Comerica 2007 Annual Report Download

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Great Opportunities
COMERICA INCORPORATED 2007 ANNUAL REPORT

Table of contents

  • Page 1
    Great Opportunities C O M E R I C A I N C O R P O R AT E D 2 0 0 7 A N N U A L R E P O R T

  • Page 2
    ... Management. Comerica focuses on relationships and helping businesses and people to be successful. Comerica Bank locations can be found in Michigan, California, Texas, Arizona and Florida, with select businesses operating in several other states, and Canada, Mexico and China. To receive e-mail...

  • Page 3
    COMERICA INCORPORATED 2007 ANNUAL REPORT Financial Highlights dollar amounts in millions, except per share data years ended December 31 Change Income Statement Net interest income Provision for loan losses Income from continuing operations* Net income Basic earnings per common share: Income from ...

  • Page 4
    ... credit training program · Recognized as a clear cash management leader, as demonstrated by 16 A+ grades (the most of any banks measured) and six A grades in the Phoenix-Hecht 2007 Middle Market Monitor, and the Nilson Report's ranking of Comerica as the largest issuer of prepaid commercial cards...

  • Page 5
    ... in Texas, Florida and California · Streamlined and enhanced Comerica's personal checking account product line · Successfully converted to state-of-the art capital markets platform and introduced new online trading and compensation programs · Introduced enhanced Web Bill Pay features making it...

  • Page 6
    ...able to build positive momentum, as evidenced by our strong loan growth, particularly in our high-growth markets; the continuation of our successful banking center expansion program; and the relocation of our corporate headquarters to Dallas, Texas. We also were able to control expenses in 2007, and...

  • Page 7
    ... our annual dividend for the 39th consecutive year in 2007. We were able to move forward in the year, even as a challenged residential real estate market, particularly in Michigan and California, affected our overall financial performance. For the full year 2007, Comerica reported income from...

  • Page 8
    ... government programs. This should provide us with significant deposit growth and fee income over time. In the Retail Bank, we completed refurbishments to 27 banking centers in 2007: 22 in Michigan, three in Texas and two in California. We also streamlined and enhanced Comerica's personal checking...

  • Page 9
    ...expect our banking center expansion program to keep pace with our 2007 openings, and once again be focused on our growth markets of Texas, California, Arizona and Florida. As part of our corporate strategy, we also are making a commitment to conduct our business and operations in a way that enhances...

  • Page 10
    ...Main Street in downtown Dallas. Four "Comerica" signs were placed atop Comerica Bank Tower in November 2007. The Comerica Bank New Year's Parade through downtown Dallas kicked off in front of the new corporate headquarters, and on January 2, 2008, the first ï¬,oor banking center opened for business...

  • Page 11
    ... a Houston, Texas-based company, founded in 1993, that soon ranked number 298 among the Inc. 500 fastest-growing private companies in the United States. Its mobile camera systems help reduce risk, prevent accidents and save lives in mobile ï¬,eet industries as diverse as police, mass transit, mining...

  • Page 12
    ... 2007 ANNUAL REPORT Great Opportunities Leveraging Leadership in Michigan One of Detroit's hidden gems can be found on Conner Street in a developing neighborhood on the city's east side. It is the home of Samaritan Center, the country's largest one-stop employment and training center. In 2007...

  • Page 13
    ... officer. "In order to execute our business plans, it became apparent that we needed to secure an appropriate long-term commercial banking relationship. During our due-diligence process, it was clear that Comerica's Middle Market group in Florida was the ideal choice for us." Comerica supports...

  • Page 14
    COMERICA INCORPORATED 2007 ANNUAL REPORT Great Opportunities Building Momentum in the West For Wente Vineyards, the key to making great wine stems from successfully running a family owned and operated business for more than 125 years. Now managed by the fourth and fifth generations of the Wente ...

  • Page 15
    ... useful energy," said Bob Worsley, chairman and chief executive officer of Renegy. "Comerica helped turn this vision into reality by securing the financing necessary to build our first biomass-to-electricity facility near Snowflake, Arizona. "Comerica's support also enabled us to establish the fuel...

