Comerica Annual Report 1999

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FY1999 Annual Report · Comerica

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F I N A N C I A L R E V I E W
A N D R E P O R T S

1999 Financial Highlights ............................................ 22

Earnings Performance .................................................. 22

Strategic Lines of Business ........................................ 29

Balance Sheet and Capital Funds Analysis ............ 31

Risk Management ........................................................ 32

Consolidated Financial Statements .......................... 40

Notes to Consolidated Financial Statements .......... 44

Report of Management ................................................ 65

Report of Independent Auditors.................................. 65

Historical Review .......................................................... 66

TA B L E 1 : S E L E C T E D F I N A N C I A L D ATA

Comerica Incorporated 1999 Annual Report

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

E A R N I N G S S U M M A R Y

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

P E R S H A R E O F C O M M O N S T O C K

Basic net income
Diluted net income
Cash dividends declared
Common shareholders’ equity
Market value

Y E A R - E N D B A L A N C E S

Total assets
Total earning assets
Total loans
Total deposits
Total borrowings
Medium- and long-term debt
Common shareholders’ equity

D A I LY AV E R A G E B A L A N C E S

Total assets
Total earning assets
Total loans
Total deposits
Total borrowings
Medium- and long-term debt
Common shareholders’ equity

R AT I O S

1999

1998

1997

1996

1995

$ 2,673
1,547
114
5

$ 2,617
1,461
113
6

$ 2,648
1,443
146
5

$ 2,563
1,412
114
14

$ 2,614
1,300
87
12

712
—

1,117
673

$ 4.20
4.14
1.44
20.60
46.69

$38,653
36,046
32,693
23,291
11,348
8,580
3,225

$36,960
34,079
31,560
22,519
10,771
7,289
2,999

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

3.24
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

$ 2.41
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

$ 2.38
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

Return on average assets
Return on average common shareholders’ equity
Efficiency ratio
Dividend payout ratio
Average common shareholders’ equity as

a percent of average assets

1.82%

21.86
49.35
35

8.11

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

7.48

6.91

7.47

7.36

22 Comerica Incorporated 1999 Annual Report

1 9 9 9 F I N A N C I A L H I G H L I G H T S

Centered on Performance
• Earned 21.86 percent on average common shareholders’

equity, compared to 22.54 percent in 1998.

• Returned 1.82 percent on average assets, compared to

1.74 percent in 1998.

Reported Record Earnings
• Reported net income of $673 million, or $4.14 per share,
compared with $607 million, or $3.72 per share in 1998.

Sustained Growth
• Generated a 17 percent increase in business loans, averaging

$29 billion.

• Experienced growth in noninterest income of $114 million,

or 19 percent.

• Averaged $37 billion in total assets in 1999, a 6 percent

increase from 1998.

• Increased average shareholders’ equity to $3.2 billion.

Enhanced Shareholders’ Return
• Raised the quarterly cash dividend 12.5 percent to
$0.36 per share, an annual rate of $1.44 per share.

Implemented Key Strategies
• Formed relationship with Trammel Crow Corporate

Services to reduce real estate operating costs.

• Opened new loan production offices in Atlanta, Chicago

and Stamford, Connecticut.

• Opened new international finance offices in Hong Kong

and Sao Paulo.

• Opened a new personal trust office in Phoenix.

RETURN ON AVERAGE ASSETS
(in percentages)

TA B L E 2 : A N A LY S I S O F N E T I N T E R E S T I N C O M E –
F U L LY TA X A B L E E Q U I VA L E N T

Comerica Incorporated 1999 Annual Report

%
1
2
.
1

%
2
1
.
1

%
2
2
.
1

%
0
4
.
1

%
6
2
.
1

%
2
5
.
1

%
1
3
.
1

%
4
7
.
1

%
2
2
.
1

%
2
8
.
1

%
9
3
.
1

Comerica
Excluding
Restructuring
Charge
Industry Average

1995

1996

1997

1998

1999

E A R N I N G S P E R F O R M A N C E

Net Interest Income
Net interest income, on a fully taxable equivalent (FTE)
basis, is the difference between interest earned on assets,
including certain yield related fees, and interest paid on
liabilities. Interest expense includes the net interest income
or expense associated with risk management interest rate
swaps. Adjustments are made to the yields on tax-exempt
assets in order to present tax-exempt income and fully
taxable income on a comparable basis. Net interest income
(FTE) comprised 68 percent of net revenues in 1999,
compared to 71 percent in 1998 and 73 percent in 1997.

NET INTEREST INCOME

1
2
3
,
1

%
9
1
.
4

7
2
4
,
1

%
4
5
.
4

2
5
4
,
1

%
3
5
.
4

8
6
4
,
1

%
7
5
.
4

2
5
5
,
1

%
5
5
.
4

Net Interest Income
(FTE)
Net Interest Margin
(FTE)

1995

1996

1997

1998

1999

1998

1997

Average
Balance Interest

Average
Rate

Average
Balance Interest

Average
Rate

Average
Balance Interest

Average
Rate

$19,681
2,627
1,364
4,461
929
1,816
682

31,560
2,309

2,403
116

34,079
1,518
(463)
1,826

$36,960

$ 7,664
1,513
6,399
688

2,823
659
7,289
—

27,035
6,255
421
250
2,999

$1,516
206
116
368
69
181
47

2,503
156

164
11

2,678

208
24
310
48

590

146
33
411
(54)

1,126

7.70% $16,973 $1,365
187
2,342
7.86
91
989
8.48
334
3,819
8.25
102
1,325
7.47
263
2,575
9.98
44
576
6.84

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

7.93
6.67

9.09

6.76
8.85

7.85

2.71
1.59
4.84
7.05

3.63

5.16
5.07
5.63
—

4.16

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

28,599
3,232

2,386
217

229
9

2,624

231
28
345
44

648

137
49
368
(46)

1,156

139

3,371
143

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

$34,987

$ 7,346
1,584
6,521
651

16,102

2,510
910
6,032
—

25,554
6,151
415
250
2,617

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

$ 6,926
1,701
6,699
805

16,131

2,017
1,801
5,980
—

25,929
5,815
467
250
2,408

8.25%
7.07
9.38
9.08
7.90
9.81
7.48

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

(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

16,264

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

shareholders’ equity

$36,960

$34,987

$ 34,869

Net interest income/rate spread (FTE)

$1,552

3.69

$1,468

3.65

$1,452

3.64

FTE adjustment (4)

Impact of net noninterest-bearing

sources of funds

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

0.86

4.55%

0.92

4.57%

0.89

4.53%

(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
primarily in excess of $100,000.

(3) Net interest rate swap income. If swap income were allocated, average
rates on total loans would have been 8.05% in 1999, 8.43% in 1998 and
8.63% in 1997; average rates on medium- and long-term debt would have
been 5.38% in 1999, 5.76% in 1998 and 5.85% in 1997.
(4) The FTE adjustment is computed using a federal income tax rate of 35%.

24 Comerica Incorporated 1999 Annual Report

TA B L E 3 : R AT E - V O L U M E A N A LY S I S –
F U L LY TA X A B L E E Q U I VA L E N T

1999 / 1998

1998 / 1997

Increase
(Decrease)

Increase
(Decrease)
Due to Rate Due to Volume*

Net
Increase

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

Net
Increase
(Decrease)

(in millions)

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

Total loans

Taxable securities
Securities exempt from
federal income taxes

Total investment securities

Short-term investments

$ (58)
(3)
(7)
(19)
(3)
(6)
(4)

(100)

—

Total interest income (FTE)

(94)

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)

(32)
(3)
(29)
2

(62)

(7)
(3)
(28)
(8)

Total interest expense

Net interest income (FTE)

(108)

$ 14

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

(1) Net interest rate swap income.

$209
22
32
53
(30)
(76)
7

217

(62)

(4)

(66)

(3)

148

9
(1)
(6)
2

16
(13)
71
—

$151
19
25
34
(33)
(82)
3

117

(61)

(4)

(65)

(23)
(4)
(35)
4

(58)

9
(16)
43
(8)

(30)

$ 70

$ 84

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

(10)

(7)

(1)

(8)

—

(18)

(14)
(4)
(6)
8

(16)

(1)
(1)
(9)
5

(22)

$ 4

$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

Net interest income (FTE) rose 6 percent to $1,552 million
in 1999. Contributing to this increase was a 10 percent
increase in average total loans and an increase in noninterest-
bearing sources of funds, primarily shareholders’ equity. A
significant increase of 16 percent in average commercial loans
was partially offset by planned reductions of investment
securities, which decreased on average by $1.0 billion, or
29 percent, from 1998, and planned runoff of residential
mortgage and consumer loans, which declined on average
by a combined $1.2 billion from the prior year.

The net interest margin remained relatively stable in 1999,
decreasing 2 basis points to 4.55 percent from 4.57 percent
last year. The decrease in the net interest margin was partially
due to a 6 basis point decline in the impact of net noninterest-
bearing sources of funds resulting from an average yield envi-
ronment which was lower in 1999 than 1998, as well as
changes in the mix of interest-bearing liabilities. This was
offset by a strategic repositioning which occurred within the
earning assets portfolio, whereby investment securities and
residential mortgage loans were replaced with commercial
loans. With the repositioning effectively completed and
deposit balances growing at rates slower than earning assets,
a greater reliance on purchased funds is expected, which
will gradually reduce the margin.

Comerica (the “Corporation”) applied various asset and
liability management tactics to minimize exposure to net
interest income risk. This risk represents the potential
reduction in net interest income that may result from a fluc-
tuating economic environment including changes to interest
rates and portfolio growth rates. Such actions included the
tactical management of earning assets, funding and capital.
In addition, off-balance sheet interest rate swap contracts
were employed, effectively fixing the yields on certain variable
rate loans and altering the interest rate characteristics of debt
issued throughout the year. Refer to page 34 of this financial
review for additional information regarding the Corporation’s
asset and liability management policies.

In 1998, net interest income (FTE) increased 1 percent over
1997, benefitting from strong growth in average earning
assets, primarily commercial loans. The growth in average
commercial loans was offset by the sale of $2.0 billion of
indirect consumer loans and non-relationship credit card
receivables in the second quarter of 1998. The net interest
margin for 1998 was 4.57 percent, an increase of 4 basis
points from 1997. The increase in the net interest margin
was primarily due to an increase in the impact of noninterest-
bearing sources of funds, the consumer loan divestitures and
a reduced emphasis on investment securities in the mix of
earning assets.

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 probable credit losses inherent in the Corporation’s
loan portfolio, including all binding commitments to lend.
The allowance provides for probable losses that have been
identified with specific customer relationships and for probable
losses believed to be inherent but that have not been specifically

Comerica Incorporated 1999 Annual Report

identified. 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. Internal risk ratings are assigned to each
corporate loan at the time of approval and are subject to sub-
sequent periodic reviews by the senior management of the
Credit Policy Group. Corporate loans are defined as those
belonging to the commercial, international, real estate con-
struction, commercial mortgage and lease financing categories.
A detailed credit quality review is performed quarterly on
large corporate loans which have deteriorated below certain
levels of credit risk. A specific portion of the allowance is
allocated to such loans based upon this review. The portion
of the allowance allocated to the remaining corporate loans
is determined by applying projected loss ratios to each risk
rating based on numerous factors identified below. 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, and trends
with respect to past due and nonaccrual amounts. The
allocated reserve was $271 million at December 31, 1999,
an increase of $44 million from 1998. Allocations to corpo-
rate loans, as shown in Table 8, increased from loan growth
and changing credit characteristics of the portfolio. Consumer
loan allocations declined as credit quality improved and
loan outstandings declined.

Actual loss ratios experienced in the future could vary from
those projected. This uncertainty occurs because other factors
affecting the determination of probable losses inherent in
the loan portfolio may exist which are not necessarily captured
by the application of historical loss ratios. To ensure a higher
degree of confidence, an unallocated allowance is also
maintained. The unallocated portion of the reserve reflects

NET LOANS CHARGED OFF TO AVERAGE LOANS
(in percentages)

%
2
3
.
0

%
3
5
.
0

%
3
3
.
0

%
1
5
.
0

%
3
3
.
0

%
6
5
.
0

%
0
3
.
0

%
8
4
.
0

%
9
2
.
0

%
7
4
.
0

Comerica
Industry Average

1995

1996

1997

1998

1999

26 Comerica Incorporated 1999 Annual Report

Comerica Incorporated 1999 Annual Report

TA B L E 4 : A N A LY S I S O F T H E A L L O WA N C E F O R C R E D I T L O S S E S

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
Lease financing

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

1999

$452

—

1998

$424

—

1997

$367

—

1996

$341

(3)

1995

$326

78
—
2
—
31
—
10

49
—
1
—
65
4
7

33
1
4
—
92
—
1

33
1
5
1
86
—
—

33
3
8
2
73
—
—

121

126

131

126

119

17
—
3
10
1

114

$476

19
—
9
13
—

19
1
10
12
—

18
1
9
13
—

113

146

114

19
3
8
13
—

$452

$424

$367

$341

1.46% 1.48% 1.47% 1.40% 1.40%

0.29% 0.30% 0.33% 0.33% 0.32%

management’s view that the reserve should have a margin
that recognizes the imprecision underlying the process of
estimating expected credit losses. Determination of the
probable losses inherent in the portfolio, which are not
necessarily captured by the allocated methodology discussed
above, involves the exercise of judgement. Factors which
were considered in the evaluation of the adequacy of the
Corporation’s unallocated reserve include portfolio exposures
to the healthcare, high technology and energy industries,
hedge funds and customers engaged in sub-prime lending,
as well as Indonesian and Latin American transfer risks and
the risk associated with new customer relationships. The
unallocated allowance was $205 million at December 31, 1999,
a decrease of $20 million from December 31, 1998. This
decrease in the unallocated allowance was primarily due to
a managed reduction in loans to customers in the sub-prime
and hedge fund portfolios, partially offset by an increase in
healthcare loans.

Management also considers industry norms and the expecta-
tions from rating agencies and banking regulators in deter-
mining the adequacy of the allowance. The total allowance,
including the unallocated amount, is available to absorb losses
from any segment of the portfolio.

The provision for credit losses was $114 million in 1999,
compared to $113 million in 1998 and $146 million in 1997.
The provision in 1999 was virtually unchanged from 1998,
while the decrease in 1998 from 1997 was primarily due to
the consumer loan sale in the second quarter of 1998.

