Comerica Annual Report 1998

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FY1998 Annual Report · Comerica

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Y E A R S

M A K I N G

I T

W O R K .

C OM E RICA I N CO RPO RATE D

1 9 9 8 A N N U A L R E P O R T

Corporate Profile

Comerica Incorporated (NYSE: CMA) is a multi-state
financial services provider headquartered in Detroit with
banking subsidiaries in Michigan, California and Texas,
banking operations in Florida, and businesses in seven
other states. Comerica also operates banking subsidiaries in
Canada and Mexico.

Comerica is the 24th largest bank holding company in the
U.S., a Fortune 500 company with $37 billion in total assets,
and among the top 200 banking companies in the world,
based on assets. Comerica is the nation’s 15th largest
commercial business lender, 17th largest small business
lender and ranks first nationally among the top 15 commercial
lenders in commercial loans as a percent of total assets.

Comerica’s 11,000 colleagues deliver comprehensive financial
services through a network that includes 340 branch and
supermarket offices, 814 automated teller machines, banking
by personal computer and telephone banking.

Comerica is organized into three focused operating units:
the Business Bank, the Individual Bank and the Investment
Bank.

Comerica’s Vision

Comerica is in business to help people be successful.
We are committed to delivering the highest quality financial
services by:
. Providing outstanding value and building enduring
customer relationships.
. Creating a positive environment for our colleagues, built on
trust, teamwork and respect.
. Demonstrating leadership in our community.
. Ensuring a consistent, superior return for our owners.

Table of Contents

Letter to 2
Shareholders

Making It Work 10

Directors and
Officers—
Comerica Incorporated
and Subsidiaries

Financial Review
and Reports

Economic Outlook 72

Shareholder and 74
Corporate Information

Financial Highlights

Year Ended December 31
(dollar amounts in millions, except per share data)

1998

Change

1997 Amount

Percent

Income Statement

Net interest income
Net income
Basic net income per common share
Diluted net income per common share
Cash dividends per common share
Book value per common share
Market value per share

Ratios

$ 1,461
607
3.79
3.72
1.28
17.94
68.19

$ 1,443
530
3.24
3.19
1.15
16.02
60.17

18
77
.55
.53
.13
1.92
8.02

Return on average common shareholders’ equity 22.54%
Return on average assets
Average common shareholders’ equity as a percentage

1.74

21.32%
1.52

of average assets

Balance Sheet (at December 31)

Total assets
Total earning assets
Loans
Deposits
Common shareholders’ equity

7.48

6.91

$36,601
33,427
30,605
24,313
2,797

$36,292
33,104
28,895
22,586
2,512

$ 309
323
1,710
1,727
285

14
17
17
11
12
13

1%
1
6
8
11

Diluted Net Income
per Common Share
(in dollars)

3.75

3.00

2.25

1.50

0.75

Excluding restructuring charge

Net Income
(in millions)

625

500

375

250

125

0.0

94 95

Excluding restructuring charge

Comerica Incorporated

ore than 150 years ago, on March 5, 1849, the prede-
cessor of Comerica was formed by order of Michigan
Governor Epaphroditus Ransom. Called the Detroit Savings
Fund Institute, it differed from a bank in that it had neither
capital stock nor stockholders, and was formed as a trust.

Elon Farnsworth was appointed by Governor Ransom to
lead the 11 trustees of Detroit Savings Fund Institute.
Mr. Farnsworth and those trustees later became the first direc-
tors and shareholders when the Institute was reorganized
and renamed Detroit Savings Bank in 1871.

This is a letter to all shareholders, past, present and future.

We enter our 150th anniversary year with pride in our
accomplishments and a clear sense of direction about our
future. We have kept our promises: to hold and grow deposits;
to deliver a consistent return to you, our shareholders; to
help customers and colleagues succeed; and to improve the
communities in which we operate.

We are fortunate to have a dedicated workforce—colleagues
who act as owners because they are owners. They care
about their customers, fellow shareholders and the success
of Comerica.

Thanks to the great efforts of these colleagues, nearly 90
percent of whom are shareholders, we are recognized as a
premier business lender and a top 10 bank holding company
in financial performance.

In 1998, net income for the year rose 14 percent to $607
million. Return on assets was 1.74 percent and return on
common equity was 22.54 percent.

Above: Elon Farnsworth
Right: Eugene A. Miller

Dividends per Common Share
(in dollars)

Return on Average Common Equity
(in percentages)

1.50

1.25

1.00

0.75

0.50

0.25

25.0

20.0

15.0

10.0

5.0

0.0

94 95

0.0

94 95

Comerica Incorporated

Comerica
Excluding restructuring charge
Industry average
(based on 50 largest U.S.
bank holding companies)

The bank drew six
depositors on opening
day (August 17, 1849).
By the end of the
year, 56 people had
deposited $3,287.

Our goal is consistent top 10 financial performance. Our
first objective is profitability, and our target is to rank in the
top 10 of the 50 largest U.S. bank holding companies
as measured by return on equity. As a result of significant
activities undertaken in 1995 and especially in 1996, we were
successful in meeting this objective in 1997 and 1998.

We rank among the best.

Focus is our key to attaining superior profitability. We operate
on a line-of-business basis and carefully define our approach
to our various business lines. Some we have identified
as “grow” businesses which warrant significant reinvestment.
Others we are rationalizing by driving down expenses and
driving up targeted marketing. Still others we have divested or
would consider divesting. This ongoing process of reinventing
the corporation has become a way of life for us.

Our second objective is quality, both in credit underwriting
and in service. Banks cannot consistently generate exceptional
profits without being extraordinary in both areas. Credit
quality is absolutely essential, especially when we enter slow-
er growth economic environments.

Loan growth and profitability at Comerica have never come
at the expense of credit quality. For example, even now, when
banks’ credit quality measures are excellent, our percentage
of non-performing assets is nearly half that of the top 50
banks and below that of our conservative Midwestern peers.
Additionally, our loan charge-offs are also typically lower than
the industry average and the conservative Midwestern portion
of the country.

Our third objective is growth. Of course, one of our growth
businesses is Comerica’s core competency, commercial lend-
ing—both generating and underwriting commercial loans.
Our commercial loan growth has outpaced our peers and, as
a result, we are again ranked first among the top 15 commer-
cial lenders in commercial loans as a percent of assets. Over
the last 10 years, commercial loan growth has averaged
an impressive 12 percent and has fluctuated very modestly
around that average. We rank 15th in commercial lending and
17th in small business lending, another very successful and
growing market for us.

Our strategy of tapping into high growth metropolitan markets
where we can practice our brand of banking fuels our
growth, while at the same time helping us even out potential
geographic and industry-specific fluctuations. As a result
of this strategy, we have seen an increasing proportion of
our assets come from non-Michigan markets. This is a trend
we expect will continue.

Comerica Incorporated

Expenses for the first
year totaled $355.36
and included: a stove
costing $8; wood worth
$1.50; advertising
for $10; and printing
costing $9.25.

As Detroit became a center for industry,
Detroit Savings Fund Institute ledgers recorded
a growth in deposits. Growth, along with
profitability and quality, are important objectives
of Comerica as it enters 1999, the year of its
150th anniversary.

We also have demonstrated our ability to gather consumer
assets, particularly in Michigan, where we continue to have a
dominant market share.

As industry consolidation occurs, we monitor the landscape
closely. We believe performance and execution will lead
to opportunities down the road. However, we also believe
that big is not always best for the customer, nor for the
shareholder. If Comerica is going to stand out, it will be
because of performance, not size.

The results of our focus on consistent top 10 performance
have not gone unnoticed by Wall Street. Our stock price has
climbed the last several years, rising 13 percent in 1998 after
increasing 72 percent in 1997. Including reinvestment of divi-
dends, $100 invested in Comerica at the end of 1993 would
have returned $452 at the end of 1998, significantly more than
a similar investment in the Keefe 50-Bank Index, which would
have returned $340, and the S&P 500 Index, which would
have returned $294.

We return excess capital to our shareholders after supporting
balance sheet growth. Our dividend policy has resulted in
increased annual dividends for 30 consecutive years, 10 per-
cent annual growth and payouts of 34 to 42 percent of our
profits. In January 1998, we raised the quarterly cash dividend
for common stock by 12 percent to $0.32 per share, reflective
of the three-for-two stock split announced that same month.
In January 1999, we increased the quarterly cash dividend for
common stock by 13 percent, to $0.36 per share.

Comparison of five year cumulative total
return among Comerica Incorporated,
Keefe 50-Bank Index and S&P 500 Index

(assumes $100 invested on 12/31/93 and
reinvestment of dividends)

Comerica
Keefe 50-Bank Index
S&P 500

$500

$400

$300

$200

$100

93 94

97 98

Comerica Incorporated

Within two years,
deposits from 320
thrifty souls totaled
$25,000, enough
to warrant purchase
of a new safe for
$125.

The Institute performed so well it had to move
to larger quarters and hire a full-time cashier
in 1855. Today, Comerica’s focus on consistent
top 10 performance places it among the premier
banking companies in the nation.

As we celebrate our 150th anniversary in 1999 and contem-
plate our future, I am certain of two things: There will
continue to be challenges, and we will continue to meet those
challenges with the same determination to succeed and
dedication to customer service held by the original trustees
who laid the foundation of Comerica so long ago.

Some of the challenges are familiar ones, like widespread
consolidation and competition, that have become defining
characteristics of our industry. Other challenges surfaced
more recently, like the tumultuous economic conditions in
Asia and our own unsettled political and economic arenas.
Comerica remains well positioned to weather any changes in
the economic climate, as we have consistently in the past.
This year, the year 2000 challenge is a top priority. We are
devoting substantial human and capital resources to implement
our program. We will be ready to conduct business in the
year 2000 and beyond.

As we face these challenges, we intend to continue to keep our
promises—to you, our shareholders, as well as to our cus-
tomers, colleagues and communities we serve. While much
has changed in 150 years, the nature of Comerica and how we
conduct ourselves have not changed.

Two months after the Detroit Savings Fund Institute first
opened, the Detroit Free Press noted that few knew about the
Institute and “it will doubtless require two to three years time
for this bank to grow...but the officers are confident that it will
continue to increase in importance and usefulness....”

Clearly, Comerica has grown to become a top performer in the
financial services industry. We welcome the arrival of the year
2000, the new millennium and the next 150 years.

Eugene A. Miller
Chairman and Chief Executive Officer

Only in 1871, when
the Institute became
Detroit Savings Bank,
were the first shares
issued.

Comerica Incorporated

For 150 years, Comerica has made promises—
to hold and grow deposits, to deliver a consistent
return to shareholders, to help customers and
colleagues succeed, to improve the community.
Delivery on these promises is the cornerstone
upon which Comerica’s reputation was built.
Trust is the result, and today Comerica thrives.

hile we continue to develop products and services incon-
ceivable 150 years ago, our purpose today remains the
same as it was in 1849: We are in business to help people be
successful.

For example, to provide a wide range of corporate banking
and trade finance services to middle market and large corpora-
tions doing business in Canada, we opened a new commercial
banking subsidiary, Comerica Bank-Canada, in Toronto,
Ontario. Together with Comerica Bank-Mexico, which we
opened in 1997 in Mexico City and expanded to Monterrey in
1998, we have created an integrated North American distribu-
tion system for our corporate customers.

We continued to expand our service offerings nationally with
the opening of a U.S. Small Business Administration (SBA)
lending office in Fort Lauderdale, Florida, and a high technol-
ogy banking office in Austin, Texas.

Comerica is the 8th largest SBA lender in the nation. Our
goal is to be in the top five by the year 2000. We plan to enter
at least five additional markets with our SBA lending business
in the next two years, as well as increase penetration in our
existing markets of California, Michigan, Texas and Florida.

The technology sector in Texas has experienced rapid growth
in recent years and the presence of experienced bankers
able to meet the financial needs of established and start-up
technology companies has been limited—until now. Comerica
is providing a full range of services through its new office
in Austin, as well as from California’s Silicon Valley.

Among our new products for business customers are Comerica
Export Manager, a Windows®-based software package that
automates the export documentation process; and the
MasterCard® Fleet Card, designed for companies that maintain
fleet and service vehicles.

Comerica significantly enhanced its relationship with a
Fortune 100 client in 1998 by adding sophisticated spread-
sheet functionality to Comerica Gateway, making it the
primary information management system for that customer’s
bank group.

We practice relationship banking to the fullest, and our busi-
ness model is about skill, not scale. We train our officers
well, give them the tools they need to manage their responsi-
bilities, and strive to maintain continuity in their relationships
with customers. As we pursue companies of all sizes, we
look for those businesses that appreciate the personal attention
and capital access that we offer.

Comerica Incorporated

By the end of April
1933, commercial
deposits had more
than doubled, from
$10 million to $22
million, a sign that the
business community
had faith in the bank.

By the early 1950s, 20-pocket proof machines
were used to sort and balance checks. Today,
Comerica is among the industry leaders in the use
of imaging technology. Comerica’s computerized
imaging system processes hundreds of millions
of checks each year.

o help our individual and investment banking customers
be successful, we strive to offer the products they desire at
the prices they are willing to pay, through the distribution
channel most convenient for them.

Our new Comerica Home ATM personal computer banking
program transfers the universal experience of using an
automated teller machine (ATM) to the consumer’s personal
computer.

We expect home banking to parallel the exponential growth
of personal computer usage nationwide. A leading internet
technology analyst has predicted that in two years, 13 million
U.S. households will be banking online—five times as many
people as in 1996. We created Comerica Home ATM for this
emerging market—a broader segment of customers who want
their banking at home to be simple and convenient.

We added our 37th ComeriMART supermarket branch in
1998. ComeriMARTs offer customers products and services
available at other Comerica Bank branches, plus the conven-
ience of banking while shopping.

Comerica expanded its strategic alliance with PaineWebber
to 41 states with new offices in Cleveland, Ohio, and
Memphis, Tennessee. PaineWebber clients in these markets
now have access to trust, estate administration, real estate,
portfolio management and closely held business services from
the Private Banking Division of Comerica Bank.

Comerica Securities, our full-service broker-dealer, introduced
in July another way for customers to access its products
and services. Customers can now locate their discount broker-
age accounts, obtain quotes, and perform trades of stocks
and bonds through a link in Comerica’s web site. This service
joins Comerica Securities’ other computer-based service,
PC Trader, and its telephone-based TouchTone service.

We have a very strong retail presence in our home state of
Michigan. In 1998, we added the convenience of even more
ATMs throughout our headquarters state. In the largest agree-
ment of its kind between a Michigan bank and a local drug
retailer, Comerica announced it will open ATMs in 250 Arbor
stores in Michigan, including 22 in the city of Detroit.

The Arbor agreement further enhances Comerica’s ATM
network, which continues to be the largest in Michigan, with
some 720 machines currently, and the 20th largest in the
nation.

Comerica Incorporated

In 1972, Detroit Bank
& Trust installed metro
Detroit’s first fully
automated ATM, which
allowed customers
to make deposits, pay
bills and transfer funds
between accounts.

Drive-in teller windows helped make banking
more convenient for customers. Today, Comerica
customers can conduct business with us 24 hours
a day, seven days a week, through a choice of
distribution channels.

ow the landscape has changed here in our hometown
of Detroit these past 150 years! We are very proud of the

promise we have kept to Detroit—and to all of the commu-
nities in which we operate—to be an outstanding corporate
citizen, contributing to the quality of life in each.

Comerica has been an active participant in Detroit’s growth,
from an office near historic Mariners’ Church 150 years
ago, to our headquarters building today—Comerica Tower at
Detroit Center. Through our involvement in the neighbor-
hoods and status as lead lender in the federally designated
Empowerment Zone, Comerica is touching lives and busi-
nesses, building success.

At the end of 1998 and on the eve of our 150th anniversary,
we announced our decision to purchase the naming rights of
the new ballpark in downtown Detroit. By calling it Comerica
Park, we link Michigan’s oldest and largest bank with
the hallowed traditions of baseball and the Detroit Tigers.

The national exposure the new park will receive will be a
great source of pride for the ball club, the city of Detroit,
our colleagues throughout Comerica and fans of the Tigers
everywhere.

In California, as a legacy to the community in honor of our
150th anniversary, Comerica Bank-California is spearheading
The Mayfair Initiative, a major revitalization effort to trans-
form the Mayfair neighborhood of East San Jose into a safe,
supportive and productive community.

Based on the belief that residents must play an active role in
shaping the future of the neighborhood in order to sustain pos-
itive neighborhood change, the Mayfair Initiative draws on
community strengths and involves the residents themselves in
the planning, development and implementation of the initiative.

Among the many ways Comerica Bank-Texas colleagues
support local communities is through the Comerica CoStars
program. In 1998, Comerica CoStars volunteered hundreds
of hours to worthwhile community projects.

Our commitment in Texas to helping people be successful is
further evidenced by our partnerships with chambers of
commerce. We also provide support and leadership in the
community through organizations such as the YMCA, Junior
Achievement, Big Brothers and Big Sisters, the Juvenile
Diabetes Foundation, the American Heart Association, and
the Leukemia Society.

Charitable giving is focused on the communities where we
do business. Through the Comerica Charitable Foundation,
we provided more than 700 grants to non-profit organizations
in 1998.

Comerica Incorporated

Started in 1978 and
now reaching 11,000
students in three states,
Comerica’s Youth Incen-
tive Savings Program
teaches school children
how to save and how
to apply math in every-
day life.

In 1957, “opening day” at a new branch
included cigar giveaways. With the naming of
Comerica Park, opening day takes on a different
meaning for employees, customers and all
followers of America’s favorite pastime.
Comerica Park, new home of the Detroit Tigers,
is being readied for opening day in the year
2000.

learly we owe our continuing success to our dedicated
and talented colleagues whose guiding principles are:

C
. customer service
. teamwork
. flexibility and adaptability to change
. trust and integrity
. ownership
. learning and personal growth

They strive for the highest measure of quality in all that they
do.

In recognition of their high standards of customer service,
10 colleagues received Comerica’s National Quality
Excellence Award in 1998. These individuals were nominated
by their peers and their customers because they epitomize
the very best in quality customer service. The overall winner
was Joseph Davio, president of the Battle Creek Region in
Michigan. Other winners were:

Barbara Campbell
Branch Delivery Systems
& Projects
Comerica Bank (Michigan)

Colleen Green
Client Production Services
Comerica Incorporated

Janet Haskin
Deposit Services
Comerica Bank (Michigan) Comerica Incorporated

Karen Holway
Information Services

Michael Lawson
Branch Delivery Systems
& Projects
Comerica Bank (Michigan)

Clarence Oliver
Michigan Real Estate
Comerica Bank (Michigan)

Rick Pellecchia
Consumer Lending
Comerica Bank (Michigan) Comerica Bank-Texas

Cathy Watson
Texas Energy Department

Mary Jo Weiss
Direct Banking
Comerica Bank (Michigan)

Approximately 900 colleagues are celebrating 25 or more
years of service with Comerica in 1999. Years ago, employees
marking important service anniversaries received watches,
traditional symbols of lengthy service. Today, colleagues with
notable service anniversaries receive shares of Comerica
stock. It is a reflection of the new Comerica and its investment
in colleagues and the future.

We make it work.

Comerica Incorporated

On June 18, 1992,
employees of the new
Comerica celebrated
the merger of
Manufacturers National
Corporation and
Comerica Incorporated.

In 1901, the Michigan banking commissioner
commended Detroit Savings Bank on its perform-
ance, indicating credit is due “to those who
have charge of the daily detailed work...which
has been found...to be thoroughly accurate and
exceptionally correct.” Today, Comerica remains
committed to delivering the highest quality
customer service.

Howard F. Sims
Chairman
Sims-Varner & Associates

Martin D. Walker
Chairman and
Chief Executive Officer
M.A. Hanna Company

Patricia M. Wallington
Retired Vice President and
Chief Information Officer
Xerox Corporation

Kenneth L. Way
Chairman and
Chief Executive Officer
Lear Corporation

In memoriam

Patricia Shontz Longe,
who retired from the
Comerica Incorporated
Board of Directors in
March 1998, passed away
in August. Her 25 years
of service and dedication
to this company always
will be remembered.