  • Page 16
    ...Market Headquarters: San Jose Markets: San Francisco & the East Bay, San Jose, Los Angeles, Orange County, San Diego, Fresno, Sacramento and Santa Cruz/Monterey, as well as Phoenix/Scottsdale, Arizona Banking Centers: 91 (83 in California; 8 in Arizona) Information: 408.556.5000 Northern California...

  • Page 17
    ... Services Comerica Securities, Inc. A full-service broker-dealer that offers stocks, bonds, corporate and public finance, mutual funds and annuities, along with a full suite of fee-based investment management services. Comerica West Incorporated Originates mid-sized loans to business customers...

  • Page 18
    ... law firm) David E. Duprey Executive Vice President General Auditor Peter D. Cummings (2)(3) Chairman Ram Realty Services (private real estate management and development company) Thomas D. Ogden President Comerica Bank - Michigan Market William P. Vititoe (1*)(4*)(5) Retired Chairman, President...

  • Page 19
    FINANCIAL REVIEW AND REPORTS Comerica Incorporated and Subsidiaries Performance Graph ...Financial Results and Key Corporate Initiatives ...Overview/Earnings Performance ...Strategic Lines of Business...Balance Sheet and Capital Funds Analysis ...Risk Management ...Critical Accounting Policies......

  • Page 20
    ... Incorporated, Keefe 50-Bank Index, and S&P 500 Index (Assumes $100 Invested on 12/31/02 and Reinvestment of Dividends) $250 Comerica Incorporated Keefe 50-Bank Index $200 S&P 500 Index $150 $100 $50 $0 Comerica Incorporated Keefe 50-Bank Index S&P 500 Index 2002 $100 $100 $100 2003 $135 $134...

  • Page 21
    ...SHARE OF COMMON STOCK Diluted earnings per common share: Income from continuing operations ...Net income ...Cash dividends declared ...Common shareholders' equity ...Market value ...YEAR-END BALANCES Total assets ...Total earning assets ...Total loans ...Total deposits ...Total medium- and long-term...

  • Page 22
    ... real estate development industry in Michigan and California • Raised the quarterly cash dividend 8.5 percent, to $0.64 per share, an annual rate of $2.56 per share, for an annual dividend payout ratio of 58 percent • Repurchased 10 million shares of outstanding common stock in the open market...

  • Page 23
    ... Life Sciences (17 percent), Global Corporate Banking (12 percent), Private Banking (11 percent), National Dealer Services (5 percent), Commercial Real Estate (5 percent), Small Business (5 percent) and Middle Market (5 percent). Excluding Financial Services Division, average loans grew in the Texas...

  • Page 24
    The Corporation's credit staff closely monitors the financial health of lending customers in order to assess ability to repay and to adequately provide for expected losses. Loan quality was impacted by challenges in the residential real estate development industry in Michigan and California and a ...

  • Page 25
    ...securities purchased under agreements to resell. Other short-term investments ...Total earning assets ...Cash and due from banks ...Allowance for loan losses ...Accrued income and other assets ...Total assets ...Money market and NOW deposits(1) . . Savings deposits...Customer certificates of deposit...

  • Page 26
    ... Total loans ...Investment securities availablefor-sale ...Federal funds and securities purchased under agreements to resell ...Other short-term investments...Total interest income (FTE) . Interest expense: Interest-bearing deposits: Money market and NOW accounts ...Savings deposits ...Certificates...

  • Page 27
    ... increase in average investment securities available-for-sale. Average Financial Services Division loans (primarily low-rate) decreased $1.0 billion, and average Financial Services Division noninterest-bearing deposits decreased $1.5 billion in 2007, compared to 2006. The Corporation expects, on...

  • Page 28
    ... values for unfunded commitments to certain customers in the automotive industry. An analysis of the changes in the allowance for credit losses on lending-related commitments is presented on page 45 of this financial review. Net loan charge-offs in 2007 were $149 million, or 0.30 percent of average...

  • Page 29
    ...) Service charges on deposit accounts ...Fiduciary income ...Commercial lending fees ...Letter of credit fees ...Foreign exchange income ...Brokerage fees...Card fees ...Bank-owned life insurance ...Net income from principal investing and warrants...Net securities gains ...Net gain (loss) on sales...

  • Page 30
    ...on the 2006 sale of the Corporation's Mexican bank charter, while 2006 included a net loss of $12 million on the sale of the Mexican bank charter. The income from lawsuit settlement of $47 million in 2006 resulted from a payment received to settle a Financial Services Division-related lawsuit in the...

