years)
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
5.0 |
|
86
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
A summary of the Corporations stock option
activity, and related information for each of the three years in
the period ended December 31, 2005 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average | |
|
|
|
|
per Share | |
|
|
|
|
| |
|
|
Number of | |
|
Exercise | |
|
Market | |
|
|
Options | |
|
Price | |
|
Price | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
|
|
|
|
Outstanding January 1, 2003
|
|
|
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 |
|
|
Granted (weighted-average grant fair value of
$13.56)
|
|
|
3,005 |
|
|
|
55.04 |
|
|
|
55.04 |
|
|
Forfeited
|
|
|
(530 |
) |
|
|
54.90 |
|
|
|
57.98 |
|
|
Exercised
|
|
|
(1,258 |
) |
|
|
34.16 |
|
|
|
59.01 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2005
|
|
|
18,291 |
|
|
$ |
53.64 |
|
|
$ |
56.76 |
|
|
|
|
|
|
|
|
|
|
|
Exercisable December 31, 2004
|
|
|
10,933 |
|
|
$ |
52.86 |
|
|
|
|
|
Exercisable December 31, 2005
|
|
|
11,747 |
|
|
|
54.40 |
|
|
|
|
|
Available for grant December 31,
2004
|
|
|
7,882 |
|
|
|
|
|
|
|
|
|
Available for grant December 31,
2005
|
|
|
5,024 |
|
|
|
|
|
|
|
|
|
The table below summarizes information about
stock options outstanding at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) | |
|
|
$16.76 $16.94
|
|
|
22 |
|
|
|
0.4 |
|
|
$ |
16.82 |
|
|
|
22 |
|
|
$ |
16.82 |
|
25.42 38.85
|
|
|
556 |
|
|
|
0.6 |
|
|
|
26.34 |
|
|
|
555 |
|
|
|
26.32 |
|
40.09 49.73
|
|
|
4,472 |
|
|
|
5.2 |
|
|
|
40.89 |
|
|
|
3,275 |
|
|
|
41.08 |
|
51.02 59.87
|
|
|
7,339 |
|
|
|
7.9 |
|
|
|
53.38 |
|
|
|
2,539 |
|
|
|
52.17 |
|
60.09 66.81
|
|
|
4,415 |
|
|
|
5.1 |
|
|
|
64.56 |
|
|
|
3,869 |
|
|
|
64.78 |
|
69.00 71.58
|
|
|
1,487 |
|
|
|
2.2 |
|
|
|
71.58 |
|
|
|
1,487 |
|
|
|
71.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
18,291 |
|
|
|
5.9 |
|
|
$ |
53.64 |
|
|
|
11,747 |
|
|
$ |
54.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Weighted average contractual life remaining in
years.
|
In addition, the Corporation awarded 279
thousand, 257 thousand and 225 thousand shares of restricted
stock in 2005, 2004 and 2003, respectively. The fair value of
these shares at grant date was $15 million in 2005,
$14 million in 2004 and $9 million in 2003.
Total compensation cost recognized for
share-based employee compensation was $45 million,
$34 million and $28 million in 2005, 2004 and 2003,
respectively.
87
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 15 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
$31 million, $16 million and $26 million in 2005,
2004 and 2003, 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. Treasury and other Government agency securities,
Government-sponsored enterprise 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.
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 effects of the
Act had an immaterial impact on net periodic benefits cost for
the year ended December 31, 2005.
88
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
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, 2005 for these plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified | |
|
Non-Qualified | |
|
|
|
|
Defined Benefit | |
|
Defined Benefit | |
|
Postretirement | |
|
|
Pension Plan | |
|
Pension Plan | |
|
Benefit Plan | |
|
|
| |
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at January 1
|
|
$ |
945 |
|
|
$ |
831 |
|
|
$ |
103 |
|
|
$ |
92 |
|
|
$ |
78 |
|
|
$ |
82 |
|
Service cost
|
|
|
29 |
|
|
|
24 |
|
|
|
4 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
55 |
|
|
|
50 |
|
|
|
5 |
|
|
|
6 |
|
|
|
4 |
|
|
|
5 |
|
Actuarial (gain) loss
|
|
|
48 |
|
|
|
52 |
|
|
|
15 |
|
|
|
3 |
|
|
|
3 |
|
|
|
(3 |
) |
Benefits paid
|
|
|
(30 |
) |
|
|
(28 |
) |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(6 |
) |
|
|
(6 |
) |
Plan change
|
|
|
19 |
|
|
|
16 |
|
|
|
(19 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at December 31
|
|
$ |
1,066 |
|
|
$ |
945 |
|
|
$ |
104 |
|
|
$ |
103 |
|
|
$ |
79 |
|
|
$ |
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1
|
|
$ |
999 |
|
|
$ |
853 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
84 |
|
|
$ |
82 |
|
Actual return on plan assets
|
|
|
66 |
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
5 |
|
Employer contributions
|
|
|
58 |
|
|
|
62 |
|
|
|
4 |
|
|
|
3 |
|
|
|
2 |
|
|
|
3 |
|
Benefits paid
|
|
|
(30 |
) |
|
|
(28 |
) |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(6 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at December 31
|
|
$ |
1,093 |
|
|
$ |
999 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
83 |
|
|
$ |
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$ |
913 |
|
|
$ |
828 |
|
|
$ |
73 |
|
|
$ |
82 |
|
|
$ |
79 |
|
|
$ |
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The plan change of $19 million in 2005
reflects a periodic reallocation of exposure from the
non-qualified pension plan to the qualified pension plan. In
2004, the plan change was due to a change in the normal
retirement age 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 at December 31, 2005 and 2004.
89
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 | |
|
|
| |
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Funded status at December 31*
|
|
$ |
27 |
|
|
$ |
54 |
|
|
$ |
(104 |
) |
|
$ |
(103 |
) |
|
$ |
4 |
|
|
$ |
6 |
|
Unrecognized net loss
|
|
|
349 |
|
|
|
295 |
|
|
|
50 |
|
|
|
40 |
|
|
|
18 |
|
|
|
15 |
|
Unrecognized net transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
34 |
|
Unrecognized prior service cost
|
|
|
44 |
|
|
|
32 |
|
|
|
(15 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid (accrued) benefit cost
|
|
$ |
420 |
|
|
$ |
381 |
|
|
$ |
(69 |
) |
|
$ |
(60 |
) |
|
$ |
52 |
|
|
$ |
55 |
|
Accrued minimum benefit liability
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
(21 |
) |
|
|
|
|
|
|
|
|
Intangible asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$ |
420 |
|
|
$ |
381 |
|
|
$ |
(69 |
) |
|
$ |
(60 |
) |
|
$ |
52 |
|
|
$ |
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Based on projected benefit obligation
|
Components of net periodic benefit cost (income)
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
Qualified | |
|
Non-Qualified | |
|
|
Defined Benefit | |
|
Defined Benefit | |
|
|
Pension Plan | |
|
Pension Plan | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Service cost
|
|
$ |
29 |
|
|
$ |
24 |
|
|
$ |
20 |
|
|
$ |
4 |
|
|
$ |
3 |
|
|
$ |
3 |
|
Interest cost
|
|
|
55 |
|
|
|
50 |
|
|
|
47 |
|
|
|
5 |
|
|
|
6 |
|
|
|
5 |
|
Expected return on plan assets
|
|
|
(91 |
) |
|
|
(84 |
) |
|
|
(69 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized prior service cost
|
|
|
6 |
|
|
|
2 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
Immediate recognition of benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Amortization of unrecognized net loss
|
|
|
20 |
|
|
|
12 |
|
|
|
13 |
|
|
|
5 |
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$ |
19 |
|
|
$ |
4 |
|
|
$ |
13 |
|
|
$ |
12 |
|
|
$ |
12 |
|
|
$ |
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in minimum liability included
in other comprehensive income/loss
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(13 |
) |
|
$ |
|
|
|
$ |
(3 |
) |
Actual return on plan assets
|
|
|
66 |
|
|
|
112 |
|
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
90
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
Postretirement Benefit Plan | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Interest cost
|
|
$ |
4 |
|
|
$ |
5 |
|
|
$ |
5 |
|
Expected return on plan assets
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
Amortization of unrecognized transition obligation
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
Amortization of unrecognized net loss
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$ |
5 |
|
|
$ |
6 |
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
Additional information:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in minimum liability included
in other
comprehensive income/loss
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Actual return on plan assets
|
|
|
3 |
|
|
|
5 |
|
|
|
8 |
|
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 | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Discount rate used in determining benefit
obligation
|
|
|
5.5 |
% |
|
|
5.8 |
% |
|
|
6.1 |
% |
|
|
5.5 |
% |
|
|
5.8 |
% |
|
|
6.1 |
% |
Rate of compensation increase
|
|
|
4.0 |
|
|
|
4.0 |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine
net cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
Qualified and | |
|
|
|
|
Non-Qualified | |
|
|
|
|
Defined Benefit | |
|
Postretirement | |
|
|
Pension Plans | |
|
Benefit Plan | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Discount rate used in determining net cost
|
|
|
5.8 |
% |
|
|
6.1 |
% |
|
|
6.8 |
% |
|
|
5.8 |
% |
|
|
6.1 |
% |
|
|
6.8 |
% |
Expected return on plan assets
|
|
|
8.8 |
|
|
|
8.8 |
|
|
|
8.8 |
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
5.0 |
|
Rate of compensation increase
|
|
|
4.0 |
|
|
|
4.0 |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Assumed healthcare and prescription drug cost
trend rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
Prescription | |
|
|
Healthcare | |
|
Drug | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Cost trend rate assumed for next year
|
|
|
7 |
% |
|
|
7 |
% |
|
|
12 |
% |
|
|
12 |
% |
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
|
|
|
2012 |
|
|
|
2010 |
|
|
|
2012 |
|
|
|
2010 |
|
91
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
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 2005
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
|
|
$ |
7 |
|
|
$ |
(6 |
) |
Effect on total service and interest cost
|
|
|
|
|
|
|
|
|
Plan
Assets
The Corporations qualified defined benefit
pension plan asset allocations at December 31, 2005 and
2004 and target allocation for 2006 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 |
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
Equity securities
|
|
|
55 65 |
% |
|
|
65 |
% |
|
|
64 |
% |
Fixed income, including cash
|
|
|
30 40 |
|
|
|
33 |
|
|
|
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 2006 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.