Total net charge-offs remained in the same relative range, at
$90 million in 1999, compared to $85 million in 1998 and
$89 million in 1997. The ratio of net loans charged off to
average total loans was 0.29 percent in 1999 and 0.30 percent
in 1998. Commercial loan net charge-offs as a percentage
of average commercial loans were 0.31 percent for 1999 and
0.18 percent for 1998. Commercial net charge-offs in 1999

were primarily related to mortgage banking customers and
long-term health care providers. Consumer loan net charge-offs
as a percentage of average consumer loans were 1.16 percent
for 1999 and 2.03 percent for 1998.

income in other noninterest income. After adjusting for
acquisitions, divestitures, securities gains and the significant
nonrecurring items discussed below, noninterest income
increased $78 million, or 13 percent, in 1999.

At December 31, 1999, the allowance for credit losses was
$476 million, an increase of $24 million since year-end 1998.
The allowance as a percentage of total loans decreased to
1.46 percent from 1.48 percent at December 31, 1998. The
allowance as a percentage of total nonperforming assets
decreased to 262 percent at December 31, 1999, from
375 percent at year-end 1998.

Noninterest Income
Year Ended December 31
(in millions)

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

Subtotal

Consumer businesses sold
Bond indenture business sold
Other significant nonrecurring items

1999

1998

1997

$241
169
49
39
5
184

687
—
—
30

$184
158
43
31
6
167

589
14
—
—

$147
141
32
26
5
150

501
4
23
—

Total noninterest income

$717

$603

$528

Noninterest income increased $114 million, or 19 percent,
to $717 million in 1999, compared to $603 million in 1998
and $528 million in 1997. Comparisons between 1999 and
1998 for certain noninterest income and noninterest expense
line items were impacted by the Corporation obtaining a
majority interest in Munder Capital Management (“Munder”),
an investment advisory subsidiary, in July 1998 and the sale of
consumer loans and the mortgage servicing business in 1998.
Prior to the third quarter of 1998, the Corporation accounted
for its minority interest in Munder under the equity method,
recording the Corporation’s pro-rata share of Munder net

Noninterest Income
(in millions)

Fiduciary and investment management income increased
$57 million, or 30 percent, in 1999 compared to an increase
of $37 million, or 25 percent, in 1998. After adjusting for
the Munder consolidation, the increase over 1998 was
19 percent. Investment management income increased
$43 million, or 240 percent, in 1999, principally due to the
consolidation of Munder and the growth of assets in Munder’s
NetNet Fund, a mutual fund comprised primarily of Internet-
related stocks. Personal trust income increased 10 percent in
1999 and reflects strong overall growth from new business and
market performance of assets under management.

Service charges on deposit accounts increased $11 million,
or 7 percent, in 1999 compared to an increase of $17 million,
or 12 percent, in 1998. This increase was primarily attributable
to continued strong growth in the sale of new and existing
electronic cash management services to commercial customers
during 1999.

Commercial lending fees increased $6 million, or 13 percent,
in 1999 compared to an increase of $11 million, or 38 percent,
in 1998. Continued strong corporate lending activities to
new and existing customers contributed to this increase.

Letter of credit fees increased $8 million, or 24 percent, in
1999 compared to an increase of $5 million, or 20 percent, in
1998. These increases were primarily related to the growth
in middle-market commercial lending and additional invest-
ment in international trade services.

Income from securities gains totaled $5 million in 1999, a
decrease of $1 million from 1998.

Other noninterest income increased $33 million, or 19 percent,
in 1999. Excluding the impact of acquisitions, divestitures
and significant nonrecurring items in both periods, other
noninterest income increased 9 percent. Higher levels of
foreign exchange income, bankcard fees, brokerage service
fees and investment banking fees accounted for the majority
of this increase. Significant nonrecurring items in other
noninterest income in 1999 include a $21 million gain on the
sale of the Corporation’s ownership in an automated teller
machine network provider and a $9 million gain on the sale
of a warrant obtained from an equity ownership in a joint
venture. Significant nonrecurring items in 1998 include
an $11 million net gain on the sale of the mortgage servicing
business and consumer loans, while 1997 includes a
$23 million gain on the sale of the Corporation’s bond
indenture services business.

9
9
4
$

7
0
5
$

8
2
5
$

3
0
6
$

7
1
7
$

1995

1996

1997

1998

1999

28 Comerica Incorporated 1999 Annual Report

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

1999

1998

1997

$ 559
81

$ 500
65

$ 464
75

640
94
61
48
269

1,112
—
5

565
90
60
43
269

1,027
(7)
—

539
89
62
42
271

1,003
—
5

Total noninterest expenses

$1,117

$1,020

$1,008

Noninterest expenses increased 10 percent to $1,117 million in
1999, compared to $1,020 million in 1998 and $1,008 million
in 1997. Excluding the effect of the acquisitions, divestitures
and the significant nonrecurring items discussed below, non-
interest expenses increased $64 million, or 6 percent, in 1999.

Total salaries expense increased $59 million, or 12 percent, in
1999 versus an increase of $36 million, or 8 percent, in 1998.
The increase in 1999 was primarily from the consolidation of
Munder, annual merit increases and higher levels of revenue-
related incentives. The number of full-time equivalent
employees increased 100, or 1 percent, from year-end 1998,
primarily due to investments in strategic businesses.

Employee benefits expense increased $16 million, or 24 percent,
in 1999 versus a decrease of $10 million, or 13 percent, in
1998. The increase in 1999 was primarily due to reduced
pension expense in 1998 as a result of benefits from reduced
staff levels related to the Direction 2000 program and the
consumer and mortgage servicing divestitures. The consoli-
dation of Munder and an increase in health insurance expense
also contributed to the increase.

Net occupancy and equipment expenses, on a combined basis,
increased $5 million, or 3 percent, in 1999 versus a decrease
of $1 million, or 1 percent, in 1998. The majority of the
1999 increase was attributable to the consolidation of Munder.
During 1999, the Corporation formed a relationship with
Trammell Crow Corporate Services to provide property and
real estate management services. Occupancy expense also
increased in 1999 due to fees paid to Trammell Crow which
replaced salaries and employee benefits expense associated
with real estate staff.

NONINTEREST EXPENSES
(in millions)

6
8
0
,
1
$

9
5
1
,
1
$

9
6
0
,
1
$

8
0
0
,
1
$

0
2
0
,
1
$

7
1
1
,
1
$

Comerica
Excluding Restructuring
Charge

1995

1996

1997

1998

1999

Outside processing fees totaled $48 million in 1999 and
$43 million in 1998. The increase of $5 million from the
prior year is primarily due to the outsourcing of certain
consumer loan processing functions in 1999.

The Corporation recorded a restructuring charge in 1996 in
connection with a major program (Direction 2000) to improve
efficiency, revenue and customer service. A reduction of
$7 million, netted against other noninterest expenses, was
made to eliminate the restructuring liability in 1998.

Other noninterest expenses increased $5 million in 1999,
compared to a $7 million decrease in 1998. Other noninterest
expenses in 1999 included a $5 million contribution to
Comerica’s charitable foundation. Other noninterest
expenses included $5 million of litigation accruals in 1997.
Excluding acquisitions, divestitures and the significant non-
recurring items described above, other noninterest expenses
increased $3 million, or 1 percent. The minimal increase
reflects management’s continued efforts to contain expenses.

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 49.35 percent in 1999, compared to 49.39 percent
in 1998 and 51.04 percent in 1997.

Income Taxes
The provision for income taxes was $360 million in 1999,
compared to $324 million in 1998 and $287 million in 1997.
The effective tax rate, computed by dividing the provision
for income taxes by income before taxes, was 34.9 percent
in 1999, 34.8 percent in 1998 and 35.0 percent in 1997.

TA B L E 5 : A N A LY S I S O F I N V E S T M E N T S E C U R I T I E S A N D L O A N S

Comerica Incorporated 1999 Annual Report

December 31
(in millions)

Investment securities available for sale

U.S. government and agency securities
State and municipal securities
Other securities

1999

1998

1997

1996

1995

$ 2,275
74
390

$ 2,206
115
391

$ 3,239
170
597

$ 3,968
228
604

$ 6,038
371
450

Total investment securities available for sale

$ 2,739

$ 2,712

$ 4,006

$ 4,800

$ 6,859

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

$20,655

$19,086

$15,805

$13,520

$12,041

10
391
2,172

2,573

1,709
4,774
870
1,351
761

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

$32,693

$30,605

$28,895

$26,207

$24,442

S T R AT E G I C L I N E S O F
B U S I N E S S

The Corporation has strategically aligned its operations into
three major lines of business: the Business Bank, the Indi-
vidual Bank and the Investment Bank. These lines of business
are differentiated based on the products and services provided.
In addition to the three major lines of business, the Finance
Division is also reported as a segment. The Other category
includes items not directly associated with these lines of
business. Note 22 on page 60 describes how these segments
were identified and presents financial results of these business
lines for the years ended December 31, 1999, 1998 and 1997.

Business Bank net income increased $28 million, or 8 percent,
in 1999, principally due to additional net interest income result-
ing from 16 percent average loan growth and a $39 million
increase in noninterest income. This was partially offset by
a higher provision for credit losses resulting from loan growth,
higher charge-offs and changing credit characteristics of
the portfolio.

Individual Bank net income decreased $4 million, or 1 percent,
in 1999. Comparisons with 1998 were affected by the sale
of the mortgage servicing business and $2.0 billion of
consumer assets in 1998. Net interest income increased
$20 million, or 3 percent, from 1998, generated principally
from retail deposits. The provision for credit losses in 1999
reflects the reduction of the allowance which was allocated
to the bankcard and revolving check credit loans transferred
to loans held for sale and a decline in net charge-offs resulting
from a decrease in average loans and improved credit quality.
The provision in 1998 reflects the reduction in the allowance
resulting from the sale of $2.0 billion of indirect consumer

loans and credit card receivables. Noninterest income in 1998
includes an $11 million net gain on the sale of the mortgage
servicing business and consumer loans.

Net income for the Investment Bank was $3 million in 1999,
compared to $4 million in 1998.

Net income for Finance decreased $25 million in 1999,
primarily due to a decrease in net interest income of $39
million. The net interest income of the Finance Division is
mostly the result of hedging interest rate risk generated in
the other segments. While net interest income attributed to
assets with maturities can be specifically hedged, the net
interest income attributed to most deposit liabilities, which
have no maturity, can fluctuate if market rates and market
spreads vary from year to year. In 1999, the net interest
margin attributed to deposits benefitted from the level of
market rates compared to the prior year, with the offsetting
decline recognized in the Finance Division, where the risk
was hedged.

Net income for Other increased $68 million in 1999, primarily
due to a decline in the allowance for credit losses not assigned
to specific business lines. Included in noninterest income for
1999 is a $21 million gain on the sale of the Corporation’s
ownership in an ATM network provider. Noninterest income
and expenses include the full year results for Munder in 1999
and the third and fourth quarter results for Munder in 1998.
An adjustment of $7 million was made in 1998, to eliminate
the remaining restructuring liability associated with the
Corporation’s Direction 2000 restructuring charge recorded in
1996. The adjustment was netted against noninterest expenses.
Noninterest income in 1997 includes a $23 million gain on
the sale of the Corporation’s bond indenture services business.

30 Comerica Incorporated 1999 Annual Report

TA B L E 6 : I N T E R N AT I O N A L C R O S S - B O R D E R R I S K

December 31
(in millions)

Mexico 1999
1998
1997

Canada

1998

Governments
and Official
Institutions

Banks and
Other Financial
Institutions

$15
15
41

—

$150
214
78

—

Commercial
and Industrial

$426
347
295

380

Total

$591
576
414

380

TA B L E 7 : L O A N M AT U R I T I E S A N D I N T E R E S T R AT E S E N S I T I V I T Y

December 31, 1999
(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

After
Five Years

$15,658
1,368
2,329
1,153

$20,508

$3,999
2,261
215
436

$6,911

$3,013
3,898

$6,911

Total

$20,655
4,774
2,573
1,709

$ 998
1,145
29
120

$2,292

$29,711

$1,904
388

$2,292

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

TA B L E 8 : A L L O C AT I O N O F T H E A L L O WA N C E F O R C R E D I T L O S S E S

1999

1998

1997

1996

1995

December 31
(in millions)

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

Total

Amount

$169
6
35
—
18
8
35
205

$476

63%
5
15
3
4
2
8
—

$131
4
21
—
48
6
17
225

62%
4
14
3
6
2
9
—

$ 94
7
18
1
116
1
5
182

55%
3
13
5
15
2
7
—

$ 98
6
27
2
120
1
3
110

52%
3
13
7
18
1
6
—

$118
5
33
2
84
1
2
96

49%
3
13
9
19
1
6
—

100%

$452

100%

$424

100%

$367

100%

$341

100%

Amount – allocated allowance
% – loans outstanding as a percent of total loans

Comerica Incorporated 1999 Annual Report

Average investment securities declined to $2.4 billion in 1999,
compared to $3.4 billion in 1998. As part of repositioning
the Corporation’s balance sheet, investment securities were
allowed to runoff during the first three quarters of 1999 to
fund growth in higher-yielding loans and to divest lower
earning variable rate assets. With this repositioning effectively
complete, the Corporation began purchasing investment
securities in the fourth quarter of 1999 with the intent of
aligning investment security growth with expected growth in
earning assets. Average U.S. government and agency securities
decreased $818 million and average state and municipal
securities decreased $44 million, while average other securities
decreased $106 million. Declines in U.S. government and
agency securities have primarily resulted from sales and pay
downs, 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 include interest-bearing deposits with
banks, federal funds sold and securities purchased under
agreements to resell, trading securities and loans held for
sale. These investments provide a range of maturities under
one year to manage the short-term investment requirements
of the Corporation. 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 offer supplemental earnings oppor-
tunities and serve correspondent banks. Included in loans
held for sale at December 31, 1999, are $493 million of
revolving check credit and bankcard loans pending sale in
2000. Average short-term investments decreased slightly to
$116 million during 1999, from $143 million during 1998.

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

1999

$1,623
365
366
186

$2,540

B A L A N C E S H E E T A N D
C A P I TA L F U N D S A N A LY S I S

Total assets were $38.7 billion at year-end 1999, representing a
$2.1 billion increase from $36.6 billion on December 31, 1998.
On an average basis, total assets increased to $37.0 billion
in 1999 from $35.0 billion in 1998. This increase was funded
primarily by purchased funds, which rose on average
$1.3 billion and shareholders’ equity, which increased on
average $382 million.

Earning Assets
Total earning assets were $36.0 billion at year-end 1999,
representing a $2.6 billion increase from $33.4 billion at
December 31, 1998. On an average basis, total earning assets
were $34.1 billion in 1999, compared to $32.1 billion in 1998.
The average balance of commercial and commercial mortgage
loans increased $3.3 billion, or 16 percent, from 1998. Real
estate construction loans also rose an average $375 million,
or 38 percent, in 1999. The corporate portfolio continues to
grow in all of the Corporation’s markets, especially in loans
to companies with sales over $5 million. This growth is
attributable to effective marketing efforts, strong customer
relationships and continued economic strength in the com-
mercial loan markets.