  • Page 31
    ... 2007 2006 2005 (in millions) Salaries ...Employee benefits ...Total salaries and employee benefits ...Net occupancy expense ...Equipment expense ...Outside processing fee expense ...Software expense ...Customer services ...Litigation and operational losses ...Provision for credit losses on lending...

  • Page 32
    ... of noninterest-bearing deposits and low-rate loans in the Financial Services Division and the earnings credit allowances provided on these deposits, as well as a competitive environment. Litigation and operational losses increased $7 million, or 55 percent, to $18 million in 2007, from $11 million...

  • Page 33
    ... compared to 2007 levels, excluding the provision for credit losses on lending-related commitments and including the impact of a 2008 change in the application of FAS 91 discussed in the 2008 guidance provided on page 22 of this financial review. The Corporation's efficiency ratio (total noninterest...

  • Page 34
    ... on page 103. In July, 2007, the State of Michigan replaced its current Single Business Tax (SBT) with a new Michigan Business Tax (MBT). Financial institutions are subject to an industry-specific tax which is based on net capital, effective January 1, 2008. Management believes the MBT will have an...

  • Page 35
    ...Financial Services Division-related lawsuit settlement recorded in 2006 and a $12 million loss on the sale of the Mexican bank charter in 2006, noninterest income increased $21 million from 2006. The increase was primarily due to net securities gains of $7 million in 2007 and increases in commercial...

  • Page 36
    ... during which time interest income received from the lending-related business units increased faster than the longer-term value attributed to deposits generated by the business units, and the maturity of swaps with negative spreads, partially offset by an increase in wholesale funding. Net income in...

  • Page 37
    ... of new banking centers, mostly salaries and employee benefits expense and net occupancy expense. These increases were partially offset by an $8 million decrease in legal fees related to the Financial Services Division-related lawsuit settlement and an $8 million decrease in allocated net corporate...

  • Page 38
    ... and when the expenses are allocated to the business segments. The following table lists the Corporation's banking centers by geographic market segments. December 31 2007 2006 2005 Midwest (Michigan) ...Western: California ...Arizona ...Texas ...Florida ...International ...Total ... 237 83 8 91...

  • Page 39
    ... Real Estate business line...Other business lines ...Total commercial mortgage loans ...Residential mortgage loans ...Consumer loans: Home equity ...Other consumer ...Total consumer loans ...Lease financing ...International loans: Government and official institutions ...Banks and other financial...

  • Page 40
    ...loans: Excluding Financial Services Division ...Financial Services Division* ...Total commercial loans ...Real estate construction loans: Commercial real estate business line ...Other business lines ...Total real estate construction loans ...Commercial mortgage loans: Commercial real estate business...

  • Page 41
    ... amounts in millions) Percent Change Average Loans By Business Line: Middle Market...Commercial Real Estate ...Global Corporate Banking ...National Dealer Services ...Specialty Businesses: Excluding Financial Services Division ...Financial Services Division* ... ... $16,185 6,717 5,471 5,187 4,843...

  • Page 42
    ... Commercial Real Estate business line also had $1.5 billion of average 2007 loans not classified as commercial real estate on the consolidated balance sheet. Refer to page 52 under Commercial Real Estate Lending in the Risk Management section for more information. Average residential mortgage loans...

  • Page 43
    ... banks' international banking facilities located in the United States. Loans held-for-sale typically represent residential mortgage loans, student loans and Small Business Administration loans that have been originated and which management has decided to sell. Average other short-term investments...

  • Page 44
    ...) Percent Change Money market and NOW deposits: Excluding Financial Services Division ...Financial Services Division ...Total money market and NOW deposits ...Savings deposits ...Customer certificates of deposit ...Institutional certificates of deposit ...Foreign office time deposits ... $13,735...

  • Page 45
    ... by adjusting the capital deployed in reaction to core balance sheet growth. In November 2006 and again in November 2007, 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...

  • Page 46
    ..., 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...

  • Page 47
    ... Commercial Real Estate business line ...Other business lines ...Total real estate construction...Commercial mortgage Commercial Real Estate business line ...Other business lines ...Total commercial mortgage ...Residential mortgage ...Consumer...Lease financing...International ...Total loan charge...