Charles L. Gummer
President and
Chief Executive Officer
Comerica Bank-Texas

John R. Haggerty
Executive Vice President
Small Business
and Individual Lending

Thomas R. Johnson
Executive Vice President
Corporate Credit Policy

George W. Madison
Executive Vice President,
General Counsel and
Corporate Secretary

Ronald P. Marcinelli
Executive Vice President
National Business Finance

David B. Stephens
Executive Vice President
Private Banking

Marvin J. Elenbaas
Senior Vice President
and Controller

James R. Tietjen
Senior Vice President
and General Auditor

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 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

Comerica Incorporated
Board of Directors

E. Paul Casey
Chairman
Metapoint Partners

James F. Cordes
Retired Executive
Vice President
The Coastal Corporation

J. Philip DiNapoli
President
JP DiNapoli Companies

Max M. Fisher
Investor

John D. Lewis
Vice Chairman
Comerica Incorporated
and Comerica Bank

Wayne B. Lyon
Chairman, President and
Chief Executive Officer
Lifestyle Furnishings
International, Inc.

Eugene A. Miller
Chairman and
Chief Executive Officer
Comerica Incorporated
and Comerica Bank

Michael T. Monahan
President
Comerica Incorporated
and Comerica Bank

Alfred A. Piergallini
President and
Chief Executive Officer
Novartis Consumer
Health North America

Comerica Incorporated

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

Comerica Bank-California
Directors

Theodore J. Biagini
Counsel
Hopkins & Carley

Jack C. Carsten
Principal
Technology Investments

Leo E. Chavez
Chancellor
Foothill-DeAnza
Community College
District

J. Philip DiNapoli
President
JP DiNapoli Companies

N. John Douglas
President and
Chief Executive Officer
Information Network
Radio, L.L.P.

J. Michael Fulton
President and
Chief Executive Officer
Comerica Bank-California

Walter T. Kaczmarek
Executive Vice President
Comerica Bank-California

Elinor Weiss Mansfield
Attorney

Linda R. Meier
Board Member
California Water
Service Company
Peninsula Community
Foundation
Haas Public Service

Lowell W. Morse
Chairman of the Board
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-Texas
Directors

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 and
Chief Executive Officer
Lockton Dunning Benefit
Company

Ruben E. Esquivel
Vice President
Community and
Corporate Relations
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
Houston Advisory Board
Comerica Bank-Texas

W. Thomas McQuaid
President
Performance Properties
Corporation

Raymond D. Nasher
Chairman
Comerica Bank-Texas;
Chairman
The Nasher Company

Calvin E. Person
Owner
Calvin Person
and Associates

Boone Powell Jr.
President and
Chief Executive Officer
Baylor University
Medical Center

Thomas J. Tierney
Chairman
Corporate Communications
Center, Inc.

Comerica Incorporated

Comerica Bank
Directors

Lillian Bauder, Ph.D.
Vice President
Corporate Affairs
Masco Corp.

Peter D. Cummings
President
Peter D. Cummings &
Associates

Anthony F. Earley, Jr.
Chairman and
Chief Executive Officer
DTE Energy Company

Roger Fridholm
President
MSX International

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.

Commercial Banking
Subsidiaries of Comerica

Comerica Bank
Comerica Tower at
Detroit Center, MC 3391
500 Woodward Avenue
Detroit, Michigan 48226

(313) 222-4000
(248) 371-5000

Eugene A. Miller
Chairman and
Chief Executive Officer

Headquartered in Detroit
with offices in metropolitan
Detroit, Ann Arbor,
Battle Creek,
Grand Rapids, Jackson,
Kalamazoo, Lansing,
Midland and Muskegon.
Florida region specializes
in private banking services,
with offices in Boca Raton,
Fort Lauderdale,
Palm Beach Gardens,
Naples, Sarasota and
Tampa.

Comerica Bank-
California
333 W. Santa Clara Street
MC 4805
San Jose, California 95113

(408) 556-5000

J. Michael Fulton
President and
Chief Executive Officer

Headquartered in San Jose
with offices in Bay Area
(San Jose to San
Francisco), Santa Cruz
Coastal, Los Angeles
(Los Angeles and Orange
Counties) and San Diego.

Comerica Bank-Texas
1601 Elm Street, MC 6507
Dallas, Texas 75201

(214) 589-1400

Charles L. Gummer
President and
Chief Executive Officer

Headquartered in Dallas
with offices in metropolitan
Austin, Dallas, Fort Worth
and Houston.

Comerica Bank-Canada
Suite 2210 South Tower
Royal Bank Plaza
200 Bay Street
P.O. Box 61
Toronto, Ontario M5J2J2

(416) 367-3113

Philip H. Buxton
Managing Director

Headquartered in Toronto,
Comerica Bank-Canada
provides a wide range of
corporate banking and
trade services in Canada.

Comerica Bank
Mexico, S.A.
Edificio Forum
Andres Bello No. 10
Piso 17
Col. Chapultepec Polanco
Mexico, D.F. 11560

(011) 525-282-2055

Claude H. Miller
Managing Director

Headquartered in Mexico
City, with an additional
office in Monterrey,
Comerica Bank Mexico,
S.A. provides a wide range
of corporate banking
and trade finance services
to middle market and large
corporate companies.

Other Comerica
Components

Comerica Investment
Services (continued)

Wilson, Kemp &
Associates, Inc.
Offers individualized
investment 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 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

National Dealer Services
Chicago
Denver

Personal Trust
New York City
Memphis

PaineWebber alliance
Dedicated offices in
New York City
Memphis
Cleveland

U.S. Banking
Chicago

Comerica Bank, N.A.
Specializes in revolving
credit loans; also supports
PaineWebber alliance.

Comerica West
Incorporated
U.S. Banking-West Group
originates mid-sized loans
to business customers
with specific emphasis on
the Western United States.

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
captive insurance
companies and offshore
mutual funds.

Comerica Investment
Services

Comerica
Securities, Inc.
A full service broker-
dealer that offers
stocks, bonds, mutual
funds and annuities to
individual investors,
along with investment
banking 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 independent
insurance agents.

Comerica Incorporated

In the beginning, the bank’s footprint was
squarely in Detroit. Today, Comerica’s map is
like a patchwork quilt—Michigan, California,
Texas and Florida are the main sections with
other areas stitched in. Comerica prefers to
target markets where conditions are favorable
to successfully practice its kind of banking.

Financial Review
and Reports

1998 Financial
Highlights

Earnings Performance 24

Strategic Lines 30
of Business

Balance Sheet 31
and Capital Funds
Analysis

Risk Management 34

Consolidated 43
Financial Statements

Notes to 47
Consolidated
Financial Statements

Report of Management 68

Report of 68
Independent Auditors

Historical Review 69

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 credit 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

1998

1997

1996

1995

1994

$ 2,617
1,461
113
6

$ 2,648
1,443
146
5

$02,563
1,412
114
14

$02,614
1,300
87
12

$02,092
1,230
56
3

597
(7)

1,027
607

$ 3.79
3.72
1.28
17.94
68.19

$ 36,601
33,427
30,605
24,313
8,862
5,282
2,797

$ 34,987
32,113
28,599
22,253
9,452
6,032
2,617

523
—

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

Return on average assets
Return on average common shareholders’ equity
Efficiency ratio
Dividend payout ratio
Common shareholders’ equity as
a percent of average assets

1.74%
22.54
49.39
34

1.52%
21.32
51.04
36

1.22%
15.98
60.36
42

1.21%
16.46
60.09
38

1.23%
16.74
61.28
38

7.48

6.91

7.47

7.36

7.35

Comerica Incorporated

1998 Financial Highlights

Focused on Performance

Return on Average Assets
(in percentages)

Earned 22.54 percent on average common shareholders’
equity, compared to 21.32 percent in 1997.

Returned 1.74 percent on average assets, compared to
1.52 percent in 1997.

Reported Record Earnings

Reported net income of $607 million, or $3.72 per share,
compared with $530 million, or $3.19 per share in 1997.

Sustained Growth

Averaged $35 billion in total assets in both 1998 and 1997
(increased 6 percent excluding the sale of $2.0 billion of
consumer assets).

Reached $25 billion in average business loans,
a 17 percent increase.

Averaged $22 billion in total deposits in both 1998 and
1997.

Increased average shareholders’ equity to $2.9 billion.

Enhanced Shareholders’ Return

Raised the quarterly cash dividend 12 percent to $0.32 per
share.

Declared annual cash dividends of $1.28 per share.

Repurchased 2.3 million shares in 1998.

Implemented Key Strategies

Divested the mortgage servicing business and $2.0 billion
of indirect consumer loans and non-relationship credit
card receivables and recorded an $11 million pre-tax gain.

Invested technology in targeted strategic businesses.

Upgraded and/or remediated most major systems as part
of a plan to achieve year 2000 readiness.

Opened a Canadian commercial banking subsidiary,
Comerica Bank-Canada.

Comerica
Excluding restructuring charge
Industry average
(based on 50 largest U.S.
bank holding companies)

2.50

2.00

1.50

1.00

0.50

0.0

94 95

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 lia-
bilities. Adjustments are made to the yields on tax-exempt
assets in order to present tax-exempt income and fully tax-
able income on a comparable basis. Net interest income
(FTE) comprised 71 percent of net revenues in 1998, com-
pared to 73 percent in 1997 and 74 percent in 1996. The sale
of $2.0 billion of indirect consumer loans and non-relation-
ship credit card receivables in the second quarter affected
net interest income and the net interest margin for 1998.

Net interest income (FTE)
(in millions)
Net interest margin (FTE)
(percent of earning assets)

Net Interest Income

1600 5.2

1400 5.0

1200 4.8

1000 4.6

800

4.4

600

4.2

400

4.0

200

3.8

94 95 96 97 98 3.6

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

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 credit 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

16,102

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

Total liabilities and

2,510
910
6,032
—

25,554
6,151
415
250
2,617

1998

1997

1996

Average
Balance Interest

Average
Rate

Average
Balance Interest

Average
Rate

Average
Balance Interest

Average
Rate

$16,973 $1,365
187
91
334
102
263
44

2,342
989
3,819
1,325
2,575
576

28,599
3,232

2,386
217

139

3,371
143

32,113
1,622
(440)
1,692

$34,987

$ 7,346
1,584
6,521
651

229
9

2,624

231
28
345
44

648

137
49
368
(46)

1,156

8.04% $14,234 $1,174
138
1,953
7.97
81
866
9.24
322
3,547
8.74
133
1,676
7.69
440
4,486
10.20
33
447
7.65

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

8.34
6.72

9.16

6.81
6.25

8.17

3.15
1.79
5.29
6.71

4.02

5.44
5.40
6.10
—

4.52

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

2,321
309

327
9

2,657

232
34
361
46

673

111
98
374
(51)

1,205

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

25,352
5,528

2,166
371

399
13

2,578

231
44
365
46

686

112
107
295
(49)

1,151

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

8.21%
6.64
9.22
9.29
7.83
9.88
6.82

8.54
6.63

9.96

6.79
6.23

8.20

3.33
2.18
5.30
5.46

4.11

5.31
5.36
6.22
—

4.51

shareholders’ equity

$34,987

$34,869

$34,195

Net interest income/rate spread (FTE)

$1,468

3.65

$1,452

3.64

$1,427

3.69

FTE adjustment (4)

$0,019

$1,415

Impact of net noninterest-bearing

sources of funds

Net interest margin (as a percent of
average earning assets) (FTE)

0.92

4.57%

0.89

4.53%

0.85

4.54%

(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 pri-
marily in excess of $100,000.

(3) Net interest rate swap income. If swap income were allocated, average
rates on total loans would have been 8.40% in 1998, 8.63% in 1997 and
8.66% in 1996; average rates on medium- and long-term debt would have
been 5.77% in 1998, 5.85% in 1997 and 5.80% in 1996.
(4) The FTE adjustment is computed using a federal income tax rate of 35%.

Comerica Incorporated

Net
Increase
(Decrease)

$133
36
16
(2)
(20)
(17)
9

155

(62)

(10)

(72)

(4)

10
(10)
(4)
—

(13)

(1)
(9)
79
(2)

$128
29
15
5
(22)
(14)
7

148

(72)

(9)

(81)

(5)

—
(7)
(10)
(2)

(19)

(5)
(11)
77
—

$020

$025

Table 3: Rate-Volume Analysis–Fully Taxable Equivalent

1998 / 1997

1997 / 1996

(in millions)

Increase
(Decrease)

Increase
(Decrease)
Due to Rate Due to Volume*

Net
Increase

Increase
(Decrease)
(Decrease) Due to Rate Due to Volume*

Increase
(Decrease)

Interest income (FTE)
Commercial loans
International loans
Real estate construction loans
Commercial mortgage loans
Residential mortgage loans
Consumer loans
Lease ﬁnancing

Total loans

Taxable securities
Securities exempt from
federal income taxes

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)

$(29)
17
(1)
(12)
(4)
18
1

(10)

(7)

(1)

(8)

—

(18)

(14)
(4)
(6)
8

(16)

(1)
(1)
(9)
5

(22)

$ 4

*Rate/volume variances are allocated to variances due to volume.

(1) Net interest rate swap income.

$220
32
11
24
(27)
(195)
10

(85)

(5)

(90)

—

(15)

13
(2)
(10)
(10)

(9)

27
(48)
3
—

(27)

$191
49
10
12
(31)
(177)
11

(92)

(6 )

(98)

—

(33)

(1)
(6)
(16)
(2)

(25)

26
(49)
(6)
5

(49)

$ 12

$ 16

$ 5
7
1
(7)
2
(3)
2

(1)

1
(3)
6
2

4
2
2
(2)

$05

Comerica Incorporated

Net interest income (FTE) rose 1 percent to $1,468 million
in 1998. This increase was primarily due to a 5 percent
increase in average total loans. A significant increase of 19
percent in average commercial loans was offset by the con-
sumer loan divestitures cited previously and sales and runoff
of investment securities.

The net interest margin for 1998 increased slightly to 4.57
percent from 4.53 percent last year. The increase in the net
interest margin was primarily due to an increase in the level
of noninterest-bearing sources of funds, the consumer loan
divestitures and a reduced emphasis on investment securities
in the mix of earning assets.

Comerica (the “Corporation”) applied various asset and
liability management strategies in 1998 to minimize
exposure to net interest margin risk. Net interest margin risk
represents the potential reduction in net interest income that
may result from rate spread compression between, for
example, prime and market rates or core deposit and money
market rates. Such strategies included permitting investment
securities to run off in order to facilitate growth in higher
yielding loans. Off-balance sheet interest rate swap contracts
entered into in 1998 effectively fixed the yields on certain
variable rate loans and altered the interest rate characteristics
of debt issued throughout the year. Refer to the Interest Rate
Risk discussion on page 36 of this financial review for addi-
tional information regarding the Corporation’s asset and lia-
bility management policies.

In 1997, net interest income (FTE) increased 2 percent over
1996, benefiting from strong growth in average earning
assets, primarily commercial loans. The net interest margin
for 1997 declined 1 basis point from 1996, principally due
to higher funding costs from 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.

Provision and Allowance for Credit Losses

The provision for credit losses reflects management’s evalu-
ation of the adequacy of the allowance for credit losses. The
allowance for credit losses represents management’s assess-
ment of possible losses inherent in the Corporation’s on- and
off-balance sheet credit portfolio. The amount attributable to
the off-balance sheet credit portfolio is not material. The
Corporation allocates the allowance for credit losses to each
loan category based on a defined methodology, which has
been in use, without material change, for several years. First,
an internal risk rating is assigned to each commercial loan.
Included in that risk rating is management’s assessment of
the potential failure of a customer to be adequately prepared
for the year 2000, but only in those instances where manage-
ment has significant information indicating a customer may
not be adequately prepared (for more information on year
2000, see the section entitled “Other Matters”). Management
then assigns a projected loss ratio to each risk rating based
on numerous factors identified below. A detailed credit qual-
ity review is performed quarterly on certain commercial

loans which have deteriorated below certain levels of credit
risk, resulting in an additional allocation of a specific por-
tion of the allowance to such loans. The portion of the
allowance allocated to consumer loans is determined by
applying projected loss ratios to various segments of the
loan portfolio. 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 character-
istics of various categories and concentrations of loans and
transfer risks. However, actual loss ratios experienced in the
future could vary from those projected. This uncertainty
occurs because a loan’s performance depends not only on
economic factors but also other factors unique to each cus-
tomer. In addition, the significant diversity in size of corpo-
rate loans means that even if the projected number of loans
deteriorate, the dollar exposure could significantly vary
from estimated amounts. Furthermore, for many economic
events which have occurred, the impact on individual cus-
tomers may be, as yet, unknown. Such events include, for
example, the impact of the Asian economic problems both
on assets in that region as well as domestic companies
exporting to that region or doing business through sub-
sidiaries in that region; depressed oil prices in the energy
sector; and high real estate vacancy rates in selected mar-
kets. To ensure adequacy to a higher degree of confidence,
an unallocated allowance is maintained. Management also
considers industry norms and the expectations and input
from rating agencies and banking regulators in determining
the adequacy of the allowance. The allocation of the
allowance for credit losses provided in Table 8 on page 32 is
done for analytical purposes. The total allowance, including
the unallocated amount, is available to absorb losses from
any segment of the portfolio.

The provision for credit losses was $113 million in 1998,
compared to $146 million in 1997 and $114 million in
1996. The decrease in 1998 was primarily due to the con-
sumer loan sale mentioned earlier.

Net Loans Charged Off
to Average Loans
(in percentages)

Comerica
Industry average
(based on 50 largest U.S.
bank holding companies)

1.0

0.8

0.6

0.4

0.2

0.0

94 95

Comerica Incorporated

Table 4: Analysis of the Allowance for Credit Losses

Year Ended December 31
(dollar amounts in millions)

Balance at beginning of period

Allowance of institutions purchased/sold

Loans charged off
Domestic

Commercial
Real estate construction
Commercial mortgage
Residential mortgage
Consumer
Lease financing

International

Total loans charged off

Recoveries

Domestic

Commercial
Real estate construction
Commercial mortgage
Consumer
International

Total recoveries

Net loans charged off

Provision for credit losses

Balance at end of period

Ratio of allowance for credit losses to total loans

at end of period

Ratio of net loans charged off during the period

to average loans outstanding during the period

Total net charge-offs decreased to $85 million in 1998,
compared to $89 million in 1997 and $85 million in 1996.
The ratio of net loans charged off to average total loans was
0.30 percent in 1998 and 0.33 percent in 1997. Commercial
loan net charge-offs as a percentage of average commercial
loans were 0.18 percent for 1998 and 0.10 percent for 1997.
Consumer loan net charge-offs as a percentage of average
consumer loans were 2.03 percent for 1998 and 1.79 percent
for 1997. Consumer loan net charge-offs declined $28 mil-
lion, primarily as a result of the consumer loan divestitures
discussed previously.

At December 31, 1998, the allowance for credit losses was
$452 million, an increase of $28 million since year-end
1997. The allowance as a percentage of total loans increased
to 1.48 percent from 1.47 percent at December 31, 1997.
The allowance as a percentage of total nonperforming assets
decreased to 375 percent at December 31, 1998, from 413
percent at year-end 1997.

Comerica Incorporated

1998

$424

—

1997

$367

—

1996

$341

1995

$326

(3)

1994

$299

49
—
1
—
65
4
7

33
1
4
—
92
—
1

33
1
5
1
86
—
—

33
3
8
2
73
—
—

126

131

126

119

19
—
9
13
—

19
1
10
12
—

18
1
9
13
—

113

146

114

19
3
8
13
—

25
1
17
—
40
—
—

15
—
5
14
1

$452

$424

$367

$341

$326

1.48% 1.47% 1.40% 1.40% 1.47%

0.30% 0.33% 0.33% 0.32% 0.24%

Noninterest Income

Year Ended December 31
(in millions)

Fiduciary and investment management income
Service charges on deposit accounts
Commercial lending fees
Securities gains
Other

Subtotal

Consumer businesses sold
Bond indenture income
Customhouse broker fees
Other significant nonrecurring items

1998

1997

1996

$184
158
43
6
198

589
14
—
—
—

$147
141
32
5
176

501
4
23
—
—

$126
140
23
14
163

466
4
7
11
19

Total noninterest income

$603

$528

$507

Noninterest income increased $75 million, or 14 percent, to
$603 million in 1998, compared to $528 million in 1997 and
$507 million in 1996. Noninterest income and noninterest
expenses in the second half of 1998 include the consolidated
financial results of Munder Capital Management (“Munder”), an
investment advisory subsidiary in which a majority interest was
obtained by the Corporation in July 1998. The Corporation
accounted for its minority interest in periods prior to the third
quarter of 1998 under the equity method. After adjusting for
acquisitions, divestitures, securities gains and the large nonrecur-
ring items discussed below, noninterest income rose $71 million,
or 14 percent, in 1998.

