nfidence
Comerica Incorporated 2008 Annual Report
Corporate Profile
Comerica’s prudent, conservative approach to banking
has earned the confidence of customers. For nearly 160
years, Comerica has successfully navigated turbulent
economic cycles. That’s the Comerica difference.
Comerica Incorporated (NYSE: CMA) is a financial services company
headquartered in Dallas, Texas, and strategically aligned by three business
segments: The Business Bank, The Retail Bank, and Wealth & Institutional
Management. Comerica focuses on relationships, and helping people and
businesses be successful. In addition to Texas, Comerica Bank locations
can be found in Arizona, California, Florida and Michigan, with select
businesses operating in several other states, as well as in Canada, China
and Mexico. To receive e-mail alerts of breaking Comerica news, go to
http://www.comerica.com/newsalerts.
Financial Highlights
in millions, except per share data; years ended December 31
Income Statement
Net interest income
Provision for loan losses
Net income
Preferred stock dividends
Net income applicable to common stock
Diluted net income per common share
Cash dividends declared per common share
Book value per common share
Market value per common share
Average common shares outstanding – diluted
Ratios
Return on average assets
Return on average common shareholders’ equity
Average common shareholders’ equity as a percentage of average assets
Tier 1 common capital as a percentage of risk-weighted assets
Tier 1 capital as a percentage of risk-weighted assets
Total capital as a percentage of risk-weighted assets
Tangible common equity as a percentage of tangible assets
Balance Sheet (at December 31)
Total assets
Total earning assets
Total loans
Total deposits
Total preferred equity
Total shareholders’ equity
2008
$ 1,815
2007
$ 2,003
686
213
17
196
1.29
2.31
33.31
19.85
151
212
686
–
686
4.43
2.56
34.12
43.53
155
0.33%
1.17%
3.79
7.93
7.08
10.66
14.72
7.21
$67,548
62,374
50,505
41,955
2,129
7,152
13.52
8.66
6.85
7.51
11.20
7.97
$ 62,331
57,448
50,743
44,278
–
5,117
Tier 1 Capital Ratio
in percent
Total Average Assets
in millions of dollars
6
6
.
0
1
7
7
.
8
8
3
.
8
3
0
.
8
1
5
7
.
5
8
1
,
5
6
9
7
5
,
6
5
4
7
5
,
8
5
8
4
9
,
0
5
6
0
5
,
2
5
04
05
06
07
08
04
05
06
07
08
Ralph W. Babb Jr.
Chairman and Chief Executive Officer
To Our Shareholders:
Our nation is grappling with an economic downturn that
Without a doubt, this is an economic environment that is as
has affected individuals, families, and businesses of all sizes.
unsettling and volatile as any we have ever seen. Our chief
The challenged environment produced considerable market
economist, Dana Johnson, has been following it closely.
turmoil in 2008, as job losses mounted and the national
Dana does not see a severe or prolonged period of
economy weakened.
The U.S. government has taken an active role in trying
to shore up consumer and business confidence, and to
strengthen our country’s financial system. This has included
economic contraction, the so-called definition of a
depression. Nor does he envision a period of inflation. He
does, however, believe we are in the midst of a difficult
recession that will continue well into 2009.
efforts to increase the flow of credit to households and
For more on Dana’s perspectives, I encourage you to
businesses. By year-end 2008, however, the credit markets
visit the “Economic Insights” area of www.comerica.com.
still remained strained.
While it was a difficult and tumultuous year, we
remained successful by staying close to our
customers, and delivering the exceptional service that
has been a hallmark of our company through many
years and various economic cycles. I will share some
of the more notable successes with you.
I also will discuss some of our plans for the future,
such as our banking center expansion program, which
remains a cornerstone of our deposit-gathering efforts and
helps attract thousands of new customers to Comerica.
Our plans also include lending to new and existing
relationship customers for whom we serve as trusted
advisors, particularly small businesses, middle market
companies and wealth management clients in the markets
we target for growth.
I believe you will find his commentary on the national
economy, as well as the Texas, California and Michigan
economies, to be enlightening and informative.
In 2008, Comerica followed its business model and executed
its strategy, making enhancements to adapt to the changing
economy. Our credit management is evidenced in our
consistent credit standards, our limits on exposure, and the
fact we have had no subprime mortgage programs. Our
conservative investment strategy is demonstrated by our
primarily AAA-rated and liquid investment portfolio and
the lack of off-balance sheet structures, such as structured
investment vehicles, that made media headlines. We have
a relentless focus on expense management, as well as a
conservative expansion strategy. In addition, our size is a
competitive advantage in that it provides us the ability to
quickly identify issues and to act accordingly. Finally and
importantly, in this most unsettling of economic times, the
quality of our capital has remained strong.
Comerica Incorporated 2008 Annual Report
3
Fourth Quarter and 2008 Financial Performance
Jobs, manufacturing, construction and spending declined at an accelerated rate toward
year-end. On an annualized basis, excluding the Financial Services Division — our title and
escrow business — average loans declined 1 percent in the fourth quarter. This was a marked
improvement over the 6 percent annualized decline in the third quarter. Credit quality was
stable when compared to the prior quarter, and expenses continued to be well controlled.
These results underscore our ability to manage through all phases of an economic cycle,
including the current one.
Average Deposits
For the full-year 2008, we reported net income applicable to common stock of $196 million,
7%
or $1.29 per diluted share, compared to $686 million, or $4.43 per diluted share, for 2007.
Excluding the Financial Services Division, we grew average loans $2.8 billion, or 6 percent,
44%
in 2008, and core deposits grew about $500 million. Our average securities portfolio nearly
doubled in 2008. Our credit quality in 2008 compared favorably to the industry.
49%
The Business Bank
The Retail Bank
Wealth & Institutional
Management
The driver of the decrease in our yearly income was an increase in the provision for
credit losses of $493 million. About half of the 2008 provision was from our commercial
real estate line of business, nearly 80 percent of which was related to our California
local residential real estate developer portfolio. This portfolio focused on local, smaller
residential developers, which built starter and first-time move-up homes.
We made progress in 2008 in reducing the California local residential real estate
developer portfolio. We obtained updated independent appraisals to take
appropriate charge-offs and established reserves to reflect current market values.
We also conducted more frequent credit quality reviews, and moved additional
experienced lenders to our special assets group, significantly expanding our
workout capacity for these problem credits. Our proactive actions have slowed the
rate of deterioration in the portfolio.
As the economy continued to weaken in 2008, we saw some softness among
small businesses and middle market companies, the cornerstones of American
economic might. This softness was expected, however, and we augmented our
reserves appropriately.
A few years ago we made a strategic decision to reduce our exposure to
the automotive industry and to diversify to other markets. In light of the
challenges now facing this industry, this decision on our part has served us
well. We have reduced our non-dealer automotive loan outstandings $349
million in 2008 and by $1.3 billion, or 47 percent, since the end of 2005.
This portfolio now represents only about 3 percent of our total loans, and
we plan to continue to reduce our exposure to the automotive sector.
Net charge-offs for the full year were only $5.5 million in this $1.5 billion
portfolio. As always, we consider the challenges the sector faces in taking
79%
the appropriate reserves. Our experience in dealing with Michigan’s
economic challenges over several years and our strong leadership team
have been key to our competitive success in this important market.
Total Revenue
15%
29%
56%
The Business Bank
The Retail Bank
Wealth & Institutional
Management
Average Loans
9%
12%
The Business Bank
The Retail Bank
Wealth & Institutional
Management
4
Comerica Incorporated 2008 Annual Report
Our 2008 earnings were also impacted by an after-tax charge
We decided to participate in the Treasury’s Capital
related to our repurchase of auction-rate securities from
Purchase Program up to the maximum amount to further
our retail and institutional clients. Auction-rate securities
bolster our already strong capital levels. In November
are long-term variable rate instruments historically viewed
2008, we issued $2.25 billion in preferred stock and a
as highly liquid investments backed by pools of closed-
related warrant to the Treasury to complete the capital
end mutual funds, student loans and municipal bonds. In
purchase. The capital we received requires recognition
February 2008, the auction-rate securities market froze and
of dividends in 2009 of $134 million after tax, or
liquidity for these instruments was no longer available. We
approximately 89 cents per common share.
decided to provide relief for all of our clients by offering to
repurchase auction-rate securities from them.
Preserving and Enhancing
Balance Sheet Strength
Our Tier 1 capital ratio was 10.66 percent at December 31. In
addition, the quality of our capital is solid, as evidenced by
a Tier 1 common capital ratio of 7.08 percent and a tangible
common equity ratio of 7.21 percent, which is the highest
among our peer banks.
We need to preserve and enhance our balance sheet strength
in this highly uncertain and unprecedented economic
environment. That is why, after careful deliberation, our
board of directors decided to reduce the quarterly dividend
to five cents per share. We look forward to increasing our
dividend when our outlook on the economy improves.
To further strengthen our capital position, we launched
a loan optimization program in 2008, which focuses on
optimizing the revenue per relationship. The program is
working well and producing the desired results.
In October 2008, the U.S. Department of the Treasury
announced a voluntary Capital Purchase Program to
encourage healthy financial institutions to build capital in
order to increase the flow of financing to businesses and
consumers, and to support the nation’s economy.
We are leveraging our enhanced capital by making
loans — with the appropriate credit standards, loan
pricing and return hurdles in place — to new and existing
relationship customers. This includes small businesses,
middle market companies and wealth management clients.
The additional capital also enables us to support the battered
housing market through the purchase of mortgage-backed
government agency securities.
The Federal Deposit Insurance Corporation (FDIC)
announced a Temporary Liquidity Guarantee Program in
2008 that is designed to strengthen confidence and encourage
liquidity in the banking system. Comerica elected to continue
participation in the FDIC program, which provides our
customers with a full guarantee, without any dollar limitation,
on funds held in all of Comerica’s noninterest-bearing
transaction accounts through December 31, 2009. It also
provides for a fee a U.S. government guarantee on eligible
newly issued senior unsecured debt until the earlier of the
maturity date of the debt or June 30, 2012.
Controlling Expenses
Throughout the year, we remained vigilant in controlling
our expenses. For example, we are reducing Comerica’s
costs for purchased goods and services through
improvements to supplier relationships, procurement
operations and technology. We have been able to save an
We are leveraging our enhanced capital by making
loans — with the appropriate credit standards, loan
pricing and return hurdles in place — to new and
existing relationship customers.
Comerica Incorporated 2008 Annual Report
5
Average Assets/FTE
in millions of dollars
4
.
6
7
.
4
9
.
4
3
.
5
4
.
5
04
05
06
07
08
FTE: Full-Time Equivalent Employees
2008 Year-End Tangible
Common Equity
in percent
1
2
7
.
9
8
.
5
5
9
.
5
0
3
.
6
3
2
.
5
0
3
.
5
3
5
.
5
8
7
.
4
0
5
.
4
8
9
.
3
3
2
.
4
0
8
.
2
Other Banking Institutions
Comerica
Incentive peers as defined in Comerica’s 2008 proxy statement
(peer list as of December 31, 2008)
average of 10 percent on new and renegotiated contracts.
expansion program in late 2004. The 100th new banking
We believe our focus in this area will reduce our operating
center is located in Fenton Marketplace, a premier shopping
expense base, enhance our current procurement capabilities,
district in the Mission Valley area of San Diego, California.
and enable more efficient growth going forward.
Among the 28 new banking center locations we opened
We reduced our workforce by about 5 percent since the
in 2008 were those in Fort Worth, Texas; Mesa, Arizona;
end of 2007. This was accomplished primarily through the
Oakland, California; and Orlando, Florida, in addition to
continuous streamlining of operations and the leveraging of
other locations within our growth markets. At year-end
technology. As the decline in the economy became more
2008, we had 438 banking centers spanning our geographic
rapid in the fourth quarter, we determined that further staff
footprint (see breakdown by market on page 7).
reductions were necessary. Therefore, we are reducing
our workforce by another 5 percent, which will largely
be completed by the end of the first quarter of 2009. In
addition, we are freezing salaries in 2009 for the top 20
percent of our workforce.
Colleagues whose jobs were eliminated have been
encouraged to apply for other positions within Comerica and
those who were unable to obtain another position internally
have been provided with severance packages, including
outplacement services. It is always difficult to say farewell
to colleagues, particularly in this economic environment.
As with any of our workforce reductions, customers have
not been affected. They will continue to benefit from the
experience and expertise of relationship managers in all of
our major markets.
Strong Focus on Customers
Our strong focus on customers was evident throughout 2008.
We surpassed an important milestone in 2008 as we opened
our 100th new banking center since the rollout of our
In this uncertain economic environment, we plan to open
significantly fewer new banking centers in 2009. All of our
new banking centers will be in our growth markets.
Notable 2008 activities within our Retail Bank include
the successful launches of two new products: the
HealthReserve health care savings account that can help
our business customers offer their employees an affordable
option for managing their health care expenses; and the
EZ Perks rewards program that allows customers to earn
points when they sign for purchases made with their
Comerica Check Card.
Notable 2008 activities within our Business Bank include
surpassing, for the first time, $2 billion in monthly volume
with Comerica Business Deposit Capture,SM a product which
enables businesses to scan (capture) images of checks at
their own locations and transmit them electronically to
Comerica for deposit. It provides business customers faster
access to their funds and improved record keeping, while
also helping to reduce fraud and loss.
6
Comerica Incorporated 2008 Annual Report
We also implemented a new Comerica Business Connect
Peter Cummings, chairman of Ram Realty Services, and
treasury web portal, which features enhanced security
Anthony Earley, chairman and chief executive officer of DTE
through use of token encryption technology.
Energy Company, left our board after 11 and 10 years of
Comerica continues to serve as financial agent for the
U.S. Department of the Treasury for DirectExpress® Debit
MasterCard,® a prepaid debit card for Social Security
and Supplemental Security Income recipients. The card
was introduced to millions of recipients throughout the
U.S. in 2008.
Within Wealth & Institutional Management, we upgraded our
wealth planning division’s technological capabilities to better
serve the sophisticated needs of clients. Our wealth station
open architecture and tax optimized investment platform
provides investors the ability to diversify among asset classes
and sectors, helping to mitigate downside exposure to the
capital markets.
This past fall, we named 23-year industry veteran
Curtis Farmer to lead Wealth & Institutional
Management, succeeding Dennis Mooradian, who
retired in February 2009. During his five-year tenure,
Dennis led important improvements in the Wealth &
Institutional Management platform.
Board Appointments
Appointed to the Comerica Incorporated Board of
Directors in 2008 were Richard “Rick” Lindner, Jacqueline
distinguished service to our company, respectively.
Commitment to Community,
Diversity & Sustainability
Comerica has a strong commitment to community, diversity
and sustainability.
We provided more than $14 million to not-for-profit
organizations nationwide, including more than $7 million
from the Comerica Charitable Foundation, which we fund.
Our employees also raised more than $2.35 million for the
United Way and Black United Fund. With everything going
on in the nation and world, our colleagues once again
acknowledged the good work done by local United Way
agencies by their outstanding financial support.
Through our financial literacy program, Comerica
volunteers educated thousands of students and adults
on how to manage their finances, including investing,
budgeting and saving.
Our “Cash and Care” campaign enabled our customers to
make a difference in their neighborhoods when they opened
a qualified deposit at their local Comerica banking center.
As part of the campaign, Comerica makes donations to our
customers’ designated charities. The program continues to
Kane and Nina Vaca. Rick is senior executive vice
be well received.
president and chief financial officer of Dallas, Texas-based
AT&T, which provides communications services in the
United States and around the world. Jackie is senior vice
president of Human Resources and Corporate Affairs, and
a member of the senior management team of Oakland,
California-based The Clorox Company, a manufacturer
and marketer of consumer products. Nina is chairman and
chief executive officer of Dallas, Texas-based Pinnacle
Technical Resources, Inc., an information technology
services provider which grew under her leadership to
Our commitment to diversity also continued in 2008, when
we were once again recognized nationally for our efforts in
this important area. DiversityInc magazine listed Comerica
among the “Noteworthy” companies for diversity and sixth
for “Supplier Diversity” — our fourth consecutive year on
that particular list. We also were ranked third on Hispanic
Business magazine’s “2008 Diversity Elite 60” list, and Latina
Style magazine gave us an honorable mention on its “Best
U.S. Companies for Latinas to Work For” list.
become one of the fastest growing and largest staffing
Thanks to the dedication and hard work of our colleagues,
firms in the United States. We look forward to their input
we had a successful 2008 in launching our new Corporate
and expertise as we continue to execute our strategy.
Sustainability Program. We made a good start at embedding
sustainable business practices into our operations — practices
Comerica Incorporated 2008 Annual Report
7
that will help protect and preserve the environment for those who come after us.
And many of our efforts have already begun to improve our business performance
by reducing costs and waste — evidence that environmental stewardship is good for
business. In August, Comerica learned that it had achieved its first ever listings on
nine separate indexes of socially responsible companies maintained by KLD Research
& Analytics. In September, we learned that the Carbon Disclosure Project ranked
Comerica’s response to the 2008 Carbon Disclosure Project survey #2 among financial
service companies in the S&P 500, thereby entitling us to a spot on the Carbon
Disclosure Project’s coveted Climate Disclosure Leadership Index.
Looking Ahead
Looking ahead, we will continue to adjust, as necessary, to cope with the pressing
economic issues confronting our nation and the world. We will remain vigilant and
attentive to the needs of our customers.
Our strong capital base and access to liquidity and deposits will continue to provide
us with opportunities to expand new and existing customer relationships and
invest in our growth markets.
Our successful relationship banking strategy — built on skill, not scale —
continues to be a differentiating strength of Comerica. Our colleagues are
committed to delivering the highest quality financial services in this and
any other economic environment.
In this most challenging of times, you can expect Comerica to rise to the
challenge once again, as it has for nearly 160 years. We will move forward
with a purposeful resolve, a clear vision to help people and businesses
be successful, and with confidence.
Sincerely,
Our Primary Markets
(all data as of December 31, 2008)
In Texas
Dallas/Fort Worth
Metroplex, Austin & Houston
87 banking centers
In Arizona
Phoenix/Scottsdale
12 banking centers
In California
San Francisco & the East Bay,
San Jose, Los Angeles, Orange
County, San Diego, Fresno,
Sacramento & Santa Cruz/
Monterey
96 banking centers
In Florida
Boca Raton, Fort Lauderdale,
Naples, Orlando, Palm Beach
Gardens, Riviera Beach, Sarasota,
Stuart, Wellington & Weston
10 banking centers
Ralph W. Babb Jr.
Chairman and Chief Executive Officer
In Michigan
Metropolitan Detroit and greater
Ann Arbor, Battle Creek, Grand
Rapids, Jackson, Kalamazoo,
Lansing, Midland & Muskegon
233 banking centers
Outside of the U.S.
Offices in Shanghai, China;
Monterrey, Mexico; & Windsor
and Toronto, Ontario, Canada
8
Comerica Incorporated 2008 Annual Report
Board of Directors
Ralph W. Babb Jr. (5*)
Chairman and Chief Executive Officer
Comerica Incorporated
and Comerica Bank
Lillian Bauder, Ph.D. (1)(2**)(3)
Retired Vice President
Masco Corporation
(consumer products and services provider)
Joseph J. Buttigieg III (4)(5)
Vice Chairman
Comerica Incorporated
and Comerica Bank
James F. Cordes (1)(3)(4*)
Retired Executive Vice President
The Coastal Corporation
(diversified energy company)
Roger A. Cregg (1)(2)(3)
Executive Vice President
and Chief Financial Officer
Pulte Homes, Inc.
(national homebuilding company)
T. Kevin DeNicola (1**)(3**)(4)
Senior Vice President
and Chief Financial Officer
KBR, Inc.
(global engineering, construction
and services company)
Jacqueline P. Kane (2)
Senior Vice President of Human
Resources and Corporate Affairs
The Clorox Company
(manufacturer and marketer
of consumer products)
Richard G. Lindner (2)(4)
Senior Executive Vice President
and Chief Financial Officer
AT&T, Inc.
(global telecommunications company)
Alfred A. Piergallini (2)
Chairman
Wisconsin Cheese Group, Inc.
(manufacturer and marketer of
ethnic and specialty cheeses) and
Consultant, Desert Trail Consulting
(marketing consulting organization)
Robert S. Taubman (4)
Chairman, President
and Chief Executive Officer
Taubman Centers, Inc.
(REIT that owns, develops and operates
regional shopping centers nationally)
and The Taubman Company
(shopping center management company
engaged in leasing, management and
construction supervision)
Reginald M. Turner Jr. (1)(3)(4)
Attorney
Clark Hill PLC
(law firm)
Nina G. Vaca (4)
Chairman and Chief Executive Officer
Pinnacle Technical Resources, Inc.
(staffing, vendor management and
information technology services firm)
and Vaca Industries Inc.
(management company)
William P. Vititoe (1*)(3*)(4)
Retired Chairman, President
and Chief Executive Officer
Washington Energy Company
(diversified energy company,
now Puget Sound Energy, Inc.)
Kenneth L. Way (2*)
Retired Chairman
and Chief Executive Officer
Lear Corporation
(manufacturer of automotive components)
(1) Audit Committee
(2) Governance, Compensation
and Nominating Committee
(3) Qualified Legal Compliance Committee
(4) Enterprise Risk Committee
(5) Special Preferred Stock Committee
* Committee Chairperson
** Committee Vice Chairperson
Senior Leadership Team
Ralph W. Babb Jr.
Chairman and Chief Executive Officer
Joseph J. Buttigieg III
Vice Chairman
The Business Bank
Elizabeth S. Acton
Executive Vice President
and Chief Financial Officer
Connie Beck
Executive Vice President
The Retail Bank
John R. Beran
Executive Vice President
and Chief Information Officer
Jon W. Bilstrom
Executive Vice President
Governance, Regulatory Relations
& Legal Affairs
David E. Duprey
Executive Vice President
General Auditor
Curtis C. Farmer
Executive Vice President
Wealth & Institutional Management
Linda D. Forte
Senior Vice President
Business Affairs
J. Michael Fulton
Executive Vice President and
President, Comerica Bank —
Western Market
Dale E. Greene
Executive Vice President
and Chief Credit Officer
Charles L. Gummer
Executive Vice President and
President, Comerica Bank —
Texas Market
Edward T. Gwilt
Senior Vice President
Asset Quality Review
Michael H. Michalak
Executive Vice President
Corporate Planning, Development
& Risk Management
Thomas D. Ogden
Executive Vice President and
President, Comerica Bank —
Michigan Market
Jacquelyn H. Wolf, Ph.D.
Executive Vice President and
Chief Human Resources Officer
FINANCIAL REVIEW AND REPORTS
Comerica Incorporated and Subsidiaries
Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Results and Key Corporate Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Overview/Earnings Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic Lines of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance Sheet and Capital Funds Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Critical Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Financial Statements:
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
12
14
27
32
41
61
68
70
71
72
73
74
Report of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
146
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
147
Historical Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
149
9
PERFORMANCE GRAPH
Comparison of Five Year Cumulative Total Return
Among Comerica Incorporated, Keefe 50-Bank Index, and S&P 500 Index
(Assumes $100 Invested on 12/31/03 and Reinvestment of Dividends)
$200
$150
$100
$50
$0
Comerica Incorporated
Keefe 50-Bank Index
S&P 500 Index
Comerica Incorporated
Keefe 50-Bank Index
S&P 500 Index
2003
100
100
100
2004
113
110
111
2005
109
111
116
2006
118
133
135
2007
91
102
142
2008
45
56
90
10FEB200912462215
The performance shown on the graph is not necessarily indicative of future performance.
10
TABLE 1: SELECTED FINANCIAL DATA
Years Ended December 31
2008
2007
2006
2005
2004
(dollar amounts in millions,
except per share data)
EARNINGS SUMMARY
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,815 $ 2,003 $ 1,983 $ 1,956 $ 1,811
64
Provision for loan losses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
808
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,458
Noninterest expenses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
349
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
757
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
757
Net income applicable to common stock . . . . . . . . . . . . . . . . . . . . . .
(47)
819
1,613
393
861
—
861
37
855
1,674
345
893
—
893
686
893
1,751
59
213
17
196
212
888
1,691
306
686
—
686
PER SHARE OF COMMON STOCK
Diluted net income per common share . . . . . . . . . . . . . . . . . . . . . . . $
Cash dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.29 $
2.31
33.31
19.85
4.43 $
2.56
34.12
43.53
5.49 $
2.36
32.70
58.68
5.11 $
2.20
31.11
56.76
4.36
2.08
29.94
61.02
YEAR-END BALANCES
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $67,548 $62,331 $58,001 $53,013 $51,766
48,016
Total earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,843
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,936
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,286
Total medium- and long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . .
5,105
Total common shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . .
5,105
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57,448
50,743
44,278
8,821
5,117
5,117
54,052
47,431
44,927
5,949
5,153
5,153
48,646
43,247
42,431
3,961
5,068
5,068
62,374
50,505
41,955
15,053
5,023
7,152
AVERAGE BALANCES
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $65,185 $58,574 $56,579 $52,506 $50,948
46,975
Total earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,733
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,145
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,540
Total medium- and long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . .
5,041
Total common shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . .
5,041
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48,232
43,816
40,640
4,186
5,097
5,097
52,291
47,750
42,074
5,407
5,176
5,176
60,422
51,765
42,003
12,457
5,166
5,442
54,688
49,821
41,934
8,197
5,070
5,070
. . . . . . . . . . . . . . . . . . . . . . . . . . . $
CREDIT QUALITY
Total allowance for credit losses
Total nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreclosed property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net credit-related charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net credit-related charge-offs as a percentage of average total loans . . . .
Allowance for loan losses as a percentage of total period-end loans . . . .
Allowance for loan losses as a percentage of total nonperforming loans . .
RATIOS
Net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average common shareholders’ equity . . . . . . . . . . . . . . . . .
Efficiency ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend payout ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average common shareholders’ equity as a percentage of average assets
.
Tier 1 common capital as a percentage of risk-weighted assets . . . . . . . .
Tier 1 capital as a percentage of risk-weighted assets . . . . . . . . . . . . . .
Tangible common equity as a percentage of tangible assets . . . . . . . . . .