  • Page 48
    ...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 estimated loss ratios, based...

  • Page 49
    ... for recent negative trends in particular credits. The 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 total allowance is available to absorb losses from any segment...

  • Page 50
    ... mortgage: Commercial Real Estate business line ...Other business lines ...Total commercial mortgage ...Residential mortgage ...Consumer...Lease financing...International ...Total nonaccrual loans ...Reduced-rate loans ...Total nonperforming loans ...Foreclosed property ...Nonaccrual debt securities...

  • Page 51
    ... and an $8 million decrease in nonaccrual lease financing loans. An analysis of nonaccrual loans at December 31, 2007, based primarily on the Standard Industrial Classification (SIC) code, is presented on page 51 of this financial review. Loans past due 90 days or more and still on accrual status...

  • Page 52
    ... in 2007, including $60 million with customers in the automotive industry. The losses associated with the sale of the unused commitments were charged to the "provision for credit losses on lending-related commitments" on the consolidated statements of income. Nonaccrual loan payments/other...

  • Page 53
    ... SNC loans represented approximately 21 percent and 19 percent at December 31, 2007 and 2006, respectively. SNC loan net charge-offs were $2 million in both 2007 and 2006. For further discussion of the Corporation's SNC relationships, refer to the "Earning Assets" section of this financial review on...

  • Page 54
    ... Primarily related to domestic-owned production companies. $ 3 (5) $(2) - $(2) $ 3 $ 4 - $ 4 - $ 4 $12 All other industry concentrations, as defined by management, individually represented less than 10 percent of total loans at year-end 2007. Commercial Real Estate Lending The Corporation takes...

  • Page 55
    ... reserves and net charge-offs in the Commercial Real Estate business line reflected challenges in the residential real estate development industry in Michigan and California. The real estate construction loan portfolio contains loans primarily made to long-time customers with satisfactory completion...

  • Page 56
    ...lending, deposit gathering and risk management. Interest Rate Risk Interest rate risk arises primarily through the Corporation's core business activities of extending loans and accepting deposits. The Corporation's balance sheet is predominantly characterized by floating rate commercial loans funded...

  • Page 57
    ... net interest income forecast and the Corporation operated within this policy guideline. The change in interest rate sensitivity from December 31, 2006 to December 31, 2007 was primarily a result of loan and deposit growth, activities in the Financial Services Division, competitive deposit pricing...

  • Page 58
    ..., 2007. Swaps have been grouped by 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...

  • Page 59
    ... requesting such services. Customer-initiated and other notional activity represented 68 percent of total interest rate, energy and foreign exchange contracts at December 31, 2007, compared to 52 percent at December 31, 2006. Refer to Notes 1 and 20 of the consolidated financial statements on...

  • Page 60
    ... 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 Corporation's commercial commitments...

  • Page 61
    ...Bank at December 31, 2007. In February 2008, Comerica Bank (the Bank), a subsidiary of the Corporation, became a member of the Federal Home Loan Bank of Dallas, Texas (FHLB), which provides short- and long-term funding to its members though advances that are collateralized by mortgage-related assets...

  • Page 62
    ... assets, particularly equity securities. Other components of noninterest income, primarily brokerage fees, are at risk to changes in the level of market activity. Share-based compensation expense recognized by the Corporation is dependent upon the fair value of stock options and restricted stock...

  • Page 63
    ... of money laundering, privacy and data protection, community reinvestment initiatives, fair lending challenges resulting from the Corporation's expansion of its banking center network and employment and tax matters. The Enterprise-Wide Compliance Committee, comprised of senior business unit managers...

  • Page 64
    ..., including portfolio exposures to technology-related industries, Michigan and California residential real estate development and Small Business Administration loans. Furthermore, a portion of the allowance is allocated to these remaining loans based on industry specific risks inherent in certain...

  • Page 65
    ... differing from management estimates would primarily affect the Business Bank segment. Pension Plan Accounting The Corporation has defined benefit plans in effect for substantially all full-time employees hired before January 1, 2007. Benefits under the plans are based on years of service, age and...

  • Page 66
    ...to the plan in 2007. 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 business segments based on the segment's share of salaries expense...

