S H A R I N G
S U C C E S S
Comerica Incorporated
1997 Annual Report
Financial Highlights
Year Ended December 31
(dollar amounts in millions, except per share)
Income Statement
1997
1996
Amount
Percent
Change
Net interest income
Net income
Net income, excluding restructuring charge
Basic net income per share
Basic net income per share, excluding restructuring charge
Diluted net income per common share
Diluted net income per common share, excluding restructuring charge
Cash dividends per common share
Book value per common share
Market value per share
$ 1,443
530
530
3.24
3.24
3.19
3.19
1.15
16.02
60.17
$ 1,412
417
477
2.41
2.77
2.38
2.73
1.01
14.70
34.92
$
31
113
53
.83
.47
.81
.46
.14
1.32
25.25
2%
27
11
34
17
34
17
14
9
72
Ratios
Return on average common shareholders’ equity
Return on average common shareholders’ equity,
excluding restructuring charge
Return on average assets
Return on average assets, excluding restructuring charge
Average common shareholders’ equity as a percentage
of average assets
Balance Sheet (at December 31)
Total assets
Total earning assets
Loans
Deposits
Common shareholders’ equity
21.32%
15.98%
21.32
1.52
1.52
6.91
18.33
1.22
1.40
7.47
$36,292
33,104
28,895
22,586
2,512
$34,206
31,110
26,207
22,367
2,366
$2,086
1,994
2,688
219
146
6%
6
10
1
6
All per share amounts have been adjusted for the three-for-two stock split declared January 15, 1998.
.Excluding restructuring charge
Diluted Net Income per Share
(in dollars)
3.75
3.00
2.25
1.50
0.75
Net Income
(in millions)
625
500
375
250
100
.Excluding restructuring charge
0.0 93 94 95 96 97
0 93 94 95 96 97
Comerica Incorporated
1
Letter to Shareholders
Comerica’s financial objec-
tive is to consistently rank
among the top-10 of the 50
largest bank holding compa-
nies in the nation, as mea-
sured by return on equity. I
believe the keys to consistent
top-10 performance are prof-
itability, growth and quality.
At Comerica, superior prof-
itability is achieved through
hard work and a clear focus
on what we do well. We
reinvest in growth business-
es, rationalize those that
have the potential for superi-
or returns, and divest busi-
nesses or activities that are
not integral to our future
success.
Growth is achieved by
emphasizing our core com-
petencies. We are among the
nation’s leaders in business
lending. Over the last 10
years, our commercial loan
growth has averaged an
impressive 11 percent, with
only minor fluctuations
year-to-year. We will contin-
ue to be a commercial loan
generator going forward.
Like a three-legged stool,
consistent top-10 perfor-
mance also requires quality.
This includes credit and ser-
vice quality, both of which
are absolutely essential.
Banks cannot consistently
generate exceptional profits
without being top-flight
credit underwriters. To com-
pete effectively, they also
must be providers of quality
products and services. We at
Comerica are recognized
industrywide for our relent-
less focus on maintaining
superior credit quality. We
also are committed to deliv-
ering the highest quality
financial services.
Our success is attributable to
an exceptional team of
employees, over 90 percent
of whom are shareholders.
They work hard every day to
meet and exceed the expec-
tations of their customers,
and are determined that
Comerica be recognized as a
leader in the financial ser-
vices industry.
Dividends
per Common Share
(in dollars)
Return on
Average Common Equity
(in percentages)
1.25
1.0
0.75
0.50
0.25
25.0
20.0
15.0
10.0
5.0
0.0 93 94 95 96 97
0.0 93 94 95 96 97
.Comerica
.Excluding restructuring charge
.Industry average
(based on 50 largest U.S.
bank holding companies)
2
Comerica Incorporated
In terms of 1997 perfor-
mance, we are pleased with
the results. Net income for
the year rose 27 percent to
$530 million (up 11 percent,
excluding the 1996 Direction
2000: Phase III restructuring
charge). Return on assets
was 1.52 percent and return
on common equity was 21.32
percent. Our stock price rose
72 percent in 1997, out pac-
ing both the Keefe 50-Bank
Index (up 43 percent) and the
S&P 500 Index (up 31 per-
cent). We also marked our
29th consecutive year of divi-
dend increases.
At year-end 1997, our price-
to-earnings ratio ranked 30th
among the 50 largest bank
holding companies in the na-
tion. This ranking improved
several positions during
the year, but is still not in
line with our financial results.
We view this as an oppor-
tunity for our shareholders as
the market continues to take
notice of our performance.
During the four quarters of
1997, Comerica consistently
ranked among the top-10
bank holding companies in
the nation, in terms of return
on common equity. Our job
now is to extend consistency
from quarters to years. Let
me cite several examples of
how we will do that.
Comerica Incorporated
3
Comparison of Five Year Cumulative
Total Return Among Comerica
Incorporated, Keefe 50-Bank Index
and S&P 500 Index
(Assumes $100 Invested on 12/31/92
and Reinvestment of Dividends)
Comerica
Keefe
S&P 500
Michigan market. I believe
performance and execution
will lead us to opportunities
down the road.
Today, acquisition pricing is
very expensive. All of us at
Comerica have worked too
hard building the financial
performance of our company
to harm it with an acquisition
that doesn’t measure up. In
our nearly 150-year history,
we have successfully integrat-
ed countless mergers and
acquisitions. There will be a
time, a place and an opportu-
nity again, but we must be
selective.
I appreciate your interest and
I thank you for your support.
Eugene A. Miller
Chairman and
Chief Executive Officer
$400
$300
$200
$100
92
93
94
95
96
97
Our core competency is
business lending. We are a
leader because of the people
we select, the training we
provide, and the relationship
orientation we emphasize,
all backed up by a strong
credit process. To further
strengthen this core compe-
tency, we are investing in
the marketing, technology
and talent that will enable us
to enhance the services we
provide.
On the retail side, we are a
gatherer of consumer assets
and operate a dominant fran-
chise in Michigan. We will
continue to develop this
franchise through product
revisions and enhancements
to our distribution system.
We have invested signifi-
cantly in our customer data-
base. To me, having that
knowledge is an important
competitive advantage, par-
ticularly when it is com-
bined with our people.
Although retail banking is
important to us in Texas and
California, it is mainly done
on an accommodation basis.
In these states, we see our-
selves as the “business bank
of choice.”
We also will continue to grow
our investment services. They
are critical to our success, as
they protect current relation-
ships within the bank, expand
existing relationships and
provide incremental fee in-
come. Going forward, we will
become even more involved
in distributing investment
products and 401(k) services.
As this annual report goes to
press, we are wrapping up
implementation of Direction
2000: Phase III. The revenue
enhancements and cost reduc-
tion ideas developed by
Comerica employees will
result in an annual pre-tax
earnings impact of $110 mil-
lion in 1999. By the end of
the fourth quarter of 1997, we
had implemented about 80
percent of the Phase III
ideas, valued at 70 percent of
the annual cost savings target,
and 94 percent of the annual
revenue target.
As industry consolidation
continues, I am frequently
asked about Comerica’s mar-
ket expansion plans. We con-
tinue to look at growth areas
of the country where we can
prosecute our brand of bank-
ing profitably, as we do in
Texas and California. Both of
these states have proven to be
a good fit with the mature
4
Comerica Incorporated
Sharing Success
Nineteen ninety-seven was a tremendous year
for Comerica. We share our success with our
key constituencies—shareholders, customers,
employees and the communities we serve.
We do this for:
.shareholders through appreciation of
and services;
our stock price—72 percent in 1997—
record earnings per share, and our 29th
consecutive year of dividend increases;
.customers by delivering quality products
.employees by sharing the financial rewards
.communities we serve by forging financial
of our company becoming a top financial
performer on a consistent basis; and,
partnerships with residents, groups and
organizations.
Comerica Incorporated
5
Direction 2000: Phase III on Target
In 1997, employees began implementing their ideas
to simplify and streamline processes at Comerica.
In order to carry out plans as efficiently and
effectively as possible, an implementation team
was mobilized. Hard work and careful moni-
toring are paying dividends.
“We are right where we expected to be at this
stage in the process,” notes Comerica Chairman
Eugene A. Miller.
The revenue enhancement and cost reduction
ideas generated during Phase III will result in an
annual pre-tax earnings impact of $110 million
in 1999. Twenty percent of this benefit was
realized in 1997, 80 percent will be realized in
1998 and the full effect in 1999.
At year-end 1997, 1,600 of more than 2,000 ideas
have been completed. Among them:
used, and the conversion to a less-expensive enve-
lope printing process;
.a reduction in the type and quantity of envelopes
.the use of a single provider for copier services,
.implementation of more than 20 telecommuni-
.the introduction of a new software product that
cations ideas, which is expected to save Comerica
$3 million annually;
which is expected to save Comerica nearly $1 million
annually;
eliminates the need for microfiche and its associated
costs, while reducing computer paper report volume
by 75 percent;
.the empowerment of branch employees with addi-
tional levels of authority, and a reduction in their
clerical responsibilities, so they can serve customers
better; and,
.a 20 percent reduction in the number of invoices
processed as a result of consolidating vendors and
obtaining summary billings.
Comerica will complete implementation of remaining
Phase III ideas by the end of the first quarter of
1998.
The Board of Directors of
Comerica Incorporated
increased the quarterly cash
dividend by 10 percent in
1997 and by 12 percent in
January 1998 continuing a
long history of dividend
increases.
Excess capital, after support-
ing prudent growth in our
businesses and acquisitions,
is being returned to share-
holders through a reduction
in shares outstanding. Over
the last two years, Comerica
has repurchased more than 15
million shares—almost 13
percent—of Comerica’s out-
standing shares. That repre-
sents nearly $800 million of
shareholders’ capital. We
continue to believe this is the
most appropriate use of
excess capital from a share-
holder value perspective.
In 1997, the total market
value of Comerica’s shares
increased 68 percent to more
than $9.4 billion.
6
Comerica Incorporated
$75
$60
$45
$30
$15
$0
88 89 90 91 92 93
94 95
96 97
Comerica December 31
Stock Prices
On January 15, 1998, Comerica
directors authorized a three-for-two
stock split effected in the form
of a 50 percent stock dividend.
The stock prices shown here have
been adjusted to reflect the split.
among the nation’s 50 largest
bank holding companies in
the nation. Comerica’s
highest performance match
to date—$5.1 million as a
result of 1996 profits—was
repeated as a result of the
corporation’s strong financial
performance in 1997.
Phase III Results
Financial Statement Impact (in millions)
$110
$0
1Q97 1Q98
1Q99
Phase III will have an annual earnings impact of $110 million beginning in
1999. Approximately 20 percent of the earnings impact will come from revenue
enhancements; 80 percent from cost reductions.
The Direction 2000
Gainshare Incentive Plan
reserves the first $10 million
in savings from Phase III
and distributes it in the
form of stock to colleagues
present during Phase III who
also are with the corporation
at the time it achieves an
annual top-10 return on
equity (ROE) performance.
Comerica achieved its top-10
ROE ranking in 1997 and the
Gainshare Incentive Plan pay
out occurred in 1998 as the
annual report went to press.
Every month, 244 Key
Performance Measures
(KPMs) affecting external
customers are monitored for
quality at the corporate level.
Timeliness, accuracy, respon-
siveness and efficiency are
among the performance mea-
sures monitored. In 1997,
Comerica colleagues contin-
ued the upward trend in KPM
ratings.
The Employee Stock
Purchase Plan provides col-
leagues an opportunity to
own Comerica stock and
share the benefits of the
financial results they helped
create. Comerica provides a
15 percent match on quarter-
ly contributions and another
five percent match if the
stock is kept for a two-year
period without any withdraw-
als. Comerica is committed
to helping every colleague
become an employee-owner.
With the Performance Match
Program, colleagues share
in Comerica’s success in
meeting its financial goals.
The annual payout to col-
leagues who are enrolled in
the 401(k) Preferred Savings
Plan is based on Comerica’s
ROE performance and
how Comerica’s ROE rates
Comerica Incorporated
7
Our alliance with PaineWebber, the
$60 billion securities firm with
approximately 300 offices and nearly
6,300 investment executives, broad-
ens Comerica’s national network
for private banking services.
Current relationship
Pursuing relationship
Comerica is ranked 8th
among the top 100 SBA 7(a)
lenders in the country.
Our expanded retail product
line provides customers with
the most convenient banking
options available today, giv-
ing them more ways to save
money when they do their
banking. The “Choice” and
“Premier” retail product
packages reward customers
with strong banking relation-
ships by providing special
bonuses and discounts on
bank services, and non-bank
benefits such as a discount
dining card. The new pack-
ages premiered in Michigan
in late 1997.
Michigan’s largest inde-
pendent investment advisor,
Munder Capital Manage-
ment—with whom Comerica
has a partnership interest—
grew to $45 billion in man-
aged client assets in 1997.
Munder’s Micro-Cap Equity
Fund recorded the second
best performance among the
more than 5,500 mutual
funds in 1997.
Comerica introduced free
instant quotes on term life
insurance through its web site
(comerica.com). The feature
provides an alternative and
interactive way for people to
access and learn about insur-
ance products. Comerica
Insurance Services offers life,
disability, long-term care,
group benefits, and property
and casualty insurance to
businesses and individuals.
Consumers made more
than six million purchases
with the VISA Check
ComeriCARD in 1997 for
goods and services worth
more than $300 million. The
VISA Check ComeriCARD
now is accepted at more than
12 million VISA merchants
around the globe.
The Rich Rewards Club is
available to customers age
50 and over who meet mini-
mum balance requirements.
Benefits of membership
include personalized checks
at no charge, bonus interest,
brokerage discounts and an
exclusive travel service.
In addition to our extensive
branch network, customers
can access Comerica in the
supermarket through our
ComeriMARTs; through
AccessOne, our branchless
banking system; by tele-
phone; by ATM; and, by per-
sonal computer.
Through Comerica’s private
bankers, customers have
access to highly experienced
specialists in investment
management, estate planning
and administration, tax,
financial and retirement plan-
ning, real estate and lending.
Clients receive personalized,
highly responsive service and
an array of high quality
financial products delivered
in the most convenient man-
ner by qualified financial
professionals.
8
Comerica Incorporated
Investing in New Opportunities
For Comerica, investing in new opportunities is key
to achieving its goal of becoming a consistent top-10
performer, as measured by return on equity.
Key investments in 1997 included the:
.enhancing of a customer knowledge data-
base and customer information system,
to provide Comerica with a greater under
standing of its customers, their preferences
for financial services, the ways and
frequency in which they access us and
their profitability;
broadening Comerica’s national network
for personal trust services;
.expansion of the PaineWebber alliance,
.expansion of the Small Business
.nationwide expansion of Comerica’s
Administration (SBA) lending program
to a national business;
home banking program, giving consumers and small
businesses the ability to directly access their
accounts via Quicken® and QuickBooks® personal
computer software;
.leveraging of Comerica’s participation in the
Integrion Financial Network, which provides
interactive banking and electronic commerce solu-
tions to member banks;
demand for Comerica’s products and services;
response to our customers’ desire for greater
convenience;
.expansion of product distribution channels in
.hiring of talent to keep pace with the increasing
.transition to corporate-wide electronic mail;
.implementation of an expandable, flexible profit-
.dedication of the human and capital resources nec-
ability reporting system to meet current and future
management information requirements; and,
essary to prepare computer systems and applica-
tions for the new millennium.
Responding to the sophisti-
cated needs of retail and
business customers in all of
our markets, Comerica devel-
oped a national product link-
ing a customer’s checking
account to an investment
account. Called the Comerica
Asset Management Account
for retail customers, and the
Comerica Business Sweep
Account for business cus-
tomers, the product enables
customers to earn higher
interest when funds are swept
daily between accounts.
Comerica Incorporated
9
The Business Bank of Choice
Comerica continues to combine strong commercial
loan growth with consistently solid credit quality.
Our business customers are primarily closely
held or owner-managed companies with annual
sales of less than $250 million. We also have
stable, long-term financial relationships with
many publicly held Fortune 1000 corporations.
Comerica’s reputation in middle market bank-
ing is unparalleled. Our heritage is based on
lending to medium-sized businesses over many
years and through numerous economic cycles.
We evaluate a firm’s potential as well as its
assets, looking beyond the balance sheet to
such issues as position within the industry and
depth of management experience.
Our emphasis on the commercial market means
we deliver the fullest array of corporate financial
products and services. And, we do so in a con-
sistent, reliable, accurate and timely manner.
asset-based lending business;
In 1997, Comerica fine-tuned its focus as a pre-
eminent commercial lender by:
.launching Comerica Business Credit, a national
.developing a number of leading-edge imaging
.enhancing the delivery of other treasury manage-
services for corporate customers;
ment products and services to business customers,
including Comerica Gateway and the Comerica
Purchasing Card;
including automotive, energy, healthcare, real estate,
high technology and entertainment;
.honing our lending expertise in special industries,
.capitalizing on our reputation as one of the top
.offering “best in class” capital markets products,
bank providers of floor plan credit through our ser-
vices to automotive dealers in select U.S. markets;
including private capital raising services to respond
to customers’ increasing needs for creatively struc-
tured finance solutions;
.opening a commercial banking subsidiary in
.applying to form a commercial banking subsidiary
Mexico to service mid- and large-sized corporate
entities; and,
in Canada.
“It’s a lot like treasury manage-
ment from Comerica. You know
where everything is. You control
where everything goes.”
A pioneer in image process-
ing, Comerica has developed
a number of leading-edge
image-based services for cor-
porate customers, including
checks on CD-ROM and
dial-up access, which enables
customers to view checks and
associated documents daily at
their personal computers by
dialing through a modem.
A number of organizations
transferred their Master Trust
& Custody accounts to
Comerica in 1997. Master
Trust & Custody services
include securities settlement
and custody, global custody,
foreign exchange, master
trust reporting, on-line data
access, securities lending,
cash management, perfor-
mance measurement and
benefit payments. Comerica
ranks among the nation’s
leaders with more than $117
billion in trust assets under
administration.
10
Comerica Incorporated
Comerica Bank-Texas,
founding sponsor of the
Comerica Economic Forum
in Dallas, and AudioNet, the
largest broadcast network on
the Internet, teamed to deliv-
er the first live webcast of an
Economic Forum featuring
Andrew Young, former U.S.
congressman, U.S. ambas-
sador to the United Nations
and mayor of Atlanta. The
forum also was broadcast on
C-SPAN.
We introduced a new
Comerica CD-ROM, “Global
and Financial Risk
Management,” designed to
educate financial decision-
makers on current topics in
treasury and risk manage-
ment as well as provide them
insight into the technologies
employed and services
offered by Comerica Bank.
Our new National Checking
Account product enables
business customers to make
deposits to a single checking
account at any Comerica
branch in Michigan,
California, Texas and Florida.
This eliminates customers
having to maintain multiple
accounts because they con-
duct business across state
lines.
We made enhancements to
the Comerica Purchasing
Card, a payment mechanism
designed to help companies
maintain control, while
reducing the administrative
costs associated with autho-
rizing, tracking, paying and
reconciling small dollar pur-
chases.
When ranked by commer-
cial and industrial loans as
a percentage of total assets,
Comerica Incorporated
is first among the top bank
holding companies in the
nation.
Comerica Leasing
Corporation expanded its
national presence and
achieved a record volume—
more than $350 million of
equipment was leased to
Comerica customers in 1997.
Airplanes, locomotives, bull-
dozers and production equip-
ment continue to be standard
leases for Comerica Leasing
Corporation.
We added new retirement
planning software, a new
workbook, a new video and
re-designed other educational
materials for R.E.T.I.R.E.
(Real Expertise to Invest
Requires Education),
Comerica’s product line for
401(k) and other corporate
retirement plans.
Comerica Incorporated
11
Comerica Bank (Michigan)
received its second consecutive
“Outstanding” Community
Reinvestment Act rating in 1997.
This year, 225 colleagues cel-
ebrated service anniversaries
of at least 25 years with
Comerica.
Give-a-Toot is an annual
Comerica-sponsored effort to
collect used musical instru-
ments for donation to aspir-
ing music students and band
programs.
Comerica teamed up with the
Detroit Zoo in 1997 to take a
“Walk on the Wild Side,” a
year-long adventure to pro-
mote the Zoo as one of the
finest in the country.
Comerica was honored by
the Michigan Minority
Business Development
Council for the second con-
secutive year in 1997 for its
exemplary record in devel-
oping minority business
enterprises (MBEs) and for
implementing a corporate-
wide reporting system for
tracking its business with
MBEs.
The “CoStars” of Comerica-
Bank-Texas mobilized to
build a house through
Habitat for Humanity in
Houston, while the
“Comerica Cares” volunteers
contributed their sweat equi-
ty to construct a home in
Detroit.
Comerica is the lead lender
in Detroit’s Empowerment
Zone, an 18.35 square-mile
area designated for intense
redevelopment. Comerica has
committed $500 million in
lending to consumers and
small- and middle market
businesses in the
Empowerment Zone.
Comerica’s pledge is part of
a lending and investment
package from Detroit’s finan-
cial community worth more
than $1 billion.
Comerica colleagues collec-
tively contributed more than
$1 million to United Way in
1997.