11
578 $
404
19
423
153
519 $
808 $
214
917
18
66
232
983
72
472
0.91% 0.31% 0.15% 0.26% 0.48%
1.04
1.52
231
84
549 $
138
24
162
116
694
312
27
339
194
1.10
138
1.65
215
1.19
373
3.02% 3.66% 3.79% 4.06% 3.86%
1.58
0.33
17.24
3.79
58.92
66.17
42.99
179.07
9.15
7.93
7.54
7.08
8.03
10.66
8.62
7.21
1.64
16.90
58.01
43.05
9.71
7.78
8.38
9.16
1.49
15.03
55.60
47.71
9.90
8.13
8.77
9.39
1.17
13.52
58.58
57.79
8.66
6.85
7.51
7.97
2008 FINANCIAL RESULTS AND KEY CORPORATE INITIATIVES
Financial Results
(cid:127) Reported net income applicable to common stock of $196 million, or $1.29 per diluted share, for 2008,
compared to $686 million, or $4.43 per diluted share, for 2007, as 2008 was met with an increasingly
difficult economic environment, including turmoil in the financial markets, declining home values and
rising unemployment rates. The most significant items contributing to the decrease in net income
applicable to common stock were an increase in the provision for credit losses of $493 million, a decrease
in net interest income of $188 million, an $88 million net charge related to the Corporation’s repurchase
of certain auction-rate securities held by customers and $34 million of 2008 severance-related expenses.
These were partially offset by a $60 million increase in net securities gains.
(cid:127) Average loans in 2008 were $51.8 billion, an increase of $1.9 billion from 2007. By geographic market,
Texas average loans grew 14 percent and Florida average loans grew 13 percent from 2007 to 2008,
compared to lower growth in the Midwest (three percent), Western (less than one percent) and
International (six percent) markets. Average Financial Services Division loans declined $820 million.
(cid:127) Net interest income declined $188 million to $1.8 billion in 2008, compared to 2007. The net interest
margin decreased 64 basis points to 3.02 percent, primarily due to a decrease in loan portfolio yields and
a reduced contribution from noninterest-bearing funds in a significantly lower rate environment, changes
in the mix of earning assets, driven by growth in the investment securities portfolio, and interest-bearing
sources of funds, and $38 million of tax-related non-cash charges to lease income in 2008.
(cid:127) Noninterest income increased less than one percent compared to 2007, largely due to securities gains
realized on the sale of the Corporation’s ownership of Visa, Inc. (Visa) ($48 million) and MasterCard
shares ($14 million) in 2008, offset by decreases in deferred compensation asset returns (offset by
decreased deferred compensation plan costs in noninterest expenses) ($33 million) and net losses from
principal investing and warrants ($29 million). Service charges on deposit accounts, letter of credit fees
and card fees showed solid growth in 2008.
(cid:127) Noninterest expenses increased $60 million, or four percent, compared to 2007, primarily due to an
$88 million net charge in 2008 related to the repurchase of auction-rate securities and increases in
severance-related expenses ($30 million), the provision for credit losses on lending-related commitments
($19 million) and net occupancy expense ($18 million), partially offset by decreases in salaries, excluding
severance ($88 million) which included a decrease in deferred compensation plan costs ($33 million), and
customer services expense ($30 million). Full-time equivalent employees decreased six percent from
year-end 2007 to year-end 2008, even with the addition of 28 new banking centers during the period.
(cid:127) Incurred net after-tax charges of $9 million in the provision for income taxes reflecting settlements with
the Internal Revenue Service on various structured transactions and other tax adjustments.
(cid:127) Experienced net credit-related charge-offs of 91 basis points as a percent of average total loans in 2008,
compared to 31 basis points in 2007. Excluding Commercial Real Estate, net credit-related charge-offs
were 46 basis points of average loans in 2008, compare to 20 basis points in 2007. Nonperforming assets
increased to $983 million, reflecting challenges in the residential real estate development business located
in the Western market (primarily California) and to a lesser extent in the Middle Market business line.
(cid:127) To preserve and enhance the Corporation’s balance sheet strength in this uncertain economic
environment, the Corporation lowered the quarterly cash dividend rate by 50 percent in the fourth
quarter 2008 to $0.33 per share.
12
Key Corporate Initiatives
(cid:127) Implemented a loan optimization plan in mid-2008 with the goal of increasing loan spreads and
enhancing customer relationship returns.
(cid:127) Focused significant resources on managing deteriorating credit quality in 2008, particularly in the
commercial real estate portfolio.
(cid:127) Continued organic growth focused in high growth markets, including opening 28 new banking centers in
2008. The Corporation expects to open new banking centers in 2009 in our growth markets of California,
Texas and Arizona; however, significantly fewer compared to 2008. Since the banking center expansion
program began in late 2004, new banking centers have resulted in nearly $1.9 billion in new deposits.
(cid:127) Reduced full-time equivalent staff by six percent in 2008, even with 135 full-time equivalent employees
added to support new banking center openings. Management expects to reduce the workforce by an
additional five percent, largely to be completed in the first quarter 2009.
(cid:127) Reduced automotive production-related exposure from loans, unused commitments and standby letters
of credit and financial guarantees from $3.7 billion at December 31, 2007 to $2.9 billion at December 31,
2008. Total automotive net loan charge-offs were $6 million in 2008.
(cid:127) Purchased approximately $2.9 billion of AAA-rated mortgage-backed securities issued by government-
sponsored entities in 2008 to reduce interest rate sensitivity.
(cid:127) Increased average noninterest-bearing deposits $529 million, or six percent, in 2008, excluding the
Financial Services Division.
(cid:127) Repurchased, at par, auction-rate-securities held by certain retail and institutional clients to ensure
impacted customers were provided with a liquidity solution.
(cid:127) Enhanced capital ratios by issuing $2.25 billion of Tier 1 capital in the form of 2.25 million shares of
preferred stock and a related warrant under the U.S. Department of Treasury Capital Purchase Program,
implementing a loan optimization program, strict expense controls and lowering the quarterly dividend.
The Tier 1 common capital and Tier 1 capital ratios were 7.08 percent and 10.66 percent, respectively, at
December 31, 2008, up from 6.85 percent and 7.51 percent, respectively, at December 31, 2007. Reduced
the quarterly cash dividend to $0.05 per share in the first quarter of 2009, to preserve capital.
13
OVERVIEW/EARNINGS PERFORMANCE
Comerica Incorporated (the Corporation) is a financial holding company headquartered in Dallas, Texas.
The Corporation’s major business segments are the Business Bank, the Retail Bank and Wealth & Institutional
Management. The core businesses are tailored to each of the Corporation’s four primary geographic markets:
Midwest, Western, Texas and Florida.
The accounting and reporting policies of the Corporation and its subsidiaries conform to U.S. generally
accepted accounting principles and prevailing practices within the banking industry. The Corporation’s
consolidated financial statements are prepared based on the application of accounting policies, the most
significant of which are described in Note 1 to the consolidated financial statements. The most critical of these
significant accounting policies are discussed in the ‘‘Critical Accounting Policies’’ section of this financial review.
As a financial institution, the Corporation’s principal activity is lending to and accepting deposits from
businesses and individuals. The primary source of revenue is net interest income, which is derived principally
from the difference between interest earned on loans and investment securities and interest paid on deposits and
other funding sources. The Corporation also provides other products and services that meet the financial needs
of customers and which generate noninterest income, the Corporation’s secondary source of revenue. Growth in
loans, deposits and noninterest income is affected by many factors, including the economic growth in the
markets the Corporation serves, the financial requirements and health of customers and successfully adding new
customers and/or increasing the number of products used by current customers. Success in providing products
and services depends on the financial needs of customers and the types of products desired.
The Corporation sold its stake in Munder Capital Management (Munder) in 2006. This financial review and
the consolidated financial statements reflect Munder as a discontinued operation in all periods presented. For
detailed information concerning the sale of Munder and the components of discontinued operations, refer to
Note 27 to the consolidated financial statements.
The remaining discussion and analysis of the Corporation’s results of operations is based on results from
continuing operations.
Average loans in 2008 increased $1.9 billion, or four percent, from average 2007 levels. Excluding the
Financial Services Division, average loans grew $2.8 billion, or six percent, in 2008, compared to 2007, with
growth in most business lines, including Global Corporate Banking (18 percent), Specialty Businesses, which
includes Entertainment, Energy, Leasing, Technology and Life Sciences, (14 percent) and Private Banking
(15 percent). Excluding the Financial Services Division, average loans grew in all geographic markets in 2008,
compared to 2007: Texas (14 percent), Western (six percent), Midwest (three percent), Florida (13 percent) and
International (six percent). Average deposits, excluding the Financial Services Division increased $1.5 billion, or
four percent from 2007, resulting primarily from an increase in other time deposits. Excluding the Financial
Services Division, average noninterest-bearing deposits increased $529 million, or six percent, in 2008,
compared to 2007. In the Financial Services Division, where customers deposit large balances (primarily
noninterest-bearing) and the Corporation pays certain expenses on behalf of such customers and/or makes
low-rate loans to such customers, average loans decreased $820 million, or 62 percent, in 2008. Average
Financial Services Division deposits decreased $1.4 billion, or 36 percent, in 2008, compared to 2007, as average
noninterest-bearing deposits decreased $1.2 billion and average interest-bearing deposits decreased $245 million
due to reduced home prices, as well as, lower home mortgage financing and refinancing activity. Net interest
income decreased nine percent in 2008, compared to 2007, primarily due to a decrease in loan portfolio yields
and a reduced contribution from noninterest-bearing funds in a significantly low interest rate environment, a
challenging deposit pricing environment, the impact of a higher level of nonaccrual loans and $38 million of
tax-related non-cash charges to lease income in 2008, partially offset by growth in average earning assets, largely
driven by growth in investment securities available-for-sale.
Noninterest income increased less than one percent in 2008, compared to 2007, primarily due to securities
gains realized on the sale of the Corporation’s ownership of Visa, Inc. (Visa) ($48 million) and MasterCard shares
($14 million) in 2008, and increases in service charges on deposit accounts ($8 million) and letter of credit fees
($6 million), offset by decreases in deferred compensation asset returns ($33 million), net income from principal
investing and warrants ($29 million), income from low income housing investments ($9 million), gains on sales of
14
SBA loans ($9 million) and commercial lending fees ($6 million). Changes in deferred compensation asset
returns are offset by changes in deferred compensation plan costs in noninterest expenses.
The Corporation’s credit staff closely monitors the financial health of lending customers in order to assess
ability to repay and to adequately provide for expected losses. Loan quality was impacted by challenges in the
residential real estate development business in the Western market (primarily California) and to a lesser extent in
the Middle Market and Small Business loan portfolios. Negative credit quality trends resulted in an increase in
net credit-related charge-offs and nonperforming assets in 2008, compared to 2007.
Noninterest expenses increased four percent in 2008, compared to 2007, primarily due to an $88 million net
charge related to the repurchase of auction-rate securities and increases in severance-related expenses
($30 million), the provision for credit losses on lending-related commitments ($19 million) and net occupancy
expense ($18 million), partially offset by decreases in salaries, excluding severance ($88 million) which included
a decrease in deferred compensation plan costs ($33 million), and customer services expense ($30 million). The
increase in net occupancy expense in 2008 included $10 million from the addition of 28 new banking centers in
2008 and 30 new banking centers in 2007. The refinement in the application of SFAS No. 91, ‘‘Accounting for
Loan Origination Fees and Costs,’’ (SFAS 91), as described in Note 1 to the consolidated financial statements,
resulted in a $44 million reduction in salaries expense for the year 2008, compared to 2007. Full-time equivalent
employees decreased six percent (approximately 600 employees) from year-end 2007 to year-end 2008, even with
135 full-time equivalent employees added to support new banking center openings.
Over 50 percent of the Corporation’s revenues are generated by the Business Bank business segment,
making the Corporation highly sensitive to changes in the business environment in its primary geographic
markets. To facilitate better balance among business segments and geographic markets, the Corporation opened
28 new banking centers in 2008 in markets with favorable demographics and plans to continue banking center
expansion in these markets. This is expected to provide opportunity for growth across all business segments,
especially in the Retail Bank and Wealth & Institutional Management segments, as the Corporation penetrates
existing relationships through cross-selling and develops new relationships.
Management provides the following general comments for the 2009 full-year outlook with the observation
that it is increasingly difficult to forecast in the current uncertain economic environment:
– Management expects to focus on new and expanding relationships, particularly in Small Business,
Middle Market and Wealth Management with the appropriate pricing and credit standards.
– Management expects full-year net interest margin pressure will continue. Management anticipates no
change in the Federal Funds rate. Management also expects continued improvement in loan spreads,
challenging deposit pricing and demand deposits that provide less value in a historically low interest rate
environment.
– Based on no significant further deterioration of the economic environment, management expects
full-year net credit-related charge-offs to remain consistent with full-year 2008. The provision for credit
losses is expected to continue to exceed net charge-offs.
– Management expects a mid-single digit decrease in noninterest expenses, due to control of discretionary
expenses and workforce.
On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (the Act) was signed into law.
The Act amended certain provisions of the U.S. Department of the Treasury Capital Purchase Program (the
Purchase Program) described in the Capital section of this financial review and Note 12 to the consolidated
financial statements. The Act included a provision that requires the Secretary of the U.S. Treasury to establish
standards to limit executive compensation and certain corporate expenditures for all current and future
participants in the Purchase Program. As a Purchase Program participant, the Corporation is subject to any such
standards established by the Secretary of the U.S. Treasury. The Act also amended the Purchase Program to
allow participants, with regulatory approval, to redeem preferred shares issued to the U.S. Treasury with funds
other than those raised through a ‘‘qualified equity offering’’ as described in Note 12 to the consolidated financial
statements. Upon redemption of the preferred shares, the Secretary of the U.S. Treasury shall liquidate all
warrants issued in connection with such preferred shares at the then current fair value per share. The
Corporation is currently evaluating the impact of the Act on executive compensation and certain corporate
expenditures and the redemption of the preferred shares.
15
TABLE 2: ANALYSIS OF NET INTEREST INCOME
Fully Taxable Equivalent (FTE)
Years Ended December 31
2008
2007
2006
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
(dollar amounts in millions)
Commercial loans (1)(2) . . . . . . . . . . . . . . . . . . $28,870 $1,468
231
Real estate construction loans . . . . . . . . . . . . . . .
580
Commercial mortgage loans . . . . . . . . . . . . . . . .
112
Residential mortgage loans . . . . . . . . . . . . . . . . .
130
Consumer loans . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Lease financing (3)
8
101
International loans
. . . . . . . . . . . . . . . . . . . . .
24
Business loan swap income (expense) (4) . . . . . . . .
4,715
10,411
1,886
2,559
1,356
1,968
—
5.08% $28,132 $2,038
374
4,552
4.89
709
9,771
5.57
111
1,814
5.94
166
2,367
5.08
40
1,302
0.59
133
1,883
5.13
(67)
—
—
7.25% $27,341 $1,877
336
3,905
8.21
675
9,278
7.26
95
1,570
6.13
181
2,533
7.00
52
1,314
3.04
127
7.06
1,809
— (124)
—
6.87%
8.61
7.27
6.02
7.13
4.00
7.01
—
Total loans (2)(5) . . . . . . . . . . . . . . . . . . . . .
Auction-rate securities available-for-sale . . . . . . . . .
Other investment securities available-for-sale . . . . . .
51,765
193
7,908
Total investment securities available-for-sale (6) . . .
8,101
Federal funds sold and securities purchased under
agreements to resell
. . . . . . . . . . . . . . . . . . .
Interest-bearing deposits with banks . . . . . . . . . . .
Other short-term investments . . . . . . . . . . . . . . .
93
219
244
Total earning assets . . . . . . . . . . . . . . . . . . . .
Cash and due from banks . . . . . . . . . . . . . . . . .
Allowance for loan losses
. . . . . . . . . . . . . . . . .
Accrued income and other assets . . . . . . . . . . . . .
60,422
1,185
(691)
4,269
Total assets
. . . . . . . . . . . . . . . . . . . . . . . . $65,185
Money market and NOW deposits (1)
Savings deposits . . . . . . . . . . . . . . . . . . . . . . .
Customer certificates of deposit . . . . . . . . . . . . . .
. . . . . . . . . $14,245
1,344
8,150
Total interest-bearing core deposits . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Other time deposits (4)
Foreign office time deposits (8) . . . . . . . . . . . . . .
Total interest-bearing deposits . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . .
Medium- and long-term debt (4)(7)
23,739
6,715
926
31,380
3,763
12,457
2,654
6
384
390
2
1
10
3,057
207
6
263
476
232
26
734
87
415
Total interest-bearing sources . . . . . . . . . . . . . .
47,600
1,236
Noninterest-bearing deposits (1)
. . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Shareholders’ equity
10,623
1,520
5,442
Total liabilities and shareholders’ equity . . . . . . . $65,185
5.13
2.95
4.88
4.83
2.08
0.61
3.98
5.06
1.45
0.45
3.23
2.01
3.45
2.77
2.34
2.30
3.33
2.59
7.03
—
4.56
4.56
5.28
4.00
5.75
6.82
3.08
0.93
4.45
3.39
5.39
4.85
3.81
5.06
5.55
4.22
3,504
—
206
206
9
1
13
3,733
460
13
342
815
300
52
1,167
105
455
1,727
49,821
—
4,447
4,447
164
15
241
54,688
1,352
(520)
3,054
$58,574
$14,937
1,389
7,687
24,013
5,563
1,071
30,647
2,080
8,197
40,924
11,287
1,293
5,070
$58,574
3,219
—
174
174
14
6
12
3,425
443
11
261
715
235
55
1,005
130
304
1,439
47,750
—
3,992
3,992
283
110
156
52,291
1,557
(499)
3,230
$56,579
$15,373
1,441
6,505
23,319
4,489
1,131
28,939
2,654
5,407
37,000
13,135
1,268
5,176
$56,579
6.74
—
4.22
4.22
5.15
5.86
7.26
6.53
2.88
0.79
4.01
3.07
5.23
4.82
3.47
4.89
5.63
3.89
Net interest income/rate spread (FTE)
. . . . . . . . .
$1,821
2.47
$2,006
2.60
$1,986
2.64
FTE adjustment (9) . . . . . . . . . . . . . . . . . . . . .
$
6
$
3
$
3
Impact of net noninterest-bearing sources of funds . .
Net interest margin (as a percentage of average
earning assets) (FTE) (2)(3) . . . . . . . . . . . . . . .
0.55
3.02%
1.06
3.66%
1.15
3.79%
(1) FSD balances included above:
Loans (primarily low-rate) . . . . . . . . . . . . . . $
Interest-bearing deposits . . . . . . . . . . . . . . .
Noninterest-bearing deposits
. . . . . . . . . . . .
Impact of FSD loans (primarily low-rate) on the
(2)
following:
Commercial loans . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin (FTE) (assuming loans were
498 $
957
1,643
7
19
1.40% $ 1,318 $
1.99
1,202
2,836
9
47
0.69% $ 2,363 $
3.91
1,710
4,374
13
66
0.57%
3.86
(0.07)%
(0.03)
(0.32)%
(0.18)
(0.59)%
(0.32)
(0.16)
(3) 2008 net interest income declined $38 million and the net interest margin declined six basis points due to tax-related non-cash lease
funded by noninterest-bearing deposits)
(0.01)
(0.08)
. . . .
income charges. Excluding these charges, the net interest margin would have been 3.08%.
(4) The gain or loss attributable to the effective portion of cash flow hedges of loans is shown in ‘‘Business loan swap income
(expense)’’. The gain or loss attributable to the effective portion of fair value hedges of medium- and long-term debt, which
totaled a net gain of $43 million in 2008, is included in the related interest expense line item.
(5) Nonaccrual loans are included in average balances reported and are used to calculate rates.
(6) Average rate based on average historical cost.
(7) Medium- and long-term debt average balances have been adjusted to reflect the gain or loss attributable to the risk hedged by risk
management swaps that qualify as a fair value hedge.
Includes substantially all deposits by foreign domiciled depositors; deposits are primarily in excess of $100,000.
(8)
(9) The FTE adjustment is computed using a federal income tax rate of 35%.
16
TABLE 3: RATE-VOLUME ANALYSIS
Fully Taxable Equivalent (FTE)
Increase
(Decrease)
Due to
Rate
2008/2007
Increase
(Decrease)
Due to
Volume *
Net
Increase
(Decrease)
Increase
(Decrease)
Due to
Rate
(in millions)
2007/2006
Increase
(Decrease)
Due to
Volume *
Net
Increase
(Decrease)
Interest income (FTE):
Loans:
Commercial loans
. . . . . . . . . . . .
Real estate construction loans . . . .
. . . . .
Commercial mortgage loans
Residential mortgage loans . . . . . .
Consumer loans . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . .
International loans . . . . . . . . . . . .
Business loan swap income
$(608)
(151)
(165)
(3)
(46)
(32)
(36)
(expense) . . . . . . . . . . . . . . . . .
91
Total loans . . . . . . . . . . . . . . . .
(950)
Auction-rate securities
available-for-sale . . . . . . . . . . . . . .
Other investment securities
available-for-sale . . . . . . . . . . . . . .
Total investment securities
available-for-sale . . . . . . . . . .
Federal funds sold and securities
purchased under agreements to
resell
. . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits with banks .
Other short-term investments . . . . . .
—
10
10
(5)
(1)
(4)
$ 38
8
36
4
10
—
4
—
100
6
168
174
(2)
1
1
$(570)
(143)
(129)
1
(36)
(32)
(32)
91
(850)
6
178
184
(7)
—
(3)
$104
(16)
(1)
1
(3)
(12)
1
57
131
—
11
11
1
(2)
(1)
$ 57
54
35
15
(12)
—
5
—
154
—
21
21
(6)
(3)
2
$161
38
34
16
(15)
(12)
6
57
285
—
32
32
(5)
(5)
1
Total interest income (FTE) . . . .
(950)
274
(676)
140
168
308
Interest expense:
Interest-bearing deposits:
Money market and NOW accounts
Savings deposits . . . . . . . . . . . . . .
Customer certificates of deposit . . .
Other time deposits . . . . . . . . . . .
Foreign office time deposits . . . . .
Total interest-bearing deposits . .
Short-term borrowings . . . . . . . . . . .
Medium- and long-term debt . . . . . .
Total interest expense . . . . . . . .
(242)
(7)
(94)
(108)
(22)
(473)
(57)
(182)
(712)
(11)
—
15
40
(4)
40
39
142
221
Net interest income (FTE) . . . . .
$(238)
$ 53
(253)
(7)
(79)
(68)
(26)
(433)
(18)
(40)
(491)
$(185)
30
2
29
7
—
68
5
(4)
69
(13)
—
52
58
(3)
94
(30)
155
219
17
2
81
65
(3)
162
(25)
151
288
$ 71
$ (51)
$ 20
*
Rate/volume variances are allocated to variances due to volume.
17
NET INTEREST INCOME
Net interest income is the difference between interest and yield-related fees earned on assets and interest
paid on liabilities. Adjustments are made to the yields on tax-exempt assets in order to present tax-exempt
income and fully taxable income on a comparable basis. Gains and losses related to the effective portion of risk
management interest rate swaps that qualify as hedges are included with the interest income or expense of the
hedged item when classified in net interest income. Net interest income on a fully taxable equivalent (FTE) basis
comprised 67 percent of total revenues in 2008, compared to 69 percent in 2007 and 70 percent in 2006. Table 2
of this financial review provides an analysis of net interest income for the years ended December 31, 2008, 2007
and 2006. The rate-volume analysis in Table 3 above details the components of the change in net interest income
on a FTE basis for 2008, compared to 2007, and 2007, compared to 2006.
Net interest income (FTE) was $1.8 billion in 2008, a decrease of $185 million, or nine percent, from 2007.
The net interest margin (FTE), which is net interest income (FTE) expressed as a percentage of average earning
assets, decreased to 3.02 percent in 2008, from 3.66 percent in 2007. The decrease in net interest income in 2008
was primarily due to a decrease in loan portfolio yields and a reduced contribution from noninterest-bearing
funds in a significantly lower interest rate environment, a competitive environment for deposit pricing, the
impact of a higher level of nonaccrual loans and $38 million of tax-related non-cash charges to lease income in
2008, partially offset by growth in average earning assets, largely driven by growth in investment securities
available-for-sale. The lease income charges reflected the reversal of previously recognized income resulting from
projected changes in the timing of income tax cash flows on certain structured leasing transactions and will fully
reverse over the remaining lease terms (up to 19 years). Further information about the charges can be found in
the ‘‘Income Taxes and Tax-related Items’’ section of this financial review and Note 17 to the consolidated
financial statements. The decrease in the net interest margin (FTE) resulted primarily from the reasons cited for
the decline in net interest income discussed above, and as a result of the change in the mix of both earning assets,
driven by growth in investment securities available-for-sale, and interest-bearing sources of funds. The 2008
lease income charges discussed above reduced the net interest margin by six basis points. Average earning assets
increased $5.7 billion, or 10 percent, to $60.4 billion in 2008, compared to 2007, primarily as a result of a
$3.7 billion increase in average investment securities available-for-sale and a $1.9 billion increase in average
loans.
Net interest income and net interest margin are impacted by the operations of the Corporation’s Financial
Services Division. Financial Services Division customers deposit large balances (primarily noninterest-bearing)
and the Corporation pays certain expenses on behalf of such customers (‘‘customer services’’ included in
‘‘noninterest expenses’’ on the consolidated statements of income) and/or makes low-rate loans to such
customers (included in ‘‘net interest income’’ on the consolidated statements of income). The Financial Services
Division serves title and escrow companies that facilitate residential mortgage transactions and benefits from
customer deposits related to mortgage escrow balances. Financial Services Division deposit levels may change
with the direction of mortgage activity changes, the desirability of such deposits and competition for deposits.
Footnote (1) to Table 2 of this financial review displays average Financial Services Division loans (primarily
low-rate) and deposits, with related interest income/expense and average rates. Average Financial Services
Division loans (primarily low-rate) decreased $820 million, and average Financial Services Division noninterest-
bearing deposits decreased $1.2 billion in 2008, compared to 2007. Footnote (2) to Table 2 of this financial
review displays the impact of Financial Services Division loans on net interest margin (assuming the loans were
funded by Financial Services Division noninterest-bearing deposits), which was a decrease of one basis point in
2008, compared to a decrease of eight basis points in 2007 and 16 basis points in 2006.
The Corporation implements various asset and liability management tactics to manage net interest income
exposure to interest rate risk. Refer to the ‘‘Interest Rate Risk’’ section of this financial review for additional
information regarding the Corporation’s asset and liability management policies.