  • Page 67
    ...consolidated financial statements on pages 72 and 95, respectively, for further discussion of share-based compensation expense. Nonmarketable Equity Securities At December 31, 2007, the Corporation had a $74 million portfolio of indirect (through funds) private equity and venture capital investments...

  • Page 68
    ...of one half of the remaining contractual term of each warrant. Volatility was estimated using an index of comparable publicly traded companies, based on the Standard Industrial Classification codes. Where sufficient financial data exists, a market approach method was utilized to estimate the current...

  • Page 69
    ... and expand customer relationships may differ from expectations; • management's ability to retain key officers and employees may change; • legal and regulatory proceedings and related matters with respect to the financial services industry, including those directly involving the Corporation and...

  • Page 70
    ... share data) ASSETS Cash and due from banks ...Federal funds sold and securities purchased under agreements to resell ...Other short-term investments ...Investment securities available-for-sale...Commercial loans ...Real estate construction loans ...Commercial mortgage loans ...Residential mortgage...

  • Page 71
    ... loan losses ...NONINTEREST INCOME Service charges on deposit accounts ...Fiduciary income ...Commercial lending fees ...Letter of credit fees ...Foreign exchange income ...Brokerage fees ...Card fees ...Bank-owned life insurance ...Net income from principal investing and warrants ...Net securities...

  • Page 72
    ...of tax ...BALANCE AT JANUARY 1, 2007 ...Net income ...Other comprehensive income, net of tax ...Total comprehensive income ...Cash dividends declared on common stock ($2.56 per share) ...Purchase of common stock ...Net issuance of common stock under employee stock plans ...Recognition of share-based...

  • Page 73
    ...-for-sale ...Purchases of investment securities available-for-sale ...Net increase in loans ...Net increase in fixed assets...Net decrease (increase) in customers' liability on acceptances outstanding ...Proceeds from sales of businesses ...Discontinued operations, net ...Net cash used in investing...

  • Page 74
    ...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...

  • Page 75
    ... such loans based upon this review. Business loans are 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 estimated loss ratios, based...

  • Page 76
    ... consolidated balance sheets, with the corresponding charge reflected in "provision for credit losses on lending-related commitments" in the noninterest expenses section on the consolidated statements of income. Nonperforming Assets Nonperforming assets are comprised of loans and debt securities for...

  • Page 77
    ... STATEMENTS Comerica Incorporated and Subsidiaries weakening of the borrower's financial condition, and real estate which has been acquired through foreclosure and is awaiting disposition. Loans that have been restructured but yield a rate equal to or greater than the rate charged for new loans with...

  • Page 78
    ... the explicit service period (vesting period). Upon retirement, any remaining unrecognized costs related to share-based compensation awards retained after retirement were expensed. The Corporation elected to adopt the alternative transition method provided in the Financial Accounting Standards Board...

  • Page 79
    ... Corporation adopted the provisions of SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)," (SFAS 158), and recognized in its consolidated balance sheet the funded status of its defined benefit...

  • Page 80
    ... balance sheets at its fair value, with future changes in fair value recognized in noninterest income. 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...

  • Page 81
    ... FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Income Taxes The provision for income taxes is based on amounts reported in the consolidated statements of income (after deducting non-taxable items, principally income on bank-owned life insurance, and deducting tax credits related...

  • Page 82
    ... TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries circumstances. Fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the Corporation transacts...

  • Page 83
    ... on the Corporation's financial condition and results of operations. Note 3 - Investment Securities A summary of the Corporation's investment securities available-for-sale follows: Amortized Cost Gross Gross Unrealized Unrealized Gains Losses (in millions) Fair Value December 31, 2007 U.S. Treasury...

  • Page 84
    ... resulted from changes in market interest rates, not credit quality. The Corporation has the ability and intent to hold these available-for-sale investment securities until maturity or market price recovery, and full collection of the amounts due according to the contractual terms of the debt is...

  • Page 85
    ... balance sheets. December 31 2007 2006 (in millions) Nonaccrual loans: Commercial ...Real estate construction: Commercial Real Estate business line ...Other business lines ...Total real estate construction...Commercial mortgage: Commercial Real Estate business line ...Other business lines...