Comerica embraced the
opportunity to become
involved in the Museum of
African American History.
The museum is an impressive
showpiece of African
American heritage and latest
addition to Detroit’s bur-
geoning cultural district.
More than 400 employees
referred at least $1 million
of business to Comerica
investment areas in 1997 and
earned the distinction of
being members of the
Comerica Million Dollar
Investment Club.
12
Comerica Incorporated
A Company of Exceptional Employees
In this highly competitive environment in which we
operate, employees must continually adapt to ensure
our success. Comerica’s success is due, in large
part, to our 11,000 employees, who demon-
strate both a willingness and an ability to
change. This is especially evident as they carry
out the Direction 2000: Phase III implemen-
tation plans that are helping move Comerica
forward.
Our employees are known for their strong
focus on customers, community leadership
and involvement, and spirit of volunteerism.
As a learning organization, Comerica encour-
ages employees to continue learning every
day and here, too, they are rising to the
challenge.
In 1996, we established the Comerica National
Quality Excellence Award to recognize employ-
ees who exemplify the highest standards of
customer service. Award winners are nomi-
nated and selected by their peers. Ten employees
received quality awards in 1997. The overall winner
is Colleen Hollerbach, a treasury management
administrator. Not only did colleagues recognize
her high performance, but customers did, too. For
this distinction, Hollerbach received 250 shares
of Comerica stock. The other nine finalists each
received 100 shares.
Comerica colleagues throughout the corporation are
contributing to the growth and well-being of the
communities we serve. Employees are encouraged
to be active in community affairs and to hold offices
in non-profit organizations, and they do so, serving
as models of corporate citizenship.
Our employees enrich the communities we serve by
also volunteering their time and talents in other
ways. Whether it’s donating blood, giving to United
Way, building and painting homes or tutoring young-
sters, Comerica employees contribute their time,
energy and ideas for the betterment of the communi-
ties where we do business.
Comerica’s corporate contri-
butions help support organi-
zations dedicated to improv-
ing the quality of life in the
communities we serve.
Examples of Comerica con-
tributions in 1997 include
donations to the Barbara Ann
Karmanos Cancer Institute,
of Detroit; City Year, of San
Jose, Calif.; Candlelight at
Old City Park, of Dallas;
and, the Jewish Federation
of Palm Beach County, of
Boca Raton, Fla.
ROAR (Recognizing
Outstanding Achievement
and Results) awards totaling
$710,000 were presented to
3,500 employees in 1997.
Comerica Incorporated
13
Comerica Incorporated
Board of Directors
E. Paul Casey
Chairman and
Managing General Partner
Metapoint Partners
Audit & Legal and Directors
Committees
James F. Cordes
Retired
Executive Vice President
The Coastal Corporation
Audit & Legal and
Risk Asset Committees
J. Philip DiNapoli
Managing Partner
DiNapoli Companies
Audit & Legal and Directors
Committees
Max M. Fisher
Investor
Compensation and
Risk Asset Committees
John D. Lewis
Vice Chairman
Comerica Incorporated
and Comerica Bank
Executive Committee
Patricia Shontz Longe, Ph.D.
Economist; Senior Partner
The Longe Company
Audit & Legal and Directors
Committees
Wayne B. Lyon
Chairman, President and
Chief Executive Officer
Lifestyle Furnishings
International, Inc.
Compensation and
Risk Asset Committees
Gerald V. MacDonald
Retired Chairman and
Chief Executive Officer
Comerica Incorporated
Risk Asset Committee
Eugene A. Miller
Chairman and
Chief Executive Officer
Comerica Incorporated and
Comerica Bank
Directors, Executive and
Risk Asset Committees
Michael T. Monahan
President
Comerica Incorporated and
Comerica Bank
Directors, Executive and
Risk Asset Committees
Alfred A. Piergallini
President and
Chief Executive Officer
Gerber Products Company
Audit & Legal and
Compensation Committees
Howard F. Sims
Chairman
Sims-Varner & Associates
Directors and
Risk Asset Committees
Martin D. Walker
Principal
MORWAL Investments
Audit & Legal and
Compensation Committees
Executive Officers
Eugene A. Miller
Chairman and
Chief Executive Officer
Michael T. Monahan
President
John D. Lewis
Vice Chairman
Ralph W. Babb Jr.
Executive Vice President
and Chief Financial Officer
John R. Beran
Executive Vice President
and Chief Information
Officer
Joseph J. Buttigieg III
Executive Vice President
Global/Michigan
Corporate Banking
Richard A. Collister
Executive Vice President
Corporate Staff
George C. Eshelman
Executive Vice President
Investment Bank
J. Michael Fulton
President and
Chief Executive Officer
Comerica Bank-California
Dale E. Greene
Executive Vice President
Credit Administration
Charles L. Gummer
President and
Chief Executive Officer
Comerica Bank-Texas
John R. Haggerty
Executive Vice President
Consumer Finance (Secured)
Thomas R. Johnson
Executive Vice President
Credit Policy
George W. Madison
Executive Vice President,
General Counsel and
Corporate Secretary
Ronald P. Marcinelli
Executive Vice President
Asset-Based Businesses
David B. Stephens
Executive Vice President
Private Banking
Fenton R. Talbott
Executive Vice President
Community Banking
Marvin J. Elenbaas
First Vice President and
Controller
James R. Tietjen
Senior Vice President and
General Auditor
14
Comerica Incorporated
Comerica Bank-
California
J. Michael Fulton
President and
Chief Executive Officer
333 W. Santa Clara Street
San Jose, California 95113
Markets:
The Bay Area (San Jose
to San Francisco),
Santa Cruz Coastal,
Los Angeles (Los Angeles
and Orange Counties)
and San Diego
Offices: 31
Directors
Theodore J. Biagini
Of Counsel
Hopkins & Carley
Jack C. Carsten
Principal
Technology Investments
Leo E. Chavez
Chancellor
Foothill-DeAnza
Community College District
Jack W. Conner
Chairman
Comerica Bank-California
J. Philip DiNapoli
Managing Partner
DiNapoli Companies
N. John Douglas
President and
Chief Executive Officer
Personal Achievement
Radio Holding
J. Michael Fulton
President and
Chief Executive Officer
Comerica Bank-California
Drew Gibson
Chairman and
Chief Executive Officer
Gibson Speno Company
Walter T. Kaczmarek
Executive Vice President
Comerica Bank-California
Elinor Weiss Mansfield
Attorney
Linda R. Meier
Board Member
California Water
Service Company
Lowell W. Morse
Chairman
Cypress Ventures, Inc.
Edward P. Roski Jr.
President
Majestic Realty Company
David C. White
Executive Vice President
Comerica Bank-California
Lewis N. Wolff
Chairman and
Chief Executive Officer
Wolff-DiNapoli
Comerica Bank
(Michigan)
Eugene A. Miller
Chairman and
Chief Executive Officer
Comerica Tower at
Detroit Center
500 Woodward Avenue
Detroit, Michigan 48226
Markets:
Metropolitan Detroit,
Ann Arbor, Battle Creek,
Grand Rapids, Jackson,
Kalamazoo, Lansing,
Midland, Muskegon
Offices: 261
Directors
Lillian Bauder, Ph.D.
Vice President
Corporate Affairs
Masco Corp.
E. L. Cox
Retired
Chief Executive Officer
Michigan Mutual/
Amerisure Companies
Accident Fund of Michigan
Peter D. Cummings
President
Peter D. Cummings &
Associates
Roger Fridholm
President
St. Clair Group
Todd W. Herrick
President and
Chief Executive Officer
Tecumseh Products
Company
David Baker Lewis
Chairman
Lewis & Munday, P.C.
John D. Lewis
Vice Chairman
Comerica Incorporated
and Comerica Bank
Eugene A. Miller
Chairman and
Chief Executive Officer
Comerica Incorporated and
Comerica Bank
Michael T. Monahan
President
Comerica Incorporated and
Comerica Bank
John W. Porter
Chief Executive Officer
Urban Education
Alliance, Inc.
Heinz C. Prechter
Chairman and Founder
ASC Incorporated
Robert S. Taubman
President and
Chief Executive Officer
The Taubman Company,Inc.
Alfred H. Taylor Jr.
Trustee, Former Chairman
and Chief Executive Officer
The Kresge Foundation
William P. Vititoe
Consultant;
Former Chairman and
Chief Executive Officer
Washington Energy
Company
Gail L. Warden
President and
Chief Executive Officer
Henry Ford Health System
Kenneth L. Way
Chairman and
Chief Executive Officer
Lear Corporation
Comerica Incorporated
15
Ruben E. Esquivel
Vice President
Community and
Corporate Relations
The University of Texas
Southwestern Medical
Center
Charles L. Gummer
President and
Chief Executive Officer
Comerica Bank-Texas
Rev. Zan W. Holmes Jr.
Senior Pastor
St. Luke Community
United Methodist Church
Jake Kamin
Chairman
South Texas
Advisory Board
Comerica Bank-Texas
W. Thomas McQuaid
President
Performance Properties
Corporation
Harriet Miers
President
Locke Purnell Rain Harrell
Raymond D. Nasher
Chairman
Comerica Bank-Texas;
Chairman
The Nasher Company
Calvin E. Person
Owner
Calvin Person &
Associates
Boone Powell Jr.
President and
Chief Executive Officer
Baylor University
Medical Center
Bill J. Priest, Ph.D.
Chancellor Emeritus
Dallas County Community
College District
Thomas J. Tierney
Chairman
Corporate Communications
Center, Inc.
Comerica Bank-
Texas
Charles L. Gummer
President and
Chief Executive Officer
Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Markets:
Dallas, Fort Worth,
Austin, Houston
Offices: 53
Directors
Carroll Baird
Retired President
Mrs Baird’s Bakeries, Inc.
C. Dewitt Brown Jr.
President and
Chief Executive Officer
Dee Brown Masonry
James F. Cordes
Retired
Executive Vice President
The Coastal Corporation
Thomas M. Dunning
Chairman
Dunning Benefit
Corporation
.
16
Nancy H. Canary
Partner
Thompson, Hine and Flory
E. Paul Casey
Chairman and
Managing General Partner
Metapoint Partners
John F. Daly
Retired Vice Chairman
Johnson Controls
Don B. Dean
Retired President and
Chief Executive Officer
Manufacturers Bank & Trust
of Florida
Patricia Shontz Longe, Ph.D.
Economist; Senior Partner
The Longe Company
Randy B. Nobles
President and
Chief Executive Officer
Comerica Bank & Trust, FSB
Bill T. Smith Jr., Esq.
Attorney
Bill T. Smith Jr., P.A.
David B. Stephens
Chairman
Comerica Bank & Trust, FSB;
Executive Vice President
Comerica Incorporated
Comerica Bank & Trust,
FSB (Florida)
Randy B. Nobles
President and
Chief Executive Officer
1800 Corporate Blvd. NW
Suite 200
Boca Raton, Florida 33431
Markets:
Boca Raton, Fort
Lauderdale, Naples,
Palm Beach Gardens,
Sarasota, Tampa
Offices: 6
Directors
Arthur R. Bradley
Retired Chairman and
Chief Executive Officer
Comerica Bank & Trust, FSB
Comerica Incorporated
Comerica Investment
Services
Comerica Investment
Services
Comerica Insurance
Services, Inc.
Offers life, disability,
long-term care, group
benefits, and property and
casualty insurance to
businesses and individuals.
Professional Life
Underwriters Services,
Inc. (PLUS)
Provides life insurance,
annuities and disability
insurance products to inde-
pendent insurance agents.
Comerica Securities, Inc.
A full service broker-dealer
that offers stocks, bonds,
mutual funds and annuities
to individual investors,
along with investment
banking services.
Wilson, Kemp &
Associates, Inc.
Offers individualized invest-
ment portfolio management
services to customers in the
Midwest and Florida.
W. Y. Campbell &
Company
Provides investment banking
and corporate finance
services to Fortune 500
companies and middle
market firms.
Partnership Interest:
Munder Capital
Management
An independent investment
advisory firm.
Units of Comerica
Incorporated
(select business offices
located outside of
Comerica’s primary
markets)
Comerica Business Credit
Denver
Cleveland
Dayton
Indianapolis
International Finance
Chicago
Hong Kong
Toronto
National Dealer Services
Chicago
Denver
Personal Trust
New York City
Memphis
Other Comerica
Components
Comerica Bank-
Midwest, N.A.
Specializes in revolving
credit loans; based in
Toledo, Ohio.
Comerica Leasing
Corporation
Provides equipment leasing
and financing services for
businesses throughout the
United States.
Comerica Trust Company
of Bermuda Ltd.
Offers trust services for cap-
tive insurance companies
and offshore mutual funds.
Comerica Bank Mexico
Provides a wide range of
corporate banking and trade
finance services to middle
market and large corporate
companies.
Comerica Community
Development Center
A non-conventional financial
resource for housing rehabil-
itation and small business
enterprise in Comerica’s
Michigan markets.
Comerica West
Incorporated
U.S. Banking-West Group
originates mid-sized loans to
business customers with spe-
cific emphasis on the
Western United States.
Comerica Incorporated
17
Financial Review
and Reports
1997 Financial
Highlights
Earnings
Performance
Strategic Lines
of Business
Balance Sheet
and Capital Funds
Analysis
Asset Quality
Asset and
Liability Management
Consolidated
Financial Statements
Notes to Consolidated
Financial Statements
Report of Management
Report of
Independent Auditors
Historical Review
20
20
26
28
30
32
37
41
60
60
61
18
Comerica Incorporated
Table 1: Selected Financial Data
Year Ended December 31
(dollar amounts in millions, except per share data)
Earnings Summary
Total interest income
Net interest income
Provision for loan losses
Securities gains
Noninterest income
(excluding securities gains)
Restructuring charge
Noninterest expenses
(excluding restructuring charge)
Net income
Per Share of Common Stock
Basic net income*
Diluted net income*
Cash dividends declared
Common shareholders’ equity
Market value
Year-end Balances
Total assets
Total earning assets
Total loans
Total deposits
Total borrowings
Medium- and long-term debt
Common shareholders’ equity
Daily Average Balances
Total assets
Total earning assets
Total loans
Total deposits
Total borrowings
Medium- and long-term debt
Common shareholders’ equity
Ratios
Return on average assets
Return on average common shareholders’ equity
Efficiency ratio
Dividend payout ratio
Common shareholders’ equity as
a percent of average assets
Excluding 1996 Restructuring Charge
Net income
Basic net income per share of common stock
Diluted net income per share of common stock
Return on average assets
Return on average common shareholders’ equity
Efficiency ratio
Dividend payout ratio
1997
1996
1995
1994
1993
$ 2,648
1,443
146
6
$02,563
1,412
114
14
$02,614
1,300
87
12
$02,092
1,230
56
3
$01,783
1,134
69
2
522
—
1,008
530
$003.24
3.19
1.15
16.02
60.17
$36,292
33,104
28,895
22,586
10,479
7,286
2,512
$34,869
32,025
27,209
21,946
9,798
5,980
2,408
493
90
1,069
417
$002.41
2.38
1.01
14.70
34.92
$34,206
31,110
26,207
22,367
8,731
4,242
2,366
$34,195
31,370
25,352
22,258
8,850
4,745
2,554
487
—
1,086
413
$002.38
2.37
0.91
15.17
26.67
$35,470
32,051
24,442
23,167
9,319
4,644
2,608
$34,129
31,537
23,561
21,655
9,639
4,510
2,511
447
7
1,035
387
$002.20
2.19
0.83
13.64
16.25
$33,430
30,606
22,209
22,432
8,303
4,098
2,392
$31,451
29,038
20,211
21,325
7,527
2,708
2,313
447
22
1,003
341
$001.92
1.90
0.71
12.66
17.75
$30,295
27,852
19,100
20,950
6,861
1,461
2,182
$27,236
25,012
18,307
20,721
4,105
1,087
2,136
1.52%
1.22%
1.21%
1.23%
21.32
51.05
36
15.98
60.36
42
16.46
60.09
38
16.74
61.28
38
1.25%
15.94
63.68
37
6.91
7.47
7.36
7.35
7.84
4.08
4.08
18.33
55.67
37
$00,477
2.77
2.73
1.40%
18.33
55.67
37
*Net income per share in this annual report is calculated in accordance with FASB Statement 128, “Earnings Per Share.” All prior period amounts have been restated.
Comerica Incorporated
19
1997 Financial Highlights
Focused on Performance
Return on Average Assets
(in percentages)
.Comerica
.Excluding restructuring charge
.Industry average
(based on 50 largest U.S.
bank holding companies)
1.75
1.50
1.25
1.00
0.75
0.50
0.25
Earned 21.32 percent on average common shareholders’
equity, compared to 15.98 percent (18.33 percent excluding
the restructuring charge) in 1996.
Returned 1.52 percent on average assets, compared to 1.22
percent (1.40 percent excluding the restructuring charge)
in 1996.
Reported Record Earnings
Reported net income of $530 million, or $3.19 per share,
compared with $417 million, or $2.38 per share (excluding
the restructuring charge, net income increased $53 million
from $477 million, or $2.73 per share) in 1996.
On January 15, 1998, the Corporation declared a three-
for-two stock split to be effected in the form of a stock
dividend on April 1, 1998. All per share amounts have been
adjusted to reflect the split.
Sustained Growth
Grew average total assets slightly to $35 billion (increased 4
percent excluding the sale of Comerica Bank-Illinois).
Reached $21 billion in average non-consumer loans, a
12 percent increase (15 percent increase excluding the sale
of Comerica Bank-Illinois).
Averaged $22 billion in total deposits, in both 1997 and
1996 (1 percent increase excluding the sale of Comerica
Bank-Illinois).
Maintained average shareholders’ equity of $2.7 billion.
Enhanced Shareholders’ Return
Repurchased 3.6 million shares (or 5.4 million shares on
a post-split basis) in 1997.
Raised the quarterly cash dividend 12 percent to $0.29
per share.
Declared annual cash dividends of $1.15 per share.
Implemented Key Strategies
Sold the bond indenture services business and recorded
a $23 million pre-tax gain.
Maintained revenue momentum while implementing
Phase III of Direction 2000.
0.0 93
94
95
96
97
Earnings Performance
Net Interest Income
Net interest income, on a fully taxable equivalent (FTE) basis,
is the difference between interest earned on assets, including
certain yield related fees, 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. Net interest income (FTE) comprised
73 percent of net revenues, compared to 74 percent in 1996
and 73 percent in 1995.
Net Interest Income
.Net Interest Income (FTE)
.Net Interest Margin (FTE)
(in millions)
(percent of earning assets)
1600
1400
1200
1000
800
600
400
200
0
93 94 95 96 97
5.2
5.0
4.8
4.6
4.4
4.2
4.0
3.8
3.6
20
Comerica Incorporated
Table 2: Analysis of Net Interest Income–Fully Taxable Equivalent
(dollar amounts in millions)
Commercial loans
International loans
Real estate construction loans
Commercial mortgage loans
Residential mortgage loans
Consumer loans
Lease financing
1997
1996
1995
Average
Balance Interest
Average
Rate
Average
Balance Interest
Average
Rate
Average
Balance Interest
Average
Rate
$14,234 $1,174
138
81
322
133
440
33
1,953
866
3,547
1,676
4,486
447
8.25% $12,686 $1,041
102
1,541
7.07
65
707
9.38
324
3,483
9.08
153
1,960
7.90
457
4,624
9.81
24
351
7.48
8.21% $11,302 $0 989
89
1,257
6.64
52
541
9.22
297
3,157
9.29
191
2,450
7.83
461
4,569
9.88
19
285
6.82
Total loans (1)
Taxable securities
Securities exempt from federal income taxes
Total investment securities
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 accounts
Savings deposits
Certificates of deposit
Foreign office deposits (2)
Total interest-bearing deposits
Federal funds purchased and securities
sold under agreements to repurchase
Other borrowed funds
Medium- and long-term debt
Other (3)
Total interest-bearing sources
Noninterest-bearing deposits
Accrued expenses and other liabilities
Preferred stock
Common shareholders’ equity
2,321
309
18
327
9
2,657
232
34
361
46
673
111
98
374
(51)
1,205
8.53
6.84
9.32
6.94
6.59
8.29
3.35
2.02
5.39
5.68
4.17
5.49
5.45
6.26
—
4.65
27,209
4,490
197
4,687
129
32,025
1,686
(402)
1,560
$34,869
$06,926
1,701
6,699
805
16,131
2,017
1,801
5,980
—
25,929
5,815
467
250
2,408
Total liabilities and shareholders’ equity $34,869
25,352
5,528
295
5,823
195
31,370
1,576
(361)
1,610
$34,195
$06,913
2,026
6,887
843
16,669
2,106
1,999
4,745
—
25,519
5,589
400
133
2,554
$34,195
2,166
371
28
399
13
2,578
8.54
6.63
9.96
6.79
6.23
8.20
231
44
365
46
686
3.33
2.18
5.30
5.46
4.11
5.31
112
5.36
107
295
6.22
(49) —
1,151
4.51
2,098
473
41
514
23
2,635
217
48
344
112
721
166
136
289
2
1,314
23,561
7,226
399
7,625
351
31,537
1,500
(340)
1,432
$34,129
$06,411
2,277
6,358
1,842
16,888
2,816
2,313
4,510
—
26,527
4,767
324
—
2,511
$34,129
8.75%
7.06
9.52
9.40
7.80
10.10
6.65
8.90
6.52
10.43
6.72
6.61
8.35
3.39
2.14
5.41
6.07
4.27
5.88
5.87
6.41
—
4.95
Net interest income/rate spread (FTE)
$1,452
3.64
$1,427
3.69
$1,321
3.40
FTE adjustment (4)
$0,019
$1,415
$0,021
Impact of net noninterest-bearing
sources of funds
Net interest margin (as a percent of
average earning assets) (FTE)
0.89
4.53%
0.85
4.54%
0.79
4.19%
(1) Nonaccrual loans are included in average balances reported and are used
to calculate rates.