In 2007, net interest income (FTE) was $2.0 billion, an increase of $20 million, or one percent, from 2006.
The net interest margin (FTE) decreased to 3.66 percent in 2007, from 3.79 percent in 2006. The increase in net
18
interest income in 2007 was due to loan growth, which was partially offset by a decline in noninterest-bearing
deposits (primarily in the Financial Services Division) and competitive environments for both loan and deposit
pricing. The decrease in net interest margin (FTE) was due to loan growth, a competitive loan and deposit
pricing environment and changes in the funding mix, including a continued shift in funding sources toward
higher-cost funds. Partially offsetting these decreases were maturities of interest rate swaps that carried negative
spreads, which provided a 10 basis point improvement to the net interest margin in 2007, compared to 2006.
Average earning assets increased $2.4 billion, or five percent, to $54.7 billion in 2007, compared to 2006,
primarily as a result of a $2.1 billion increase in average loans and a $455 million increase in average investment
securities available-for-sale. Average Financial Services Division loans (primarily low-rate) decreased $1.0 billion,
and average Financial Services Division noninterest-bearing deposits decreased $1.5 billion in 2007, compared
to 2006.
Management expects average full-year 2009 net interest margin pressure will continue. Management
anticipates no change in the Federal Funds rate. Management also expects continued improvement in loan
spreads, challenging deposit pricing and demand deposits that provide less value in a historically low interest
rate environment.
PROVISION FOR CREDIT LOSSES
The provision for credit losses includes both the provision for loan losses and the provision for credit losses
on lending-related commitments. The provision for loan losses reflects management’s evaluation of the adequacy
of the allowance for loan losses. The allowance for loan losses represents management’s assessment of probable
losses inherent in the Corporation’s loan portfolio. The provision for credit losses on lending-related
commitments, a component of ‘‘noninterest expenses’’ on the consolidated statements of income, reflects
management’s assessment of the adequacy of the allowance for credit losses on lending-related commitments.
The allowance for credit losses on lending-related commitments, which is included in ‘‘accrued expenses and
other liabilities’’ on the consolidated balance sheets, covers probable credit-related losses inherent in credit-
related commitments, including letters of credit and financial guarantees. The Corporation performs an in-depth
quarterly credit quality review to determine the adequacy of both allowances. For a further discussion of both
the allowance for loan losses and the allowance for credit losses on lending-related commitments, refer to the
‘‘Credit Risk’’ and the ‘‘Critical Accounting Policies’’ sections of this financial review.
The provision for loan losses was $686 million in 2008, compared to $212 million in 2007 and $37 million in
2006. The $474 million increase in the provision for loan losses in 2008, compared to 2007, resulted primarily
from continuing challenges in the residential real estate development business located in the Western market
(primarily California) and to a lesser extent in the Middle Market and Small Business loan portfolios. National
growth has been hampered by turmoil in the financial markets, declining home values and rising unemployment
rates. California lagged national growth primarily due to continued problems in the state’s real estate sector.
Evidence of real estate weakness in California included the continued downtrend of median sales prices of
existing single-family homes and residential building permits (January through November), which declined
43 percent from one year ago. Michigan continued to contract for a fifth consecutive year. The average 2008
Michigan Business Activity index compiled by the Corporation for the first eleven months of 2008 was running
six percent below the average for all of 2007. The Michigan Business Activity represents nine different measures
of Michigan economic activity compiled by the Corporation. The sharp decline in car sales nationally, the
restructuring in the auto sector and the recession nationally were major factors holding back the Michigan
economy. A wide variety of economic reports consistently showed that Texas continued to outperform the nation
in 2008, though growth clearly slowed from the rapid pace seen in 2007. Texas continued to benefit from its
energy sector and a much more modest retrenchment in homebuilding than in most other states, though a
downturn in energy production in the fourth quarter 2008, which is expected to continue into 2009, suggests
that Texas will outperform the nation by a smaller margin in 2009. Forward-looking indicators suggest that
economic conditions in the Corporation’s primary markets are likely to deteriorate in 2009 relative to recent
trends as a national recession continues. The increase in the provision for loan losses in 2007, when compared to
19
2006, was primarily the result of challenges in the residential real estate development business in Michigan and
California and a leveling off of overall credit quality improvement trends in the Texas market and the remaining
businesses of the Western market.
The provision for credit losses on lending-related commitments was a charge of $18 million in 2008,
compared to a negative provision of $1 million and charge of $5 million in 2007 and 2006, respectively. The
$19 million increase in the provision for credit losses on lending-related commitments in 2008 was primarily the
result of an increase in specific reserves related to unused commitments extended to customers in the Michigan
Commercial Real Estate business line and California and residential real estate development business and
standby letters of credit extended to customers in the Michigan commercial real estate industry. The decrease in
2007 was primarily the result of a decrease in specific reserves related to unused commitments extended to two
large customers in the automotive industry. These reserves declined due to sales of commitments and improved
market values for the remaining commitments. An analysis of the changes in the allowance for credit losses on
lending-related commitments is presented in the ‘‘Credit Risk’’ section of this financial review.
Net loan charge-offs in 2008 were $471 million, or 0.91 percent of average total loans, compared to
$149 million, or 0.30 percent, in 2007 and $60 million, or 0.13 percent, in 2006. The net loan charge-offs
incurred in 2008 were relatively consistent in each quarter. The $322 million increase from 2007 resulted
primarily from increases in Western residential real estate development ($171 million), included in the
Commercial Real Estate line of business, Middle Market lending ($37 million) and Small Business lending
($26 million). Total net credit-related charge-offs, which includes net charge-offs on both loans and lending-
related commitments, were $472 million, or 0.91 percent of average total loans, in 2008, compared to
$153 million, or 0.31 percent, in 2007 and $72 million, or 0.15 percent, in 2006. Of the $319 million increase in
net credit-related charge-offs in 2008, compared to 2007, net credit-related charge-offs in the Business Bank
business segment increased $275 million. By geographic market, net credit-related charge-offs in the Western
and Midwest markets increased $213 million and $42 million, respectively, in 2008, compared to 2007.
Excluding Commercial Real Estate, net credit-related charge-offs were $206 million, or 0.46 percent of average
loans in 2008. An analysis of the changes in the allowance for loan losses, including charge-offs and recoveries by
loan category, is presented in Table 8 of this financial review. An analysis of the changes in the allowance for
credit losses on lending-related commitments is presented in the ‘‘Credit Risk’’ section of this financial review.
Based on no significant further deterioration of the economic environment, management expects full-year
2009 net credit-related charge-offs to remain consistent with full-year 2008. The provision for credit losses is
expected to exceed net charge-offs in 2009.
20
NONINTEREST INCOME
Service charges on deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiduciary income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial lending fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Letter of credit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Card fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brokerage fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank-owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net securities gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net gain (loss) on sales of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from lawsuit settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended
December 31
2008
2007
2006
(in millions)
$221
199
75
63
54
43
40
36
7
3
—
147
$229
199
69
69
58
42
40
38
67
—
—
82
$218
180
65
64
46
40
38
40
—
(12)
47
129
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$893
$888
$855
Noninterest income increased $5 million, or less than one percent, to $893 million in 2008, compared to
$888 million in 2007, and increased $33 million, or four percent, in 2007, compared to $855 million in 2006.
Excluding net securities gains, net gain (loss) on sales of businesses and income from lawsuit settlement,
noninterest income decreased six percent in 2008, compared to 2007, and increased seven percent in 2007,
compared to 2006. An analysis of increases and decreases by individual line item is presented below.
Service charges on deposit accounts increased $8 million, or three percent, to $229 million in 2008,
compared to $221 million in 2007, and increased $3 million, or one percent, in 2007, compared to $218 million
in 2006. The increase in 2008 was primarily due to lower earnings credit allowances provided to business
customers as a result of the interest rate environment.
Fiduciary income of $199 million was unchanged in 2008, compared to 2007, and increased $19 million, or
11 percent, in 2007, compared to $180 million in 2006. Personal and institutional trust fees are the two major
components of fiduciary income. These fees are based on services provided and assets managed. Fluctuations in
the market values of the underlying assets managed, which include both equity and fixed income securities,
impact fiduciary income. In 2008, lower fees related to the market decline were offset by net new business. The
increase in 2007 was due to net new business and market appreciation.
Commercial lending fees decreased $6 million, or eight percent, in 2008, compared to an increase of
$10 million, or 16 percent, in 2007. The majority of the decrease in 2008 resulted from lower participation fees
and lower unused commercial loan commitments. The increase in 2007 was primarily due to higher unused
commercial loan commitments and participation fees.
Letter of credit fees increased $6 million, or 10 percent, in 2008, compared to a decrease of $1 million, or
two percent, in 2007. The increase in 2008 was principally due to one-time adjustments related to the timing of
recognition of letter of credit fees. The decrease in 2007 was principally due to competitive pricing pressures and
lower demand resulting from the recent challenges in the residential real estate market.
Card fees, which consist primarily of interchange fees earned on debit and commercial cards, increased
$4 million, or nine percent, to $58 million in 2008, compared to $54 million in 2007, and increased $8 million, or
16 percent, in 2007, compared to $46 million in 2006. Growth in both 2008 and 2007 resulted primarily from an
increase in transaction volume caused by the continued shift to electronic banking, new customer accounts and
new products.
21
Brokerage fees of $42 million decreased $1 million, or three percent, in 2008, compared to $43 million and
$40 million in 2007 and 2006, respectively. Brokerage fees include commissions from retail broker transactions
and mutual fund sales and are subject to changes in the level of market activity. The decrease in 2008 was
primarily due to lower transaction volumes as a result of strained market conditions. The increase in 2007 was
primarily due to increased customer investments in money market mutual funds.
Foreign exchange income of $40 million was unchanged in 2008, compared to 2007, and increased
$2 million in 2007, compared to 2006. The increase in 2007 was primarily due to the impact of exchange rate
changes on the Canadian dollar denominated net assets held at the Corporation’s Canadian branch.
Bank-owned life insurance income increased $2 million, to $38 million in 2008, compared to a decrease of
$4 million, to $36 million in 2007. The increase in 2008 resulted primarily from an increase in death benefits
received. The decrease in 2007 resulted primarily from decreases in death benefits received and earnings.
Net securities gains increased $60 million to $67 million in 2008, compared to $7 million in 2007 and a
minimal amount in 2006. Included in 2008 were gains on the sales of the Corporation’s ownership of Visa
($48 million) and MasterCard shares ($14 million). There were no individually significant gains in 2007 and
2006.
The net gain on sales of businesses in 2007 included a net gain of $1 million on the sale of an insurance
subsidiary and a $2 million adjustment to reduce the loss on the 2006 sale of the Corporation’s Mexican bank
charter, while 2006 included a net loss of $12 million on the sale of the Mexican bank charter.
The income from lawsuit settlement of $47 million in 2006 resulted from a payment received to settle a
Financial Services Division-related lawsuit.
Other noninterest income decreased $65 million, or 45 percent, in 2008, compared to an increase of
$18 million, or 15 percent, in 2007. The following table illustrates fluctuations in certain categories included in
‘‘other noninterest income’’ on the consolidated statements of income.
Years Ended
December 31
2008
2007
2006
(in millions)
Other noninterest income
Risk management hedge gains (losses) from interest rate
and foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Amortization of low income housing investments
Gain on sale of SBA loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) from principal investing and warrants . . . . . . . . . . . . . . . . . . .
Deferred compensation asset returns * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8
(42)
5
(10)
(26)
$ 3
(33)
14
19
7
$ (1)
(29)
12
10
3
*
Compensation deferred by the Corporation’s officers is invested in stocks and bonds to reflect the
investment selections of the officers. Income (loss) on these assets is reported in noninterest income and the
offsetting increase (decrease) in the liability is reported in salaries expense.
22
NONINTEREST EXPENSES
Years Ended December 31
2008
2007
2006
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 781
194
Total salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outside processing fee expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer services
Litigation and operational losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses on lending-related commitments . . . . . . . . . . . . . . .
Other noninterest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
975
156
62
104
76
13
103
18
244
(in millions)
$ 844
193
$ 823
184
1,037
138
60
91
63
43
18
(1)
242
1,007
125
55
85
56
47
11
5
283
Total noninterest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,751
$1,691
$1,674
Noninterest expenses increased $60 million, or four percent, to $1,751 million in 2008, compared to
$1,691 million in 2007, and increased $17 million, or one percent, in 2007, from $1,674 million in 2006.
Excluding an $88 million net charge related to the repurchase of auction-rate securities from certain customers
in 2008, noninterest expenses decreased $28 million, or two percent, in 2008, compared to 2007, largely due to
decreases in salaries, excluding severance ($88 million) which included a decrease in deferred compensation
plan costs ($33 million), and customer services expense ($30 million), partially offset by increases in severance-
related expenses ($30 million), the provision for credit losses on lending-related commitments ($19 million) and
net occupancy expense ($18 million). An analysis of increases and decreases by individual line item is presented
below.
The following table summarizes the various components of salaries and employee benefits expense.
Years Ended December 31
2008
2007
2006
(in millions)
Salaries
Regular salaries (including contract labor) . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation plan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$609
29
117
(25)
51
$ 635
4
138
8
59
$ 619
8
134
5
57
Total salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
781
Employee benefits
Pension expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance-related benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
5
169
194
844
36
—
157
193
823
39
—
145
184
Total salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$975
$1,037
$1,007
Salaries expense decreased $63 million, or seven percent, in 2008, compared to an increase of $21 million,
or three percent, in 2007. The decrease in 2008 was primarily due to decreases in deferred compensation plan
costs ($33 million), regular salaries ($26 million), incentives ($21 million), and share-based compensation
23
($8 million), partially offset by an increase in severance expense ($25 million). The decrease in deferred
compensation plan costs were offset by decreased deferred compensation asset returns in noninterest income.
The decrease in regular salaries in 2008 was primarily the result of the refinement in the application of SFAS 91
($44 million), as described in Note 1 to the consolidated financial statements, and a decrease in staff size of
approximately 600 full-time equivalent employees from year-end 2007 to year-end 2008. Partially offsetting the
decreases in regular salaries in 2008 was annual merit increases of approximately $16 million. The $25 million
increase in severance expense reflected staff reduction efforts in the fourth quarter of 2008, primarily in response
to deteriorating economic conditions. The increase in 2007 was primarily due to increases in regular salaries of
$16 million and incentive compensation of $4 million. The increase in regular salaries in 2007 was primarily the
result of annual merit increases of approximately $18 million, partially offset by a decline in contract labor costs
associated with technology-related projects. In addition, staff size increased approximately 80 full-time
equivalent employees from year-end 2006 to year-end 2007, including approximately 140 full-time equivalent
employees added in new banking centers.
Employee benefits expense increased $1 million, or one percent, in 2008, compared to an increase of
$9 million, or five percent, in 2007. An increase in staff insurance costs and severance related benefits in 2008,
when compared to 2007, was substantially offset by a decline in pension expense. The increase in 2007 resulted
primarily from an increase in defined contribution plan expense, mostly from a change in the Corporation’s core
matching contribution rate effective January 1, 2007. For a further discussion of pension and defined
contribution plan expense, refer to the ‘‘Critical Accounting Policies’’ section of this financial review and
Note 16 to the consolidated financial statements.
Net occupancy and equipment expense increased $20 million, or 10 percent, to $218 million in 2008,
compared to an increase of $18 million, or 10 percent, in 2007. Net occupancy and equipment expense increased
$11 million and $9 million in 2008 and 2007, respectively, due to the addition of 28 new banking centers in 2008,
30 in 2007 and 25 in 2006.
Outside processing fee expense increased $13 million, or 13 percent, to $104 million in 2008, from
$91 million in 2007, compared to an increase of $6 million, or seven percent, in 2007. The increases in 2008 and
2007 are from higher volume in activity-based processing charges, in part related to outsourcing.
Software expense increased $13 million, or 21 percent, in 2008, compared to an increase of $7 million, or
12 percent in 2007. The increases in both 2008 and 2007 were primarily due to increased investments in
technology, including banking center and treasury management sales tracking tools, anti-money laundering
initiatives, transition from paper to electronic check processing and the continued development of loan portfolio
and enterprise level analytical tools, combined with an increase in both amortization and maintenance costs.
Customer services expense decreased $30 million, or 69 percent, to $13 million in 2008, from $43 million in
2007, and decreased $4 million, or seven percent, in 2007, from $47 million in 2006. Customer services expense
represents certain expenses paid on behalf of particular customers, and is one method to attract and retain title
and escrow deposits in the Financial Services Division. The amount of customer services expense varies from
period to period as a result of changes in the level of noninterest-bearing deposits and low-rate loans in the
Financial Services Division and the earnings credit allowances provided on these deposits, as well as, a
competitive environment.
Litigation and operational losses increased $85 million to $103 million in 2008, from $18 million in 2007,
and increased $7 million in 2007, compared to $11 million in 2006. Litigation and operational losses include
traditionally defined operating losses, such as fraud or processing problems, as well as, uninsured losses and
litigation losses. These expenses are subject to fluctuation due to timing of authorized and actual litigation
settlements, as well as, insurance settlements. The increase in 2008 is primarily due to a net charge of $88 million
related to the repurchase of auction-rate securities from certain customers, partially offset by a 2008 reversal of a
$13 million loss sharing expense related to the Corporation’s membership in Visa recognized in 2007. For
additional information on the repurchase of auction-rate securities, refer to the ‘‘Investment Securities
Available-for-Sale’’ portion of the ‘‘Balance Sheet and Capital Funds Analysis’’ section and ‘‘Critical Accounting
24
Policies’’ section of this financial review and Note 28 to the consolidated financial statements. The increase in
2007 reflected the $13 million Visa loss sharing expense discussed above partially offset by a litigation-related
insurance settlement of $8 million received in 2007.
The provision for credit losses on lending-related commitments increased $19 million to $18 million in
2008, from a negative provision of $1 million in 2007, and decreased $6 million in 2007, compared to a provision
of $5 million in 2006. For additional information on the provision for credit losses on lending-related
commitments, refer to Notes 1 and 20 to the consolidated financial statements, respectively, and the ‘‘Provision
for Credit Losses’’ section of this financial review.
Other noninterest expenses increased $2 million, or one percent, in 2008, compared to a decrease of
$41 million, or 14 percent, in 2007. The increase in 2008, compared to 2007, resulted primarily from an
$11 million increase in Federal Deposit Insurance Corporation (FDIC) insurance. The decrease in 2007 was
primarily the result of the prospective change in classification of interest on income tax liabilities to ‘‘provision
for income taxes’’ in 2007. The following table illustrates the fluctuations in certain categories included in ‘‘other
noninterest expenses’’ on the consolidated statements of income.
Years Ended December 31
2008
2007
2006
(in millions)
Other noninterest expenses
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 16
10
N/A
$
5
7
N/A
$
5
4
38
N/A — Not Applicable
Management expects a mid single-digit decrease in noninterest expenses in 2009 compared to 2008 levels,
due to control of discretionary expenses and workforce.
INCOME TAXES AND TAX-RELATED ITEMS
The provision for income taxes was $59 million in 2008, compared to $306 million in 2007 and $345 million
in 2006. The provision for income taxes in 2008 reflected the impact of lower pre-tax income and included a net
after-tax charge of $9 million related to the acceptance of a global settlement offered by the IRS on certain
structured leasing transactions, settlement with the IRS on disallowed foreign tax credits related to a series of
loans to foreign borrowers and other tax adjustments. The provision for income taxes in 2007 included a
$9 million reduction ($6 million after-tax) of interest resulting from a settlement with the Internal Revenue
Service (IRS) on a refund claim.
The effective tax rate, computed by dividing the provision for income taxes by income from continuing
operations before income taxes, was 21.7 percent in 2008, 31.0 percent in 2007 and 30.6 percent in 2006.
Changes in the effective tax rate in 2008 from 2007, and 2007 from 2006, are disclosed in Note 17 to these
consolidated financial statements. The Corporation had a net deferred tax asset of $29 million at December 31,
2008. Included in net deferred taxes at December 31, 2008 were deferred tax assets of $625 million, net of a
$1 million valuation allowance established for certain state deferred tax assets. A valuation allowance is provided
when it is ‘‘more-likely-than-not’’ that some portion of the deferred tax asset will not be realized. Deferred tax
assets are evaluated for realization based on available evidence and assumptions made regarding future events.
In the event that the future taxable income does not occur in the manner anticipated, other initiatives could be
undertaken to preclude the need to recognize a valuation allowance against the deferred tax asset.
On January 1, 2007 the Corporation adopted the provisions of FASB Interpretation No. 48, ‘‘Accounting
for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109,’’ (FIN 48). As a result, the
Corporation recognized an increase in the liability for unrecognized tax benefits of approximately $18 million at
25
January 1, 2007, accounted for as a change in accounting principle via a decrease to the opening balance of
retained earnings ($13 million after-tax). For further discussion of FIN 48, refer to Note 17 to these consolidated
financial statements.
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
Income from discontinued operations, net of tax, was $1 million in 2008, compared to $4 million in 2007
and $111 million in 2006. Income from discontinued operations in 2008 reflected income accrued on a
contingent note related to the sale of Munder in 2006. 2008 and 2007 also included adjustments to the initial gain
recorded on the sale of Munder in 2006. For further information on the sale of Munder and discontinued
operations, refer to Note 27 to the consolidated financial statements.
PREFERRED STOCK DIVIDENDS
In the fourth quarter 2008, the Corporation participated in the U.S. Department of Treasury
(U.S. Treasury) Capital Purchase Program (the Purchase Program) and received proceeds of $2.25 billion from
the U.S. Treasury. In return, the Corporation issued 2.25 million shares of Fixed Rate Cumulative Perpetual
Preferred Stock, Series F, without par value (preferred shares) and granted a warrant to purchase 11.5 million
shares of common stock to the U.S. Treasury. The preferred shares pay a cumulative dividend rate of five percent
per annum on the liquidation preference of $1,000 per share through November 2013, and a rate of nine percent
per annum thereafter.
The proceeds from the Purchase Program were allocated between the preferred shares and the related
warrant based on relative fair value, which resulted in an initial carrying value of $2.1 billion for the preferred
shares and $124 million for the warrant. The resulting discount to the preferred shares of $124 million will
accrete on a level yield basis over five years through November 2013 and is being recognized as additional
preferred stock dividends.
Preferred stock dividends, including the accretion of the discount, were $17 million for the fourth quarter
and the year ended December 31, 2008. Preferred stock dividends are expected to be approximately $33 million
for the first quarter 2009 and $134 million for the full-year 2009.
For further information on the Purchase Program, refer to the ‘‘Capital’’ section of this financial review and
Note 12 to the consolidated financial statements.
26
STRATEGIC LINES OF BUSINESS
BUSINESS SEGMENTS
The Corporation’s operations are strategically aligned into three major business segments: the Business
Bank, the Retail Bank and Wealth & Institutional Management. These business segments are differentiated
based upon the products and services provided. In addition to the three major business segments, the Finance
Division is also reported as a segment. The Other category includes discontinued operations and items not
directly associated with these business segments or the Finance Division. Note 24 to the consolidated financial
statements describes the business activities of each business segment and the methodologies which form the
basis for these results, and presents financial results of these business segments for the years ended December 31,
2008, 2007 and 2006.
The following table presents net income (loss) by business segment.
Business Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wealth & Institutional Management . . . . . . . . . . . . . . . . . . .
Years Ended December 31
2008
2007
2006
(dollar amounts in millions)
89% $516
$237
128
34
13
70
(4) * (2)
72% $597
179
18
61
10
72%
21
7
267
100% 714
100% 837
100%
Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other ** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(48)
(6)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$213
(38)
10
$686
(59)
115
$893
*
**
2008 included an $88 million net charge ($56 million, after-tax) related to the repurchase of auction-rate
securities from customers.
Includes discontinued operations and items not directly associated with the three major business segments
or the Finance Division.
The Business Bank’s net income decreased $279 million, or 54 percent, to $237 million in 2008, compared
to a decrease of $81 million, or 14 percent, to $516 million in 2007. Net interest income (FTE) was $1.3 billion in
2008, a decrease of $72 million, or five percent, compared to 2007. The decrease in net interest income (FTE)
was primarily due to a decline in deposit spreads caused by a competitive rate environment and $38 million of
tax-related non-cash charges to income related to certain structured leasing transactions, partially offset by the
reduced negative impact of the Financial Services Division (see footnote (2) to Table 2) and a $2.0 billion
increase in average loans, excluding the Financial Services Division. Excluding the tax-related non-cash charges
to income, loan spreads improved in the second half of 2008, particularly in the fourth quarter. The provision for
loan losses increased $365 million to $543 million in 2008, from $178 million in 2007, primarily due to increases
in reserves for the residential real estate development business, mostly in California, and to a lesser extent the
Middle Market and Global Corporate loan portfolios. Net credit-related charge-offs increased $275 million,
primarily due to an increase in charge-offs in the Commercial Real Estate, largely the residential real estate
development business, and Middle Market loan portfolios. Noninterest income of $302 million in 2008
increased $11 million from 2007, reflecting a $14 million gain on the sale of MasterCard shares in 2008 and
increases in foreign exchange income ($5 million), service charges on deposits ($4 million) and income from
customer derivatives ($4 million), partially offset by a decrease in income from low income housing investments
($9 million) and a decline in warrant income ($7 million) in 2008, when compared to 2007. Noninterest expenses
of $709 million in 2008 were unchanged from 2007, as decreases in customer services expense ($30 million),
salaries ($35 million), including a $17 million decrease from the refinement in the application of SFAS 91, as
described in Note 1 to the consolidated financial statements, and a $15 million decrease in incentive
27
compensation, were offset by increases in allocated net corporate overhead expenses ($21 million) and the
provision for credit losses on lending-related commitments ($13 million), legal fees ($5 million), and nominal
increases in several other expense categories. The corporate overhead allocation rates used were approximately
6.3 percent and 5.5 percent in 2008 and 2007, respectively. The increase in rate in 2008, when compared to 2007,
resulting primarily from a change in the allocation of funding credits and an increase in expenses not assigned
directly to the segments.