Fiduciary and investment management income increased $37
million, or 25 percent, in 1998 compared to an increase of $21
million, or 16 percent, in 1997 (after excluding bond indenture
income). Excluding the net additional revenues from Munder of
$18 million, the increase of 13 percent in 1998 reflects a signifi-
cant 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 management
increased to $137 billion at December 31, 1998, from $117 bil-
lion at year-end 1997. Discretionary funds, which represent trust
assets over which the Corporation has investment management
authority, increased to $50 billion from $30 billion in 1997. The
consolidation of Munder contributed $14 billion of trust assets.

Service charges on deposit accounts increased $17 million, or 12
percent, in 1998 compared to an increase of $1 million, or 1 per-
cent, in 1997. The majority of the 1998 increase related to revi-
sions of the commercial account fee structure, growth in demand
deposit activity and lower earnings credit allowances.

Commercial lending fees increased $11 million, or 38 percent,
in 1998 compared to an increase of $9 million, or 35 percent, in
1997. Continued strong commercial loan growth contributed to
increases in commercial loan service charges and fees on
unfunded commitments in 1998. Commercial loan syndication
fees increased $6 million in 1998.

Income from securities gains was essentially unchanged from
the prior year, totaling $6 million in 1998 and $5 million in
1997.

Noninterest Income
(in millions)

625

500

375

250

125

94 95

Other noninterest income increased $9 million, or 4 percent,
in 1998. Higher levels of foreign exchange income, broker-
age service fees and automated teller machine surcharges
accounted for the majority of this increase. Excluding the
impact of acquisitions, divestitures and large nonrecurring
items in both periods, other noninterest income increased 13
percent. Significant nonrecurring items in other noninterest
income include an $11 million net gain on the sale of the
mortgage servicing business and consumer loans discussed
previously in 1998, and a $23 million gain on the sale of the
Corporation’s bond indenture services business in 1997. Sig-
nificant 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,
Incorporated.

Noninterest Expenses

Year Ended December 31
(in millions)

Salaries
Employee beneﬁts

Total salaries and

employee beneﬁts

Net occupancy expense
Equipment expense
Outside processing fee expense
Other

Subtotal

Restructuring charge
Other significant nonrecurring items

1998

$ 500
65

1997

1996

$ 464
75

$ 475
86

565

90
60
43
269

1,027
(7)
—

539

89
62
42
271

1,003
—
5

561

99
69
42
280

1,051
90
18

Total noninterest expenses

$1,020

$1,008

$1,159

Noninterest expenses increased 1 percent to $1,020 million
in 1998, compared to $1,008 million in 1997 and $1,159
million ($1,069 million, excluding the restructuring charge)
in 1996. Excluding the effect of acquisitions, divestitures
and the large nonrecurring items discussed below, noninter-
est expenses increased $25 million, or 3 percent, in 1998.

Total salaries expense increased $36 million, or 8 percent,
in 1998 versus a decrease of $11 million, or 2 percent, in
1997. The increase in 1998 was primarily from the consoli-
dation of Munder, annual merit increases and increased
incentives tied to performance. The number of full-time
equivalent employees increased 174, or 2 percent, from
year-end 1997, primarily due to Munder.

Employee benefits expense decreased $10 million, or 13 per-
cent, in 1998 versus a decrease of $11 million, or 12 percent,
in 1997. The reduction in 1998 was primarily due to reduced
pension expense as a result of benefits from reduced staff lev-
els related to the Direction 2000 program and the consumer
loan and mortgage servicing divestitures mentioned earlier, as
well as higher levels of benefits from company-owned life
insurance policies. Excluding the effect of acquisitions and
divestitures, salaries and benefits increased 4 percent in 1998.

Comerica Incorporated

Net occupancy and equipment expenses, on a combined basis,
decreased $1 million, or 1 percent, in 1998 versus a decrease of
$17 million, or 10 percent, in 1997. After adjusting for acquisi-
tions and divestitures, net occupancy and equipment expenses
declined 2 percent in 1998.

Outside processing fees were essentially unchanged from the
prior year, totaling $43 million in 1998 and $42 million in
1997.

Other noninterest expenses decreased $7 million in 1998, com-
pared to a $22 million decrease in 1997. Other noninterest
expenses included $5 million of litigation accruals in 1997 and
a loss of $18 million in 1996 on the sale of a portion of the
bankcard portfolio. Loss-sharing provisions in that bankcard
sales agreement expose the Corporation to maximum addition-
al losses of $14 million over the last six months of the agree-
ment. Management does not expect to incur significant
additional losses as a result of these provisions. Excluding
acquisitions, divestitures and the large nonrecurring items
described above, other noninterest expenses increased $4 mil-
lion, or less than 2 percent. The minimal increase reflects man-
agement’s continued efforts to control expenses.

The Corporation recorded a pre-tax restructuring charge of $90
million in 1996 in connection with a major program (Direction
2000) to improve efficiency, revenue and customer service. The
charge included $48 million for termination benefits, $21 mil-
lion for occupancy and equipment write-offs and $21 million
for other costs. Estimated annual benefits of $110 million (cost
savings of $85 million and revenue enhancements of $25 mil-
lion) were anticipated from the program. The Corporation com-
pleted implementation during the first quarter of 1998. Full
annual realization of the estimated benefits of the plan will not
occur until 1999. As a result of the program, the Corporation
eliminated 1,890 employee positions, about 15 percent of total
positions at year-end 1996. Reinvestment opportunities during
the implementation phase created 300 new positions. During
1998, the Corporation incurred $22 million of termination ben-
efits, occupancy and equipment write-offs and other costs
which it charged against the restructuring reserve, compared to
$61 million in 1997. A reduction of $7 million, netted against
other noninterest expenses, was made to eliminate the restruc-
turing liability in 1998. Additional information regarding the

Noninterest Expenses
(in millions)

Restructuring charge

1200

1000

800

600

400

200

94 95

Comerica Incorporated

Corporation’s restructuring reserve can be found in Note 15 on
page 56.

The Corporation’s efficiency ratio is defined as total noninterest
expenses divided by the sum of net interest revenue (FTE) and
noninterest income, excluding securities gains. The ratio was
49.39 percent in 1998, compared to 51.04 percent in 1997 and
60.36 percent in 1996 (55.67 percent excluding the restructur-
ing charge).

Income Taxes

The provision for income taxes was $324 million in 1998, com-
pared to $287 million in 1997 and $229 million in 1996. The
effective tax rate, computed by dividing the provision for
income taxes by income before taxes, was 34.8 percent in 1998,
35.0 percent 1997 and 35.4 percent in 1996.

Strategic Lines of Business

The Corporation has strategically aligned its operations into
three major lines of business: the Business Bank, the Individ-
ual Bank and the Investment Bank. In addition to the three
major lines of business the Finance Division is also reported as
a segment. The Corporation’s investment securities portfolio is
included in the total assets of the Finance Division. Note 22 on
page 63 describes how these segments were identified and pre-
sents the financial results of these business lines for the years
ended December 31, 1998, 1997 and 1996.

Business Bank net income increased $11 million, or 3 percent,
in 1998, principally due to additional net interest income result-
ing from 18 percent average loan growth and a $26 million
increase in noninterest income. This was partially offset by a
higher provision for credit losses resulting from loan growth.

Individual Bank net income increased $42 million, or 19 per-
cent, in 1998. Financial results for the Individual Bank for 1998
were affected by the sale of the mortgage servicing business
and the sale of $2.0 billion of consumer assets. Net interest
income declined $75 million, or 10 percent, from 1997, while
the provision for credit losses decreased $96 million, reflecting
the results of the sale. Noninterest income in 1998 includes an
$11 million net gain related to the sale. Noninterest income in
1996 includes a $13 million gain on the sale of the merchant
services business.

Net income for the Investment Bank increased $1 million in
1998, principally due to higher levels of institutional trust fees,
discount brokerage fees and the consolidation of Munder.

Net income for Finance increased $7 million in 1998, primarily
due to a $6 million increase in net interest income. This
increase was due to the favorable impact of managing the Cor-
poration’s exposure to interest rate risk. This increase in swap
income was partially offset by a reduction in interest income
due to investment security runoff.

Net loss for Other decreased $16 million in 1998, primarily due
to a decline in the allowance for credit losses not assigned to
specific business lines. An adjustment of $7 million, netted
against noninterest expenses, was made to eliminate the restruc-
turing liability in 1998. Included in noninterest income for 1997
is 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 in connection
with Direction 2000.

Table 5: 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

1998

1997

1996

1995

1994

$12,206
115
391

$13,239
170
597

$13,968
228
604

$16,038
371
450

$12,674
—
232

Total investment securities available for sale

2,712

4,006

4,800

6,859

2,906

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

Total investment securities

$12,712

$14,006

$14,800

$16,859

$17,876

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

$19,086

$15,805

$13,520

$12,041

$10,634

12
433
2,268

2,713

1,080
4,179
1,038
1,862
647

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

$30,605

$28,895

$26,207

$24,442

$22,209

Balance Sheet and Capital Funds Analysis

Total assets were $36.6 billion at year-end 1998, represent-
ing a $0.3 billion increase from $36.3 billion on December
31, 1997. On an average basis, total assets remained rela-
tively flat, with $35.0 billion in 1998, compared to $34.9
billion in 1997.

Earning Assets

Total earning assets were $33.4 billion at year-end 1998, rep-
resenting a $0.3 billion increase from $33.1 billion at
December 31, 1997. On an average basis, total earning assets
were $32.1 billion in 1998, compared to $32.0 billion in
1997. The average balance of commercial and commercial
mortgage loans increased $3.0 billion, or 17 percent, from
1997. Real estate construction loans rose an average $123
million, or 14 percent in 1998. 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 5 percent in commercial
loan commitments to extend credit, is attributable to effective
marketing efforts, strong customer relationships and contin-
ued economic strength in the commercial loan markets.

Average international loans increased $389 million,
consisting largely of loans originated to facilitate trade with
limited cross-border risk. This growth reflects the increasing
global activity of the Corporation’s traditional customer base
and an increased international presence. The Corporation
undertakes risk management practices to minimize risk
inherent in international lending arrangements. These prac-
tices include structuring bilateral arrangements or participat-
ing in bank facilities which secure repayment from sources
external to the borrower’s country. Accordingly, such inter-
national outstandings are excluded from cross-border risk of
that country. Mexican cross-border risk of $576 million, or
1.57 percent of assets and Canadian cross-border risk of
$380 million, or 1.04 percent of assets, were the only coun-
tries with exposure exceeding 1.00 percent of assets at
December 31, 1998. There were no countries with exposure
between 0.75 percent and 1.00 percent of total assets at
year-end 1998. Canadian cross-border risk at year-end 1998
includes a $14 million loan on nonaccrual status. Table 6 on
page 32 provides additional information on the Corpora-
tion’s Mexican and Canadian cross-border risk.

Comerica Incorporated

Table 6: Mexican and Canadian Cross-Border Risk

December 31
(in millions)

Mexico 1998
1997
1996

Canada 1998
1997
1996

Governments
and Official
Institutions

Banks and
Other Financial
Institutions

Commercial
and Industrial

$ 15
41
192

—
—
—

$214
78
26

—
—
—

$347
295
50

380
256
128

Total

$576
414
268

380
256
128

Table 7: Loan Maturities and Interest Rate Sensitivity

December 31, 1998
(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

Within
One Year*

After One
But Within
Five Years

$14,647
1,286
2,516
730

$19,179

$3,518
1,961
172
267

$5,918

$2,735
3,183

$5,918

After
Five Years

$ 921
932
25
83

Total

$19,086
4,179
2,713
1,080

$1,961

$27,058

$1,521
440

$1,961

*Includes demand loans, loans having no stated repayment schedule or maturity and overdrafts.

Table 8: Allocation of the Allowance for Credit Losses

1998

1997

1996

1995

1994

Percent

Percent
Allocated of Total Allocated of Total Allocated of Total Allocated of Total Allocated of Total
Loans
Allowance

Loans Allowance

Percent

December 31
(in millions)

Domestic

Commercial
Real estate

construction

Commercial
mortgage
Residential
mortgage

Consumer
Lease ﬁnancing

International
Unallocated

$131

62%

$094

55%

$ 98

52%

$118

49%

$119

48%

—
48
6
17
225

3
6
2
9
—

1
116
1
5
182

5
15
2
7
—

2
120
1
3
110

7
18
1
6
—

2
84
1
2
96

9
19
1
6
—

2
60
1
3
100

11
19
1
5
—

Total

$452

100%

$424

100%

$367

100%

$341

100%

$326

100%

Comerica Incorporated

Average residential mortgage loans decreased $351 million,
primarily due to management’s decision to sell the majority
of mortgage originations. Average consumer loans, com-
prised of installment, revolving credit and bankcard loans,
declined $1.9 billion, primarily as a result of the sale of $2.0
billion of indirect consumer loans and non-relationship
bankcard receivables. Average installment, revolving credit
and bankcard loans decreased $1,611 million, $75 million
and $225 million, respectively, during the period.

Average investment securities declined to $3.4 billion in
1998, compared to $4.7 billion in 1997. This decline reflects
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 $955 million and average state and municipal
securities decreased $58 million, while average other securi-
ties decreased $303 million. The Corporation shifted away
from purchasing on-balance sheet securities to balance inter-
est rate sensitivity and preserve net interest margin, to pur-
chasing off-balance sheet interest rate swaps that accomplish
the same interest risk reduction objective. The decline in
U.S. government and agency securities principally resulted
from sales and paydowns, while the tax exempt portfolio of
state and municipal securities continued to decrease as
reduced tax advantages for these types of securities deterred
additional investment. Other securities consist primarily of
collateralized mortgage obligations (CMOs), Brady bonds
and 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 correspon-
dent banks, as well as offer supplemental earnings opportu-
nities. Average short-term investments increased slightly to
$143 million during 1998, from $129 million during 1997.

Table 9: 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

1998

$1,619
323
324
179

$2,445

Deposits and Borrowed Funds

Average deposits increased $307 million, or 1 percent, from
1997. Average noninterest-bearing deposits grew $336 mil-
lion, or 6 percent, from 1997, largely due to the growth in
related commercial loan business. Average interest-bearing
transaction, savings and money market deposits increased 4
percent during 1998, to $8.9 billion. Average certificates of
deposit decreased $332 million, or 4 percent, from 1997.

Average federal funds purchased and securities sold under
agreements to repurchase increased $493 million, or 24 per-
cent, from 1997.

The Corporation uses medium-term debt (both domestic and
European) and long-term debt to provide the necessary fund-
ing to support expanding loan volumes. Medium-term debt
provides 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. Medium-term
debt decreased $2.2 billion, representing the net result of the
issuance of $3.0 billion and the maturity of $5.2 billion of
notes, during 1998. Long-term debt increased $231 million
during 1998, primarily from the issuance of $250 million of
subordinated notes offset by the maturity of $75 million of
subordinated debentures. Further information on medium-
and long-term debt is included in Note 9 of the consolidated
financial statements on page 52.

The increases in average deposits, federal funds purchased
and securities sold under agreements to repurchase, and
medium- and long-term debt balances were offset by a
decline of $891 million, or 49 percent, in other borrowed
funds. The decline in other borrowed funds was attributable
to more attractive short-term funding alternatives, such as
federal funds purchased, and the reduced availability of trea-
sury tax and loan deposits.

Capital

Shareholders’ equity was $3.0 billion at December 31, 1998.
Comerica repurchased 2.3 million shares equaling $149 mil-
lion of capital during 1998. At December 31, 1998, the Cor-
poration had remaining authorization to purchase 20 million
shares of common stock.

Excluding share repurchases, the remaining change in capi-
tal is the net effect of increases in capital from retained earn-
ings of $391 million and $47 million of common stock
issued for employee stock plans and a decrease of $5 million
in nonowner equity, principally a change in value of avail-
able-for-sale securities.

Comerica Incorporated

The Corporation declared common dividends totaling $199
million on net income applicable to common stock of $590
million, representing a dividend payout ratio of 34 percent.
The payout ratio in 1997 was 36 percent. The Corporation
targeted a payout ratio between 30 to 40 percent, although
the board of directors constantly reassesses this target 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 paid April 1, 1998, as well as
increased the quarterly cash dividend 12 percent to $0.32
per common share.

At December 31, 1998, the Corporation and all of its bank-
ing subsidiaries exceeded the capital ratios required for an
institution to be considered “well capitalized” by the stan-
dards developed under the Federal Deposit Insurance Corpo-
ration Improvement Act of 1991. See Note 17 of the
consolidated financial statements on page 57 for the capital
ratios.

RISK MANAGEMENT

The Corporation assumes various types of risk in the normal
course of business. The most significant risk exposures are
credit, interest rate and liquidity risk. In addition, like other
large corporations, the Corporation is exposed to operating
risk. The Corporation employs risk management processes
to identify, measure, monitor and control these risks.

Credit Risk

Credit risk represents the risk that a customer or counterpar-
ty may not perform in accordance with contractual terms.
Credit risk is inherent in the financial services business and
results from extending credit to customers, purchasing secu-
rities and entering into off-balance sheet financial derivative
instruments. Policies and procedures for measuring and
managing this risk are formulated, approved and communi-
cated throughout the Corporation. Credit executives are
involved in the origination and underwriting process to
ensure adherence to risk policies and underwriting stan-
dards. The Corporation also manages credit risk through
diversification, limiting exposure to any single industry or
customer, selling participations to third parties and requiring
collateral.

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, or earlier if deemed uncollectible. Loans
other than consumer are generally placed on nonaccrual sta-
tus when management determines that principal or interest
may not be fully collectible, 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

Comerica Incorporated

amount that represents management’s assessment of the ulti-
mate 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
to Loans and Other Real Estate
(in percentages)

Comerica
Industry average
(based on 50 largest U.S.
bank holding companies)

3.0

2.5

2.0

1.5

1.0

0.5

0.0

94 95

Nonperforming assets as a percent of total loans and other
real estate were 0.39 percent and 0.36 percent at year-end
1998 and 1997, respectively.

Nonaccrual loans at December 31, 1998, increased 38 percent
to $108 million from an unusually low amount of $78 million
at year-end 1997.

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 cor-
porate charge-off and payment application policy.

Other real estate owned (ORE) declined significantly to $5
million, primarily due to the sale of one large property.

Nonaccrual Loans

December 31
(dollar amounts in millions)

Carrying value
Contractual value
Carrying value as a percentage

of contractual value

Concentration of Credit

1998

$108
159

1997

$078
119

68%

66%

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, 1998. These loans totaled $4.6 billion, or
15 percent of total loans at December 31, 1998, versus $4.3
billion, or 15 percent, at December 31, 1997.

Table 10: Analysis of Investment Securities Portfolio–Fully Taxable Equivalent

†
Maturity

Within 1 Year

Weighted
Average
Maturity
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Yrs./Mos.

After 10 Years

5 - 10 Years

1 - 5 Years

Total

$ 41

5.66 % $ 21

5.40 % $ —

— % $ —

— % $ 62

5.57%

1/0

6.58

7.63

809

6.21

1,230

6.53

2,144

6.45

10/2

6.39

6.45

6.11

6.38

115

6.37

15 12.84

168

8.22

8.05

8.18

305

8.41

—

86 —

3/1

6/2

—

December 31, 1998
(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

$119

6.88 % $319

7.59 % $904

6.36 % $1,284

6.59 % $2,712

6.65%

9/2

*Balances are excluded in the calculation of total yield.
†Based on ﬁnal contractual maturity.

Table 11: 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 credit losses as a percentage of total

nonperforming assets

Loans past due 90 days or more and still accruing

1998

1997

1996

1995

1994

$ 77
20
1
10

108

116

$059
1
3
15

$072
—
3
28

103

111

$087
—
7
37

131

134

$089
—
17
56

162

164

$121

$103

$140

$163

$204

0.38% 0.30% 0.42% 0.55% 0.74%

0.39% 0.36% 0.53% 0.67% 0.92%

375% 413% 263% 209% 160%

$ 40

$053

$052

$057

$039

Comerica Incorporated

These totals include floor plan loans to automobile dealers of
$1,454 million and $1,408 million at December 31, 1998 and
1997, respectively. All other industry concentrations individ-
ually represented less than 5 percent of total loans at year-
end 1998.

The Corporation has successfully operated in the Michigan
economy in spite of a loan concentration and several down-
turns in the auto industry. The largest automotive industry
loan on nonaccrual status at December 31, 1998, was $13
million. There were no other automotive industry-related
loans larger than $3 million on nonaccrual status as of year-
end 1998. The Corporation incurred $6 million of automotive
industry-related charge-offs during 1998.