  • Page 86
    ... its on-balance sheet and off-balance sheet activities in Michigan, California and Texas. The Corporation has an industry concentration with the automotive industry. Loans to automotive dealers and to borrowers involved with automotive production are reported as automotive, since management believes...

  • Page 87
    ... and loans recorded in the Small Business division were excluded from the definition. Outstanding loans and total exposure from loans, unused commitments and standby letters of credit and financial guarantees to companies related to the automotive industry were as follows: December 31 2007 2006...

  • Page 88
    ... 2007 and 2006, did not indicate that an impairment charge was required. In the fourth quarter 2006, the Corporation sold its ownership interest in Munder, a consolidated subsidiary that was part of the Corporation's asset management reporting unit. Goodwill of $63 million was allocated to the sale...

  • Page 89
    ... all periods are based on business segments in effect at December 31, 2007. Business Bank Retail Bank Wealth & Institutional Management (in millions) Other Total Balance at December 31, 2005 ...Goodwill allocated to the sale of Munder Capital Management ...Goodwill impairment ...Balance at December...

  • Page 90
    ... of short-term borrowings. Federal Funds Purchased Other and Securities Sold Under Short-term Agreements to Repurchase Borrowings (dollar amounts in millions) December 31, 2007 Amount outstanding at year-end ...Weighted average interest rate at year-end ...Maximum month-end balance during the...

  • Page 91
    ... notes ...Medium-term notes: Floating rate based on LIBOR indices due 2007 to 2012 ...Floating rate based on PRIME indices due 2007 to 2008 ...2.85% fixed rate note due 2007 ...Floating rate based on Federal Funds indices due 2009 ...Variable rate note payable due 2009 ... ... - - 253 100 102 156...

  • Page 92
    ... due 2007. These medium-term notes do not qualify as Tier 2 capital and are not insured by the FDIC. In June 2007, the Corporation exercised its option to redeem a $55 million, 9.98% subordinated note, which had an original maturity date of 2026. In March 2007, Comerica Bank (the Bank), a subsidiary...

  • Page 93
    ... not qualify as Tier 2 capital and are not insured by the FDIC. In February 2008, the Bank became a member of the Federal Home Loan Bank of Dallas, Texas (FHLB), which provides short- and long-term funding to its members though advances that are collateralized by mortgage-related assets. The initial...

  • Page 94
    ... and shares purchased from employees to pay for grant prices and/or taxes related to stock option exercises and restricted stock vesting under the terms of an employee share-based compensation plan. (2) Maximum number of shares that may yet be purchased under the publicly announced plans or programs...

  • Page 95
    ... adjustment for gains (losses) included in net income, due to sale of foreign subsidiaries ... Change in foreign currency translation adjustment ...Balance at end of period ...Accumulated defined benefit pension and other postretirement plans adjustment: Balance at beginning of period, net of tax...

  • Page 96
    ... the assumed exercise of stock options granted under the Corporation's stock plans, using the treasury stock method. A computation of basic and diluted income from continuing operations and net income per common share are presented in the following table. Years Ended December 31 2007 2006 2005 (in...

  • Page 97
    ... all share-based compensation plans and related tax benefits are as follows: 2007 2006 2005 (in millions) Share-based compensation expense: Comerica Incorporated share-based plans ...Munder share-based plans* ...Total share-based compensation expense ...Related tax benefits recognized in net income...

  • Page 98
    ... and 2005, respectively. A summary of the Corporation's stock option activity and related information for the year ended December 31, 2007 follows: Number of Options (in thousands) Weighted-Average Remaining Exercise Price Contractual per Share Term (in years) Aggregate Intrinsic Value (in millions...

  • Page 99
    ... defined benefit 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, and corporate...

  • Page 100
    ...assets of the Corporation's qualified defined benefit pension plan, non-qualified defined benefit pension plan and postretirement benefit plan. The Corporation used a measurement date of December 31, 2007 for these plans. Qualified Defined Benefit Pension Plan 2007 2006 Non-Qualified Defined Benefit...

  • Page 101
    ... and the changes for 2007. Qualified Defined Benefit Pension Plan Prior Service Net Transition (Cost) Credit Obligation Non-Qualified Defined Benefit Pension Plan Prior Service Net Transition (Cost) Credit Obligation Net Loss Total Net Loss (in millions) Total Balance at December 31, 2006, net...