International loans averaged $2.6 billion in 1999, an increase
of $285 million from 1998. Approximately 17 percent of this
increase was attributable to loan growth in the Corporation’s
Canadian commercial banking subsidiary, much of which
was funded locally and does not cause cross-border risk.
The remaining growth reflects the increasing global activity
of the Corporation’s traditional customer base. Risk man-
agement practices are undertaken to minimize risk inherent in
international lending arrangements. These practices include
structuring bilateral arrangements or participating in bank
facilities which secure repayment from sources external to
the borrower’s country. Accordingly, such international out-
standings are excluded from cross-border risk of that country.
Mexican cross-border risk of $591 million, or 1.53 percent
of assets, was the only country with exposure exceeding
1.00 percent of assets at December 31, 1999. There were no
countries with exposure between 0.75 percent and 1.00 percent
of total assets at year-end 1999. Additional information on
the Corporation’s Mexican cross-border risk is provided in
Table 6 on page 30.

Average residential mortgage loans decreased $396 million
primarily due to management’s decision to sell the majority
of mortgage originations. Average consumer loans, comprised
of installment, revolving credit and bankcard loans, declined
$759 million in 1999. The decline in consumer loans is a
result of the 1998 sale of $2.0 billion of indirect consumer
loans and non-relationship bankcard receivables. Average
installment, revolving credit and bankcard loans decreased
$592 million, $83 million and $84 million, respectively,
during the period. Consumer loans at December 31, 1999,
reflect the reclassification of $493 million of revolving check
credit and bankcard loans to loans held for sale, pending
sale in 2000.

32 Comerica Incorporated 1999 Annual Report

Deposits and Borrowed Funds
Average deposits increased $266 million, or 1 percent, from
1998. Average noninterest-bearing deposits grew $104 million,
or 2 percent, from 1998, largely due to the growth in commer-
cial loan relationships. Average interest-bearing transaction,
savings and money market deposits increased 3 percent
during 1999, to $9.2 billion. Certificates of deposit decreased
$85 million, or 1 percent, on an average basis from 1998.

Average federal funds purchased and securities sold under
agreements to repurchase increased $313 million, or 12 percent,
from 1998. The majority of this increase was offset by a net
decrease in average other borrowed funds, which declined
$251 million, or 28 percent, from 1998. Other borrowed
funds include term federal funds purchased and treasury tax
and loan notes. The decline in other borrowed funds was
attributable to lower levels of available collateral to secure
treasury tax and loan notes.

The Corporation uses medium-term debt (both domestic and
European) and long-term debt to provide the necessary funding
to support expanding earning assets. These notes assist the
Corporation in providing liquidity which mirrors the estimated
duration of our deposits. Long-term subordinated notes further
help maintain the subsidiary banks’ total capital ratio at a level
that qualifies for the lowest FDIC risk-based insurance
premium. Medium-term debt increased $3.4 billion repre-
senting the net result of the issuance of $6.3 billion and the
maturity of $2.9 billion of notes during 1999. Long-term
debt decreased $77 million during 1999, primarily due to
the maturity of $75 million of subordinated notes. Further
information on medium- and long-term debt is included in
Note 9 of the consolidated financial statements on page 49.

Capital
Shareholders’ equity was $3.5 billion at December 31, 1999,
up $428 million, or 14 percent from December 31, 1998. This
increase was primarily due to the net effect of increases from
retained earnings of $431 million and $26 million of common
stock issued for employee stock plans and a decrease of
$25 million in nonowner equity. At December 31, 1999,
the Corporation had remaining authorization to purchase
20 million shares of common stock. Further information
on the change in nonowner equity is provided in Note 11
on page 50.

The Corporation declared common dividends totaling
$225 million on net income applicable to common stock
of $655 million, representing a dividend payout ratio of
35 percent. The payout ratio in 1998 was 34 percent.

At December 31, 1999, the Corporation and all of its banking
subsidiaries exceeded the capital ratios required for an
institution to be considered “well capitalized” by the standards
developed under the Federal Deposit Insurance Corporation
Improvement Act of 1991. See Note 17 of the consolidated
financial statements on page 54 for the capital ratios.

R I S K M A N A G E M E N T

The Corporation assumes various types of risk in the normal
course of business. The most significant risk exposures are
credit, interest rate, liquidity and operational risk. The other
commonly identified exposure, market risk, is not significant
as trading activities are limited. Comerica employs risk
management processes to identify, measure, monitor and
control these risks.

C R E D I T R I S K

Credit risk represents the risk that a customer or counterparty
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 securities
and entering into off-balance sheet financial derivative
instruments. Policies and procedures for measuring and
managing this risk are formulated, approved and communicated
throughout the Corporation. Credit executives, independent
from lending officers, are involved in the origination and
underwriting process to ensure adherence to risk policies
and underwriting standards. 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 status 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

NONPERFORMING ASSETS TO LOANS AND OTHER
REAL ESTATE
(in percentages)

%
7
6
.
0

%
3
2
.
1

%
3
5
.
0

%
9
7
.
0

%
6
3
.
0

%
1
7
.
0

%
9
3
.
0

3
7
.
0

%
6
5
.
0

4
6
.
0

Comerica
Industry Average

1995

1996

1997

1998

1999

TA B L E 1 0 : A N A LY S I S O F I N V E S T M E N T S E C U R I T I E S P O R T F O L I O –
F U L LY TA X A B L E E Q U I VA L E N T

Maturity

†

Comerica Incorporated 1999 Annual Report

December 31, 1999
(dollar amounts in millions)

Available for sale
U.S. Treasury
U.S. government
and agency

State and municipal

securities

Other bonds, notes
and debentures
Federal Reserve

Bank stock and
other investments*

Total investment

securities available
for sale

Within 1 Year

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

$ 59

5.43%

$ — —% $ — —%

$ —

—% $

5.43%

5.26

120

7.27

1,441

6.40

651

7.08

2,216

6.64

6.85

8.43

6.15

180

8.87

6.04

8.42

6.53

6.38

8.47

288

8.71

0/10

10/1

2/11

5/5

— —

102 —

—

$110

6.35%

$333

8.03% $1,498

6.45%

$696

7.17% $2,739

6.84%

9/2

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

TA B L E 1 1 : S U M M A R Y O F N O N P E R F O R M I N G A S S E T S A N D
PA S T D U E L O A N S

December 31
(dollar amounts in millions)

Nonperforming assets
Nonaccrual loans

Commercial loans
International loans
Real estate construction loans
Commercial mortgage loans
Residential mortgage loans

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

1999

1998

1997

1996

1995

$110
44
—
10
1

165

172

$ 77
20
1
7
3

108

116

$ 59
1
3
11
4

$ 72
—
3
23
5

103

111

$ 87
—
7
31
6

131

134

$182

$121

$103

$140

$163

0.53% 0.38% 0.30% 0.42% 0.55%

0.56% 0.39% 0.36% 0.53% 0.67%

262% 375% 413% 263% 209%

$ 48

$ 40

$ 53

$ 52

$ 57

34 Comerica Incorporated 1999 Annual Report

cash collections are charged off to an amount that represents
management’s assessment of the ultimate collectibility of the
loan. Interest previously accrued but not collected on nonac-
crual loans is charged against current income at the time the
loan is placed on nonaccrual. Income on such loans is then
recognized only to the extent that cash is received and where
the future collection of principal is probable.

Nonperforming assets as a percent of total loans and other
real estate were 0.56 percent and 0.39 percent at year-end
1999 and 1998, respectively.

Nonaccrual loans at December 31, 1999, increased 53 percent
to $165 million from $108 million at year-end 1998. Table 11
on page 33 provides additional detail on nonperforming assets.
Loans to customers in the healthcare and mortgage banking
industries accounted for $34 million of the increase in com-
mercial nonaccrual loans. The increase in international
nonaccrual loans from year-end 1998, was primarily related
to Indonesian and two Canadian customers. Loans past due
90 days or more increased $8 million from year-end 1998
and was primarily attributable to customers related to the
energy industry.

The nonaccrual loan table below indicates the percentage
of nonaccrual loan value to original contractual value which
exhibits the degree to which loans reported as nonaccrual
have been charged off.

Other real estate owned (ORE) increased to $10 million.

Nonaccrual Loans
December 31
(dollar amounts in millions)

Carrying value
Contractual value
Carrying value as a percentage

of contractual value

1999

$165
244

1998

$108
159

Commercial Real Estate Lending
The real estate construction loan portfolio contains loans
primarily made to long-time customers with satisfactory
project completion experience. The portfolio has approxi-
mately 1,128 loans, of which 66 percent have balances of
less than $1 million. The largest real estate construction
loan has a balance of approximately $23 million.

The commercial mortgage loan portfolio, 57 percent of which
relates to owner-occupied properties, also consists primarily
of loans to long-time customers. Of the approximately 7,041
loans in the portfolio, 85 percent have balances under
$1 million and the largest loan has a balance of approximately
$18 million. Additionally, the Corporation’s policy requires
a 75 percent or less loan-to-value ratio for all commercial
mortgage and real estate construction loans.

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, 1999
(in millions)

Real Estate
Construction

Commercial
Mortgage

Michigan
California
Texas
Florida
Other

Total

$ 823
291
378
118
99

$1,709

$3,109
836
373
154
302

$4,774

68%

I N T E R E S T R AT E R I S K

Concentration of Credit
Loans to companies and individuals involved with the automo-
tive industry, including suppliers, manufacturers and dealers,
represented the largest significant industry concentration at
December 31, 1999. These loans totaled $4.8 billion, or
15 percent of total loans at December 31, 1999, versus
$4.6 billion, or 15 percent, at December 31, 1998. These
totals include floor plan loans to automobile dealers of
$1,653 million and $1,454 million at December 31, 1999 and
1998, respectively. All other industry concentrations individually
represented less than 5 percent of total loans at year-end 1999.

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, 1999, was $8 million.
There were no other automotive industry loans larger than
$1 million on nonaccrual status as of year-end 1999. In
addition, there were no significant automotive industry-
related charge-offs during the year.

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 oper-
ating within acceptable limits established for interest rate
risk and maintaining adequate levels of funding and liquidity.
The Corporation utilizes various on- and off-balance sheet
financial instruments to manage the extent to which net
interest income may be affected by fluctuations in interest
rates. The board of directors authorizes the Asset Liability
Policy Committee (ALPC) to establish policies and risk
limits pertaining to asset and liability management activities.
The ALPC as well as the board monitors compliance with
these policies. The ALPC meets regularly to discuss asset
and liability management strategies and is comprised of
executive and senior management from various areas of the
Corporation, including finance, lending, investments and
deposit gathering.

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
techniques is used to manage interest rate risk, including
simulation analysis, asset and liability repricing schedules
and economic value 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 domestically
or internationally, could translate into a materially different
interest rate environment than currently expected. 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
differ from simulated results due to timing, magnitude and
frequency 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
these analyses. The measurement of risk exposure at year-
end 1999 for a 200-basis-point decline in short-term interest
rates identified approximately $52 million, or 3 percent, of
net interest income at risk during 2000. If short-term interest
rates rise 200 basis points, net interest income at risk during
2000 would be approximately $30 million, or 2 percent.
Corresponding measurements of risk exposure at year-end
1998 were $72 million of net interest income at risk for a
200-basis-point decline in interest rates and a net interest
benefit of $49 million for a 200-basis-point rise in interest
rates. Corporate policy limits adverse change to no more than
5 percent of management’s most likely net interest income
forecast. The Corporation is within the policy guideline.

Comerica Incorporated 1999 Annual Report

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
concerning early loan and security repayments. Prepayment
assumptions are based on the expertise of portfolio managers
along with input from financial markets. Consideration is
given to current and future interest rate levels. While manage-
ment 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 Corporation’s interest
rate risk profile. This additional interest rate risk measurement
tool provides a directional outlook on the impact of changes
in interest rates.

Interest rate sensitivity is measured as a percentage of earning
assets. The operating range for interest rate sensitivity, on an
elasticity-adjusted basis, is between an asset sensitive position
of 10 percent of earning assets and a liability sensitive position
of 10 percent of earning assets.

Table 12 on page 36 shows the interest sensitivity gap as of
year-end 1999 and 1998. The report reflects the contractual
repricing and payment schedules of assets and liabilities,
including an estimate of all early loan and security repayments
which adds $605 million of rate sensitivity to the 1999 year-
end gap. In addition, the schedule includes an adjustment for
the price elasticity on certain core deposits.

The Corporation was slightly asset sensitive throughout
most of 1999. The Corporation had a one-year asset sensitive
gap of $487 million, or 1 percent of earning assets, as of
December 31, 1999. This compares to a $2,111 million
asset sensitive gap, or 6 percent of earning assets, on
December 31, 1998. Management anticipates continued
growth in asset sensitivity throughout 2000, 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 dampening adverse impacts to net interest
income from 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.

36 Comerica Incorporated 1999 Annual Report

Comerica Incorporated 1999 Annual Report

TA B L E 1 2 : S C H E D U L E O F R AT E S E N S I T I V E A S S E T S
A N D L I A B I L I T I E S

TA B L E 1 3 : R E M A I N I N G E X P E C T E D M AT U R I T Y O F
R I S K M A N A G E M E N T I N T E R E S T R AT E S WA P S

(dollar amounts in millions)

A S S E T S

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

L I A B I L I T I E S

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, 1999
Interest Sensitivity Period

December 31, 1998
Interest Sensitivity Period

Within
One Year

Over
One Year

Total

Within
One Year

Over
One Year

Total

$ —
612
843

$ 1,202
1
1,896

$ 1,202
613
2,739

$ — $ 1,773
7
1,831

103
881

$ 1,773
110
2,712

19,573
2,523
4,502
858

27,456

647

1,843
50
2,851
493

5,237

759

21,416
2,573
7,353
1,351

32,693

1,406

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

$29,558

$ 9,095

$38,653

$26,770

$ 9,831

$36,601

959
—
5,966
5,546
1,347

13,818

2,768
7,269
224

$ 5,177
1,420
1,845
1,031
—

9,473

—
1,311
315

$ 6,136
1,420
7,811
6,577
1,347

23,291

2,768
8,580
539

$ 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

14,099

10,214

24,313

3,580
3,771
64

—
1,511
315

3,580
5,282
379

24,079

11,099

35,178

21,514

12,040

33,554

(31)

3,506

3,475

(8)

3,055

3,047

Total liabilities and shareholders’ equity

$24,048

$14,605

$38,653

$21,506

$15,095

$36,601

Sensitivity impact of interest rate swaps

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

(7,409)

(1,899)

(5)%

2,386

7,409

1,899

(2,386)

Interest sensitivity gap with elasticity adjustments (1) $
Gap as a percentage of earning assets

487

$ (487)

(1)%

—

—
—
—

—
—

(5,549)

5,549

(285)

(1)%

2,396

285

(2,396)

$ 2,111

$ (2,111)

(6)%

—

—
—
—

—
—

(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.