Commercial Real Estate Lending

The real estate construction loan portfolio contains loans pri-
marily made to customers with satisfactory project comple-
tion experience. The portfolio has approximately 1,069 loans,
of which 74 percent have balances of less than $1 million.
The largest real estate construction loan has a balance of
approximately $20 million.

The commercial mortgage loan portfolio, 56 percent of
which relates to owner-occupied properties, also consists pri-
marily of loans to long-time customers. Of the approximately
7,071 loans in the portfolio, 87 percent have balances under
$1 million and the largest loan has a balance of approximate-
ly $30 million. Additionally, the Corporation’s policy
requires a 75 percent or less loan-to-value ratio for all com-
mercial mortgage and real estate construction loans. This pol-
icy is within bank regulatory limits.

The geographic distribution of the real estate construction
and commercial mortgage loan portfolios is also an important
factor in evaluating credit risk. The following table indicates
the diversification of the portfolios throughout the markets
served by the Corporation.

Geographic Distribution

December 31, 1998
(in millions)

Real Estate
Construction

Commercial
Mortgage

Michigan
California
Texas
Florida
Other

Total

$ 460
170
328
66
56

$1,080

$2,540
706
440
150
343

$4,179

Interest Rate Risk

Interest rate risk arises primarily through the Corporation’s
core business activities of extending loans and taking
deposits. The Corporation actively manages its material
exposure to interest rate risk. The principal objective of asset
and liability management is to maximize net interest income
while operating within acceptable limits established for inter-
est rate risk and maintaining adequate levels of funding and
liquidity. The Corporation utilizes various on- and off-bal-
ance sheet financial instruments to manage the extent to

Comerica Incorporated

which net interest income may be affected by fluctuations in
interest rates. The Asset Liability Policy Committee (ALPC)
establishes and the board of directors approve corporate
policies and risk limits pertaining to asset and liability man-
agement activities. The ALPC monitors compliance with
these policies, and is comprised of executive and senior
management from various areas of the Corporation, includ-
ing finance, lending, investments and deposit gathering. The
ALPC meets regularly to discuss asset and liability manage-
ment 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
satisfies all management objectives, a combination of tech-
niques are used to manage interest rate risk, including simu-
lation analysis, asset and liability repricing schedules and
duration of equity. The ALPC regularly reviews the results
of these interest rate risk measurements.

The Corporation frequently evaluates net interest income
under various balance sheet and interest rate scenarios. The
results of these analyses provide the information needed to
assess the proper balance sheet structure. An unexpected
change in the pace of economic activity, whether domesti-
cally or internationally, could translate into a materially dif-
ferent interest rate environment 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 environment. In addition,
adjustments to asset prepayment levels, yield curves and
overall balance sheet mix and growth assumptions are made
to be consistent with each interest rate environment. These
assumptions are inherently uncertain and, as a result, the
model cannot precisely predict the impact of higher or lower
interest rates on net interest income. Actual results may dif-
fer from simulated results due to timing, magnitude and fre-
quency of interest rate changes and changes in market
conditions and management strategies, among other factors.
Derivative financial instruments and other financial instru-
ments used for purposes other than trading are included in
this analysis. The measurement of risk exposure at year-end
1998 for a 200-basis-point decline in short-term interest
rates identified approximately $72 million of net interest
income at risk during 1999. If short-term interest rates rise
200 basis points, the Corporation would have approximately
$49 million of net interest income benefit. Year-end 1997 net
interest income at risk was measured at $35 million for a
200-basis-point decline in interest rates and $22 million for
a 200-basis-point rise in interest rates. The change in expo-
sure is the result of differences in the economic scenarios in
the shocked environments and therefore differences in the
timing and magnitude of rate changes. Further, anticipated

interest rate levels and yield curve differences create faster
amortization on certain loans, securities and interest rate
swaps in the 1998 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.

Most assets and liabilities reprice either at maturity or in
accordance with their contractual terms. However, several
balance sheet components demonstrate characteristics that
require adjustments to more accurately reflect repricing and
cash flow behavior. Assumptions based on historical pricing
relationships 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 interest rates. In addition, estimates are made con-
cerning 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 man-
agement recognizes the limited ability of a traditional gap
schedule to accurately portray interest rate risk, adjustments
are made to provide a more accurate picture of the Corpora-
tion’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, management
adjusts the interest rate sensitivity. This sensitivity is measured
as a percentage of earning assets. The operating range for inter-
est rate sensitivity, on an elasticity-adjusted basis, is between an
asset sensitive position of 10 percent of earning assets and a lia-
bility sensitive position of 10 percent of earning assets.

The table on page 38 shows the interest sensitivity gap as of
year-end 1998 and 1997. The report reflects the contractual
repricing and payment schedules of assets and liabilities,
including an estimate of all early loan and security repay-
ments which adds $540 million of rate sensitivity to the
1998 year-end gap. In addition, the schedule identifies the
adjustment for the price elasticity on certain core deposits.

The Corporation remained asset sensitive throughout 1998, as
asset sensitivity generated by the consumer divestitures cited
previously and continued investment security amortization
was primarily hedged through the use of interest rate swaps.
The Corporation had a one-year asset sensitive gap of $2,111
million, or 6 percent of earning assets, as of December 31,
1998. This compares to a $1,156 million asset sensitive gap,
or 3 percent of earning assets, on December 31, 1997. Man-
agement anticipates continued material growth in asset sensi-
tivity throughout 1999, and will analyze both on- and
off-balance sheet alternatives 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
objective of managing the sensitivity of net interest income
to changes in interest rates. To accomplish this objective, the
Corporation uses interest rate swaps primarily to modify the
interest rate characteristics 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 management in achieving interest rate
risk objectives.

Risk Management Derivative Financial Instruments and
Foreign Exchange Contracts

Risk Management Notional Activity

(in millions)

Balances at December 31, 1996
Additions
Maturities/amortizations

Balances at December 31, 1997
Additions
Maturities/amortizations
Terminations

Interest
Rate
Contracts

Foreign
Exchange
Contracts

$8,220
3,857
(3,510)

$8,567
3,402
(4,330)
(755)

$ 482
5,715
(5,598)

$ 599
7,218
(6,904)
—

Totals

$ 8,702
9,572
(9,108)

$ 9,166
10,620
(11,234)
(755)

Balances at December 31, 1998

$6,884

$ 913

$ 7,797

The notional amount of risk management interest rate swaps
totaled $6,869 million at December 31, 1998, and $8,515
million at December 31, 1997. The fair value of risk man-
agement interest rate swaps at December 31, 1998, was a
positive $146 million, compared to a positive $123 million
at December 31, 1997. For the year ended December 31,
1998, risk management interest rate swaps generated $46
million in net interest income, compared to $51 million in
net interest income for the year ended December 31, 1997.
These off-balance sheet instruments represented 75 percent
of total derivative financial instruments and foreign
exchange contracts, including commitments, at year-end
1998 and 74 percent at year-end 1997.

The table on page 39 summarizes the expected maturity dis-
tribution of the notional amount of risk management interest
rate swaps and provides the weighted average interest rates
associated with amounts to be received or paid as of Decem-
ber 31, 1998. The swaps have been grouped by the assets
and liabilities to which they have been designated.

In addition to interest rate swaps, the Corporation employs
various other types of off-balance sheet derivative and for-
eign exchange contracts to mitigate exposures to interest rate
and foreign currency risks associated with specific assets
and liabilities (e.g., loans or deposits denominated in foreign
currencies and mortgages held for sale). Such instruments
include interest rate caps and floors, purchased put options,
foreign exchange forward contracts, foreign exchange gener-
ic swap agreements and cross-currency swaps. The aggre-
gate notional amounts of these risk management derivative
and foreign exchange contracts at December 31, 1998 and
1997, were $928 million and $651 million, respectively.

Further information regarding risk management financial
instruments and foreign currency exchange contracts is pro-
vided in Notes 1, 9, 18 and 25.

Comerica Incorporated

Table 12: 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, 1998
Interest Sensitivity Period

December 31, 1997
Interest Sensitivity Period

Within
One Year

Over
One Year

Within
One Year

Over
One Year

Total

$ — $ 1,773
7
1,831

103
881

$ 1,773
110
2,712

$0000—
196
1,223

$01,927
7
2,783

$01,927
203
4,006

17,555
2,713
3,856
1,044

25,168

618

2,178
—
2,441
818

5,437

19,733
2,713
6,297
1,862

30,605

783

1,401

14,742
2,085
3,907
2,100

22,834

742

1,580
—
2,233
2,248

6,061

16,322
2,085
6,140
4,348

28,895

519

1,261

$26,770

$ 9,831

$36,601

$24,995

$11,297

$36,292

$ 1,451
—
5,991
5,275
1,382

$ 5,548
1,533
1,901
1,232
—

$ 6,999
1,533
7,892
6,507
1,382

$00,459
—
5,570
5,562
309

$06,302
1,601
1,724
1,059
—

$06,761
1,601
7,294
6,621
309

14,099

10,214

24,313

11,900

10,686

22,586

3,580
3,771
64

—
1,511
315

3,580
5,282
379

3,193
5,961
149

—
1,325
316

3,193
7,286
465

21,514

12,040

33,554

21,203

12,327

33,530

(8)

3,055

3,047

(1)

2,763

2,762

Total liabilities and shareholders’ equity

$21,506

$15,095

$36,601

$21,202

$15,090

$36,292

Sensitivity impact of interest rate swaps

(5,549)

5,549

Interest sensitivity gap
Gap as a percentage of earning assets
Sensitivity impact from elasticity adjustments (1)

(285)

(1)%

2,396

285

1%
(2,396)

Interest sensitivity gap with elasticity adjustments
Gap as a percentage of earning assets

$ 2,111

$ (2,111)

(6)%

—

—
—
—

—
—

(4,377)

4,377

(584)

(2)%

584

1,740

(1,740)

$01,156

$ (1,156)

(3)%

—

—
—
—

—
—

(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.

Comerica Incorporated

Table 13: Remaining Expected Maturity of Risk Management Interest Rate Swaps

(dollar amounts in millions)

1999

2000

2001

2002

2003

2004-
2026

Total

Dec. 31
1997

Variable Rate Asset Designation:

Receive ﬁxed swaps

Generic
Amortizing
Index amortizing

Weighted average: (1)

Receive rate
Pay rate

$0,0— $ 0700
—
573

—
1,221

$3,250
—
133

$0,—
—
182

$ — $0— $3,950
—
—
2,169
—

—
60

$0 700
100
3,504

6.35%
5.34%

6.35%
5.33%

5.72% 6.49% 6.14%
5.26% 5.52% 5.58%

—%
—%

6.01%
5.30%

6.33%
5.90%

Floating/floating swaps

$0,0— $ — $ —

$0,—

$ ,— $ 0— $ — $0 55

Fixed Rate Asset Designation:

Pay ﬁxed swaps

Generic
Index amortizing

Weighted average: (1)

Receive rate
Pay rate

Medium- and Long-term
Debt Designation:

$0, 02
4

$ — $0,0—
—

$,0—
—

$0— $ 0— $

—

2
11

2
17

5.44%
6.55%

5.62%
5.34%

—%
—%

5.54%
5.88%

5.97%
5.85%

Generic receive ﬁxed swaps

$ 0,— $0200

$0 —

$150

$, — $350

$ 700

$2,200

Weighted average: (1)

Receive rate
Pay rate

—%
—%

6.91%
5.26%

—% 7.37%
—% 5.16%

—% 7.56%
—% 5.34%

7.33%
5.28%

6.84%
5.83%

Floating/floating swaps

$ — $ 0, 37

$0,0—

$,—±—

$, — $ ”— $

$1,937

Weighted average: (2)

Receive rate
Pay rate

—%
—%

4.98%
5.19%

—%
—%

4.98%
5.19%

5.73%
5.77%

Total notional amount

$1,227

$1,517

$ 3,383

$332

$ 60

$350

$6,869

$8,515

(1) Variable rates paid or received are based primarily on one-month and three-month LIBOR rates paid or received at December 31, 1998.
(2) Variable rates paid are based on LIBOR at December 31, 1998, while variable rates received are based on prime.

Comerica Incorporated

Operational Risk

Operational risk is the risk of unexpected losses attributable
to human error, system failures, fraud, unauthorized trans-
actions and inadequate internal controls and procedures.
The Corporation mitigates this risk through a system of
internal controls that are designed to keep operating risks at
appropriate levels. The Corporation’s internal audit staff
monitors and assesses the overall effectiveness of the sys-
tem of internal controls on an ongoing basis and provides
an opinion on the environment to management and the
Audit Committee. Companies experience operational losses
which are routinely incurred in business operations.

Comerica has established an Operational Risk Committee
comprised of executives from several disciplines. This
group is charged with surfacing significant operational risks
which may impact customer service, reputation or result in
financial loss if not adequately addressed.

The internal audit staff independently supports an active
Audit Committee oversight process. The Audit Committee
serves as an independent extension of the Board of Direc-
tors. Routine and special meetings are scheduled periodical-
ly to provide detail on relevant operational risks.

Other Matters

The Corporation initiated a company-wide project to pre-
pare its computer systems, applications and infrastructure
for year 2000 readiness. The following discussion of the
implications of the year 2000 issue for the Corporation con-
tains numerous forward-looking statements based on inher-
ently uncertain information. The cost of the project and the
planned date to complete the internal year 2000 modifica-
tions are based on management’s best estimates, derived uti-
lizing a number of assumptions of future events such as the
continued availability of internal and external resources,
including employees, third party modifications and other fac-
tors. However, there can be no guarantee that these estimates
will be achieved and actual results could differ.

In addition, the Corporation places a high degree of reliance
on the computer systems of third parties, such as customers,
suppliers, and other financial and governmental institutions.
Although the Corporation is assessing the readiness of these
third parties and has prepared contingency plans, there can
be no guarantee that business-critical third party vendors or
other significant third parties, such as public utilities, will
adequately address their year 2000 issues.

Customer-Initiated and Other Derivative Financial
Instruments and Foreign Exchange Contracts

Customer-Initiated and Other Notional Activity

(in millions)

Balances at December 31, 1996
Additions
Maturities/amortizations

Balances at December 31, 1997
Additions
Maturities/amortizations

Interest
Rate
Contracts

Foreign
Exchange
Contracts

Totals)

$390
464
(358)

$496
417
(232)

$ 644
43,462
(42,269)

$ 1,034
43,926)
(42,627)

$ 1,837
36,171
(37,335)

$ 2,333)
36,588)
(37,567)

Balances at December 31, 1998

$681

$ 673

$ 1,354)

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
such services. At December 31, 1998 and 1997, customer-
initiated activity represented 15 percent and 20 percent,
respectively, of total derivative and foreign exchange con-
tracts, including commitments. Refer to Note 18 on page 57
for further information regarding customer-initiated and
other derivative financial instruments and foreign exchange
contracts.

Liquidity Risk

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 vari-
ous funding sources, including a $7.5 billion medium-term
note program which allows the Michigan, California and
Texas banks to issue debt with maturities between one
month and 15 years. The Michigan bank has an additional
$2 billion European note program. At year-end 1998, unis-
sued debt related to the two programs totaled $5.7 billion. In
addition, liquid assets totaled $4.6 billion, at December 31,
1998. The Corporation also had available $1.9 billion from a
collateralized borrowing account with the Federal Reserve
Bank at year-end 1998. Purchased funds at December 31,
1998, excluding certificates of deposit with maturities
beyond one year and medium- and long-term debt, approxi-
mated $7.2 billion.

The parent company had available a $250 million commer-
cial paper facility at December 31, 1998, all of which was
unused. Another source of liquidity for the parent company
is dividends from its subsidiaries. As discussed in Note 17
on page 57, subsidiary banks are subject to regulation and
may be limited in their ability to pay dividends or transfer
funds to the holding company. During 1999, the subsidiary
banks can pay dividends up to $543 million plus current net
profits without prior regulatory approval. One measure of
current parent company liquidity is investment in sub-
sidiaries as a percent of shareholders’ equity. An amount
over 100 percent represents the reliance on subsidiary divi-
dends to repay liabilities. As of December 31, 1998, the
ratio was 108 percent.

Comerica Incorporated

Customers and vendors who have significant relationships
with the Corporation continue to be evaluated to determine
their preparation and readiness for the year 2000. The poten-
tial failure of those customers to be adequately prepared for
year 2000 is included in management’s credit and review
process used to establish loss reserves. A high level risk
reduction strategy is being implemented to manage and miti-
gate risks to our asset/liability position. There can be no
guarantee that the remediation of the systems of the Corpo-
ration’s vendors or customers will be completed on a timely
basis.

The Corporation relies on suppliers and customers for cer-
tain information processing services, and is addressing year
2000 issues with both groups. Management has identified
critical vendors and inquired as to their year 2000 readiness
plans and status. The Corporation has completed written risk
assessments on each and has asked those found to pose a
significant risk to demonstrate how risks will be addressed.
Measures to minimize risk are being undertaken with those
that appear to pose a significant risk. There may be certain
business-critical third parties, such as utilities or telecommu-
nication companies, where alternative arrangements or
sources are limited or unavailable.

The Corporation is also reliant on its customers to make the
necessary preparations for year 2000 so that their business
operations will not be interrupted, as an interruption could
threaten their ability to honor financial commitments. The
Corporation identified borrowers, capital market counterpar-
ties, funding sources and large depositors having financial
volumes sufficiently large to warrant inquiry as to year 2000
preparation. Written risk assessments have been completed
on each. Customers found to have a significant risk of not
being ready for year 2000 are encouraged to make the neces-
sary effort. The Corporation is undertaking measures to min-
imize risk with those that appear to pose a significant risk.

Comerica’s senior executives, the board of directors and a
project steering committee regularly review the year 2000
program and its progress. In addition, the federal and
state agencies that regulate the banking industry regularly
monitor our year 2000 program.

Readiness Preparation

Comerica will be ready to conduct business in the year
2000. The Corporation established an extensive enterprise-
wide and centrally managed year 2000 program in early
1996. The year 2000 team includes the active involvement
of senior executives as well as seasoned project managers
and business unit liaisons from throughout the company.
The Corporation is evaluating and monitoring the year 2000
readiness of vendors, customers and third party processors.
At Comerica, completing a successful year 2000 program is
our top priority so that the arrival of the 21st century will be
a celebration of quality customer service. Many factors can
affect a company’s ability to deliver quality services at any
given time. While we will be “ready” to do business in the
year 2000, we of course cannot guarantee that our services
will be uninterrupted due to the century date change or
otherwise. To minimize customer service disruptions, the
Corporation has implemented a no-vacation policy for
the entire organization from December 27, 1999, through
January 31, 2000. Additional guidelines are being
implemented within business units prior- and post-event
as required.

The Corporation’s year 2000 program is comprised of
numerous individual projects which address the following
broad areas: data processing systems, telecommunications
and data networks, building facilities and security systems,
vendor risk, customer risk, contingency planning and com-
munications. All mission critical applications and services
were significantly year 2000 ready as of December 31,
1998, with the remaining systems planned for completion
prior to the end of 1999. As of December 31, 1998, the Cor-
poration has completed 75 percent of remediation effort and
45 percent of testing.

The Corporation has a major focus on completing testing
for all components, having in place what is believed to be
an extensive testing methodology, validation and verifica-
tion process. To alleviate disruptions due to errors, state of
the art data aging and testing tools are being utilized to vali-
date year 2000 readiness for applications. The year 2000
program utilizes Comerica’s Year 2000 Testing and Clean
Management Guidelines for all components. The Corpora-
tion plans to conduct a complete systems test in the second
quarter of 1999 to validate its findings. Furthermore, the
Corporation is documenting contingency plans for all busi-
ness critical applications to minimize any disruptions to
customer service caused by year 2000 issues.

The Corporation does not significantly rely on embedded
technology in its critical processes. Embedded technology
does control some building security and operations such as
power management, ventilation and elevator control. Build-
ing facilities are presently being evaluated, and it is man-
agement’s plan to confirm year 2000 readiness or replace
the embedded technology by approximately June 30, 1999.

Comerica Incorporated

Operational failures among the Corporation’s sources of
major funding, larger borrowers and capital market counter-
parties could affect their ability to continue to provide fund-
ing or meet obligations when due. Similar to the situation
outlined above with suppliers, public information has not
generally been available. At this time, it is not possible to
accurately estimate the likelihood, or potential impact, of
significant disruptions among the Corporation’s funding
sources and obligors.