  • Page 102
    ... Defined Benefit Pension Plan Non-Qualified Defined Benefit Postretirement Pension Plan Benefit Plan (in millions) Total Net loss...Transition obligation ...Prior service cost (credit) ... $ 3 - 6 $ 5 - (2) $- 4 1 $8 4 5 Actuarial assumptions are reflected below. The discount rate and rate...

  • Page 103
    ...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...

  • Page 104
    ... 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 2008 2007 2006 Asset Category Equity securities...Fixed income, including cash...

  • Page 105
    ... federal income tax rate to income before income taxes as reported in the consolidated financial statements after deducting non-taxable items, principally income on bank-owned life insurance, and deducting tax credits related to investments in low income housing partnerships. State and foreign taxes...

  • Page 106
    ... through 2000. The Corporation continues to exchange information with the IRS Appeals Office related to the structured leasing transactions. The IRS also disallowed foreign tax credits associated with the interest on a series of loans to foreign borrowers. The Corporation has had ongoing discussions...

  • Page 107
    ... as follows: December 31 2007 2006 (in millions) Deferred tax assets: Allowance for loan losses...Deferred loan origination fees and costs ...Other comprehensive income ...Employee benefits ...Foreign tax credit ...Tax interest ...Other temporary differences, net ... ... $203 35 100 62 36 27 53 516...

  • Page 108
    ... level of customer deposits in the Corporation's banking subsidiaries. The average required reserve balances were $267 million and $298 million for the years ended December 31, 2007 and 2006, respectively. Banking regulations limit the transfer of assets in the form of dividends, loans or advances...

  • Page 109
    ... 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...

  • Page 110
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries management's 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 ...

  • Page 111
    ...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...

  • Page 112
    ...credit losses associated with derivative instruments. 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. The Corporation mitigates market risk inherent in customer...

  • Page 113
    .... For customer-initiated foreign exchange contracts, the Corporation mitigates most of the inherent market risk by taking offsetting positions and manages the remainder through individual foreign currency position limits and aggregate value-at-risk limits. These limits are established annually and...

  • Page 114
    ...or issued by the Corporation for both risk management and customer-initiated and other activities are as follows. Interest Rate Swaps Interest rate swaps are agreements in which two parties periodically exchange fixed cash payments for variable payments based on a designated market rate or index (or...

  • Page 115
    ... investment securities related to the trading account totaled $4 million at December 31, 2007 and $16 million at December 31, 2006. Outstanding commitments expose the Corporation to both credit and market risk. Credit-Related Financial Instruments The Corporation issues off-balance sheet financial...

  • Page 116
    ... letters of credit outstanding at December 31, 2007. At December 31, 2007, the carrying value of the Corporation's standby and commercial letters of credit and financial guarantees, which is included in "accrued expenses and other liabilities" on the consolidated balance sheet, totaled $100 million...

  • Page 117
    ...CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries The Corporation has a significant limited partnership interest in The Peninsula Fund Limited Partnership (PFLP), a venture capital fund, which was acquired in 1995. The PFLP's general partner (an employee of the Corporation) is...

  • Page 118
    ... securities is used to estimate fair value if quoted market values are not available. Domestic business loans: These consist of commercial, real estate construction, commercial mortgage and equipment lease financing loans. The estimated fair value of the Corporation's variable rate commercial loans...

  • Page 119
    ...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...

  • Page 120
    ...short-term investments...Investment securities available-for-sale...Commercial loans ...Real estate construction loans ...Commercial mortgage loans ...Residential mortgage loans ...Consumer loans ...Lease financing ...International loans ... Total loans ...Less allowance for loan losses ...Net loans...

  • Page 121
    ..., 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...

  • Page 122
    ..., including deposit accounts, installment loans, credit cards, student loans, home equity lines of credit and residential mortgage loans. Wealth & Institutional Management offers products and services consisting of fiduciary services, private banking, retirement services, investment management and...

  • Page 123
    ... ...Noninterest expenses ...Provision (benefit) for income taxes (FTE) ...Income from discontinued operations, net of tax...Net income (loss) ...Net credit-related charge-offs ...Selected average balances: Assets ...Loans ...Deposits ...Liabilities ...Attributed equity ...Statistical data: Return on...