(dollar amounts in millions)

2000

2001

2002

2003

2004

2005-
2026

Total

Dec. 31
1998

VA R I A B L E R AT E A S S E T
D E S I G N AT I O N :

Receive fixed swaps

Generic
Index amortizing

Weighted average: (1)

Receive rate
Pay rate

F I X E D R AT E A S S E T
D E S I G N AT I O N :

Pay fixed swaps

Generic
Index amortizing
Amortizing

Weighted average: (1)

Receive rate
Pay rate

F I X E D R AT E D E P O S I T
D E S I G N AT I O N :

$ 700
149

$3,250
—

$2,850
—

$ —
—

$ — $ —
—

—

$6,800
149

$3,950
2,169

6.34%
6.18%

5.68%
6.15%

7.14%
7.50%

—%
—%

6.36%
6.71%

6.01%
5.30%

13
7
—

$ —
—
—

$ —
—
2

$ —
—
—

$ — $ —
—
—

—
—

13
7
2

$ 2
11
—

6.48%
5.92%

—%
—%

5.09%
6.05%

—%
—%

6.37%
5.93%

5.54%
5.88%

Generic receive fixed swaps

$ —

$ — $ —

$ —

Weighted average: (3)

Receive rate
Pay rate

M E D I U M - A N D L O N G - T E R M
D E B T D E S I G N AT I O N :

5.16%
5.01%

—%
—%

5.16%
5.01%

—%
—%

Generic receive fixed swaps

$ 200

$ —

$ 150

$ —

$ — $1,150

$1,500

$ 700

Weighted average: (1)

Receive rate
Pay rate

6.91%
6.11%

—%
—%

7.37%
6.09%

—%
—%

6.79%
5.90%

6.86%
5.95%

7.33%
5.28%

Floating/floating swaps

$ —

$ — $ —

Weighted average: (2)

Receive rate
Pay rate

5.93%
6.19%

—%
—%

5.93%
6.19%

4.98%
5.19%

Total notional amount

$1,116

$3,250

$ 3,002

$ —

$ — $1,150

$8,518

$6,869

(1) Variable rates paid on receive fixed swaps are based on one-month and three-month LIBOR rates in effect at December 31, 1999. Variable rates received on

pay fixed swaps are based on prime.

(2) Variable rates paid are based on LIBOR at December 31, 1999, while variable rates received are based on the two-year Constant Treasury Maturity Rate.
(3) Variable rate paid is based on one-month CDOR at December 31, 1999.

38 Comerica Incorporated 1999 Annual Report

Comerica Incorporated 1999 Annual Report

O P E R AT I O N A L R I S K

O T H E R M AT T E R S

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 and
financial staff monitors and assesses the overall effective-
ness of the system of internal controls on an ongoing basis
and internal audit provides an opinion on the environment
to management and the Audit Committee. Operational
losses are experienced by all companies and 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 Directors.
Routine and special meetings are scheduled periodically to
provide more detail on relevant operational risks.

The Corporation initiated an extensive enterprise-wide and
centrally managed project to prepare its computer systems,
applications and infrastructure for year 2000 readiness. The
year 2000 team included the active involvement of senior
executives as well as seasoned project managers and business
unit liaisons from throughout the Corporation. To date, the
Corporation has experienced no known significant system,
supplier or customer failures attributable to the year 2000 date
change. The cost of the Corporation’s year 2000 project
includes internal and external development costs, asset impair-
ment write-offs and the cost of software and hardware for
systems that were not ready or would not have been ready
by the year 2000. The year 2000 project cost, both internal
and external, will total approximately $50 million, of which
the Corporation incurred approximately $48 million through
December 31, 1999. The remaining year 2000 costs yet to
be incurred relate to retention incentives for key year 2000
program employees. Of the $48 million incurred to date,
$12 million was for capital assets which the Corporation is
expensing over their useful lives. The project was staffed with
external resources as well as internal staff redeployed from
less time-sensitive assignments. The redeployment of existing
staff did not have a material adverse effect on the Corporation’s
business, results of operations or financial position.

This annual report to shareholders includes forward-looking
statements based on management’s current expectations and/
or the assumptions made in the earnings simulation analyses,
but numerous factors could cause variances in these projec-
tions and their underlying assumptions, such as interest rate
changes, changes in industries where the Corporation has a
concentration of loans, changes in the level of fee income,
changing economic conditions and continuing consolidations
in the banking industry.

Risk Management Derivative Financial Instruments and
Foreign Exchange Contracts

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

Risk Management Notional Activity

Customer-Initiated and Other Notional Activity

Interest
Rate
Contracts

Foreign
Exchange
Contracts

Totals

(in millions)

Balances at December 31, 1997
Additions
Maturities/amortizations
Terminations

Balances at December 31, 1998
Additions
Maturities/amortizations
Terminations

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

$ 6,884
3,677
(667)
(1,376)

599
7,218
(6,904)
—

913
10,491
(10,191)
—

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

$ 7,797
14,168
(10,858)
(1,376)

Balances at December 31, 1999

$ 8,518

$ 1,213

$ 9,731

The notional amount of risk management interest rate swaps
totaled $8,518 million at December 31, 1999, and $6,869 million
at December 31, 1998. The fair value of risk management
interest rate swaps at December 31, 1999, was a negative
$155 million, compared to a positive $146 million at
December 31, 1998. For the year ended December 31, 1999,
risk management interest rate swaps generated $54 million in
net interest income, compared to $46 million in net interest
income for the year ended December 31, 1998. These off-
balance sheet instruments represented 78 percent of total
derivative financial instruments and foreign exchange contracts,
including commitments to purchase and sell investment
securities, at year-end 1999 and 75 percent at year-end 1998.

Table 13 on page 37 summarizes the expected maturity
distribution 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
December 31, 1999. 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 foreign
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 generic
swap agreements and cross-currency swaps. The aggregate
notional amounts of these risk management derivative and
foreign exchange contracts at December 31, 1999 and 1998,
were $1,213 million and $928 million, respectively.

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

Balances at December 31, 1997
Additions
Maturities/amortizations

Balances at December 31, 1998
Additions
Maturities/amortizations

Interest
Rate
Contracts

Foreign
Exchange
Contracts

Totals)

$ 496
417
(232)

$ 681
133
(251)

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

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

$ 673
31,004
(31,098)

$ 1,354
31,137
(31,349)

Balances at December 31, 1999

$ 563

579 $ 1,142)

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, 1999 and 1998, customer-
initiated activity represented 10 percent and 15 percent,
respectively, of total derivative and foreign exchange contracts,
including commitments to purchase and sell securities. Refer
to Note 18 on page 55 for further information regarding
customer-initiated and other derivative financial instruments
and foreign exchange contracts.

L I Q U I D I T Y R I S K

Liquidity is the ability to meet financial obligations through
the maturity or sale of existing assets or acquisition of additional
funds. Liquidity requirements are satisfied with various
funding sources, including a $7.5 billion medium-term note
program which allows the Michigan, California and Texas
banks to issue debt with maturities between one month and
15 years. The Michigan bank has an additional $2 billion
European note program. At year-end 1999, unissued debt
related to the two programs totaled $2.3 billion. In addition,
liquid assets totaled $4.1 billion at December 31, 1999. The
Corporation also had available $20.4 billion from a collater-
alized borrowing account with the Federal Reserve Bank
at year-end 1999. Purchased funds at December 31, 1999,
excluding certificates of deposit with maturities beyond
one year and medium- and long-term debt, approximated
$6.5 billion.

The parent company had available a $250 million commercial
paper facility at December 31, 1999, $175 million of which
was unused. Another source of liquidity for the parent com-
pany is dividends from its subsidiaries. As discussed in
Note 17 on page 54, subsidiary banks are subject to regulation
and may be limited in their ability to pay dividends or transfer
funds to the holding company. During 2000, the subsidiary
banks can pay dividends up to $879 million plus current net
profits without prior regulatory approval. One measure of
current parent company liquidity is investment in subsidiaries
as a percent of shareholders’ equity. An amount over
100 percent represents the reliance on subsidiary dividends
to repay liabilities. As of December 31, 1999, the ratio
was 106 percent.

40 Comerica Incorporated 1999 Annual Report

C O N S O L I D AT E D B A L A N C E S H E E T S
C O M E R I C A I N C O R P O R AT E D A N D S U B S I D I A R I E S

C O N S O L I D AT E D S TAT E M E N T S O F I N C O M E
C O M E R I C A I N C O R P O R AT E D A N D S U B S I D I A R I E S

Comerica Incorporated 1999 Annual Report

December 31
(in thousands, except share data)

A S S E T S

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

L I A B I L I T I E S A N D S H A R E H O L D E R S ’ E Q U I T Y

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 1999 and 1998

Common stock—$5 par value

Authorized—325,000,000 shares
Issued—157,233,107 shares in 1999 and 157,233,088 shares in 1998

Capital surplus
Accumulated nonowner changes in equity
Retained earnings
Deferred compensation
Less cost of common stock in treasury—715,496 shares in 1999

and 1,351,997 shares in 1998

Total shareholders’ equity

1999

1998

$ 1,201,990

$ 1,773,100

612,959

2,739,464

20,654,658
2,573,003
1,709,261
4,774,052
870,029
1,350,725
761,550

32,693,278

(476,470)

32,216,808

330,728
43,810
1,507,573

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

(452,409)

30,152,454

352,650
12,335
1,488,487

$38,653,332

$ 36,600,831

$ 6,136,038
17,155,365

23,291,403

1,332,397
1,435,634
43,810
495,587
8,579,857

$ 6,999,337
17,313,796

24,313,133

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

35,178,688

33,554,218

250,000

786,166
35,092
(31,702)
2,485,204
(2,955)

(47,161)

3,474,644

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

(89,133)

3,046,613

Total liabilities and shareholders’ equity

$ 38,653,332

$36,600,831

See notes to consolidated financial statements.

Year Ended December 31
(in thousands, except per share data)

I N T E R E S T I N C O M E

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

I N T E R E S T E X P E N S E

Interest on deposits
Interest on short-term borrowings
Interest on medium- and long-term debt
Net interest rate swap income

Total interest expense

Net interest income
Provision for credit losses

Net interest income after provision for credit losses

N O N I N T E R E S T I N C O M E

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

Total noninterest income

N O N I N T E R E S T E X P E N S E S

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
N e t I n c o m e

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.

1999

1998

1997

$2,500,978

$2,382,329

$2,317,844

156,933
4,647

161,580

10,152

218,378
7,252

225,630

8,815

310,399
10,797

321,196

8,363

2,672,710

2,616,774

2,647,403

590,335
179,133
410,367
(54,266)

1,125,569

1,547,141
114,000

1,433,141

240,574
169,173
48,887
38,468
5,453
214,333

716,888

640,357
93,728
61,092
47,754
—
274,026

647,825
185,711
367,777
(45,810)

1,155,503

1,461,271
113,000

1,348,271

184,354
157,416
43,326
31,127
6,116
180,809

603,148

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

673,265
209,010
374,022
(51,670)

1,204,627

1,442,776
146,000

1,296,776

147,336
141,078
31,342
26,047
5,195
176,954

527,952

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

1,116,957

1,033,072
360,483

1,020,044

1,007,986

931,375
324,299

816,742
286,266

$ 672,589

$ 607,076

$ 530,476

$ 655,489

$ 589,976

$ 513,376

$4.20
4.14

$3.79
3.72

$3.24
3.19

$ 224,837
$1.44

$ 199,403
$1.28

$ 181,272
$1.15

42 Comerica Incorporated 1999 Annual Report

C O N S O L I D AT E D S TAT E M E N T S O F C H A N G E S I N
S H A R E H O L D E R S ’ E Q U I T Y
C O M E R I C A I N C O R P O R AT E D A N D S U B S I D I A R I E S

Non-
redeemable

Preferred Common
Stock

Stock

Capital
Surplus

Accumulated
Nonowner
Changes
In Equity

Retained
Deferred
Earnings Compensation

Total
Treasury Shareholders’
Equity

Stock

$(22,789)

$1,854,116

$(2,245) $

— $2,615,569

(in thousands, except share data)
B a l a n c e s a t
J a n u a r y 1 , 1 9 9 7

Net income for 1997
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)
B a l a n c e s a t
D e c e m b e r 3 1 , 1 9 9 7

Net income for 1998
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
B a l a n c e s a t
D e c e m b e r 3 1 , 1 9 9 8

Net income for 1999
Nonowner changes in equity, net of tax
Net income and nonowner changes in equity

Cash dividends declared:

Preferred stock
Common stock

Purchase of 44,082 shares

of common stock

Issuance of common stock under

employee stock plans

Amortization of deferred compensation
B a l a n c e s a t
D e c e m b e r 3 1 , 1 9 9 9

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

$250,000

$536,487

—
—
—

—
—

—
—
—

—
—

—

—
—
—

—
—

— (18,092)

(30,750)

4,323
—
—
—
— 261,359

30,750
—
—

250,000

784,077

—
—
—

—
—

—

—
—
—

—
—

(300)

(3,182)

—

2,388
—

—

27,831
—

—
—
—

—
—

—

—
—

250,000

786,165

24,649

—
—
—

—
—

—

—
—

—
—
—

—
—

—

1
—

—
—
—

—
—

—

10,443
—

—
20,852
—

530,476
—
—

—
—

—

—
—
—

(17,100)
(181,272)

(193,451)

9
—
(261,359)

—
—
—

—
—

—

(531)
993
—

(1,937)

1,731,419

(1,783)

—
(4,518)
—

607,076
—
—

—
—
—

—
—

—

(17,100)
(199,403)

—

—
—
—

—
—

—

—
—
—

—

—
—
—

—
—

—

530,476
20,852
551,328

(17,100)
(181,272)

(242,293)

34,551
993
—

2,761,776

607,076
(4,518)
602,558

(17,100)
(199,403)

(3,482)

— (145,202)

(145,202)

(35,403)
—

(4,604)
1,185

56,069
—

46,281
1,185

2,086,589

(5,202)

(89,133)

3,046,613

672,589
—
—

(17,100)
(224,837)

—

(32,037)
—

—
—
—

—
—

—

—
—
—

—
—

672,589
(25,247)
647,342

(17,100)
(224,837)

(2,885)

4
2,243

44,857
—

23,268
2,243

—
—

—

—
—

(6,455)

—
(25,247)
—

—
—

—

—
—

$ 250,000

$ 786,166

35,092

$ (31,702)

$ 2,485,204

$ (2,955) $ (47,161)

$ 3,474,644

C O N S O L I D AT E D S TAT E M E N T S O F C A S H F L O W S
C O M E R I C A I N C O R P O R AT E D A N D S U B S I D I A R I E S

Comerica Incorporated 1999 Annual Report

Year Ended December 31
(in thousands)

O P E R AT I N G A C T I V I T I E S

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 in accrued expenses
Net amortization of intangibles
Other, net

Total adjustments

1999

1998

1997

$ 672,589

$ 607,076

$ 530,476

114,000
56,893
—
(10,063)
36,371
(44,716)
138,459
33,921
39,096

363,961

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)

82,849

61,526

Net cash provided by operating activities

1,036,550

689,925

592,002

I N V E S T I N G A C T I V I T I E S

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
Proceeds from sale of consumer businesses

Net cash used in investing activities

F I N A N C I N G A C T I V I T I E S

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 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

Transfer from loans to loans held for sale
Loan transfers to other real estate

See notes to consolidated financial statements.