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) | |
2006
|
|
$ |
25 |
|
|
$ |
4 |
|
|
$ |
7 |
|
|
|
* |
Estimated employer contributions in the
postretirement benefit plan do not include settlements on death
claims.
|
92
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
Qualified | |
|
Non-Qualified | |
|
|
|
|
Defined Benefit | |
|
Defined Benefit | |
|
Postretirement | |
Estimated Future Benefit Payments |
|
Pension Plan | |
|
Pension Plan | |
|
Benefit Plan* | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
2006
|
|
$ |
31 |
|
|
$ |
4 |
|
|
$ |
7 |
|
2007
|
|
|
34 |
|
|
|
4 |
|
|
|
7 |
|
2008
|
|
|
36 |
|
|
|
4 |
|
|
|
7 |
|
2009
|
|
|
40 |
|
|
|
5 |
|
|
|
7 |
|
2010
|
|
|
43 |
|
|
|
5 |
|
|
|
7 |
|
2011 2015
|
|
|
278 |
|
|
|
33 |
|
|
|
33 |
|
|
|
* |
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 for the plans of
$17 million in 2005, $15 million in 2004 and
$13 million in 2003.
Note 16 Income
Taxes
The current and deferred components of the
provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
354 |
|
|
$ |
230 |
|
|
$ |
201 |
|
|
Foreign
|
|
|
16 |
|
|
|
6 |
|
|
|
18 |
|
|
State and local
|
|
|
32 |
|
|
|
(2 |
) |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
402 |
|
|
|
234 |
|
|
|
242 |
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
23 |
|
|
|
107 |
|
|
|
54 |
|
|
State and local
|
|
|
(7 |
) |
|
|
12 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
16 |
|
|
|
119 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
418 |
|
|
$ |
353 |
|
|
$ |
292 |
|
|
|
|
|
|
|
|
|
|
|
There was a nominal income tax provision on
securities transactions in both 2005 and 2004, compared to a tax
provision of $18 million in 2003.
93
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
The principal components of deferred tax assets
and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$ |
189 |
|
|
$ |
240 |
|
Deferred loan origination fees and costs
|
|
|
42 |
|
|
|
42 |
|
Other comprehensive income
|
|
|
88 |
|
|
|
33 |
|
Employee benefits
|
|
|
2 |
|
|
|
6 |
|
Foreign tax credit
|
|
|
39 |
|
|
|
41 |
|
Other temporary differences, net
|
|
|
85 |
|
|
|
81 |
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
445 |
|
|
|
443 |
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Lease financing transactions
|
|
|
593 |
|
|
|
627 |
|
Allowance for depreciation
|
|
|
12 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
605 |
|
|
|
641 |
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$ |
160 |
|
|
$ |
198 |
|
|
|
|
|
|
|
|
The 2004 deferred tax balance has been adjusted
to include a reclassification of foreign tax credits eligible
for carryback and carryover.
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 | |
|
|
| |
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
Amount | |
|
Rate | |
|
Amount | |
|
Rate | |
|
Amount | |
|
Rate | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Tax based on federal statutory rate
|
|
$ |
448 |
|
|
|
35.0 |
% |
|
$ |
389 |
|
|
|
35.0 |
% |
|
$ |
333 |
|
|
|
35.0 |
% |
State income taxes
|
|
|
16 |
|
|
|
1.3 |
|
|
|
6 |
|
|
|
0.6 |
|
|
|
12 |
|
|
|
1.2 |
|
Affordable housing credit
|
|
|
(24 |
) |
|
|
(1.9 |
) |
|
|
(22 |
) |
|
|
(1.9 |
) |
|
|
(19 |
) |
|
|
(2.0 |
) |
Bank-owned life insurance
|
|
|
(15 |
) |
|
|
(1.1 |
) |
|
|
(14 |
) |
|
|
(1.2 |
) |
|
|
(16 |
) |
|
|
(1.7 |
) |
Effect of tax-exempt interest income
|
|
|
(2 |
) |
|
|
(0.2 |
) |
|
|
(2 |
) |
|
|
(0.2 |
) |
|
|
(2 |
) |
|
|
(0.2 |
) |
United Kingdom tax credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
(0.9 |
) |
Other
|
|
|
(5 |
) |
|
|
(0.4 |
) |
|
|
(4 |
) |
|
|
(0.5 |
) |
|
|
(7 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$ |
418 |
|
|
|
32.7 |
% |
|
$ |
353 |
|
|
|
31.8 |
% |
|
$ |
292 |
|
|
|
30.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 17 Transactions With
Related Parties
The Corporations banking 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, 2005,
totaled $228 million at the beginning and $152 million
at the end of 2005. During 2005, new loans to related parties
aggregated $486 million and repayments totaled
$562 million.
94
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 18 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 banking
subsidiaries. The average required reserve balances were
$289 million and $264 million for the years ended
December 31, 2005 and 2004, 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 $240 million at
January 1, 2006, plus 2006 net profits. Substantially
all the assets of the Corporations banking 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 $793 million,
$691 million and $354 million in 2005, 2004 and 2003,
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,
2005 and 2004, the Corporation and its U.S. 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 Comerica Bank, its significant
banking subsidiary.
95
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
Comerica Incorporated | |
|
Comerica | |
|
|
(Consolidated) | |
|
Bank | |
|
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
December 31, 2005
|
|
|
|
|
|
|
|
|
|
Tier 1 common capital
|
|
$ |
5,023 |
|
|
$ |
5,172 |
|
|
Tier 1 capital
|
|
|
5,410 |
|
|
|
5,492 |
|
|
Total capital
|
|
|
7,510 |
|
|
|
7,251 |
|
|
Risk-weighted assets
|
|
|
63,915 |
|
|
|
63,819 |
|
|
Average assets (fourth quarter)
|
|
|
54,157 |
|
|
|
53,898 |
|
|
Tier 1 common capital to risk-weighted assets
|
|
|
7.86 |
% |
|
|
8.10 |
% |
|
Tier 1 capital to risk-weighted assets
(minimum-4.0%)
|
|
|
8.46 |
|
|
|
8.61 |
|
|
Total capital to risk-weighted assets
(minimum-8.0%)
|
|
|
11.75 |
|
|
|
11.36 |
|
|
Tier 1 capital to average assets
(minimum-3.0%)
|
|
|
9.99 |
|
|
|
10.19 |
|
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 |
|
Note 19 Derivative and
Credit-Related Financial Instruments
In the normal course of business, the Corporation
enters into various transactions involving derivative 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 instruments 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 instruments 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 and energy
prices, 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.
96
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Market risk arising from derivative instruments
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 instruments held or issued for risk management
purposes is generally offset by changes in the value of rate
sensitive assets or liabilities.
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, 2005.
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 21 percent ($9 billion) of the
Corporations outstanding loans were designated as hedged
items to interest rate swap agreements at December 31,
2005. For the year ended December 31, 2005, interest rate
swap agreements designated as cash flow hedges decreased
interest and fees on loans by $2 million, compared with an
increase of $182 million for the year ended
December 31, 2004. Other noninterest income in the year
ended December 31, 2005 included $1 million of
ineffective cash flow hedge net gains. If interest rates,
interest yield curves and notional amounts remain at their
current levels, the Corporation expects to reclassify
$62 million of net losses on derivative instruments, that
are designated as cash flow hedges, from accumulated other
comprehensive income (loss) to earnings during the next twelve
months due to receipt of variable interest associated with the
existing and forecasted floating-rate loans.
Foreign exchange rate risk arises from changes in
the value of certain assets and liabilities denominated in
foreign currencies. The Corporation employs cash instruments,
such as investment securities, as well as derivative
instruments, to manage exposure to these and other risks. 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 foreign exchange forward and option
contracts used to protect the value of investments in foreign
subsidiaries are not included in the statement of income, but
are shown in the accumulated foreign currency translation
adjustment account included in other comprehensive income
(loss), with the related amounts due to or from counterparties
included in other liabilities or other assets. During the year
ended December 31, 2005, the Corporation recognized
$4 million of net losses in accumulated foreign currency
translation adjustment, related to the foreign exchange forward
and option contracts, compared to $2 million of net losses
during the year ended December 31, 2004.
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.
97
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
The following table presents the composition of
derivative instruments, excluding commitments, held or issued
for risk management purposes at December 31, 2005 and 2004.
The fair values of all derivative instruments are reflected in
the consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional/ | |
|
|
|
|
|
|
|
|
Contract | |
|
Unrealized | |
|
Unrealized | |
|
Fair | |
|
|
Amount | |
|
Gains | |
|
Losses | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps cash flow
|
|
$ |
9,205 |
|
|
$ |
|
|
|
$ |
144 |
|
|
$ |
(144 |
) |
|
|
Swaps fair value
|
|
|
2,250 |
|
|
|
107 |
|
|
|
4 |
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest rate contracts
|
|
|
11,455 |
|
|
|
107 |
|
|
|
148 |
|
|
|
(41 |
) |
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spot and forwards
|
|
|
367 |
|
|
|
3 |
|
|
|
8 |
|
|
|
(5 |
) |
|
|
Swaps
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreign exchange contracts
|
|
|
440 |
|
|
|
3 |
|
|
|
8 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk management
|
|
$ |
11,895 |
|
|
$ |
110 |
|
|
$ |
156 |
|
|
$ |
(46 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps cash flow
|
|
$ |
9,930 |
|
|
$ |
17 |
|
|
$ |
59 |
|
|
$ |
(42 |
) |
|
|
Swaps fair value
|
|
|
2,157 |
|
|
|
201 |
|
|
|
|
|
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest rate contracts
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 instruments.
Bilateral collateral agreements with
counterparties covered 85 percent and 83 percent of
the notional amount of interest rate derivative contracts at
December 31, 2005 and 2004, 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,
2005, 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 instruments.
98
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Fee income is earned from entering into various
transactions, principally foreign exchange contracts, interest
rate contracts, and energy derivative 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.
