Comerica 2008 Annual Report Download - page 82

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The Corporation holds a portfolio of warrants for nonmarketable equity securities. Most of these warrants
are from high technology, non-public companies obtained as part of the loan origination process. Warrants that
have a net exercise provision or a non-contingent put right embedded in the warrant agreement (primarily those
obtained prior to 2006) are required to be accounted for as derivatives and recorded at fair value. The initial fair
value of warrants obtained as part of the loan origination process is deferred and amortized into ‘‘interest and
fees on loans’’ on the consolidated statements of income over the life of the loan. The fair value of these warrants
is subsequently adjusted on a quarterly basis, with any changes in fair value recorded in ‘‘other noninterest
income’’ on the consolidated statements of income.
Further information on the Corporation’s derivative instruments is included in Note 20.
Standby and Commercial Letters of Credit and Financial Guarantees
Certain guarantee contracts or indemnification agreements issued or modified subsequent to December 31,
2002, that contingently require the Corporation, as guarantor, to make payments to the guaranteed party are
initially measured at fair value and included in ‘‘accrued expenses and other liabilities’’ on the consolidated
balance sheets. Further information on the Corporation’s obligations under guarantees is included in Note 20.
Loan Origination Fees and Costs
On January 1, 2008, the Corporation prospectively implemented a refinement in the application of SFAS
No. 91, ‘‘Accounting for Loan Origination Fees and Costs,’’ (SFAS 91), which resulted in the deferral and
amortization to net interest income of substantially all loan origination fees and costs over the life of the related
loan or over the commitment period as a yield adjustment. Prior to January 1, 2008, the Corporation deferred
and amortized business loan origination and commitment fees greater than $10 thousand and all Small Business
Administration, residential mortgage and consumer loan origination fees and costs over the life of the related
loan or over the commitment period as a yield adjustment. The impact of the refinement on 2008 results was a
reduction in net interest income of $17 million, a reduction in the net interest margin of 3 basis points, a
reduction in noninterest expenses of $44 million and an increase in net income of $17 million ($0.11 per diluted
share). Any adjustments to retroactively apply the refinement of SFAS 91 would not have been material to any
prior reporting periods.
Loan fees on unused commitments and net origination fees related to loans sold are recognized in
noninterest income.
Share-Based Compensation
In 2006, the Corporation adopted the provisions of SFAS No. 123 (revised 2004), ‘‘Share-Based Payment,’’
(SFAS 123(R)), using the modified-prospective transition method. The Corporation recognizes compensation
expense under SFAS 123(R) using the straight-line method over the requisite service period for all stock awards,
including those with graded vesting. Measurement and attribution of compensation cost for awards that were
granted prior to the date SFAS 123(R) was adopted continue to be based on the estimate of the grant-date fair
value and attribution method used under prior accounting guidance.
SFAS 123(R) requires that the expense associated with share-based compensation awards be recorded over
the requisite service period. The requisite service period is the period an employee is required to provide service
in order to vest in the award, which cannot extend beyond the retirement eligible date (the date at which the
employee is no longer required to perform any service to receive the share-based compensation). Prior to the
adoption of SFAS 123(R), the Corporation recorded the expense associated with share-based compensation
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