(9,418)

(1,184)

24,010

(25,094)
335,611
724,555
(1,175,726)
(2,671,100)
—
(34,971)
(31,475)

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
—

(2,887,618)

(629,660)

(2,116,814)

(1,021,730)
(812,122)
31,475
6,275,000
(2,977,402)
23,268
(2,885)
(235,646)

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)

1,279,958

(214,252)

1,550,139

(571,110)
1,773,100

(153,987)
1,927,087

25,327
1,901,760

$1,201,990

$1,773,100

$1,927,087

$1,101,993

$1,188,599

$1,161,812

$ 266,835

$ 256,880

$ 266,428

$ 492,746
11,036

— $ —
7,076

5,084

44 Comerica Incorporated 1999 Annual Report

Comerica Incorporated 1999 Annual Report

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
C O M E R I C A I N C O R P O R AT E D A N D S U B S I D I A R I E S

1 A C C O U N T I N G P O L I C I E S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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 combi-
nations, the historical consolidated financial statements are
restated to include the accounts and results of operations.
For acquisitions using the purchase method of accounting,
the assets acquired and liabilities assumed are adjusted to fair
market values at the date of acquisition, and the resulting net
discount or premium is accreted or amortized into income
over the remaining lives of the relevant assets and liabilities.
Goodwill representing the excess of cost over the net book
value of identifiable assets acquired is amortized on a straight-
line basis over periods ranging from 10 to 30 years (weighted
average of 19 years). Core deposit intangible assets are amor-
tized on an accelerated method over 10 years.

The Corporation periodically evaluates long-lived assets,
certain identifiable intangibles and goodwill for indication
of impairment in value.

Loans Held for Sale
Loans held for sale, normally mortgages, are carried at
the lower of cost or market. Market value is determined
in the aggregate.

Securities
Investment securities held to maturity are those securities
which management has the ability and positive intent to hold
to maturity. Investment securities held to maturity are stated
at cost, adjusted for amortization of premium and accretion
of discount.

Investment securities that fail to meet the ability and posi-
tive 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 assets. The estimated useful
lives are generally 10-33 years for premises that the company
owns and 3-8 years for furniture and equipment. Leasehold
improvements are amortized over the terms of their respective
leases or 10 years, whichever is shorter.

Allowance for Credit Losses
The allowance for credit losses represents management’s
assessment of probable losses inherent in the Corporation’s
on- and off-balance sheet credit portfolio. The allowance
provides for probable losses that have been identified with
specific customer relationships and for probable losses
believed to be inherent but that have not been specifically
identified. 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. Internal risk ratings are assigned to each corporate
loan at the time of approval and are subject to subsequent
periodic reviews by the senior management of the Credit
Policy Group. Corporate loans are defined as those belonging
to the commercial, international, real estate construction,
commercial mortgage and lease financing categories. A
detailed credit quality review is performed quarterly on large
corporate loans which have deteriorated below certain levels
of credit risk. A specific portion of the allowance is allocated
to such loans based upon this review. The portion of the
allowance allocated to the remaining corporate loans is
determined by applying projected loss ratios to each risk rating
based on numerous factors identified below. 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, and trends
with respect to past due and nonaccrual amounts.

Management maintains an unallocated allowance to recognize
the uncertainty and imprecision underlying the process of
estimating expected credit losses. This uncertainty occurs
because other factors affecting the determination of probable
losses inherent in the loan portfolio may exist which are not

1 A C C O U N T I N G P O L I C I E S ( C O N T I N U E D )

. . . . . . . . . . . . . . . .

necessarily captured by the application of historical loss ratios.
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.

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 previously accrued but not collected is charged
against current income. Income on such loans is then recog-
nized only to the extent that cash is received and where
future collection of principal 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
Principles Board opinion No. 25, “Accounting for Stock
Issued to Employees,” and related interpretations in measuring
and recognizing compensation expense for its stock-based
compensation plans, and to disclose the pro forma effect of
applying the fair value method contained in Statement on
Financial Accounting Standards (SFAS) No. 123, “Accounting
for Stock-based Compensation.” Information on the Corpo-
ration’s stock-based compensation plans is included in Note 13.

Pension Costs
Pension costs are charged to salaries and employee benefits
expense and funded consistent with the requirements of
federal law and regulations.

Postretirement Benefits
Postretirement benefits are recognized in the financial
statements during the employee’s active service period.

Derivative Financial Instruments and
Foreign Exchange Contracts
Interest rate and foreign exchange swaps, interest rate caps
and floors, and futures and forward contracts may be used
to manage the Corporation’s exposure to interest rate and
foreign currency risks. These instruments, with the exception
of futures and forwards, are accounted for on an accrual
basis since there is a high correlation with the on-balance

sheet instrument being hedged. If this correlation ceases to
exist, the existing unrealized gain or loss is amortized over
the remaining term of the instrument, and future changes in
fair value are accounted for in 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
agreements executed as a service to customers are accounted
for on a fair value basis. As a result, the fair values of these
instruments are recorded in the consolidated balance sheet
with both realized and unrealized gains and losses recognized
currently in 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 included
in the balance sheet caption, “Cash and due from banks.”

Loan Origination Fees and Costs
Loan origination and commitment fees are deferred and
recognized over the life of the related loan or over the
commitment period as a yield adjustment. Loan fees on
unused commitments and fees related to loans sold are
recognized currently as noninterest income.

Nonowner Changes in Equity
Statement on Financial Accounting Standards No. 130,
“Reporting Comprehensive Income,” 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 42
and in Note 11. The caption “Net income and nonowner
changes in equity,” represents total comprehensive income as
defined in the statement.

46 Comerica Incorporated 1999 Annual Report

Comerica Incorporated 1999 Annual Report

2 A C Q U I S I T I O N S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4 N O N P E R F O R M I N G A S S E T S . . . . . . . . . . . . . . . . . . . . . . . . . .

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.

I N V E S T M E N T S E C U R I T I E S . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Gross

(in thousands)

Cost

December 31, 1999

Unrealized Unrealized Estimated
Fair Value

Losses

Gains

$2,317,530

$ 1,458

$43,459 $2,275,529

72,054
400,260

1,764
2,580

122
12,601

73,696
390,239

$2,789,844

$ 5,802

$56,182

$2,739,464

U.S. government
and agency
securities

State and municipal

securities

Other securities

Total securities

available
for sale

December 31, 1998

U.S. government
and agency
securities
State and municipal

securities

Other securities

Total securities

available
for sale

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

The cost and estimated fair values of debt securities by
contractual 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.

December 31, 1999
(in thousands)

Contractual maturity
Within one year
Over one year to five years
Over five years to ten years
Over ten years

Estimated
Fair Value

Cost

$ 106,837
204,838
60,063
44,717

$ 106,756
204,844
56,965
39,227

Subtotal securities

416,455

407,792

Mortgage-backed

securities

Equity and other

nondebt securities

Total securities

available for sale

2,271,352

2,229,523

102,037

102,149

$2,789,844

$2,739,464

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

$5,535
Securities gains
Securities losses (82)

$7,629
(1,513)

Total

$5,453

$6,116

Assets, principally securities, carried at approximately
$1.8 billion at December 31, 1999, were pledged to secure
public deposits (including State of Michigan deposits of
$48 million at December 31, 1999) and for other purposes
as required by law.

$2,196,736

$13,463

$ 3,993 $2,206,206

Year Ended December 31
(in thousands)

1999

1998

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. Consistent
with this definition, all nonaccrual and reduced-rate loans
(with the exception of residential mortgage and consumer
loans) are impaired.

December 31
(in thousands)

Average impaired loans for the year
Total period-end impaired loans
Period-end impaired loans
requiring an allowance

Impairment allowance

1999

1998

1997

$146,070
159,165

$ 85,500
101,417

$73,502
70,470

155,828
51,753

87,494
21,951

60,376
20,358

Those impaired loans not requiring an allowance represent
loans for which the fair value exceeded the recorded invest-
ment in the loan. Twenty-four percent of the total impaired
loans at December 31, 1999, are evaluated based on fair
value of related collateral. Remaining loan impairment is
based on the present value of expected future cash flows
discounted at the loan’s effective interest rate.

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

1999

1998

$110,606
44,046
249
9,620
572

$ 77,175
20,350
452
6,788
3,468

165,093

108,233

7,347

7,464

Total nonperforming loans

172,440

115,697

Other real estate

9,595

4,956

Total nonperforming assets

$182,035

$120,653

Loans past due 90 days and still accruing

$ 47,676

$ 40,209

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

$ 17,309

$ 13,674

Interest income recognized

$ 2,158

$ 3,899

5 A L L O WA N C E F O R C R E D I T L O S S E S . . . . . . . . . . . . . . . .

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

(in thousands)

1999

1998

1997

Balance at January 1
Loans charged off
Recoveries on loans previously

$452,409
(120,976)

$424,147
(125,627)

$367,165
(131,140)

charged off

31,004

40,889

42,122

Net loans charged off
Provision for credit losses
Foreign currency translation

adjustment

(89,972)
114,000

(84,738)
113,000

(89,018)
146,000

—

Balance at December 31

$476,470

$452,409

$424,147

As a percent of total loans

1.46%

1.48%

1.47%

48 Comerica Incorporated 1999 Annual Report

Comerica Incorporated 1999 Annual Report

S I G N I F I C A N T G R O U P C O N C E N T R AT I O N S O F
C R E D I T R I S K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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 Corpora-
tion has an industry concentration with the automotive industry,
which includes manufacturers and their finance subsidiaries,
suppliers, dealers and company executives.

Additionally, commercial real estate loans, including com-
mercial mortgages and construction loans, totaled $6.5 billion
in 1999 and $5.3 billion in 1998. Approximately $2.7 billion
of commercial real estate loans at December 31, 1999,
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.

At December 31, 1999 and 1998, exposure from loan commit-
ments and guarantees to companies related to the automotive
industry totaled $8.9 billion and $9.0 billion, respectively.

P R E M I S E S A N D E Q U I P M E N T A N D O T H E R
N O N C A N C E L A B L E O B L I G AT I O N S . . . . . . . . . . . . . . . . . .

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

(in thousands)

Land
Buildings and improvements
Furniture and equipment

Total cost

1999

1998

$ 49,464
351,458
320,565

$ 49,356
341,260
327,498

721,487

718,114

Less accumulated depreciation and amortization

(390,759)

(365,464)

Net book value

$330,728

$ 352,650

Rental expense for leased properties and equipment amount-
ed to $42 million in 1999 and $41 million in 1998 and 1997.
Future minimum payments under noncancelable obligations
are as follows:

(in thousands)

2000
2001
2002
2003
2004
2005 and later

$ 45,638
41,859
36,811
32,789
28,779
254,842

8 S H O R T - T E R M B O R R O W I N G S . . . . . . . . . . . . . . . . . . . . . . . .

Federal funds purchased and securities sold under agreements
to repurchase generally mature within one to four days from
the transaction date. Other borrowed funds, consisting of
commercial paper, borrowed securities, term federal 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, 1999 and 1998:

At December 31, 1999, the parent company had available a
$250 million commercial paper facility of which $75 million
was outstanding. This facility is supported by a $210 million
line of credit agreement. Under the current agreement the line
will expire in May of 2000.

At December 31, 1999, the Corporation’s subsidiary banks
had pledged loans totaling $27.3 billion to secure a collater-
alized borrowing account with the Federal Reserve Bank.

(in thousands)

December 31, 1999

Amount outstanding at

year-end

Weighted average

interest rate at year-end

December 31, 1998

Amount outstanding at

year-end

Weighted average

interest rate at year-end

Federal Funds Purchased
and Securities Sold
Under Agreements
to Repurchase

Other
Borrowed
Funds

$1,332,397

$1,435,634

4.40%

4.50%

$3,108,985

$ 471,168

4.83%

3.91%

9 M E D I U M - A N D L O N G - T E R M D E B T

. . . . . . . . . . . . . . . . . .

Medium- and long-term debt consisted of the following at
December 31:

(in thousands)

1999

1998

Principal Amount
of Debt
Converted

Base
Rate at
Base Rate 12/31/99

(in thousands)

Subsidiaries
Subordinated notes:

Parent Company
7.25% subordinated notes due 2007
9.75% subordinated notes due 1999

Total parent company

Subsidiaries
Subordinated notes:

$ 158,543
—

$ 159,669
74,970

158,543

234,639

7.25% subordinated notes
7.25% subordinated notes
6.88% subordinated notes
6.00% subordinated notes
7.13% subordinated notes
7.88% subordinated notes

$200,000
150,000
100,000
250,000
150,000
150,000

6-month LIBOR
6-month LIBOR
6-month LIBOR
6-month LIBOR
6-month LIBOR
6-month LIBOR

6.13%
6.13%
6.13%
6.13%
6.13%
6.13%

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

198,502
155,287
149,561
103,729
154,834
173,217
248,010

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

Total subordinated notes

1,183,140

1,184,458

Medium-term notes:

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

Fixed rate notes

with interest rate
of 6.65%

108,000

3-month LIBOR

6.00%

37,000

3-month LIBOR

6.00%

200,000

3-month LIBOR

6.00%

Medium-term notes:

Floating rate based on LIBOR indices
Floating rate based on Treasury indices
Floating rate based on Prime indices
Fixed rate notes with interest rate

of 6.65%

5,762,320
37,000
1,224,993

3,612,076
37,000
—

199,944

199,810

Total medium-term notes

7,224,257

3,848,886

Notes payable

13,917

14,276

Total subsidiaries

8,421,314

5,047,620

Total medium- and long-term debt

$8,579,857

$5,282,259

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:

All subordinated notes and debentures with maturities greater
than one year qualify as Tier 2 capital.