The Retail Bank’s net income decreased $94 million, or 74 percent, to $34 million in 2008, compared to a
decrease of $51 million, or 28 percent, to $128 million in 2007. Net interest income (FTE) of $566 million
decreased $104 million, or 16 percent, in 2008, primarily due to a decline in deposit spreads caused by a
competitive pricing environment, partially offset by the benefit of a $208 million increase in average loans. The
provision for loan losses increased $82 million in 2008, primarily due to increases in reserves for the Small
Business and home equity loan portfolios. Noninterest income of $258 million increased $38 million in 2008,
from $220 million in 2007, primarily due to a $48 million gain on the sale of Visa shares in 2008, partially offset
by a $9 million decline in net gains from the sale of Small Business loans. Noninterest expenses of $645 million in
2008 decreased $9 million from 2007, primarily due to the first quarter 2008 reversal of a $13 million Visa loss
sharing expense recognized in 2007 and a $9 million decrease in salaries, including a $21 million decrease from
the refinement in the application of SFAS 91, as described in Note 1 to the consolidated financial statements,
partially offset by increases in net occupancy expense ($11 million), resulting primarily from new banking
centers, allocated net corporate overhead expenses ($4 million) and FDIC expense ($4 million). Refer to the
Business Bank discussion above for an explanation of the increase in allocated net corporate overhead expenses.
The Corporation opened 28 new banking centers in 2008 and 30 new banking centers in 2007, resulting in a
$20 million increase in noninterest expenses in 2008, compared to 2007.
Wealth & Institutional Management’s net income decreased $74 million to a net loss of $4 million in 2008,
compared to an increase of $9 million, or 15 percent, to $70 million in 2007. Net interest income (FTE) of
$148 million increased $3 million, or two percent, in 2008, compared to 2007, due to a $605 million increase in
average loans from 2007, partially offset by decreases in loan and deposit spreads. Loan spreads improved in the
second half of 2008, particularly in the fourth quarter. The provision for loan losses increased $28 million,
primarily due to an increase in reserves for the Private Banking loan portfolio. Noninterest income of
$292 million increased $9 million, or three percent, in 2008, primarily due to increases in net securities gains
($4 million) and insurance commission income ($3 million). Noninterest expenses of $422 million in 2008
increased $100 million from 2007, primarily due to an $88 million net charge in 2008 related to the offer to
repurchase, at par, auction-rate securities, as described in Note 28 to the consolidated financial statements, and
an increase in allocated net corporate overhead expenses ($4 million), partially offset by a $7 million reduction in
salaries from the refinement in the application of SFAS 91, as described in Note 1 to the consolidated financial
statements. Refer to the Business Bank discussion above for an explanation of the increase in allocated net
corporate overhead expenses.
The net loss in the Finance Division was $48 million in 2008, compared to a net loss of $38 million in 2007.
Contributing to the $10 million increase in net loss was a $14 million decrease in net interest income (FTE),
primarily due to the declining rate environment in which income received from the lending-related business
units decreased faster than the longer-term value attributed to deposits generated by the business units, partially
offset by an increase in investment securities available-for-sale.
Net loss in the Other category was $6 million for 2008, compared to net income of $10 million for 2007,
largely due to a $23 million decrease in net income from principal investing and warrants. The remaining
difference is due to timing differences between when corporate overhead expenses are reflected as a
consolidated expense and when the expenses are allocated to the business segments.
28
GEOGRAPHIC MARKET SEGMENTS
The Corporation’s management accounting system also produces market segment results for the
Corporation’s four primary geographic markets: Midwest, Western, Texas and Florida. In addition to the four
primary geographic markets, Other Markets and International are also reported as market segments. The
Finance & Other Businesses category includes discontinued operations and items not directly associated with
the market segments. Note 25 to the consolidated financial statements presents a description of each of these
market segments as well as the financial results for the years ended December 31, 2008, 2007 and 2006.
The following table presents net income (loss) by market segment.
Years Ended December 31
2008
2007
2006
Midwest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Western . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International
$210
(19)
53
(14)
8 *
29
(dollar amounts in millions)
78% $295
191
(7)
85
20
7
(5)
86
3
50
11
41% $339
298
27
85
12
13
1
69
12
33
7
40%
36
10
2
8
4
267
100% 714
100% 837
100%
Finance & Other Businesses ** . . . . . . . . . . . . . . . . . . . . . .
(54)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$213
(28)
$686
56
$893
*
2008 included an $88 million net charge ($56 million, after-tax) related to the repurchase of auction-rate
securities from customers.
**
Includes discontinued operations and items not directly associated with the market segments.
The Midwest market’s net income decreased $85 million, or 29 percent, to $210 million in 2008, compared
to a decrease of $44 million, or 13 percent, to $295 million in 2007. Net interest income (FTE) of $776 million
decreased $112 million from 2007, primarily due to $38 million of tax-related non-cash charges to income
related to certain structured leasing transactions and a decline in deposit spreads caused by a competitive deposit
pricing environment, partially offset by increases in average loan and deposit balances. Excluding the tax-related
non-cash charges to income, loan spreads improved in the second half of 2008, particularly in the fourth quarter.
The provision for loan losses increased $67 million in 2008, compared to 2007, primarily due to increases in
reserves for the Middle Market, Small Business and Global Corporate loan portfolios, partially offset by lower
reserves for the residential real estate development portfolio in 2008, compared to 2007. Noninterest income of
$524 million in 2008 increased $53 million from 2007, primarily due to gains of $39 million on the sale of Visa
shares and $14 million on the sale of MasterCard shares in 2008, and an increase in letter of credit fees
($6 million). Noninterest expenses of $808 million in 2008 decreased $10 million from 2007, primarily due to the
first quarter 2008 reversal of a $10 million Visa loss sharing expense recognized in 2007 and a $31 million
decrease in salaries, including a $28 million decrease from the refinement in the application of SFAS 91, as
described in Note 1 to the consolidated financial statements, partially offset by a $9 million increase in allocated
net corporate overhead expenses, a $9 million increase in provision for credit losses on lending-related
commitments, a $4 million increase in FDIC expense and nominal increases in several other expense categories.
Refer to the Business Bank discussion above for an explanation of the increase in allocated net corporate
overhead expenses.
The Western market’s net income decreased $210 million to a net loss of $19 million in 2008, compared to a
decrease of $107 million, or 36 percent, to $191 million in 2007. Net interest income (FTE) of $668 million
decreased $71 million, or 10 percent, in 2008. The decrease in net interest income (FTE) was primarily due to a
29
decline in deposit spreads caused by a competitive deposit pricing environment and a decline in loan spreads
(excluding the Financial Services Division), partially offset by the reduced negative impact of the Financial
Services Division (see Footnote (2) to Table 2) and an $841 million increase in average loans, excluding the
Financial Services Division. Average low-rate Financial Services Division loan balances declined $820 million in
2008 and average Financial Services Division deposits declined $1.5 billion. Loan spreads improved in the
second half of 2008, particularly in the fourth quarter. The provision for loan losses increased $271 million, to
$379 million in 2008, from $108 million in 2007, primarily due to increases in reserves for the residential real
estate development business and the Middle Market and Small Business loan portfolios in 2008, compared to
2007. Net credit-related charge-offs increased $213 million, largely due to an increase in charge-offs in the
residential real estate development business. Noninterest income was $139 million in 2008, an increase of
$9 million from 2007, primarily due to a $7 million increase in service charges on deposits and a $5 million
increase in foreign exchange income, partially offset by a $6 million decline in net gains from the sale of Small
Business loans. Noninterest expenses of $448 million in 2008 decreased $6 million from 2007, primarily due to a
$30 million decrease in customer services expense, and a $9 million decrease in salaries, resulting from the
refinement in the application of SFAS 91, as described in Note 1 to the consolidated financial statements,
partially offset by increases in allocated net corporate overhead expenses ($11 million) and net occupancy
expense ($7 million), resulting primarily from new banking centers, and nominal increases in several other
expense categories. Refer to the Business Bank discussion above for an explanation of the increase in allocated
net corporate overhead expenses. The Corporation opened 18 new banking centers in the Western market in
2008, resulting in a $14 million increase in noninterest expenses in 2008, compared to 2007.
The Texas market’s net income decreased $32 million, or 37 percent, to $53 million in 2008, compared to
$85 million in both 2007 and 2006. Net interest income (FTE) of $292 million increased $5 million, or two
percent, in 2008, compared to 2007. The increase in net interest income (FTE) was primarily due to increases of
$949 million and $139 million in average loan and deposit balances, respectively, partially offset by declines in
loan and deposit spreads. Loan spreads improved in the second half of 2008, particularly in the fourth quarter.
The provision for loan losses increased $43 million, primarily due to increases in reserves for the Small Business,
Middle Market, Energy and Commercial Real Estate loan portfolios in 2008, compared to 2007. Noninterest
income of $94 million in 2008 increased $8 million from 2007, primarily due to a $7 million gain on the sale of
Visa shares. Noninterest expenses of $246 million in 2008 increased $11 million from 2007, primarily due to
increases in allocated net corporate overhead expenses ($5 million), net occupancy expense ($4 million),
resulting primarily from new banking centers, and nominal increases in several other expense categories,
partially offset by a $3 million decrease in salaries, resulting from a $5 million decrease from the refinement in the
application of SFAS 91, as described in Note 1 to the consolidated financial statements. Refer to the Business
Bank discussion above for an explanation of the increase in allocated net corporate overhead expenses. The
Corporation opened 9 new banking centers in the Texas market in 2008, which resulted in a $6 million increase
in noninterest expenses.
The Florida market’s net income decreased $21 million to a net loss of $14 million in 2008, compared to a
decrease of $6 million, to net income of $7 million in 2007. Net interest income (FTE) of $47 million in 2008
increased $1 million, or one percent, from 2007, primarily due to a $220 million increase in average loan
balances. The provision for loan losses increased $29 million, primarily due to increases in reserves for the
Middle Market and Private Banking loan portfolios. Noninterest income of $16 million in 2008 increased
$2 million from 2007. Noninterest expenses of $43 million in 2008 increased $5 million from 2007, due to
nominal increases in several expense categories.
The Other Markets’ net income decreased $78 million to $8 million in 2008, compared to an increase of
$17 million to $86 million in 2007. Net interest income (FTE) of $147 million in 2008 increased $11 million from
2007, primarily due to a $136 million increase in average loan balances and an increase in loan spreads, partially
offset by a $59 million decrease in average deposit balances. The provision for loan losses increased $46 million,
primarily due to increases in reserves for the Commercial Real Estate, Global Corporate and Middle Market loan
portfolios in 2008, compared to 2007. Noninterest income of $48 million decreased $7 million in 2008,
30
compared to 2007, primarily due to a decrease in net income from principal investing and warrants. Noninterest
expenses of $190 million in 2008 increased $94 million from 2007, primarily due to the $88 million net charge
related to the repurchase of auction rate securities discussed above and an increase in allocated net corporate
overhead expenses ($3 million). Refer to the Business Bank discussion above for an explanation of the increase in
allocated net corporate overhead expenses.
The International market’s net income decreased $21 million, to $29 million in 2008, compared to an
increase of $17 million to $50 million in 2007. Net interest income (FTE) of $61 million in 2008 decreased
$7 million from 2007, primarily due to a decrease in average deposit balances, partially offset by an increase in
average loan balances. The provision for loan losses of $4 million in 2008 increased $19 million from a negative
provision of $15 million in 2007, primarily due to high loan loss recoveries in 2007. Noninterest income of
$31 million in 2008 decreased $7 million from 2007, primarily due to net securities gains of $4 million in 2007.
Noninterest expenses of $41 million decreased $3 million in 2008 compared to 2007, due to nominal decreases
in several expense categories.
The net loss for the Finance & Other Business segment was $54 million in 2008, compared to a net loss of
$28 million in 2007. The $26 million increase in net loss resulted from the same reasons noted in the Finance
Division and Other category discussions under the ‘‘Business Segments’’ heading above.
The following table lists the Corporation’s banking centers by geographic market segments.
December 31
2008
2007
2006
Midwest (Michigan) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
233
237
240
Western:
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96
12
108
87
10
1
83
8
91
79
9
1
70
5
75
68
9
1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
439
417
393
31
BALANCE SHEET AND CAPITAL FUNDS ANALYSIS
Total assets were $67.5 billion at December 31, 2008, an increase of $5.2 billion from $62.3 billion at
December 31, 2007. On an average basis, total assets increased $6.6 billion to $65.2 billion in 2008, from
$58.6 billion in 2007, resulting primarily from a $5.7 billion increase in average earning assets, largely investment
securities available-for-sale ($3.7 billion) and loans ($1.9 billion). Also, on an average basis, medium- and
long-term debt increased $4.3 billion, short-term borrowings increased $1.7 billion, and interest-bearing
deposits increased $733 million in 2008, compared to 2007.
TABLE 4: ANALYSIS OF INVESTMENT SECURITIES AND LOANS
Investment securities available-for-sale:
U.S. Treasury and other Government agency
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government-sponsored enterprise securities . . . . . .
State and municipal auction-rate securities . . . . . . .
Other state and municipal securities . . . . . . . . . . . .
Other auction-rate securities . . . . . . . . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . .
2008
2007
2006
2005
2004
December 31
(in millions)
$
79
7,861
64
2
1,083
112
$
36
6,165
—
3
—
92
$
46
3,497
—
4
—
115
$
124
3,954
—
4
—
158
$
192
3,564
—
7
—
180
Total investment securities available-for-sale . . . . .
$ 9,201
$ 6,296
$ 3,662
$ 4,240
$ 3,943
Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate construction loans:
Commercial Real Estate business line . . . . . . . . . . .
Other business lines . . . . . . . . . . . . . . . . . . . . . . .
Total real estate construction loans . . . . . . . . . . .
Commercial mortgage loans:
Commercial Real Estate business line . . . . . . . . . . .
Other business lines . . . . . . . . . . . . . . . . . . . . . . .
Total commercial mortgage loans . . . . . . . . . . . .
Residential mortgage loans . . . . . . . . . . . . . . . . . . . .
Consumer loans:
Home equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other consumer . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer loans
. . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International loans:
Government and official institutions . . . . . . . . . . . .
Banks and other financial institutions . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Commercial and industrial
Total international loans . . . . . . . . . . . . . . . . . .
$27,999
$28,223
$26,265
$23,545
$22,039
3,831
646
4,477
1,619
8,870
10,489
1,852
1,781
811
2,592
1,343
—
7
1,746
1,753
4,089
727
4,816
1,377
8,671
10,048
1,915
1,616
848
2,464
1,351
—
27
1,899
1,926
3,449
754
4,203
1,534
8,125
9,659
1,677
1,591
832
2,423
1,353
—
47
1,804
1,851
2,831
651
3,482
1,450
7,417
8,867
1,485
1,775
922
2,697
1,295
3
46
1,827
1,876
2,461
592
3,053
1,556
6,680
8,236
1,294
1,837
914
2,751
1,265
4
11
2,190
2,205
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$50,505
$50,743
$47,431
$43,247
$40,843
32
TABLE 5: LOAN MATURITIES AND INTEREST RATE SENSITIVITY
December 31, 2008
Loans Maturing
Within
One Year *
After One
But Within
Five Years
After
Five Years
Total
(in millions)
Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate construction loans . . . . . . . . . . . . . . . . . . . . . . .
Commercial mortgage loans . . . . . . . . . . . . . . . . . . . . . . . .
International loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,346
3,737
4,895
1,629
$ 6,932
558
4,258
101
$ 721
182
1,336
23
$27,999
4,477
10,489
1,753
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30,607
$11,849
$2,262
$44,718
Sensitivity of Loans to Changes in Interest Rates:
Predetermined (fixed) interest rates . . . . . . . . . . . . . . . . .
Floating interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,395
6,454
$11,849
$1,697
565
$2,262
*
Includes demand loans, loans having no stated repayment schedule or maturity and overdrafts.
EARNING ASSETS
Total earning assets increased $5.0 billion, or nine percent, to $62.4 billion at December 31, 2008, from
$57.4 billion at December 31, 2007. The Corporation’s average earning assets balances are reflected in Table 2 of
this financial review.
33
Loans
The following tables detail the Corporation’s average loan portfolio by loan type, business line and
geographic market.
Years Ended December 31
2008
2007
Change
(dollar amounts in millions)
Percent
Change
Average Loans By Loan Type:
Commercial loans:
Excluding Financial Services Division . . . . . . . . . . . . . . . . . . . .
Financial Services Division * . . . . . . . . . . . . . . . . . . . . . . . . . .
$28,372
498
$26,814
1,318
$1,558
(820)
6%
(62)
Total commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,870
28,132
738
3
Real estate construction loans:
Commercial Real Estate business line . . . . . . . . . . . . . . . . . . . .
Other business lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total real estate construction loans . . . . . . . . . . . . . . . . . . . .
Commercial mortgage loans:
Commercial Real Estate business line . . . . . . . . . . . . . . . . . . . .
Other business lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial mortgage loans . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer loans:
Home equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,052
663
4,715
1,536
8,875
10,411
1,886
1,669
890
2,559
1,356
1,968
3,799
753
4,552
1,390
8,381
9,771
1,814
1,580
787
2,367
1,302
1,883
253
(90)
163
146
494
640
72
89
103
192
54
85
7
(12)
4
11
6
7
4
6
13
8
4
5
Total loans
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$51,765
$49,821
$1,944
4%
*
Financial Services Division loans are primarily low-rate.
34
Average Loans By Business Line:
Middle Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Corporate Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
National Dealer Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specialty Businesses:
Excluding Financial Services Division . . . . . . . . . . . . . . . . . . . .
Financial Services Division * . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Specialty Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Business Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Small Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Personal Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Retail Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Wealth & Institutional Management . . . . . . . . . . . . . .
Finance/Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31
2008
2007
Change
(dollar amounts in millions)
Percent
Change
$16,514
7,013
6,458
4,872
$16,185
6,717
5,471
5,187
$ 329
296
987
(315)
2%
4
18
(6)
5,512
498
6,010
40,867
4,244
2,098
6,342
4,542
4,542
14
4,843
1,318
6,161
39,721
4,023
2,111
6,134
3,937
3,937
29
669
(820)
(151)
1,146
221
(13)
208
605
605
(15)
14
(62)
(2)
3
5
(1)
3
15
15
(52)
Total loans
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$51,765
$49,821
$1,944
4%
*
Financial Services Division loans are primarily low-rate.
Average Loans By Geographic Market:
Midwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Western:
Excluding Financial Services Division . . . . . . . . . . . . . . . . . . . .
Financial Services Division * . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Western . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance/Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31
2008
2007
Change
(dollar amounts in millions)
Percent
Change
$19,061
$18,558
$ 503
3%
16,053
498
16,551
7,776
1,892
4,217
2,254
14
15,212
1,318
16,530
6,827
1,672
4,081
2,124
29
841
(820)
21
949
220
136
130
(15)
6
(62)
—
14
13
3
6
(52)
Total loans
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$51,765
$49,821
$1,944
4%
*
Financial Services Division loans are primarily low-rate.
Total loans were $50.5 billion at December 31, 2008, a decrease of $238 million from $50.7 billion at
December 31, 2007. As shown in the tables above, total average loans grew $1.9 billion, or four percent, to
$51.8 billion in 2008, compared to 2007, with growth in most business lines and growth in all markets from 2007
to 2008. Excluding Financial Services Division loans, average loans grew $2.8 billion, or six percent.
Average commercial real estate loans, consisting of real estate construction and commercial mortgage loans,
increased $803 million, or six percent, to $15.1 billion in 2008, from $14.3 billion in 2007. Commercial mortgage
35
loans are loans where the primary collateral is a lien on any real property. Real property is generally considered
primary collateral if the value of that collateral represents more than 50 percent of the commitment at loan
approval. Average loans to borrowers in the Commercial Real Estate business line, which include loans to
residential real estate developers, represented $5.6 billion, or 37 percent, of average total commercial real estate
loans in 2008, compared to $5.2 billion, or 36 percent, of average total commercial real estate loans in 2007. The
increase in average commercial real estate loans to borrowers in the Commercial Real Estate business line in 2008
largely included draws on previously approved lines of credit for residential real estate and commercial
development projects. The remaining $9.5 billion and $9.1 billion of commercial real estate loans in other
business lines in 2008 and 2007, respectively, were primarily owner-occupied commercial mortgages. In addition
to the $15.1 billion of average 2008 commercial real estate loans discussed above, the Commercial Real Estate
business line also had $1.4 billion of average 2008 loans not classified as commercial real estate on the
consolidated balance sheet. Refer to the ‘‘Commercial Real Estate Lending’’ portion of the ‘‘Risk Management’’
section of this financial review for more information.
Average residential mortgage loans increased $72 million, or four percent, in 2008, from 2007, and
primarily include mortgages originated and retained for certain relationship customers.
Average home equity loans increased $89 million, or six percent, in 2008, from 2007, as a result of an
increase in draws on new and existing commitments extended.
Management expects to focus on new and expanding relationships, particularly in Small Business, Middle
Market and Wealth Management with the appropriate pricing and credit standards.
TABLE 6: ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO
(Fully Taxable Equivalent)
Within 1 Year
1–5 Years
5–10 Years
After 10 Years
Total
Maturity *
Weighted
Average
Maturity
December 31, 2008
Amount Yield
Amount Yield
Amount Yield
Amount Yield
Amount Yield Yrs./Mos.
(dollar amounts in millions)
Available-for-sale
U.S. Treasury and other
Government agency
securities . . . . . . . . . . .
Government-sponsored
$ 79
1.56% $ —
—% $ — —% $ — —% $
79 1.58% 0/5
enterprise securities . . . .
16
4.40
382
3.70
1,252 4.17
6,211 5.26
7,861 5.01
12/2
State and municipal
auction-rate securities . .
—
—
—
—
— —
64 3.25
64 3.25
19/9
Other state and municipal
securities . . . . . . . . . . .
1
9.16
1
9.69
— —
— —
2 9.57
2/2
Other auction-rate
securities ** . . . . . . . . .
—
—
—
—
— —
1,083 1.87
1,083 1.87
32/5
Other securities
Other bonds, notes and
debentures . . . . . . . .
Other investments *** . .
Total investment securities
37
—
2.09
—
5
—
7.59
—
— —
— —
— —
70 —
42 2.74
70 —
0/7
—
available-for-sale . . . . . .
$133
2.07% $388
3.77% $1,252 4.18% $7,428 4.74% $9,201 4.58% 12/5
*
Based on final contractual maturity.
** Auction-rate preferred securities totaling $936 million have no contractual maturity and are excluded from weighted
average maturity.
*** Balances are excluded from the calculation of total yield and weighted average maturity.
36
Investment Securities Available-for-Sale
Investment securities available-for-sale increased $2.9 billion to $9.2 billion at December 31, 2008, from
$6.3 billion at December 31, 2007. Average investment securities available-for-sale increased $3.7 billion to
$8.1 billion in 2008, compared to $4.4 billion in 2007, primarily due to the purchase of approximately
$2.9 billion of AAA-rated mortgage-backed securities issued by government sponsored entities (FNMA,
FHLMC) and the purchase of $1.3 billion of auction-rate securities from certain customers in 2008. The increase
in Government-sponsored enterprise securities resulted from balance sheet management decisions to reduce
interest rate sensitivity. Average other securities increased $182 million to $313 million in 2008, and consisted
largely of money market and other fund investments at December 31, 2008.
The purchase of auction-rate securities in 2008 resulted from the Corporation’s September 2008 offer to
repurchase, at par, auction-rate securities held by certain retail and institutional clients that were purchased
through Comerica Securities, a broker/dealer subsidiary of Comerica Bank (the Bank). As of December 31,
2008, the Corporation’s auction-rate securities portfolio was carried at an estimated fair value of $1.1 billion and
consisted of non-taxable preferred ($584 million), taxable preferred ($352 million), student loan ($147 million)
and state and municipal ($64 million) auction-rate securities. Subsequent to repurchase, auction-rate securities
totaling $80 million, primarily taxable and non-taxable auction-rate preferred securities, were called or
redeemed at par in the fourth quarter 2008 resulting in net securities gains of $4 million. The Corporation has
experienced no credit-related losses or defaults on contractual interest payments related to the portfolio,
however, these securities are currently in a less liquid market. For additional information on the repurchase of
auction-rate securities, refer to the ‘‘Critical Accounting Policies’’ section of this financial review and Notes 23
and 28 to the consolidated financial statements.
Short-Term Investments
Short-term investments include federal funds sold and securities purchased under agreements to resell,
interest-bearing deposits with banks and other short-term investments. Federal funds sold offer supplemental
earnings opportunities and serve correspondent banks. Average federal funds sold and securities purchased
under agreements to resell decreased $71 million to $93 million during 2008, compared to 2007. Interest-bearing
deposits with banks are investments with banks in developed countries or international banking facilities of
foreign banks located in the United States and included deposits with the Federal Reserve Bank since October 1,
2008, the date at which the Federal Reserve began paying interest on such balances. Interest-bearing deposits
with banks on average increased $204 million to $219 million compared to 2007, primarily due to large deposits
at the Federal Reserve Bank in the fourth quarter 2008. At December 31, 2008, interest-bearing deposits with the
Federal Reserve Bank totaled $2.3 billion. Other short-term investments include trading securities and loans
held-for-sale. Loans held-for-sale typically represent residential mortgage
loans and Small Business
Administration loans that have been originated and which management has decided to sell. Average other
short-term investments increased $3 million to $244 million during 2008, compared to 2007. Short-term
investments, other than loans held-for-sale, provide a range of maturities less than one year and are mostly used
to manage short-term investment requirements of the Corporation.
TABLE 7: INTERNATIONAL CROSS-BORDER OUTSTANDINGS
(year-end outstandings exceeding 1% of total assets)
December 31
Mexico
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government
and Official
Institutions
Banks and
Other
Financial
Institutions
Commercial
and
Industrial
$ —
—
—
—
(in millions)
$ —
4
—
653
$883
911
922
68
Total
$883
915
922
721
37
International assets are subject to general risks inherent in the conduct of business in foreign countries,
including economic uncertainties and each foreign government’s regulations. Risk management practices
minimize the risk inherent in international lending arrangements. These practices include structuring bilateral
agreements or participating in bank facilities, which secure repayment from sources external to the borrower’s
country. Accordingly, such international outstandings are excluded from the cross-border risk of that country.
Mexico, with cross-border outstandings of $883 million, or 1.31 percent of total assets at December 31, 2008,
was the only country with outstandings exceeding 1.00 percent of total assets at year-end 2008. There were no
countries with cross-border outstandings between 0.75 and 1.00 percent of total assets at year-end 2008.