Contingency Plans

The Corporation is developing remediation contingency
plans and business resumption contingency plans specific to
the year 2000. Remediation contingency plans address the
actions to be taken if the current approach to remediating a
system is falling behind schedule or otherwise appears in
jeopardy of failing to deliver a year 2000 ready system when
needed. Business resumption contingency plans address the
actions that would be taken if critical business functions can
not be carried out in the normal manner due to system or
supplier failure.

The Corporation developed remediation contingency plans
with trigger dates for review and implementation for critical
data systems. The Corporation is also enhancing its existing
business resumption plans to reflect year 2000 issues and is
developing plans designed to coordinate the efforts of its
personnel and resources in addressing any year 2000 prob-
lems that become known after December 31, 1999.

This annual report to shareholders includes forward-looking
statements based on management’s current expectations
and/or the assumptions made in the earnings simulation
analysis. Numerous factors could cause variances in these
projections, and their underlying assumptions, such as
changes in interest rates, the industries where the Corpora-
tion has a concentration of loans, changes in the level of fee
income, year 2000 expenses, economic conditions and con-
tinuing consolidation in the banking industry.

Cost

Included in the Corporation’s estimate of year 2000 project
cost are internal and external development costs, asset
impairment write-offs and the cost of software and hardware
for systems that are not ready, or would not have been ready
by the new century as a result of normal replacement. The
Corporation’s current estimate is that year 2000 project cost,
both internal and external, will total approximately $50 mil-
lion, of which the Corporation incurred approximately $21
million in 1996, 1997 and 1998. The increase in the total
estimate from previously reported numbers relates primarily
to costs, not yet incurred, associated with expansion of the
scope for personal computers and recently approved
enhancements to the year 2000 retention incentive plan. Of
the $21 million incurred to date, $5 million was for capital
assets which the Corporation is expensing over their useful
lives. The Corporation will fund the remaining year 2000
costs yet to be incurred by normal operating cash flow. The
project is staffed with external resources as well as internal
staff redeployed from less time-sensitive assignments. The
Corporation does not believe the redeployment of existing
staff will have a material adverse effect on its business,
results of operations or financial position. Approximately $8
million of the remaining cost is for capital assets which will
be expensed over their useful lives. Estimated total project
cost could change further as efforts continue.

Risks

The Corporation has grouped the principal risks associated
with the year 2000 problem into three categories. The first is
the risk that the Corporation does not successfully ready
operations for the year 2000. The Corporation, like other
financial institutions, is heavily dependent on computer sys-
tems. The complexity of these systems and dependence on
one another makes it impossible to switch to other systems
immediately as would be required if necessary corrections
were not made in advance. Management believes it will be
able to make the necessary corrections in advance.

Computer failure of third parties may jeopardize the Corpo-
ration’s operations, but how seriously depends on the nature
and duration of such failures. The most serious impact on
the Corporation’s operations from suppliers would result if
basic services such as telecommunications, electric power
suppliers, and services provided by other financial institu-
tions and governmental agencies were disrupted. Significant
public disclosure of the state of readiness among basic infra-
structure and other suppliers has not generally been avail-
able. Although inquiries are underway, the Corporation does
not yet have sufficient information to estimate the likelihood
of significant disruptions among its suppliers.

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 credit losses

Net loans

Premises and equipment
Customers’ liability on acceptances outstanding
Accrued income and other assets

Total assets

Liabilities and Shareholders’ Equity

Noninterest-bearing deposits
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 1998 and 1997

Common stock—$5 par value

Authorized—325,000,000 shares
Issued—157,233,088 shares in 1998 and 156,815,367 shares in 1997

Capital surplus
Unrealized net losses on investment securities available for sale
Retained earnings
Deferred compensation
Less cost of common stock in treasury—1,351,997 shares in 1998

Total shareholders’ equity

1998

1997

$01,773,100

$ 01,927,087

109,640

2,712,165

19,086,541
2,713,259
1,079,614
4,179,271
1,037,941
1,861,630
646,607

30,604,863

202,957

4,005,962

15,805,549
2,085,090
940,910
3,633,785
1,565,445
4,347,665
516,600

28,895,044

(452,409)

(424,147)

30,152,454

28,470,897

352,650
12,335
1,488,487

380,157
18,392
1,286,946

$36,600,831

$36,292,398

$ 6,999,337
17,313,796

24,313,133

$06,761,202
15,825,115

22,586,317

3,108,985
471,168
12,335
366,338
5,282,259

592,860
2,600,041
18,392
446,625
7,286,387

33,554,218

33,530,622

250,000

786,165
24,649
(6,455)
2,086,589
(5,202)
(89,133)

3,046,613

784,077
—1
(1,937)
1,731,419
(1,783)
—0

2,761,776

Total liabilities and shareholders’ equity

$36,600,831

$36,292,398

See notes to consolidated financial statements.

Comerica Incorporated

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

Total interest expense

Net interest income
Provision for credit losses

1998

1997

1996

$2,382,329

$2,317,844

$2,160,981

218,378
7,252

225,630

8,815

310,399
10,797

321,196

8,363

372,331
17,443

389,774

12,025

2,616,774

2,647,403

2,562,780

647,825

673,265

685,539

136,616
49,095
367,777
(45,810)

110,752
98,258
374,022
(51,670)

111,729
107,155
294,990
(48,911)

1,155,503

1,204,627

1,150,502

1,461,271
113,000

1,442,776
146,000

1,412,278
114,000

Net interest income after provision for credit losses

1,348,271

1,296,776

1,298,278

Noninterest Income

Fiduciary and investment management income
Service charges on deposit accounts
Commercial lending fees
Securities gains
Other noninterest income

Total noninterest income

Noninterest Expenses

Salaries and employee benefits
Net occupancy expense
Equipment expense
Outside processing fee 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.

Comerica Incorporated

184,354
157,416
43,326
6,116
211,936

603,148

565,303
89,911
60,147
42,785
(6,840)
268,738

147,336
141,078
31,342
5,195
203,001

527,952

538,926
89,380
61,759
41,683
—
276,238

133,482
140,436
23,249
13,588
196,199

506,954

560,784
99,211
68,827
42,481
90,000
297,723

1,020,044

1,007,986

1,159,026

931,375
324,299

816,742
286,266

646,206
229,045

$0,607,076

$0,530,476

$0,417,161

$0,589,976

$0,513,376

$0,408,136

$3.79
3.72

$3.24
3.19

$0 199,403
$1.28

$0,181,272
$1.15

0,0$2.41
0,002.38

$0,170,067
$1.01

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, 1996

$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

37,275

05,195

32,080

11,228
20,852
—

—

—
—
—

—
(17,100)
— (181,272)

— (193,451)

9
—
—
—
— (261,359)

—.

—.
—.
—.

—.
—.

—.

(531)
993
—.

—.

530,476

—.

—.
—.
—.

—.
—.

—.

—.
—.
—.

37,275

5,195

32,080

11,228
20,852
551,328

(17,100)
(181,272)

(242,293)

34,551
993
—

Balances at December 31, 1997

250,000

784,077

0001—

(1,937)

1,731,419

(1,783)

.000,—.

2,761,776

Net income for 1998
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 60,000

shares of common stock
Purchase of 2,199,650 shares

of common stock

Issuance of common stock under

employee stock plans

Amortization of deferred compensation

—

—
—
—

—
—

—

—
—

—

—
—
—

—
—

—

—
—
—

—
—

— 5607,076

(835)

6,116)

(6,951)

(2,433)
(4,518)
—

—

—
—
—

—
(17,100)
— (199,403)

(300)

(3,182)

—

2,388
—

27,831
—

—

—
—

—

—.

—.
—.
—.

—.
—.

—.

—

607,076

—.

(835)

6,116

—.2,080 (6,951)

—.
—.
—.

—.
—.

—.

(2,433)
(4,518)
602,558

(17,100)
(199,403)

(3,482)

—. (145,202).

(145,202)

Balances at December 31, 1998

$250,000 $786,165 $ 24,649

$ (6,455) $2,086,589

$ (5,202).$ (89,133) $3,046,613

( ) Indicates deduction.
See notes to consolidated ﬁnancial statements.

Comerica Incorporated

(35,403)
—

(4,604)
1,185

56,069.
—.

46,281
1,185

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 credit 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 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
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.

Comerica Incorporated

1998

1997

1996

$ 607,076

$0 530,476

$0 417,161

113,000
57,633
(21,923)
2,796
(5,236)
19,487
2,973
30,414
—
(116,295)

146,000
58,529
(61,237)
(3,093)
(2,666)
(23,730)
54,330
28,375
—
(134,982)

114,000
66,776
90,000
4,659
473,493
924
(39,720)
30,803
(25,000)
187,438

82,849

61,526

903,373

689,925

592,002

1,320,534

(1,184)

24,010

(3,705)

96,941
111,511
1,209,291
(126,239)
(3,768,220)
(1,115)
(35,609)
6,057
1,878,907

(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

(629,660)

(2,116,814)

311,735

1,726,816
387,252
(6,057)
3,200,000
(5,212,498)
—
50,885
(148,684)
(211,966)

219,144
(1,296,290)
(14,710)
5,600,000
(2,555,382)
—
35,082
(242,293)
(195,412)

(825,859)
(129,056)
12,341
2,251,000
(2,553,650)
246,744
35,206
(622,196)
(173,414)

(214,252)

1,550,139

(1,758,884)

(153,987)
1,927,087

25,327
1,901,760

(126,615)
2,028,375

$1,773,100

$1,927,087

$1,901,760

$1,188,599

$1,161,812

$1,201,146

$ 256,880

$0,266,428

$0,212,530

5,084

$0,017,076

$0,010,534

— $0,128,9— $0,128,938

Notes to Consolidated Financial Statements
Comerica Incorporated and Subsidiaries

Accounting Policies

Organization

Comerica Incorporated is a registered bank holding company
headquartered in Detroit, Michigan. The Corporation’s principal
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 Incorporated
and its subsidiaries conform to generally accepted accounting
principles and prevailing practices within the banking 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 accounting
and reporting policies.

Consolidation

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 combina-
tions, the historical consolidated ﬁnancial statements are restat-
ed 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 val-
ues at the date of acquisition, and the resulting net discount or
premium is accreted or amortized into income over the remain-
ing lives of the relevant assets and liabilities. Goodwill repre-
senting 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 18 years).
Core deposit intangible assets are amortized 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 matu-
rity. 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,
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. Realized
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 estimated
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.

Allowance for Credit Losses

The allowance for credit losses reflects management’s assess-
ment of possible losses inherent in the Corporation’s on- and
off-balance sheet credit portfolio. The allowance for credit loss-
es attributable to the off-balance sheet credit portfolio is not
material. The allowance for credit losses is allocated to each
loan category based on a defined methodology, which has been
in use, without material change, for several years. First, an inter-
nal risk rating is assigned to each commercial loan. Included in
that risk rating is management’s assessment of the potential fail-
ure of a customer to be adequately prepared for the year 2000,
but only in those instances where management has significant
information that a customer may not be adequately prepared.
Management then assigns a projected loss ratio to each risk rat-
ing based on numerous factors identified below. A detailed cred-
it quality review is performed quarterly on certain commercial
loans which have deteriorated below certain levels of credit risk,
resulting in an additional allocation of a specific portion of the
allowance to such loans. The portion of the allowance allocated
to consumer loans is determined by applying projected loss
ratios to various segments of the loan portfolio. 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 concen-
trations of loans and transfer risks. However, actual loss ratios
experienced in the future could vary from those projected. This
uncertainty occurs because a loan’s performance depends, not
only on economic factors, but also other factors unique to each
customer. In addition, the significant diversity in size of corpo-
rate loans means that even if the projected number of loans
deteriorate, the dollar exposure could significantly vary from
estimated amounts. Management also considers industry norms,
and the expectations and input from rating agencies and bank-
ing regulators in determining the adequacy of the allowance.
Loans which are deemed uncollectible are charged off and
deducted from the allowance. The provision for credit losses
and recoveries on loans previously charged off are added to the
allowance.

Comerica Incorporated

Accounting Policies (continued)

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 opinion of
management, full collection of principal or interest is unlikely.
At the time a loan is placed on nonaccrual status, interest previ-
ously 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 prin-
cipal is probable. Other real estate acquired is carried at the
lower of cost or fair value, minus estimated costs to sell. When
the property is acquired through foreclosure, any excess of the
related loan balance over fair value is charged to the allowance
for credit losses. Subsequent write-downs, operating expenses
and losses upon sale, if any, are charged to noninterest expenses.

Stock-Based Compensation

The Corporation elected to continue to apply Accounting Prin-
ciples Board opinion No. 25, “Accounting for Stock Issued to
Employees,” and related interpretations in measuring and rec-
ognizing compensation expense for its stock-based compensa-
tion plans, and to disclose the pro forma effect of applying the
fair value method contained in Statement on Financial Account-
ing Standards (SFAS) No. 123, “Accounting for Stock-based
Compensation.” 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 state-
ments 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 man-
age the Corporation’s exposure to interest rate and foreign cur-
rency risks. These instruments, with the exception of futures
and forwards, are accounted for on an accrual basis since there
is a high correlation with the on-balance sheet instrument being

Comerica Incorporated

hedged. If this correlation ceases to exist, the existing unreal-
ized gain or loss is amortized over the remaining term of the
instrument, and future changes in fair value are accounted for in
noninterest 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 amortized over the life of the contract as
an adjustment to net interest income. Gains or losses on early
termination of risk management 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 unrealized gains or losses on the related
derivative instrument are recognized 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 real-
ized and unrealized gains and losses recognized currently in
noninterest 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 includ-
ed 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 commit-
ments and fees related to loans sold are recognized currently as
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 45.
The caption “Net income and nonowner changes in equity,”
represents total comprehensive income as defined in the state-
ment.

Acquisitions

During 1998, Comerica obtained a majority interest in
Munder Capital Management, an investment advisory
firm. Net income for the third and fourth quarter of
1998 includes the consolidated financial results of Munder.
The Corporation’s minority interest in periods prior to
the third quarter of 1998 was accounted for under the
equity method. Intangible assets increased $133 million
as a result of the consolidation. The fair market value
of total assets acquired and total liabilities assumed was
not material.

Investment Securities

Information concerning investment securities as shown in
the consolidated balance sheets of the Corporation was
as follows:

Gross

(in thousands)

Cost

Unrealized Unrealized Estimated
Fair Value

Losses

Gains

December 31, 1998

U.S. government
and agency
securities
State and municipal

securities

Other securities

Total securities

available
for sale

December 31, 1997

U.S. government
and agency
securities
State and municipal

securities

Other securities

Total securities

available
for sale

$2,196,736

$13,463

$ 3,993 $2,206,206

110,711
415,901

4,587
2,129

48
27,321

115,250
390,709

$2,723,348

$20,179

$31,362 $2,712,165

$3,239,423

$24,223

$24,994 $3,238,652

1164,394
603,176

5,902
7,584

244
13,502

170,052
597,258

$4,006,993

$37,709

$38,740 $4,005,962

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
obligations with or without call or prepayment penalties.

During 1996, Comerica acquired Metrobank, which was
accounted for as a purchase. The fair market value of both
total assets acquired and total liabilities assumed was $1 bil-
lion. The purchase price of the transaction totaled $125 mil-
lion. Intangible assets recorded were $62 million.

December 31, 1998
(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

86,471

$ 86,698

229,832

232,735

104,535
58,508

94,834
44,343

479,346

458,610

2,158,400

2,167,837

85,602

85,718

$2,723,348

$2,712,165

Sales and calls of investment securities available for sale
resulted in realized gains and losses as follows:

Year Ended December 31
(in thousands)

Securities gains
Securities losses

Total

Available for Sale
1998

1997

$ 7,629
(1,513)

$ 6,890
(1,695)

$ 6,116

$ 5,195

Assets, principally securities, carried at approximately $1.9
billion at December 31, 1998, were pledged to secure
public deposits (including State of Michigan deposits of
$39 million at December 31, 1998) and for other purposes
as required by law.

Comerica Incorporated

A loan is impaired when it is probable that payment of
interest and principal will not be made in accordance
with the contractual terms of the loan agreement. Consis-
tent 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

1998

1997

1996

$ 85,500
101,417

$73,502
70,470

$114,253
98,050

87,494
21,951

60,376
20,358

59,960
19,528

Those impaired loans not requiring an allowance repre-
sent loans for which the fair value exceeded the recorded
investment in the loan. Eighty-one percent of the total
impaired loans at December 31, 1998, are evaluated
based on fair value of related collateral. Remaining
loan impairment is based on the present value of expect-
ed future cash ﬂows discounted at the loan’s effective
interest rate.

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
recognized. Reduced-rate loans are those on which interest
has been renegotiated to lower than market rates because of
the weakened ﬁnancial condition of the borrower.

Nonaccrual and reduced-rate loans are included in loans on
the consolidated balance 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

1998

1997

$077,175
20,350
452
6,788
3,468

$058,914
1,000
3,438
11,088
3,719

108,233

78,159

7,464

7,583

Total nonperforming loans

115,697

85,742

Other real estate

4,956

17,046

Total nonperforming assets

$120,653

$102,788

Loans past due 90 days and still accruing

$040,209

$052,805

Gross interest income that would
have been recorded had the
nonaccrual and reduced-rate
loans performed in accordance
with original terms

$ 13,674

$010,088

Interest income recognized

$ 3,899

$002,399

Allowance for Credit Losses

An analysis of changes in the allowance for credit losses
follows:

(in thousands)

1998

1997

1996

Balance at January 1
Allowance of institutions
purchased/sold

Loans charged off
Recoveries on loans previously

$424,147

$367,165

$341,344

—
(125,627)

—
(131,140)

(3,630)
(125,912)

charged off

40,889

42,122

41,363

Net loans charged off

Provision for credit losses

(84,738)
113,000

(89,018)
146,000

(84,549)
114,000

Balance at December 31

$452,409

$424,147

$367,165

As a percent of total loans

1.48%

1.47%

1.40%

Comerica Incorporated

Significant Group Concentrations of Credit Risk

Concentrations of both on-balance sheet and off-balance
sheet credit risk are controlled and monitored as part of
credit policies. The Corporation is a regional 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 automotive industry, which includes manufacturers
and their ﬁnance subsidiaries, suppliers, dealers and company
executives.

At December 31, 1998 and 1997, exposure from loan
commitments and guarantees to companies related to the

automotive industry totaled $9.0 billion and $8.3 billion,
respectively. Additionally, commercial real estate loans,
including commercial mortgages and construction loans,
totaled $5.3 billion in 1998 and $4.6 billion in 1997.
Approximately $2.4 billion of commercial real estate
loans at December 31, 1998, involved mortgages on
owner-occupied properties. Those borrowers 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.

Premises and Equipment and Other Noncancelable Obligations

Rental expense for leased properties and equipment amount-
ed to $41 million in 1998 and 1997, and $44 million in 1996.
Future minimum payments under noncancelable obligations
are as follows:

(in thousands)

1999
2000
2001
2002
2003
2004 and later

$044,466
044,113
040,723
036,497
032,764
283,234

At December 31, 1998, the parent company had available a
$250 million commercial paper facility. This facility is
supported by a $250 million line of credit agreement, all of
which was unused. Under the current agreement the line will
expire in May of 1999.

A summary of premises and equipment at December 31 by
major category follows:

(in thousands)

Land
Buildings and improvements
Furniture and equipment

Total cost

1998

1997

$049,356
341,260
327,498

$ 52,934
353,308
344,681

718,114

750,923

Less accumulated depreciation and amortization (365,464)

(370,766)

Net book value

$352,650

$380,157

Short-term Borrowings

Federal funds purchased and securities sold under agree-
ments to repurchase generally mature within one to four
days from the transaction date. Other borrowed funds, con-
sisting of commercial paper, borrowed securities, term feder-
al funds purchased, 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, 1998 and 1997:

Federal Funds Purchased
and Securities Sold
Under Agreements
to Repurchase

Other
Borrowed
Funds

$3,108,985

$ 471,168

4.83%

3.91%

$1,592,860

$2,600,041

(in thousands)

December 31, 1998

Amount outstanding at

year-end

Weighted average

interest rate at year-end

December 31, 1997

Amount outstanding

at year-end
Weighted average

interest rate at year-end

5.26%

5.30%

Comerica Incorporated

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)

1998

1997

Parent Company
7.25% subordinated notes due 2007
9.75% subordinated notes due 1999
10.125% subordinated debentures due 1998

$ 159,669
74,970
—

$ 148,509
74,877
74,965

Total parent company

234,639

298,351

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
6.00% subordinated notes due 2008

198,301
155,502
149,404
104,186
155,181
174,086
247,798

198,100
147,938
149,246
99,220
148,224
146,914
—

Total subordinated notes

1,184,458

889,642

Medium-term notes:

Floating rate based on LIBOR indices
Floating rate based on Treasury indices
Floating rate based on Prime indices
Floating rate based on Federal

Funds indices

Fixed rate notes with interest rate

3,612,076
37,000

2,811,793
487,000
— 1,100,007

—

349,998

of 6.65%

199,810

1,349,596

During 1998, the Corporation terminated certain swaps that
hedged the fixed interest rate exposure of several debt
instruments. In accordance with policy, the gain resulting
from early termination was deferred and is being amortized
over the remaining life of the debt. The unamortized balance
is included in the carrying value of debt outstanding.