The Corporation currently has two medium-term note programs:
a senior note program and a European note program. Under
these programs, certain bank subsidiaries may offer an aggre-
gate 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 one-month
LIBOR minus 0.10% to three-month LIBOR plus 0.17%.
The notes are due from 2000 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 medium-term notes do not qualify
as Tier 2 capital and are not insured by the FDIC. The principal
maturities of medium- and long-term debt are as follows:

(in thousands)

2000
2001
2002
2003
2004
2005 and later

$6,593,933
316,148
485,416
2,585
2,592
1,179,183

10 S H A R E H O L D E R S ’ E Q U I T Y . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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, 1999, 20.6 million shares had
been repurchased under this program.

At December 31, 1999, the Corporation had reserved 9.7 million
shares of common stock for issuance to employees and directors
under the long-term incentive plans.

The Corporation issued 5 million shares of Fixed/Adjustable
Rate Noncumulative Preferred Stock, Series E, with a stated

value of $50 per share in 1996. Dividends are payable quarterly,
at a rate of 6.84% per annum through July 1, 2001. There-
after, 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.

50 Comerica Incorporated 1999 Annual Report

Comerica Incorporated 1999 Annual Report

11 N O N O W N E R C H A N G E S I N E Q U I T Y . . . . . . . . . . . . . . . .

13 L O N G - T E R M I N C E N T I V E P L A N S . . . . . . . . . . . . . . . . . . . .

Nonowner changes in equity includes the change in unrealized
gains and losses on investment securities available for sale
and the change in the accumulated foreign currency translation
adjustment. The Consolidated Statements of Changes in

Shareholders’ Equity include only the combined, net of tax,
nonowner changes in equity. The following presents reconcili-
ations of the components of accumulated nonowner changes in
equity for the years ended December 31, 1999, 1998 and 1997.

(in thousands)

Net unrealized gains (losses) on investment securities available for sale:

Balance at beginning of year
Net unrealized holding gains (losses) arising during the period
Less: Reclassification adjustment for gains (losses) included in net income

Change in net unrealized gains (losses) before income taxes
Provision for income taxes

Change in net unrealized gains (losses) on investment securities available for sale, net of tax

Balance at December 31

Accumulated foreign currency translation adjustment:

Balance at beginning of year
Net translation gains (losses) arising during the period
Less: Reclassification adjustment for gains (losses) included in net income

Change in translation adjustment before income taxes
Provision for income taxes

Change in foreign currency translation adjustment, net of tax

Balance at December 31

Total accumulated nonowner changes in equity, net of taxes, at December 31

Year Ended December 31

1999

1998

1997

$ (7,688)
(33,815)
5,453

(39,268)
(14,239)

(25,029)

$(32,717)

$ 1,233
(218)
—

(218)
—

(218)

$ 1,015

$(31,702)

$ (970)
(3,835)
6,116

(9,951)
(3,233)

(6,718)

$(22,789)
39,038
5,195

33,843
12,024

21,819

$(7,688)

(970)

$ (967)
2,200
—

2,200
—

2,200

$ 1,233

$(6,455)

$ —
(967)
—

(967)
—

(967)

$ (1,937)

12 N E T I N C O M E P E R C O M M O N S H A R E . . . . . . . . . . . . . .

Basic net income per common share is computed by dividing
net income applicable to common stock by the weighted
average number of shares of common stock outstanding during
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:

Year Ended December 31
(in thousands, except per share data)

1999

1998

1997

Basic

Average shares outstanding

156,094

155,859

158,333

Net income
Less preferred stock dividends

$672,589
17,100

$607,076
17,100

$530,476
17,100

Net income applicable to

common stock

$655,489

$589,976

$513,376

Basic net income per
common share

Diluted

Average shares outstanding
Nonvested stock
Common stock equivalents

Net effect of the assumed

$4.20

$3.79

$3.24

156,094
167

155,859
191

158,333
204

exercise of stock options

2,136

2,707

2,503

Diluted average shares

158,397

158,757

161,040

Net income
Less preferred stock dividends

$672,589
17,100

$607,076
17,100

$530,476
17,100

Net income applicable to

common stock

$655,489

$589,976

$513,376

Diluted net income per

common share

$4.14

$3.72

$3.19

The Corporation has long-term incentive plans under which
it has awarded both shares of restricted stock to key executive
officers and stock options to executive officers, directors and
key personnel of the Corporation and its subsidiaries. The
Corporation has elected to follow Accounting Principles Board
opinion No. 25, “Accounting For Stock Issued to Employees”
(APB 25) and related Interpretations in accounting for its
employee and director stock options. Under APB 25, no
compensation expense is recognized because the exercise
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 models
require the input of highly subjective assumptions including
the expected stock price volatility. The model may not neces-
sarily 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 an option
valuation model with the following weighted-average
assumptions:

1999

1998

1997

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
earnings per share would have been as follows:

(in thousands,
except per share data)

1999

1998

1997

Pro forma net income

$639,169

$578,335

$506,875

Pro forma earnings per share:

Basic
Diluted

$4.09
4.04

$3.71
3.64

$3.20
3.15

Outstanding—December 31, 1996

Granted
Cancelled
Exercised
Expired

Outstanding—December 31, 1997

Granted
Cancelled
Exercised
Expired

Outstanding—December 31, 1998

Granted
Cancelled
Exercised
Expired

Average per Share

Exercise Market
Price

Price

$18.95
40.28
26.00
15.93

$24.77
71.37
42.92
21.33

$36.39
66.63
63.00
18.86

$34.92
40.28
43.07
44.81

$60.17
71.37
64.33
64.07

$68.19
66.63
58.69
62.76

Number

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

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

8,249,450
2,237,754
(202,392)
(680,664)
—

Outstanding—December 31, 1999

9,604,148

$44.12

$46.69

Exercisable— December 31, 1999
Available for grant—

5,352,198

December 31, 1999

103,246

5.15%
3.24%

5.54%
3.45%

6.49%
3.77%

The following table summarizes information about stock
options outstanding at December 31, 1999:

Risk-free interest rate
Expected dividend yield
Expected volatility factors of

the market price of Comerica
common stock

Expected option life (in years)

24%
4.8

21%
4.3

20%
4.4

For purposes of pro forma disclosures, the estimated fair
value of the options granted in 1995 and thereafter is amor-
tized to expense over the options’ vesting period. A majority
of the Corporation’s options vest over a four-year period.

Outstanding

Exercisable

Exercise
Price Range

Average
Shares Life (a)

$ 8.59 - $18.00
18.59 - 21.00
21.59 - 25.42
28.33 - 65.13
65.56 - 66.81
68.44 - 71.58

Total

946,488
1,292,130
1,686,724
1,751,145
2,085,441
1,842,220

9,604,148

2.8
4.5
5.4
7.3
9.2
8.2

6.7

Average
Exercise
Price

$14.43
19.02
24.46
41.73
66.81
71.58

Average
Exercise
Price

$14.43
19.02
24.20
41.19
—
71.58

946,488
1,292,130
1,327,145
1,009,539
—
776,896

$44.12

5,352,198

$31.30

(a) Average contractual life remaining in years.

52 Comerica Incorporated 1999 Annual Report

Comerica Incorporated 1999 Annual Report

14 E M P L O Y E E B E N E F I T P L A N S . . . . . . . . . . . . . . . . . . . . . . . .

I N C O M E TA X E S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Corporation has a defined benefit pension plan in effect for
substantially all full-time employees. Staff expense includes
income of $0.8 million in 1999, $3.0 million in 1998 and
$0.3 million in 1997 for the plan. Benefits under the plan
are based primarily 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. government and agency securities and
corporate bonds and notes.

The Corporation’s postretirement benefits plan continues
postretirement health care and life insurance benefits for
retirees as of December 31, 1992, provides a phase-out for
employees over 50 as of that date and substantially reduces
all benefits for remaining employees. The Corporation has
funded the plan with a company-owned life insurance contract.

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

(in thousands)

1999

1998

1999

1998

Change in benefit obligation:
Benefit obligation at January 1
Service cost
Interest cost
Curtailment
Actuarial gain
Benefits paid

Benefit obligation

at December 31

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

15,387
38,118

$542,941 $525,329
13,924
36,039
— (5,518)
(3,631)
(23,202)

(63,598)
(23,162)

$80,710 $81,584
262
5,509
—
(423)
(6,222)

256
5,308
—
(4,995)
(6,717)

$509,686 $542,941

$74,562 $80,710

$628,194 $585,215
66,181
—
(23,202)

46,750
—
(23,162)

$88,312 $86,727
4,226
3,581
(6,222)

(1,475)
4,271
(6,717)

December 31

$651,782 $628,194

$84,391 $88,312

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

Defined Benefit
Pension Plan

Postretirement
Benefit Plan

(in thousands)

1999

1998

1999

1998

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

Unrecognized prior service cost

$ 142,096 $ 85,253
(44,829)
(106,068)

$ 9,829 $ 7,602
(7,115)

(4,701)

(5,690)
(2,072)

(10,524)
(2,394)

59,850
—

64,477
—

Prepaid benefit cost

$ 28,266 $ 27,506

$64,978 $64,964

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)

1999

1998

1997

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

$361,575
(2,737)
1,645

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

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

Provision for income taxes

$360,483

$324,299

$286,266

The current and deferred components of income taxes were
as follows:

(in thousands)

Currently payable
Federal
Foreign
State and local

Deferred federal, state and local

1999

1998

1997

$287,776
22,797
10,174

$245,486
27,263
13,847

$239,680
30,723
15,584

320,747
39,736

286,596
37,703

285,987
279

Total

$360,483

$324,299

$286,266

There were $1.9 million, $2.1 million and $1.8 million of
income taxes provided on securities transactions in 1999,
1998 and 1997, respectively.

The principal components of deferred tax (assets) liabilities at
December 31 were as follows:

(in thousands)

Allowance for credit losses
Lease financing transactions
Allowance for depreciation
Deferred loan origination fees and costs
Investment securities available for sale
Employee benefits
Other temporary differences, net

Total

1999

1998

$(150,025)
229,086
2,871
(31,424)
(17,458)
(8,259)
(37,442)

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

$ (12,651)

$ (37,464)

16 T R A N S A C T I O N S W I T H R E L AT E D P A R T I E S . . . . . .

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, 1999, approximated
$327 million at the beginning and $347 million at the end
of 1999. During 1999, new loans to related parties aggre-
gated $559 million and repayments totaled $539 million.

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

transition asset

Amortization of unrecognized

prior service cost

Amortization of unrecognized net loss

1999

1998

1997

$ 15,387
38,118
(51,241)

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

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

(4,834)

(322)
2,132

(331)
1,071

(353)
978

Net periodic benefit income

(760)

$ (3,018)

(299)

Postretirement Benefit Plan
(in thousands)

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

Amortization of unrecognized net gain

1999

1998

1997

$ 256
5,308
(5,935)

$ 262
5,509
(5,829)

$ 273
5,710
(5,413)

4,628
—

4,628
(56)

Net periodic benefit cost

$ 4,257

$ 4,570

$ 5,142

Actuarial assumptions were as follows:

Defined Benefit Pension Plan

1999

1998

1997

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

8.0% 7.0% 7.0%
9.3% 9.0% 9.0%
5.0% 5.0% 5.0%

Postretirement Benefit Plan

1999

1998

1997

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

8.0% 7.0% 7.0%
6.7% 6.7% 6.7%

The health care cost trend rate projected for 1999 was 5 percent
and is assumed to remain constant. Increasing each health
care rate by one percentage point would increase the accu-
mulated postretirement benefit obligation by $5 million at
December 31, 1999, and the aggregate of the service and
interest cost components by $353 thousand for the year ended
December 31, 1999. Decreasing each health care rate by one
percentage point would decrease the accumulated postretire-
ment benefit obligation by $4 million at December 31, 1999,
and the aggregate of the service and interest cost components
by $315 thousand for the year ended December 31, 1999.

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 $11.7 million in 1999, $11.1 million in
1998 and $9.7 million in 1997 for the plans.

54 Comerica Incorporated 1999 Annual Report

Comerica Incorporated 1999 Annual Report

R E G U L AT O R Y C A P I TA L A N D B A N K I N G
S U B S I D I A R I E S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F I N A N C I A L I N S T R U M E N T S W I T H O F F - B A L A N C E
S H E E T R I S K ( C O N T I N U E D ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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 $879 million at January 1, 2000,
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 $261 million in 1999, $442 million in 1998 and
$354 million in 1997.

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 mainte-
nance 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, 1999 and 1998, the
Corporation and all of its banking subsidiaries exceeded the
ratios required for an institution to be considered “well capi-
talized” (total capital ratio greater than 10 percent). The fol-
lowing is a summary of the capital position of the Corporation
and its significant banking subsidiaries:

(in thousands)

December 31, 1999

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, 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%)

Comerica Inc.
(Consolidated)

Comerica
Bank

Comerica Bank-
Texas

Comerica Bank-
California

$ 3,179,790
4,903,202

$2,614,284
4,046,166

$358,200
452,678

$382,339
576,282

8.39%

8.53%

9.59%

8.60%

6.95

10.72

7.00

10.83

10.12

12.79

7.48

11.27

$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

F I N A N C I A L I N S T R U M E N T S W I T H O F F - B A L A N C E
S H E E T R I S K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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 fluctuations
in interest rate, foreign currency and other market risks and
to meet the financing needs of customers. These financial
instruments involve, to varying degrees, elements of credit
and market risk in excess of the amount reflected in the
consolidated balance sheets.

Credit risk is the possible loss that may occur in the event of
nonperformance by the counterparty to a financial instrument.
The Corporation attempts to minimize credit risk arising from
off-balance sheet financial instruments by evaluating the
creditworthiness of each counterparty, adhering to the same
credit approval process used for traditional lending activities.
Counterparty risk limits and monitoring procedures have also
been established to facilitate the management of credit risk.

Collateral is obtained, if deemed necessary, based on the
results of management’s credit evaluation. Collateral varies,
but may include cash, investment securities, accounts receiv-
able, inventory, property, plant and equipment or real estate.

Derivative financial instruments and foreign exchange contracts
are traded over an organized exchange or negotiated over-the-
counter. Credit risk associated with exchange-traded contracts
is typically assumed by the organized exchange. Over-the-
counter contracts are tailored to meet the needs of the coun-
terparties involved and, therefore, contain a greater degree of
credit risk and liquidity risk than exchange-traded contracts
which have standardized terms and readily available price
information. The Corporation reduces exposure to credit and
liquidity risks from over-the-counter derivative and foreign
exchange contracts by conducting such transactions with
investment-grade domestic and foreign investment banks or
commercial banks.