The following table presents the composition of
derivative instruments held or issued in connection with
customer-initiated and other activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional/ | |
|
|
|
|
|
|
|
|
Contract | |
|
Unrealized | |
|
Unrealized | |
|
Fair | |
|
|
Amount | |
|
Gains | |
|
Losses | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-initiated and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caps and floors written
|
|
$ |
267 |
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
(1 |
) |
|
|
Caps and floors purchased
|
|
|
267 |
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
Swaps
|
|
|
3,270 |
|
|
|
30 |
|
|
|
22 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest rate contracts
|
|
|
3,804 |
|
|
|
31 |
|
|
|
23 |
|
|
|
8 |
|
|
Energy derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caps and floors written
|
|
|
344 |
|
|
|
|
|
|
|
32 |
|
|
|
(32 |
) |
|
|
Caps and floors purchased
|
|
|
344 |
|
|
|
32 |
|
|
|
|
|
|
|
32 |
|
|
|
Swaps
|
|
|
291 |
|
|
|
12 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total energy derivative contracts
|
|
|
979 |
|
|
|
44 |
|
|
|
44 |
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spot, forwards, futures and options
|
|
|
5,568 |
|
|
|
33 |
|
|
|
35 |
|
|
|
(2 |
) |
|
|
Swaps
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreign exchange contracts
|
|
|
5,589 |
|
|
|
33 |
|
|
|
35 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total customer-initiated and other
|
|
$ |
10,372 |
|
|
$ |
108 |
|
|
$ |
102 |
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair values for customer-initiated and other
derivative instruments 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
99
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
and unrealized losses and noninterest income
generated on customer-initiated and other interest rate
contracts, energy derivative contracts and foreign exchange
contracts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended | |
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Average unrealized gains
|
|
$ |
79 |
|
|
$ |
81 |
|
Average unrealized losses
|
|
|
75 |
|
|
|
71 |
|
Noninterest income
|
|
|
39 |
|
|
|
34 |
|
Detailed discussions of each class of derivative
instruments 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. All interest rate caps and floors entered into
by the Corporation are over-the-counter agreements.
|
|
|
Foreign Exchange Contracts |
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 owner 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 uses foreign exchange rate swaps and
cross-currency swaps for risk management purposes.
|
|
|
Energy Derivative Contracts |
The Corporation offers energy derivative
contracts, including over-the-counter and NYMEX based natural
gas and crude oil fixed rate swaps and options as a service to
customers seeking to hedge market risk in the underlying
products. Contract tenors are typically limited to three years
to accommodate hedge requirements and are further limited to
products that are liquid and available on demand. Energy
derivative swaps are over-the-counter agreements in which the
Corporation and the counterparty periodically exchange fixed
cash payments for variable payments based upon a designated
market price or index. Energy derivative option contracts grant
the option owner the right to buy or sell the underlying
commodity for a predetermined price at settlement date. Energy
caps, floors and collars are option-based contracts that result
in the buyer and seller of the contract receiving or making cash
payments based on the difference between a designated reference
price
100
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
and the contracted strike price, applied to a
notional amount. An option fee or premium is received by the
Corporation at inception for assuming the risk of unfavorable
changes in energy commodity prices. Purchased options contain
both credit and market risk. Commodity options entered into by
the Corporation are over-the-counter agreements.
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 totaling
$6 million at December 31, 2005 and $4 million at
December 31, 2004. Commitments to sell investment
securities related to the trading account totaled
$6 million at December 31, 2005 and $4 million at
December 31, 2004. Outstanding commitments expose the
Corporation to both credit and market risk.
Credit-Related Financial Instruments
The Corporation issues off-balance sheet
financial instruments in connection with commercial and consumer
lending activities. The Corporations credit risk
associated with these instruments is represented by the
contractual amounts indicated in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Unused commitments to extend credit:
|
|
|
|
|
|
|
|
|
|
Commercial and other
|
|
$ |
28,606 |
|
|
$ |
26,120 |
|
|
Bankcard, revolving check credit and equity
access loan commitments
|
|
|
2,003 |
|
|
|
2,229 |
|
|
|
|
|
|
|
|
|
Total unused commitments to extend credit
|
|
$ |
30,609 |
|
|
$ |
28,349 |
|
|
|
|
|
|
|
|
Standby letters of credit and financial
guarantees:
|
|
|
|
|
|
|
|
|
|
Maturing within one year
|
|
$ |
4,376 |
|
|
$ |
4,426 |
|
|
Maturing after one year
|
|
|
2,057 |
|
|
|
1,900 |
|
|
|
|
|
|
|
|
|
Total standby letters of credit and financial
guarantees
|
|
$ |
6,433 |
|
|
$ |
6,326 |
|
|
|
|
|
|
|
|
Commercial letters of credit
|
|
$ |
269 |
|
|
$ |
340 |
|
|
|
|
|
|
|
|
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, 2005 and 2004, the allowance
for credit losses on lending-related commitments, which is
recorded in accrued expenses and other liabilities
on the consolidated balance sheets, was $33 million and
$21 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. Commercial and other unused
commitments are primarily variable rate commitments.
101
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
|
|
|
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 are defined as those maturing beyond one
year and expire in decreasing amounts through the year 2015.
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 $529 million of the
$6,433 million standby letters of credit outstanding at
December 31, 2005. At December 31, 2005, 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 $77 million.
Note 20 Contingent
Liabilities
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 these 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.
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 challenged.
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 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. Probabilities and outcomes are reviewed as events
unfold, and adjustments to the reserves are made when necessary.
|
|
|
Lease Accounting Contingency |
A proposed FASB Staff Position
(No. FAS 13-a) was issued in July 2005 to address the
impact of a change or projected change in the timing of cash
flows related to income taxes generated by a leveraged lease
transaction. The proposed FASB Staff Position would require a
recalculation of lease income for changes in the timing of
expected cash flows related to income taxes, including interest
and penalties. The recalculation could
102
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
result in the recognition of a gain or loss in
earnings and the reclassification of the lease to a direct
financing lease. The impact on the Corporation will not be known
until the FASB issues final accounting guidance.
Note 21 Variable Interest
Entities (VIE) FIN 46(R)
The Corporation evaluates its interest in certain
entities to determine if these entities meet 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. These entities meet the FIN 46(R) definition of
a VIE, but the Corporation is not the primary beneficiary in
either of these entities. The trust preferred securities held by
these entities ($405 million at December 31, 2005) are
classified as subordinated debt. The Corporation is not exposed
to loss related to these VIEs. This debt qualifies 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. This entity meets the FIN 46(R)
definition of a VIE, and the Corporation is the primary
beneficiary of the entity. As such, the Corporation consolidates
PFLP. 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, 2005 was limited to approximately
$2 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 2001, 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 meet the FIN 46(R) definition of a
VIE, however, the Corporation is not the primary beneficiary of
the entities. As such, the Corporation accounts for its interest
in these partnerships on the cost method. These three entities
had approximately $224 million in assets at
December 31, 2005. Exposure to loss as a result of
involvement with these three entities at December 31, 2005
was limited to approximately $9 million of book basis of
the Corporations investments and approximately
$1 million of commitments for future investments.
The Corporation, as a limited partner, also holds
an insignificant ownership percentage interest in 105 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,
2005 was limited to approximately $85 million of book basis
of the Corporations investments and approximately
$37 million of commitments for future investments.
Two limited liability subsidiaries of the
Corporation are the general partners in two investment fund
partnerships, formed in 1999 and 2003. As general partner, these
subsidiaries manage the investments held by these funds. These
two investment partnerships meet the FIN 46(R) definition
of a VIE. In the investment fund partnership formed in 1999, the
Corporation is not the primary beneficiary of the entity. As
such, the Corporation accounts for its indirect interests in
this partnership on the cost method. This investment partnership
had approximately $178 million in assets at
December 31, 2005 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, 2005. 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, 2005 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, 2005.
103
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
The Corporation has a significant limited partner
interest in 22 low income housing tax credit/historic
rehabilitation tax credit partnerships, acquired at various
times from 1992 to 2003. These entities meet the FIN 46(R)
definition of a VIE. However, the Corporation is not the primary
beneficiary of the entities and, as such, accounts for its
interest in these partnerships on the cost or equity method.
These entities had approximately $144 million in assets at
December 31, 2005. Exposure to loss as a result of its
involvement with these entities at December 31, 2005 was
limited to approximately $24 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 86 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 accounts 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, 2005 was
limited to approximately $245 million of book basis of the
Corporations investment, which includes unfunded
commitments for future investments.
For further information on the companys
consolidation policy, see Note 1 on page 67.
Note 22 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
104
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
origination rates derived from the Treasury yield
curve or other representative bases. The resulting amounts are
adjusted to estimate the effect of changes in the credit quality
of borrowers since the loans were originated.
International loans:
The estimated fair value of the 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 analysis, 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
instruments: The estimated fair value
of interest rate and energy commodity 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, energy commodity and
foreign currency options (including caps, floors and collars) is
determined using option pricing models. All derivative
instruments 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.
105
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
The estimated fair values of the
Corporations financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Carrying | |
|
Estimated | |
|
Carrying | |
|
Estimated | |
|
|
Amount | |
|
Fair Value | |
|
Amount | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term investments
|
|
$ |
2,578 |
|
|
$ |
2,578 |
|
|
$ |
4,223 |
|
|
$ |
4,223 |
|
Trading securities
|
|
|
38 |
|
|
|
38 |
|
|
|
38 |
|
|
|
38 |
|
Loans held-for-sale
|
|
|
152 |
|
|
|
152 |
|
|
|
108 |
|
|
|
108 |
|
Investment securities available-for-sale
|
|
|
4,240 |
|
|
|
4,240 |
|
|
|
3,943 |
|
|
|
3,943 |
|
|
Commercial loans
|
|
|
23,545 |
|
|
|
23,257 |
|
|
|
22,039 |
|
|
|
21,622 |
|
Real estate construction loans
|
|
|
3,482 |
|
|
|
3,490 |
|
|
|
3,053 |
|
|
|
3,047 |
|
Commercial mortgage loans
|
|
|
8,867 |
|
|
|
8,866 |
|
|
|
8,236 |
|
|
|
8,253 |
|
Residential mortgage loans
|
|
|
1,485 |
|
|
|
1,465 |
|
|
|
1,294 |
|
|
|
1,278 |
|
Consumer loans
|
|
|
2,697 |
|
|
|
2,677 |
|
|
|
2,751 |
|
|
|
2,746 |
|
Lease financing
|
|
|
1,295 |
|
|
|
1,267 |
|
|
|
1,265 |
|
|
|
1,221 |
|
International loans
|
|
|
1,876 |
|
|
|
1,849 |
|
|
|
2,205 |
|
|
|
2,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
43,247 |
|
|
|
42,871 |
|
|
|
40,843 |
|
|
|
40,332 |
|
Less allowance for loan losses
|
|
|
(516 |
) |
|
|
|
|
|
|
(673 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
42,731 |
|
|
|
42,871 |
|
|
|
40,170 |
|
|
|
40,332 |
|
Customers liability on acceptances
outstanding
|
|
|
59 |
|
|
|
59 |
|
|
|
57 |
|
|
|
57 |
|
Loan servicing rights
|
|
|
19 |
|
|
|
19 |
|
|
|
20 |
|
|
|
20 |
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits (noninterest-bearing)
|
|
|
15,666 |
|
|
|
15,666 |
|
|
|
15,164 |
|
|
|
15,164 |
|
Interest-bearing deposits
|
|
|
26,765 |
|
|
|
26,751 |
|
|
|
25,772 |
|
|
|
25,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
42,431 |
|
|
|
42,417 |
|
|
|
40,936 |
|
|
|
40,976 |
|
Short-term borrowings
|
|
|
302 |
|
|
|
302 |
|
|
|
193 |
|
|
|
193 |
|
Acceptances outstanding
|
|
|
59 |
|
|
|
59 |
|
|
|
57 |
|
|
|
57 |
|
Medium- and long-term debt
|
|
|
3,961 |
|
|
|
3,676 |
|
|
|
4,286 |
|
|
|
4,265 |
|
Derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains
|
|
|
110 |
|
|
|
110 |
|
|
|
237 |
|
|
|
237 |
|
|
|
Unrealized losses
|
|
|
(156 |
) |
|
|
(156 |
) |
|
|
(61 |
) |
|
|
(61 |
) |
Customer-initiated and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains
|
|
|
108 |
|
|
|
108 |
|
|
|
140 |
|
|
|
140 |
|
|
|
Unrealized losses
|
|
|
(102 |
) |
|
|
(102 |
) |
|
|
(130 |
) |
|
|
(130 |
) |
Credit-related financial instruments
|
|
|
(103 |
) |
|
|
(74 |
) |
|
|
(87 |
) |
|
|
(71 |
) |
106
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 23 Business Segment
Information
The Corporation has strategically aligned its
operations into three major business segments: the Business
Bank, Small Business & Personal Financial Services, and
Wealth & Institutional Management. These business
segments are differentiated based on the type of customer and
the related products and services provided. In addition to the
three major business segments, the Finance Division is also
reported as a segment. Business segment 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
business segment using certain methodologies, which are
regularly reviewed and refined. For comparability purposes,
amounts in all periods are based on business segments and
methodologies in effect at December 31, 2005. 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. 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 segment. Direct
expenses incurred by areas whose services support the overall
Corporation are allocated to the business segments 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 business
segments noninterest expenses to total noninterest
expenses incurred by all business segments. 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 remaining life
of each loan, letter of credit and unused commitment recorded in
the business units. Operational risk is allocated based on
deposit balances and 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 business segment. A discussion of
the financial results and the factors impacting 2005 performance
can be found in the section entitled Business
Segments in the financial review on page 35.