The Corporation currently has two medium-term note pro-
grams: a senior note program and a European note program.
Under these programs, certain 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 1999 to 2002.
The interest rate on the floating rate medium-term notes
based on U.S. Treasury indices is equal to the two-year
Constant Treasury Maturity Rate plus 0.01%. The notes are
due in 2000. The fixed rate notes mature in 2000. The medi-
um-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:

$2,826,907
469,043
316,517
485,422
2,587
1,181,783

Total medium-term notes

3,848,886

6,098,394

(in thousands)

Notes payable

14,276

—

Total subsidiaries

5,047,620

6,988,036

Total medium- and long-term debt $5,282,259

$7,286,387

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:

1999
2000
2001
2002
2003
2004 and later

(in thousands)

Subsidiaries
Subordinated notes:

7.25% subordinated

notes

7.25% subordinated

notes

Medium-term notes:

Floating rate based on
LIBOR indices
Floating rate based on
Treasury indices

Fixed rate notes

with interest rate
of 6.65%

Principal
Amount
of Debt
Converted

Base
Rate at
12/31/98

Base Rate

$200,000

6-month LIBOR

5.16%

150,000

6-month LIBOR

5.16

108,000

3-month LIBOR

37,000

3-month LIBOR

5.28

200,000

3-month LIBOR

5.28

Comerica Incorporated

Shareholders’ Equity

The board of directors authorized the repurchase of up to
40.5 million shares of Comerica Incorporated common stock
for general corporate purposes, acquisitions and employee
beneﬁt plans. At December 31, 1998, 20.5 million shares had
been repurchased under this program.

At December 31, 1998, the Corporation had reserved 8.4
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 divi-
dend paid April 1, 1998. All per share data included in the
consolidated financial statements and in the related notes
have been retroactively adjusted to reflect the split.

Net Income per Common Share

Basic net income per common share is computed by divid-
ing net income applicable to common stock by the weighted
average number of shares of common stock outstanding dur-
ing the period. Diluted net income per common share is
computed by dividing net income applicable to common
stock by the weighted average number of shares, nonvested
stock and dilutive common stock equivalents outstanding
during the period. Common stock equivalents consist of
common stock issuable under the assumed exercise of stock
options granted under the Corporation’s stock plans, using
the treasury stock method. A computation of earnings per
share follows:

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)

1998

1997

1996

Basic

Average shares outstanding

155,859

158,333

169,076

Net income
Less preferred stock dividends

$607,076
17,100

$530,476
17,100

$417,161
9,025

Net income applicable to
common stock

Basic net income per
common share

$589,976

$513,376

$408,136

$3.79

$3.24

$2.41

Diluted

Average shares outstanding
Nonvested stock
Common stock equivalents

Net effect of the assumed

155,859
191

158,333
204

169,076
195

exercise of stock options

2,707

2,503

1,956

Diluted average shares

158,757

161,040

171,227

Net income
Less preferred stock dividends

$607,076
17,100

$530,476
17,100

$417,161
9,025

Net income applicable to
common stock

Diluted net income per
common share

$589,976

$513,376

$408,136

$3.72

$3.19

$2.38

Comerica Incorporated

Long-term Incentive Plans

The Corporation has long-term incentive plans under which
it has awarded both shares of restricted stock to key execu-
tive ofﬁcers and stock options to executive ofﬁcers, directors
and key personnel of the Corporation and its subsidiaries.
The Corporation has elected to follow Accounting Principles
Board opinion No. 25, “Accounting For Stock Issued to
Employees” (APB 25) and related Interpretations in account-
ing for its employee and director stock options. Under APB
25, no compensation expense is recognized because the exer-
cise price of the Corporation’s employee and director stock
options equals the market price of the underlying stock on
the date of grant. The maturity of each option is determined
at the date of grant; however, no options may be exercised
later than ten years from the date of grant. The options may
have restrictions regarding exercisability.

Pro forma information regarding net income and earnings
per share is required under SFAS No. 123, “Accounting for
Stock-Based Compensation,” and has been determined as if
the Corporation had accounted for its employee and director
stock options under the fair value method of that Statement.
The fair value of options was estimated at the date of grant
using a Black-Scholes option pricing model. The Black-
Scholes model was developed for use in estimating the fair
value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation mod-
els require the input of highly subjective assumptions includ-
ing the expected stock price volatility. The Black-Scholes
model may not necessarily provide a reliable single measure
of the fair value of employee and director stock options. The
Corporation’s employee and director stock options have
characteristics significantly different from those of traded
options and changes in the subjective input assumptions can
materially affect the fair value estimate.

The fair value of the options was estimated using a Black-
Scholes option valuation model with the following weighted-
average assumptions for 1998, 1997 and 1996, respectively:
risk-free interest rates of 5.54%, 6.49% and 6.07%; expected
dividend yields of 3.45%, 3.77% and 4.00%; expected
volatility factors of the market price of Comerica Common
Stock of 21%, 20% and 21%; and an expected life of the
options of 4.3, 4.4 and 5.0 years. For purposes of pro forma
disclosures, the estimated fair value of the options granted in
1995 and thereafter is amortized to expense over the options’
vesting period. Since the Corporation’s options generally
vest over a four-year period, the pro forma disclosures are
not indicative of future amounts until SFAS No. 123 is
applied to all outstanding nonvested options.

Had compensation cost for the Corporation’s stock-based
compensation plans been determined in accordance with the
fair value provisions of SFAS No. 123, net income and earn-
ings per share would have been as follows:

(in thousands,
except per share data)

1998

1997

1996

Pro forma net income

$578,335

$506,875

$404,121

Pro forma earnings per share:

Basic
Diluted

$3.71
3.64

$3.20
3.15

$2.39
2.36

Average per Share

Exercise Market
Price

Price

$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

$24.77
71.37
42.92
21.33

$34.92
40.28
43.07
44.81

$60.17
71.37
64.33
64.07

Number

6,768,497
1,894,143
(321,119)
(1,775,613)
—
595,718

7,161,626
1,994,182
(266,295)
(1,252,170)
—

7,637,343
2,058,542
(232,617)
(1,213,818)
—

Outstanding—December 31, 1995

Granted
Cancelled
Exercised
Expired
Acquisition of Metrobank

Outstanding—December 31, 1996

Granted
Cancelled
Exercised
Expired

Outstanding—December 31, 1997

Granted
Cancelled
Exercised
Expired

Outstanding—December 31, 1998 7,68,249,450

$36.39

$68.19

Exercisable—December 31, 1998
Available for grant—

December 31, 1998

4,173,748

104,458

The following table summarizes information about stock
options outstanding at December 31, 1998:

Outstanding

Exercisable

Exercise
Price Range

Average
Shares Life (a)

$ 8.59 - $18.00
18.59 - 21.00
21.59 - 25.42
28.33 - 52.67
65.13 - 71.58

Total

1,264,438
1,453,242
1,817,533
1,719,856
1,994,381

8,249,450

3.3
5.4
6.3
8.1
9.2

6.8

Average
Exercise
Price

$13.70
19.01
24.43
39.86
71.37

Average
Exercise
Price

$13.70
19.11
23.75
39.30
—

1,263,912
1,147,004
1,073,750
689,082
—

$36.39

4,173,748

$22.00

(a) Average contractual life remaining in years.

Comerica Incorporated

Employee Benefit Plans

The Corporation has a defined benefit pension plan in effect for
substantially all full-time employees. Staff expense includes
income of $3.0 million in 1998, $0.3 million in 1997 and $1.4
million in 1996 for the plan. Benefits under the plan are based pri-
marily on years of service and the levels of compensation 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 collective investment funds administered
by Munder Capital Management, equity securities, U.S. govern-
ment and agency securities and corporate bonds and notes.

The Corporation’s postretirement benefits plan continues postre-
tirement 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.

The following tables set forth reconciliations of the Corporation's
pension and postretirement plan obligations and plan assets:

Defined Benefit
Pension Plan

Postretirement
Benefit Plan

Components of net periodic benefit cost/(income):

Defined Benefit Pension Plan
(in thousands)

Service cost
Interest cost
Expected return on plan assets
Amortization of unrecognized

1998

1997

1996

$13,924
36,039
(48,887)

$12,400
33,823
(42,313)

$11,675
31,572
(39,654)

transition asset

(4,834)

Amortization of unrecognized

prior service cost

Amortization of unrecognized net loss

(331)
1,071

(353)
978

(338)
188

Net periodic benefit income

$ (3,018)

$ (299)

$ (1,391)

Postretirement Benefit Plan
(in thousands)

Service cost
Interest cost
Expected return on plan assets
Amortization of unrecognized
transition obligation

Amortization of unrecognized net gain

1998

1997

1996

$ 262
5,509
(5,829)

$ 273
5,710
(5,413)

$ 402
5,597
(5,205)

4,628
—

4,628
(56)

4,628
(377)

(in thousands)

1998

1997

1998

1997

Net periodic benefit cost

$4,570

$5,142

$5,045

Change in benefit obligation:
Benefit obligation at January 1 $525,329 $462,776 $81,584 $76,420
273
Service cost
5,710
Interest cost
—
Curtailment
5,979
Actuarial (gain)/loss
(6,798)
Benefits paid

13,924
36,039
(5,518)
(3,631)
(23,202)

12,400
33,823
—
39,720
(23,390)

262
5,509
—
(423)
(6,222)

Actuarial assumptions were as follows:

Defined Benefit Pension Plan

1998

1997

1996

Discount rate used in determining beneﬁt obligation
Long-term rate of return on assets
Rate of compensation increase

7.0% 7.0% 7.5%
9.0% 9.0% 9.0%
5.0% 5.0% 5.0%

Benefit obligation

at December 31

$542,941 $525,329 $80,710 $81,584

Postretirement Benefit Plan

1998

1997

1996

Change in plan assets:
Fair value of plan assets at

January 1

Actual return on plan assets
Employer contributions
Benefits paid

Fair value of plan assets at

$585,215 $515,164 $86,727 $80,547
7,941
5,037
(6,798)

66,181
—
(23,202)

89,527
3,914
(23,390)

4,226
3,581
(6,222)

December 31

$628,194 $585,215 $88,312 $86,727

The following table sets forth the funded status of the
deﬁned beneﬁt pension and postretirement plan and amounts
recognized on the Corporation’s balance sheet:

Defined Benefit
Pension Plan

Postretirement
Benefit Plan

(in thousands)

1998

1997

1998

1997

Funded status at December 31
Unrecognized net gain
Unrecognized net transition
(asset)/obligation

Unrecognized prior service cost

$85,253 $59,886 $ 7,602 $ 5,143
(8,294)
(44,829)

(22,834)

(7,115)

(10,524)
(2,394)

(15,358) 64,477
—
(2,956)

69,105
—

Prepaid benefit cost

$27,506 $18,738 $64,964 $65,954

Discount rate used in determining beneﬁt obligation
Long-term rate of return on assets

7.0% 7.0% 7.5%
6.7% 6.7% 6.7%

A 6 percent health care cost trend rate was projected for 1998
and is assumed to decrease gradually to 5 percent during
1999, remaining constant thereafter. Increasing each health
care rate by one percentage point would increase the accumu-
lated postretirement benefit obligation by $6 million at
December 31, 1998, and the aggregate of the service and
interest cost components by $392 thousand for the year ended
December 31, 1998. Decreasing each health care rate by one
percentage point would decrease the accumulated postretire-
ment benefit obligation by $5 million at December 31, 1998,
and the aggregate of the service and interest cost components
by $341 thousand for the year ended December 31, 1998.

The Corporation also maintains defined contribution plans
(including 401(k) plans) for various groups of its employees.
All of the Corporation’s salaried and regular part-time
employees are eligible to participate in one or more of the
plans. The Corporation makes matching contributions, most
of which are based on a declining percentage of employee
contributions (currently, maximum per employee is $1,000)
as well as a performance-based matching contribution based
on the Corporation’s financial performance. Staff expense
includes expense of $10.3 million in 1998, $9.7 million in
1997 and $10.4 million in 1996 for the plans.

Comerica Incorporated

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:

(in thousands)

Currently payable
Federal
Foreign
State and local

Deferred federal, state and local

1998

1997

1996

(in thousands)

$245,486
27,263
13,847

$239,680
30,723
15,584

$225,863
5,912
11,039

286,596
37,703

285,987
279

242,814
(13,769)

Allowance for credit 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

1998

1997

$(142,889)
165,974
10,899
(25,554)
(3,507)
(6,824)
—
(35,563)

$(132,990)
122,127
15,567
(20,088)
(149)
(7,625)
(10,150)
(34,440)

Total

$324,299

$286,266

$229,045

There were $2.1 million, $1.8 million and $4.8 million of
income taxes provided on securities transactions in 1998,
1997 and 1996, respectively.

Total

$ (37,464)

$ (67,748)

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)

1998

1997

1996

Tax based on federal statutory rate
Effect of tax-exempt interest income
Other

$325,981
(4,039)
2,357

$285,860
(5,687)
6,093

$226,172
(8,842)
11,715

Provision for income taxes

$324,299

$286,266

$229,045

Restructuring

The Corporation recorded a restructuring charge of $90 mil-
lion in 1996 in connection with a program to improve
efficiency, revenue and customer service. The charge only
includes direct and incremental costs associated with the
program. The table at right provides details on the restruc-
turing-related reserve which was eliminated in 1998.

Termination benefits primarily include severance payments.
The occupancy and equipment portion consists of lease
termination 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.

An adjustment of $7 million, netted against noninterest
expenses, was made to eliminate the restructuring liability
in 1998.

(in thousands)

Balances at 12/31/96
Activity

Balances at 12/31/97
Activity
Adjustment

Employee
Termination

Occupancy
and
Equipment

Other

Total

$48,000
(38,000)

$10,000
(10,000)
—)

$21,000
(10,000)

$ 21,000
(13,000)

$90,000
(61,000)

$11,000
(6,000)
(5,000)

$ 8,000
(6,000)
(2,000)

$29,000
(22,000)
(7,000)

Balances at 12/31/98

$0 00—)

$00 0—)

$000 —)

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 collectibility or present other unfavorable features.
The aggregate amount of loans attributable to persons who
were related parties at December 31, 1998, approximated
$177 million at the beginning and $309 million at the end of
1998. During 1998, new loans to related parties aggregated
$304 million and repayments totaled $172 million.

Comerica Incorporated

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 regulations,
the aggregate amount of dividends which can be paid to the
Corporation without obtaining prior approval from bank regu-
latory agencies approximated $543 million at January 1, 1999,
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 $442 million in 1998, $354 million in 1997 and
$322 million in 1996.

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, 1998, 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). At December 31, 1997, the Corporation and
its Comerica Bank subsidiary exceeded the ratios required to
be considered “adequately capitalized” (total capital ratio
greater than 8 percent). Comerica Bank-Texas and Comerica
Bank-California exceeded the ratios required to be “well capi-
talized” at year-end 1997. The following is a summary of the
capital position of the Corporation and its significant banking
subsidiaries:

(in thousands)

December 31, 1998

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, 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%)

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 ﬁnan-
cial instruments involve, to varying degrees, elements of
credit and market risk in excess of the amount reﬂected in
the consolidated balance sheets.

Credit risk is the possible loss that may occur in the event of
nonperformance by the counterparty to a ﬁnancial instru-
ment. The Corporation attempts to minimize credit risk aris-
ing from off-balance sheet ﬁnancial instruments by
evaluating the creditworthiness of each counterparty adher-
ing to the same credit approval process used for traditional
lending activities. Counterparty risk limits and monitoring
procedures have also been established to facilitate the man-
agement of credit risk. Collateral is obtained, if deemed nec-

Comerica Inc.
(Consolidated)

Comerica
Bank

Comerica Bank-
Texas

Comerica Bank-
California

$2,699,143
4,435,977

$2,263,522
3,740,843

$310,743
407,268

$330,998
453,387

7.68%

8.02%

8.12%

8.04%

6.26

10.28

6.42

10.60

8.07

10.58

7.35

10.07

$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%

6.28

9.90

6.20

9.87

9.43

10.42

9.03

10.14

essary, based on the results of management’s credit evalua-
tion. Collateral varies, but may include cash, investment
securities, accounts receivable, inventory, 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-trad-
ed 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 avail-
able price information. The Corporation reduces exposure to
credit and liquidity risks from over-the-counter derivative
and foreign exchange contracts by conducting such transac-
tions with investment-grade domestic and foreign investment
banks or commercial banks.

Comerica Incorporated

Financial Instruments with Off-Balance Sheet Risk (continued)

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 counter-
party and monetary exposure limits and monitoring compli-
ance with those limits. Market risk arising from derivative
and foreign exchange positions entered into on behalf of
customers is reﬂected in the consolidated ﬁnancial state-
ments and may be mitigated by entering into offsetting
transactions. Market risk inherent in off-balance sheet deriv-
ative and foreign exchange contracts held or issued for risk
management purposes is generally offset by changes in the
value of rate sensitive on-balance sheet assets or liabilities.
Termination of derivative contracts, other than by a counter-
party, is unlikely as a particular instrument can be offset by
entering into an opposite-effect derivative product to facili-
tate risk management strategies.

Derivative Financial Instruments and
Foreign Exchange Contracts

The Corporation, as an end-user, employs a variety of off-
balance sheet ﬁnancial instruments for risk management pur-
poses. Activity related to these instruments is centered
predominantly in the interest rate markets and mainly
involves interest rate swaps. Various other types of instru-
ments are also used to manage exposures to market risks,
including interest rate caps and floors, total return swaps, for-
eign exchange forward contracts and foreign exchange swap
agreements. Refer to the section entitled “Risk Management
Derivative Financial Instruments and Foreign Exchange Con-
tracts” in the financial review on page 37 for further informa-
tion about the Corporation’s objectives 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, 1998 and 1997.

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.

During 1998, the Corporation terminated its portfolio of zero-
coupon interest rate swaps. The notional amount of these
swaps totaled $700 million. A portion of these swaps were
replaced with paying swaps. The Corporation also terminated
its portfolio of principal only total return swaps in conjunction
with divesting the mortgage servicing business. The notional
amount of these swaps was $55 million.

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.

Comerica Incorporated

Notional/
Contract Unrealized Unrealized
Amount

Gains

Fair
Losses Value

$6,869

$152

$ (6)

$146

15
—

—
—

(in millions)

December 31, 1998
Risk management

Interest rate contracts:

Swaps
Options, caps and
floors purchased

Caps written

Total interest

rate contracts

6,884

152

(6)

146

Foreign exchange

contracts:
Spot and forwards
Swaps

782
131

Total foreign

exchange contracts

913

Total risk

32
12

(29)
—

3
12

(29)

management

$7,797

$196

$(35)

$161

December 31, 1997
Risk management

Interest rate contracts:

Swaps
Options, caps and
floors purchased

Caps written

Total interest

$8,515

$137

$(14)

$123

52
—

—
—

rate contracts

8,567

137

(14)

123

Foreign exchange

contracts:
Spot and forwards
Swaps

445
154

Total foreign

exchange contracts

599

Total risk

12
5

(9)
—

(9)

3
5

management

$9,166

$154

$(23)

$131

Bilateral collateral agreements with counterparties covered
94 percent and 93 percent of the notional amount of interest
rate derivative contracts at December 31, 1998 and 1997,
respectively. These agreements reduce credit risk by
providing for the exchange of marketable investment
securities to secure amounts due on contracts in an unreal-
ized gain position. In addition, at December 31, 1998,
master netting arrangements had been established with
all interest rate swap counterparties and certain foreign
exchange counterparties. These arrangements effectively
reduce credit risk by permitting settlement, on a net basis,
of contracts entered into with the same counterparty. The
Corporation has not experienced any material credit losses
associated with derivative or foreign exchange contracts.