(2) Includes substantially all deposits by foreign depositors; deposits are in
excess of $100,000.
(3) Net interest rate swap (income)/expense. If swap (income)/expense were
allocated, average rates on total loans would have been 8.63% in 1997, 8.66%
in 1996 and 8.84% in 1995; average rates on medium- and long-term debt
would have been 5.85% in 1997, 5.80% in 1996 and 6.14% in 1995.
(4) The FTE adjustment is computed using a federal income tax rate of 35%.
Comerica Incorporated
21
Net interest income (FTE) rose 2 percent to $1,452 million in
1997. This increase was due primarily to a 2 percent increase
in average earning assets, which was concentrated in commer-
cial loans. The significant increase in commercial loans was
offset by consumer loan runoff and sales and runoff of invest-
ment securities.
Net interest margin for 1997 declined slightly to 4.53 percent
from 4.54 percent last year. Comerica (the “Corporation”)
experienced higher funding costs in 1997 as a result of a
greater reliance on purchased funds in the mix of interest-
bearing liabilities. This was offset by a favorable shift in
earning assets to higher spread loans funded by the sales
and runoff of lower yielding investment securities.
Table 3: Rate-Volume Analysis–Fully Taxable Equivalent
1997 / 1996
1996 / 1995
Increase
(Decrease)
Increase
(Decrease)
Due to Rate Due to Volume*
Net
Increase
Increase
Increase
(Decrease)
(Decrease)
(Decrease) Due to Rate Due to Volume*
Net
Increase
(Decrease)
(in millions)
Interest income (FTE)
Commercial loans
International loans
Real estate construction loans
Commercial mortgage loans
Residential mortgage loans
Consumer loans
Lease financing
Total loans
$05
7
1
(7)
2
(3)
2
7
Taxable securities
Securities exempt from federal income taxes
10
(1)
Total investment securities
Short-term investments
Total interest income (FTE)
Interest expense
Money market and NOW accounts
Savings deposits
Certificates of deposit
Foreign office deposits
Total interest-bearing deposits
Federal funds purchased and securities
sold under agreements to repurchase
Other borrowed funds
Medium- and long-term debt
Other (1)
Total interest expense
Net interest income (FTE)
9
1
17
1
(3)
6
2
6
4
2
2
(2)
12
$05
*Rate/volume variances are allocated to variances due to volume.
(1) Net interest rate swap income.
$128
29
15
5
(22)
(14)
7
148
(72)
(9)
(81)
(5)
62
—
(7)
(10)
(2)
(19)
(5)
(11)
77
—
42
$ 133
36
16
(2)
(20)
(17)
9
155
(62)
(10)
(72)
(4)
(79)
10
(10)
(4)
—
(13)
(1)
(9)
79
(2)
54
$020
$.025
$ (62)
(6)
(2)
(3)
1
(10)
—
(82)
12)
(3)
9
(1)
(74)
(3)
1
(7)
(11)
(20)
(16)
(12)
(9)
(51)
(108)
$ (34)
$114
19
15
30
(39)
6
5
150
(114)
(10)
(124)
(9)
17
17
(5)
28
(55)
(15)
(38)
(17)
15
—
(55)
$ (72
$ 52
13
13
27
(38)
(4)
5
68
(102)
(13)
(115)
(10)
(57)
14
(4)
21
(66)
(35)
(54)
(29)
6
(51)
(163)
$106
22
Comerica Incorporated
At December 31, 1997, the allowance for loan losses was
$424 million, an increase of $57 million since year-end 1996.
The allowance as a percentage of total loans increased to 1.47
percent from 1.40 percent at December 31, 1996. The
allowance as a percentage of total nonperforming assets
increased significantly to 413 percent at December 31, 1997,
from 263 percent at year-end 1996.
An estimated allocation of the allowance for loan losses is
provided in Table 9 on page 29. The allocations are made for
analytical purposes. The total allowance is available to absorb
losses from any segment of the portfolio.
Net Loans Charged Off
to Average Loans
(in percentages)
.Comerica
.Industry average
(based on 50 largest U.S.
bank holding companies)
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
93
94
95
96
97
The Corporation implemented various asset and liability
management strategies in 1997 to minimize exposure to net
interest margin risk, which represents the potential reduction
in net interest income that may result from rate spread com-
pression between, for example, prime and market rates or core
deposit and money market rates. Such strategies included per-
mitting investment securities to run off in order to facilitate
growth in higher yielding loans. Off-balance sheet interest rate
swaps were also entered into during the year to effectively fix
the high yields on certain variable rate loans and alter the
interest rate characteristics of debt issued throughout the year.
Refer to page 32 of this financial review for additional infor-
mation regarding the Corporation’s asset and liability manage-
ment policies.
In 1996, net interest income (FTE) increased 8 percent over
1995, benefiting from strong growth in average earning assets,
primarily commercial loans. The net interest margin for 1996
increased 35 basis points from 1995, principally due to a
favorable shift in the mix of earning assets. The Corporation
primarily funded the growth in higher yielding loans with
sales of thin margin, floating rate investment securities and
runoff of fixed rate investment securities. This shifted the
structure of the balance sheet, placing a greater emphasis on
higher spread loans and reducing the reliance on investment
securities.
Provision and Allowance for Loan Losses
The allowance for loan losses represents management’s
assessment of possible losses inherent in the Corporation’s
loan portfolio and is determined based on the application of
projected loss ratios to risk-rated loans, both individually and
by category. Projected loss ratios incorporate factors such as
recent loan loss experience, current economic conditions and
trends, geographic dispersion of borrowers, trends with respect
to past due and nonaccrual amounts, risk characteristics of
various categories and concentrations of loans and transfer
risks. However, there can be no assurance that the actual loss
ratios will not vary from those projected. The provision for
loan losses reflects management’s evaluation of the adequacy
of the allowance for loan losses. This evaluation is performed
on a quarterly basis.
The provision for loan losses was $146 million in 1997,
compared to $114 million in 1996 and $87 million in 1995.
The provision increase in 1997 primarily reflected loan growth
and management’s intention to increase reserve ratios.
Total net charge-offs increased to $89 million in 1997,
compared to $85 million and $76 million in 1996 and 1995,
respectively. The ratio of net loans charged off to average total
loans was 0.33 percent in both 1997 and 1996. Commercial
loan net charge-offs as a percentage of average commercial
loans were 0.10 percent and 0.12 percent for 1997 and 1996,
respectively. Consumer loan net charge-offs as a percentage of
average consumer loans were 1.79 percent and 1.57 percent
for 1997 and 1996, respectively.
Comerica Incorporated
23
Table 4: Analysis of the Allowance for Loan Losses
Year Ended December 31
(dollar amounts in millions)
Balance at beginning of period
Allowance of institutions and loans purchased/sold
Loans charged off
Domestic
Commercial
Real estate construction
Commercial mortgage
Residential mortgage
Consumer
International
Total loans charged off
Recoveries
Domestic
Commercial
Real estate construction
Commercial mortgage
Consumer
International
Total recoveries
Net loans charged off
Provision for loan losses
Balance at end of period
Ratio of allowance for loan losses to total loans
at end of period
Ratio of net loans charged off during the period
to average loans outstanding during the period
1997
$367
—
1996
$341
1995
$326
(3)
4
1994
$299
19
1993
$308
—
33
1
4
—
92
1
33
1
5
1
86
—
33
3
8
2
73
—
131
126
119
19
1
10
12
—
42
89
18
1
9
13
—
41
85
146
114
19
3
8
13
—
43
76
87
25
1
17
—
40
—
83
15
—
5
14
1
35
48
56
36
1
20
1
52
—
110
18
—
2
12
—
32
78
69
$424
$367
$341
$326
$299
1.47% 1.40% 1.40% 1.47% 1.56%
0.33% 0.33% 0.32% 0.24% 0.43%
Noninterest Income
Year Ended December 31
(in millions)
Income from fiduciary activities
Service charges on deposit accounts
Revolving credit fees
Securities gains
Other
Subtotal
Bond indenture income
Customhouse broker fees
Total noninterest income
1997
1996
1995
$147
141
20
6
191
505
23
—
$126
140
23
14
186
489
7
11
$119
130
36
12
160
457
6
36
$528
$507
$499
Noninterest income increased $21 million, or 4 percent, to
$528 million in 1997, compared to $507 million and
$499 million in 1996 and 1995, respectively. After adjusting
for divestitures, securities gains and the large nonrecurring
items discussed below, noninterest income rose $53 million,
or 12 percent, in 1997.
Income from fiduciary activities increased $14 million, or 10
percent, in 1997, compared to an increase of $8 million, or 7
percent, in 1996. The increase in 1997 reflects a significant
increase in both personal trust and institutional trust income
due to an expanded customer base and market performance of
assets under management. Total trust assets under manage-
ment increased to $117 billion at December 31, 1997, from
$107 billion at year-end 1996. Discretionary funds, which rep-
resent trust assets over which the Corporation has investment
management authority, increased $4 billion to $30 billion from
$26 billion in 1996. This increase resulted primarily from
increases in the institutional trust category.
Service charges on deposit accounts rose $1 million, or 1
percent, in 1997 compared to an increase of $10 million, or 8
percent, in 1996. This increase is net of a $3 million reduction
in service charges resulting from the divestiture of the Illinois
subsidiary in 1996. The majority of the 1997 increase related
to revisions of the commercial account fee structure, growth in
demand deposit activity and lower earnings credit allowances.
24
Comerica Incorporated
Noninterest Income
(in millions)
600
500
400
300
200
100
Noninterest Expenses
Year Ended December 31
(in millions)
Salaries
Employee benefits
Total salaries and
employee benefits
Net occupancy expense
Equipment expense
FDIC insurance expense
Telecommunications expense
Other
Subtotal
Restructuring charge
1997
1996
1995
$ 464
75
$ 475
86
$ 466
96
539
89
62
3
28
287
561
99
69
8
29
303
562
99
68
24
29
304
1,008
—
1,069
90
1,086
—
0 93 94 95 96 97
Total noninterest expenses
$1,008
$1,159
$1,086
Customhouse brokerage fees decreased $11 million in 1997,
due to the sale of John V. Carr & Son, Inc. in the second
quarter of 1996.
Revolving credit fee income decreased $3 million, or 14
percent, in 1997 compared to a $13 million, or 37 percent
decrease in 1996. The lower fees in 1997 were primarily
due to the transfer of fees and associated costs to a merchant
services joint venture in early 1996.
Income from securities gains/(losses) decreased $8 million
between 1997 and 1996, primarily representing decreases in
gains on the sale of Latin American debt (principally Brady
bonds) and U.S. government agency securities.
Other noninterest income grew $28 million, or 15 percent, in
1997. Excluding the impact of divestitures and large nonrecur-
ring items in both periods, other noninterest income rose 17
percent. Accounting for the majority of this increase were
higher levels of security trading and commercial fee income,
as well as the implementation of new retail fees. Other nonin-
terest income also increased due to management’s continued
emphasis on revenue growth through sales of nontraditional
bank products. Commissions and fees related to these prod-
ucts increased $3 million, or 19 percent, in 1997 from $20
million in 1996. Significant nonrecurring items in other nonin-
terest income include a $23 million gain on the sale of the
Corporation’s bond indentures services business in 1997.
Significant nonrecurring items in 1996 include a $13 million
gain on the transfer of merchant services to a joint venture, $9
million of interest on a state tax refund and a $6 million gain
on the sale of Comerica Bank-Illinois; offset by a $9 million
write-off related to the sale of John V. Carr & Son, Inc. There
were no significant nonrecurring items included in other non-
interest income in 1995.
Noninterest expenses decreased 13 percent to $1,008 million
in 1997 (decreased 6 percent from $1,069 million, excluding
the 1996 restructuring charge), compared to $1,159 million in
1996 and $1,086 million in 1995. Excluding the effect of
divestitures and the large nonrecurring items discussed later,
noninterest expenses remained essentially unchanged in 1997.
A pre-tax restructuring charge of $90 million was recorded in
1996 in connection with a major program to improve efficien-
cy, revenue and customer service. The charge included $48
million for termination benefits, $21 million for occupancy
and equipment write-offs and $21 million for other costs. Esti-
mated annual benefits of $110 million (cost savings of $85
million and revenue enhancements of $25 million) are antici-
pated from the program. Projected completion of the imple-
mentation plan is the end of the first quarter of 1998, so a
substantial portion of the estimated benefits will not impact
annual results until 1998, and full annual realization is not
expected until 1999. As a result of the program, 1,890
employee positions, about 15 percent of total positions at
year-end 1996, were identified to be eliminated by the end
of Direction 2000. As of December 31, 1997, all but approxi-
mately 300 of the positions have been eliminated. Reinvest-
ment opportunities during the implementation phase have
created 300 new positions. Implementation of the major com-
ponents of the program are progressing as anticipated. During
1997, $61 million of termination benefits, occupancy and
equipment write-offs and other costs were incurred and
charged against the restructuring reserve. Additional informa-
tion regarding the Corporation’s restructuring reserve can be
found in Note 15 on page 50.
Total salaries expense decreased $11 million, or 2 percent, in
1997 versus an increase of $9 million, or 2 percent, in 1996.
Excluding the effect of divestitures, salaries increased slightly
during the year reflecting increased incentives tied to perform-
ance and annual merit increases. The number of full-time
equivalent employees decreased 1,078, or 10 percent, from
year-end 1996, excluding divestitures.
Comerica Incorporated
25
Noninterest Expenses
(in millions)
1200
1000
800
600
400
200
0
.Restructuring charge
expose the Corporation to maximum losses of $50 million
over the first 42 months following the sale (December 1995).
Loss rates in 1996 and 1997 exceeded estimates, resulting in
the additional charge for projected losses. Excluding divesti-
tures and the above large nonrecurring items, other noninterest
expenses increased $3 million, or less than 1 percent. The
minimal increase reflects management’s continued efforts to
control expenses.
The Corporation’s efficiency ratio is defined as total noninter-
est expenses divided by the sum of net interest revenue (FTE)
and noninterest income, excluding securities gains/(losses).
The ratio was 51.05 percent in 1997, compared to 60.36
percent in 1996 (55.67 percent excluding the restructuring
charge) and 60.09 percent in 1995.
93
94
95
96
97
Income Taxes
Employee benefits expense decreased $11 million, or 12
percent, in 1997 versus an increase of $10 million, or 10
percent, in 1996. After adjusting for divestitures, employee
benefits decreased 7 percent, largely due to the reduction in
full-time equivalent staff levels.
Net occupancy and equipment expenses, on a combined
basis, decreased $17 million, or 10 percent, in 1997 versus
virtually no change in 1996. After adjusting for divestitures,
net occupancy and equipment expenses declined 6 percent.
The Federal Deposit Insurance Corporation (FDIC) expens-
es decreased significantly, by $5 million, or 63 percent, in
1997, and $16 million, or 66 percent, in 1996, primarily due
to the FDIC adopting a new assessment rate schedule for
Bank Insurance Fund (BIF) members in the third quarter of
1995. The new rate schedule, which continues to determine
assessments based on a bank’s risk-based capital levels, vir-
tually eliminated each bank’s 1996 BIF annual deposit
insurance premium. Beginning in 1997, each subsidiary
bank’s deposit insurance assessment rate is predicated upon
the level of insurance premiums necessary to maintain the
bank insurance fund ratio at a level of 1.25 percent of
insured deposits, plus an amount representing interest due
on the Financing Corporation bonds issued during the sav-
ings and loan crisis. The BIF rate reduction described above
translated into a $21 million reduction in FDIC insurance
expense for the Corporation in 1996. Offsetting this savings
in 1996 was a one-time charge of $5 million, representing
the Corporation’s portion of an assessment levied on banks
with Savings Association Insurance Fund (SAIF) insured
deposits in order to recapitalize the SAIF. Deposit insurance
expense will approximate $3 million in 1998 based on cur-
rent deposit levels and current deposit assessment rates.
Other noninterest expenses decreased $16 million in 1997,
compared to a $1 million decrease in 1996. Included in
other noninterest expenses in 1997 were $5 million of
incremental litigation accruals. Other noninterest expenses
in 1997, 1996 and 1995, included losses of $2 million,
$18 million and $15 million (excluding $1 million of costs
to sell), respectively, on the sale of a portion of the bankcard
portfolio. Loss-sharing provisions in the sales agreement
The provision for income taxes was $287 million in 1997,
compared to $229 million in 1996 and $213 million in 1995.
The effective tax rate, computed by dividing the provision for
income taxes by income before taxes, was 35.0 percent for
1997, compared to 35.4 percent in 1996 and 33.9 percent in
1995. The decrease in the effective tax over the prior year
reflects greater levels of low-income housing credits.
Strategic Lines of Business
The Corporation has strategically aligned its operations
into three major lines of business: the Business Bank, the Indi-
vidual Bank and the Investment Bank. Table 5 on
page 27 presents the financial results of these business
lines for the years ended December 31, 1997 and 1996.
Lines of business results are produced by the Corporation’s
internal management accounting system. This system meas-
ures financial results based on the internal organizational
structure of the Corporation; therefore, the information pre-
sented is not necessarily comparable with similar information
for any other financial institution. The management account-
ing system assigns balance sheet and income statement items
to each line of business using certain methodologies which are
constantly being refined. For comparability purposes, both
1997 and 1996 amounts are based on methodologies in effect
at December 31, 1997. These methodologies, which are
briefly summarized in the following paragraph, may be modi-
fied as management accounting systems are enhanced and
changes occur in the organizational structure or product lines.
The Corporation’s 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 remain-
ing assets and liabilities. The loan loss provision is assigned
based on the amount necessary to maintain an allowance for
loan losses adequate for that line of business. Noninterest
income and expenses directly attributable to a line of business
are assigned to that business. Direct expenses incurred by
areas whose services support the overall Corporation are allo-
cated to the business lines as follows: Product processing
expenditures are allocated based on standard unit costs applied
to actual volume measurements; administrative expenses are
allocated based on estimated time expended; and corporate over-
head is assigned based on the ratio of a line of business’ noninter-
26
Comerica Incorporated
Table 5: Strategic Lines of Business Financial Results
(dollar amounts in millions)
1997
1996
1997
1996
1997
1996
1997
1996
1997
1996
Business Bank
Individual Bank
Investment Bank*
Other
Total
Earnings Summary
Net interest income (FTE)
Provision for loan losses
Noninterest income
Noninterest expenses
Provision for income taxes
Net income (loss)
Selected Average Balances
Assets
Loans
Deposits
Common equity
Statistical Data
Return on average assets
Return on
average common equity
Efficiency ratio
$010653 $10.621
2
122
293
163
285
(11)
129
298
180
315
$10.759 $10.776
109
277
655
102
187
82
268
602
120
223
$19,781 $17,397
16,156
18,172
3,914
3,911
941
1,057
$09,644 $19,881
9,201
17,262
707
9,042
17,084
774
$ (2)
n/a
107
101
1
3
$ 27
—
40
23
$ (1) $00.42 $0.031
3
75
n/a
14
24
94
116
7
95
(20)
(5)
(1)
(54)
(11)
(1)
$01,452 $01,427
114
507
1,159
244
417
146
528
1,008
296
530
$22 $5,417 $6,895
(5)
(5)
—
1,034
911
48
889
554
17
$34,869 $34,195
27,209 25,352
21,946 22,258
2,554
2,408
1.59% 1.64%
1.24% 1.04%
4.21% (1.78)% (0.09)% (0.49)%
1.52% 1.22%
29.85
38.27
30.24
39.58
28.76
58.55
26.45
62.12
12.62
n/m
(7.34)
n/m
(1.90)
n/m
(5.98)
n/m
21.32
51.05
15.98
60.36
*Included in noninterest expenses are fees internally transferred to other lines of business for referrals to the Investment Bank. If excluded, Investment Bank net
income would have been $6 million and $2 million and return on average common equity would have been 27.89% and 11.01%, in 1997 and 1996, respectively.
*n/m Not meaningful
n/a Not applicable
est expenses to total noninterest expenses incurred by all business
lines. Common equity is allocated based on credit, operational
and business risks.
and personal trust services are also provided to meet the person-
al financial needs of affluent individuals (as defined by indi-
vidual net income or wealth).
The following discussion provides information about each line of
business, along with an explanation of factors impacting 1997
performance. Overall comparability of results is impacted
because of the inclusion of the results of Comerica Bank-Illinois
for the first seven months of 1996.