The Business Bank is primarily comprised of the
following businesses: middle market, commercial real estate,
national dealer services, global finance, large corporate,
leasing, financial services, and technology and life sciences.
This business segment 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 & Personal Financial
Services (renamed the Retail Bank in 2006) 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 business segment
offers a variety of consumer products, including deposit
accounts, installment loans, credit cards, student loans, home
equity lines of credit, and residential mortgage loans.
107
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Wealth & 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 banking, institutional trust, retirement services,
investment management and advisory services (including Munder
Capital Management), investment banking, and discount securities
brokerage services. This business segment also offers the sale
of mutual funds 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 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 segments, tax
benefits not assigned to specific business segments 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 international risks.
108
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Lines of business/segment financial results are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Small Business & Personal | |
|
Wealth & Institutional | |
|
|
Business Bank | |
|
Financial Services | |
|
Management | |
|
|
| |
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Earnings Summary:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) (FTE)
|
|
$ |
1,391 |
|
|
$ |
1,383 |
|
|
$ |
1,553 |
|
|
$ |
608 |
|
|
$ |
584 |
|
|
$ |
622 |
|
|
$ |
149 |
|
|
$ |
149 |
|
|
$ |
148 |
|
Provision for loan losses
|
|
|
(16 |
) |
|
|
10 |
|
|
|
262 |
|
|
|
15 |
|
|
|
13 |
|
|
|
33 |
|
|
|
(3 |
) |
|
|
1 |
|
|
|
23 |
|
Noninterest income
|
|
|
282 |
|
|
|
278 |
|
|
|
281 |
|
|
|
207 |
|
|
|
212 |
|
|
|
216 |
|
|
|
378 |
|
|
|
301 |
|
|
|
289 |
|
Noninterest expenses
|
|
|
711 |
|
|
|
590 |
|
|
|
615 |
|
|
|
551 |
|
|
|
508 |
|
|
|
526 |
|
|
|
369 |
|
|
|
330 |
|
|
|
324 |
|
Provision (benefit) for income taxes (FTE)
|
|
|
329 |
|
|
|
377 |
|
|
|
343 |
|
|
|
88 |
|
|
|
99 |
|
|
|
100 |
|
|
|
58 |
|
|
|
44 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
649 |
|
|
$ |
684 |
|
|
$ |
614 |
|
|
$ |
161 |
|
|
$ |
176 |
|
|
$ |
179 |
|
|
$ |
103 |
|
|
$ |
75 |
|
|
$ |
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs
|
|
$ |
80 |
|
|
$ |
169 |
|
|
$ |
321 |
|
|
$ |
25 |
|
|
$ |
19 |
|
|
$ |
34 |
|
|
$ |
6 |
|
|
$ |
6 |
|
|
$ |
10 |
|
Selected Average Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$ |
35,914 |
|
|
$ |
33,011 |
|
|
$ |
34,979 |
|
|
$ |
6,517 |
|
|
$ |
6,436 |
|
|
$ |
6,441 |
|
|
$ |
3,696 |
|
|
$ |
3,392 |
|
|
$ |
3,133 |
|
Loans
|
|
|
34,561 |
|
|
|
31,863 |
|
|
|
33,876 |
|
|
|
5,825 |
|
|
|
5,723 |
|
|
|
5,752 |
|
|
|
3,401 |
|
|
|
3,135 |
|
|
|
2,869 |
|
Deposits
|
|
|
20,424 |
|
|
|
19,623 |
|
|
|
19,686 |
|
|
|
16,805 |
|
|
|
16,762 |
|
|
|
16,864 |
|
|
|
2,494 |
|
|
|
2,526 |
|
|
|
2,253 |
|
Liabilities
|
|
|
21,234 |
|
|
|
20,300 |
|
|
|
20,250 |
|
|
|
16,804 |
|
|
|
16,756 |
|
|
|
16,858 |
|
|
|
2,504 |
|
|
|
2,534 |
|
|
|
2,269 |
|
Attributed equity
|
|
|
2,528 |
|
|
|
2,462 |
|
|
|
2,704 |
|
|
|
801 |
|
|
|
785 |
|
|
|
791 |
|
|
|
430 |
|
|
|
412 |
|
|
|
388 |
|
Statistical Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets(1)
|
|
|
1.81 |
% |
|
|
2.07 |
% |
|
|
1.76 |
% |
|
|
0.91 |
% |
|
|
1.00 |
% |
|
|
1.01 |
% |
|
|
2.80 |
% |
|
|
2.23 |
% |
|
|
1.80 |
% |
Return on average attributed equity
|
|
|
25.67 |
|
|
|
27.77 |
|
|
|
22.71 |
|
|
|
20.11 |
|
|
|
22.40 |
|
|
|
22.62 |
|
|
|
24.01 |
|
|
|
18.32 |
|
|
|
14.55 |
|
Net interest margin(2)
|
|
|
4.01 |
|
|
|
4.32 |
|
|
|
4.56 |
|
|
|
3.62 |
|
|
|
3.49 |
|
|
|
3.69 |
|
|
|
4.38 |
|
|
|
4.72 |
|
|
|
5.14 |
|
Efficiency ratio
|
|
|
42.50 |
|
|
|
35.57 |
|
|
|
33.63 |
|
|
|
67.58 |
|
|
|
63.81 |
|
|
|
62.77 |
|
|
|
69.88 |
|
|
|
73.15 |
|
|
|
74.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
Finance | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Earnings Summary:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) (FTE)
|
|
$ |
(194 |
) |
|
$ |
(302 |
) |
|
$ |
(368 |
) |
|
$ |
6 |
|
|
$ |
(1 |
) |
|
$ |
(26 |
) |
|
$ |
1,960 |
|
|
$ |
1,813 |
|
|
$ |
1,929 |
|
Provision for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43 |
) |
|
|
40 |
|
|
|
59 |
|
|
|
(47 |
) |
|
|
64 |
|
|
|
377 |
|
Noninterest income
|
|
|
65 |
|
|
|
57 |
|
|
|
104 |
|
|
|
10 |
|
|
|
9 |
|
|
|
(3 |
) |
|
|
942 |
|
|
|
857 |
|
|
|
887 |
|
Noninterest expenses
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
34 |
|
|
|
64 |
|
|
|
17 |
|
|
|
1,666 |
|
|
|
1,493 |
|
|
|
1,483 |
|
Provision (benefit) for income taxes (FTE)
|
|
|
(59 |
) |
|
|
(88 |
) |
|
|
(126 |
) |
|
|
6 |
|
|
|
(76 |
) |
|
|
(55 |
) |
|
|
422 |
|
|
|
356 |
|
|
|
295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(71 |
) |
|
$ |
(158 |
) |
|
$ |
(139 |
) |
|
$ |
19 |
|
|
$ |
(20 |
) |
|
$ |
(50 |
) |
|
$ |
861 |
|
|
$ |
757 |
|
|
$ |
661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(1 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
110 |
|
|
$ |
194 |
|
|
$ |
365 |
|
Selected Average Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$ |
5,430 |
|
|
$ |
7,280 |
|
|
$ |
7,638 |
|
|
$ |
949 |
|
|
$ |
829 |
|
|
$ |
789 |
|
|
$ |
52,506 |
|
|
$ |
50,948 |
|
|
$ |
52,980 |
|
Loans
|
|
|
(15 |
) |
|
|
(12 |
) |
|
|
(30 |
) |
|
|
44 |
|
|
|
24 |
|
|
|
(97 |
) |
|
|
43,816 |
|
|
|
40,733 |
|
|
|
42,370 |
|
Deposits
|
|
|
896 |
|
|
|
1,208 |
|
|
|
2,688 |
|
|
|
21 |
|
|
|
26 |
|
|
|
28 |
|
|
|
40,640 |
|
|
|
40,145 |
|
|
|
41,519 |
|
Liabilities
|
|
|
6,561 |
|
|
|
6,064 |
|
|
|
8,376 |
|
|
|
306 |
|
|
|
253 |
|
|
|
194 |
|
|
|
47,409 |
|
|
|
45,907 |
|
|
|
47,947 |
|
Attributed equity
|
|
|
510 |
|
|
|
661 |
|
|
|
841 |
|
|
|
828 |
|
|
|
721 |
|
|
|
309 |
|
|
|
5,097 |
|
|
|
5,041 |
|
|
|
5,033 |
|
Statistical Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets(1)
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
1.64 |
% |
|
|
1.49 |
% |
|
|
1.25 |
% |
Return on average attributed equity
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
16.90 |
|
|
|
15.03 |
|
|
|
13.12 |
|
Net interest margin(2)
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
4.06 |
|
|
|
3.86 |
|
|
|
3.95 |
|
Efficiency ratio
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
57.40 |
|
|
|
55.90 |
|
|
|
53.64 |
|
|
|
(1) |
Return on average assets is calculated based on
the greater of average assets or average liabilities and
attributed equity.
|
|
(2) |
Net interest margin is calculated based on the
greater of average earnings assets or average deposits and
purchased funds.
|
FTE-Fully Taxable Equivalent
n/m-not meaningful
109
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 markets:
Midwest & 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 2005 performance can be found
in the section entitled Geographic Market Segments
in the financial review on page 36.
Midwest & Other Markets includes all
markets in which the Corporation has operations, except for the
Western, Texas and Florida markets, as described below.