  • Page 124
    ... American-based companies. The Finance & Other Businesses segment includes the Corporation's securities portfolio, asset and liability management activities, discontinued operations, the income and expense impact of equity and cash not assigned to specific business/market segments, tax benefits not...

  • Page 125
    ... 893 72 ...$ $ Net income ...Net credit-related charge-offs ...Selected average balances: Assets ...Loans ...Deposits ...Liabilities ...Attributed equity ...Statistical data: Return on average assets(1) ...Return on average attributed equity . Net interest margin(2)...Efficiency ratio ... 319 $ 48...

  • Page 126
    ... ...$ $ Net income (loss)...Net credit-related charge-offs ...Selected average balances: Assets ...Loans ...Deposits ...Liabilities ...Attributed equity ...Statistical data: Return on average assets(1) ...Return on average attributed equity . Net interest margin(2)...Efficiency ratio ... 351 $ 79...

  • Page 127
    ...Statements Balance Sheets - Comerica Incorporated December 31 2007 2006 (in millions, except share data) ASSETS Cash and due from subsidiary bank ...Short-term investments with subsidiary bank ...Other short-term investments ...Investment in subsidiaries, principally banks ...Premises and equipment...

  • Page 128
    ...Ended December 31 2007 2006 2005 (in millions) INCOME Income from subsidiaries Dividends from subsidiaries ...Other interest income ...Intercompany management fees ...Other noninterest income ...Total income ...EXPENSES Interest on medium- and long-term debt ...Salaries and employee benefits ...Net...

  • Page 129
    ... ACTIVITIES Net decrease in short-term investments with subsidiary bank ...Net proceeds from private equity and venture capital investments...Capital transactions with subsidiaries ...Net increase in fixed assets...Net cash (used in) provided by investing activities ...FINANCING ACTIVITIES Proceeds...

  • Page 130
    ..., located primarily in Michigan and Ohio. In accordance with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," approximately $74 million of loans were classified as held-for-sale, which were included in "other short-term investments" on the consolidated balance sheet at...

  • Page 131
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries first quarter 2007, the Corporation completed the sale and transferred the $74 million of loans to the buyer for substantially the fair value recorded at December 31, 2006. During the fourth quarter 2005, HCM Holdings ...

  • Page 132
    ... FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries 2006 Third Second Quarter Quarter Fourth Quarter First Quarter Interest income ...Interest expense...Net interest income...Provision for loan losses ...Net securities gains (losses) ...Noninterest income (excluding net securities...

  • Page 133
    ... The management of Comerica Incorporated (the Corporation) is responsible for the accompanying consolidated financial statements and all other financial information in this Annual Report. The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting...

  • Page 134
    ...of Management. Our responsibility is to express an opinion on the Corporation's 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...

  • Page 135
    ... accompanying consolidated balance sheets of Comerica Incorporated and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2007. These financial statements...

  • Page 136
    ...) 2003 ASSETS Cash and due from banks ...Federal funds sold and securities purchased under agreements to resell ...Other short-term investments ...Investment securities available-for-sale...Commercial loans ...Real estate construction loans ...Commercial mortgage loans ...Residential mortgage loans...

  • Page 137
    ... ...NONINTEREST INCOME Service charges on deposit accounts ...Fiduciary income ...Commercial lending fees...Letter of credit fees...Foreign exchange income ...Brokerage fees ...Card fees ...Bank-owned life insurance ...Net income (loss) from principal investing and warrants ...Net securities gains...

  • Page 138
    ... under agreements to resell ...Other short-term investments ...Investment securities available-for-sale ...Commercial loans ...Real estate construction loans Commercial mortgage loans . Residential mortgage loans . . Consumer loans ...Lease financing ...International loans ... 5.28% 5.65 4.56 7.25...

  • Page 139
    ... deposited into their savings or checking account at any bank that is a member of the National Automated Clearing House (ACH) system. Information describing this service and an authorization form can be requested from the transfer agent shown above. * Dividend yield is calculated by annualizing...

  • Page 140
    Comerica Corporate Headquarters Comerica Bank Tower 1717 Main Street Dallas, Texas 75201 www.comerica.com This book has been printed on 100# Utopia II Dull Cover and 100# Utopia II Dull Text, and 37# Opaque Financials which contain 10% post consumer recovered fiber content.