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
Corporation 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, 1998, unrealized gains and
unrealized losses on customer-initiated and other foreign
exchange contracts averaged $14 million and $9 million,
respectively. For the year ended December 31, 1997,
unrealized gains and unrealized losses averaged $23 million
and $18 million, respectively. These contracts also generated
noninterest income of $9 million in 1998 and $7 million in
1997. Average positive and negative fair values and income
related to customer-initiated and other interest rate contracts
were not material for 1998 and 1997.

The following table presents the composition of off-balance
sheet derivative ﬁnancial instruments and foreign exchange
contracts held or issued in connection with customer-initiat-
ed and other activities at December 31, 1998 and 1997.

Notional/
Contract Unrealized Unrealized
Amount

Fair
Losses Value

Gains

(in millions)

December 31, 1998
Customer-initiated and other

Interest rate contracts:

Caps and floors written
Caps and floors purchased
Swaps

$ 241
176
264

$ —
1
7

$ (1) $ (1)
1
1

—
(6)

Total interest rate

contracts

Foreign exchange

contracts:
Spot, forwards, futures

and options

681

(7)

673

(13)

Total customer-initiated

and other

$1,354

$ 28

$(20) $ 8

December 31, 1997
Customer-initiated and other

Interest rate contracts:

Caps written
Floors purchased
Swaps

$ 314
32
150

$ —
—
6

$ — $ —
— —
(6) —

Total interest rate

contracts

Foreign exchange

contracts:
Spot, forwards, futures

496

(6) —

and options

1,837

(33)

Total customer-initiated

and other

$2,333

$ 43

$(39) $0 4

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 vari-
able 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
Corporation’s swap agreements are structured such that vari-
able payments 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
credit 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.

Foreign Exchange Contracts

The Corporation uses foreign exchange rate swaps, includ-
ing generic receive variable swaps and cross-currency
swaps, for risk management purposes. Generic receive vari-
able 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 ex-
change of both interest and principal amounts in two differ-
ent currencies. Other foreign exchange contracts such as
futures, forwards and options are primarily entered into as a
service to customers and to offset market risk arising from
such positions. Futures and forward contracts require the
delivery or receipt of foreign currency at a speciﬁed date
and exchange rate. Foreign currency options allow the hold-
er 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 Corpora-
tion to both market risk and credit risk.

Comerica Incorporated

Financial Instruments with Off-Balance Sheet Risk (continued)

Commitments

Unused Commitments to Extend Credit

The Corporation also enters into commitments to purchase
or sell earning assets for risk management purposes. These
transactions, which are similar in nature to forward con-
tracts, did not have a material impact on the consolidated
ﬁnancial statements for the years ended December 31, 1998
and 1997. Commitments to purchase and sell U.S. Treasury
and municipal bond securities related to the Corporation’s
trading account totaled $17 million and $2 million at
December 31, 1998 and 1997, respectively. At December 31,
1997, $30 million of commitments 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. No such commitments were outstanding at year-end
1998. Outstanding commitments expose the Corporation to
both credit and market risk.

Available credit lines on ﬁxed rate credit card and check
product accounts, which have characteristics similar to
option contracts, totaled $1.6 billion and $1.8 billion at
December 31, 1998 and 1997, respectively. These commit-
ments 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 commit-
ments is very limited, however, since it is unlikely that a
signiﬁcant number of customers with these accounts will
simultaneously borrow up to their maximum available credit
lines. Additional information concerning unused commit-
ments to extend credit is provided in the “Credit-Related
Financial Instruments” section below.

Credit-Related Financial Instruments

The Corporation issues off-balance sheet ﬁnancial instru-
ments in connection with commercial and consumer lending
activities.

Credit risk associated with these instruments is represented
by the contractual amounts indicated in the following table:

(in millions)

1998

1997

Unused commitments to extend credit
Standby letters of credit and ﬁnancial guarantees
Commercial letters of credit
Credit default swaps

$28,393
3,632
328
44

$27,528
3,088
449
26

Contingent Liabilities

Commitments to extend credit are legally binding agree-
ments to lend to a customer, provided there is no violation
of any condition established in the contract. These commit-
ments generally have ﬁxed expiration dates or other termina-
tion 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, 1998
and 1997, included $3 billion and $4 billion, respectively,
of variable and ﬁxed rate revolving credit commitments.
Other unused loan commitments, primarily variable rate,
totaled $25 billion at December 31, 1998, and $24 billion at
December 31, 1997.

Standby and Commercial Letters of Credit and
Financial Guarantees

Standby and commercial letters of credit and ﬁnancial guar-
antees 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 $1,432 million and $1,309 million at
December 31, 1998 and 1997, respectively. The remaining
standby letters of credit and ﬁnancial guarantees, which
mature within one year, totaled $2,200 million and $1,779
million at December 31, 1998 and 1997, respectively. Com-
mercial letters of credit are issued to ﬁnance foreign or
domestic trade transactions.

Credit Default Swaps

Credit default swaps allow the Corporation to diversify its
loan portfolio by assuming credit exposure from different
borrowers or industries without actually extending credit in
the form of a loan. Credit risk associated with credit default
swaps was $44 million at December 31, 1998 and $26 mil-
lion at December 31, 1997.

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 reason-
able certainty, management, after consultation with legal
counsel, believes that the litigation and claims, some of
which are substantial, will not have a material adverse effect
on the Corporation’s consolidated ﬁnancial position.

In addition, management cannot predict with reasonable cer-
tainty the likelihood, or the impact, of any future claims that
may be brought against the Corporation. For example,
although the Corporation is not currently a named defendant
in any lawsuits involving year 2000 readiness, it is impossi-
ble to know whether any claims in connection with the year
2000 will be asserted in the future, and the potential liability,
if any, that may arise from such claims.

Comerica Incorporated

Usage Restrictions

Cash and due from banks may include 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, 1998
and 1997, the Federal Reserve balances were $269 million
and $587 million, respectively.

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
financial instruments. These valuation methods require con-
siderable judgment, and the resulting estimates of fair value
can be signiﬁcantly affected by the assumptions made and
methods used. Accordingly, the estimates provided herein do
not necessarily indicate amounts which could be realized in
a current exchange. Furthermore, as the Corporation normal-
ly intends to hold the majority of its ﬁnancial instruments
until maturity, it does not expect to realize many of the esti-
mated 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 relation-
ships and the value of trust operations and other fee generat-
ing 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
securities, 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
values 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 equip-
ment lease ﬁnancing loans. The estimated fair value of the
Corporation’s variable rate commercial loans is represented
by their carrying value, adjusted by an amount which esti-
mates the change in fair value caused by changes in the
credit quality of borrowers since the loans were originated.
The estimated fair value of ﬁxed rate commercial loans is
calculated by discounting the contractual cash ﬂows of the
loans using year-end origination rates derived from the
Treasury yield curve or other representative bases. The
resulting amounts are adjusted to estimate the effect of
changes in the credit quality of borrowers since the loans
were originated.

International loans: The estimated fair value of the 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 esti-
mated fair value of long-term international loans is based on
the quoted market values of these loans or on the market
values of international 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 con-
sumer loans, the estimated fair values are calculated by dis-
counting the contractual cash ﬂows of the loans using rates
representative of year-end origination rates. The resulting
amounts are adjusted to estimate the effect of changes in the
credit quality of borrowers since the loans were originated.

Customers’ liability on acceptances outstanding: The carry-
ing 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

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 approxi-
mates 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
foreign 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.

Comerica Incorporated

The estimated fair values of the Corporation’s ﬁnancial instru-
ments at December 31, 1998 and 1997 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
credit losses

1998

1997

Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value

$ 1,830

$12,080

6
46

2,712
19,086
2,713

1,080

4,179

1,038
1,862
647

6
46

2,712
19,016
2,696

9
41

4,006
15,805
2,085

1,075

941

4,216

3,634

1,071
1,807
648

1,565
4,348
517

9
41

4,006
15,743
2,080

933

3,617

1,608
4,231
518

30,605

30,529

28,895

28,730

(452)

—

(424)

—

15,840

22,601

3,193

Net loans

30,153

30,529

28,471

28,730

Customers’ liability on
acceptances

outstanding

Loan servicing rights

Liabilities
Demand deposits

(noninterest-bearing) 6,999

6,999

6,761

Interest-bearing
deposits

17,314

17,340

15,825

Total deposits

24,313

24,339

22,586

Short-term borrowings
Acceptances

outstanding

Medium- and

3,580

3,193

long-term debt

5,282

5,355

7,286

7,395

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

—

(20)

196

(35)

(20)

—

(39)

Credit-related ﬁnancial

instruments

—

(13)

—

154

(23)

(39)

(13)

Business Segment Information

The Corporation has strategically aligned its operations into
three major lines of business: the Business Bank, the
Individual Bank and the Investment Bank. These lines of
business are differentiated based on the products and ser-
vices provided. Lines of business results are produced by the
Corporation’s internal management accounting system. This
system measures financial results based on the internal
organizational structure of the Corporation; information
presented is not necessarily comparable with similar infor-
mation for any other financial institution. The management
accounting system assigns balance sheet and income state-
ment items to each line of business using certain methodolo-
gies which are constantly being refined. For comparability
purposes, amounts in all periods are based on methodologies
in effect at December 31, 1998. These methodologies, which
are briefly summarized in the following paragraph, may be
modified as management accounting systems are enhanced
and changes occur in the organizational structure or product
lines. In addition to the three major lines of business, the
Finance Division is also reported as a segment.

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
remaining assets and liabilities. The credit loss provision is
assigned based on the amount necessary to maintain an
allowance for credit losses adequate for that line of business.
Noninterest income and expenses directly attributable to a
line of business are assigned to that business. Direct expens-
es incurred by areas whose services support the overall
Corporation are allocated 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 overhead is assigned based on
the ratio of a line of business’ noninterest expenses to total
noninterest expenses incurred by all business lines. Common
equity is allocated based on credit, operational and business
risks.

The following discussion provides information about the
activities of each line of business. A discussion of the finan-
cial results and the factors impacting 1998 performance can
be found in the section entitled “Strategic Lines of Busi-
ness” in the financial review on page 30.

The Business Bank is comprised of middle market lending,
asset-based lending, large corporate banking and internation-
al financial services. This line of business meets the needs of
medium-size businesses, multinational corporations and gov-
ernmental entities by offering various products and services,
including commercial loans and lines of credit, deposits,
cash management, capital market products, international
trade finance, letters of credit, foreign exchange manage-
ment services and loan syndication services.

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 products, 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 and personal trust ser-
vices are also provided to meet the personal financial needs
of affluent individuals (as defined by individual net income
or wealth).

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 ser-
vices, investment banking and discount securities brokerage
services.

The Finance segment includes the Corporation’s securities
portfolio and asset and liability management activities. This
segment is responsible for managing the Corporation’s
funding, liquidity and capital needs, performing interest
sensitivity gap and earnings simulation analysis and execut-
ing various strategies to manage the Corporation’s exposure
to interest rate risk.

The Other category includes divested business lines, the
income and expense impact of cash and credit loss reserves
not assigned to specific business lines, miscellaneous other
items of a corporate nature and certain direct expenses not
allocated to business lines.

Information in this note complies with SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related
Information” as of December 31, 1998, which established
standards for the way public business enterprises report
information about operating segments in annual financial
statements and interim financial reports issued to share-
holders.

Comerica Incorporated

Business Segment Information (continued)

Lines of business/segment financial results were as follows:

(dollar amounts in millions)

1998

1997

1996

1998

1997

1996

1998

1997

1996

Business Bank

Individual Bank

Investment Bank*

Earnings Summary

Net interest income (FTE)
Provision for credit losses
Noninterest income
Noninterest expenses
Restructuring charge
Provision for income taxes
Net income (loss)

Selected Average Balances

Assets
Loans
Deposits
Common equity

Statistical Data

$ 746
79
154
308
—
185
328

$ 658
(11)
128
299
—
181
317

$ 621
2
122
294
—
163
284

$ 679
(14)
300
586
—
142
265

$ 754
82
269
598
—
120
223

776
109
277
659
—
101
184

$22,908
21,555
4,332
1,340

$19,884
18,276
3,929
1,062

$17,397
16,156
3,914
941

$ 7,651
7,076
17,213
736

$ 9,534
8,936
17,055
769

$ 9,881
9,201
17,262
707

$ (3)
—
122
113
—
2
4

$ 33
1
34
27

$ (2)
—
107
101
—
1
3

$ 28
—
41
23

$ (1)
—
94
90
—
1
2

$22
—
48
17

Return on average assets
Return on average common equity
Efficiency ratio

1.43%

1.60%

1.63%

1.47%

1.24%

1.02%

5.62%

4.15%

2.67%

24.49
34.51

29.93
38.35

30.18
39.74

35.98
59.82

28.95
58.39

26.09
62.73

14.29
n/m

12.84
n/m

11.01
n/m

Finance

Other

Total

1998

1997

1996

1998

1997

1996

1998

1997

1996

46
—
8
3
—
18
33

$4,320
280
704
333

$ 40
—
4
3
—
15
26

$5,152
70
902
294

27
—
6
3
—
10
20

$7,375
224
931
364

$ —
48
19
17
(7)
(16)
(23)

$ 75
(313)
(30)
181

$ 2
75
20
7
—
(21)
(39)

$271
(73)
19
260

4
3
8
23
90
(31)
(73)

$ 1,468
113
603
1,027
(7)
331
607

$ 1,452
146
528
1,008
—
296
530

$01,427
114
507
1,069
90
244
417

$(480)
(229)
103
525

$34,987
28,599
22,253
2,617

$34,869
27,209
21,946
2,408

$34,195
25,352
22,258
2,554

Earnings Summary

Net interest income (FTE)
Provision for credit losses
Noninterest income
Noninterest expenses
Restructuring charge
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

0.28%
10.01
n/m

0.22%
8.99
n/m

0.17%
5.39
n/m

n/m%
n/m
n/m

1.74%
22.54
49.39

1.52%

1.22%

21.32
51.04

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 $8 million in 1998, $6 million in 1997 and $2 million in 1996. Return on average common equity would have been
31.49% in 1998, 27.89% in 1997 and 11.01% in 1996.

n/m - not meaningful

Comerica Incorporated

Parent Company Financial Statements

BALANCE SHEETS—Comerica Incorporated
December 31 (in thousands, except share data)

Assets
Cash and due from banks
Time deposits with banks
Investment securities available for sale
Investment in subsidiaries, principally banks
Premises and equipment
Other assets

Total assets

Liabilities and Shareholders’ Equity
Long-term debt
Other liabilities

Total liabilities

Nonredeemable preferred stock—$50 stated value

Authorized—5,000,000 shares
Issued—5,000,000 shares in 1998 and 1997

Common stock—$5 par value

Authorized—325,000,000 shares
Issued—157,233,088 shares in 1998 and 156,815,367 shares in 1997

Capital surplus
Unrealized net losses on investment securities available for sale
Retained earnings
Deferred compensation
Less cost of common stock in treasury—1,351,997 shares in 1998

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
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

1998

1997

2,728
22,600
22,392
3,280,384
5,855
57,235

$ 372
80,400
20,822
3,017,058
6,566
40,009

$3,391,194

$3,165,227

$ 234,639
109,942

$ 298,351
105,100

344,581

403,451

250,000

786,165
24,649
(6,455)
2,086,589
(5,202)
(89,133)

784,077
—
(1,937)
1,731,419
(1,783)
—

3,046,613

2,761,776

$3,391,194

$3,165,227

1998

1997

1996

$442,495
3,899
157,393
545
2,628

$353,500
3,626
166,952
559
2,070

$322,000
3,372
264,368
1,773
5,278

606,960

526,707

596,791

22,214
(1,648)
61,583
6,630
1,873
100
36,002

26,129
(2,818)
65,766
9,373
2,053
—
54,262

26,328
(2,794)
123,271
22,483
24,806
27,000
63,310

126,754

154,765

284,404

480,206
13,279

466,927

371,942
6,111

365,831

312,387
(1,931)

314,318

140,149

164,645

102,843

$607,076

$530,476

$417,161

Comerica Incorporated

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 decrease in bank time deposits
Net increase in receivables from subsidiaries
Capital transactions with subsidiaries

1998

1997

1996

$607,076

$530,476

$417,161

(140,149)
1,755
(6,008)
4,908

(164,645)
1,800
(20,992)
7,465

(102,843)
20,595
27,000
23,091

(139,494)

(176,372)

(32,157)

467,582

354,104

385,004

(11,640)
1,983
136
(1,222)
57,800
—
(134,752)

(4,092)
427
28,958
(1,424)
25,300
(375)
(3,283)

(4,820)
—
603
(20,345)
25,100
—
131,871

Net cash provided by (used in) investing activities

(87,695)

45,511

132,409

Financing Activities

Net increase (decrease) in advances from subsidiaries
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

(4,054)
(63,712)
—
—
50,885
(148,684)
(211,966)

3,818
141
(842)
—
35,082
(242,293)
(195,412)

(3,523)
(259)
—
246,744
35,206
(622,196)
(173,414)

(377,531)

(399,506)

(517,442)

2,356
372

109
263

(29)
292

$ 2,728

$0 00372

$111,263

$ 15,290

$ 25,799

$125,942

975

$ (1,145)

$ 11,150

—

$ —

$128,938

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.

Comerica Incorporated

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 credit losses
Securities gains/(losses)
Noninterest income

(excluding securities gains)

Noninterest expenses
Net income

Basic net income per common share
Diluted net income per common share

(in thousands,
except per share data)

Interest income
Interest expense
Net interest income
Provision for credit losses
Securities gains/(losses)
Noninterest income

(excluding securities gains)

Noninterest expenses
Net income

Basic net income per common share
Diluted net income per common share

Fourth
Quarter

$652,121
281,371
370,750
36,000
6,081

161,306
263,051
157,820

$0.99
0.97

Fourth
Quarter

$682,163
316,281
365,882
37,000
3,836

136,928
257,368
139,927

$0.86
0.85

1998

1997

Third
Quarter

$639,562
279,127
360,435
21,000
174)

151,940
253,821
154,490

$0.97
0.95

Third
Quarter

$674,671
313,090
361,581
34,000
1,096

135,251
252,622
137,067

$0.84
0.83

Second
Quarter

$651,230
286,752
364,478
28,000
11

148,784
253,299
150,383

$0.94
0.92

Second
Quarter

$663,326
299,798
363,528
34,000
(234)

121,681
249,259
129,710

$0.79
0.78

First
Quarter

$673,861
308,253
365,608
28,000
(150)

135,002
249,873
144,383

$0.89
0.88

First
Quarter

$627,243
275,458
351,785
41,000
497

128,897
248,737
123,772

$0.75
0.74

Pending Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, “Accounting for Derivative Instru-
ments and Hedging Activities,” which is required to be
adopted in years beginning after June 15, 1999. The State-
ment permits early adoption as of the beginning of any fiscal
quarter. The Corporation expects to adopt the new Statement
effective January 1, 2000. The Statement will require the
Corporation to recognize all derivatives on the balance sheet
at fair value. Derivatives that are not hedges must be adjust-
ed to fair value through income. If the derivative is a hedge,

depending on the nature of the hedge, changes in fair value
of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive
income until the hedged item is recognized in earnings. The
ineffective portion of a derivative’s change in fair value will
be immediately recognized in earnings. The Corporation has
not yet determined what the effect of SFAS No. 133 will be
on the earnings and financial position of the Corporation.

Comerica Incorporated

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, 1998 and 1997, 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, 1998. These ﬁnancial statements are the
responsibility 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
accepted 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
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
ﬁnancial statements. An audit also includes assessing the
accounting principles used and signiﬁcant estimates made
by management, as well as evaluating the overall ﬁnancial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the ﬁnancial statements referred to above
present fairly, in all material respects, the consolidated
ﬁnancial position of Comerica Incorporated and subsidiaries
at December 31, 1998 and 1997, and the consolidated
results of their operations and their cash ﬂows for each of
the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.