Substantially all of the Corporations international
operations are included in the Midwest & Other Markets
segment. Currently, Michigan operations represent the
significant majority of this geographic market.
The Western market consists of the states of
California, Arizona, Nevada, Colorado and Washington. Currently,
California operations represent the significant majority of the
Western market.
The Texas and Florida markets consist of the
states of Texas and Florida, respectively.
The Finance & Other Businesses segment
includes the Corporations securities portfolio, asset and
liability management activities, divested business lines, the
income and expense impact of cash and loan loss reserves not
assigned to specific business/market segments, tax benefits not
assigned to specific business/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
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, 2005, 2004 and 2003.
110
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Market segment financial results are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
Midwest & Other Markets | |
|
Western | |
|
Texas | |
|
|
| |
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(dollar amounts in millions) | |
Earnings Summary:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) (FTE)
|
|
$ |
1,080 |
|
|
$ |
1,072 |
|
|
$ |
1,188 |
|
|
$ |
784 |
|
|
$ |
766 |
|
|
$ |
841 |
|
|
$ |
242 |
|
|
$ |
239 |
|
|
$ |
258 |
|
Provision for loan losses
|
|
|
31 |
|
|
|
(14 |
) |
|
|
201 |
|
|
|
(29 |
) |
|
|
35 |
|
|
|
100 |
|
|
|
(7 |
) |
|
|
(1 |
) |
|
|
11 |
|
Noninterest income
|
|
|
649 |
|
|
|
565 |
|
|
|
567 |
|
|
|
125 |
|
|
|
135 |
|
|
|
131 |
|
|
|
77 |
|
|
|
76 |
|
|
|
74 |
|
Noninterest expenses
|
|
|
970 |
|
|
|
867 |
|
|
|
877 |
|
|
|
437 |
|
|
|
362 |
|
|
|
383 |
|
|
|
192 |
|
|
|
176 |
|
|
|
180 |
|
Provision (benefit) for income taxes (FTE)
|
|
|
233 |
|
|
|
253 |
|
|
|
220 |
|
|
|
187 |
|
|
|
209 |
|
|
|
200 |
|
|
|
46 |
|
|
|
49 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
495 |
|
|
$ |
531 |
|
|
$ |
457 |
|
|
$ |
314 |
|
|
$ |
295 |
|
|
$ |
289 |
|
|
$ |
88 |
|
|
$ |
91 |
|
|
$ |
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs
|
|
$ |
84 |
|
|
$ |
93 |
|
|
$ |
212 |
|
|
$ |
14 |
|
|
$ |
92 |
|
|
$ |
132 |
|
|
$ |
6 |
|
|
$ |
9 |
|
|
$ |
20 |
|
Selected Average Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$ |
25,091 |
|
|
$ |
24,210 |
|
|
$ |
25,884 |
|
|
$ |
14,372 |
|
|
$ |
12,602 |
|
|
$ |
12,830 |
|
|
$ |
5,214 |
|
|
$ |
4,700 |
|
|
$ |
4,678 |
|
Loans
|
|
|
23,630 |
|
|
|
22,954 |
|
|
|
24,589 |
|
|
|
13,701 |
|
|
|
11,916 |
|
|
|
12,234 |
|
|
|
5,020 |
|
|
|
4,535 |
|
|
|
4,518 |
|
Deposits
|
|
|
18,869 |
|
|
|
19,091 |
|
|
|
18,803 |
|
|
|
16,887 |
|
|
|
15,760 |
|
|
|
15,666 |
|
|
|
3,668 |
|
|
|
3,832 |
|
|
|
4,156 |
|
Liabilities
|
|
|
19,642 |
|
|
|
19,772 |
|
|
|
19,388 |
|
|
|
16,933 |
|
|
|
15,766 |
|
|
|
15,664 |
|
|
|
3,670 |
|
|
|
3,826 |
|
|
|
4,148 |
|
Attributed equity
|
|
|
2,160 |
|
|
|
2,127 |
|
|
|
2,270 |
|
|
|
1,053 |
|
|
|
1,030 |
|
|
|
1,096 |
|
|
|
474 |
|
|
|
439 |
|
|
|
454 |
|
Statistical Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets (1)
|
|
|
1.97 |
% |
|
|
2.19 |
% |
|
|
1.76 |
% |
|
|
1.75 |
% |
|
|
1.76 |
% |
|
|
1.72 |
% |
|
|
1.69 |
% |
|
|
1.94 |
% |
|
|
1.98 |
% |
Return on average attributed equity
|
|
|
22.90 |
|
|
|
24.97 |
|
|
|
20.12 |
|
|
|
29.85 |
|
|
|
28.64 |
|
|
|
26.32 |
|
|
|
18.56 |
|
|
|
20.83 |
|
|
|
20.35 |
|
Net interest margin (2)
|
|
|
4.53 |
|
|
|
4.64 |
|
|
|
4.78 |
|
|
|
4.64 |
|
|
|
4.86 |
|
|
|
5.36 |
|
|
|
4.81 |
|
|
|
5.27 |
|
|
|
5.72 |
|
Efficiency ratio
|
|
|
56.10 |
|
|
|
53.00 |
|
|
|
50.16 |
|
|
|
48.08 |
|
|
|
40.17 |
|
|
|
39.39 |
|
|
|
60.12 |
|
|
|
55.60 |
|
|
|
53.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
|
|
|
|
|
|
|
Florida | |
|
Finance & Other Businesses | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Earnings Summary:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) (FTE)
|
|
$ |
42 |
|
|
$ |
39 |
|
|
$ |
36 |
|
|
$ |
(188 |
) |
|
$ |
(303 |
) |
|
$ |
(394 |
) |
|
$ |
1,960 |
|
|
$ |
1,813 |
|
|
$ |
1,929 |
|
Provision for loan losses
|
|
|
1 |
|
|
|
4 |
|
|
|
6 |
|
|
|
(43 |
) |
|
|
40 |
|
|
|
59 |
|
|
|
(47 |
) |
|
|
64 |
|
|
|
377 |
|
Noninterest income
|
|
|
16 |
|
|
|
15 |
|
|
|
14 |
|
|
|
75 |
|
|
|
66 |
|
|
|
101 |
|
|
|
942 |
|
|
|
857 |
|
|
|
887 |
|
Noninterest expenses
|
|
|
32 |
|
|
|
23 |
|
|
|
25 |
|
|
|
35 |
|
|
|
65 |
|
|
|
18 |
|
|
|
1,666 |
|
|
|
1,493 |
|
|
|
1,483 |
|
Provision (benefit) for income taxes (FTE)
|
|
|
9 |
|
|
|
9 |
|
|
|
7 |
|
|
|
(53 |
) |
|
|
(164 |
) |
|
|
(181 |
) |
|
|
422 |
|
|
|
356 |
|
|
|
295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
16 |
|
|
$ |
18 |
|
|
$ |
12 |
|
|
$ |
(52 |
) |
|
$ |
(178 |
) |
|
$ |
(189 |
) |
|
$ |
861 |
|
|
$ |
757 |
|
|
$ |
661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs
|
|
$ |
7 |
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
(1 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
110 |
|
|
$ |
194 |
|
|
$ |
365 |
|
Selected Average Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$ |
1,450 |
|
|
$ |
1,327 |
|
|
$ |
1,161 |
|
|
$ |
6,379 |
|
|
$ |
8,109 |
|
|
$ |
8,427 |
|
|
$ |
52,506 |
|
|
$ |
50,948 |
|
|
$ |
52,980 |
|
Loans
|
|
|
1,436 |
|
|
|
1,316 |
|
|
|
1,156 |
|
|
|
29 |
|
|
|
12 |
|
|
|
(127 |
) |
|
|
43,816 |
|
|
|
40,733 |
|
|
|
42,370 |
|
Deposits
|
|
|
299 |
|
|
|
228 |
|
|
|
178 |
|
|
|
917 |
|
|
|
1,234 |
|
|
|
2,716 |
|
|
|
40,640 |
|
|
|
40,145 |
|
|
|
41,519 |
|
Liabilities
|
|
|
297 |
|
|
|
226 |
|
|
|
177 |
|
|
|
6,867 |
|
|
|
6,317 |
|
|
|
8,570 |
|
|
|
47,409 |
|
|
|
45,907 |
|
|
|
47,947 |
|
Attributed equity
|
|
|
72 |
|
|
|
63 |
|
|
|
63 |
|
|
|
1,338 |
|
|
|
1,382 |
|
|
|
1,150 |
|
|
|
5,097 |
|
|
|
5,041 |
|
|
|
5,033 |
|
Statistical Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets (1)
|
|
|
1.13 |
% |
|
|
1.32 |
% |
|
|
1.03 |
% |
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
1.64 |
% |
|
|
1.49 |
% |
|
|
1.25 |
% |
Return on average attributed equity
|
|
|
22.83 |
|
|
|
27.69 |
|
|
|
19.06 |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
16.90 |
|
|
|
15.03 |
|
|
|
13.12 |
|
Net interest margin (2)
|
|
|
2.94 |
|
|
|
2.93 |
|
|
|
3.11 |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
4.06 |
|
|
|
3.86 |
|
|
|
3.95 |
|
Efficiency ratio
|
|
|
54.51 |
|
|
|
43.60 |
|
|
|
51.21 |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
57.40 |
|
|
|
55.90 |
|
|
|
53.64 |
|
|
|
(1) |
Return on average assets is calculated based on
the greater of average assets or average liabilities and
attributed equity.
|
|
(2) |
Net interest margin is calculated based on the
greater of average earnings assets or average deposits and
purchased funds.