The Business Bank is comprised of middle market lending, asset-
based lending, large corporate banking and international financial
services. This line of business meets the needs of medium-size
businesses, multinational corporations and governmental entities
by offering various products and services, including commercial
loans and lines of credit, deposits, cash management, capital mar-
ket products, international trade finance, letters of credit, foreign
exchange management services and loan syndication services.
Net income increased $30 million, or 11 percent, in 1997, princi-
pally due to additional net interest income resulting from 12 per-
cent average loan growth, and a lower provision for loan losses.
The Individual Bank includes consumer lending, consumer
deposit gathering, mortgage loan origination and servicing, small
business banking (annual sales under $5 million) and private
banking. This line of business offers a variety of consumer prod-
ucts, including deposit accounts, direct and indirect installment
loans, credit cards, home equity lines of credit and residential
mortgage loans. In addition, a full range of financial services is
provided to small businesses and municipalities. Private lending
Net income increased $36 million, or 19 percent, in 1997,
principally due to lower noninterest expenses resulting from
the sale of the Corporation’s Illinois subsidiary, a one-time
loss on a bankcard portfolio sale and a one-time SAIF assess-
ment charge for thrift bailout in 1996. Lower net interest
income and noninterest income are offset by a lower provision
for loan losses. Noninterest income in 1996 includes a $13
million gain on the sale of the merchant services business.
The Investment Bank is responsible for the sale of mutual
fund and annuity products, as well as life, disability and long-
term care insurance products. This line of business also offers
institutional trust products, retirement services and provides
investment management and advisory services, investment
banking and discount securities brokerage services.
Net income increased $4 million in 1997, principally due to
higher levels of institutional trust and discount brokerage fees.
The Other category includes divested business lines, the
income and expense impact of cash and loan loss reserves not
assigned to specific business lines, miscellaneous other items
of a corporate nature and certain direct expenses not allocated
to business lines. The Corporation’s securities portfolio and
asset and liability management activities are also reflected in
these amounts. Noninterest income for 1997 includes a $23
million gain on the sale of the Corporation’s bond indenture
services business. Noninterest expenses in 1996 include a $90
million restructuring charge.
Comerica Incorporated
27
Table 6: Analysis of Investment Securities and Loans
December 31
(in millions)
Investment securities available for sale
U.S. government and agency securities
State and municipal securities
Other securities
1997
1996
1995
1994
1993
$13,239
170
597
$13,968
228
604
$16,038
371
450
$12,674
—
232
$12,164
—
158
Total investment securities available for sale
4,006
4,800
6,859
2,906
2,322
Investment securities held to maturity
U.S. government and agency securities
State and municipal securities
Other securities
Total investment securities held to maturity
—
—
—
—
—
—
—
—
—
—
—
—
4,462
422
86
4,970
3,232
513
233
3,978
Total investment securities
$14,006
$14,800
$16,859
$17,876
$16,300
Commercial loans
International loans
Government and official institutions
Banks and other financial institutions
Other
Total international loans
Real estate construction loans
Commercial mortgage loans
Residential mortgage loans
Consumer loans
Lease financing
Total loans
In June 1997, the Financial Accounting Standards Board
(FASB) issued Statement on Financial Accounting Standards
(SFAS) No. 131, "Disclosures about Segments of an Enter-
prise and Related Information." The statement establishes
standards for the way public business enterprises report infor-
mation about operating segments in annual financial state-
ments and requires that those enterprises report selected
information about operating segments in interim financial
reports issued to shareholders. The statement is effective for
fiscal years beginning after December 15, 1997, but need not
be applied to interim financial statements in the initial year of
application. Subsequent adoption of SFAS No. 131 will not
have a material impact to the Corporation.
Balance Sheet and Capital Funds Analysis
Total assets were $36.3 billion at year-end 1997, representing
a $2.1 billion increase from $34.2 billion on December 31,
1996. On an average basis, total assets remained relatively flat
with $34.9 billion in 1997, compared to $34.2 billion in 1996.
Earning Assets
Total earning assets were $33.1 billion at year-end 1997,
representing a $2.0 billion increase from $31.1 billion at
December 31, 1996. On an average basis, total earning assets
were $32.0 billion in 1997, compared to $31.4 billion in 1996.
$15,805
$13,520
$12,041
$10,634
$19,087
6
339
1,740
2,085
941
3,634
1,565
4,348
517
11
323
1,372
1,706
751
3,446
1,744
4,634
406
6
583
796
1,385
641
3,254
2,221
4,570
330
18
660
517
1,195
414
3,056
2,436
4,215
259
143
671
322
1,136
437
2,700
1,857
3,674
209
$28,895
$26,207
$24,442
$22,209
$19,100
The average balance of domestic commercial loans, which is
comprised of commercial and commercial mortgage loans,
increased $1.6 billion, or 10 percent, from 1996. Real estate
construction loans also rose an average $159 million, or 22
percent, in 1997. The commercial portfolio, especially small
business and middle market loans, continues to grow in all the
Corporation’s markets. This growth, along with an increase of
approximately 30 percent in commercial loan commitments to
extend credit, is attributable to effective marketing efforts,
strong customer relationships and continued economic
strength in the commercial loan markets.
Average international loans increased $412 million, consisting
largely of loans originated to facilitate trade with limited
cross-border risk. The growth also reflects the increasing glob-
al activity of the Corporation’s traditional customer base. Risk
management practices in international lending include struc-
turing bilateral arrangements or participating in bank facilities
which secure repayment from sources external to the borrow-
er’s country. Accordingly, such international outstandings are
excluded from cross-border risk of that country. Mexican
cross-border risk of $414 million, or 1.14 percent of assets,
was the only country exposure exceeding 1.00 percent of
assets at December 31, 1997. There were no countries with
exposure between 0.75 percent and 1.00 percent of total
assets at year-end 1997. Table 7 on page 29 provides
additional information on the Corporation’s Mexican
cross-border risk.
28
Comerica Incorporated
Table 7: Mexican Cross-Border Risk
December 31
(in millions)
Governments and official institutions
Banks and other financial institutions
Commercial and industrial
Total
Table 8: Loan Maturities and Interest Rate Sensitivity
December 31, 1997
(in millions)
Commercial loans
Commercial mortgage loans
International loans
Real estate construction loans
Total
Loans maturing after one year
Predetermined interest rates
Floating interest rates
Total
1997
$141
78
295
$414
1996
$192
26
50
$268
1995
$142
42
32
$216
After One
Within But Within
Five Years
One Year*
After
Five Years
$12,059
1,281
1,993
650
$15,983
$3,043
1,701
90
213
$5,047
$2,064
2,983
$5,047
Total
$15,805
3,634
2,085
941
$ 0703
652
2
78
$1,435
$22,465
$ 863
572
$1,435
* Includes demand loans, loans having no stated repayment schedule or maturity and overdrafts.
Table 9: Allocation of the Allowance for Loan Losses
1997
1996
1995
1994
1993
December 31
(dollar amounts in millions)
Allocated
Allowance
Percent
of Total
Loans
Allocated
Allowance
Percent
of Total
Loans
Allocated
Allowance
Percent
of Total
Loans
Allocated
Allowance
Percent
of Total
Loans
Allocated
Allowance
Percent
of Total
Loans
Domestic
Commercial
Real estate construction
Commercial mortgage
Residential mortgage
Consumer
Lease financing
International
Unallocated
Total
$094
7
18
1
116
1
5
182
$424
55%
3
13
5
15
2
7
—
100%
$ 98
6
27
2
120
1
3
110
$367
52%
3
13
7
18
1
6
—
100%
$118
5
33
2
84
1
2
96
$341
49%
3
13
9
19
1
6
—
100%
$119
6
35
2
60
1
3
100
$326
48%
2
14
11
19
1
5
—
100%
$123
4
26
3
60
1
18
64
$299
48%
2
14
10
19
1
6
—
100%
Average residential mortgage loans decreased $284 million
primarily due to management’s decision to sell the majority
of mortgage originations. Average consumer loans, comprised
of installment, revolving credit and bankcard loans, declined
$138 million. Average installment loan balances decreased
$106 million, while average revolving credit loans decreased
$39 million. Average bankcard loans were relatively
unchanged during the period.
Average investment securities declined to $4.7 billion in 1997,
compared to $5.8 billion in 1996, reflecting sales and runoff
of securities primarily to fund growth in higher-yielding loans
and to divest lower earning variable rate assets. Average U.S.
government and agency securities decreased $1.2 billion and
average state and municipal securities decreased $97 million,
while average other securities increased $194 million. The
Corporation shifted away from purchasing on-balance sheet
securities to balance interest rate sensitivity and preserve net
interest margin to purchasing off-balance sheet interest rate
swaps that accomplish the same interest risk reduction objec-
tive. The decline in U.S. government and agency securities
principally resulted from sales and paydowns, while the tax-
Comerica Incorporated
29
exempt portfolio of state and municipal securities continued to
decrease as reduced tax advantages for these types of securi-
ties deterred additional investment. Other securities consist
primarily of collateralized mortgage obligations (CMOs),
Brady bonds and Eurobonds. The increase in other securities
during the year was largely a result of Eurobonds.
Other Earning Assets
Short-term investments in interest-bearing deposits with
banks, federal funds sold and securities purchased under
agreements to resell provide a range of maturities under one
year to supplement corporate liquidity. Interest-bearing
deposits with banks are investments with banks in developed
countries or foreign banks’ international banking facilities
located in the United States. Federal funds sold provide a
vehicle to control the reserve position and serve correspondent
banks, as well as offer supplemental earnings opportunities.
As a result of the emphasis on higher-yielding loans, short-
term investments declined on average $37 million during 1997.
Loans held for sale totaled $41 million at the end of 1997, up
slightly from $38 million in 1996.
Table 10: Maturity Distribution of Domestic Certificates of
Deposit of $100,000 and Over
December 31
(in millions)
Three months or less
Over three months to six months
Over six months to twelve months
Over twelve months
Total
1997
$1,380
395
350
171
$2,296
Deposits and Borrowed Funds
Average deposits declined $312 million, or 1 percent, from
1996. Excluding the impact of divestitures, deposits increased
1 percent.
Average demand deposits grew $226 million, or 4 percent,
from 1996, largely due to the growth in related commercial
loan business. Average certificates of deposit decreased $188
million, or 3 percent, from 1996.
With deposit balances declining slightly, there was increased
reliance on medium-term debt (both domestic and European),
and long-term debt to provide the necessary funding to support
expanding loan volumes. Medium-term debt provides the Corpo-
ration a funding source with maturities ranging from one month
to 15 years and durations that are similar to deposit liabilities.
Long-term subordinated notes help maintain the bank’s total
capital ratio at the level that qualifies for the lowest FDIC risk-
based insurance premium and allow the Corporation to take
advantage of acquisition activity. Medium-term debt increased
$2.8 billion representing the net result of the issuance of $5.4
billion and the maturity of $2.6 billion of notes during 1997.
Long-term debt increased $200 million from the issuance of
subordinated notes during 1997. Further information on the Cor-
poration’s medium- and long-term debt is included in Note 9 of
the consolidated financial statements on page 46.
Capital
Shareholders’ equity was $2.8 billion at December 31, 1997.
During the year, the Corporation authorized the repurchase of up
to 12 million shares (or 18 million shares on a post-split basis)
of Comerica common stock. Coupled with other authorizations
to acquire shares, Comerica repurchased 4 million shares equal-
ing more than $242 million of capital during 1997. At December
31, 1997, the Corporation had remaining authorization to pur-
chase 15 million shares (or 22 million shares on a post-split
basis) of common stock.
The remaining change in capital is the net effect of increases
in capital from retained earnings of $332 million, $36 million
of common stock for employee stock plans and a change of
$21 million in nonowner equity, principally a change in value
of available for sale securities.
The Corporation declared common dividends totaling $181
million on net income applicable to common stock of $513
million, representing a dividend payout ratio of 36 percent. The
payout ratio in 1996 was 42 percent (37 percent excluding the
after-tax impact of the restructuring charge). The Corporation
has targeted a payout ratio of between 30 to 40 percent,
although this target is constantly reassessed by the board of
directors in light of changing market and industry conditions.
On January 15, 1998, the Corporation’s board of directors
declared a three-for-two stock split, effected in the form of a 50
percent stock dividend to be paid April 1, 1998, as well as
increased the quarterly cash dividend 10 percent to $0.32 per share.
At December 31, 1997, the Corporation and all of its banking
subsidiaries exceeded the capital ratios required for an institu-
tion to be considered “well capitalized” by the standards
developed under the Federal Deposit Insurance Corporation
Improvement Act of 1991. See Note 17 of the consolidated
financial statements on page 51 for the capital ratios.
Asset Quality
Nonperforming Assets
The Corporation’s policies regarding nonaccrual loans reflect
the importance of identifying troubled loans early. Consumer
loans are directly charged off no later than 180 days past due,
Nonperforming Assets to
Loans and Other Real Estate
(in percentages)
.Comerica
.Industry average
(based on 50 largest U.S.
bank holding companies)
5.0
4.0
3.0
2.0
1.0
0.0 93 94 95 96 97
30
Comerica Incorporated
Table 11: Analysis of Investment Securities Portfolio–Fully Taxable Equivalent
†
Maturity
December 31, 1997
(dollar amounts in millions)
Available for sale
U.S. Treasury
U.S. government
and agency
State and municipal
securities
Other bonds, notes
and debentures
Federal Reserve
Bank stock and
other investments*
Total investment
securities available
for sale
Within 1 Year
1 - 5 Years
5 - 10 Years
After 10 Years
Total
Amount
Yield
Amount
Yield
Amount Yield
Amount Yield
Amount
Yield
Weighted
Average
Maturity
Yrs./Mos.
$ 46
6.09 % $ 27
5.54 % $ — —% $ — — % $ 73
5.90%
1/1
125
7.08
194
7.10
185
7.02
2,662 6.57
3,166
6.65
10/8
43
5.90
87
6.41
32
6.23
8 6.40
170
6.25
108
9.36
177
7.71
127
7.43
84 8.85
496
8.19
—
—
—
—
2 —
99 —
101 —
3/3
6/3
—
$322
7.55 % $485
7.08 % $346
7.10% $2,853 6.64 % $4,006
6.81%
9/8
* Balances are excluded in the calculation of total yield.
† Based on final contractual maturity.
Table 12: Summary of Nonperforming Assets and Past Due Loans
December 31
(dollar amounts in millions)
Nonperforming assets
Nonaccrual loans
Commercial loans
International loans
Real estate construction loans
Real estate mortgage loans (principally commercial)
Total nonaccrual loans
Reduced-rate loans
Total nonperforming loans
Other real estate
Total nonperforming assets
Nonperforming loans as a percentage of total loans
Nonperforming assets as a percentage of total loans
and other real estate
Allowance for loan losses as a percentage of total
nonperforming assets
Loans past due 90 days—domestic
1997
1996
1995
1994
1993
$ 59
1
3
15
78
8
86
17
$ 72
—
3
28
103
8
111
29
$ 87
—
7
37
131
3
134
29
$ 89
—
17
56
162
2
164
40
$ 71
—
19
64
154
5
159
50
$103
$140
$163
$204
$209
0.30% 0.42% 0.55% 0.74% 0.83%
0.36% 0.53% 0.67% 0.92% 1.09%
413% 263% 209% 160% 143%
$ 53
$ 52
$ 39
$ 57
$ 46
or earlier if deemed uncollectible. Loans other than consumer
are generally placed on nonaccrual status when management
determines that principal or interest may not be fully col-
lectible, but no later than when the loan is 90 days past due on
principal or interest unless it is fully collateralized and in the
process of collection. Loan amounts in excess of probable
future cash collections are charged off at the time the loan is
placed on nonaccrual status to an amount that represents man-
agement’s assessment of the ultimate collectibility of the loan.
Interest previously accrued but not collected on nonaccrual
loans is charged against current income. Income on such loans
is then recognized only to the extent that cash is received and
where the future collection of principal is probable.
Nonperforming assets as a percent of total loans and other real
estate were 0.36 percent and 0.53 percent at year-end 1997 and
1996, respectively. This decline reflects the continued improve-
ment in the quality of the loan portfolio, favorable economic con-
ditions in the Corporation’s markets, and other real estate sales.
Comerica Incorporated
31
Nonaccrual loans at December 31, 1997, decreased 24 per-
cent to $78 million from year-end 1996.
The nonaccrual loan table below indicates the percentage
of nonaccrual loan value to original contractual value and
demonstrates the conservative and prompt nature of the
corporate charge-off and payment application policy.
Other real estate owned (ORE) declined significantly to $17
million, as two large sales more than offset ORE additions.
Geographic Distribution
December 31, 1997
(in millions)
Michigan
California
Texas
Florida
Other
Total
Real Estate
Construction
Commercial
Mortgage
$396
160
303
19
63
$941
$2,189
565
375
150
355
$3,634
Nonaccrual Loans
December 31
(dollar amounts in millions)
Carrying value
Contractual value
Carrying value as a percentage
of contractual value
Concentration of Credit
1997
$078
119
1996
$103
147
66%
70%
Loans to companies and individuals involved with the auto-
motive industry, including suppliers, manufacturers and deal-
ers, represented the largest significant industry concentration
at December 31, 1997. These loans totaled $4.3 billion, or
15 percent of total loans at December 31, 1997, and included
floor plan loans to automobile dealers of $1,408 million and
$1,209 million at December 31, 1997 and 1996, respectively.
All other industry concentrations individually represented less
than 5 percent of total loans at year-end 1997. Automotive
industry loans at year-end 1996 totaled approximately $4.3
billion, or 16 percent, of total loans.
The Corporation has successfully operated in the Michigan
economy in spite of a loan concentration and several down-
turns in the auto industry. There were no automotive industry-
related loans larger than $6 million on nonaccrual status as of
year-end 1997. In addition, there were no significant automo-
tive industry-related charge-offs during the year.
Commercial Real Estate Lending
The real estate construction loan portfolio contains loans
made to long-time customers in local markets with satisfactory
project completion experience. The portfolio has approxi-
mately 922 loans, of which 72 percent have balances of less
than $1 million. The largest real estate construction loan has a
balance of approximately $28 million.
The commercial mortgage loan portfolio, 45 percent of which
relates to owner-occupied properties, also consists of loans to
long-time customers. Of the approximately 7,229 loans in the
portfolio, 89 percent have balances under $1 million and the
largest loan has a balance of approximately $28 million.
Additionally, the Corporation’s policy requires a 75 percent or
less loan-to-value (LTV) ratio for all commercial mortgage
and real estate construction loans. This policy is within bank
regulatory limits.
The geographic distribution of the real estate construction and
commercial mortgage loan portfolios is also an important
determinant in evaluating credit risk. The following table
indicates the diversification of the portfolios throughout the
markets served by the Corporation.
Asset and Liability Management
The Corporation has a material exposure to interest rate risk,
which it actively manages. The principle objective of asset and
liability 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 on- and off-balance sheet
financial instruments to manage the extent to which net inter-
est income may be affected by fluctuations in interest rates.
Corporate policies and risk limits pertaining to asset and lia-
bility management activities are established by the Asset Lia-
bility Policy Committee (ALPC) and approved by the board of
directors. Adherence to these policies is governed by the
ALPC, which is comprised of executive and senior manage-
ment from various areas of the Corporation, including finance,
lending, investments and deposit gathering, who meet regular-
ly to execute asset and liability management strategies.
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 sat-
isfies all management objectives, a combination of techniques
are used to manage interest rate risk, including simulation
analysis, asset and liability repricing schedules and duration of
equity. The results of these interest rate risk measurement sys-
tems are reviewed regularly by the ALPC.
Net interest income is frequently evaluated under various
balance sheet and interest rate scenarios. The results of this
analysis provide the information needed to assess the proper
balance sheet structure. An unexpected change in the pace of
economic activity, whether domestically or internationally,
could translate into a materially different interest rate environ-
ment than currently expected. A process is maintained where
management evaluates “base” net interest income under what
is believed to be the most likely balance sheet structure and
interest rate environment. This “base” net interest income is
then evaluated against interest rate scenarios that are taken up
and down 200 basis points from the most likely rate environ-
ment. In addition, adjustments to asset prepayment levels,
yield curves and overall balance sheet mix and growth
32
Comerica Incorporated
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, mag-
nitude and frequency of interest rate changes and changes in
market conditions and management strategies, among other
factors. Derivative financial instruments and other financial
instruments used for purposes other than trading are included
in this analysis. The measurement of risk exposure at year-end
1997 for a 200-basis-point decline in short-term interest rates
identified approximately $35 million of net interest income at
risk during 1998. If short-term interest rates rise 200 basis
points, the Corporation would have approximately $22 million
of net interest income at risk. Year-end 1996 net interest
income at risk was measured at $9 million and $15 million,
respectively, for a 200-basis-point decline and rise in interest
rates. The change in exposure is the result of differences in the
economic scenarios in the shocked environments, and there-
fore differences in the timing and magnitude of rate changes.
Further, yield curve differences create faster amortization on
certain loans, securities and interest rate swaps in the 1997
rate shock. Corporate policy limits adverse change to no more
than 5 percent of management’s most likely net interest
income forecast. In either case, the Corporation is within the
policy guideline.