Detroit, Michigan
January 19, 1999

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 ﬁnan-
cial statements, management develops and maintains sys-
tems 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 assurance is based on the recognition that the
cost of internal accounting control systems should not
exceed the related beneﬁts. The systems of control are con-
tinually 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
auditors Ernst & Young LLP. Their role is to render an inde-
pendent 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 manage-
ment’s internal control and ﬁnancial reporting responsibili-
ties through its Audit Committee as well as various other
committees. The Audit Committee, which consists of direc-
tors who are not ofﬁcers or employees of the Corporation,
meets periodically with management and internal and inde-
pendent 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

Marvin J. Elenbaas
Senior Vice President and Controller

Comerica Incorporated

Historical Review–Average Balance Sheets
Comerica Incorporated and Subsidiaries

Consolidated Financial Information
(in millions)

Assets

Cash and due from banks

Short-term investments

Investment securities

Commercial loans
International loans
Real estate construction loans
Commercial mortgage loans
Residential mortgage loans
Consumer loans
Lease ﬁnancing

Total loans

1998

1997

1996

1995

1994

$01,622

$01,686

$01,576

$01,500

$01,532

143

129

195

351

3,371

4,687

5,823

7,625

16,973
2,342
989
3,819
1,325
2,575
576

14,234
1,953
866
3,547
1,676
4,486
447

12,686
1,541
707
3,483
1,960
4,624
351

11,302
1,257
541
3,157
2,450
4,569
285

823

8,004

9,598
1,107
403
2,916
2,175
3,795
217

28,599

27,209

25,352

23,561

20,211

Less allowance for credit losses

(440)

(402)

(361)

(340)

(322)

Net loans

28,159

26,807

24,991

23,221

19,889

Accrued income and other assets

1,692

1,560

1,610

1,432

1,203

Total assets

$34,987

$34,869

$34,195

$34,129

$31,451

Liabilities and Shareholders’ Equity

Noninterest-bearing deposits
Interest-bearing deposits

Total deposits

Federal funds purchased and securities sold

under agreements to repurchase

Other borrowed funds
Accrued expenses and other liabilities
Medium- and long-term debt

Total liabilities

Shareholders’ equity

$06,151
16,102

$05,815
16,131

$05,589
16,669

$04,767
16,888

$04,700
16,625

22,253

21,946

22,258

21,655

21,325

2,510
910
415
6,032

2,017
1,801
467
5,980

2,106
1,999
400
4,745

2,816
2,313
324
4,510

2,817
2,002
286
2,708

32,120

32,211

31,508

31,618

29,138

2,867

2,658

2,687

2,511

2,313

Total liabilities and shareholders’ equity

$34,987

$34,869

$34,195

$34,129

$31,451

Comerica Incorporated

Historical Review–Statements of Income
Comerica Incorporated and Subsidiaries

Consolidated Financial Information
(in millions, 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 credit losses

Net interest income after provision for credit losses

Noninterest Income
Fiduciary and investment management income
Service charges on deposit accounts
Commercial lending fees
Securities gains
Other noninterest income

Total noninterest income

Noninterest Expenses
Salaries and employee beneﬁts
Net occupancy expense
Equipment expense
Outside processing fee expense
Restructuring charge
Other noninterest expenses

Total noninterest expenses

Income before income taxes
Provision for income taxes

Net Income

1998

1997

1996

1995

1994

$2,382

$2,318

$2,161

$2,091

$1,577

219
7

226

310
11

321

372
18

390

474
26

500

446
31

477

2,617

2,648

2,563

2,614

2,092

648

673

686

721

543

137
49
368
(46)

1,156

1,461
113

1,348

111
98
374
(51)

1,205

1,443
146

1,297

112
107
295
(49)

1,151

1,412
114

1,298

166
136
289
2

1,314

1,300
87

1,213

121
79
148
(29)

862

1,230
56

1,174

184
158
43
6
212

603

565
90
60
43
(7)
269

147
141
32
5
203

528

539
89
62
42
—
276

133
140
23
14
197

507

561
99
69
42
90
298

125
130
21
12
211

499

562
99
68
49
—
308

122
124
20
3
181

450

549
99
68
46
7
273

1,020

1,008

1,159

1,086

1,042

931
324

817
287

646
229

626
213

582
195

$0,607

$0,530

$0,417

$0,413

$0,387

Net income applicable to common stock

$0,590

$0,513

$0,408

$0,413

$0,387

Basic net income per common share
Diluted net income per common share

Cash dividends declared on common stock
Dividends per common share

$3.79
3.72

$199
$1.28

$3.24
3.19

$181
$1.15

$2.41
2.38

$170
$1.01

$2.38
2.37

$158
$0.91

$2.20
2.19

$145
$0.83

Comerica Incorporated

Historical Review-Statistical Data
Comerica Incorporated and Subsidiaries

Consolidated Financial Information

1998

1997

1996

1995

1994

Average Rates (Fully Taxable Equivalent Basis)

Short-term investments

Investment securities

Commercial loans
International loans
Real estate construction loans
Commercial mortgage loans
Residential mortgage loans
Consumer loans
Lease ﬁnancing

Total loans

Interest income as a percent of earning assets

Domestic deposits
Deposits in foreign ofﬁces

Total interest-bearing deposits

Federal funds purchased and securities sold

under agreements to repurchase

Other borrowed funds
Medium- and long-term debt

Interest expense as a percent of

interest-bearing sources

Interest rate spread

Impact of net noninterest-bearing

sources of funds

Net interest margin as a percent of

earning assets

Return on Average Common
Shareholders’ Equity

Return on Average Assets

Efﬁciency Ratio

Per Share Data

Book value at year-end
Market value at year-end
Market value—high and low for year

Other Data

Number of banking ofﬁces
Number of employees (full-time equivalent)

6.25% 6.59% 6.23% 6.61% 4.57%

6.81

8.04
7.97
9.24
8.74
7.69
10.20
7.65

8.34

8.17

3.91
6.71

4.02

5.44
5.40
6.10

4.52

3.65

6.94

8.25
7.07
9.38
9.08
7.90
9.81
7.48

8.53

8.29

4.09
5.68

4.17

5.49
5.45
6.26

4.65

3.64

6.79

8.21
6.64
9.22
9.29
7.83
9.88
6.82

8.54

8.20

4.04
5.46

4.11

5.31
5.36
6.22

4.51

3.69

6.72

8.75
7.06
9.52
9.40
7.80
10.10
6.65

8.90

8.35

4.05
6.07

4.27

5.88
5.87
6.41

4.95

3.40

6.15

7.38
5.58
7.85
8.52
7.46
9.44
6.48

7.84

7.28

3.14
4.28

3.26

4.31
3.92
5.46

3.57

3.71

0.92

0.89

0.85

0.79

0.61

4.57

4.53

4.54

4.19

4.32

22.54

21.32

15.98

16.46

16.74

1.74

1.52

1.22

1.21

1.23

49.39

51.04

60.36

60.09

61.28

$17.94
68.19
73-47

$16.02
60.17
62-34

$14.70
34.92
39-24

$15.17
26.67
29-16

$13.64
16.25
21-16

334
10,134

350
9,960

358
11,079

395
12,876

398
13,077

Comerica Incorporated

Economic Outlook

At year-end 1998, the current U.S. economic expansion
broke a record for peacetime longevity, a record that dates
back to 1854. The economy now is well on its way to break-
ing the all-time record of 106 months for an unbroken peri-
od of economic expansion—during peace or war. February
of 2000 would mark the 107th month.

What’s the bottom line on these faithful monitors of U.S.
economic health? The Economic Vulnerability Sentinel can-
not tolerate rising inflation, and the Recession Watch Index
cannot bear rising expectations of inflation. Chances are the
U.S. economy will continue being the envy of the world and
will remain on an expansion track as long as business plans
and consumer indebtedness are not thrown off course by the
distorted and misleading signals of accelerating inflation.

Can we sustain this growth mode for one more year and
make economic history?

Economic Enemy #1

Comerica has two gauges to address this question. One such
measure is the Recession Watch Index, which forecasts the
chance of a recession occurring in the next 12 months. The
other gauge is Comerica’s Economic Vulnerability Sentinel,
which tells us how healthy, or recession-resistant, the cur-
rent expansion happens to be.

A Seesaw Year

During the first half of 1998, both of Comerica’s forecasting
indices were giving strong signals for a favorable year
ahead: Chances for a recession were only 28 percent
through mid-year 1999, and the current expansion was
shown to be the most durable since the good economic
growth of the early and mid-1960s.

Then came the third quarter, with a combination of major
strike activity in the airline and auto industries, growing dis-
tress in Asian and Latin financial markets, and accompany-
ing contraction in U.S. equities markets. These events
caused the Recession Watch Index to rise to 39 percent
probability of recession for the coming year. Fortunately for
1999’s prospects, this index must exhibit readings in excess
of 50 percent for at least a quarter before it makes the reces-
sion call. Even more encouraging, the latest index readings
have moved the index toward even safer levels.

As for the Economic Vulnerability Sentinel, this measure of
economic health is constantly taking the pulse of the econo-
my’s real growth rate versus inflation. As long as real GDP
growth is out-pacing the inflation rate by a comfortable margin,
there is both continuing strength and resilience in the recovery.

GDP vs. Inflation

For example, during the first quarter of 1998, real GDP
growth was 5.5 percent. This covered the inflation rate—
listed at 0.9 percent—by six-to-one. In the second quarter,
real GDP growth slipped badly to only 1.8 percent, but hap-
pily, the inflation rate remained at 0.9, yielding two-to-one
coverage of inflation by real GDP.

The third quarter was even more impressive, despite stock
market volatility and interruptions to output due to work stop-
pages. Real GDP was up 3.7 percent, and inflation inched up
to 1.0 percent—still better than three-to-one coverage. The
best performance was saved for the fourth quarter: 6.1 percent
real growth and 0.7 percent inflation, an eight-to-one multi-
ple.

Comerica Incorporated

Contrary to 1998’s conventional wisdom, the greatest threat to
the continuity of the current eight-year expansion does not
emanate from the so-called Asian implosion, the tortured mar-
kets of Latin nations, the European slowdown, or computer
glitches associated with the “Y2K” situation. The biggest
threat always remains the monetary danger of rising inflation.

Inflation is always and everywhere a monetary phenomenon.
It typically is caused by a nation’s central bank (in the U.S.,
the Federal Reserve system). For the past two years, the
Alan Greenspan Federal Reserve has been warning our
financial markets about the dangers of “irrational exuber-
ance” as a reason why the Fed might feel compelled to raise
interest rates and slow the GDP. Instead, the Fed did pre-
cisely the opposite last year. They lowered short-term inter-
est rates by three-quarter percent and exceeded nearly every
targeted growth range they themselves had set for safe
money growth.

An Exuberant Fed

In fact, the expansion rate for new money has exceeded
growth of real GDP by a factor of three and four times. This
means that for the better part of 16 months, the Fed has been
creating too much money chasing too few goods. This is a
classic precursor of rising inflation if it is left unchecked.

The Fed evidently felt compelled by the on-going weakness
abroad and a high-profile failure at home related to hedge
fund activity to provide “insurance” in the form of extra
money stimulation to the very same financial markets it had
six months earlier warned of exuberance. By November, the
stock market was back in record territory.

GDP
growth

Inflation
(CPI)

Car/light truck sales
(in millions)

Federal funds rate
(year-end)

U.S. unemployment
rate

Current account deficit
(in billions)

1998 actual
1999 forecast

3.9%

4.0%

1.6%

15.6
15.6

1.4%

5.35%

4.75%

4.5%

4.3%

$314

$245

Interest Rate Forecasts

2nd Quarter 1999
3rd Quarter 1999
4th Quarter 1999
1st Quarter 2000
2nd Quarter 2000

Fed
Funds

Prime
Rate

3 Month
LIBOR

4.75%
4.75
4.75
5.00
5.25

7.75%
7.75
7.75
8.00
8.25

5.25%
5.30
5.35
5.40
5.45

1 Month
Commercial
Paper

3 Month

Treasury Bills
6 Month

1 Year

5.33%
5.40
5.45
5.55
5.60

4.70%
4.80
4.90
5.00
5.10

4.75%
4.85
4.95
5.05
5.15

4.80%
4.90
5.00
5.10
5.20

Treasury Notes

Treasury Bonds

2 Year

3 Year

5 Year

10 Year

30 Year

Corp Aaa A Utility
Bonds

Bonds

4.85%
4.95
5.10
5.25
5.35

4.90%
5.00
5.15
5.35
5.45

Home
Mortgage Rates
FHLMC

6.70%
6.80
7.00
7.30
7.50

4.95%
5.05
5.20
5.40
5.50

5.15%
5.25
5.40
5.60
5.70

5.65%
5.75
5.90
6.10
6.20

6.30%
6.40
6.55
6.70
6.90

6.60%
6.60
6.80
7.30
7.50

Federal Reserve
Trade-Weighted
Dollar Index

Annualized Percent Changes
Real
GDP

GDP
Deflator

CPI

90.0%
85.5
85.5
90.0
92.0

3.2%
2.7
3.0
2.5
2.0

1.0%
1.4
1.7
2.0
2.2

1.2%
1.6
2.0
2.5
2.5

Indeed, another such policy reversal could occur in 1999.
The Fed at some point around mid-year 1999 could deter-
mine that the greater threat is not recession, but rising infla-
tion. After all, a dynamic U.S. economy has thus far
shrugged off most economic problems of foreign origin.
This is not surprising, given that foreign trade constitutes
only 13 to 15 percent of U.S. GDP.

Watch the Dollar

Another worrisome facet to Fed exuberance is that as mone-
tary stimulation causes short-term interest rates to fall, the
dollar weakens against foreign currencies, leading to the rise
in import prices. Once import prices begin rising, it becomes
considerably easier for U.S. retailers to raise prices. If
domestic firms raise prices and financing rates, then the pur-
chasing power of households will shrink, leading to a pro-
nounced slowdown of the economy. The parade of good
consumer news about the falling cost of vehicles, gas, oil,
food, clothing, credit and electronic equipment would end.

Fed stimulation already has sown the seeds of rising infla-
tion in late 1999. As a consequence, the environment of
lower interest rates will be limited to the first half of 1999.
By year-end, long-term interest rates will be on the uptick.
For the year, the economy will slow to 3.4 percent GDP
growth, down from 3.9 percent in 1998.

Comerica Markets

Here’s how Comerica’s primary domestic regional markets
of Michigan, California, Texas and Florida are expected to
fare in 1999, along with Canada and Mexico:

Michigan’s interest-rate sensitive economy, already
constrained by exceptionally tight labor markets, should
remain in growth mode during 1999, albeit lagging the
national growth rate.

California’s economy seems to be quite balanced in its
expansion and has prospered from the boom in imports.
This has offset some declining demand for exports from
the beleaguered nations in Asia and Latin America.

Texas has a rapidly expanding labor market and an
increasingly vibrant construction sector. However, Latin
economic recessions will temper growth this year.

Florida’s labor markets are expanding, and more growth
is expected in technology, tourism and construction.

Canada’s ongoing fiscal reforms are driving unemploy-
ment rates lower and keeping inflation rates below U.S.
rates. Lower interest rates and stability in world
commodity prices will accelerate Canada’s GDP in 1999.

Mexico will experience the adverse impact of Latin
economic weakness and Brazilian recession in 1999, and
the peso will weaken. Fortunately, U.S. economic
growth and Canadian acceleration will expand Mexican
exports.

n n n

So, can we keep the economic party going strong?
Prospects for economic stability in the years ahead depend
upon a more proper and logically consistent mix of policies
from Washington. If policy makers truly want to guard
against the twin evils of inflation and recession, then, in
stark contrast to recent initiatives, they would lower tax rates
and curb monetary stimulation.

David L. Littmann and William T. Wilson, Ph.D.
Comerica Economics Department

Comerica Incorporated

Shareholder Information

Stock
Comerica’s stock trades on the New York Stock Exchange
(NYSE) under the symbol CMA.

Shareholder Assistance
Inquiries related to shareholder records, change of name,
address or ownership of stock, and lost or stolen stock
certiﬁcates should be directed to the transfer agent and
registrar:

Norwest Shareowner Services
P.O. Box 64854
St. Paul, Minnesota 55164-0854
1-800-468-9716

Elimination of Duplicate Materials
If you receive duplicate mailings at one address, you may
have multiple shareholder accounts. You can consolidate
your multiple accounts into a single, more convenient
account by contacting the transfer agent shown above. In
addition, if more than one member of your household is
receiving shareholder materials, you can eliminate the
duplicate mailings by contacting the transfer agent.

Dividend Reinvestment Plan
Comerica offers a dividend reinvestment plan which permits
participating shareholders of record to reinvest dividends in
Comerica common stock without paying brokerage commis-
sions or service charges. Participating shareholders also may
invest up to $3,000 in additional funds each quarter for the
purchase of additional shares. A brochure describing the
plan in detail and an authorization form can be requested
from the transfer agent shown above.

Dividend Direct Deposit
Common shareholders of Comerica may have their
dividends deposited into their savings or checking account
at any bank that is a member of the National Automated
Clearing House (ACH) system. Information describing this
service and an authorization form can be requested from
the transfer agent shown above.

Dividend Payments
Subject to approval of the board of directors, dividends
customarily are paid on Comerica’s common stock on or
about January 1, April 1, July 1 and October 1.

Annual Meeting
The Annual Meeting of Shareholders of Comerica
Incorporated will be held on Friday, May 21, 1999, at
9:30 a.m. at the Detroit Institute of Arts, 5200 Woodward
Avenue, Detroit, Michigan.

Form 10-K

A copy of the Corporation’s Annual Report on
Form 10-K, as ﬁled with the Securities and Exchange
Commission, may be obtained without charge upon
written request to the Secretary of the Corporation at
the address listed under Corporate Information.

Comerica Incorporated

Stock Prices, Dividends and Yields
(adjusted for stock split)

Quarter

1998
Fourth
Third
Second
First

1997
Fourth
Third
Second
First

High

$69.00
71.94
73.00
72.13

$61.88
53.25
46.75
42.08

Dividend
Low Per Share

Dividend*
Yield

$46.50
51.00
61.94
54.33

$50.17
45.04
35.92
34.17

$0.32
0.32
0.32
0.32

$0.29
0.29
0.29
0.29

2.2%
2.1
1.9
2.0

2.1%
2.4
2.8
3.0

Dividend yield is calculated by annualizing the quarterly dividend per
share and dividing by an average of the high and low price in the quarter.

At January 31, 1999, there were approximately 17,030
holders of record of the Corporation’s common stock.

Corporate Information

Comerica Incorporated
Comerica Tower at Detroit Center, MC 3391
500 Woodward Avenue
Detroit, Michigan 48226
1-248-371-5000 (metro Detroit)
1-800-521-1190 (outside Detroit area)
www.comerica.com

Investor Relations on the Internet
Go to www.comerica.com to find the latest investor
relations information about Comerica, including stock
quotes, news releases and customized financial data.

Product Information Center
If you have any questions about Comerica’s products and
services, please contact our Product Information Center at
1-800-292-1300.

Year 2000 Updates
Call 1-877-789-2573 or go to www.comerica.com for the
latest information about Comerica’s year 2000 program.

Community Reinvestment Act (CRA) Performance
Comerica is committed to meeting the credit needs of the
communities it serves. Following are the most recent CRA
ratings for Comerica subsidiaries:

Comerica Bank (Michigan)
Comerica Bank–Texas
Comerica Bank–California
Comerica Bank, N.A.

Outstanding
Outstanding
Satisfactory
Satisfactory

Equal Employment Opportunity
Comerica is committed to its afﬁrmative action program and
practices which ensure uniform treatment of employees
without regard to race, creed, color, age, national origin,
religion, handicap, marital status, veteran status, weight,
height or sex.

Media Contact
Sharon R. McMurray
313-222-4881

Investor Contact
Allison T. McFerren
313-222-6317

1982
Corporation name changed
to Comerica Incorporated
to reflect national scope of
company.

1982
Comerica entered Florida
market.

1988
Comerica entered Texas
market.

1991
Comerica entered
California market.

1992
Comerica merged with
Manufacturers National
Corporation.

1999
Comerica marks the 150th
anniversary of its founding.

Company Milestones

1849
Comerica forerunner
Detroit Savings Fund
Institute founded by Elon
Farnsworth, March 5, 1849,
in the building at the rear
of the original location
of Mariners’ Church at
Griswold and Woodbridge.
First day of business was
August 17.

1871
Name changed to
The Detroit Savings Bank.

1933
Manufacturers National
Bank of Detroit founded;
Comerica 1992 merger
partner.

1936
Detroit Savings Bank
name changed to
The Detroit Bank.

1956
The Detroit Bank & Trust
Company formed
through consolidation of
The Detroit Bank,
Birmingham National
Bank, Ferndale National
Bank, and Detroit Wabeek
Bank & Trust.

1973
Holding company
DETROITBANK
Corporation formed.

Design and production:
The Davis Design Group

Historical text and photography:
PROMISES KEPT
The Story of Comerica
1849-1999

Photography:
Frenak Photo & Imaging
Jim Secreto Photography
Baditoi Photographic

Printer:
Wintor-Swan Associates

Printed on recycled paper