|
FTE-Fully Taxable Equivalent
n/m-not meaningful
111
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 24 Parent Company
Financial Statements
|
|
|
Balance Sheets Comerica
Incorporated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
|
(in millions, except | |
|
|
share data) | |
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from subsidiary bank
|
|
$ |
11 |
|
|
$ |
1 |
|
Short-term investments with subsidiary bank
|
|
|
264 |
|
|
|
289 |
|
Investment in subsidiaries, principally banks
|
|
|
5,587 |
|
|
|
5,585 |
|
Premises and equipment
|
|
|
3 |
|
|
|
3 |
|
Other assets
|
|
|
257 |
|
|
|
304 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
6,122 |
|
|
$ |
6,182 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$ |
813 |
|
|
$ |
824 |
|
Other liabilities
|
|
|
241 |
|
|
|
253 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,054 |
|
|
|
1,077 |
|
Common stock $5 par value:
|
|
|
|
|
|
|
|
|
|
Authorized 325,000,000 shares
|
|
|
|
|
|
|
|
|
|
Issued 178,735,252 shares at
12/31/05 and 12/31/04
|
|
|
894 |
|
|
|
894 |
|
Capital surplus
|
|
|
461 |
|
|
|
421 |
|
Accumulated other comprehensive loss
|
|
|
(170 |
) |
|
|
(69 |
) |
Retained earnings
|
|
|
4,796 |
|
|
|
4,331 |
|
Less cost of common stock in treasury
15,834,985 shares at 12/31/05 and 8,259,328 shares at
12/31/04
|
|
|
(913 |
) |
|
|
(472 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
5,068 |
|
|
|
5,105 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
6,122 |
|
|
$ |
6,182 |
|
|
|
|
|
|
|
|
112
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Statements of
Income Comerica Incorporated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiaries
|
|
$ |
793 |
|
|
$ |
691 |
|
|
$ |
355 |
|
|
Other interest income
|
|
|
6 |
|
|
|
2 |
|
|
|
1 |
|
|
Intercompany management fees
|
|
|
117 |
|
|
|
75 |
|
|
|
120 |
|
Other noninterest income
|
|
|
3 |
|
|
|
12 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
919 |
|
|
|
780 |
|
|
|
478 |
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt
|
|
|
45 |
|
|
|
37 |
|
|
|
22 |
|
Interest on subordinated debt issued to
subsidiaries
|
|
|
|
|
|
|
|
|
|
|
15 |
|
Salaries and employee benefits
|
|
|
98 |
|
|
|
84 |
|
|
|
78 |
|
Net occupancy expense
|
|
|
6 |
|
|
|
7 |
|
|
|
7 |
|
Equipment expense
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
Other noninterest expenses
|
|
|
47 |
|
|
|
48 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
197 |
|
|
|
177 |
|
|
|
167 |
|
|
|
|
|
|
|
|
|
|
|
Income before provision (benefit) for income
taxes and equity in undistributed earnings of subsidiaries
|
|
|
722 |
|
|
|
603 |
|
|
|
311 |
|
Provision (benefit) for income taxes
|
|
|
(27 |
) |
|
|
(34 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
Income before equity in undistributed earnings of
subsidiaries
|
|
|
749 |
|
|
|
637 |
|
|
|
329 |
|
Equity in undistributed earnings of subsidiaries,
principally banks
|
|
|
112 |
|
|
|
120 |
|
|
|
332 |
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$ |
861 |
|
|
$ |
757 |
|
|
$ |
661 |
|
|
|
|
|
|
|
|
|
|
|
113
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
|
|
|
Statements of Cash Flows
Comerica Incorporated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
861 |
|
|
$ |
757 |
|
|
$ |
661 |
|
Adjustments to reconcile net income to net cash
provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed earnings of subsidiaries,
principally banks
|
|
|
(112 |
) |
|
|
(120 |
) |
|
|
(332 |
) |
|
Depreciation and software amortization
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
Amortization of stock-based compensation expense
|
|
|
15 |
|
|
|
14 |
|
|
|
11 |
|
|
Decrease in dividends receivable from subsidiary
|
|
|
|
|
|
|
|
|
|
|
85 |
|
|
Other, net
|
|
|
38 |
|
|
|
(3 |
) |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
(58 |
) |
|
|
(108 |
) |
|
|
(208 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
803 |
|
|
|
649 |
|
|
|
453 |
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease (increase) in short-term investments
with subsidiary bank
|
|
|
25 |
|
|
|
7 |
|
|
|
(268 |
) |
Net proceeds from private equity and venture
capital investments
|
|
|
21 |
|
|
|
10 |
|
|
|
3 |
|
Capital transactions with subsidiaries
|
|
|
2 |
|
|
|
(9 |
) |
|
|
(16 |
) |
Fixed assets, net
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities
|
|
|
47 |
|
|
|
7 |
|
|
|
(282 |
) |
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net issuance of long-term debt
|
|
|
|
|
|
|
|
|
|
|
300 |
|
Net decrease in commercial paper
|
|
|
|
|
|
|
|
|
|
|
(130 |
) |
Proceeds from issuance of common stock
|
|
|
51 |
|
|
|
72 |
|
|
|
16 |
|
Purchase of common stock for treasury
|
|
|
(525 |
) |
|
|
(370 |
) |
|
|
(27 |
) |
Dividends paid
|
|
|
(366 |
) |
|
|
(357 |
) |
|
|
(347 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(840 |
) |
|
|
(655 |
) |
|
|
(188 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash on deposit at
bank subsidiary
|
|
|
10 |
|
|
|
1 |
|
|
|
(17 |
) |
Cash on deposit at bank subsidiary at beginning
of year
|
|
|
1 |
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
Cash on deposit at bank subsidiary at end of year
|
|
$ |
11 |
|
|
$ |
1 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
42 |
|
|
$ |
36 |
|
|
$ |
37 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes (recovered) paid
|
|
$ |
(30 |
) |
|
$ |
(36 |
) |
|
$ |
(8 |
) |
|
|
|
|
|
|
|
|
|
|
114
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 25 Sales of
Businesses
On October 31, 2005, HCM Holdings Limited
(formerly Framlington Holdings Limited) (HCM), which is a
49 percent owned subsidiary of the Corporation, sold its
90.8 percent interest in London, England based Framlington
Group Limited (FGL). The sale, including associated costs and
assigned goodwill, resulted in a net after-tax gain of
approximately $32 million, or $0.19 per diluted share.
Contemporaneous with the sale, HCM repaid its borrowings,
$60 million of which was from subsidiaries of the
Corporation. HCMs assets, post sale, are now mostly
short-term investments, and HCM will be dissolved as soon as
practicable. Included in net gain on sales of
businesses on the consolidated statement of income at
December 31, 2005 were the following items related to the
sale:
|
|
|
|
|
|
|
December 31 | |
|
|
2005 | |
|
|
| |
|
|
(in millions) | |
Sale proceeds, less net book value and costs to
sell
|
|
$ |
96 |
|
Long-term incentive plan expense at Framlington
Group Limited triggered by the sale
|
|
|
(7 |
) |
Write off of goodwill associated with HCM
Holdings Limited
|
|
|
(34 |
) |
|
|
|
|
Amount included in net gain on sales of
businesses on the consolidated statement of income
|
|
$ |
55 |
|
|
|
|
|
The effects of the sale are reflected in the
Corporations Wealth & Institutional Management
business segment. The carrying amount of the assets and
liabilities disposed of, as a result of this transaction, were
not material to the consolidated balance sheet. Excluding the
effects of the sale detailed above, the Corporation has
recognized $8 million in equity in earnings of
unconsolidated subsidiaries on the consolidated statement
of income for the year ended December 31, 2005 related to
its investment in HCM.
The Corporation intends to sell its Mexican bank
charter. An active program to locate a buyer was initiated, and
the sale is expected to be completed within a year. The sale,
which will be reflected in the Corporations Business Bank
business segment, is not expected to result in a significant
gain or loss. In accordance with SFAS 144, Accounting
for the Impairment or Disposal of Long-Lived Assets,
approximately $43 million of loans have been classified as
assets held-for-sale which are included in short-term
investments on the consolidated balance sheet at
December 31, 2005. In addition, approximately
$29 million of liabilities have been classified as
liabilities held-for-sale which are included in accrued
expenses and other liabilities on the consolidated balance
sheet at December 31, 2005.
115
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Comerica Incorporated and
Subsidiaries
Note 26 Summary of Quarterly
Financial Statements (Unaudited)
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
|
| |
|
|
Fourth | |
|
Third | |
|
Second | |
|
First | |
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions, except per share data) | |
Interest income
|
|
$ |
745 |
|
|
$ |
719 |
|
|
$ |
655 |
|
|
$ |
607 |
|
Interest expense
|
|
|
244 |
|
|
|
207 |
|
|
|
172 |
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
501 |
|
|
|
512 |
|
|
|
483 |
|
|
|
460 |
|
Provision for loan losses
|
|
|
(20 |
) |
|
|
(30 |
) |
|
|
2 |
|
|
|
1 |
|
Net securities gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income (excluding net securities
gains (losses))
|
|
|
281 |
|
|
|
232 |
|
|
|
219 |
|
|
|
210 |
|
Noninterest expenses
|
|
|
487 |
|
|
|
422 |
|
|
|
383 |
|
|
|
374 |
|
Provision for income taxes
|
|
|
108 |
|
|
|
114 |
|
|
|
100 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
207 |
|
|
$ |
238 |
|
|
$ |
217 |
|
|
$ |
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$ |
1.27 |
|
|
$ |
1.43 |
|
|
$ |
1.29 |
|
|
$ |
1.18 |
|
Diluted net income per common share
|
|
|
1.25 |
|
|
|
1.41 |
|
|
|
1.28 |
|
|
|
1.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
|
| |
|
|
Fourth | |
|
Third | |
|
Second | |
|
First | |
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
|
| |
|
| |
|
| |
|
| |
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 |
|
116
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
Share-based Compensation. SFAS No. 123(R)
requires all share-based compensation awards granted to
employees be recognized in the financial statements at fair
value. The Corporation will adopt the provisions of
SFAS No. 123(R) using the modified-prospective
transition method effective January 1, 2006. Under the
modified-prospective transition method, companies are 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 will
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 will not be restated.
The Corporations current accounting policy
is to record expense associated with stock options and
restricted stock awards (share-based compensation) over the
explicit service period (vesting period). Upon retirement, any
remaining unrecognized costs related to share-based compensation
retained after retirement are expensed.
SFAS No. 123(R) requires that the expense associated
with share-based compensation be recorded over the requisite
service period. The requisite service period is defined as the
period during which an employee is required to provide service
in order to vest the award. This guidance requires that all
share-based compensation must be expensed by the retirement
eligible date (the date at which the employee is no longer
required to perform any service to receive the share-based
compensation). Therefore, the requisite service period for both
stock options and restricted stock is the period between grant
date and retirement eligible date. Under the Corporations
current stock option plan, retiring employees forfeit stock
options granted in the calendar year of retirement, but retain
all stock options granted in prior years (whether vested or
unvested at retirement). Restricted stock grants stipulate that
unvested shares are forfeited upon retirement or other
termination of employment unless the Compensation Committee of
the Board of Directors of the Corporation determines otherwise.
In certain instances, after review of the specific
circumstances, the Compensation Committee waived the forfeiture
provision for individuals who were retirement eligible. In May
2005, the Securities and Exchange Commission
(SEC) indicated that, as a result of the widespread
practice of recognizing compensation cost over the explicit
service period (up to the date of actual retirement), the SEC
will accept that practice and, in those circumstances, will
require a continuation of that practice for share-based
compensation awards granted prior to the adoption of
SFAS No. 123(R). As such, the Corporation will begin
expensing share-based compensation awards by the retirement
eligible date prospectively, beginning with share-based
compensation grants subsequent to the adoption of
SFAS No. 123(R). Share-based compensation expense, net
of related tax effects, would have increased $2 million,
$3 million and $2 million in the years ended
December 31, 2005, 2004 and 2003, respectively, had the
requisite service period provisions of SFAS No. 123(R)
been applied on a historical basis.