Additional information on the Corporation’s Mexican cross-border risk is provided in Table 7 above.
DEPOSITS AND BORROWED FUNDS
The Corporation’s average deposits and borrowed funds balances are detailed in the following table.
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market and NOW deposits . . . . . . . . . . . . . . . . . . . . . . . .
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . .
Total core deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign office time deposits
Years Ended
December 31
2008
2007
Change
$10,623
14,245
1,344
8,150
34,362
6,715
926
$11,287
14,937
1,389
7,687
35,300
5,563
1,071
$ (664)
(692)
(45)
463
(938)
1,152
(145)
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$42,003
$41,934
$
69
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medium- and long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,763
12,457
$ 2,080
8,197
$1,683
4,260
Total borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,220
$10,277
$5,943
Percent
Change
(6)%
(5)
(3)
6
(3)
21
(14)
—%
81%
52
58%
Average deposits were $42.0 billion during 2008, an increase of $69 million, or less than one percent, from
2007. Excluding the Financial Services Division, average deposits increased $1.5 billion, or four percent, from
2007. Average core deposits declined $938 million, or three percent (increased $500 million or two percent
excluding Financial Services Division deposits). Average other time deposits increased $1.2 billion and average
foreign office time deposits decreased $145 million. Other time deposits represent certificates of deposit issued
to institutional investors in denominations in excess of $100,000 and to retail customers in denominations of less
than $100,000 through brokers, and are an alternative to other sources of purchased funds. Excluding the
Financial Services Division, average noninterest-bearing deposits increased $529 million, or six percent, from
2007. Average Financial Services Division noninterest-bearing deposits declined $1.2 billion, or 42 percent, from
2007, due to reduced home prices, as well as, lower home mortgage financing and refinancing activity. Financial
Services Division deposit levels may change with the direction of mortgage activity changes, and the desirability
of and competition for such deposits.
Average short-term borrowings increased $1.7 billion, to $3.8 billion in 2008, compared to $2.1 billion in
2007, primarily due to borrowings under the Federal Reserve Term Auction Facility (TAF). The TAF provides
access to short-term funds at generally favorable rates. Short-term borrowings include federal funds purchased,
securities sold under agreements to repurchase, TAF borrowings and treasury tax and loan notes.
The Corporation uses medium-term debt (both domestic and European) and long-term debt to provide
funding to support earning assets. Medium- and long-term debt increased, on an average basis, by $4.3 billion,
primarily as a result of $8.0 billion of new medium-term Federal Home Loan Bank (FHLB) advances in 2008. In
February 2008, the Bank became a member of the FHLB of Dallas, Texas, which provides short- and long-term
38
funding collateralized by mortgage-related assets to its members at generally favorable rates. Further
information on medium- and long-term debt is provided in Note 11 to the consolidated financial statements.
In the fourth quarter 2008, the Corporation elected to participate in the Temporary Liquidity Guarantee
Program (The TLG Program) announced by the FDIC in October 2008. Under the TLG Program, up to
$5.2 billion of senior unsecured debt issued by the Bank between October 14, 2008 and June 30, 2009 with a
maturity of more than 30 days is eligible to be guaranteed by the FDIC. Debt guaranteed by the FDIC is backed
by the full faith and credit of the United States. The guarantee expires at the earlier of the maturity date of the
issued debt or June 30, 2012. All senior unsecured debt issued under the TLG Program will be subject to an
annualized fee ranging from 50 basis points to 100 basis points of the amount of debt, based on maturity. At
December 31, 2008, there was approximately $3 million of senior unsecured debt outstanding in the form of
bank-to-bank deposits issued under the TLG Program.
The TLG Program also provides unlimited FDIC insurance protection to all noninterest-bearing deposit
transaction accounts, interest-bearing transaction accounts earning interest rates of 50 basis points or less, and
Interest on Lawyers’ Trust Accounts (IOLTA’s) through December 31, 2009, regardless of the dollar amount.
This unlimited coverage is in addition to the increased FDIC limits approved on October 3, 2008, which
increased insurance coverage limits on all deposits from $100,000 to $250,000 per account and also expires at the
end of 2009. An annualized surcharge of 10 basis points is applied to those insured accounts not covered under
the increased deposit insurance limit of $250,000, in addition to the existing risk-based deposit insurance
premium paid on those deposits.
For further information on the TLG Program, see Note 11 to the consolidated financial statements.
CAPITAL
Total shareholders’ equity was $7.2 billion at December 31, 2008, compared to $5.1 billion at December 31,
2007. The following table presents a summary of changes in total shareholders’ equity in 2008:
Balance at January 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retention of earnings (net income less cash dividends declared) . . . . . . . . . . . . . . . . . . .
Change in accumulated other comprehensive income (loss):
(in millions)
$5,117
(135)
Investment securities available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Defined benefit and other postretirement plans adjustment . . . . . . . . . . . . . . . . . . . .
$ 140
28
(300)
Total change in accumulated other comprehensive income (loss) . . . . . . . . . . . . . . .
Issuance of preferred stock and related warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net purchase of common stock under employee stock plans . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(132)
2,250
(1)
53
$7,152
Further information on the change in accumulated other comprehensive income (loss) is provided in
Note 13 to the consolidated financial statements.
The Corporation declared common dividends totaling $348 million, or $2.31 per share, on net income
applicable to common stock of $196 million. To preserve and enhance the Corporation’s balance sheet strength
in the current uncertain economic environment, the Corporation lowered the quarterly cash dividend rate by
50 percent, to $0.33 per share, in the fourth quarter of 2008, and further reduced the dividend to $0.05 per share
in the first quarter of 2009.
In the fourth quarter 2008, the Corporation participated in the U.S. Department of Treasury
(U.S. Treasury) Capital Purchase Program (the Purchase Program) which increased Tier 1 capital by
39
$2.25 billion from the issuance of 2.25 million shares of Fixed Rate Cumulative Perpetual Preferred Stock,
Series F, (preferred shares) and a related warrant to the U.S. Treasury.
In conjunction with the issuance of the preferred shares, the U.S. Treasury was granted a warrant to
purchase 11.5 million shares of common stock at an exercise price of $29.40 per share. The impact of the warrant
on diluted net income per common share for any given period is dependent upon the extent by which the
average market price of the Corporation’s common stock exceeds the exercise price of the underlying shares.
As required by the Purchase Program, the Corporation adopted the U.S. Treasury’s standards for executive
compensation and corporate governance for the period during which the U.S. Treasury holds equity issued
under the Purchase Program. These standards generally apply to the chief executive officer, chief financial
officer, plus the three most highly compensated executive officers. In addition, the Corporation agreed not to
deduct for tax purposes executive compensation in excess of $500,000 for each senior executive.
Under the Purchase Program, the consent of the U.S. Treasury is required for any increase in common
dividends declared from the dividend rate in effect at the time of investment (quarterly dividend rate of $0.33
per share) and for any common share repurchases (other than common share repurchases in connection with any
benefit plan in the ordinary course of business), until November 2011, unless the preferred shares have been
fully redeemed or the U.S. Treasury has transferred all the preferred shares to third parties prior to that date. In
addition, all accrued and unpaid dividends on the preferred shares must be declared and the payment set aside
for the benefit of the holders of the preferred shares before any dividend may be declared on the Corporation’s
common stock and before any shares of the Corporation’s common stock may be repurchased in the open
market.
The issuance of the preferred shares and a related warrant increased the Corporation’s Tier 1 risk-based
capital ratio at December 31, 2008 by approximately 300 basis points. For further information on the Purchase
Program, see Note 12 to the consolidated financial statements.
The Corporation assesses capital adequacy against the risk inherent in the balance sheet, recognizing that
unexpected loss is the common denominator of risk and that common equity has the greatest capacity to absorb
unexpected loss. Based on an interim decision issued by the banking regulators in 2006, the after-tax charge
associated with the impact of SFAS No. 158, ‘‘Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans’’ on pension and post-retirement plan accounting was excluded from the calculation of
regulatory capital ratios. Therefore, for the purposes of calculating regulatory capital ratios, shareholders’ equity
was increased by $470 million and $170 million on December 31, 2008 and 2007, respectively. Refer to Note 19
to the consolidated financial statements for further discussion of regulatory capital requirements and capital
ratio calculations.
When capital exceeds necessary levels, the Corporation’s common stock can be repurchased as a way to
return excess capital to shareholders. The Corporation made no share repurchases in the open market in 2008,
compared to repurchases of 10.0 million shares in 2007 for $580 million and 6.6 million shares in 2006 for
$383 million. At December 31, 2008, 12.6 million shares of Comerica Incorporated common stock remained
available for repurchase under the Corporation’s publicly announced repurchase program authorized by the
Board of Directors of the Corporation (the Board). As discussed above, common share repurchases through
November 2011 may require the consent of the U.S. Treasury under the terms of the Purchase Program. Refer to
Note 12 to the consolidated financial statements for additional information on the Corporation’s share
repurchase program.
At December 31, 2008, the Corporation and its U.S. 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.
40
RISK MANAGEMENT
The Corporation assumes various types of risk in the normal course of business. Management classifies the
risk exposures into five areas: (1) credit, (2) market, (3) operational, (4) compliance and (5) business risks and
considers credit risk as the most significant risk.
The Corporation continues to enhance its risk management capabilities with additional processes, tools and
systems designed to provide management with deeper insight into the Corporation’s various risks, enhance the
Corporation’s ability to control those risks and ensure that appropriate compensation is received for the risks
taken.
Specialized risk managers, along with the risk management committees in credit, market and liquidity,
operational and compliance are responsible for the day-to-day management of those respective risks. The
Corporation’s Enterprise-Wide Risk Management Committee is responsible for establishing the governance over
the risk management process, as well as, providing oversight in managing the Corporation’s aggregate risk
position. The Enterprise-Wide Risk Management Committee is principally made up of the various managers
from the different risk areas and business units and has reporting responsibility to the Enterprise Risk
Committee of the Board.
CREDIT RISK
Credit risk represents the risk of loss due to failure of a customer or counterparty to meet its financial
obligations in accordance with contractual terms. The Corporation manages credit risk through underwriting,
periodically reviewing and approving its credit exposures using Board committee approved credit policies and
guidelines. Additionally, the Corporation manages credit risk through loan sales and loan portfolio
diversification, limiting exposure to any single industry, customer or guarantor, and selling participations and/or
syndicating to third parties credit exposures above those levels it deems prudent.
During 2008, the Corporation continued its focus on the credit components of the previously described
enterprise-wide risk management processes. Enhancements to the analytics related to capital modeling,
migration, credit loss forecasting, stress testing analysis and validation and testing continued in 2008.
41
TABLE 8: ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 557
(dollar amounts in millions)
$ 673
$ 516
$ 493
$ 803
Years Ended December 31
2008
2007
2006
2005
2004
Loan charge-offs:
Domestic
Commercial
Real estate construction
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate business line . . . . . . . . . . . . . . . .
Other business lines . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total real estate construction . . . . . . . . . . . . . . . . . . . .
Commercial mortgage
Commercial Real Estate business line . . . . . . . . . . . . . . . .
Other business lines . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial mortgage . . . . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International
Total loan charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries:
Domestic
Commercial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate construction . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International
Total recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
183
184
1
185
72
28
100
7
22
1
2
500
17
3
4
—
3
1
1
29
89
37
5
42
15
37
52
—
13
—
—
196
27
—
4
—
4
4
8
47
Net loan charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . .
471
686
(2)
149
212
1
44
—
—
—
4
13
17
—
23
10
4
98
27
—
4
—
3
—
4
38
60
37
—
91
2
—
2
4
13
17
1
15
37
11
201
2
—
2
4
19
23
1
14
13
14
174
268
55
—
3
—
5
—
1
64
52
—
3
—
2
1
16
74
110
(47)
—
194
64
—
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 770
$ 557
$ 493
$ 516
$ 673
Allowance for loan losses as a percentage of total loans at end of
year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.52% 1.10% 1.04% 1.19% 1.65%
Net loans charged-off during the year as a percentage of average
loans outstanding during the year . . . . . . . . . . . . . . . . . . . . . .
0.91
0.30
0.13
0.25
0.48
Allowance for Credit Losses
The allowance for credit losses includes both the allowance for loan losses and the allowance for credit
losses on lending-related commitments. The allowance for loan losses represents management’s assessment of
probable losses inherent in the Corporation’s loan portfolio. The allowance for loan losses provides for probable
losses that have been identified with specific customer relationships and for probable losses believed to be
inherent in the loan portfolio, but that have not been specifically identified. Internal risk ratings are assigned to
42
each business loan at the time of approval and are subject to subsequent periodic reviews by the Corporation’s
senior management. The Corporation performs a detailed credit quality review quarterly on both large business
and certain large consumer and residential mortgage loans that have deteriorated below certain levels of credit
risk and may allocate a specific portion of the allowance to such loans based upon this review. The Corporation
defines business loans as those belonging to the commercial, real estate construction, commercial mortgage,
lease financing and international loan portfolios. A portion of the allowance is allocated to the remaining
business loans by applying estimated loss ratios, based on numerous factors identified below, to the loans within
each risk rating. In addition, a portion of the allowance is allocated to these remaining loans based on industry
specific risks inherent in certain portfolios that have experienced above average losses, including portfolio
exposures to Small Business loans, high technology companies and the retail trade (gasoline delivery) industry.
Furthermore, a portion of the allowance is allocated to these remaining loans based on specific risks inherent in
certain portfolios that have not yet manifested in the risk ratings, including portfolio exposure to the automotive
industry. The portion of the allowance allocated to all other consumer and residential mortgage loans is
determined by applying estimated loss ratios to various segments of the loan portfolio. Estimated loss ratios for
all portfolios incorporate factors such as recent charge-off experience, current economic conditions and trends,
and trends with respect to past due and nonaccrual amounts, and are supported by underlying analysis,
including information on migration and loss given default studies from each of the three largest domestic
geographic markets (Midwest, Western and Texas), as well as, mapping to bond tables. The allowance for credit
losses on lending-related commitments, included in ‘‘accrued expenses and other liabilities’’ on the consolidated
balance sheets, provides for probable credit losses inherent in lending-related commitments, including unused
commitments to extend credit, letters of credit and financial guarantees. Lending-related commitments for
which it is probable that the commitment will be drawn (or sold) are reserved with the same estimated loss rates
as loans, or with specific reserves. In general, the probability of draw for letters of credit is considered certain
once the credit becomes a watch list credit. Non-watch list letters of credit and all unfunded commitments have a
lower probability of draw, to which standard loan loss rates are applied.
Actual loss ratios experienced in the future may vary from those estimated. The uncertainty occurs because
factors may exist which affect the determination of probable losses inherent in the loan portfolio and are not
necessarily captured by the application of estimated loss ratios or identified industry specific risks. A portion of
the allowance is maintained to capture these probable losses and reflects management’s view that the allowance
should recognize the margin for error inherent in the process of estimating expected loan losses. Factors that
were considered in the evaluation of the adequacy of the Corporation’s allowance include the inherent
imprecision in the risk rating system and the risk associated with new customer relationships. The allowance
associated with the margin for inherent imprecision covers probable loan losses as a result of an inaccuracy in
assigning risk ratings or stale ratings which may not have been updated for recent negative trends in particular
credits. The allowance due to new business migration risk is based on an evaluation of the risk of rating
downgrades associated with loans that do not have a full year of payment history.
The total allowance for loan losses is available to absorb losses from any segment within the portfolio.
Unanticipated economic events, including political, economic and regulatory instability in countries where the
Corporation has loans, could cause changes in the credit characteristics of the portfolio and result in an
unanticipated increase in the allowance. Inclusion of other industry specific portfolio exposures in the
allowance, as well as, significant increases in the current portfolio exposures, could also increase the amount of
the allowance. Any of these events, or some combination thereof, may result in the need for additional provision
for loan losses in order to maintain an allowance that complies with credit risk and accounting policies. The total
allowance for loan losses was $770 million at December 31, 2008, compared to $557 million at December 31,
2007, an increase of $213 million. The increase resulted primarily from an increase in individual and industry
reserves for customers in the residential real estate development business located in the Western market
(primarily California). An analysis of the changes in the allowance for loan losses is presented in Table 8 of this
financial review.
43
The allowance for credit losses on lending-related commitments was $38 million at December 31, 2008,
compared to $21 million at December 31, 2007, an increase of $17 million, resulting primarily from an increase
in specific reserves related to unused commitments extended to customers in the Michigan Commercial Real
Estate business line and California residential real estate development business and standby letters of credit
extended to customers in the Michigan commercial real estate industry. An analysis of the changes in the
allowance for credit losses on lending-related commitments is presented below.
Years Ended December 31
2008
2007
2006
2005
2004
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Charge-offs on lending-related commitments * . . . . . . . . . . . . . . . .
Add: Provision for credit losses on lending-related commitments . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21
1
18
$38
*
Charge-offs result from the sale of unfunded lending-related commitments.
TABLE 9: ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(dollar amounts in millions)
$33
12
5
$26
4
(1)
$21
6
18
$ 33
—
(12)
$21
$26
$33
$ 21
2008
2007
2006
2005
2004
December 31
(dollar amounts in millions)
Domestic
Commercial . . . . . . . . . . .
Real estate construction . . . .
Commercial mortgage . . . . .
Residential mortgage . . . . .
Consumer . . . . . . . . . . . .
Lease financing . . . . . . . . .
International . . . . . . . . . . . .
Total . . . . . . . . . . . . . .
Allocated Allowance
Allowance
Ratio* % ** Allowance % ** Allowance % ** Allowance % ** Allowance % **
Allocated
Allocated
Allocated
Allocated
$380
194
147
4
27
6
12
$770
1.36% 55% $288
128
9
4.33
92
21
1.40
2
4
0.20
21
5
1.03
15
3
0.44
11
3
0.69
55% $320
29
9
80
20
2
4
22
5
27
3
13
4
55% $336
21
9
74
20
1
4
25
5
29
3
30
4
55% $442
27
8
88
21
2
3
26
6
45
3
43
4
54%
8
20
3
7
3
5
1.52% 100% $557
100% $493
100% $516
100% $673
100%
*
**
Allocated Allowance as a percentage of related loans outstanding.
Loans outstanding as a percentage of total loans.
The allowance as a percentage of total loans, nonperforming loans and as a multiple of annual net loan
charge-offs is provided in the following table.
Allowance for loan losses as a percentage of total loans at end of year . . . . . . . . . .
Allowance for loan losses as a percentage of total nonperforming loans at end of
Years Ended
December 31
2008
2007
2006
1.52% 1.10% 1.04%
year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses as a multiple of total net loan charge-offs for the year . . .
84
1.6x
138
3.7x
231
8.2x
The allowance for loan losses as a percentage of total period-end loans increased to 1.52 percent at
December 31, 2008, from 1.10 percent at December 31, 2007. The allowance for loan losses as a percentage of
nonperforming loans decreased to 84 percent at December 31, 2008, from 138 percent at December 31, 2007.
The Corporation’s loan portfolio is heavily composed of business loans, which in the event of default are typically
carried on the books at fair value as nonperforming assets for a longer period of time than are consumer loans,
which are generally fully charged off when they become nonperforming, resulting in lower nonperforming loan
44
allowance coverage. The allowance for loan losses as a multiple of net loan charge-offs decreased to 1.6 times for
the year ended December 31, 2008, compared to 3.7 times for the year ended December 31, 2007, as a result of
higher levels of net loan charge-offs in 2008.
TABLE 10: SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS
NONPERFORMING ASSETS
Nonaccrual loans:
Commercial
Real estate construction:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commerical Real Estate business line . . . . . . . . . . . .
Other business lines . . . . . . . . . . . . . . . . . . . . . . . .
Total real estate construction . . . . . . . . . . . . . . . .
Commercial mortgage:
Commerical Real Estate business line . . . . . . . . . . . .
Other business lines . . . . . . . . . . . . . . . . . . . . . . . .
Total commerical mortgage . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonaccrual loans . . . . . . . . . . . . . . . . . . . . . .
Reduced-rate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonperforming loans . . . . . . . . . . . . . . . . . . .
Foreclosed property . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31
2008
2007
2006
2005
2004
(dollar amounts in millions)
$ 205
$ 75
$ 97
$ 65
$ 161
429
5
434
132
130
262
7
6
1
2
917
—
917
66
161
6
167
66
75
141
1
3
—
4
391
13
404
19
18
2
20
18
54
72
1
4
8
12
214
—
214
18
3
—
3
6
29
35
2
2
13
18
138
—
138
24
31
3
34
6
58
64
1
1
15
36
312
—
312
27
Total nonperforming assets . . . . . . . . . . . . . . . . . . .
$ 983
$ 423
$ 232
$ 162
$ 339
Nonperforming loans as a percentage of total loans . . . . . . .
Nonperforming assets as a percentage of total loans and
1.82% 0.80% 0.45% 0.32% 0.76%
foreclosed property . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.94
0.83
0.49
0.37
0.83
Allowance for loan losses as a percentage of total
nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans past due 90 days or more and still accruing . . . . . . . .
84
$ 125
138
$ 54
231
$ 14
373
$ 16
215
$ 15
Nonperforming Assets
Nonperforming assets include loans on nonaccrual status, loans which have been renegotiated to less than
market rates due to a serious weakening of the borrower’s financial condition and real estate which has been
acquired through foreclosure and is awaiting disposition.
Residential mortgage loans are generally placed on nonaccrual status during the foreclosure process,
normally no later than 150 days past due. Other consumer loans are generally not placed on nonaccrual status
and are charged off no later than 180 days past due, and earlier, if deemed uncollectible. Loans, other than
consumer loans, are generally placed on nonaccrual status when management determines that principal or
interest may not be fully collectible, but no later than 90 days past due on principal or interest, unless the loan is
fully collateralized and in the process of collection. Loan amounts in excess of probable future cash collections
are charged off to an amount that management ultimately expects to collect. Interest previously accrued but not
collected on nonaccrual loans is charged against current income at the time the loan is placed on nonaccrual.
45
Income on such loans is then recognized only to the extent that cash is received and where the future collection
of principal is probable. Loans that have been restructured to yield a rate that was equal to or greater than the
rate charged for new loans with comparable risk and have met the requirements for return to accrual status are
not included in nonperforming assets. However, such loans may be required to be evaluated for impairment.
Refer to Note 4 to the consolidated financial statements for a further discussion of impaired loans.
Nonperforming assets increased $560 million to $983 million at December 31, 2008, from $423 million at
December 31, 2007. Table 10 above shows changes in individual categories. The $526 million increase in
nonaccrual loans at December 31, 2008 from year-end 2007 levels resulted primarily from increases of
$267 million in nonaccrual real estate construction loans (primarily residential real estate development),
$121 million in nonaccrual commercial mortgage loans and $47 million in foreclosed property. Loans past due
90 days or more and still on accrual status increased $71 million, to $125 million at December 31, 2008, from
$54 million at December 31, 2007. At December 31, 2008, these loans included $59 million from the Western
market Commercial Real Estate business line and $59 million from the Midwest market, primarily commercial
and residential real estate development loans. Nonperforming assets as a percentage of total loans and foreclosed
property was 1.94 percent and 0.83 percent at December 31, 2008 and 2007, respectively.
The following table presents a summary of changes in nonaccrual loans.
Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans transferred to nonaccrual (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonaccrual business loan gross charge-offs (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans transferred to accrual status (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonaccrual business loans sold (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments/Other (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008
2007
(in millions)
$ 391
1,123
(469)
(11)
(47)
(70)
$ 214
455
(183)
(13)
(15)
(67)
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 917
$ 391
(1) Based on an analysis of nonaccrual loans with book balances greater than $2 million.
(2) Analysis of gross loan charge-offs:
Nonaccrual business loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performing watch list loans (as defined below) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and residential mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 469
2
29
$ 183
—
13
Total gross loan charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 500
$ 196
(3) Analysis of loans sold:
Nonaccrual business loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performing watch list loans (as defined below) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
47
16
63
$ 15
13
$ 28
(4)
Includes net changes related to nonaccrual loans with balances less than $2 million, payments on
nonaccrual loans with book balances greater than $2 million and transfers of nonaccrual loans to foreclosed
property. Excludes business loan gross charge-offs and nonaccrual business loans sold.
46
The following table presents the number of nonaccrual loan relationships greater than $2 million and
balance by size of relationship at December 31, 2008.
(dollar amounts in millions)
Number of
Relationships
Balance
Nonaccrual Relationship Size
$2 million–$5 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5 million–$10 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10 million–$25 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Greater than $25 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57
32
23
1
Total loan relationships greater than $2 million at December 31, 2008 . . . . . . . . . . .
113
$182
239
307
39
$767
There were 142 loan relationships each with balances greater than $2 million, totaling $1.1 billion that were
transferred to nonaccrual status in 2008, an increase of $668 million, when compared to $455 million in 2007. Of
the transfers to nonaccrual with balances greater than $2 million in 2008, $729 million were from the
Commercial Real Estate business line, including $510 million located in the Western market, and $241 million
were from the Middle market business line. There were 41 loan relationships, each greater than $10 million
transferred to nonaccrual in 2008. These loans totaled $597 million, of which $388 million were to companies in
the Commercial Real Estate business line, primarily residential real estate development.
The Corporation sold $47 million of nonaccrual business loans in 2008, including $24 million to customers
in the residential real estate development business in the Western market.
The following table presents a summary of total internally classified watch list loans (generally consistent
with regulatory defined special mention, substandard and doubtful loans) at December 31, 2008. Of the
$5.7 billion of watch list loans at December 31, 2008, $2.7 billion, or 46 percent were in the Commercial Real
Estate business line. Consistent with the increase in nonaccrual loans from December 31, 2007 to December 31,
2008, total watch list loans increased both in dollars and as a percentage of the total loan portfolio.
Total watch list loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As a percentage of total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,732
$3,464
11.3%
6.8%
December 31
2008
2007
(dollar amounts
in millions)
47
The following table presents a summary of nonaccrual loans at December 31, 2008 and loan relationships
transferred to nonaccrual and net loan charge-offs during the year ended December 31, 2008, based primarily on
the SIC code industry categories.
Industry Category
Real Estate . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing . . . . . . . . . . . . . . . . . . . . . .
Services . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail Trade . . . . . . . . . . . . . . . . . . . . . . .
Contractors . . . . . . . . . . . . . . . . . . . . . . . .
Wholesale Trade . . . . . . . . . . . . . . . . . . . .