While most assets and liabilities reprice either at maturity
or in accordance with their contractual terms, several balance
sheet components demonstrate characteristics that require
adjustments to more accurately reflect repricing and cash flow
behavior. Assumptions based on historical pricing relation-
ships and anticipated market reactions are made to certain
core deposit categories to reflect the elasticity of the changes
in the related interest rates relative to changes in market inter-
est rates. In addition, estimates are made concerning early
loan and security repayments. Prepayment assumptions are
based on the expertise of portfolio managers along with input
from financial markets. Consideration is given to current and
future interest rate levels. While management recognizes the
limited ability of a traditional gap schedule to accurately por-
tray interest rate risk, adjustments are made to provide a more
accurate picture of the Corporation’s interest rate risk profile.
This additional interest rate risk measurement tool provides a
directional outlook on the impact of changes in interest rates.
As market rates approach expected turning points, manage-
ment adjusts the interest rate sensitivity of the Corporation.
This sensitivity is measured as a percentage of earning assets.
The operating range for interest rate sensitivity, on an elastici-
ty-adjusted basis, is between an asset sensitive position of 10
percent of earning assets and a liability sensitive position of
10 percent of earning assets.
The table on page 34 shows the interest sensitivity gap as of
year-end 1997 and 1996. The report reflects the contractual
repricing and payment schedules of assets and liabilities,
including an estimate of all early loan and security repayments
which adds $1.0 billion of rate sensitivity to the 1997 year-end
gap. In addition, the schedule identifies the adjustment for the
price elasticity on certain core deposits.
Risk Management Derivative Financial Instruments and Foreign
Exchange Contracts
Risk Management Notional Activity
(in millions)
Balances at December 31, 1995
Additions
Maturities/amortizations
Balances at December 31, 1996
Additions
Maturities/amortizations
Balances at December 31, 1997
Interest
Rate
Contracts
Foreign
Exchange
Contracts
$6,119
4,026
(1,925)
$8,220
3,857
(3,510)
$8,567
Totals
$6,398
8,788
(6,484)
$8,702
9,572
(9,108)
$ 279
4,762
(4,559)
$ 482
5,715
(5,598)
$ 599
$9,166
The Corporation remained modestly asset sensitive throughout
1997, as asset sensitivity generated by continued investment
security amortization was offset by a shortening in the average
maturity of the certificate of deposit portfolio. The Corporation
had a one-year asset sensitive gap of $1,156 million, or 3
percent of earning assets, as of December 31, 1997. This
compares to a $547 million asset sensitive gap, or 2 percent
of earning assets, on December 31, 1996. Management antici-
pates material growth in asset sensitivity throughout 1998, and
will continue to look at both on- and off-balance sheet alterna-
tives to hedge this increased asset sensitivity and achieve the
desired interest rate risk profile for the Corporation.
The Corporation utilizes interest rate swaps predominantly
as asset and liability management tools with the overall objec-
tives of managing the sensitivity of net interest income to
changes in interest rates. To accomplish this objective, interest
rate swaps are used primarily to modify the interest rate char-
acteristics of certain assets and liabilities (e.g., from a floating
rate to a fixed rate, a fixed rate to a floating rate, or from one
floating rate index to another). This strategy assists manage-
ment in achieving interest rate risk objectives.
At December 31, 1997 and 1996, the notional amount of risk
management interest rate swaps totaled $8,515 million and
$8,015 million, respectively. The fair value of risk manage-
ment interest rate swaps at December 31, 1997, was a positive
$123 million, compared to a negative $55 million at Decem-
ber 31, 1996. For the year ended December 31, 1997, risk
management interest rate swaps generated $52 million in net
interest income, compared to $49 million in net interest
income for the year ended December 31, 1996. These off-bal-
ance sheet instruments represented 74 percent and 82 percent
of total derivative financial instruments and foreign exchange
contracts, including commitments, at year-end 1997 and 1996,
respectively.
Table 14 on page 35 summarizes the expected maturity distri-
bution of the notional amount of risk management interest rate
swaps and provides the weighted average interest rates associ-
ated with amounts to be received or paid as of December 31,
1997. The swaps have been grouped by the assets and liabili-
ties to which they have been designated.
Comerica Incorporated
33
Table 13: Schedule of Rate Sensitive Assets and Liabilities
(dollar amounts in millions)
Assets
Cash and due from banks
Short-term investments
Investment securities
Commercial loans
(including lease financing)
International loans
Real estate related loans
Consumer loans
Total loans
Other assets
Total assets
Liabilities
Deposits
Noninterest-bearing
Savings
Money market and NOW
Certificates of deposit
Foreign office
Total deposits
Short-term borrowings
Medium- and long-term debt
Other liabilities
Total liabilities
Shareholders’ equity
December 31, 1997
Interest Sensitivity Period
December 31, 1996
Interest Sensitivity Period
Within
Over
One Year One Year
Over
Within
Total One Year One Year
Total
$0000— $01,927
7
2,783
196
1,223
$01,927
203
4,006
$0000— $01,902
5
3,372
98
1,428
$01,902
103
4,800
14,742
2,085
3,907
2,100
22,834
742
1,580
—
2,233
2,248
16,322
2,085
6,140
4,348
6,061
28,895
12,489
1,706
3,662
2,201
20,058
1,437
—
2,279
2,433
13,926
1,706
5,941
4,634
6,149
26,207
519
1,261
615
579
1,194
$24,995
$11,297
$36,292
$ 22,199
$12,007
$34,206
$00,459
—
5,570
5,562
309
$06,302
1,601
1,724
1,059
—
$06,761
1,601
7,294
6,621
309
$ 00,570
—
5,351
5,056
295
$06,143
1,770
1,631
1,550
1
$06,713
1,770
6,982
6,606
296
11,900
10,686
22,586
11,272
11,095
22,367
3,193
5,961
149
—
1,325
316
3,193
7,286
465
4,489
2,842
177
—
1,400
315
4,489
4,242
492
21,203
12,327
33,530
18,780
12,810
31,590
(1)
2,763
2,762
(23)
2,639
2,616
Total liabilities and shareholders’ equity
$21,202
$15,090
$36,292
$ 18,757
$15,449
$34,206
Sensitivity impact of interest rate swaps
Sensitivity impact of unsettled swap
and security purchases
Interest sensitivity gap
Gap as a percentage of earning assets
Sensitivity impact from elasticity adjustments (1)
$ (4,377)
$ 4,377
— $ (4,676)
$ 4,676
—)
(584)
(2)%
1,740
—
584
2%
(1,740)
—
—
—
—
(43)
43
(1,277)
(4)%
1,824
1,277
4%
(1,824)
Interest sensitivity gap with elasticity adjustments
Gap as a percentage of earning assets
$01,156
$(1,156)
3%
(3)%
— $ 00,547
—
2%
$01(547)
(2)%
—
—
—
—
—
—
—
(1) Elasticity adjustments for NOW, savings and money market deposit accounts are based on historical
pricing relationships dating back to 1985 as well as expected future pricing relationships.
34
Comerica Incorporated
Table 14: Remaining Expected Maturity of Risk Management Interest Rate Swaps
(amounts in millions)
1998
1999
2000
2001
2002
2003-
2026
Dec. 31
1996
Total
Variable Rate Asset Designation:
Receive fixed swaps
Generic
Amortizing
Index amortizing
Weighted average: (1)
Receive rate
Pay rate
$0,0— $0,0— $0,700
—
736
100
1,054
—
1,054
$0,0— $0,0— $0,0— $0,700
100
3,504
—
235
—
300
—
125
$0 0—
184
5,014
6.27% 6.36% 6.33% 6.42% 6.49% 6.22% 6.33% 6.11%
5.88% 5.88% 5.91% 5.86% 5.93% 5.99% 5.90% 5.56%
Floating/floating swaps (3)
$0,0— $0,0— $0,055
$0,0— $0,0— $0,0— $0,055
$0 025
Fixed Rate Asset Designation:
Pay fixed swaps
Generic
Index amortizing
Weighted average: (1)
Receive rate
Pay rate
Medium- and Long-term
Debt Designation:
$0,0— $0,002
3
5
$0,0— $0,0— $0,0— $0,0— $0,002
17
—
—
—
9
$0,002
40
5.97% 5.95% 5.97%
5.34% 6.70% 5.34%
—%
—%
—%
—%
—% 5.97% 5.60%
—% 5.85% 5.35%
Generic receive fixed swaps
$0,950
$0,0— $0,200
$0,0— $0,150
$0,900
$2,200
$2,350
Weighted average: (1)
Receive rate
Pay rate
Floating/floating swaps
Weighted average: (2)
Receive rate
Pay rate
5.97%
5.75%
—% 6.91%
—% 5.88%
—% 7.37% 7.66% 6.84% 6.62%
—% 5.85% 5.89% 5.83% 5.53%
$1,900
$0,0— $00,37
$0,0— $0,0— $0,0— $1,937
$ 400
5.73%
5.77%
—% 5.92%
—% 5.77%
—%
—%
—%
—%
—% 5.73% 5.32%
—% 5.77% 5.39%
Total notional amount
$4,009
$ 1,059
$1,737
$0,300
$0,385
$1,025
$8,515
$8,015
(1) Variable rates paid or received are based primarily on one-month and three-month LIBOR rates paid or received at December 31, 1997.
(2) Variable rates paid are based on LIBOR at December 31, 1997, while variable rates received are based on prime.
(3) Variable rate paid was 5.85%, based on LIBOR at December 31, 1997, while variable rate received represents the return on a principal only total return swap.
This return is based on principal paydowns of the referenced security as well as changes in market value.
Comerica Incorporated
35
In addition to interest rate swaps, the Corporation employs
various other types of off-balance sheet derivative and foreign
exchange contracts to mitigate exposures to interest rate and
foreign currency risks associated with specific assets and lia-
bilities (e.g., loans or deposits denominated in foreign curren-
cies, mortgages held for sale and originated mortgage
servicing rights). Such instruments include interest rate caps
and floors, purchased put options, foreign exchange forward
contracts, foreign exchange generic swap agreements and
cross-currency swaps. The aggregate notional amounts of
these risk management derivative and foreign exchange con-
tracts at December 31, 1997 and 1996, were $651 million and
$687 million, respectively.
In 1997, the FASB issued a revised Exposure Draft on
accounting for derivative and similar financial instruments and
for hedging activities. This Exposure Draft would introduce
significant volatility in earnings and could affect how the Cor-
poration balances interest rate sensitivity in the future. Man-
agement has expressed concern to the FASB of the potential
adverse impact on managing interest rate risk and earnings
from this Exposure Draft. Further information regarding risk
management derivative financial instruments and foreign cur-
rency exchange contracts is provided in Notes 1, 8, 9 and 18
to the consolidated financial statements.
Liquidity
Liquidity is the ability to meet financial obligations through
the maturity or sale of existing assets or acquisition of addi-
tional funds. Liquidity requirements are satisfied with various
funding sources, including a $7.5 billion medium-term note
program which allows the Michigan, California and Texas
banks to issue debt between one month and 15 years. The
Michigan bank has an additional $2 billion European note
program. At year-end 1997, unissued debt related to the two
programs totaled $3.1 billion. In addition, liquid assets totaled
$6.1 billion, at December 31, 1997. The Corporation also had
available $1.1 billion from a collateralized borrowing account
with the Federal Reserve Bank at year-end 1997. Purchased
funds at December 31, 1997, excluding certificates of deposit
with maturities beyond one year and medium- and long-term
debt, approximated $5.6 billion.
Another source of liquidity for the parent company is divi-
dends from its subsidiaries. As discussed in Note 17 to the
consolidated financial statements on page 51, subsidiary banks
are subject to regulation and may be limited in their ability to
pay dividends or transfer funds to the holding company. Dur-
ing 1998, the subsidiary banks can pay dividends up to $361
million plus current net profits without prior regulatory
approval. One measure of current parent company liquidity is
investment in subsidiaries, as a percent of shareholders’ equi-
ty. An amount over 100 percent represents the reliance on sub-
sidiary dividends to repay liabilities. As of December 31,
1997, the ratio was 109 percent.
Customer Initiated and Other Derivative Financial
Instruments and Foreign Exchange Contracts
On a limited basis, the Corporation writes interest rate caps
and enters into foreign exchange contracts and interest rate
swaps to accommodate the needs of customers requesting
Customer Initiated and Other Notional Activity
(in millions)
Balances at December 31, 1995
Additions
Maturities/amortizations
Balances at December 31, 1996
Additions
Maturities/amortizations
Interest
Rate
Contracts
Foreign
Exchange
Contracts
$363
237
(210)
$390
464
(358)
$ 0320
37,571
(37,247)
$ 0644
43,462
(42,269)
Totals)
$ 683)
37,808)
(37,457)
$ 1,034)
43,926)
(42,627)
Balances at December 31, 1997
$496
$ 1,837
$ 2,333)
such services. At December 31, 1997 and 1996, customer-
initiated activity represented 20 percent and 11 percent,
respectively, of total derivative and foreign exchange con-
tracts, including commitments. Refer to Note 18 to the con-
solidated financial statements on page 51 for further
information regarding customer-initiated and other derivative
financial instruments and foreign exchange contracts.
Other Matters
In February, 1997, the FASB issued Statement on Financial
Accounting Standards (SFAS) No. 128 on “Earnings Per
Share.” The statement changes the computation, presentation
and disclosure requirements for earnings per share and is
effective for the 1997 financial statements. The Corporation
has adopted the statement and all prior period earnings per
share presented have been restated in accordance with the new
disclosure requirements.
The Corporation recognizes the need to manage its operations
so that year 2000 software failures, miscalculations or errors
will not adversely impact its business. The Corporation, with
the assistance of outside consultants, is working to identify,
evaluate, implement and test changes to computer systems and
applications necessary to achieve a year 2000 date conversion
with no impact on customers or disruption to business opera-
tions. The Corporation expects to conclude remediation of the
majority of its systems by the end of 1998, with completion of
the remaining systems in the first half of 1999. Testing, which
is ongoing, will be completed on these last systems in the sec-
ond half of 1999. The Corporation projects the amount of year
2000 expense to be in the range of $25-$30 million, of which
approximately 25 percent was expensed in 1996 and 1997.
The problem caused by the year 2000 creates risk for the Cor-
poration from unforeseen problems in its own computer sys-
tems and from third parties such as customers or vendors.
Such failures of the Corporation and/or third parties’ computer
systems could have a material impact on the Corporation’s
ability to conduct its business.
Forward looking statements in this annual report to sharehold-
ers are based on current expectations and/or the assumptions
made in the earnings simulation analyses, but numerous
factors could cause variances in these projections, and their
underlying assumptions, such as changes in interest rates,
year 2000 expenses and changes in industries where the Cor-
poration has a concentration in loans.
36
Comerica Incorporated
Consolidated Balance Sheets
Comerica Incorporated and Subsidiaries
December 31
(in thousands, except share data)
Assets
Cash and due from banks
Short-term investments
Investment securities available for sale
Commercial loans
International loans
Real estate construction loans
Commercial mortgage loans
Residential mortgage loans
Consumer loans
Lease financing
Total loans
Less allowance for loan losses
Net loans
Premises and equipment
Customers’ liability on acceptances outstanding
Accrued income and other assets
Total assets
Liabilities and Shareholders’ Equity
Demand deposits (noninterest-bearing)
Interest-bearing deposits
Total deposits
Federal funds purchased and securities sold
under agreements to repurchase
Other borrowed funds
Acceptances outstanding
Accrued expenses and other liabilities
Medium- and long-term debt
Total liabilities
Nonredeemable preferred stock—$50 stated value
Authorized—5,000,000 shares
Issued—5,000,000 shares in 1997 and 1996
Common stock—$5 par value
Authorized—250,000,000 shares
Issued— 156,815,367 shares in 1997 and 107,297,345 shares in 1996
Capital surplus
Unrealized gains and losses on investment securities available for sale
Retained earnings
Deferred compensation
Total shareholders’ equity
Total liabilities and shareholders’ equity
See notes to consolidated financial statements.
1997
1996
$01,927,087 $01,901,760
202,957
103,607
4,005,962
4,800,034
15,805,549
2,085,090
940,910
3,633,785
1,565,445
4,347,665
516,600
13,520,246
1,706,388
750,760
3,445,562
1,743,876
4,634,258
405,618
28,895,044
26,206,708
(424,147)
(367,165)
28,470,897
25,839,543
380,157
18,392
1,286,946
407,663
33,102
1,120,362
$36,292,398 $34,206,071
$06,761,202
15,825,115
$06,712,985
15,654,188
22,586,317
22,367,173
592,860
2,600,041
18,392
446,625
7,286,387
1,395,540
3,093,651
33,102
459,267
4,241,769
33,530,622
31,590,502
250,000
250,000
784,077
—1
(1,937)
1,731,419
(1,783)
536,487
—1
(22,789)
1,854,116
(2,245)
2,761,776
2,615,569
$36,292,398
$34,206,071
Comerica Incorporated
37
Consolidated Statements of Income
Comerica Incorporated and Subsidiaries
Year Ended December 31
(in thousands, except per share data)
Interest Income
Interest and fees on loans
Interest on investment securities
Taxable
Exempt from federal income tax
Total interest on investment securities
Interest on short-term investments
Total interest income
Interest Expense
Interest on deposits
Interest on short-term borrowings
Federal funds purchased and securities
sold under agreements to repurchase
Other borrowed funds
Interest on medium- and long-term debt
Net interest rate swap (income)/expense
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest Income
Income from fiduciary activities
Service charges on deposit accounts
Customhouse broker fees
Revolving credit fees
Securities gains
Other noninterest income
Total noninterest income
Noninterest Expenses
Salaries and employee benefits
Net occupancy expense
Equipment expense
FDIC insurance expense
Telecommunications expense
Restructuring charge
Other noninterest expenses
Total noninterest expenses
Income before income taxes
Provision for income taxes
Net Income
Net income applicable to common stock
Basic net income per common share
Diluted net income per common share
Cash dividends declared on common stock
Dividends per common share
See notes to consolidated financial statements.
1997
1996
1995
$2,317,844
$2,160,981
$2,090,854
310,399
10,797
321,196
372,331
17,443
473,759
26,189
389,774
499,948
8,363
12,025
23,122
2,647,403
2,562,780
2,613,924
673,265
685,539
721,475
110,752
98,258
374,022
(51,670)
111,729
107,155
294,990
(48,911)
165,544
135,667
288,990
2,365
1,204,627
1,150,502
1,314,041
1,442,776
146,000
1,412,278
114,000
1,299,883
86,500
1,296,776
1,298,278
1,213,383
147,336
141,078
—
19,439
5,695
214,404
527,952
538,926
89,380
61,759
3,029
28,010
—
286,882
133,482
140,436
10,764
22,670
13,588
186,014
506,954
560,784
99,211
68,827
8,139
29,092
90,000
302,973
125,038
130,249
36,086
36,248
11,748
159,356
498,725
562,159
98,945
67,872
23,817
29,644
—
303,977
1,007,986
1,159,026
1,086,414
816,742
286,266
646,206
229,045
625,694
212,328
$0,530,476
$0,417,161
$0,413,366
$0,513,376
$0,408,136
$0,413,366
$3.24
3.19
0,0$2.41
0,002.38
$2.38
2.37
$0,181,272
$1.15
$0,170,067
$1.01
$0,158,309
$0.91
38
Comerica Incorporated
Consolidated Statements of Changes in Shareholders’ Equity
Comerica Incorporated and Subsidiaries
(in thousands, except share data)
Non-
redeemable
Preferred Common
Stock
Stock
Capital
Surplus
Unrealized Gains
and (Losses) on
Investment Securities
Available for Sale
Retained
Earnings Compensation
Total
Deferred Treasury Shareholders’
Equity
Stock
Balances at January 1, 1995
$250,0— $596,473 $526,838
$(55,039) $1,390,405
$(1,786) $(65,111)
$2,391,780
Net income for 1995
Nonowner changes in equity:
Unrealized holding gains/(losses) arising
during the period
Less: Reclassification adjustment for
gains/(losses) included in net income
Nonowner changes in equity before
income taxes
Provision for income taxes related to
nonowner changes in equity
Nonowner changes in equity, net of tax
Net income and nonowner changes in equity
Cash dividends declared on common stock
Purchase of 1,405,500 shares of
common stock
Purchase and retirement of 4,200,000
shares of common stock
Issuance of common stock for:
Employee stock plans
Acquisitions
Amortization of deferred compensation
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— (21,000)
(118,931)
—
—
—
—
—
—
1,261 )
1,450
—
—
413,366
90,053.
11,748.
78,305.
27,407.
50,898.
—.
—
—
—
—
—
—
—.
—.
—.
—.
—.
—.
(158,309)
—
—
(4,482)
—
—
—.
—.
—.
—.
—.
—.
—.
—.
—.
413,366
—.
—.
—.
—.
—.
—.
—.
90,053
11,748
78,305
27,407
50,898
464,264
(158,309)
—.
(38,725)
(38,725)
—.
—.
(139,931)
(1,034)
—.
846.
14,957.
75,650.
—.