SFAS No. 123(R) also requires that
initial accruals of compensation cost related to share-based
payments be based on the estimated number of instruments for
which the requisite service period is expected to be rendered
(i.e., net of expected forfeitures). The Corporations
current accounting policy is to estimate an expected forfeiture
rate when determining compensation cost related to stock option
awards. However, forfeitures related to restricted stock awards
are currently accounted for as incurred. Management anticipates
that applying the requisite service period and expected
forfeiture provisions of SFAS No. 123(R) to the
2006 share-based compensation awards will result in a net
increase of approximately $9 million of expense, net of
related tax effects, related to these awards in 2006.
Share-based compensation awards of a subsidiary of the
Corporation are accounted for as liabilities.
SFAS No. 123(R) requires vested, unexercised and a
pro-rata portion of unvested share-based compensation awards be
classified as liabilities and recorded at current fair value, as
calculated using an option pricing model. As such, the
Corporation will incur a transition expense of $8 million,
net of related tax effects, on January 1, 2006. The impact
on expense in 2006 of these awards will depend on future
valuations of this subsidiary.
117
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 are
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.
Managements Assessment of Internal
Control over Financial Reporting
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 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, internal control over financial reporting as it related
to the Corporations consolidated financial statements
presented in conformity with U.S. generally accepted
accounting principles as of December 31, 2005. 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 was effective as it related to
the Corporations consolidated financial statements
presented in conformity with U.S. generally accepted
accounting principles as of December 31, 2005.
Because of 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, 2005 were 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
required the independent public accountants to obtain reasonable
assurance about whether the consolidated financial statements
were free of material misstatement and whether effective
internal control over financial reporting are maintained in all
material respects. In addition, managements assessment of
the effectiveness of internal control over financial reporting
as of December 31, 2005 was 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 Committee as well as various other committees. The Audit
Committee, which consists of directors who are not officers or
employees of the Corporation, meets regularly with management,
internal audit and the independent public accountants to assure
that the Audit 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
|
118
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Board of Directors and Shareholders
Comerica Incorporated
We have audited managements assessment of
internal control over financial reporting, included in the
accompanying Report of Management, that Comerica Incorporated
maintained effective internal control over financial reporting
as of December 31, 2005, 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 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 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, 2005, 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, 2005, 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, 2005 and 2004, 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, 2005 and our report
dated February 14, 2006 expressed an unqualified opinion
thereon.
Detroit, Michigan
February 14, 2006
119
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, 2005 and 2004, 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, 2005. 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, 2005 and 2004, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31,
2005, 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, 2005, 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 14, 2006, expressed an
unqualified opinion thereon.
Detroit, Michigan
February 14, 2006
120
HISTORICAL REVIEW AVERAGE BALANCE
SHEETS
Comerica Incorporated and
Subsidiaries
CONSOLIDATED FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions) | |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$ |
1,721 |
|
|
$ |
1,685 |
|
|
$ |
1,811 |
|
|
$ |
1,800 |
|
|
$ |
1,835 |
|
Short-term investments
|
|
|
555 |
|
|
|
1,921 |
|
|
|
1,942 |
|
|
|
602 |
|
|
|
442 |
|
Investment securities available for sale
|
|
|
3,861 |
|
|
|
4,321 |
|
|
|
4,529 |
|
|
|
4,360 |
|
|
|
3,909 |
|
|
Commercial loans
|
|
|
24,575 |
|
|
|
22,139 |
|
|
|
23,764 |
|
|
|
24,266 |
|
|
|
25,374 |
|
Real estate construction loans
|
|
|
3,194 |
|
|
|
3,264 |
|
|
|
3,540 |
|
|
|
3,353 |
|
|
|
3,090 |
|
Commercial mortgage loans
|
|
|
8,566 |
|
|
|
7,991 |
|
|
|
7,521 |
|
|
|
6,786 |
|
|
|
5,695 |
|
Residential mortgage loans
|
|
|
1,388 |
|
|
|
1,237 |
|
|
|
1,192 |
|
|
|
1,101 |
|
|
|
1,101 |
|
Consumer loans
|
|
|
2,696 |
|
|
|
2,668 |
|
|
|
2,474 |
|
|
|
2,355 |
|
|
|
2,200 |
|
Lease financing
|
|
|
1,283 |
|
|
|
1,272 |
|
|
|
1,283 |
|
|
|
1,242 |
|
|
|
1,111 |
|
International loans
|
|
|
2,114 |
|
|
|
2,162 |
|
|
|
2,596 |
|
|
|
2,988 |
|
|
|
2,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
43,816 |
|
|
|
40,733 |
|
|
|
42,370 |
|
|
|
42,091 |
|
|
|
41,371 |
|
Less allowance for loan losses
|
|
|
(623 |
) |
|
|
(787 |
) |
|
|
(831 |
) |
|
|
(739 |
) |
|
|
(654 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
43,193 |
|
|
|
39,946 |
|
|
|
41,539 |
|
|
|
41,352 |
|
|
|
40,717 |
|
Accrued income and other assets
|
|
|
3,176 |
|
|
|
3,075 |
|
|
|
3,159 |
|
|
|
3,016 |
|
|
|
2,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
52,506 |
|
|
$ |
50,948 |
|
|
$ |
52,980 |
|
|
$ |
51,130 |
|
|
$ |
49,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
$ |
15,007 |
|
|
$ |
14,122 |
|
|
$ |
13,910 |
|
|
$ |
11,841 |
|
|
$ |
10,253 |
|
Interest-bearing deposits
|
|
|
25,633 |
|
|
|
26,023 |
|
|
|
27,609 |
|
|
|
25,871 |
|
|
|
25,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
40,640 |
|
|
|
40,145 |
|
|
|
41,519 |
|
|
|
37,712 |
|
|
|
35,312 |
|
Short-term borrowings
|
|
|
1,451 |
|
|
|
275 |
|
|
|
550 |
|
|
|
1,962 |
|
|
|
2,584 |
|
Accrued expenses and other liabilities
|
|
|
1,132 |
|
|
|
947 |
|
|
|
804 |
|
|
|
809 |
|
|
|
823 |
|
Medium- and long-term debt
|
|
|
4,186 |
|
|
|
4,540 |
|
|
|
5,074 |
|
|
|
5,763 |
|
|
|
6,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
47,409 |
|
|
|
45,907 |
|
|
|
47,947 |
|
|
|
46,246 |
|
|
|
44,917 |
|
Shareholders equity
|
|
|
5,097 |
|
|
|
5,041 |
|
|
|
5,033 |
|
|
|
4,884 |
|
|
|
4,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
52,506 |
|
|
$ |
50,948 |
|
|
$ |
52,980 |
|
|
$ |
51,130 |
|
|
$ |
49,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
HISTORICAL REVIEW STATEMENTS
OF INCOME
Comerica Incorporated and
Subsidiaries
CONSOLIDATED FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
(in millions, except per share data) | |
INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$ |
2,554 |
|
|
$ |
2,054 |
|
|
$ |
2,211 |
|
|
$ |
2,524 |
|
|
$ |
3,121 |
|
Interest on investment securities
|
|
|
148 |
|
|
|
147 |
|
|
|
165 |
|
|
|
246 |
|
|
|
246 |
|
Interest on short-term investments
|
|
|
24 |
|
|
|
36 |
|
|
|
36 |
|
|
|
27 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
2,726 |
|
|
|
2,237 |
|
|
|
2,412 |
|
|
|
2,797 |
|
|
|
3,393 |
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
548 |
|
|
|
315 |
|
|
|
370 |
|
|
|
479 |
|
|
|
888 |
|
Interest on short-term borrowings
|
|
|
52 |
|
|
|
4 |
|
|
|
7 |
|
|
|
37 |
|
|
|
105 |
|
Interest on medium- and long-term debt
|
|
|
170 |
|
|
|
108 |
|
|
|
109 |
|
|
|
149 |
|
|
|
298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
770 |
|
|
|
427 |
|
|
|
486 |
|
|
|
665 |
|
|
|
1,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
1,956 |
|
|
|
1,810 |
|
|
|
1,926 |
|
|
|
2,132 |
|
|
|
2,102 |
|
Provision for loan losses
|
|
|
(47 |
) |
|
|
64 |
|
|
|
377 |
|
|
|
635 |
|
|
|
241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan
losses
|
|
|
2,003 |
|
|
|
1,746 |
|
|
|
1,549 |
|
|
|
1,497 |
|
|
|
1,861 |
|
NONINTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
218 |
|
|
|
231 |
|
|
|
238 |
|
|
|
227 |
|
|
|
211 |
|
Fiduciary income
|
|
|
177 |
|
|
|
171 |
|
|
|
169 |
|
|
|
171 |
|
|
|
180 |
|
Commercial lending fees
|
|
|
63 |
|
|
|
55 |
|
|
|
63 |
|
|
|
69 |
|
|
|
67 |
|
Letter of credit fees
|
|
|
70 |
|
|
|
66 |
|
|
|
65 |
|
|
|
60 |
|
|
|
58 |
|
Foreign exchange income
|
|
|
37 |
|
|
|
37 |
|
|
|
36 |
|
|
|
38 |
|
|
|
35 |
|
Brokerage fees
|
|
|
36 |
|
|
|
36 |
|
|
|
34 |
|
|
|
38 |
|
|
|
44 |
|
Investment advisory revenue, net
|
|
|
51 |
|
|
|
35 |
|
|
|
30 |
|
|
|
27 |
|
|
|
12 |
|
Card fees
|
|
|
39 |
|
|
|
32 |
|
|
|
27 |
|
|
|
23 |
|
|
|
27 |
|
Bank-owned life insurance
|
|
|
38 |
|
|
|
34 |
|
|
|
42 |
|
|
|
53 |
|
|
|
33 |
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