Automotive . . . . . . . . . . . . . . . . . . . . . . . .
Finance . . . . . . . . . . . . . . . . . . . . . . . . . .
Transportation . . . . . . . . . . . . . . . . . . . . . .
Technology-related . . . . . . . . . . . . . . . . . . .
Holding & Other Investment . . . . . . . . . . .
Churches . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Non-Durables . . . . . . . . . . . . . .
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (2) . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2008
Year Ended December 31, 2008
Nonaccrual Loans
Loans Transferred
to Non-Accrual (1)
Net Loan
Charge-Offs
(dollar amounts in millions)
$538
104
73
61
41
30
17
10
9
7
7
5
3
—
12
$917
59% $ 688
96
11
47
8
58
7
71
4
52
3
23
2
12
1
15
1
16
1
7
1
—
1
12
—
26
—
—
1
62%
9
4
5
6
5
2
1
1
1
1
—
1
2
—
100% $1,123
100%
$259
28
43
51
19
23
6
1
9
4
1
1
9
—
17
$471
55%
6
9
11
4
5
1
—
2
1
—
—
2
—
4
100%
(1) Based on an analysis of nonaccrual loan relationships with book balances greater than $2 million.
(2) Consumer, excluding certain personal purpose, nonaccrual loans and net charge-offs are included in the
‘‘Other’’ category.
The following table indicates the percentage of nonaccrual loan carrying value to contractual value, which
exhibits the degree to which loans reported as nonaccrual have been partially charged-off.
Carrying value of nonaccrual loans
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual value of nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carrying value as a percentage of contractual value . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31
2008
2007
(dollar amounts
in millions)
$ 917
1,386
$391
549
66% 71%
Concentration of Credit
Loans to borrowers in the automotive industry represented the largest significant industry concentration at
December 31, 2008 and 2007. Loans to automotive dealers and to borrowers involved with automotive
production are reported as automotive, since management believes these loans have similar economic
characteristics that might cause them to react similarly to changes in economic conditions. This aggregation
involves the exercise of judgment. Included in automotive production are: (a) original equipment manufacturers
and Tier 1 and Tier 2 suppliers that produce components used in vehicles and whose primary revenue source is
automotive-related (‘‘primary’’ defined as greater than 50%) and (b) other manufacturers that produce
components used in vehicles and whose primary revenue source is automotive-related. Loans less than $1 million
and loans recorded in the Small Business division were excluded from the definition. Foreign ownership consists
of North American affiliates of foreign automakers and suppliers.
48
A summary of loans outstanding and total exposure from loans, unused commitments and standby letters of
credit and financial guarantees, to companies related to the automotive industry follows:
2008
Percent of
Total
Loans
Loans
Outstanding
December 31
Total
Loans
Exposure Outstanding
(in millions)
2007
Percent of
Total
Loans
Total
Exposure
$ 2,571
1,133
3.6%
3,704
4,228
3,108
7,336
10.6%
Production:
Domestic . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . .
Total production . . . . . . . . . . . .
Dealer:
Floor plan . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . .
Total dealer . . . . . . . . . . . . . . . .
$1,219
238
1,457
2,295
2,360
4,655
$2,151
709
2.9% 2,860
3,831
2,815
9.2% 6,646
$1,415
391
1,806
2,817
2,567
5,384
Total automotive . . . . . . . . . . . .
$6,112
12.1% $9,506
$7,190
14.2% $11,040
At December 31, 2008, dealer loans, as shown in the table above, totaled $4.7 billion, of which
approximately $3.0 billion, or 64 percent, were to foreign franchises, $1.2 billion, or 25 percent, were to
domestic franchises and $499 million, or 11 percent, were to other. Other dealer loans include obligations where
a primary franchise was indeterminable, such as loans to large public dealership consolidators, and rental car,
leasing, heavy truck and recreation vehicle companies.
Nonaccrual loans to automotive borrowers totaled $17 million, or approximately two percent of total
nonaccrual loans at December 31, 2008. Total automotive net loan charge-offs were $6 million in 2008. The
following table presents a summary of automotive net loan and credit-related charge-offs for the years ended
December 31, 2008 and 2007.
Production:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (5)
$ 6
Years Ended
December 31
2008
2007
(in millions)
Total production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (2)
Dealer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —
$ 6
Total automotive net loan charge-offs (recoveries) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6
$ (2)
Total automotive charge-offs from the sale of unused commitments * . . . . . . . . . . . . . . . .
$ — $ 3
*
Primarily related to domestic-owned production companies.
All other industry concentrations, as defined by management, individually represented less than 10 percent
of total loans at December 31, 2008.
Commercial Real Estate Lending
The Corporation limits risk inherent in its commercial real estate lending activities by limiting exposure to
those borrowers directly involved in the commercial real estate markets and adhering to conservative policies on
49
loan-to-value ratios for such loans. Commercial real estate loans, consisting of real estate construction and
commercial mortgage loans, totaled $15.0 billion at December 31, 2008, of which $5.5 billion, or 36 percent,
were to borrowers in the Commercial Real Estate business line and the remaining 64 percent was primarily
owner-occupied commercial mortgage loans. Increased nonaccrual loans, reserves and net charge-offs in the
Commercial Real Estate business line reflected challenges in the residential real estate development business in
California and Michigan.
The real estate construction loan portfolio contains loans primarily made to long-time customers with
satisfactory completion experience. However, the unprecedented decline in California residential activity proved
too difficult for many of the smaller developers. The real estate construction loan portfolio totaled $4.5 billion
and included approximately 1,200 loans, of which 44 percent had balances less than $1 million at December 31,
2008. The commercial mortgage loan portfolio totaled $10.5 billion at December 31, 2008 and included
approximately 8,800 loans, of which 73 percent had balances of less than $1 million. This total included
$8.9 billion of primarily owner-occupied commercial mortgage loans.
The geographic distribution of commercial real estate loan borrowers is an important factor in diversifying
credit risk. The following table indicates, by location of property and by project type, the diversification of the
50
Corporation’s real estate construction and commercial mortgage loans to borrowers in the Commercial Real
Estate business line.
Project Type:
Real estate construction loans:
Commercial Real Estate business line:
Residential:
December 31, 2008
Location of Property
Other
Western Michigan Texas Florida Markets Total
(dollar amounts in millions)
Percent of
Total
Single Family . . . . . . . . . . . . . . . . . . . . . . . . . $ 611
223
Land Development
. . . . . . . . . . . . . . . . . . . . .
Total Residential
. . . . . . . . . . . . . . . . . . . . .
834
Other construction:
Retail
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multi-family . . . . . . . . . . . . . . . . . . . . . . . . . .
Multi-use . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial
Land Development
. . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
223
160
197
142
29
4
5
$ 67
73
140
138
8
34
21
28
7
—
$ 94
119
$179
35
$ 95
15
$1,046
465
26%
12
213
214
110
1,511
343
180
48
92
25
16
7
74
127
58
11
5
—
—
54
121
65
31
18
33
16
832
596
402
297
105
60
28
38
21
16
11
8
3
2
1
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,594
$376
$924
$489
$448
$3,831
100%
Commercial mortgage loans:
Commercial Real Estate business line:
Residential:
Single Family . . . . . . . . . . . . . . . . . . . . . . . . . $
Land Carry . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Residential
. . . . . . . . . . . . . . . . . . . . .
Other commercial mortgage:
Multi-family . . . . . . . . . . . . . . . . . . . . . . . . . .
Land Carry . . . . . . . . . . . . . . . . . . . . . . . . . .
Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail
Commercial
. . . . . . . . . . . . . . . . . . . . . . . . . .
Multi-use . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36
137
173
29
166
100
95
67
7
—
$
3
82
85
66
72
58
58
35
11
1
$
7
44
51
65
18
37
5
7
—
—
$
9
58
67
109
27
18
3
—
—
—
$
5
23
28
34
12
6
51
12
28
18
$
60
344
404
303
295
219
212
121
46
19
4%
21
25
19
18
14
13
7
3
1
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 637
$386
$183
$224
$189
$1,619
100%
Of the $3.8 billion of real estate construction loans in the Commercial Real Estate business line,
$258 million were on nonaccrual status at December 31, 2008, which consisted of Single Family ($207 million)
and Land Development ($51 million) project types, primarily located in the Western market.
Commercial mortgage loans in the Commercial Real Estate business line totaled $1.6 billion and included
$131 million of nonaccrual loans at December 31, 2008, mostly comprised of Land Carry projects ($88 million),
primarily located in Michigan, Florida and the Western market, Single Family projects located in the Western
market and multi-family projects located in Florida.
Net credit-related charge-offs in the Commercial Real Estate business line were $266 million in 2008,
including $192 million in the Western market, substantially all in the residential real estate development
business, and $51 million in the Midwest market.
51
MARKET RISK
Market risk represents the risk of loss due to adverse movements in market rates or prices, which include
interest rates, foreign exchange rates and equity prices; the failure to meet financial obligations coming due
because of an inability to liquidate assets or obtain adequate funding and the inability to easily unwind or offset
specific exposures without significantly lowering prices because of inadequate market depth or market
disruptions.
The Asset and Liability Policy Committee establishes and monitors compliance with the policies and risk
limits pertaining to market risk management activities. The Asset and Liability Policy Committee meets regularly
to discuss and review market risk management strategies and is comprised of executive and senior management
from various areas of the Corporation, including finance, lending, deposit gathering and risk management.
Interest Rate Risk
Net interest income, which is derived principally from the difference between interest earned on loans and
investment securities and interest paid on deposits and other funding sources, is the predominant source of
revenue for the Corporation. Interest rate risk arises primarily through the Corporation’s core business activities
of extending loans and accepting deposits. The Corporation’s balance sheet is predominantly characterized by
floating rate commercial loans funded by a combination of core deposits and wholesale borrowings. This creates
a natural imbalance between the floating rate loan portfolio and the more slowly repricing deposit products. The
result is that growth in our core businesses will lead to a greater sensitivity to interest rate movements, without
mitigating actions. Examples of such actions are purchasing investment securities, primarily fixed rate, which
provide liquidity to the balance sheet and act to mitigate the inherent interest sensitivity and hedging the
sensitivity with interest rate swaps. The Corporation actively manages its exposure to interest rate risk, with the
principal objective of optimizing net interest income and economic value of equity while operating within
acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.
Interest Rate Sensitivity
Interest rate risk arises in the normal course of business due to differences in the repricing and cash flow
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. These techniques examine earnings at risk and
economic value of equity utilizing multiple simulation analyses.
The Corporation frequently evaluates net interest income under various balance sheet and interest rate
scenarios, using simulation modeling analysis as its principal risk management evaluation technique. The results
of these analyses provide the information needed to assess the balance sheet structure. Changes in economic
activity, different from those management included in its simulation analyses, whether domestically or
internationally, could translate into a materially different interest rate environment than currently expected.
Management evaluates a base case net interest income under an unchanged interest rate environment and what is
believed to be the most likely balance sheet structure. This base case net interest income is then evaluated against
non-parallel interest rate scenarios that gradually increase and decrease approximately 200 basis points in a
linear fashion from the base case over twelve months (but no lower than zero percent). Due to the current low
level of interest rates, the December 31, 2008 analysis reflects a declining interest rate scenario of a 25 basis point
drop, while the rising interest rate scenario reflects a gradual 200 basis point rise. 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 scenario. 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. However, the model can indicate the likely
direction of change. Derivative instruments entered into for risk management purposes are included in these
analyses.
52
The table below, as of December 31, 2008 and 2007, displays the estimated impact on net interest income
during the next 12 months by relating the base case scenario results to those from the rising and declining rate
scenarios described above.
Sensitivity of Net Interest Income to Changes in Interest Rates
December 31,
2008
Amount
%
(in millions)
December 31,
2007
Amount
%
(in millions)
Change in Interest Rates:
Change in Interest Rates:
+200 basis points . . . . . . . . . . . .
–25 basis points (to zero percent) .
85
(19)
5
(1)
+200 basis points . . . . . . . .
. . . . . . . .
–200 basis points
38
(36)
2
(2)
Corporate policy limits adverse change to no more than four percent of management’s most likely net
interest income forecast and the Corporation was within this policy guideline at December 31, 2008. The change
in interest rate sensitivity from December 31, 2007 to December 31, 2008 was driven by changes in the absolute
level of interest rates and the addition of $2.25 billion in Tier 1 capital from the issuance of fixed rate cumulative
perpetual preferred stock, resulting from the Corporation’s fourth quarter 2008 participation in the Purchase
Program. Changes in interest rates will continue to impact the Corporation’s net interest income in 2009. Interest
rate risk is actively managed principally through the use of either on-balance sheet financial instruments or
interest rate swaps to achieve the desired risk profile.
In addition to the simulation analysis, an economic value of equity analysis is performed for a longer term
view of the interest rate risk position. The economic value of equity analysis begins with an estimate of the
mark-to-market valuation of the Corporation’s balance sheet and then applies the estimated impact of rate
movements upon the market value of assets, liabilities and off-balance sheet instruments. The economic value of
equity is then calculated as the difference between the estimated market value of assets and liabilities net of the
impact of off-balance sheet instruments. The estimated market value change in the economic value of equity is
then compared to the corporate policy guideline limiting such adverse change to 15 percent of the base
economic value of equity as a result of a parallel 200 basis point rate shock (but no lower than zero percent). The
Corporation was within this policy parameter at December 31, 2008. A variety of alternative scenarios are
performed to measure the impact on economic value of equity, including changes in the level, slope and shape of
the yield curve.
Sensitivity of Economic Value of Equity to Changes in Interest Rates
December 31,
2008
Amount
%
(in millions)
December 31,
2007
Amount
%
(in millions)
Change in Interest Rates:
Change in Interest Rates:
+200 basis points . . . . . . . . . . . .
–25 basis points (to zero percent) .
585
(134)
5
(1)
+200 basis points . . . . . . . .
. . . . . . . .
–200 basis points
241
(789)
3
(9)
The change in economic value of equity sensitivity from December 31, 2007 to December 31, 2008 noted in
the table above resulted from the same reasons cited in the interest rate sensitivity discussion above.
The Corporation uses investment securities and derivative instruments, predominantly interest rate swaps,
as asset and liability management tools with the overall objective of managing the volatility of net interest income
from changes in interest rates. Swaps modify the interest rate characteristics of certain assets and liabilities
(e.g., from a floating rate to a fixed rate, from a fixed rate to a floating rate or from one floating rate index to
another). These tools assist management in achieving the desired interest rate risk management objectives.
53
Risk Management Derivative Instruments
Risk Management Notional Activity
Balance at January 1, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities/amortizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities/amortizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Terminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest
Rate
Contracts
Foreign
Exchange
Contracts
(in millions)
$ 8,453
400
(3,452)
1
$ 5,402
1,850
(3,702)
(150)
$
551
4,035
(4,037)
—
$
549
5,252
(5,257)
—
Totals
$ 9,004
4,435
(7,489)
1
$ 5,951
7,102
(8,959)
(150)
Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,400
$
544
$ 3,944
The notional amount of risk management interest rate swaps totaled $3.4 billion at December 31, 2008, and
$5.4 billion at December 31, 2007. The decrease in notional amount of $2.0 billion from December 31, 2007 to
December 31, 2008 reflects maturities. The fair value of risk management interest rate swaps was a net
unrealized gain of $396 million at December 31, 2008, compared to a net unrealized gain of $143 million at
December 31, 2007.
For the year ended December 31, 2008, risk management interest rate swaps generated $67 million of net
interest income, compared to $55 million of net interest expense for the year ended December 31, 2007. The
increase in swap income for 2008, compared to 2007, was primarily due to maturities in 2007 of interest rate
swaps that carried a negative spread.
Table 11 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, 2008. Swaps have been grouped by asset and liability designation.
In addition to interest rate swaps, the Corporation employs various other types of derivative instruments as
offsetting positions to mitigate exposures to interest rate and foreign currency risks associated with specific
assets and liabilities (e.g., customer loans or deposits denominated in foreign currencies). Such instruments may
include interest rate caps and floors, purchased put options, foreign exchange forward contracts and foreign
exchange swap agreements. The aggregate notional amounts of these risk management derivative instruments at
December 31, 2008 and 2007 were $544 million and $549 million, respectively.
During 2008, the Corporation terminated an interest rate swap with a notional amount of $150 million that
was designated as a fair value hedge. The pre-tax gain of $35 million realized on the termination will be
recognized in net interest income over the remaining life of the related debt (15 years). The swap was replaced
with another interest rate swap with a notional amount of $150 million with a different counterparty.
Further information regarding risk management derivative instruments is provided in Notes 1, 11, and 20 to
the consolidated financial statements.
54
TABLE 11: REMAINING EXPECTED MATURITY OF RISK MANAGEMENT INTEREST
RATE SWAPS
(dollar amounts in millions)
2009
2010
2011
2012
2013
2014–2026
Dec. 31, Dec. 31,
2008
Total
2007
Total
Variable rate asset designation:
Generic receive fixed swaps . . . . . . . . .
$ — $ 900
$ 800
$ — $ — $ —
$1,700
$3,200
Weighted average: (1)
Receive rate . . . . . . . . . . . . . . . . . .
Pay rate . . . . . . . . . . . . . . . . . . . .
Fixed rate asset designation:
Pay fixed swaps
—% 5.64% 4.75% —% —%
— 3.43
3.70
—
—
—%
—
5.22% 7.02%
3.56
7.37
Amortizing . . . . . . . . . . . . . . . . . .
$ — $ — $ — $ — $ — $ —
$ — $
2
Weighted average:
Receive rate . . . . . . . . . . . . . . . . . .
Pay rate . . . . . . . . . . . . . . . . . . . .
Medium- and long-term debt designation:
—% —% —% —% —%
—
—
—
—
—
—%
—
—% 4.74%
—
3.52
Generic receive fixed swaps . . . . . . . . .
$ 100
$ — $ — $ — $ — $1,600
$1,700
$2,200
Weighted average: (1)
Receive rate . . . . . . . . . . . . . . . . . .
Pay rate . . . . . . . . . . . . . . . . . . . .
6.06% —% —% —% —% 5.73%
3.88
3.31
—
—
—
—
5.75% 5.90%
3.34
5.14
Total notional amount . . . . . . . . . . . . . .
$ 100
$ 900
$ 800
$ — $ — $1,600
$3,400
$5,402
(1) Variable rates paid on receive fixed swaps are based on prime (with various maturities) rates in effect at December 31,
2008.
Customer-Initiated and Other Derivative Instruments
Customer-Initiated and Other Notional Activity
Interest
Rate
Contracts
Energy
Derivative
Contracts
Foreign
Exchange
Contracts
Balance at January 1, 2007 . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities/amortizations . . . . . . . . . . . . . . . . . . . . . . . . . .
Terminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2007 . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities/amortizations . . . . . . . . . . . . . . . . . . . . . . . . . .
Terminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,567
4,277
(810)
(526)
$ 8,508
5,454
(1,140)
(480)
(in millions)
$
$1,105
765
(389)
—
2,893
102,903
(103,081)
—
$1,481
1,670
(918)
(88)
$
2,715
108,886
(108,878)
—
Totals
$
9,565
107,945
(104,280)
(526)
$ 12,704
116,010
(110,936)
(568)
Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . .
$12,342
$2,145
$
2,723
$ 17,210
The Corporation writes and purchases interest rate caps and enters into foreign exchange contracts, interest
rate swaps and energy derivative contracts to accommodate the needs of customers requesting such services.
Customer-initiated and other notional activity represented 81 percent of total interest rate, energy and foreign
exchange contracts at December 31, 2008, compared to 68 percent at December 31, 2007. Refer to Notes 1 and
20 to the consolidated financial statements for further information regarding customer-initiated and other
derivative instruments.
55
Warrants for Nonmarketable Equity Securities
The Corporation holds approximately 780 warrants for generally nonmarketable equity securities. These
warrants are primarily from high technology, non-public companies obtained as part of the loan origination
process. As discussed in Note 1 to the consolidated financial statements, warrants that have a net exercise
provision or non-contingent put right embedded in the warrant agreement are classified as derivatives which
must be recorded at fair value (approximately 400 warrants at December 31, 2008). The value of all warrants that
are carried at fair value ($8 million at December 31, 2008) is at risk to changes in equity markets, general
economic conditions and other factors. The majority of new warrants obtained as part of the loan origination
process no longer contain an embedded net exercise provision. Effective January 1, 2008, the Corporation
adopted SFAS No. 157, ‘‘Fair Value Measurements’’, (SFAS 157), as discussed in Note 1 to the consolidated
financial statements. Upon adoption, the estimated fair value of warrants carried at fair value was adjusted to
reflect a discount for lack of liquidity, resulting in a $2 million pre-tax charge to earnings. For further
information regarding the valuation of warrants accounted for as derivatives, refer to the ‘‘Critical Accounting
Policies’’ section of this financial review.
Liquidity Risk and Off-Balance Sheet Arrangements
Liquidity is the ability to meet financial obligations through the maturity or sale of existing assets or the
acquisition of additional funds. The Corporation has various financial obligations, including contractual
obligations and commercial commitments, which may require future cash payments. The following contractual
obligations table summarizes the Corporation’s noncancelable contractual obligations and future required
minimum payments, and includes unrecognized tax benefits in ‘‘other long-term obligations’’. Refer to Notes 7,
10, 11, 12 and 17 to the consolidated financial statements for further information regarding these contractual
obligations.
Contractual Obligations
December 31, 2008
Deposits without a stated maturity * . . . . . . . . . . . . . .
Certificates of deposit and other deposits with a stated
maturity * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings * . . . . . . . . . . . . . . . . . . . . . . .
Medium- and long-term debt * . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments to fund low income housing partnerships
Other long-term obligations . . . . . . . . . . . . . . . . . . . .
Minimum Payments Due by Period
Total
Less than
1 Year
1–3
Years
3–5
Years
More than
5 Years
$25,385
$25,385
$ — $ — $ —
(in millions)
16,570
1,749
14,685
636
88
309
15,014
1,749
3,675
64
57
85
1,429
—
3,975
121
27
67
86
—
3,520
101
2
16
41
—
3,515
350
2
141
Total contractual obligations . . . . . . . . . . . . . . . . . .
$59,422
$46,029
$5,619
$3,725
$4,049
Medium- and long-term debt * (parent company only) . .
$
965
$ — $ 150
$ — $ 815
* Deposits and borrowings exclude accrued interest.
The Corporation has other commercial commitments that impact liquidity. These commitments include
commitments to purchase and sell earning assets, commitments to fund private equity and venture capital
investments, unused commitments to extend credit, standby letters of credit and financial guarantees, and
commercial letters of credit. The following commercial commitments table summarizes the Corporation’s
commercial commitments and expected expiration dates by period.
56
Commercial Commitments
December 31, 2008
Commitments to purchase investment securities
. . . . .
Commitments to sell investment securities . . . . . . . . .
Commitments to fund private equity and venture
capital investments . . . . . . . . . . . . . . . . . . . . . . . .
Unused commitments to extend credit . . . . . . . . . . . .
Standby letters of credit and financial guarantees
. . . .
Commercial letters of credit . . . . . . . . . . . . . . . . . . .
Expected Expiration Dates by Period
Total
Less than
1 Year
1–3
Years
3–5
Years
More than
5 Years
(in millions)
$ 1,312
10
$ 1,312
10
$ — $ — $ —
—
—
—
36
28,025
6,240
156
1
12,287
3,894
140
3
9,420
1,429
16
7
4,436
858
—
25
1,882
59
—
Total commercial commitments . . . . . . . . . . . . . . .
$35,779
$17,644
$10,868
$5,301
$1,966
Since many of these commitments expire without being drawn upon, the total amount of these commercial
commitments does not necessarily represent the future cash requirements of the Corporation. Refer to the
‘‘Other Market Risks’’ section below and Note 20 to the consolidated financial statements for a further
discussion of these commercial commitments.
Since market disruptions began in the latter half of 2008, it has been increasingly difficult for market
participants to borrow funds with maturities beyond one year. The Corporation satisfies liquidity requirements
with various funding sources. The Corporation may access the purchased funds market, which is comprised of
certificates of deposit issued to institutional investors in denominations in excess of $100,000 and to retail
customers in denominations of less than $100,000 through brokers (‘‘other time deposits’’ on the consolidated
balance sheets), foreign office time deposits and short-term borrowings. Purchased funds totaled $9.5 billion at
December 31, 2008, compared to $10.2 billion and $7.8 billion at December 31, 2007 and 2006, respectively.
Capacity for incremental purchased funds at December 31, 2008 consisted mostly of federal funds purchased,
brokered certificates of deposits, securities sold under agreements to repurchase and borrowings under the
Federal Reserve Term Auction Facility. In February 2008, the Bank became a member of the Federal Home
Loan Bank of Dallas, Texas (FHLB), which provides short- and long-term funding to its members through
advances collateralized by real estate-related assets. The actual borrowing capacity is contingent on the amount
of collateral available to be pledged to the FHLB. As of December 31, 2008, the Corporation had $8.0 billion of
outstanding borrowings from the FHLB with original maturities ranging from 1-6 years, and substantial
collateral to support additional borrowings. Another source of funding, if needed, would be liquid assets,
including cash and due from banks, federal funds sold and securities purchased under agreements to resell,
interest-bearing deposits with the Federal Reserve and other banks, other short-term investments and
investment securities available-for-sale, which totaled $12.8 billion at December 31, 2008, compared to
$8.1 billion at December 31, 2007. Additionally, the Corporation also had available approximately $10 billion
from a collateralized borrowing account with the Federal Reserve Bank and, if market conditions were to permit,
could issue up to $11.1 billion of debt under an existing $15 billion medium-term senior note program which
allows the principal banking subsidiary to issue debt with maturities between one and 30 years at December 31,
2008.
In addition, as previously discussed, in the fourth quarter 2008, the Corporation elected to participate in the
TLG Program announced by the FDIC in October 2008. Under the TLG Program, up to $5.2 billion of senior
unsecured debt issued by the Bank between October 14, 2008 and June 30, 2009 with a maturity of more than
30 days is eligible to be guaranteed by the FDIC. Debt guaranteed by the FDIC is backed by the full faith and
credit of the United States. The guarantee expires at the earlier of the maturity date of the issued debt or June 30,
2012. All senior unsecured debt issued under the TLG Program will be subject to an annualized fee ranging
from 50 basis points to 100 basis points of the amount of debt, based on maturity. At December 31, 2008, there
57
was approximately $3 million of senior unsecured debt outstanding in the form of bank-to-bank deposits issued
under the TLG Program.