10,702
77,100
846
Balances at December 31, 1995
$5000,— $575,473 $410,618
$ (4,141) $ 1,640,980
$(1,974) $(13,229)
$2,607,727
Net income for 1996
Nonowner changes in equity:
Unrealized holding gains/(losses) arising
during the period
Less: Reclassification adjustment for
gains/(losses) included in net income
Nonowner changes in equity before
income taxes
Provision for income taxes related to
nonowner changes in equity
Nonowner changes in equity, net of tax
Net income and nonowner changes in equity
Issuance of preferred stock
Cash dividends declared:
Preferred stock
Common stock
Purchase and retirement of 12,176,496
shares of common stock
Issuance of common stock for:
Employee stock plans
Acquisitions
Amortization of deferred compensation
—
—
—
—
—
—
—
250,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(3,256)
—
—
— (60,883)
(519,924)
—
897
— 21,000
—
—
14,090 )
98,472
—
—.
417,161
(15,101)
13,588.
(28,689)
(10,041)
(18,648)
—
—
—
—
—
—
—
—
—
—
(9,025)
— (170,067)
—
—
—
—
(5,065)
(20,076)
208
—
—.
—.
—.
—.
—.
—.
—.
—.
—.
—.
—.
417,161
—.
—.
—.
—.
—.
—.
—.
—.
—.
(15,101)
13,588
(28,689)
(10,041)
(18,648)
398,513
246,744
(9,025)
(170,067)
—.
(36,324)
(622,196)
(1,197)
—.
926.
40,295.
9,258.
—.
34,009
128,938
926
Balances at December 31, 1996
$250,000 $536,487 $526,8—
$(22,789) $ 1,854,116
$ (2,245) $ .5,1—)
$2,615,569
Net income for 1997
Nonowner changes in equity:
Unrealized holding gains/(losses) arising
during the period
Less: Reclassification adjustment for
gains/(losses) included in net income
Nonowner changes in equity before
income taxes
Provision for income taxes related to
nonowner changes in equity
Nonowner changes in equity, net of tax
Net income and nonowner changes in equity
Cash dividends declared:
Preferred stock
Common stock
Purchase and retirement of 3,618,479
shares of common stock
Issuance of common stock under
Employee stock plans
Amortization of deferred compensation
Stock split (three-for-two)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— (18,092)
(30,750)
4,323
—
—
—
— 261,359
30,750
—
—
— 530,476
37,775
05,695
32,080
11,228
20,852
—
—
—
—
—
—
—
—
(17,100)
— (181,273)
— (193,450)
9
—
—
—
— (261,359)
—.
—.
—.
—.
—.
—.
—.
—.
—.
—.
(531)
993
—.
—.
530,476
—.
—.
—.
—.
—.
—.
—.
—.
—.
—.
—.
—.
37,775
5,695
32,080
11,228
20,852
551,328
(17,100)
(181,273)
(242,292)
34,551
993
—
Balances at December 31, 1997
$250,000 $ 784,077 $ 0001—
$ 0(1,937) $ 1,731,419
$ (1,783) $ .000,—.
$ 2,761,776
( ) Indicates deduction.
See notes to consolidated financial statements.
Comerica Incorporated
39
Consolidated Statements of Cash Flows
Comerica Incorporated and Subsidiaries
Year Ended December 31
(in thousands)
Operating Activities
Net income
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for loan losses
Depreciation
Restructuring charge
Net (increase) decrease in trading account securities
Net (increase) decrease in loans held for sale
Net (increase) decrease in accrued income receivable
Net increase (decrease) in accrued expenses
Net amortization of intangibles
Funding for employee benefit plans
Other, net
Total adjustments
Net cash provided by (used in) operating activities
Investing Activities
Net (increase) decrease in interest-bearing deposits with banks
Net (increase) decrease in federal funds sold and securities
purchased under agreements to resell
Proceeds from sale of investment securities available for sale
Proceeds from maturity of investment securities available for sale
Purchases of investment securities available for sale
Proceeds from maturity of investment securities held to maturity
Purchases of investment securities held to maturity
Net increase in loans (other than loans purchased)
Purchase of loans
Fixed assets, net
Net (increase) decrease in customers’ liability on acceptances outstanding
Net cash provided by acquisitions/sales
Net cash provided by (used in) investing activities
Financing Activities
Net increase (decrease) in deposits
Net increase (decrease) in short-term borrowings
Net increase (decrease) in acceptances outstanding
Proceeds from issuance of medium- and long-term debt
Repayments and purchases of medium- and long-term debt
Proceeds from issuance of preferred stock
Proceeds from issuance of common stock
Purchase of common stock for treasury and retirement
Dividends paid
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and due from banks
Cash and due from banks at beginning of year
Cash and due from banks at end of year
Interest paid
Income taxes paid
Noncash investing and financing activities
Loan transfers to other real estate
Stock issued for acquisitions
See notes to consolidated financial statements.
1997
1996
1995
$0 530,476
$0 417,161
$0 413,366
146,000
58,529
(61,237)
(3,093)
(2,666)
(23,730)
54,330
28,375
—
(121,519)
114,000
66,776
90,000
4,659
473,493
924
(39,720)
30,803
(25,000)
187,438
86,500
64,014
(6,127)
(6,336)
(420,015)
(26,749)
96,645
29,016
(200,000)
(178,874)
74,989
903,373
(561,926)
605,465
1,320,534
(148,560)
24,010
(3,705)
363,870
(117,601)
238,506
1,456,447
(924,509)
—
—
(2,615,226)
(162,128)
(31,023)
14,710
—
4,898
1,211,250
1,531,012
(643,796)
—
—
(1,852,199)
(77,805)
(46,038)
(12,341)
200,459
(122,498)
103,531
837,412
(211,222)
788,620
(223,579)
(1,908,266)
(48,349)
(62,334)
13,097
19,224
(2,116,814)
311,735
(450,494)
219,144
(1,296,290)
(14,710)
5,600,000
(2,555,382)
—
22,584
(243,258)
(195,412)
(825,859)
(129,056)
12,341
2,251,000
(2,553,650)
246,744
35,206
(622,196)
(173,414)
130,276
468,754
(13,097)
2,960,000
(2,418,171)
—
11,736
(178,656)
(155,726)
1,536,676
(1,758,884)
805,116
25,327
1,901,760
(126,615)
2,028,375
206,062
1,822,313
$1,927,087
$1,901,760
$2,028,375
$1,161,812
$1,201,146
$1,274,101
$0,266,428
$0,212,530
$0,180,134
$0,017,076
$0,010,534
$0,023,908
$0,128,9— $0,128,938
$0,077,100
40
Comerica Incorporated
Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries
1
Accounting Policies
Organization
Comerica Incorporated is a registered bank holding company
headquartered in Detroit, Michigan. The Corporation’s prin-
cipal lines of business are the Business Bank, the Individual
Bank and the Investment Bank. The core businesses are
tailored to each of the Corporation’s four primary geographic
markets: Michigan, Texas, California and Florida.
The accounting and reporting policies of Comerica Incor-
porated and its subsidiaries conform to generally accepted
accounting principles and prevailing practices within the bank-
ing industry. Management makes estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying footnotes. Actual results could differ from
these estimates.
The following is a summary of the more significant account-
ing and reporting policies.
and stated at fair value with unrealized gains and losses, net of
income taxes, reported as a component of shareholders’ equity.
Trading account securities are carried at market value. Real-
ized and unrealized gains or losses on trading securities are
included in noninterest income.
Gains or losses on the sale of securities are computed based
on the adjusted cost of the specific security.
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 estimat-
ed useful lives of the properties. Leasehold improvements are
amortized over the terms of their respective leases or the esti-
mated useful lives of the improvements, whichever is shorter.
Consolidation
Allowance for Loan Losses
The consolidated financial statements include the accounts of
the Corporation and its subsidiaries after elimination of all
significant intercompany accounts and transactions. Prior
years’ financial statements are reclassified to conform with
current financial statement presentation.
For acquisitions accounted for as pooling-of-interests combi-
nations, the historical consolidated financial statements are
restated to include the accounts and results of operations. For
acquisitions using the purchase method of accounting, the
assets acquired and liabilities assumed are adjusted to fair
market values at the date of acquisition, and the resulting net
discount or premium is accreted or amortized into income
over the remaining lives of the relevant assets and liabilities.
Goodwill representing the excess of cost over the net book
value of identifiable assets acquired is amortized on a straight-
line basis over periods ranging from 10 to 30 years (weighted
average of 17 years). Core deposit intangible assets are amor-
tized on an accelerated method over 10 years.
Loans Held for Sale
Loans held for sale, normally mortgages, are carried at the
lower of cost or market. Market value is determined in the
aggregate.
Securities
Investment securities held to maturity are those securities
which management has the ability and positive intent to hold
to maturity. Investment securities held to maturity are stated at
cost, adjusted for amortization of premium and accretion of
discount.
Investment securities that fail to meet the ability and positive
intent criteria are accounted for as securities available for sale,
The allowance is maintained at a level adequate to absorb
losses inherent in the loan portfolio. Management determines
the adequacy of the allowance by applying projected loss
ratios to the risk ratings of loans both individually and by cat-
egory. The projected loss ratios incorporate such factors as
recent loss experience, current economic conditions, the risk
characteristics of the various categories and concentrations of
loans, transfer risk and other pertinent factors. However, there
can be no assurance that the actual loss ratios will not vary
from those projected. Loans which are deemed uncollectible
are charged off and deducted from the allowance. The provi-
sion for loan losses and recoveries on loans previously
charged off are added to the allowance.
Nonperforming Assets
Nonperforming assets are comprised of loans 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 borrower’s financial condition and
other real estate which has been acquired primarily through
foreclosure and is awaiting disposition.
Consumer loans are generally not placed on nonaccrual status
and are directly charged off no later than 180 days past due,
or earlier if deemed uncollectible. Loans other than consumer
are generally placed on nonaccrual status when principal or
interest is past due 90 days or more and/or when, in the opin-
ion of management, full collection of principal or interest is
unlikely. At the time a loan is placed on nonaccrual status,
interest previously accrued but not collected is charged against
current income. Income on such loans is then recognized only
to the extent that cash is received and where future collection
of principal is probable.
Comerica Incorporated
41
1
Accounting Policies (continued)
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 bal-
ance 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.
Stock-Based Compensation
In 1996, the Corporation adopted SFAS No. 123, “Accounting
for Stock-Based Compensation.” Under the provisions of this
statement, the Corporation elected to continue to apply Account-
ing Principles Board (APB) opinion No. 25, “Accounting for
Stock Issued to Employees,” and related interpretations in mea-
suring and recognizing compensation expense for its stock-based
compensation plans, and to disclose the pro forma effect of
applying the fair value method contained in SFAS No. 123.
Information on the Corporation’s stock-based compensation
plans is included in Note 12.
Pension Costs
Pension costs are charged to salaries and employee benefits
expense and funded consistent with the requirements of federal
law and regulations.
Postretirement Benefits
Postretirement benefits are recognized in the financial statements
during the employee’s active service period.
Derivative Financial Instruments and
Foreign Exchange Contracts
Interest rate and foreign exchange swaps, interest rate caps and
floors, and futures and forward contracts may be used to manage
the Corporation’s exposure to interest rate and foreign currency
risks. These instruments, with the exception of futures and for-
wards, are accounted for on an accrual basis since there is a high
correlation with the on-balance sheet instrument being hedged.
If this correlation ceases to exist, the existing unrealized gain or
loss is amortized over the remaining term of the instrument, and
future changes in fair value are accounted for in other income or
expense. Net interest income or expense, including premiums
paid or received, is recognized over the life of the contract and
reported as an adjustment to interest expense. Realized gains and
losses on futures and forwards are generally deferred and amor-
tized over the life of the contract as an adjustment to net interest
income. Gains or losses on early termination of risk manage-
2
Acquisitions
During the years ended December 31, 1996 and 1995, Comer-
ica made the following acquisitions, which were accounted for
as purchases:
ment derivative financial instruments are deferred and amortized
as an adjustment to the yields of the related assets or liabilities
over their remaining contractual life. If the designated asset or
liability matures, or is disposed of or extinguished, any unreal-
ized gains or losses on the related derivative instrument are rec-
ognized currently and reported as an adjustment to interest
expense.
Foreign exchange futures and forward contracts, foreign
currency options, interest rate caps and interest rate swap agree-
ments executed as a service to customers are accounted for on a
fair value basis. As a result, the fair values of these instruments
are recorded in the consolidated balance sheet with both realized
and unrealized gains and losses recognized currently in noninter-
est income.
Income Taxes
Provisions for income taxes are based on amounts reported in
the statements of income (after exclusion of nontaxable income
such as interest on state and municipal securities) and include
deferred income taxes on temporary differences between the tax
basis and financial reporting basis of assets and liabilities.
Statements of Cash Flows
For the purpose of presentation in the statements of cash flows,
cash and cash equivalents are defined as those amounts included
in the balance sheet caption, “Cash and due from banks.”
Loan Origination Fees and Costs
Loan origination and commitment fees are deferred and recog-
nized 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 other
noninterest income.
Nonowner Changes in Equity
In 1997, the Corporation adopted SFAS No. 130, “Reporting
Comprehensive Income.” This statement establishes standards
for the reporting and display of net income and nonowner
changes in equity and its components in a full set of general-
purpose financial statements. The Corporation has elected to
present information regarding this statement in the Consolidated
Statements of Changes in Shareholders’ Equity on page 39.
The caption “Net income and nonowner changes in equity,”
represents total comprehensive income as defined in the statement.
(in millions)
During 1996
Metrobank
During 1995
University Bank & Trust
QuestStar Bank, N.A.
FMV of
Assets
Acquired
FMV of
Liabilities
Assumed
Purchase
Price
Intangibles
Recorded
$1,083
$1,020
$125
$62
456
205
422
193
69
25
35
13
42
Comerica Incorporated
Sales and calls of investment securities available for sale
resulted in realized gains and losses as follows:
Year Ended December 31
(in thousands)
Available for Sale
1997
1996
Securities gains
Securities losses
Total
$18,890
(3,195)
$14,945
(1,357)
$15,695
$13,588
Assets, principally securities, carried at approximately $2.7
billion at December 31, 1997, were pledged to secure public
deposits (including State of Michigan deposits of $40 million
at December 31, 1997) and for other purposes as required
by law.
All held to maturity securities were redesignated to the avail-
able for sale category in December 1995 in accordance with
the one-time provisions issued in conjunction with the FASB’s
Special Report, “A Guide to Implementation of Statement 115
on Accounting for Certain Investments in Debt and Equity
Securities.” At the date of transfer the amortized cost of the
held to maturity securities was $4.6 billion. The net unrealized
loss related to the redesignated securities totaled $9 million.
3
Investment Securities
Information concerning investment securities as shown in the
consolidated balance sheets of the Corporation was
as follows:
Gross
Gross
Unrealized Unrealized Estimated
Losses Fair Value
Gains
Cost
$3,239,423
$24,223
$24,994 $3,238,652
164,394
603,176
5,902
7,584
244
13,502
170,052
597,258
(in thousands)
December 31, 1997
U.S. government and
agency securities
State and municipal
securities
Other securities
Total securities
available for sale
$4,006,993
$37,709
$38,740 $4,005,962
December 31, 1996
U.S. government and
agency securities
State and municipal
securities
Other securities
Total securities
$4,011,022
$22,702
$65,375 $3,968,349
220,173
603,873
7,866
654
196
685
227,843
603,842
available for sale
$4,835,068
$31,222
$66,256 $4,800,034
The cost and estimated fair values of debt securities by con-
tractual maturity were as follows (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 obliga-
tions with or without call or prepayment penalties.
December 31, 1997
(in thousands)
Contractual maturity
Within one year
Over one year to
five years
Over five years to
ten years
Over ten years
Subtotal securities
Mortgage-backed
securities
Equity and other
nondebt securities
Total securities
available for sale
Estimated
Fair Value
Cost
$ 205,857
$ 206,165
284,387
283,331
162,991
61,554
159,140
66,350
714,789
714,986
3,190,530
3,189,879
101,674
101,097
$4,006,993
$4,005,962
Comerica Incorporated
43
A loan is impaired when it is probable that payment of interest
and principal will not be made in accordance with the contrac-
tual 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.
December 31
(in thousands)
Average impaired loans for the year
Total period-end impaired loans
Period-end impaired loans
requiring an allowance
Impairment allowance
1997
1996
1995
$73,502
70,470
$114,253
98,050
$148,087
135,034
60,376
20,358
59,960
19,528
89,209
26,578
Those impaired loans not requiring an allowance represent
loans for which the fair value exceeded the recorded invest-
ment in the loan. Sixty-four percent of the total impaired loans
at December 31, 1997, are 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
loan’s effective interest rate.
4
Nonperforming Assets
The following table summarizes nonperforming assets and
loans which are contractually past due 90 days or more as to
interest or principal payments. Nonperforming assets consist
of nonaccrual loans, reduced-rate loans and other real estate.
Nonaccrual loans are those on which interest is not being rec-
ognized. 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 sheet.
December 31
(in thousands)
Nonaccrual loans
Commercial loans
International loans
Real estate construction loans
Commercial mortgage loans
Residential mortgage loans
Total
Reduced-rate loans
Total nonperforming loans
Other real estate
1997
1996
$058,914
1,000
3,438
11,088
3,719
$071,991
—
3,576
22,567
5,160
78,159
103,294
7,583
8,009
85,742
111,303
17,046
28,398
Total nonperforming assets
$102,788
$139,701
Loans past due 90 days
$052,805
$051,748
Gross interest income that would
have been recorded had the
nonaccrual and reduced-rate
loans performed in accordance
with original terms
Interest income recognized
5
$010,088
$011,119
$002,399
$002,681
Allowance for Loan Losses
An analysis of changes in the allowance for loan
losses follows:
(in thousands)
1997
1996
1995
Balance at January 1
Allowance of institutions and
loans purchased/sold
Loans charged off
Recoveries on loans previously
charged off
$367,165
$341,344
$326,195
—
(131,140)
(3,630)
(125,912)
4,668
(119,028)
42,122
41,363
43,009
Net loans charged off
Provision for loan losses
(89,018)
146,000
(84,549)
114,000
(76,019)
86,500
Balance at December 31
$424,147
$367,165
$341,344
As a percent of total loans
1.47%
1.40%
1.40%
44
Comerica Incorporated
6
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 poli-
cies. The Corporation is a regional bank holding company
with a geographic concentration of its on-balance sheet and
off-balance sheet activities centered in Michigan. In addition,
the Corporation has an industry concentration with the auto-
motive industry, which includes manufacturers and their finance
subsidiaries, suppliers, dealers and company executives.
7
Premises and Equipment
A summary of premises and equipment at December 31 by
major category follows:
(in thousands)
Land
Buildings and improvements
Furniture and equipment
Total cost
1997
1996
$ 52,934
353,308
344,681
$ 54,635
366,618
436,133
750,923
857,386
Less accumulated depreciation and amortization
(370,766)
(449,723)
Net book value
$380,157
$407,663
8
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 com-
mercial paper, borrowed securities, term federal funds pur-
chased, short-term notes and treasury tax and loan deposits,
generally mature within one to 120 days from the transaction
date. The following is a summary of short-term borrowings at
December 31, 1997 and 1996:
Federal Funds Purchased
and Securities Sold
Under Agreements
to Repurchase
Other
Borrowed
Funds
(in thousands)
December 31, 1997
Amount outstanding at year-end
Weighted average interest rate at year-end
$1,592,860
$2,600,041
5.26%
5.30%
December 31, 1996
Amount outstanding at year-end
Weighted average interest rate at year-end
$1,395,540
$3,093,651
5.80%
5.14%
At December 31, 1997 and 1996, exposure from loan
commitments and guarantees to companies related to the auto-
motive industry totaled $8.3 billion and $8.2 billion, respec-
tively. Additionally, commercial real estate loans, including
commercial mortgages and construction loans, totaled $4.6
billion in 1997 and $4.2 billion in 1996. Approximately $2.0
billion of commercial real estate loans at December 31, 1997,
involved mortgages on owner-occupied properties. Those bor-
rowers are involved in business activities other than real
estate, and the sources of repayment are not dependent on the
performance of the real estate market.
Rental expense for leased properties and equipment amounted
to $41 million in 1997 and $44 million in 1996 and 1995.
Future minimum lease rentals under noncancelable operating
lease obligations are as follows:
(in thousands)
1998
1999
2000
2001
2002
2003 and later
$041,189
38,379
35,429
31,649
26,333
117,813
The 1996 amounts outstanding include $700 million of short-
term notes. The Corporation entered into interest rate swap
contracts that converted the rates paid on notes from the bank
prime rate minus 2.96% and the one-month London Interbank
Offered Rate (LIBOR) (5.29% and 5.53% at December 31,
1996, respectively) to a three-month LIBOR (5.56% at
December 31, 1996) based rate.
At December 31, 1997, the parent company had available
additional credit totaling $100 million under a line of credit
agreement, all of which was unused. Under the current agree-
ment the line will expire in April of 2000.
Comerica Incorporated
45
9
Medium- and Long-term Debt
Medium- and long-term debt consisted of the following at
December 31:
All subordinated notes and debentures with maturities greater
than one year qualify as Tier 2 capital.