16 |
|
|
|
12 |
|
|
|
6 |
|
|
|
8 |
|
|
|
(43 |
) |
Warrant income
|
|
|
9 |
|
|
|
7 |
|
|
|
4 |
|
|
|
5 |
|
|
|
5 |
|
Net securities gains
|
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
41 |
|
|
|
20 |
|
Net gain on sales of businesses
|
|
|
56 |
|
|
|
7 |
|
|
|
|
|
|
|
12 |
|
|
|
31 |
|
Other noninterest income
|
|
|
132 |
|
|
|
134 |
|
|
|
123 |
|
|
|
128 |
|
|
|
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
942 |
|
|
|
857 |
|
|
|
887 |
|
|
|
900 |
|
|
|
837 |
|
NONINTEREST EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
|
|
|
820 |
|
|
|
760 |
|
|
|
736 |
|
|
|
699 |
|
|
|
707 |
|
Employee benefits
|
|
|
184 |
|
|
|
159 |
|
|
|
161 |
|
|
|
145 |
|
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total salaries and employee benefits
|
|
|
1,004 |
|
|
|
919 |
|
|
|
897 |
|
|
|
844 |
|
|
|
842 |
|
Net occupancy expense
|
|
|
121 |
|
|
|
125 |
|
|
|
128 |
|
|
|
122 |
|
|
|
115 |
|
Equipment expense
|
|
|
56 |
|
|
|
58 |
|
|
|
61 |
|
|
|
62 |
|
|
|
70 |
|
Outside processing fee expense
|
|
|
78 |
|
|
|
68 |
|
|
|
71 |
|
|
|
65 |
|
|
|
61 |
|
Software expense
|
|
|
49 |
|
|
|
43 |
|
|
|
37 |
|
|
|
33 |
|
|
|
34 |
|
Customer services
|
|
|
69 |
|
|
|
23 |
|
|
|
25 |
|
|
|
26 |
|
|
|
41 |
|
Litigation and operational losses
|
|
|
18 |
|
|
|
24 |
|
|
|
18 |
|
|
|
20 |
|
|
|
16 |
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86 |
|
|
|
|
|
Restructuring charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152 |
|
Provision for credit losses on lending-related
commitments
|
|
|
18 |
|
|
|
(12 |
) |
|
|
(2 |
) |
|
|
17 |
|
|
|
(5 |
) |
Other noninterest expenses
|
|
|
253 |
|
|
|
245 |
|
|
|
248 |
|
|
|
240 |
|
|
|
261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
1,666 |
|
|
|
1,493 |
|
|
|
1,483 |
|
|
|
1,515 |
|
|
|
1,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,279 |
|
|
|
1,110 |
|
|
|
953 |
|
|
|
882 |
|
|
|
1,111 |
|
Provision for income taxes
|
|
|
418 |
|
|
|
353 |
|
|
|
292 |
|
|
|
281 |
|
|
|
401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$ |
861 |
|
|
$ |
757 |
|
|
$ |
661 |
|
|
$ |
601 |
|
|
$ |
710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock
|
|
$ |
861 |
|
|
$ |
757 |
|
|
$ |
661 |
|
|
$ |
601 |
|
|
$ |
698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$ |
5.17 |
|
|
$ |
4.41 |
|
|
$ |
3.78 |
|
|
$ |
3.43 |
|
|
$ |
3.93 |
|
Diluted net income per common share
|
|
|
5.11 |
|
|
|
4.36 |
|
|
|
3.75 |
|
|
|
3.40 |
|
|
|
3.88 |
|
Cash dividends declared on common stock
|
|
|
367 |
|
|
|
356 |
|
|
|
350 |
|
|
|
335 |
|
|
|
313 |
|
Cash dividends declared per common share
|
|
|
2.20 |
|
|
|
2.08 |
|
|
|
2.00 |
|
|
|
1.92 |
|
|
|
1.76 |
|
122
HISTORICAL REVIEW - STATISTICAL
DATA
Comerica Incorporated and
Subsidiaries
CONSOLIDATED FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
AVERAGE RATES (FULLY TAXABLE EQUIVALENT
BASIS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
4.45 |
% |
|
|
1.88 |
% |
|
|
1.85 |
% |
|
|
4.45 |
% |
|
|
6.02 |
% |
Investment securities available-for-sale
|
|
|
3.76 |
|
|
|
3.36 |
|
|
|
3.65 |
|
|
|
5.74 |
|
|
|
6.37 |
|
|
Commercial loans
|
|
|
5.62 |
|
|
|
4.22 |
|
|
|
4.11 |
|
|
|
4.67 |
|
|
|
6.83 |
|
Real estate construction loans
|
|
|
7.23 |
|
|
|
5.43 |
|
|
|
5.04 |
|
|
|
5.74 |
|
|
|
7.95 |
|
Commercial mortgage loans
|
|
|
6.23 |
|
|
|
5.19 |
|
|
|
5.35 |
|
|
|
6.12 |
|
|
|
7.65 |
|
Residential mortgage loans
|
|
|
5.74 |
|
|
|
5.68 |
|
|
|
6.12 |
|
|
|
6.88 |
|
|
|
7.57 |
|
Consumer loans
|
|
|
5.89 |
|
|
|
4.73 |
|
|
|
4.94 |
|
|
|
5.94 |
|
|
|
8.08 |
|
Lease financing
|
|
|
3.81 |
|
|
|
4.06 |
|
|
|
4.59 |
|
|
|
5.37 |
|
|
|
6.25 |
|
International loans
|
|
|
5.98 |
|
|
|
4.69 |
|
|
|
4.44 |
|
|
|
4.70 |
|
|
|
7.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
5.84 |
|
|
|
5.05 |
|
|
|
5.22 |
|
|
|
6.00 |
|
|
|
7.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income as a percentage of earning assets
|
|
|
5.65 |
|
|
|
4.76 |
|
|
|
4.94 |
|
|
|
5.96 |
|
|
|
7.44 |
|
Domestic deposits
|
|
|
2.07 |
|
|
|
1.17 |
|
|
|
1.30 |
|
|
|
1.81 |
|
|
|
3.48 |
|
Deposits in foreign offices
|
|
|
4.18 |
|
|
|
2.60 |
|
|
|
3.15 |
|
|
|
3.36 |
|
|
|
5.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
2.14 |
|
|
|
1.21 |
|
|
|
1.34 |
|
|
|
1.85 |
|
|
|
3.54 |
|
Short-term borrowings
|
|
|
3.59 |
|
|
|
1.25 |
|
|
|
1.20 |
|
|
|
1.85 |
|
|
|
4.08 |
|
Medium- and long-term debt
|
|
|
4.05 |
|
|
|
2.39 |
|
|
|
2.14 |
|
|
|
2.58 |
|
|
|
4.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense as a percentage of
interest-bearing sources
|
|
|
2.46 |
|
|
|
1.38 |
|
|
|
1.46 |
|
|
|
1.98 |
|
|
|
3.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
3.19 |
|
|
|
3.38 |
|
|
|
3.48 |
|
|
|
3.98 |
|
|
|
3.62 |
|
Impact of net noninterest-bearing sources of funds
|
|
|
0.87 |
|
|
|
0.48 |
|
|
|
0.47 |
|
|
|
0.57 |
|
|
|
0.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin as a percentage of earning
assets
|
|
|
4.06 |
% |
|
|
3.86 |
% |
|
|
3.95 |
% |
|
|
4.55 |
% |
|
|
4.61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average common shareholders equity
|
|
|
16.90 |
% |
|
|
15.03 |
% |
|
|
13.12 |
% |
|
|
12.31 |
% |
|
|
15.16 |
% |
Return on average assets
|
|
|
1.64 |
|
|
|
1.49 |
|
|
|
1.25 |
|
|
|
1.18 |
|
|
|
1.43 |
|
Efficiency ratio
|
|
|
57.40 |
|
|
|
55.90 |
|
|
|
53.64 |
|
|
|
50.59 |
|
|
|
54.30 |
|
Tier 1 common capital as a percentage of
risk-weighted assets
|
|
|
7.86 |
|
|
|
8.13 |
|
|
|
8.04 |
|
|
|
7.39 |
|
|
|
7.30 |
|
PER SHARE DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value at year-end
|
|
$ |
31.11 |
|
|
$ |
29.94 |
|
|
$ |
29.20 |
|
|
$ |
28.31 |
|
|
$ |
27.17 |
|
Market value at year-end
|
|
|
56.76 |
|
|
|
61.02 |
|
|
|
56.06 |
|
|
|
43.24 |
|
|
|
57.30 |
|
Market value for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
63.38 |
|
|
|
63.80 |
|
|
|
56.34 |
|
|
|
66.09 |
|
|
|
65.15 |
|
|
Low
|
|
|
53.17 |
|
|
|
50.45 |
|
|
|
37.10 |
|
|
|
35.20 |
|
|
|
44.02 |
|
OTHER DATA (share data in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
basic
|
|
|
167 |
|
|
|
172 |
|
|
|
175 |
|
|
|
175 |
|
|
|
178 |
|
Average common shares outstanding
diluted
|
|
|
169 |
|
|
|
174 |
|
|
|
176 |
|
|
|
177 |
|
|
|
180 |
|
Number of banking centers
|
|
|
381 |
|
|
|
377 |
|
|
|
360 |
|
|
|
352 |
|
|
|
342 |
|
Number of employees (full-time equivalent)
|
|
|
10,816 |
|
|
|
10,892 |
|
|
|
11,209 |
|
|
|
11,287 |
|
|
|
11,350 |
|
123
EX-21
4
z02267exv21.htm
SUBSIDIARIES OF REGISTRANT
exv21
Exhibit 21
Subsidiaries of Registrant
As of December 31, 2005
|
|
|
Name |
|
State or Jurisdiction of Incorporation or Organization |
|
|
|
CDV I Incorporated
|
|
Delaware |
Comerica AHOC, LLC
|
|
Delaware |
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
|
|
USA |
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 |
|
|
|
Name |
|
State or Jurisdiction of Incorporation or Organization |
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 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
5
z02267exv23.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 14, 2006, 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, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
February 28, 2006
Detroit, Michigan
/s/ Ernst & Young
EX-31.1
6
z02267exv31w1.htm
CHAIRMAN, PRESIDENT AND CEO CERTIFICATION PURSUANT TO SECTION 302
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,
2005; |
|
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 (or persons performing the equivalent
functions): |
|
(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, 2006
|
|
/s/ Ralph W. Babb, Jr. |
|
|
|
|
Ralph W. Babb, Jr.
|
|
|
|
|
Chairman, President and |
|
|
|
|
Chief Executive Officer |
|
|
EX-31.2
7
z02267exv31w2.htm
EXECUTIVE VICE PRESIDENT, CFO AND TREASURER CERTIFICATION PURSUANT TO SECTION 302
exv31w2
Exhibit (31.2) Executive Vice Present and CFO 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 Present and Chief Financial Officer of Comerica Incorporated
(the Registrant), certify that:
1. |
|
I have reviewed this annual report on Form 10-K of the Registrant for the year ended December 31,
2005; |
|
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 (or persons performing the equivalent
functions): |
|
(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, 2006
|
|
/s/ Elizabeth S. Acton |
|
|
|
|
Elizabeth S. Acton
|
|
|
|
|
Executive Vice President and |
|
|
|
|
Chief Financial Officer |
|
|
EX-32
8
z02267exv32.htm
SECTION 1350 CERTIFICATION PURSUANT TO SECTION 906
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
The undersigned, Ralph W. Babb, Jr., Chairman, President and Chief Executive Officer, and Elizabeth
S. Acton, Executive Vice President and Chief Financial Officer, of Comerica Incorporated (the
Company), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18
U.S.C. Section 1350, that:
(1) |
|
the Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (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, 2006
|
|
/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 and |
|
|
|
|
Chief Financial Officer |
|
|
GRAPHIC
9
z02267rwbabb.gif
GRAPHIC
begin 644 z02267rwbabb.gif
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