Market risk is the potential loss that may result from movements
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 monetary exposure limits
and monitoring compliance with those limits. Market risk
arising from derivative and foreign exchange positions entered
into on behalf of customers is reflected in the consolidated
financial statements and may be mitigated by entering into
offsetting transactions. Market risk inherent in off-balance
sheet derivative and foreign exchange contracts held or issued
for risk management purposes is generally offset by changes in
the value of rate sensitive on-balance sheet assets or liabilities.

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
purposes. Activity related to these instruments is centered
predominantly in the interest rate markets and mainly involves
interest rate swaps. Various other types of instruments are
also used to manage exposures to market risks, including
interest rate caps and floors, total return swaps, foreign
exchange forward contracts and foreign exchange swap
agreements. Refer to the section entitled “Risk Management
Derivative Financial Instruments and Foreign Exchange
Contracts” in the financial review on page 38 for further
information 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, 1999 and 1998.

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 1999, the Corporation terminated a portion of its
portfolio of index amortizing interest rate swaps. The notional
amount of these swaps totaled $1,376 million. The gain
resulting from early termination was deferred and is being
amortized over the remaining expected life of the swaps at
time of termination. In 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 unreal-
ized gains on derivative and foreign exchange contracts.

Notional/
Contract Unrealized Unrealized
Amount

Gains

Fair
Losses Value

$ 8,518

$ 17

$(172) $(155)

(in millions)

December 31, 1999
Risk management

Interest rate swaps
Foreign exchange

contracts:
Spot and forwards
Swaps

1,098
115

33
—

(23)
(5)

10
(5)

(28)

Total foreign

exchange contracts 1,213

Total risk

management

$ 9,731

$ 50

$(200)

$(150)

December 31, 1998
Risk management

Interest rate contracts:

Swaps
Options, caps and
floors purchased

Total interest

$6,869

$152

$ (6) $146

—

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

Bilateral collateral agreements with counterparties covered
95 percent and 94 percent of the notional amount of interest
rate derivative contracts at December 31, 1999 and 1998,
respectively. These agreements reduce credit risk by pro-
viding for the exchange of marketable investment securities
to secure amounts due on contracts in an unrealized gain
position. In addition, at December 31, 1999, master netting
arrangements had been established with all interest rate
swap counterparties and certain foreign exchange counter-
parties. 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.

56 Comerica Incorporated 1999 Annual Report

Comerica Incorporated 1999 Annual Report

F I N A N C I A L I N S T R U M E N T S W I T H O F F - B A L A N C E
S H E E T R I S K ( C O N T I N U E D ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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 instru-
ments 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 consolidated
balance sheets. Changes in fair value are recognized in
the consolidated income statements. For the year ended
December 31, 1999, unrealized gains and unrealized losses
on customer-initiated and other foreign exchange contracts
averaged $19 million and $15 million, respectively. For the
year ended December 31, 1998, unrealized gains and unreal-
ized losses averaged $14 million and $9 million, respectively.
These contracts also generated noninterest income of $10 million
in 1999 and $9 million in 1998. Average positive and negative
fair values and income related to customer-initiated and other
interest rate contracts were not material for 1999 and 1998.

The following table presents the composition of off-balance
sheet derivative financial instruments and foreign exchange
contracts held or issued in connection with customer-initiated
and other activities at December 31, 1999 and 1998.

Notional/
Contract Unrealized Unrealized
Amount

Fair
Losses Value

Gains

(in millions)

December 31, 1999
Customer-initiated and other

Interest rate contracts:

Caps and floors written
Caps and floors purchased
Swaps

$ 166
141
256

$ —
1
2

$ (1)
$ (1)
1
—
(2) —

Total interest rate

contracts

Foreign exchange

contracts:
Spot, forwards, futures

and options

563

(3) —

579

(11)

Total customer-initiated

and other

$ 1,142

$ 17

$ (14)

$ 3

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)
—
(6)

$(1)
1
1

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

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
payments based on a designated market rate or index (or
variable payments based on two different rates or indices
for basis swaps), applied to a specified notional amount until
a stated maturity. The Corporation’s swap agreements are
structured such that variable payments are primarily based
on prime, one-month LIBOR or 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, including
generic receive variable swaps and cross-currency swaps, for
risk management purposes. Generic receive variable swaps
involve payment, in a foreign currency, of the difference
between a contractually fixed exchange rate and an average
exchange rate determined at settlement, applied to a notional
amount. Cross-currency swaps involve the exchange of both
interest and principal amounts in two different currencies.
Other foreign exchange contracts such as futures, forwards
and options are primarily entered into as a service to cus-
tomers and to offset market risk arising from such positions.
Futures and forward contracts require the delivery or receipt
of foreign currency at a specified date and exchange rate.
Foreign currency options allow the holder to purchase or
sell a foreign currency at a specified date and price. Foreign
exchange futures are exchange-traded, while forwards,
swaps and most options are negotiated over-the-counter.
Foreign exchange contracts expose the Corporation to both
market risk and credit risk.

Commitments
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 contracts,
did not have a material impact on the consolidated financial
statements for the years ended December 31, 1999 and 1998.
Commitments to purchase and sell U.S. Treasury and municipal
bond securities related to the Corporation’s trading account
totaled $4 million and $17 million at December 31, 1999 and
1998, respectively. 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 $1.2 billion and $1.6 billion at December 31,
1999 and 1998, respectively. These commitments expose
the Corporation to the risk of a reduction in net interest
income as interest rates increase. Market risk exposure arising
from fixed rate revolving credit commitments is very limited,
however, since it is unlikely that a significant number of cus-
tomers with these accounts will simultaneously borrow up to
their maximum available credit lines. Additional information
concerning unused commitments to extend credit is provided
in the “Credit-Related Financial Instruments” section below.

Credit-Related Financial Instruments
The Corporation issues off-balance sheet financial instruments
in connection with commercial and consumer lending activities.

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

(in millions)

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

1999

1998

$24,230
4,064
232
44

$28,393
3,632
328
44

Unused Commitments to Extend Credit
Commitments to extend credit are legally binding agreements
to lend to a customer, provided there is no violation of any
condition established in the contract. These commitments
generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many
commitments expire without being drawn upon, the total
contractual amount of commitments does not necessarily
represent future cash requirements of the Corporation. Total
unused commitments to extend credit at December 31, 1999
and 1998, included $3 billion of variable and fixed rate revolv-
ing credit commitments. Other unused loan commitments,
primarily variable rate, totaled $21 billion at December 31,
1999, and $25 billion at December 31, 1998.

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 $1,475 million and $1,432 million at December 31,
1999 and 1998, respectively. The remaining standby letters
of credit and financial guarantees, which mature within one
year, totaled $2,589 million and $2,200 million at December
31, 1999 and 1998, respectively. Commercial 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, 1999 and 1998.

19 C O N T I N G E N T L I A B I L I T I E S . . . . . . . . . . . . . . . . . . . . . . . . . .

The Corporation and its subsidiaries are parties to litigation
and claims arising in the normal course of their activities.
Although the amount of ultimate liability, if any, with respect
to such matters cannot be determined with reasonable 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
certainty 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 impossible
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.

58 Comerica Incorporated 1999 Annual Report

Comerica Incorporated 1999 Annual Report

20 U S A G E R E S T R I C T I O N S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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. The average amount of
these reserves was $103 million and $129 million for the years
ended December 31, 1999 and 1998, respectively.

E S T I M AT E D F A I R VA L U E S O F F I N A N C I A L
I N S T R U M E N T S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Disclosure of the estimated fair values of financial instruments,
which differ from carrying values, often requires the use of
estimates. In cases where quoted market values are not avail-
able, the Corporation uses present value techniques and other
valuation methods to estimate the fair values of its financial
instruments. These valuation methods require considerable
judgment, and the resulting estimates of fair value can be
significantly affected by the assumptions made and methods
used. Accordingly, the estimates provided herein do not neces-
sarily indicate amounts which could be realized in a current
exchange. Furthermore, as the Corporation normally intends
to hold the majority of its financial instruments until maturity,
it does not expect to realize many of the estimated amounts
disclosed. The disclosures also do not include estimated fair
value amounts for items which are not defined as financial
instruments, but which have significant value. These include
such items as core deposit intangibles, the future earnings
potential of significant customer relationships and the value
of trust operations and other fee generating businesses. The
Corporation does not believe that it would be practicable to
estimate a representational fair value for these types of items.

The Corporation used the following methods and
assumptions:

Cash and short-term investments: The carrying amount
approximates the estimated fair value of these instruments,
which consist of cash and due from banks, interest-bearing
deposits with banks and federal funds sold.

Trading account securities: These securities are carried at
quoted market value or the market value for comparable
securities, which represents estimated fair value.

Loans held for sale: The market value of these loans represents
estimated fair value or estimated net selling price. The market
value is determined on the basis of existing forward commit-
ments 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 equipment
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 estimates
the change in fair value caused by changes in the credit
quality of borrowers since the loans were originated. The

estimated fair value of fixed rate commercial loans is calculated
by 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 estimated 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 consumer
loans, the estimated fair values are calculated by discounting
the contractual cash flows of the loans using rates represen-
tative of year-end origination rates. The resulting amounts
are adjusted to estimate the effect of changes in the credit
quality of borrowers since the loans were originated.

Customers’ liability on acceptances outstanding: The carrying
amount approximates the estimated fair value.

Loan servicing rights: The estimated fair value represents those
servicing rights recorded under SFAS No. 125, “Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.” Fair value is computed
using discounted cash flow analyses, using interest rates
and prepayment speed assumptions currently quoted for
comparable instruments.

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
foreign offices approximates their estimated fair value,
while the estimated fair value of term deposits is calculated
by discounting the scheduled cash flows using the year-end
rates offered on these instruments.

E S T I M AT E D F A I R VA L U E S O F F I N A N C I A L
I N S T R U M E N T S ( C O N T I N U E D ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Short-term borrowings: The carrying amount of federal funds
purchased, securities sold under agreements to repurchase
and other borrowings approximates estimated fair value.

Acceptances outstanding: The carrying amount approximates
the estimated fair value.

Medium- and long-term debt: The estimated fair value of the
Corporation’s variable rate medium- and long-term debt is
represented by its carrying value. The estimated fair value of
the fixed rate medium- and long-term debt is based on quoted
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 contracts:
The estimated fair value of interest rate swaps represents 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 commitments to purchase
or sell financial instruments is based on quoted market prices.
The estimated fair value of interest rate and foreign currency
options (including interest rate caps and floors) is 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
currently charged to enter into similar arrangements, considering
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 relationships
and the future earnings potential involved in such arrangements
as the Corporation does not believe that it would be practi-
cable to estimate a representational fair value for these items.

The estimated fair values of the Corporation’s financial
instruments at December 31, 1999 and 1998 are as follows:

(in millions)
A s s e t s
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

1999

1998

Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value

$ 1,294

$ 1,830

16
505

2,739
20,655
2,573

1,709

4,774

870
1,351
761

16
535

2,739
20,444
2,538

1,710

4,674

866
1,321
753

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

1,075

4,216

1,071
1,807
648

32,693

32,306

30,605

30,529

(476)

—

(452)

—

Net loans

32,217

32,306

30,153

30,529

Customers’ liability on
acceptances

outstanding

Loan servicing rights
L i a b i l i t i e s
Demand deposits

(noninterest-bearing) 6,136

6,136

6,999

Interest-bearing
deposits

17,155

Total deposits

23,291

17,137

23,273

2,768

17,314

24,313

3,580

17,340

24,339

3,580

2,768

8,580

8,490

5,282

5,355

—
(1)

17
(14)

—

50
(200)

17
(14)

(15)

—
—

28
(20)

—

196
(35)

28
(20)

(13)

Short-term borrowings
Acceptances

outstanding

Medium- and

long-term debt
O f f - b a l a n c e
S h e e t
F i n a n c i a l
I n s t r u m e n t s
Derivative financial
instruments and
foreign exchange
contracts

Risk management:
Unrealized gains
Unrealized losses

Customer-initiated
and other:
Unrealized gains
Unrealized losses

Credit-related financial

instruments

60 Comerica Incorporated 1999 Annual Report

Comerica Incorporated 1999 Annual Report

22 B U S I N E S S S E G M E N T I N F O R M AT I O N . . . . . . . . . . . . . .

22 B U S I N E S S S E G M E N T I N F O R M AT I O N ( C O N T I N U E D )

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 services
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 statement
items to each line of business using certain methodologies
which are constantly being refined. For comparability
purposes, amounts in all periods are based on methodologies
in effect at December 31, 1999. 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 expenses 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 financial
results and the factors impacting 1999 performance can be
found in the section entitled “Strategic Lines of Business” in
the financial review on page 29.

The Business Bank is comprised of middle market lending,
asset-based lending, large corporate banking and international
financial services. This line of business meets the needs of
medium-size businesses, multinational corporations and
governmental entities by offering various products and
services, including commercial loans and lines of credit,
deposits, cash management, capital market products, inter-
national trade finance, letters of credit, foreign exchange
management 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
services 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 services,
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 executing
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. The other category also includes
the financial results of Munder on a consolidated basis since
July 1998, during which time management considered
strategic options for its majority interest. In 2000, results
for Munder will be included in the Investment Bank.