(in thousands)
1997
1996
Parent Company
7.25% subordinated notes due 2007
9.75% subordinated notes due 1999
10.125% subordinated debentures due 1998
$ 148,509
74,877
74,965
$ 148,548
74,782
74,880
Total parent company
298,351
298,210
Subsidiaries
Subordinated notes:
7.25% subordinated notes due 2007
8.375% subordinated notes due 2024
7.25% subordinated notes due 2002
6.875% subordinated notes due 2008
7.125% subordinated notes due 2013
7.875% subordinated notes due 2026
198,100
147,938
149,246
99,220
148,224
146,914
—
147,860
149,089
99,143
148,112
146,814
Total subordinated notes
889,642
691,018
Medium-term notes:
Floating rate based on LIBOR indices
Floating rate based on Treasury bill indices
Floating rate based on Prime indices
Floating rate based on Federal Funds indices
Fixed rate notes with interest rates ranging
2,811,793
487,000
1,100,007
349,998
1,448,947
399,955
—
—
from 5.75% to 6.875%
1,349,596
1,399,040
Total medium-term notes
6,098,394
3,247,942
Notes payable
—
4,599
The Corporation currently has two medium-term note pro-
grams: a senior note program and a European note program.
Under these programs, certain of the bank subsidiaries may
offer an aggregate principal amount of up to $9.5 billion. The
notes can be issued as fixed or floating rate notes and with
terms from one month to 15 years. The interest rates on the
floating rate medium-term notes based on LIBOR ranged from
three-month LIBOR minus 0.14% to three-month LIBOR plus
0.10%. The notes are due from 1998 to 2002. The interest
rates on the floating rate medium-term notes based on U.S.
Treasury indices ranged from the three-month U.S. Treasury
bill bond equivalent rate plus 0.54% to the two-year Constant
Treasury Maturity Rate plus 0.01%. The notes are due from
1998 to 2000. The interest rates on the floating rate medium-
term notes based on prime ranged from prime minus 2.87% to
prime minus 2.82% and are due in 1998. The interest rates on
the floating rate medium-term notes based on the federal
funds rate ranged from the federal funds rate plus 0.055% to
the federal funds rate plus 0.0625% and are also due in 1998.
The maturities of the fixed rate notes range from 1998 to
2000. The medium-term 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:
Total subsidiaries
6,988,036
3,943,559
(in thousands)
Total medium- and long-term debt
$7,286,387
$4,241,769
Concurrent with 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:
1998
1999
2000
2001
2002
2003 and later
$5,273,441
73,636
265,744
298,958
482,135
892,473
Principal
Amount
of Debt
Converted
Base
Rate at
12/31/97
Base Rate
$0150,000
50,000
6-month LIBOR
3-month LIBOR
5.91%
5.91
(in thousands)
Parent Company
7.25% subordinated notes
9.75% subordinated notes
Subsidiaries
Subordinated notes:
7.25% subordinated notes
8.375% subordinated notes
7.25% subordinated notes
6.875% subordinated notes
7.125% subordinated notes
7.875% subordinated notes
200,000
150,000
150,000
100,000
150,000
150,000
6-month LIBOR
6-month LIBOR
6-month LIBOR
6-month LIBOR
6-month LIBOR
6-month LIBOR
Medium-term notes:
Floating rate based on
LIBOR indices
Fixed rate notes with interest
rates ranging from 5.80%
to 6.65%
600,000
1,895,000
1-month LIBOR
3-month LIBOR
100,000
1,050,000
1-month LIBOR
3-month LIBOR
5.91
5.91
5.91
5.91
5.91
5.91
5.94
5.91
5.94
5.91
46
Comerica Incorporated
10
Shareholders’ Equity
The board of directors has authorized the repurchase of up to
27 million shares (or 40.5 million shares on a post-split basis)
of Comerica Incorporated common stock for general corporate
purposes, acquisitions and employee benefit plans. At Decem-
ber 31, 1997, 12.2 million shares (or 18.3 million shares on a
post-split basis) had been repurchased under this program.
At December 31, 1997, the Corporation had reserved 7.7
million shares of common stock for issuance to employees
and directors under the long-term incentive plans.
In January 1998, the Corporation declared a three-for-two
stock split, effected in the form of a 50 percent stock dividend
to be paid April 1, 1998. All per share data included in the
consolidated financial statements and in the related notes
thereto have been retroactively adjusted to reflect the split.
11
Net Income per Common Share
SFAS No. 128, “Earnings per Share,” was adopted in 1997.
The statement simplifies the standards for computing earnings
per 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 out-
standing during the period. Diluted net income per common
share is computed by dividing net income applicable to com-
mon stock by the weighted average number of shares, non-
vested stock and dilutive common stock equivalents outstand-
ing during the period. Common stock equivalents consist of
common stock issuable under the assumed exercise of stock
options granted under the Corporation’s stock plans, using the
treasury stock method. A computation of earnings per share
follows:
During 1996, the Corporation issued 5 million shares of
Fixed/Adjustable Rate Noncumulative Preferred Stock,
Series E, with a stated value of $50 per share. Dividends are
payable quarterly, at a rate of 6.84% per annum through
July 1, 2001. Thereafter, the rate will be equal to 0.625% plus
an effective rate, but not less than 7.34% nor greater than
13.34%. The effective rate will be equal to the highest of the
Treasury Bill Rate, the Ten Year Constant Treasury Maturity
Rate and the Thirty Year Constant Treasury Maturity Rate
(as defined in the prospectus). The Corporation, at its option,
may redeem all or part of the outstanding shares on or after
July 1, 2001.
Year Ended December 31
(in thousands, except per share data)
1997
1996
1995
Basic
Average shares outstanding
158,333
169,076
173,532
Net income
Less preferred stock dividends
$530,476
17,100
$417,161
9,025
$413,366
—
Net income applicable to
common stock
Basic net income per share
Diluted
Average shares outstanding
Nonvested stock
Common stock equivalents
Net effect of the assumed
exercise of stock options
$513,376
$408,136
$413,366
$3.24
$2.41
$2.38
158,333
204
169,076
195
173,532
163
2,503
1,956
1,070
Diluted average shares
161,040
171,227
174,765
Net income
Less preferred stock dividends
$530,476
17,100
$417,161
9,025
$413,366
—
Net income applicable to
common stock
$513,376
$408,136
$413,366
Diluted net income per share
$3.19
$2.38
$2.37
Comerica Incorporated
47
The following table summarizes information about stock
options outstanding at December 31, 1997:
Outstanding
Exercisable
Exercise
Price Range
$ 7.66 - $10.29
18.00
10.37 -
18.75
18.59 -
25.17
19.00 -
40.09
25.42 -
52.67
40.25 -
Total
Shares
772,229
953,303
1,161,279
1,205,404
1,688,751
1,856,377
7,637,343
Average
Life (a)
Average
Exercise
Price
$09.57
16.65
18.59
20.79
26.29
40.33
2.4
5.3
7.2
4.9
8.2
9.2
6.8
Average
Exercise
Price
$09.57
16.22
18.59
20.75
26.05
40.25
Shares
772,229
722,615
521,637
1,173,154
409,278
600
$24.77
3,599,513
$17.73
(a) Average contractual life remaining in years.
12
Long-term Incentive Plans
The Corporation has long-term incentive plans under which it
has awarded both shares of restricted stock to key executive
officers and stock options to executive officers, directors and
key personnel of the Corporation and its subsidiaries. The
exercise price of the stock options is equal to the fair market
value at the time the options are granted and the options may
have restrictions regarding exercisability. 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 Corporation adopted the disclosure-only option under
SFAS No. 123, “Accounting for Stock-Based Compensation,”
as of December 31, 1996. If the recognition provisions of
the new statement had been adopted as of the beginning of 1997,
the effect on 1997 net income would have been immaterial.
Average per Share
Exercise Market
Price
Price
$15.42
18.64
19.43
10.74
$16.25
18.64
21.25
21.04
Number
5,982,030
1,659,270
(331,112)
(771,370)
—
Outstanding—December 31, 1994
Granted
Cancelled
Exercised
Expired
Acquisition of
University Bank & Trust
229,679
10.70
18.33
Outstanding—December 31, 1995
Granted
Cancelled
Exercised
Expired
Acquisition of Metrobank
Outstanding—December 31, 1996
Granted
Cancelled
Exercised
Expired
6,768,497
1,894,143
(321,119)
(1,775,613)
—
595,718
7,161,626
1,994,182
(266,295)
(1,252,170)
—
$16.39
25.61
18.95
12.78
$26.67
25.61
28.95
29.34
8.49
26.42
$18.95
40.28
26.00
15.93
$34.92
40.28
43.07
44.81
Outstanding—December 31, 1997
7,637,343
$24.77
$60.17
Exercisable—December 31, 1997
Available for grant—
December 31, 1997
3,599,513
98,393
48
Comerica Incorporated
13
Employee Benefit Plans
The Corporation has a defined benefit pension plan in effect
for substantially all full-time employees. Staff expense
includes income of $0.3 million in 1997, $1.4 million in 1996
and $1.0 million in 1995 for the plan. Benefits under the plan
are based primarily on years of service and the levels of com-
pensation during the five highest paid consecutive calendar
years occurring during the last ten years before retirement.
The plan's assets primarily consist of units of certain collec-
tive investment funds administered by Munder Capital Man-
agement, equity securities, U.S. government and agency
securities and corporate bonds and notes.
Net periodic pension cost/(income) consisted of the following:
(in thousands)
1997
1996
1995
based matching contribution based on the Corporation’s
financial performance. Staff expense includes expense of
$9.7 million in 1997, $10.4 million in 1996 and $7.1 million
in 1995 for the plan.
The Corporation’s postretirement benefits plan continues
postretirement health care and life insurance benefits for
retirees as of December 31, 1992, provides a phase-out for
employees over 50 as of that date and substantially reduces
all benefits for remaining employees. The Corporation has
funded the plan with a company-owned life insurance contract
purchased in 1995.
Net periodic postretirement benefit cost included the following
components:
Service cost—benefits earned
during the period
Interest cost on projected
benefit obligation
Actual return on plan assets
Net amortization and (deferral)
$ 12,400
$ 11,675
$ (8,857
33,823
(89,528)
43,006
31,572
(62,710)
18,072
29,231
(93,650)
54,585
Net pension income
$ 0(299)
$0(1,391)
$ 0 (977)
The following table sets forth the funded status of the defined
benefit pension plans and amounts recognized on the Corpora-
tion’s balance sheet:
(in thousands)
Service cost
Interest cost on accumulated
postretirement benefit obligation
Return on plan assets
Amortization of transition obligation
Net amortization and (deferral)
Net periodic postretirement
benefit cost
1997
1996
1995
$0,273
$0,402
$0,383
5,710
(7,941)
4,628
2,472
5,597
(3,094)
4,628
(2,488)
6,652
(2,453)
4,628
(1,511)
$5,142
$5,045
$7,699
The following table sets forth the status of the postretirement
plan at December 31:
December 31
(in thousands)
Accumulated benefit obligation
Vested
Nonvested
Accumulated benefit obligation
Effect of projected future compensation levels
Projected benefit obligation
Plan assets at fair value
Plan assets in excess of projected benefit obligation
Unrecognized net gain due to past experience
different from that assumed and effects of
changes in assumptions
Unrecognized net assets being amortized
over 15 years
Prepaid pension
Actuarial assumptions were as follows:
1997
1996
(in thousands)
$411,688
17,797
$367,376
16,483
429,485
95,844
525,329
585,215
383,859
78,917
462,776
515,164
Retirees
Other fully eligible plan participants
Other active plan participants
Total accumulated postretirement
benefit obligation
Plan assets at fair value
59,886
52,388
Funded status
Unrecognized net gain
Unrecognized transition obligation
(25,790)
(17,672)
(15,358)
(20,191)
1997
1996
$72,175
5,543
3,866
$65,711
4,910
5,799
81,584
76,420
86,727
80,547
5,143
4,127
(8,294)
69,105
(11,800)
73,733
Prepaid postretirement benefit
$65,954
$66,060
$018,738
$014,525
Actuarial assumptions were as follows:
Discount rate used in determining
projected benefit obligation
Rate of increase in compensation levels
Long-term rate of return on assets
1997
1996
1995
7% 7.5% 7.5%
5%
5%
5%
8%
9%
9%
The Corporation has a savings (“401(k)”) plan which is a
defined contribution plan. All of the Corporation’s salaried
and regular part-time employees are eligible to participate in
the plan. The Corporation makes matching contributions based
on a declining percentage of employee contributions (currently,
maximum per employee is $1,000) as well as a performance-
Discount rate used in determining
accumulated postretirement
benefit obligation
Long-term rate of return on assets
1997
1996
1995
7% 7.5% 7.5%
6.7% 6.7% 6.7%
A 7 percent health care cost trend rate was projected for 1997
and is assumed to decrease gradually to 5 percent by 1999,
remaining constant thereafter. Increasing each health care rate
by one percentage point would increase the accumulated
postretirement benefit obligation by $6 million at December
31, 1997, and the aggregate of the service and interest cost
components by $384 thousand for the year ended December
31, 1997.
Comerica Incorporated
49
14
Income Taxes
The current and deferred components of income taxes
were as follows:
The principal components of deferred tax (assets) liabilities
at December 31 were as follows:
1997
1996
1995
(in thousands)
(in thousands)
Currently payable
Federal
Foreign
State and local
Deferred federal, state and local
$239,680
30,723
15,584
$225,863
5,912
11,039
$192,899
1,015
7,595
285,987
279
242,814
(13,769)
201,509
10,819
Total
$286,266
$229,045
$212,328
There were $2.0 million, $4.8 million and $4.1 million of
income taxes provided on securities transactions in 1997, 1996
and 1995, respectively.
Allowance for loan losses
Lease financing transactions
Allowance for depreciation
Deferred loan origination fees and costs
Investment securities available for sale
Employee benefits
Restructuring charge
Other temporary differences, net
Total
1997
1996
$(132,990)
122,127
15,567
(20,088)
(149)
(7,625)
(10,150)
(34,440)
$(116,816)
105,805
18,972
(11,408)
(11,562)
(3,132)
(15,178)
(35,825)
$ (67,748)
$ (69,144)
The provision for income taxes differs from that computed
by applying the federal statutory rate of 35 percent for the
reasons in the following analysis:
(in thousands)
1997
1996
1995
Tax based on federal statutory rate
Effect of tax-exempt interest income
Other
$285,860
(5,687)
6,093
$226,172
(8,842)
11,715
$218,993
(12,538)
5,873
Provision for income taxes
$286,266
$229,045
$212,328
15
Restructuring
The Corporation recorded a restructuring charge of $90 mil-
lion in 1996 in connection with a program to improve efficien-
cy, revenue and customer service. The charge only includes
direct and incremental costs associated with the program. The
following table provides details on the restructuring-related
reserve as of December 31:
Termination benefits primarily include severance payments.
The occupancy and equipment portion consists of lease termi-
nation costs, space consolidation and estimated losses on the
disposal of vacated properties. Other charges consist primarily
of the project costs incurred during the assessment phase of
the program.
(in thousands)
Employee
Termination
Occupancy
and
Equipment
Other
Total
Balances at 12/31/96
Activity
$48,000
(38,000)
$21,000
(10,000)
$21,000
(13,000)
$90,000
(61,000)
Balances at 12/31/97
$10,000
$11,000
$08,000
$29,000
16
Transactions With Related Parties
The bank subsidiaries have had, and expect to have in the
future, transactions with the Corporation’s directors and their
affiliates. Such transactions were made in the ordinary course
of business and included extensions of credit, all of which
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
management’s opinion, involve more than normal risk of col-
lectibility or present other unfavorable features. The aggregate
amount of loans attributable to persons who were related par-
ties at December 31, 1997, approximated $138 million at the
beginning and $226 million at the end of 1997. During 1997,
new loans to related parties aggregated $124 million and
repayments totaled $36 million.
50
Comerica Incorporated
17
Regulatory Capital and Banking Subsidiaries
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 regula-
tions, the aggregate amount of dividends which can be paid to
the Corporation without obtaining prior approval from bank
regulatory agencies approximated $361 million at January 1,
1998, plus current year’s earnings. Substantially all the assets
of the Corporation’s subsidiaries are restricted from transfer to
the Corporation in the form of loans or advances.
Dividends paid to the Corporation by its banking subsidiaries
amounted to $354 million in 1997, $322 million in 1996 and
$184 million in 1995.
(in thousands)
December 31, 1997
Tier 1 capital
Total capital
Tier 1 capital to average assets
(minimum–3.0%)
Tier 1 capital to risk–weighted assets
(minimum–4.0%)
Total capital to risk–weighted assets
(minimum–8.0%)
December 31, 1996
Tier 1 capital
Total capital
Tier 1 capital to average assets
(minimum–3.0%)
Tier 1 capital to risk–weighted assets
(minimum–4.0%)
Total capital to risk–weighted assets
(minimum–8.0%)
18
The Corporation and its banking subsidiaries are subject to
various regulatory capital requirements administered by the
federal 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.
At December 31, 1997, the Corporation and all of its banking
subsidiaries exceeded the ratios required for an institution to
be considered “well capitalized” (total capital ratio greater
than 10 percent). The following is a summary of the capital
position of the Corporation and its significant banking sub-
sidiaries:
Comerica Inc.
(Consolidated)
Comerica
Bank
Comerica Bank-
Texas
Comerica Bank-
California
$2,513,820
3,961,243
$2,037,217
3,243,206
$325,394
359,674
$329,963
370,531
7.09%
7.15%
8.92%
9.07%
7.07
11.14
6.85
10.90
9.59
10.60
9.20
10.33
$2,366,342
3,617,961
$1,930,830
2,914,832
$275,895
309,627
$282,108
319,109
7.07%
7.23%
8.42%
7.40%
7.18
7.12
10.99
10.75
9.49
10.65
8.95
10.12
Financial Instruments With Off-Balance Sheet Risk
In the normal course of business, the Corporation enters into
various off-balance sheet transactions involving derivative
financial instruments, foreign exchange contracts and credit-
related financial instruments to manage exposure to fluctua-
tions 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 in excess of the amount reflected in the consoli-
dated balance sheets.
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
off-balance sheet financial instruments by evaluating the cred-
itworthiness of each counterparty adhering to the same credit
approval process used for traditional lending activities. Coun-
terparty risk limits and monitoring procedures have also been
established to facilitate the management of credit risk. Collat-
eral is obtained, if deemed necessary, based on the results of
management’s credit evaluation. Collateral varies, but may
include cash, investment securities, accounts receivable, inven-
tory, property, plant and equipment or real estate.
Derivative financial instruments and foreign exchange con-
tracts 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
Comerica Incorporated
51
18
Financial Instruments With Off-Balance
Sheet Risk (continued)
price information. The Corporation reduces exposure to credit
and liquidity risks from over-the-counter derivative and for-
eign exchange contracts by conducting such transactions with
investment-grade domestic and foreign investment banks or
commercial banks.
Market risk is the potential loss that may result from move-
ments in interest or foreign currency rates which cause an
unfavorable change in the value of a financial instrument. The
Corporation manages this risk by establishing counterparty
and monetary exposure limits and monitoring compliance with
those limits. Market risk arising from derivative and foreign
exchange positions entered into on behalf of customers is
reflected in the consolidated financial statements and may be
mitigated by entering into offsetting transactions. Market risk
inherent in off-balance sheet derivative and foreign exchange
contracts held or issued for risk management purposes is gen-
erally offset by changes in the value of rate sensitive on-bal-
ance sheet assets or liabilities. Termination of derivative
contracts, other than by a counterparty, is unlikely as a partic-
ular instrument can be offset by entering into an opposite-
effect derivative product to facilitate risk management
strategies.
Derivative Financial Instruments and
Foreign Exchange Contracts
The Corporation, as an end-user, employs a variety of off-bal-
ance sheet 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 man-
age exposures to market risks, including interest rate caps and
floors, total return swaps, foreign exchange forward contracts
and foreign exchange swap agreements. Refer to the section
entitled “Risk Management Derivative Financial Instruments
and Foreign Exchange Contracts” in the financial review on
page 33 for further information about the Corporation’s objec-
tives for using such instruments.
The following table presents the composition of off-balance
sheet derivative financial instruments and foreign exchange
contracts, excluding commitments, held or issued for risk
management purposes at December 31, 1997 and 1996.
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.
Notional/
Contract
Amount
Unrealized
Gains
Unrealized
Fair
Losses Value
$8,515
$137
$ (14)
$123
52
—
—
—
—
—
—
—
(in millions)
December 31, 1997
Risk management
Interest rate contracts:
Swaps
Options, caps and
floors purchased
Caps written
Total interest rate
contracts
8,567
137
(14)
123
Foreign exchange
contracts:
Spot and forwards
Swaps
445
154
Total foreign
exchange contracts
599
12
5
17
(9)
—
(9)
3
5
8
Total risk management
$9,166
$154
$ (23)
$131
December 31, 1996
Risk management
Interest rate contracts:
Swaps
Options, caps and
floors purchased
Caps written
53
152
Total interest rate
contracts
8,220
Foreign exchange
contracts:
Spot and forwards
Swaps
444
38
Total foreign
exchange contracts
482
$8,015
$. 42
$ (97).
$(55)
—
—
42
26
—
26
—
—
—
—
(97).
(55)
(4).
(1).
22
(1)
(5).
21
Total risk management
$8,702
$ 68
$(102).