The ability of the Corporation and the Bank to raise funds at competitive rates is impacted by rating
agencies’ views of the credit quality, liquidity, capital and earnings of the Corporation and the Bank. As of
December 31, 2008, the four major rating agencies had assigned the following ratings to long-term senior
unsecured obligations of the Corporation and the Bank.
December 31, 2008
Comerica
Incorporated
Comerica
Bank
Standard and Poor’s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Moody’s Investors Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fitch Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dominion Bond Rating Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A
A2
A+
A
A+
A1
A+
A (high)
The parent company held $11 million of cash and cash equivalents and $2.3 billion of short-term
investments with a subsidiary bank at December 31, 2008, mostly from the Purchase Program proceeds. Refer to
the ‘‘Preferred Stock Dividends’’ section of this financial review for further information. A source of liquidity for
the parent company is dividends from its subsidiaries. As discussed in Note 19 to the consolidated financial
statements, banking subsidiaries are subject to regulation and may be limited in their ability to pay dividends or
transfer funds to the parent company. During 2009, the banking subsidiaries can pay dividends up to $62 million
plus 2009 net profits without prior regulatory approval. One measure of current parent company liquidity is
investment in subsidiaries as a percentage of shareholders’ equity. An amount over 100 percent represents the
reliance on subsidiary dividends to repay liabilities. As of December 31, 2008, the ratio was 80 percent. Refer to
the ‘‘Contractual Obligations’’ table in this financial review for information on parent company future minimum
payments on medium- and long-term debt.
The Corporation regularly evaluates its ability to meet funding needs in unanticipated, stressed
environments. In conjunction with the quarterly 200 basis point interest rate shock analyses, discussed in the
‘‘Interest Rate Sensitivity’’ section of this financial review, liquidity ratios and potential funding availability are
examined. Each quarter, the Corporation also evaluates its ability to meet liquidity needs under a series of broad
events, distinguished in terms of duration and severity. The evaluation projects that sufficient sources of liquidity
are available in each series of events.
The Corporation also holds a significant interest in certain variable interest entities (VIE’s), in which it is not
the primary beneficiary and does not consolidate. These unconsolidated VIE’s are principally private equity and
venture capital funds, or low income housing limited partnerships. The Corporation defines a significant interest
in a VIE as a subordinated interest that exposes it to a significant portion of the VIE’s expected losses or residual
returns. In general, a VIE is an entity that either (1) has an insufficient amount of equity to carry out its principal
activities without additional subordinated financial support, (2) has a group of equity owners that are unable to
make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation
to absorb losses or the right to receive returns generated by its operations. If any of these characteristics is
present, the entity is subject to a variable interests consolidation model, and consolidation is based on variable
interests, not on ownership of the entity’s outstanding voting stock. Variable interests are defined as contractual,
ownership, or other monetary interests in an entity that change with fluctuations in the entity’s net asset value. A
company must consolidate an entity depending on whether the entity is a voting rights entity or a VIE. Refer to
the ‘‘principles of consolidation’’ section in Note 1 of the consolidated financial statements for a summarization
of the Corporation’s consolidation policy. Also, refer to Note 22 of the consolidated financial statements for a
discussion of the Corporation’s involvement in VIE’s, including those in which it holds a significant interest but
for which it is not the primary beneficiary.
58
Other Market Risks
The Corporation’s market risk related to trading instruments is not significant, as trading activities are
limited. Certain components of the Corporation’s noninterest income, primarily fiduciary income, are at risk to
fluctuations in the market values of underlying assets, particularly equity securities. Other components of
noninterest income, primarily brokerage fees, are at risk to changes in the level of market activity.
Share-based compensation expense recognized by the Corporation is dependent upon the fair value of
stock options and restricted stock at the date of grant. The fair value of both stock options and restricted stock is
impacted by the market price of the Corporation’s stock on the date of grant and is at risk to changes in equity
markets, general economic conditions and other factors. For further information regarding the valuation of stock
options and restricted stock, refer to the ‘‘Critical Accounting Policies’’ section of this financial review.
Nonmarketable Equity Securities
At December 31, 2008, the Corporation had a $64 million portfolio of investments in private equity and
venture capital funds, with commitments of $36 million to fund additional investments in future periods. The
value of these investments is at risk to changes in equity markets, general economic conditions and a variety of
other factors. The majority of these investments are not readily marketable, and are reported in other assets. The
investments are individually reviewed for impairment on a quarterly basis, by comparing the carrying value to
the estimated fair value. For further information regarding the valuation of nonmarketable equity securities,
refer to the ‘‘Critical Accounting Policies’’ section of this financial review. Approximately $14 million of the
underlying equity and debt (primarily equity) in these funds are to companies in the automotive industry. The
automotive-related positions do not represent a majority of any one fund’s investments; therefore the exposure
related to these positions is mitigated by the performance of other investment interests within the fund’s
portfolio of companies. Income from indirect private equity and venture capital funds in 2008 was $8 million,
which was more than offset by $15 million of write-downs recognized on such investments in 2008. The
following table provides information on the Corporation’s private equity and venture capital funds investment
portfolio.
Number of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Largest single investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments to fund additional investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2008
(dollar amounts
in millions)
136
$ 64
6
36
OPERATIONAL RISK
Operational risk represents the risk of loss resulting from inadequate or failed internal processes, people
and systems, or from external events. The definition includes legal risk, which is the risk of loss resulting from
failure to comply with laws and regulations as well as prudent ethical standards and contractual obligations. It
also includes the exposure to litigation from all aspects of an institution’s activities. The definition does not
include strategic or reputational risks. Although operational losses are experienced by all companies and are
routinely incurred in business operations, the Corporation recognizes the need to identify and control
operational losses, and seeks to limit losses to a level deemed appropriate by management after considering the
nature of the Corporation’s business and the environment in which it operates. Operational risk is mitigated
through a system of internal controls that are designed to keep operating risks at appropriate levels. An
Operational Risk Management Committee ensures appropriate risk management techniques and systems are
maintained. The Corporation has developed a framework that includes a centralized operational risk
management function and business/support unit risk coordinators responsible for managing operational risk
specific to the respective business lines.
59
In addition, internal audit and financial staff monitors and assesses the overall effectiveness of the system of
internal controls on an ongoing basis. Internal Audit reports the results of reviews on the controls and systems to
management and the Audit Committee of the Board. The internal audit staff independently supports the Audit
Committee oversight process. The Audit Committee serves as an independent extension of the Board.
COMPLIANCE RISK
Compliance risk represents the risk of regulatory sanctions, reputational impact or financial loss resulting
from its failure to comply with regulations and standards of good banking practice. Activities which may expose
the Corporation to compliance risk include, but are not limited to, those dealing with the prevention of money
laundering, privacy and data protection, community reinvestment initiatives, fair lending challenges resulting
from the Corporation’s expansion of its banking center network and employment and tax matters.
The Enterprise-Wide Compliance Committee, comprised of senior business unit managers, as well as,
managers responsible for compliance, audit and overall risk, oversees compliance risk. This enterprise-wide
approach provides a consistent view of compliance across the organization. The Enterprise-Wide Compliance
Committee also ensures that appropriate actions are implemented in business units to mitigate risk to an
acceptable level.
BUSINESS RISK
Business risk represents the risk of loss due to impairment of reputation, failure to fully develop and execute
business plans, failure to assess current and new opportunities in business, markets and products, and any other
event not identified in the defined risk categories of credit, market, operational or compliance risks. Mitigation
of the various risk elements that represent business risk is achieved through initiatives to help the Corporation
better understand and report on the various risks. Wherever quantifiable, the Corporation intends to use
situational analysis and other testing techniques to appreciate the scope and extent of these risks.
60
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements are prepared based on the application of accounting policies, the
most significant of which are described in Note 1 to the consolidated financial statements. These policies require
numerous estimates and strategic or economic assumptions, which may prove inaccurate or subject to variations.
Changes in underlying factors, assumptions or estimates could have a material impact on the Corporation’s
future financial condition and results of operations. The most critical of these significant accounting policies are
the policies related to allowance for credit losses, certain valuation methodologies, pension plan accounting and
income taxes. These policies are reviewed with the Audit Committee of the Board and are discussed more fully
below.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses (combined allowance for loan losses and allowance for credit losses on
lending-related commitments) is calculated with the objective of maintaining a reserve sufficient to absorb
estimated probable losses. Management’s determination of the adequacy of the allowance is based on periodic
evaluations of the loan portfolio, lending-related commitments, and other relevant factors. However, this
evaluation is inherently subjective as it requires an estimate of the loss content for each risk rating and for each
impaired loan, an estimate of the amounts and timing of expected future cash flows, an estimate of the value of
collateral, including the fair value of assets (e.g., residential real estate developments and nonmarketable
securities) with few transactions, many of which may be stressed, and an estimate of the probability of drawing
on unused commitments.
Allowance for Loan Losses
Loans for which it is probable that payment of interest and principal will not be made in accordance with
the contractual terms of the loan agreement are considered impaired. Consistent with this definition, all
nonaccrual and reduced-rate loans are impaired. The fair value of impaired loans is estimated using one of
several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and
discounted cash flows. The valuation is reviewed and updated on a quarterly basis. While the determination of
fair value may involve estimates, each estimate is unique to the individual loan, and none is individually
significant.
The allowance for loan losses provides for probable losses that have been identified with specific customer
relationships and for probably losses believed to be inherent in the loan portfolio, but that have not been
specifically identified. Internal risk ratings are assigned to each business loan at the time of approval and are
subject to subsequent periodic reviews by the Corporation’s senior management. The corporation performs a
detailed credit quality review quarterly on both large business and certain large personal purpose consumer and
residential mortgage loans that have deteriorated below certain levels of credit risk and may allocate a specific
portion of the allowance to such loans based upon this review. The Corporation defines business loans as those
belonging to the commercial, real estate construction, commercial mortgage, lease financing and international
loan portfolios. The portion of the allowance allocated to the remaining business loans is determined by applying
estimated loss ratios to loans in each risk category. Estimated loss ratios incorporate factors such as recent
charge-off experience, current economic conditions and trends, and trends with respect to past due and
nonaccrual amounts, and are supported by underlying analysis, including information on migration and loss
given default studies from each of the three major domestic geographic markets, as well as, mapping to bond
tables. Since a loss ratio is applied to a large portfolio of loans, any variation between actual and assumed results
could be significant. In addition, a portion of the allowance is allocated to these remaining loans based on
industry specific risks inherent in certain portfolios that have experienced above average losses, including
portfolio exposures to Small Business loans, the high technology companies and the retail trade (gasoline
delivery) industry. Furthermore, a portion of the allowance is allocated to these remaining loans based on
61
industry specific risks inherent in certain portfolios that have not yet manifested themselves in the risk rating,
including portfolio exposures to the automotive industry.
A portion of the allowance is also maintained to cover factors affecting the determination of probable losses
inherent in the loan portfolio that are not necessarily captured by the application of estimated loss ratios or
identified industry specific risks including the imprecision in the risk rating system and the risk associated with
new customer relationships.
The principle assumption used in deriving the allowance for loan losses is the estimate of loss content for
each risk rating. To illustrate, if recent loss experience dictated that the estimated loss ratios would be changed
by five percent (of the estimate) across all risk ratings, the allocated allowance as of December 31, 2008 would
change by approximately $18 million.
Allowance for Credit Losses on Lending-Related Commitments
Lending-related commitments for which it is probable that the commitment will be drawn (or sold) are
reserved with the same estimated loss rates as loans, or with specific reserves. In general, the probability of draw
for letters of credit is considered certain once the credit becomes a watch list credit. Non-watch list letters of
credits and all unfunded commitments have a lower probability of draw, to which standard loan loss rates are
applied.
Automotive Industry Concentration
A concentration in loans to the automotive industry could result in significant changes to the allowance for
credit losses if assumptions underlying the expected losses differed from actual results. For example, a
bankruptcy by a domestic automotive manufacturer could adversely affect the risk ratings of its suppliers,
causing actual losses to differ from those expected. The allowance for loan losses included a component for
automotive suppliers, which assumed that suppliers who derive a significant portion of their revenue from
certain domestic manufacturers would be downgraded by one or two risk ratings in the event of bankruptcy of
those domestic manufacturers.
For further discussion of the methodology used in the determination of the allowance for credit losses, refer
to the ‘‘Allowance for Credit Losses’’ section in this financial review, and Note 1 to the consolidated financial
statements. To the extent actual outcomes differ from management estimates, additional provision for credit
losses may be required that would adversely impact earnings in future periods. A substantial majority of the
allowance is assigned to business segments. Any earnings impact resulting from actual outcomes differing from
management estimates would primarily affect the Business Bank segment.
VALUATION METHODOLOGIES
Fair Value of Level 3 Financial Instruments
On January 1, 2008, the Corporation adopted SFAS 157 which defines fair value as the exchange price that
would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for
the asset or liability in an orderly transaction (i.e., not a forced transaction, such as a liquidation or distressed
sale) between market participants at the measurement date. FASB Staff Position SFAS 157-3 clarified the
application of SFAS 157 in a market that is not active.
SFAS 157 establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The
classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation
methodology used for measurement are observable or unobservable. Observable inputs reflect market-derived
or market-based information obtained from independent sources, while unobservable inputs reflect
management’s estimates about market data. Level 1 and 2 valuations are based on quoted prices for identical
instruments traded in active markets and quoted prices for similar instruments in active markets, quoted prices
for identical or similar instruments in markets that are not active, and model-based valuation techniques for
62
which all significant assumptions are observable in the market. Level 3 asset valuations are generated from
model-based techniques that use at least one significant assumption not observable in the market. These
unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the
asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and
similar techniques.
SFAS 157 differentiates between those assets and liabilities required to be carried at fair value at every
reporting period (‘‘recurring’’) and those assets and liabilities that are only required to be adjusted to fair value
under certain circumstances (‘‘nonrecurring’’). Level 3 financial instruments recorded at fair value on a recurring
basis include auction-rate securities, warrants for nonmarketable equity securities and securities not rated by a
credit agency at December 31, 2008. Additionally, from time to time, the Corporation may be required to record
at fair value other financial assets on a nonrecurring basis. Notes to the consolidated financial statements include
information about the extent to which fair value is used to measure assets and liabilities and the valuation
methodologies used.
For assets and liabilities recorded at fair value, the Corporation’s policy is to maximize the use of observable
inputs and minimize the use of unobservable inputs when developing fair value measurements for those items
where there is an active market. In certain cases, when market observable inputs for model-based valuation
techniques may not be readily available, the Corporation is required to make judgments about assumptions
market participants would use in estimating the fair value of the financial instrument. The models used to
determine fair value adjustments are periodically evaluated by management for relevance under current facts and
circumstances.
Changes in market conditions may reduce the availability of quoted prices or observable data. For example,
reduced liquidity in the capital markets or changes in secondary market activities could result in observable
market inputs becoming unavailable. Therefore, when market data is not available, the Corporation would use
valuation techniques requiring more management judgment to estimate the appropriate fair value measurement.
At December 31, 2008, $1.2 billion, or two percent of total assets, consisted of Level 3 financial instruments
recorded at fair value on a recurring basis. The financial assets valued using Level 3 measurements primarily
included auction-rate securities. At December 31, 2008, less than one percent of total liabilities, or $5 million,
consisted of Level 3 financial instruments recorded at fair value on a recurring basis.
At December 31, 2008, $1.1 billion, or two percent of total assets, consisted of Level 3 financial instruments
recorded at fair value on a nonrecurring basis. The financial assets valued using Level 3 measurements on a
nonrecurring basis included private equity investments, loan servicing rights and certain foreclosed assets. At
December 31, 2008, no liabilities were measured at fair value on a nonrecurring basis.
See Note 23 to the consolidated financial statements for a complete discussion on the Corporation’s use of
fair value of financial instruments and the related measurement techniques.
Restricted Stock and Stock Options
The fair value of share-based compensation as of the date of grant is recognized as compensation expense
on a straight-line basis over the vesting period. In 2008, the Corporation recognized total share-based
compensation expense of $51 million. The option valuation model requires several inputs, including the risk-free
interest rate, the expected dividend yield, expected volatility factors of the market price of the Corporation’s
common stock and the expected option life. For further discussion on the valuation model inputs, see Note 15 to
the consolidated financial statements. Changes in input assumptions can materially affect the fair value estimates.
The option valuation model is sensitive to the market price of the Corporation’s stock at the grant date, which
affects the fair value estimates and, therefore, the amount of expense recorded on future grants. Using the
number of stock options granted in 2008 and the Corporation’s stock price at December 31, 2008, a $5.00 per
share increase in stock price would result in an increase in pretax expense of approximately $4 million, from the
assumed base, over the options’ vesting period. The fair value of restricted stock is based on the market price of
63
the Corporation’s stock at the grant date. Using the number of restricted stock awards issued in 2008, a $5.00 per
share increase in stock price would result in an increase in pretax expense of approximately $3 million, from the
assumed base, over the awards’ vesting period. Refer to Notes 1 and 15 to the consolidated financial statements
for further discussion of share-based compensation expense.
Nonmarketable Equity Securities
At December 31, 2008, the Corporation had a $64 million portfolio of investments in indirect private equity
and venture capital funds, and had commitments to fund additional investments of $36 million in future periods.
The majority of these investments are not readily marketable. The investments are individually reviewed for
impairment, on a quarterly basis, by comparing the carrying value to the estimated fair value. The Corporation
bases its estimates of fair value for the majority of its private equity and venture capital fund investments on the
percentage ownership in the fair value of the entire fund, as reported by the fund’s management. In general, the
Corporation does not have the benefit of the same information regarding the fund’s underlying investments as
does the fund’s management. Therefore, after indication that the fund’s management adheres to accepted, sound
and recognized valuation techniques, including concepts in SFAS 157, the Corporation generally utilizes the fair
values assigned to the underlying portfolio investments by the fund’s management. For those funds where fair
value is not reported by the fund’s management, the Corporation derives the fair value of the fund by estimating
the fair value of each underlying investment in the fund. In addition to using qualitative information about each
underlying investment, as provided by the fund’s management, the Corporation gives consideration to
information pertinent to the specific nature of the debt or equity investment, such as relevant market conditions,
offering prices, operating results, financial conditions, exit strategy and other qualitative information, as
available. The lack of an independent source to validate fair value estimates, including the impact of future
capital calls and transfer restrictions, is an inherent limitation in the valuation process. The amount by which the
carrying value exceeds the fair value that is determined to be other-than-temporary impairment is charged to
current earnings and the carrying value of the investment is written down accordingly. While the determination
of fair value involves estimates, no generic assumption is applied to all investments when evaluating for
impairment. As such, each estimate is unique to the individual investment, and none is individually significant.
The inherent uncertainty in the process of valuing equity securities for which a ready market is unavailable may
cause our estimated values of these securities to differ significantly from the values that would have been derived
had a ready market for the securities existed, and those differences could be material. The value of these
investments is at risk to changes in equity markets, general economic conditions and a variety of other factors,
which could result in an impairment charge in future periods.
Auction-Rate Securities
As a result of the Corporation’s 2008 repurchase, at par, of auction-rate securities held by certain customers
in the fourth quarter 2008, the Corporation holds a portfolio of auction-rate securities accounted for as
investment securities available-for-sale and stated at fair value of $1.1 billion at December 31, 2008. Due to the
lack of a robust secondary auction-rate securities market with active fair value indications, fair value at
December 31, 2008 was determined using an income approach based on a discounted cash flow model. Two
significant assumptions were utilized in this model: discount rate (including a liquidity risk premium) and
workout period. The discount rate was calculated using credit spreads of the underlying collateral or similar
securities plus a liquidity risk premium. The liquidity risk premium was based on publicly available press releases
and observed industry auction-rate securities valuations by third parties. The workout period was based on an
assessment of publicly available information on efforts to re-establish functioning markets for these securities.
The fair value of auction-rate securities recorded on the Corporation’s consolidated balance sheets
represents management’s best estimate of the fair value of these instruments within the framework of existing
accounting standards. Changes in the above material assumptions could result in significantly different
valuations. For example, an increase or decrease in the liquidity premium of 100 basis points changes the fair
value by about $20 million.
64
The valuation of auction-rate securities is complex and is subject to a certain degree of management
judgment. The inherent uncertainty in the process of valuing auction-rate securities for which a ready market is
unavailable may cause estimated values of these auction-rate securities assets to differ from the values that would
have been derived had a ready market for the auction-rate securities existed, and those differences could be
significant. The use of an alternative valuation methodology or alternative approaches used to calculate material
assumptions could result in significantly different estimated values for these assets. In addition, the value of
auction-rate securities is at risk to changes in equity markets, general economic conditions and other factors.
Warrants for Nonmarketable Equity Securities
The Corporation holds a portfolio of approximately 780 warrants for generally non-marketable equity
securities. These warrants are primarily from high technology, non-public companies obtained as part of the loan
origination process. Warrants which contain a net exercise provision or non-contingent put right (approximately
400 warrants at December 31, 2008), are required to be accounted for as derivatives and recorded at fair value
($8 million at December 31, 2008). The fair value of the derivative warrant portfolio is reviewed quarterly and
adjustments to the fair value are recorded quarterly in current earnings. Fair value is determined using a Black-
Scholes valuation model, which has five inputs: risk-free rate, expected life, volatility, exercise price, and the per
share market value of the underlying company. Key assumptions used in the December 31, 2008 valuation were
as follows. The risk-free rate was estimated using the U.S. Treasury rate, as of the valuation date, corresponding
with the expected life of the warrant. The Corporation used an expected term of approximately 70 percent of the
remaining contractual term of each warrant. Volatility was estimated using an index of comparable publicly
traded companies, based on the SIC codes. Where sufficient financial data exists, a market approach method
was utilized to estimate the current value of the underlying company. When quoted market values were not
available, an index method was utilized. Under the index method, the subject companies’ values were ‘‘rolled-
forward’’ from the inception date through the valuation date based on the change in value of an underlying index
of guideline public companies. Less than half of the subject warrants were valued utilizing the index method.
The estimated fair value of the underlying securities for warrants requiring valuation at fair value were adjusted
for discounts related to lack of liquidity.
The fair value of warrants recorded on the Corporation’s consolidated balance sheets represents
management’s best estimate of the fair value of these instruments within the framework of existing accounting
standards. Changes in the above assumptions could result in different valuations.
The valuation of warrants is complex and is subject to a certain degree of management judgment. The
inherent uncertainty in the process of valuing warrants for which a ready market is unavailable may cause
estimated values of these warrant assets to differ from the values that would have been derived had a ready
market for the warrant assets existed. The use of an alternative valuation methodology or alternative approaches
used to calculate assumptions could result in different estimated values for these assets. In addition, the value of
all warrants required to be carried at fair value is at risk to changes in equity markets, general economic
conditions and other factors.
Preferred Stock and Related Warrant
The Corporation issued 2.25 million shares of fixed rate cumulative perpetual preferred stock with a
liquidation preference of $1,000 per share and granted a warrant to purchase 11.5 million shares of common
stock in the Corporation at an exercise price of $29.40 per share as a result of the Corporation’s participation in
the U.S. Treasury’s Capital Purchase Program (the Purchase Program). The preferred shares and related warrant
were recorded in equity at fair value at inception.
The fair value of the preferred shares at inception was calculated using an average of two valuation models:
the Income Approach and the Market Approach. The fair value of the warrant at inception was calculated using
a binomial lattice model. For the preferred shares valuation, the discounted cash flow method was utilized in
applying the income approach, including the application of a discount rate, based on observable market data for
65
the yield on debt issued by the Corporation, the Corporation’s cost of equity and observable yields from publicly
traded perpetual preferred stocks issued by companies in the banking industry. The market approach measured
value through analysis of recent sales and comparable assets. The warrant valuation model required several
inputs, including the risk-free interest rate, the expected dividend yield, expected volatility factors of the market
price of the Corporation’s common stock and the expected life of the warrant.
PENSION PLAN ACCOUNTING
The Corporation has defined benefit plans in effect for substantially all full-time employees hired before
January 1, 2007. Benefits under the plans are based on years of service, age and compensation. Assumptions are
made concerning future events that will determine the amount and timing of required benefit payments, funding
requirements and pension expense (income). The three major assumptions are the discount rate used in
determining the current benefit obligation, the long-term rate of return expected on plan assets and the rate of
compensation increase. The assumed discount rate is determined by matching the expected cash flows of the
pension plans to a yield curve that is representative of long-term, high-quality fixed income debt instruments as
of the measurement date, December 31. The second assumption, long-term rate of return expected on plan
assets, is set after considering both long-term returns in the general market and long-term returns experienced
by the assets in the plan. The current asset allocation and target asset allocation model for the plans is detailed in
Note 16 of the consolidated financial statements. The expected returns on these various asset categories are
blended to derive one long-term return assumption. The assets are invested in certain collective investment
funds and mutual investment funds, equity securities, U.S. Treasury and other Government agency securities,
Government-sponsored enterprise securities and corporate bonds and notes. The third assumption, rate of
compensation increase, is based on reviewing recent annual pension-eligible compensation increases as well as
the expectation of future increases. The Corporation reviews its pension plan assumptions on an annual basis
with its actuarial consultants to determine if the assumptions are reasonable and adjusts the assumptions to
reflect changes in future expectations.
The key actuarial assumptions that will be used to calculate 2009 expense for the defined benefit pension
plans are a discount rate of 6.03 percent, a long-term rate of return on assets of 8.25 percent, and a rate of
compensation increase of 4.00 percent. Pension expense in 2009 is expected to be approximately $55 million, an
increase of $35 million from the $20 million recorded in 2008, primarily due to changes in the discount rate.
Changing the 2009 key actuarial assumptions discussed above in 25 basis point increments would have the
following impact on pension expense in 2009:
Key Actuarial Assumption
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term rate of return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25 Basis Point
Increase Decrease
(in millions)
$(6.0)
(3.1)
2.9
$ 6.0
3.1
(2.9)
If the assumed long-term return on assets differs from the actual return on assets, the asset gains and losses
are incorporated in the market-related value, which is used to determine the expected return on assets, over a
five-year period. The Employee Benefits Committee, which is comprised of executive and senior managers from
various areas of the Corporation, provides broad asset allocation guidelines to the asset manager, who reports
results and investment strategy quarterly to the Employee Benefits Committee. Actual asset allocations are
compared to target allocations by asset category and investment returns for each class of investment are
compared to expected results based on broad market indices.