Lines of business/segment financial results were as follows:

(dollar amounts in millions)
E a r n i n g s S u m m a r y

Business Bank

Individual Bank

Investment Bank*

1999

1998

1997

1999

1998

1997

1999

1998

1997

Net interest income (FTE)
Provision for credit losses
Noninterest income
Noninterest expenses
Restructuring charge
Provision for income taxes (FTE)
Net income (loss)
S e l e c t e d Av e r a g e
B a l a n c e s

$ 853 $ 746 $

149
193
339
—
202
356

79
154
308
—
185
328

658
(11)
128
299
—
181
317

699
(6)
294
599
—
139
261

679 $ 754
(14)
300
586
—
142
265

82
269
598
—
120
223

$ (4)
—
135
126
—
2
3

$ (3)
—
122
113
—
2
4

$ (2)
—
107
101
—
1
3

Assets
Loans
Deposits
Common equity
S t a t i s t i c a l D a t a

$26,121 $22,908 $19,884
18,276
21,555
25,021
3,929
4,332
4,529
1,062
1,340
1,604

$ 7,042
6,584
17,332
715

$ 7,651 $ 9,534
8,936
17,055
769

7,076
17,213
736

$ 29
—
24
27

$ 33
1
34
27

$ 28
—
41
23

Return on average assets
Return on average common equity 22.16
32.60
Efficiency ratio

1.36% 1.43%

24.49
34.51

Finance

1.60%
29.92
38.35

1.44%
36.50
60.22

1.47% 1.24%

35.96
59.82

28.94
58.39

5.83% 5.63%
12.15
n/m

14.17
n/m

4.15%
12.63
n/m

Other

Total

1999

1998

1997

1999

1998

1997

1999

1998

1997

E a r n i n g s S u m m a r y

7
—
8
3
—
4
8

46
—
8
3
—
18
33

40
—
4
3
—
15
26

$ (3)
(29)
87
50
—
18
45

$ — $ 2
75
20
7
—
(21)
(39)

48
19
17
(7)
(16)
(23)

$ 1,552 $ 1,468 $ 1,452
146
113
603
528
1,008
1,027
—
(7)
296
331
530
607

114
717
1,117
—
365
673

Assets
Loans
Deposits
Common equity
S t a t i s t i c a l D a t a

$3,730
481
569
315

$4,320
280
704
333

$5,152
70
902
294

$ 38
(526)
65
338

$ 75
(313)
(30)
181

$271
(73)
19
260

$36,960 $34,987 $34,869
27,209
31,560 28,599
21,946
22,519 22,253
2,408
2,617
2,999

Return on average assets
Return on average common equity
Efficiency ratio

0.06% 0.28%
2.41
n/m

10.00
n/m

0.22%
8.98
n/m

n/m%
n/m
n/m

1.82% 1.74%
21.86
49.35

22.54
49.39

1.52%
21.32
51.04

*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 $12 million in 1999, $9 million in 1998 and $6 million in 1997. Return on average common equity would have been 45.27% in
1999, 33.65% in 1998 and 27.49% in 1997.

n/m - not meaningful

62 Comerica Incorporated 1999 Annual Report

Comerica Incorporated 1999 Annual Report

23 P A R E N T C O M P A N Y F I N A N C I A L S TAT E M E N T S

P A R E N T C O M P A N Y F I N A N C I A L S TAT E M E N T S
( C O N T I N U E D )

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

BALANCE SHEETS— Comerica Incorporated
December 31 (in thousands, except share data)
A s s e t s
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

L i a b i l i t i e s a n d S h a r e h o l d e r s ’ E q u i t y
Commercial paper
Long-term debt
Advances from nonbanking subsidiaries
Other liabilities

Total liabilities

Nonredeemable preferred stock—$50 stated value

Authorized—5,000,000 shares
Issued—5,000,000 shares in 1999 and 1998

Common stock—$5 par value

Authorized—325,000,000 shares
Issued—157,233,107 shares in 1999 and 157,233,088 shares in 1998

Capital surplus
Accumulated nonowner changes in equity
Retained earnings
Deferred compensation
Less cost of common stock in treasury—715,496 shares in 1999 and 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)
I n c o m e
Income from subsidiaries

Dividends from subsidiaries
Other interest income
Intercompany management fees

Other interest income
Other noninterest income

Total income

E x p e n s e s
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

Equity in undistributed net income of subsidiaries, principally banks
N e t I n c o m e

1999

1998

$ 80 $
69,900
27,505
3,669,435
4,335
55,900

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

$3,827,155 $3,391,194

74,877 $
158,543
3,882
115,209

—
234,639
—
109,942

352,511

344,581

250,000

786,166
35,092
(31,702)
2,485,204
(2,955)
(47,161)

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

3,474,644

3,046,613

$3,827,155 $3,391,194

1999

1998

1997

$260,603
808
93,414
347
24,354

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

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

379,526

606,960

526,707

17,193
(682)
64,580
5,840
1,572
—
29,730

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

118,233

126,754

154,765

261,293
349

260,944
411,645

480,206
13,279

466,927
140,149

371,942
6,111

365,831
164,645

$672,589

$607,076

$530,476

STATEMENTS OF CASH FLOWS — Comerica Incorporated
Year Ended December 31 (in thousands)

O P E R AT I N G A C T I V I T I E S

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

I N V E S T I N G A C T I V I T I E S

Purchase of investment securities available for sale
Proceeds from sale of investment securities available for sale
Proceeds from sales of fixed assets and other real estate
Purchases of fixed assets
Net (increase) decrease in bank time deposits
Net increase in receivables from subsidiaries
Capital transactions with subsidiaries

1999

1998

1997

$ 672,589

$ 607,076

$ 530,476

(411,645)
1,404
—
5,822

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

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

(404,419)

(139,494)

(176,372)

268,170

467,582

354,104

(7,687)
2,580
115
(316)
(47,300)
—
(5,610)

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

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

Net cash provided by (used in) investing activities

(58,218)

(87,695)

45,511

F I N A N C I N G A C T I V I T I E S

Net increase (decrease) in advances from subsidiaries
Repayments and purchases of long-term debt
Net increase (decrease) in short-term borrowings
Proceeds from issuance of common stock
Purchase of common stock for treasury and retirement
Dividends paid

Net cash used in financing activities

3,882
(76,096)
74,877
23,268
(2,885)
(235,646)

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

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

(212,600)

(377,531)

(399,506)

Net increase (decrease) in cash on deposit at bank subsidiary
Cash on deposit at bank subsidiary at beginning of year

(2,648)
2,728

2,356
372

Cash on deposit at bank subsidiary at end of year

2,728

109
263

372

Interest paid

Income taxes recovered (paid)

$ 19,184

$ 15,290

$ 25,799

9,807

975

$ (1,145)

64 Comerica Incorporated 1999 Annual Report

S U M M A R Y O F Q U A R T E R LY F I N A N C I A L
I N F O R M AT I O N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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
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

1999

Fourth
Quarter

$ 729,838
321,563
408,275
45,000
3,512

191,356
287,813
175,681

Third
Quarter

$ 671,936
281,544
390,392
21,000
49

170,426
276,850
170,414

Second
Quarter

$ 641,501
261,859
379,642
28,000
690

193,961
288,880
167,382

First
Quarter

$ 629,435
260,603
368,832
20,000
1,202

155,692
263,414
159,112

$ 1.10
1.08

$ 1.06
1.05

$ 1.04
1.03

$ 0.99
0.98

1998

Fourth
Quarter

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

161,306
263,051
157,820

Third
Quarter

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

151,940
253,821
154,490

Second
Quarter

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

148,784
253,299
150,383

First
Quarter

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

135,002
249,873
144,383

0.99
0.97

$ 0.97
0.95

0.94
0.92

0.89
0.88

25 P E N D I N G A C C O U N T I N G P R O N O U N C E M E N T S

In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, “Accounting for Derivative Instruments
and Hedging Activities.” The Statement, as amended by
Statement No. 137, will require the Corporation to recognize
all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted 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 recog-
nized in other comprehensive income until the hedged item

is recognized in earnings. The ineffective portion of a deriv-
ative’s change in fair value will be immediately recognized
in earnings. Statement 133, as amended, is effective for fiscal
years beginning after September 15, 2000. The statement
permits adoption as of the beginning of any fiscal quarter.
The Corporation expects to adopt SFAS No. 133 effective
January 1, 2001. The Corporation has not yet determined
what the effect of SFAS No. 133 will be on the earnings and
financial position of the Corporation. The FASB has not yet
finalized several significant implementation issues which
affect the Corporation.

R E P O R T O F M A N A G E M E N T

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 management’s
best estimates and judgments and give due consideration to
materiality. The other financial information herein is consistent
with that in the financial statements.

In meeting its responsibility for the reliability of the financial
statements, management develops and maintains systems of
internal accounting controls. These controls are designed
to provide reasonable assurance that assets are safeguarded
and transactions are executed and recorded in accordance
with management’s authorization. The concept of reasonable
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 continually monitored
by the internal auditors whose work is closely coordinated
with and supplements in many instances the work of inde-
pendent auditors.

The financial statements have been audited by independent
auditors Ernst & Young LLP. Their role is to render an
independent professional opinion on management’s financial
statements based upon performance of procedures they deem
appropriate under generally accepted auditing standards.

The Corporation’s Board of Directors oversees management’s
internal control and financial reporting responsibilities
through its Audit & Legal Committee as well as various other
committees. The Audit & Legal Committee, which consists
of directors who are not officers or employees of the Corpo-
ration, meets periodically with management and internal and
independent auditors to assure that they and the Committee
are carrying out their responsibilities, and to review auditing,
internal control and financial reporting matters.

Comerica Incorporated 1999 Annual Report

R E P O R T O F I N D E P E N D E N T
A U D I T O R S

Board of Directors,
Comerica Incorporated

We have audited the accompanying consolidated balance
sheets of Comerica Incorporated and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated
statements of income, shareholders’ equity and cash flows
for each of the three years in the period ended December 31,
1999. 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 auditing
standards generally accepted in the United States. 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 exam-
ining, 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, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted
in the United States.

Detroit, Michigan
January 18, 2000

Eugene A. Miller
Chairman, President and Chief Executive Officer

Ralph W. Babb Jr.
Vice Chairman and Chief Financial Officer

Marvin J. Elenbaas
Senior Vice President and Controller

66 Comerica Incorporated 1999 Annual Report

Comerica Incorporated 1999 Annual Report

H I S T O R I C A L R E V I E W – AV E R A G E B A L A N C E S H E E T S
C O M E R I C A I N C O R P O R AT E D A N D S U B S I D I A R I E S

H I S T O R I C A L R E V I E W – S TAT E M E N T S O F I N C O M E
C O M E R I C A I N C O R P O R AT E D A N D S U B S I D I A R I E S

Consolidated Financial Information
(in millions)

A S S E T S

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

Less allowance for credit losses

Net loans

Accrued income and other assets

Total assets

L I A B I L I T I E S A N D S H A R E H O L D E R S ’ E Q U I T Y

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

1999

1998

1997

1996

1995

$ 1,518

$ 1,622

$ 1,686

$ 1,576

$ 1,500

116

143

129

195

351

2,403

3,371

4,687

5,823

7,625

19,681
2,627
1,364
4,461
929
1,816
682

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

31,560

28,599

27,209

25,352

23,561

(463)

(440)

(402)

(361)

(340)

31,097

28,159

26,807

24,991

23,221

1,826

1,692

1,560

1,610

1,432

$36,960

$34,987

$34,869

$34,195

$34,129

$ 6,255
16,264

$ 6,151
16,102

$ 5,815
16,131

$ 5,589
16,669

$ 4,767
16,888

22,519

22,253

21,946

22,258

21,655

2,823
659
421
7,289

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

33,711

32,120

32,211

31,508

31,618

3,249

2,867

2,658

2,687

2,511

Total liabilities and shareholders’ equity

$36,960

$34,987

$34,869

$34,195

$34,129

Consolidated Financial Information
(in millions, except per share data)

I N T E R E S T I N C O M E

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

I N T E R E S T E X P E N S E

Interest on deposits
Interest on short-term borrowings
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

N O N I N T E R E S T I N C O M E

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

Total noninterest income

N O N I N T E R E S T E X P E N S E S

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
N e t I n c o m e

1999

1998

1997

1996

1995

$2,501

$2,382

$2,318

$2,161

$2,091

157
5

162

219
7

226

310
11

321

372
18

390

474
26

500

2,673

2,617

2,648

2,563

2,614

590
179
411
(54)

1,126

1,547
114

1,433

648
186
368
(46)

1,156

1,461
113

1,348

673
209
374
(51)

1,205

1,443
146

1,297

686
219
295
(49)

1,151

1,412
114

1,298

721
302
289
2

1,314

1,300
87

1,213

241
169
49
39
5
214

717

640
94
61
48
—
274

184
158
43
31
6
181

603

565
90
60
43
(7)
269

147
141
32
26
5
177

528

539
89
62
42
—
276

133
140
23
22
14
175

507

561
99
69
42
90
298

125
130
21
20
12
191

499

562
99
68
49
—
308

1,117

1,033
360

1,020

1,008

1,159

1,086

931
324

817
287

646
229

626
213

$ 673

$ 607

$ 530

$ 417

$ 413

Net income applicable to common stock

$ 655

$ 590

$ 513

$ 408

$ 413

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

Cash dividends declared on common stock
Dividends per common share

$ 4.20
4.14

$ 3.79
3.72

$ 225 $ 199
$ 1.28
$ 1.44

$ 3.24
3.19

$ 181
$ 1.15

$ 2.41
2.38

$ 170
$ 1.01

$ 2.38
2.37

$ 158
$ 0.91

68 Comerica Incorporated 1999 Annual Report

H I S T O R I C A L R E V I E W — S TAT I S T I C A L D ATA
C O M E R I C A I N C O R P O R AT E D A N D S U B S I D I A R I E S

Consolidated Financial Information

1999

1998

1997

1996

1995

AV E R A G E R AT E S
( F U L LY TA X A B L E E Q U I VA L E N T B A S I S )

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

R e t u r n o n Av e r a g e C o m m o n

S h a r e h o l d e r s ’ E q u i t y

R e t u r n o n Av e r a g e A s s e t s

E f f i c i e n c y R a t i o

P e r S h a r e D a t a

Book value at year-end
Market value at year-end
Market value—high and low for year
O t h e r D a t a

8.85%

6.25% 6.59% 6.23% 6.61%

6.76

7.70
7.86
8.48
8.25
7.47
9.98
6.84

7.93

7.85

3.48
7.05

3.63

5.16
5.07
5.63

4.16

3.69

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

0.86

0.92

0.89

0.85

0.79

4.55

4.57

4.53

4.54

4.19

21.86

22.54

21.32

15.98

16.46

1.82

1.74

1.52

1.22

1.21

49.35

49.39

51.04

60.36

60.09

$20.60
46.69
70-44

$17.94
68.19
73-47

$16.02
60.17
62-34

$14.70
34.92
39-24

$15.17
26.67
29-16

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

332
10,234

334
10,134

350
9,960

358
11,079

395
12,876

S H A R E H O L D E R
I N F O R M AT I O N

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
(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 19, 2000, at
9:30 a.m. at the Detroit Institute of Arts, 5200 Woodward
Avenue, Detroit, Michigan.

Comerica Incorporated 1999 Annual Report

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
on page 70.

Stock Prices, Dividends and Yields

Quarter

1999
Fourth
Third
Second
First

1998
Fourth
Third
Second
First

High

$61.38
61.63
66.63
70.00

$69.00
71.94
73.00
72.13

Dividend
Low Per Share

Dividend*
Yield

$44.00
47.63
57.31
58.94

$46.50
51.00
61.94
54.33

$0.36
0.36
0.36
0.36

$0.32
0.32
0.32
0.32

2.7%
2.6
2.3
2.2

2.2%
2.1
1.9
2.0

*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, 2000, there were approximately 17,227
holders of record of the Corporation’s common stock.

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.

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
Satisfactory
Satisfactory
Outstanding

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.

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

“Although we are 150 years old

as a bank, we are also a brand new

company, which is evolving and

continuously reinventing itself.”

Eugene A. Miller
Chairman, President and Chief Executive Officer

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

(248) 371-5000 (metro Detroit)
(800) 521-1190 (outside Detroit area)
www.comerica.com

Media Contact
Sharon R. McMurray
(313) 222-4881

Investor Contact
Judith S. Love
(313) 222-2840