$(34)
Credit risk, which excludes the effects of any collateral or
netting arrangements, is measured as the cost to replace, at
current market rates, contracts in a profitable position. The
amount of this exposure is represented by the gross unrealized
gains on derivative and foreign exchange contracts. Bilateral
collateral agreements with counterparties covered 93 percent
of the notional amount of interest rate derivative contracts at
December 31, 1997 and 1996. 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, 1997, master net-
ting arrangements had been established with all interest rate
swap counterparties and certain foreign exchange counterpar-
ties. These arrangements effectively reduce credit risk by per-
mitting settlement, on a net basis, of contracts entered into
with the same counterparty. The Corporation has not experi-
enced any credit losses associated with derivative or foreign
exchange contracts.
52
Comerica Incorporated
18
Financial Instruments With Off-Balance
Sheet Risk (continued)
On a limited scale, fee income is earned from entering into
various transactions, principally foreign exchange contracts
and interest rate caps, at the request of customers. The Corpo-
ration does not speculate in derivative financial instruments
for the purpose of profiting in the short-term from favorable
movements in market rates.
Fair values for customer-initiated and other derivative and
foreign exchange contracts represent the net unrealized
gains or losses on such contracts and are recorded in the con-
solidated balance sheets. Changes in fair value are recognized
in the consolidated income statements. For the year ended
December 31, 1997, unrealized gains and unrealized losses on
customer-initiated and other foreign exchange contracts aver-
aged $23 million and $18 million, respectively. For the year
ended December 31, 1996, unrealized gains and unrealized
losses averaged $10 million and $9 million, respectively.
These contracts also generated $7 million of noninterest
income for both years ended December 31, 1997 and 1996.
Average positive and negative fair values and income related
to customer-initiated and other interest rate contracts were not
material for 1997 and 1996.
The following table presents the composition of off-balance
sheet derivative financial instruments and foreign exchange
contracts held or issued in connection with customer-initiated
and other activities at December 31, 1997 and 1996.
Notional/
Contract Unrealized Unrealized
Amount
Gains
Fair
Losses Value
(in millions)
December 31, 1997
Customer-initiated and other
Interest rate contracts:
Caps written
Floors purchased
Swaps
$.0314
32
150
$ —
—
6
$ — $ —
—
—
—
(6)
Detailed discussions of each class of derivative financial
instrument and foreign exchange contract held or issued
by the Corporation for both risk management and customer-
initiated and other activities are provided below.
Interest Rate Swaps
Interest rate swaps are agreements in which two parties
periodically exchange fixed cash payments for variable pay-
ments 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. In some cases, the payments may be based on the
change in the value of an underlying security. The Corpora-
tion’s swap agreements are structured such that variable pay-
ments are primarily based on one-month and 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 cred-
it and market risk; however, market risk is limited to the fee
paid. Options are either exchange-traded or negotiated over-
the-counter. All interest rate caps and floors are over-the-
counter agreements.
496
6
(6)
—
Foreign Exchange Contracts
Total interest rate
contracts
Foreign exchange
contracts:
Spot, forwards, futures
and options
1,837
37
(33)
4
Total customer-
initiated and other $2,333
$ 43
$(39)
$0 4
December 31, 1996
Customer-initiated and other
Interest rate contracts:
Caps written
Floors purchased
Swaps
$1,358
2
30
$ —
—
5
$ — $ —
—
—
—.
(5)
Total interest rate
contracts
Foreign exchange
contracts:
Spot, forwards, futures
390
5
(5)
—
and options
644
19
(18)
1
Total customer-
initiated and other $1,034
$ 24
$(23)
$ 01
The Corporation uses foreign exchange rate swaps, including
generic receive variable swaps and cross-currency swaps, for
risk management purposes. Generic receive variable swaps
involve payment, in a foreign currency, of the difference
between a contractually fixed exchange rate and an average
exchange rate determined at settlement, applied to a notional
amount. Cross-currency swaps involve the exchange of both
interest and principal amounts in two different currencies.
Other foreign exchange contracts such as futures, forwards
and options are primarily entered into as a service to cus-
tomers 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. For-
eign currency options allow the holder to purchase or sell a
foreign currency at a specified date and price. Foreign
exchange futures are exchange-traded, while forwards, swaps
and most options are negotiated over-the-counter. Foreign
exchange contracts expose the Corporation to both market risk
and credit risk.
Comerica Incorporated
53
18
Financial Instruments With Off-Balance
Sheet Risk (continued)
Commitments
The Corporation also enters into commitments to purchase or
sell earning assets for risk management purposes. These trans-
actions, which are similar in nature to forward contracts, did
not have a material impact on the consolidated financial state-
ments for the years ended December 31, 1997 and 1996.
Commitments to purchase investment securities are executed
to secure certain rates on primarily U.S. government and
agency securities. No such commitments were outstanding at
year-end 1997, while $50 million were outstanding at year-
end 1996. Commitments to purchase and sell U.S. Treasury
and municipal bond securities related to the Corporation’s
trading account totaled $2 million and $18 million at Decem-
ber 31, 1997 and 1996, respectively. At December 31, 1997
and 1996, $30 million and $23 million, respectively, of com-
mitments with settlement terms of up to 120 days had been
initiated to reduce interest rate risk on fixed rate residential
mortgage loans originated or held for sale. Outstanding com-
mitments expose the Corporation to both credit risk and mar-
ket risk.
Available credit lines on fixed rate credit card and check prod-
uct accounts, which have characteristics similar to option con-
tracts, totaled $1.8 billion and $2.0 billion at December 31,
1997 and 1996, respectively. These commitments expose the
Corporation to the risk of a reduction in net interest income as
interest rates increase. Market risk exposure arising from fixed
rate revolving credit commitments is very limited, however,
since it is unlikely that a significant number of customers with
these accounts will simultaneously borrow up to their maxi-
mum available credit lines. Additional information concerning
unused commitments to extend credit is provided in the
“Credit-Related Financial Instruments” section below.
Credit-Related Financial Instruments
The Corporation issues off-balance sheet financial instruments
in connection with commercial and consumer lending activities.
19
Contingent Liabilities
The Corporation and its subsidiaries are parties to litigation
and claims arising in the normal course of their activities.
Although the amount of ultimate liability, if any, with respect
to such matters cannot be determined with reasonable certain-
ty, management, after consultation with legal counsel, believes
that the litigation and claims, some of which are substantial,
will not have a materially adverse effect on the Corporation’s
consolidated financial position or results of operations.
Credit risk associated with these instruments is represented by
the contractual amounts indicated in the following table:
(in millions)
Unused commitments to extend credit
Standby letters of credit and financial guarantees
Commercial letters of credit
1997
1996
$27,528
3,088
449
$22,118
2,684
335
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 gen-
erally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many commitments
expire without being drawn upon, the total contractual amount
of commitments does not necessarily represent future cash
requirements of the Corporation. Total unused commitments
to extend credit at December 31, 1997 and 1996, included $4
billion of variable and fixed rate revolving credit commit-
ments. Other unused loan commitments, primarily variable
rate, totaled $24 billion at December 31, 1997, and $18 billion
at December 31, 1996.
Standby and Commercial Letters of Credit and
Financial Guarantees
Standby and commercial letters of credit and financial guaran-
tees represent conditional obligations of the Corporation
which guarantee the performance of a customer to a third
party. Standby letters of credit and financial guarantees are
primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing
and similar transactions. Long-term standby letters of credit
and financial guarantees, defined as those maturing beyond
one year, expire in decreasing amounts through the year 2012,
and were $1,309 million and $1,192 million at December 31,
1997 and 1996, respectively. The remaining standby letters of
credit and financial guarantees, which mature within one year,
totaled $1,779 million and $1,492 million at December 31,
1997 and 1996, respectively. Commercial letters of credit are
issued to finance foreign or domestic trade transactions.
54
Comerica Incorporated
20
Usage Restrictions
Included in cash and due from banks are amounts required to
be deposited with the Federal Reserve Bank. These reserve
balances vary, depending on the level of customer deposits in
the Corporation’s subsidiary banks. At December 31, 1997
and 1996, the Federal Reserve balances were $587 million and
$534 million, respectively.
21
Estimated Fair Values of Financial Instruments
Disclosure of the estimated fair values of financial instru-
ments, 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 finan-
cial instruments. These valuation methods require consider-
able 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 neces-
sarily indicate amounts which could be realized in a current
exchange. Furthermore, as the Corporation normally intends
to hold 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 does not believe that it would be practicable to
estimate a representational fair value for these types of items.
The Corporation used the following methods and
assumptions:
Cash and short-term investments: The carrying amount
approximates the estimated fair value of these instruments,
which consist of cash and due from banks, interest-bearing
deposits with banks and federal funds sold.
Trading account securities: These securities are carried at
quoted market value or the market value for comparable secu-
rities, which represents estimated fair value.
Loans held for sale: The market value of these loans repre-
sents estimated fair value. The market value is determined on
the basis of existing forward commitments or the market val-
ues of similar loans.
Investment securities: The market value of investment secu-
rities, which is based on quoted market values or the market
values for comparable securities, represents estimated fair
value.
Domestic commercial loans: These consist of commercial,
real estate construction, commercial mortgage and equipment
lease financing loans. The estimated fair value of the Corpora-
tion’s 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 dis-
counting the contractual cash flows of the loans using year-
end origination rates derived from the Treasury yield curve or
other representative bases. The resulting amounts are adjusted
to estimate the effect of changes in the credit quality of bor-
rowers since the loans were originated.
International loans: The estimated fair value of the Corpora-
tion’s 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 market values of inter-
national loans with similar characteristics.
Retail loans: This category consists of residential mortgage,
consumer and auto lease financing 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 representa-
tive 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: The carrying
amount approximates the estimated fair value.
Loan servicing rights: The estimated fair value represents
those servicing rights recorded under SFAS No. 125,
“Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities.” Fair value is computed
using discounted cash flow analyses, using interest rates
and prepayment speed assumptions currently quoted for
comparable instruments.
Comerica Incorporated
55
21
Estimated Fair Values of Financial Instruments (continued)
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 for-
eign offices approximates their estimated fair value, while
the estimated fair value of term deposits is calculated by dis-
counting 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 repur-
chase and other borrowings approximates estimated fair
value.
Acceptances outstanding: The carrying amount approximates
the estimated fair value.
Medium- and long-term debt: The estimated fair value of the
Corporation’s 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 quot-
ed market values. If quoted market values are not available,
the estimated fair value is based on the market values of debt
with similar characteristics.
Derivative financial instruments and foreign exchange con-
tracts: The estimated fair value of interest rate swaps repre-
sents 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 for-
eign exchange futures and forward contracts and commit-
ments to purchase or sell financial instruments are based on
quoted market prices. The estimated fair value of interest
rate and foreign currency options (including interest rate
caps and floors) are determined using option pricing models.
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 cur-
rently charged to enter into similar arrangements, consider-
ing 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 relation-
ships 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.
The estimated fair values of the Corporation’s financial instru-
ments at December 31, 1997 and 1996 are as follows:
(in millions)
Assets
Cash and short-term
investments
Trading account securities
Loans held for sale
Investment securities
available for sale
Commercial loans
International loans
Real estate construction
loans
Commercial mortgage
loans
Residential mortgage
loans
Consumer loans
Lease financing
Total loans
Less allowance for
loan losses
1997
1996
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
$12,080
9
41
4,006
15,805
2,085
$12,080
9
41
$11,961
6
38
4,006
15,743
2,080
4,800
13,520
1,706
$11,961
6
38
4,800
13,445
1,704
941
933
751
744
3,634
3,617
3,446
3,413
1,565
4,348
517
1,608
4,231
518
1,744
4,634
406
1,771
4,498
406
28,895
28,730
26,207
25,981
(424)
—
(367)
—
Net loans
28,471
28,730
25,840
25,981
Customers’ liability on
acceptances outstanding
Loan servicing rights
Liabilities
Demand deposits
(noninterest-bearing)
Interest-bearing deposits
Total deposits
Short-term borrowings
Acceptances outstanding
Medium- and
18
28
18
31
33
23
33
25
6,761
15,825
22,586
3,193
18
6,761
15,840
6,713
15,654
22,601
22,367
3,193
18
4,489
33
6,713
15,664
22,377
4,489
33
long-term debt
7,286
7,395
4,242
4,268
Off-balance Sheet
Financial Instruments
Derivative financial
instruments and foreign
exchange contracts
Risk management:
Unrealized gains
Unrealized losses
Customer-initiated
and other:
Unrealized gains
Unrealized losses
—
—
43
(39)
154
(23)
43
(39)
—
—
24
(23)
Credit-related financial
instruments
—
(13)
—
68
(102)
24
(23)
(10)
56
Comerica Incorporated
22
Parent Company Financial Statements
BALANCE SHEETS—Comerica Incorporated
December 31 (in thousands, except share data)
Assets
Cash and due from banks
Time deposits with subsidiary bank
Investment securities available for sale
Investment in subsidiaries, principally banks
Receivables from subsidiaries
Premises and equipment
Other assets
Total assets
Liabilities and Shareholders’ Equity
Long-term debt
Other borrowed funds
Advances from nonbanking subsidiaries
Other liabilities
Total liabilities
Nonredeemable preferred stock—$50 stated value
Authorized—5,000,000 shares
Issued—5,000,000 shares in 1997 and 1996
Common stock—$5 par value
Authorized—250,000,000 shares
Issued—156,815,367 shares in 1997 and 107,297,345 shares in 1996
Capital surplus
Unrealized gains and losses on investment securities available for sale
Retained earnings
Deferred compensation
Total shareholders’ equity
Total liabilities and shareholders’ equity
STATEMENTS OF INCOME—Comerica Incorporated
Year Ended December 31 (in thousands)
Income
Income from subsidiaries
Dividends from subsidiaries
Other interest income
Intercompany management fees
Other interest income
Other noninterest income
Total income
Expenses
Interest on long-term debt and other borrowed funds
Net interest rate swap income
Interest on advances from subsidiaries
Salaries and employee benefits
Occupancy expense
Equipment expense
Restructuring charge
Other noninterest expenses
Total expenses
Income before income taxes and equity
in undistributed net income of subsidiaries
Income tax expense (credit)
Equity in undistributed net income of
subsidiaries, principally banks
Net Income
Comerica Incorporated
1997
1996
$ 372
80,400
20,822
3,017,058
375
6,566
39,634
$ 263
105,700
17,074
2,829,906
—
53,347
31,345
$3,165,227
$3,037,635
$ 298,351
—
4,054
101,046
$ 298,210
842
236
122,778
403,451
422,066
250,000
250,000
784,077
—
(1,937)
1,731,419
(1,783)
536,487
—
(22,789)
1,854,116
(2,245)
2,761,776
2,615,569
$3,165,227
$3,037,635
1997
1996
1995
$353,500
3,626
166,952
559
2,070
$322,000
3,372
264,368
1,773
5,278
$183,700
7,113
293,292
—
2,680
526,707
596,791
486,785
26,129
(2,818)
18
65,766
9,373
2,053
—
54,244
26,328
(2,794)
86
123,271
22,483
24,806
27,000
63,224
19,948
(785)
243
127,261
22,778
25,600
—
76,319
154,765
284,404
271,364
371,942
6,111
312,387
(1,931)
215,421
10,705
365,831
314,318
204,716
164,645
102,843
208,650
$530,476
$417,161
$413,366
57
22
Parent Company Financial Statements (continued)
STATEMENTS OF CASH FLOWS—Comerica Incorporated
Year Ended December 31 (in thousands)
Operating Activities
Net income
Adjustments to reconcile net income to
net cash provided by operating activities
Undistributed earnings of
subsidiaries, principally banks
Depreciation
Restructuring charge
Other, net
Total adjustments
Net cash provided by operating activities
Investing Activities
Purchase of investment securities available for sale
Proceeds from sale of investment securities available for sale
Proceeds from sales of fixed assets and other real estate
Purchases of fixed assets
Net (increase) decrease in bank time deposits
Net (increase) in receivables from subsidiaries
Capital transactions with subsidiaries
Net cash provided by (used in) investing activities
Financing Activities
Net increase (decrease) in advances from subsidiaries
Proceeds from issuance of long-term debt
Repayments and purchases of long-term debt
Net decrease in short-term borrowings
Proceeds from issuance of preferred stock
Proceeds from issuance of common stock
Purchase of common stock for treasury and retirement
Dividends paid
Net cash used in financing activities
Net increase (decrease) in cash on deposit at bank subsidiary
Cash on deposit at bank subsidiary at beginning of year
Cash on deposit at bank subsidiary at end of year
Interest paid
Income taxes recovered (paid)
Noncash investing and financing activities
Stock issued for acquisitions
The preceding parent company financial statements reflect the sale of the Corporation’s information services,
transaction processing and operations services departments to a subsidiary, Comerica Bank, on January 1, 1997.
1997
1996
1995
$530,476
$417,161
$413,366
(164,645)
1,800
(20,992)
20,928
(102,843)
20,595
27,000
23,091
(208,650)
20,447
(6,078)
16,694
(162,909)
(32,157)
(177,587)
367,567
385,004
235,779
(4,092)
427
28,958
(1,424)
25,300
(375)
(3,283)
(4,820)
—
603
(20,345)
25,100
—
131,871
(6,097)
—
3,439
(16,413)
(41,200)
—
(1,400)
45,511
132,409
(61,671)
3,818
—
141
(842)
(3,523)
(4,064)
— 210,000
(59,147)
—
—
11,736
(178,656)
(155,726)
(259)
—
— 246,744
35,206
(622,196)
(173,414)
22,584
(243,258)
(195,412)
(412,969)
(517,442)
(175,857)
109
263
(29)
292
(1,749)
2,041
$000.372
$111,263
$111,292
$ 25,799
$125,942
$115,623
$ (1,145)
$111,150
$003,275
$ — $128,938
$177,100
58
Comerica Incorporated
23
Summary of Quarterly Financial Information
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.
(in thousands,
except per share data)
Interest income
Interest expense
Net interest income
Provision for loan losses
Securities gains/(losses)
Noninterest income
(excluding securities gains)
Noninterest expenses
Net income
Basic net income per share
Diluted net income per share
(in thousands,
except per share data)
Interest income
Interest expense
Net interest income
Provision for loan losses
Securities gains/(losses)
Noninterest income
(excluding securities gains)
Restructuring charge
Noninterest expenses
(excluding restructuring charge)
Net income
Basic net income per share
Diluted net income per share
1997
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$682,163
316,281
365,882
37,000
5,836
$674,671
313,090
361,581
34,000
1,096
$663,326
299,798
363,528
34,000
(1,359)
$627,243
275,458
351,785
41,000
122
134,928
257,368
139,927
135,251
252,622
137,067
122,806
249,259
129,710
129,272
248,737
123,772
$0.86
0.85
$0.84
0.83
$0.79
0.78
$0.75
0.74
1996
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$632,737
279,476
353,261
32,000
10,194
$633,421
280,154
353,267
28,500
(276)
$642,192
285,703
356,489
25,000
3,310
$654,430
305,169
349,261
28,500
360
122,214
90,000
116,604
—
117,480
—
137,068
—
266,220
60,816
253,635
121,518
270,196
118,221
278,975
116,606
$0.35
0.35
$0.71
0.70
$0.68
0.67
$0.66
0.66
Comerica Incorporated
59
Report of Management
Report of Independent Auditors
Board of Directors,
Comerica Incorporated
We have audited the accompanying consolidated balance
sheets of Comerica Incorporated and subsidiaries as of
December 31, 1997 and 1996, 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, 1997. These financial statements are the respon-
sibility of the Corporation’s management. Our responsibility
is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accept-
ed auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstate-
ment. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial state-
ments. An audit also includes assessing the accounting princi-
ples 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 pre-
sent fairly, in all material respects, the consolidated financial
position of Comerica Incorporated and subsidiaries at
December 31, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
Detroit, Michigan
January 20, 1998
Management is responsible for the accompanying financial
statements and all other financial information in this Annual
Report. The financial statements have been prepared in con-
formity with generally accepted accounting principles and
include amounts which of necessity are based on manage-
ment’s best estimates and judgments and give due considera-
tion to materiality. The other financial information herein is
consistent with that in the financial statements.
In meeting its responsibility for the reliability of the financial
statements, management develops and maintains systems of
internal accounting controls. These controls are designed to
provide reasonable assurance that assets are safeguarded and
transactions are executed and recorded in accordance with
management’s authorization. The concept of reasonable assur-
ance is based on the recognition that the cost of internal
accounting control systems should not exceed the related
benefits. The systems of control are continually monitored by
the internal auditors whose work is closely coordinated with
and supplements in many instances the work of independent
auditors.
The financial statements have been audited by independent au-
ditors Ernst & Young LLP. Their role is to render an indepen-
dent professional opinion on management’s financial
statements based upon performance of procedures they deem
appropriate under generally accepted auditing standards.
The Corporation’s Board of Directors oversees management’s
internal control 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 periodically
with management and internal and independent auditors to
assure that they and the Committee are carrying out their
responsibilities, and to review auditing, internal control and
financial reporting matters.
Eugene A. Miller
Chairman and Chief Executive Officer
Ralph W. Babb Jr.
Executive Vice President and Chief Financial Officer
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