Comerica 2008 Annual Report Download - page 100

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Shares of $124 million will accrete on a level yield basis over five years ending November 2013 and is being
recognized as additional preferred stock dividends. The cash dividend combined with the accretion of the
discount results in an effective preferred dividend rate of 6.3 percent. At December 31, 2008, accumulated
preferred stock dividends not declared for the Series F Preferred Shares, excluding the discount accretion
discussed above, totaled $15 million, or $6.53 per preferred share. The fair value assigned to the Series F
Preferred Shares was estimated using a discounted cash flow model. The discount rate used in the model was
based on yields on comparable publicly traded perpetual preferred stocks. The fair value assigned to the warrant
was based on a binomial model using several inputs, including risk-free rate, expected stock price volatility and
expected dividend yield. The risk-free interest rate assumption used in the binomial model was based on the
ten-year U. S. Treasury interest rate. The expected dividend yield was based on the historical and projected
dividend yield patterns of the Corporation’s common shares. Expected volatility assumptions considered both
the historical volatility of the Corporation’s common stock over a ten-year period and implied volatility based on
the most recent observed market transaction as of the valuation date.
Under the Purchase Program, the consent of the U.S. Treasury is required for any increase in common
dividends declared from the dividend rate in effect at the time of investment (quarterly dividend rate of $0.33
per share) and for any common share repurchases, other than common share repurchases in connection with any
benefit plan in the ordinary course of business, until November 2011, unless the Series F Preferred Shares have
been fully redeemed or the U.S. Treasury has transferred all the Series F Preferred Shares to third parties prior to
that date. In addition, all accrued and unpaid dividends on the Series F Preferred Shares must be declared and
the payment set aside for the benefit of the holders of the Series F Preferred Shares before any dividend may be
declared on the Corporation’s common stock and before any shares of the Corporation’s common stock may be
repurchased, other than share repurchases in connection with any benefit plan in the ordinary course of
business.
As required by the Purchase Program, the Corporation adopted the U.S. Treasury’s standards for executive
compensation and corporate governance for the period during which the U.S. Treasury holds equity issued
under the Purchase Program. These standards generally apply to the chief executive officer, chief financial
officer, plus the three most highly compensated executive officers. In addition, the Corporation agreed not to
deduct for tax purposes executive compensation in excess of $500,000 for each senior executive.
At December 31, 2008, the Corporation had 11.5 million shares of common stock reserved for the warrant
issued under the Purchase Program, 28.0 million shares of common stock reserved for stock option exercises
and 1.6 million shares of restricted stock outstanding to employees and directors under share-based
compensation plans.
Note 13 — Accumulated Other Comprehensive Income (Loss)
Other comprehensive income (loss) includes the change in net unrealized gains and losses on investment
securities available-for-sale, the change in accumulated net gains and losses on cash flow hedges, the change in
the accumulated foreign currency translation adjustment and the change in the accumulated defined benefit and
other postretirement plans adjustment. The consolidated statements of changes in shareholders’ equity 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, 2008, 2007
and 2006. Total comprehensive income totaled $81 million, $833 million and $948 million for the years ended
December 31, 2008, 2007 and 2006, respectively. The $752 million decrease in total comprehensive income in
the year ended December 31, 2008, when compared to 2007, resulted principally from a decrease in net income
($473 million) and a decrease in the defined benefit and other postretirement benefit plans adjustment
($345 million), partially offset by an increase in net unrealized gains on investment securities available-for-sale
($88 million).
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