Note 16 to the consolidated financial statements contains a table showing net funded status of the qualified
defined benefit plan at year-end which was a liability of $85 million at December 31, 2008. Due to the long-term
nature of pension plan assumptions, actual results may differ significantly from the actuarial-based estimates.
66
Differences between estimates and experience not recovered in the market or by future assumption changes are
required to be recorded in shareholders’ equity as part of accumulated other comprehensive income (loss) and
amortized to pension expense in future years. For further information, refer to Note 1 to the consolidated
financial statements. The actuarial net loss in the qualified defined benefit plan recognized in accumulated other
comprehensive income (loss) at December 31, 2008 was a loss of $295 million, net of tax. In 2008, the actual loss
on plan assets was $293 million, compared to an expected return on plan assets of $100 million. In 2007, the
actual return on plan assets was $89 million, compared to an expected return on plan assets of $93 million. The
Corporation may make contributions from time to time to the qualified defined benefit plan to mitigate the
impact of the actuarial losses on future years. A contribution of $175 million was made to the plan in 2008. For
the foreseeable future, the Corporation has sufficient liquidity to make such payments.
Pension expense is recorded in ‘‘employee benefits’’ expense on the consolidated statements of income, and
is allocated to business segments based on the segment’s share of salaries expense. Given the salaries expense
included in 2008 segment results, pension expense was allocated approximately 40 percent, 31 percent,
24 percent and 5 percent to the Retail Bank, Business Bank, Wealth & Institutional Management and Finance
segments, respectively, in 2008.
INCOME TAXES
The calculation of the Corporation’s income tax provision and related tax accruals is complex and requires
the use of estimates and judgments. The provision for income taxes is based on amounts reported in the
consolidated statements of income (after deducting non-taxable items, principally income on bank-owned life
insurance and deducting tax credits related to investments in low income housing partnerships) and includes
deferred income taxes on temporary differences between the tax basis and financial reporting basis of assets and
liabilities. Accrued taxes represent the net estimated amount due or to be received from taxing jurisdictions
currently or in the future and are included in ‘‘accrued income and other assets’’ or ‘‘accrued expenses and other
liabilities’’ on the consolidated balance sheets. The Corporation assesses the relative risks and merits of tax
positions for various transactions after considering statutes, regulations, judicial precedent and other available
information, and maintains tax accruals consistent with these assessments. The Corporation is subject to audit by
taxing authorities that could question and/or challenge the tax positions taken by the Corporation.
Included in net deferred taxes are deferred tax assets. Deferred tax assets are evaluated for realization based
on available evidence and assumptions made regarding future events. In the event that the future taxable income
does not occur in the manner anticipated, other initiatives could be undertaken to preclude the need to
recognize a valuation allowance against the deferred tax asset. A valuation allowance is provided when it is
more-likely-than-not that some portion of the deferred tax asset will not be realized. At December 31, 2008,
there was a valuation allowance of approximately $1 million for certain state deferred tax assets.
Changes in the estimate of accrued taxes occur due to changes in tax law, interpretations of existing tax
laws, new judicial or regulatory guidance, and the status of examinations conducted by taxing authorities that
impact the relative risks and merits of tax positions taken by the Corporation. These changes in the estimate of
accrued taxes could be significant to the operating results of the Corporation. For further information on tax
accruals and related risks, see Note 17 to the consolidated financial statements.
On January 1, 2007, the Corporation adopted the provisions of FASB issued Interpretation No. 48,
‘‘Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109,’’ (FIN 48).
FIN 48 provides guidance on measurement, de-recognition of tax benefits, classification, accounting disclosure
and transition requirements in accounting for uncertain tax positions. For further discussion of FIN 48, refer to
Note 17 to the consolidated financial statements.
67
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements, as defined in the Private Securities Litigation Reform Act
of 1995. In addition, the Corporation may make other written and oral communications from time to time that
contain such statements. All statements regarding the Corporation’s expected financial position, strategies and
growth prospects and general economic conditions expected to exist in the future are forward-looking
statements. The words, ‘‘anticipates,’’ ‘‘believes,’’ ‘‘feels,’’ ‘‘expects,’’ ‘‘estimates,’’ ‘‘seeks,’’ ‘‘strives,’’ ‘‘plans,’’
‘‘intends,’’ ‘‘outlook,’’ ‘‘forecast,’’ ‘‘position,’’ ‘‘target,’’ ‘‘mission,’’ ‘‘assume,’’ ‘‘achievable,’’ ‘‘potential,’’ ‘‘strategy,’’
‘‘goal,’’ ‘‘aspiration,’’ ‘‘outcome,’’ ‘‘continue,’’ ‘‘remain,’’ ‘‘maintain,’’ ‘‘trend,’’ ‘‘objective,’’ and variations of such
words and similar expressions, or future or conditional verbs such as ‘‘will,’’ ‘‘would,’’ ‘‘should,’’ ‘‘could,’’
‘‘might,’’ ‘‘can,’’ ‘‘may’’ or similar expressions as they relate to the Corporation or its management, are intended to
identify forward-looking statements.
The Corporation cautions that forward-looking statements are subject to numerous assumptions, risks and
uncertainties, which change over time. Forward-looking statements speak only as of the date the statement is
made, and the Corporation does not undertake to update forward-looking statements to reflect facts,
circumstances, assumptions or events that occur after the date the forward-looking statements are made. Actual
results could differ materially from those anticipated in forward-looking statements and future results could
differ materially from historical performance.
In addition to factors mentioned elsewhere in this report or previously disclosed in the Corporation’s SEC
reports (accessible on the SEC’s website at www.sec.gov or on the Corporation’s website at www.comerica.com),
actual results could differ materially from forward-looking statements and future results could differ materially
from historical performance due to a variety of reasons, including but not limited to, the following factors:
(cid:127) general political, economic or industry conditions, either domestically or internationally, may be less
favorable than expected;
(cid:127) governmental monetary and fiscal policies may adversely affect the financial services industry and,
therefore, impact the Corporation’s financial condition and results of operations;
(cid:127) volatility and disruptions in the functioning of the financial markets and related liquidity issues could
continue or worsen and, therefore, may adversely impact the Corporation’s business, financial condition
and results of operations;
(cid:127) changes in the performance and creditworthiness of our customers and other counterparties may
adversely impact the Corporation’s business, financial condition and results of operations;
(cid:127) the soundness of other financial institutions could adversely affect the Corporation;
(cid:127) there can be no assurances that recently enacted legislation, such as the Emergency Economic
Stabilization Act of 2008, and actions taken by the United States Department of Treasury and the Federal
Deposit Insurance Corporation (FDIC) for the purpose of stabilizing the financial markets will achieve
their intended effects, and the impact of such legislation and regulatory programs on the Corporation
cannot be reliably determined at this time;
(cid:127) unfavorable developments concerning credit quality could adversely affect the Corporation’s financial
results;
(cid:127) problems faced by residential real estate developers could adversely affect the Corporation;
(cid:127) businesses or industries in which the Corporation has lending concentrations, including, but not limited
to, the automotive production industry and the real estate business, could suffer a significant decline,
which could adversely affect the Corporation;
68
(cid:127) the introduction, implementation, withdrawal, success and timing of business initiatives and strategies,
including, but not limited to, the opening of new banking centers, may be less successful or may be
different than anticipated, which could adversely affect the Corporation’s business;
(cid:127) utilization of technology to efficiently and effectively develop, market and deliver new products and
services;
(cid:127) changes in the financial markets, including fluctuations in interest rates and their impact on deposit
pricing, could adversely affect the Corporation’s net interest income and balance sheet;
(cid:127) operational difficulties or information security problems could adversely affect the Corporation’s
business and operations;
(cid:127) competitive product and pricing pressures among financial institutions within the Corporation’s markets
may change;
(cid:127) customer borrowing, repayment, investment and deposit practices generally may be different than
anticipated;
(cid:127) management’s ability to maintain and expand customer relationships may differ from expectations;
(cid:127) management’s ability to retain key officers and employees may change;
(cid:127) legal and regulatory proceedings and related matters with respect to the financial services industry,
including those directly involving the Corporation and its subsidiaries, could adversely affect the
Corporation or the financial services industry in general;
(cid:127) changes in regulation or oversight may have a material adverse impact on the Corporation’s operations;
(cid:127) methods of reducing risk exposures might not be effective;
(cid:127) terrorist activities or other hostilities may adversely affect the general economy, financial and capital
markets, specific industries, and the Corporation; and
(cid:127) natural disasters, including, but not limited to, hurricanes, tornadoes, earthquakes, fires, floods and the
disruption of private or public utilities, may adversely affect the general economy, financial and capital
markets, specific industries, and the Corporation.
69
CONSOLIDATED BALANCE SHEETS
Comerica Incorporated and Subsidiaries
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold and securities purchased under agreements to resell . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial loans
Real estate construction loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31
2008
2007
(in millions, except
share data)
$
913
$ 1,440
202
2,308
158
9,201
27,999
4,477
10,489
1,852
2,592
1,343
1,753
36
38
335
6,296
28,223
4,816
10,048
1,915
2,464
1,351
1,926
Total loans
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50,505
(770)
50,743
(557)
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customers’ liability on acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued income and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49,735
683
14
4,334
50,186
650
48
3,302
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$67,548
$62,331
LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,701
$11,920
Money market and NOW deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign office time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings
Acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medium- and long-term debt
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed rate cumulative perpetual preferred stock, series F, no par value,
$1,000 liquidation value per share:
Authorized — 2,250,000 shares
Issued — 2,250,000 shares at 12/31/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock — $5 par value:
Authorized — 325,000,000 shares
Issued — 178,735,252 shares at 12/31/08 and 12/31/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less cost of common stock in treasury — 28,244,967 shares at 12/31/08
12,437
1,247
8,807
7,293
470
30,254
41,955
1,749
14
1,625
15,053
60,396
15,261
1,325
8,357
6,147
1,268
32,358
44,278
2,807
48
1,260
8,821
57,214
2,129
—
894
722
(309)
5,345
894
564
(177)
5,497
and 28,747,097 shares at 12/31/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,629)
(1,661)
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,152
5,117
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$67,548
$62,331
See notes to consolidated financial statements.
70
CONSOLIDATED STATEMENTS OF INCOME
Comerica Incorporated and Subsidiaries
Years Ended
December 31
2008
2007
2006
(in millions, except per
share data)
INTEREST INCOME
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and fees on loans
Interest on investment securities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,649
389
13
$3,501
206
23
$3,216
174
32
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,051
3,730
3,422
INTEREST EXPENSE
Interest on deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on short-term borrowings
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on medium- and long-term debt
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses
Net interest income after provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NONINTEREST INCOME
Service charges on deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiduciary income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial lending fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Letter of credit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Card fees
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brokerage fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank-owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net securities gains
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net gain (loss) on sales of businesses
Income from lawsuit settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NONINTEREST EXPENSES
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outside processing fee expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Litigation and operational losses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses on lending-related commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noninterest expenses
734
87
415
1,236
1,815
686
1,129
229
199
69
69
58
42
40
38
67
—
—
82
893
781
194
975
156
62
104
76
13
103
18
244
Total noninterest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,751
Income from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends
271
59
212
1
213
17
1,167
105
455
1,727
2,003
212
1,791
221
199
75
63
54
43
40
36
7
3
—
147
888
844
193
1,037
138
60
91
63
43
18
(1)
242
1,691
988
306
682
4
686
—
1,005
130
304
1,439
1,983
37
1,946
218
180
65
64
46
40
38
40
—
(12)
47
129
855
823
184
1,007
125
55
85
56
47
11
5
283
1,674
1,127
345
782
111
893
—
Net income applicable to common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 196
$ 686
$ 893
Basic earnings per common share:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1.30
1.31
$ 4.47
4.49
$ 4.88
5.57
Diluted earnings per common share:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.29
1.29
348
2.31
4.40
4.43
393
2.56
4.81
5.49
380
2.36
See notes to consolidated financial statements.
71
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Comerica Incorporated and Subsidiaries
Nonredeemable
Preferred
Stock
Common Stock
Accumulated
Other
Total
Shares
Capital Comprehensive Retained Treasury Shareholders’
Outstanding Amount Surplus Income (Loss) Earnings
Stock
Equity
BALANCE AT JANUARY 1, 2006 . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net of tax . . . . .
$ —
—
—
Total comprehensive income . . . . . . . . . . . . .
Cash dividends declared on common stock
($2.36 per share)
. . . . . . . . . . . . . . . . . .
Purchase of common stock . . . . . . . . . . . . .
Net issuance of common stock under employee
stock plans . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . .
Employee deferred compensation obligations . . .
SFAS 158 transition adjustment, net of tax . . . .
—
—
—
—
—
—
BALANCE AT DECEMBER 31, 2006 . . . . . .
FSP 13-2 transition adjustment, net of tax . . . .
FIN 48 transition adjustment, net of tax . . . . .
BALANCE AT JANUARY 1, 2007 . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net of tax . . . . .
$ —
—
—
$ —
—
—
Total comprehensive income . . . . . . . . . . . . .
Cash dividends declared on common stock
($2.56 per share)
. . . . . . . . . . . . . . . . . .
Purchase of common stock . . . . . . . . . . . . .
Net issuance of common stock under employee
stock plans . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . .
Employee deferred compensation obligations . . .
—
—
—
—
—
BALANCE AT DECEMBER 31, 2007 . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax . . . . . . .
$ —
—
—
Total comprehensive income . . . . . . . . . . . . .
Cash dividends declared on common stock
($2.31 per share)
. . . . . . . . . . . . . . . . . .
Purchase of common stock . . . . . . . . . . . . .
Issuance of preferred stock and related warrant .
Accretion of discount on preferred stock . . . . .
Net issuance of common stock under employee
stock plans . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . .
—
—
2,126
3
—
—
162.9
—
—
—
(6.7)
1.7
—
(0.3)
—
157.6
—
—
157.6
—
—
—
(10.0)
2.4
—
—
150.0
—
—
—
—
—
—
0.5
—
(in millions, except per share data)
$894
—
—
$(170)
—
55
$461
—
—
$4,796 $ (913)
—
—
893
—
—
—
(380)
—
—
(384)
(27)
—
—
—
95
—
(17)
—
$5,282 $(1,219)
—
—
(46)
(6)
$5,230 $(1,219)
—
—
686
—
—
—
—
—
—
—
$894
—
—
$894
—
—
—
—
—
—
—
—
—
(15)
57
17
—
$520
—
—
$520
—
—
—
—
(16)
59
1
—
—
—
(209)
$(324)
—
—
$(324)
—
147
—
—
—
—
—
$894
—
—
$564
—
—
$(177)
—
(132)
$5,497 $(1,661)
—
—
213
—
—
—
—
—
— 124
—
—
— (19)
53
—
—
—
—
—
—
—
(348)
—
—
(3)
(14)
—
—
(1)
—
—
33
—
$5,068
893
55
948
(380)
(384)
53
57
—
(209)
$5,153
(46)
(6)
$5,101
686
147
833
97
59
—
$5,117
213
(132)
81
(348)
(1)
2,250
—
—
53
(393)
—
—
(580)
(393)
(580)
(26)
—
—
139
—
(1)
BALANCE AT DECEMBER 31, 2008 . . . . . .
$2,129
150.5
$894
$722
$(309)
$5,345 $(1,629)
$7,152
See notes to consolidated financial statements.
72
CONSOLIDATED STATEMENTS OF CASH FLOWS
Comerica Incorporated and Subsidiaries
Years Ended December 31,
2008
2007
2006
(in millions)
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Income from continuing operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses on lending-related commitments . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and software amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auction-rate securities charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease income charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net amortization of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net securities gains
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (gain) loss on sales of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contribution to qualified pension plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based compensation arrangements . . . . . . . . . . . . . . . . . .
Net (increase) decrease in trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net decrease in loans held-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net decrease (increase) in accrued income receivable . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in accrued expenses
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
213
1
212
686
18
(99)
114
88
38
51
(11)
(67)
—
(175)
—
(6)
99
82
(306)
137
1
862
$
686
4
682
212
(1)
(53)
96
—
—
59
(3)
(7)
(3)
—
(9)
61
14
1
36
(75)
4
$
893
111
782
37
5
12
84
—
—
57
(2)
—
12
—
(9)
(50)
78
(65)
25
(66)
75
1,014
975
INVESTING ACTIVITIES
Proceeds from sales of investment securities available-for-sale . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Proceeds from maturities of investment securities available-for-sale
Purchases of investment securities available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of Federal Home Loan Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in loans
Net increase in fixed assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net decrease in customers’ liability on acceptances outstanding . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
156
1,667
(4,496)
(353)
(259)
(166)
34
—
—
7
882
(3,519)
—
(3,561)
(189)
8
3
—
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,417)
(6,369)
FINANCING ACTIVITIES
Net (decrease) increase in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net decrease in acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of medium- and long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of medium- and long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of preferred stock and related warrants . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock under employee stock plans . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based compensation arrangements . . . . . . . . . . . . . . . . . . . . .
Purchase of common stock for treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,299)
(1,058)
(34)
8,000
(2,000)
2,250
1
—
(1)
(395)
—
4,464
1,909
1,514
(1,295)
2,172
(8)
4,335
(1,529)
—
89
9
(580)
(390)
—
2,803
(2,552)
4,066
1
1,337
(747)
—
(4,324)
(163)
3
43
221
(3,629)
2,496
333
(3)
3,326
(1,303)
—
45
9
(384)
(377)
—
4,142
1,488
2,578
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,423
$ 1,514
$ 4,066
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,266
$ 1,703
$ 1,385
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncash investing and financing activities:
Loans transferred to other real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans transferred from held-for-sale to portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans transferred from portfolio to held-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
241
65
84
—
$
$
402
20
—
83
$
$
299
13
—
74
See notes to consolidated financial statements.
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Note 1 — Summary of Significant Accounting Policies
Organization
Comerica Incorporated (the Corporation) is a registered financial holding company headquartered in
Dallas, Texas. The Corporation’s major business segments are the Business Bank, the Retail Bank and Wealth &
Institutional Management. For further discussion of each business segment, refer to Note 25. The core
businesses are tailored to each of the Corporation’s four primary geographic markets: Midwest, Western, Texas
and Florida. The Corporation and its banking subsidiaries are regulated at both the state and federal levels.
The accounting and reporting policies of the Corporation conform to U.S. generally accepted accounting
principles and prevailing practices within the banking industry. The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
The following summarizes the significant accounting policies of the Corporation applied in the preparation
of the accompanying consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Corporation and its subsidiaries after
elimination of all significant intercompany accounts and transactions. Certain amounts in the financial
statements for prior years have been reclassified to conform to current financial statement presentation.
The Corporation consolidates variable interest entities (VIE’s) in which it is the primary beneficiary. In
general, a VIE is an entity that either (1) has an insufficient amount of equity to carry out its principal activities
without additional subordinated financial support, (2) has a group of equity owners that are unable to make
significant decisions about its activities or (3) has a group of equity owners that do not have the obligation to
absorb losses or the right to receive returns generated by its operations. If any of these characteristics is present,
the entity is subject to a variable interests consolidation model, and consolidation is based on variable interests,
not on ownership of the entity’s outstanding voting stock. Variable interests are defined as contractual,
ownership or other money interests in an entity that change with fluctuations in the entity’s net asset value. The
primary beneficiary consolidates the VIE; the primary beneficiary is defined as the enterprise that absorbs a
majority of expected losses or receives a majority of residual returns (if the losses or returns occur), or both. The
Corporation consolidates entities not determined to be VIE’s when it holds a majority (controlling) interest in
the entity’s outstanding voting stock. The minority interest in less than 100 percent owned consolidated
subsidiaries is not material and is included in ‘‘accrued expenses and other liabilities’’ on the consolidated
balance sheets. The related minority interest in earnings which is included in ‘‘other noninterest expenses’’ on the
consolidated statements of income was a charge (credit) of $1 million or less for the years ended December 31,
2008, 2007 and 2006.
Equity investments in entities that are not VIE’s where the Corporation owns less than a majority
(controlling) interest and equity investments in entities that are VIE’s where the Corporation is not the primary
beneficiary are not consolidated. Rather, such investments are accounted for using either the equity method or
cost method. The equity method is used for investments in corporate joint ventures and investments where the
Corporation has the ability to exercise significant influence over the investee’s operation and financial policies,
which is generally presumed to exist if the Corporation owns more than 20 percent of the voting interest of the
investee. Equity method investments are included in ‘‘accrued income and other assets’’ on the consolidated
balance sheets, with income and losses recorded in ‘‘other noninterest income’’ on the consolidated statements of
74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
income. Unconsolidated equity investments that do not meet the criteria to be accounted for under the equity
method are accounted for under the cost method. Cost method investments in publicly traded companies are
included in ‘‘investment securities available-for-sale’’ on the consolidated balance sheets, with income (net of
write-downs) recorded in ‘‘net securities gains (losses)’’ on the consolidated statements of income. Cost method
investments in non-publicly traded companies are included in ‘‘accrued income and other assets’’ on the
consolidated balance sheets, with income (net of write-downs) recorded in ‘‘other noninterest income’’ on the
consolidated statements of income.
For further information regarding the Corporation’s investments in VIE’s, refer to Note 22.
Fair Value Measurements
On January 1, 2008, the Corporation adopted Statement of Financial Accounting Standards (SFAS)
No. 157, ‘‘Fair Value Measurements,’’ (SFAS 157), which defines fair value, establishes a framework for
measuring fair value under accounting principles generally accepted in the United States, and enhances
disclosures about fair value measurements. The Corporation elected not to delay the application of SFAS 157 to
nonfinancial assets and nonfinancial liabilities, as allowed by FASB Staff Position (FSP) SFAS 157-2. FSP
SFAS 157-3 clarifies the application of SFAS 157 in a market that is not active. SFAS 157 (as amended) applies
whenever other standards require (or permit) assets or liabilities to be measured at fair value and, therefore, does
not expand the use of fair value in any new circumstances. Fair value is defined as the exchange price that would
be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset
or liability in an orderly transaction (i.e., not a forced transaction, such as a liquidation or distressed sale)
between market participants at the measurement date. SFAS 157 (as amended) clarifies that fair value should be
based on the assumptions market participants would use when pricing an asset or liability and establishes a fair
value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives
the highest priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS 157 (as
amended) requires fair value measurements to be separately disclosed by level within the fair value hierarchy. For
assets and liabilities recorded at fair value, it is the Corporation’s policy to maximize the use of observable inputs
and minimize the use of unobservable inputs when developing fair value measurements for those items for which
there is an active market. In cases where the market for a financial asset or liability is not active, the Corporation
includes appropriate risk adjustments that market participants would make for nonperformance and liquidity
risks when developing fair value measurements.
Fair value measurements for assets and liabilities where there exists limited or no observable market data
and, therefore, are based primarily upon estimates, are often calculated based on the economic and competitive
environment, the characteristics of the asset or liability and other factors. Therefore, the results cannot be
determined with precision and may not be realized in an actual sale or immediate settlement of the asset or
liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the
underlying assumptions used, including discount rates and estimates of future cash flows, could significantly
affect the results of current or future values. The initial adoption of SFAS 157 resulted in a reduction to
noninterest income of approximately $3 million. For a further discussion of SFAS 157, refer to Note 23 to the
consolidated financial statements.
Other Short-Term Investments
Other short-term investments include trading securities and loans held-for-sale.
Trading securities are carried at market value. Realized and unrealized gains or losses on trading securities
are included in ‘‘other noninterest income’’ on the consolidated statements of income.
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Loans held-for-sale, typically residential mortgages and Small Business Administration loans, are carried at
the lower of cost or market. Market value is determined in the aggregate for each portfolio.
Investment Securities
Investment securities held-to-maturity are those securities which the Corporation has the ability and
management has the positive intent to hold to maturity as of the balance sheet dates. Investment securities
held-to-maturity are recorded at cost, adjusted for amortization of premium and accretion of discount.
Investment securities that are not considered held-to-maturity are accounted for as securities
available-for-sale and recorded at fair value, with unrealized gains and losses, net of income taxes, reported as a
separate component of other comprehensive income (loss).
Available-for-sale and held-to-maturity securities are reviewed quarterly for possible other-than-temporary
impairment. The review includes an analysis of the facts and circumstances of each individual investment and
focuses on whether the decline in value was caused by a change in the probability of contractual cash flows.
Other factors considered include the severity of loss, the length of time the fair value has been below cost, the
expectation for that security’s performance, the financial condition and near-term prospects of the issuer and
management’s intent and ability to hold the security to recovery. A decline in value that is considered to be
other-than-temporary is recorded as a loss in ‘‘net securities gains (losses)’’ in the consolidated statements of
income.
Gains or losses on the sale of securities are computed based on the adjusted cost of the specific security sold.
Allowance for Loan Losses
The allowance for loan losses represents management’s assessment of probable losses inherent in the
Corporation’s loan portfolio. The allowance provides for probable losses that have been identified with specific
customer relationships and for probable losses believed to be inherent in the loan portfolio, but that have not
been specifically identified. Internal risk ratings are assigned to each business loan at the time of approval and
are subject to subsequent periodic reviews by senior management. The Corporation performs a detailed credit
quality review quarterly on both large business and certain large personal purpose consumer and residential
mortgage loans that have deteriorated below certain levels of credit risk and may allocate a specific portion of the
allowance to such loans based upon this review. Business loans are those belonging to the commercial, real estate
construction, commercial mortgage, lease financing and international loan portfolios. A portion of the allowance
is allocated to the remaining business loans by applying estimated loss ratios, based on numerous factors
identified below, to the loans within each risk rating. In addition, a portion of the allowance is allocated to these
remaining loans based on industry specific risks inherent in certain portfolios that have experienced above
average losses. Furthermore, a portion of the allowance is allocated to these remaining loans based on industry
specific risks inherent in certain portfolios that have not yet manifested themselves in the risk ratings. The
portion of the allowance allocated to all other consumer and residential mortgage loans is determined by
applying estimated loss ratios to various segments of the loan portfolio. Estimated loss ratios for all portfolios
incorporate factors, such as recent charge-off experience, current economic conditions and trends, and trends
with respect to past due and nonaccrual amounts, and are supported by underlying analysis, including
information on migration and loss given default studies from each of the three largest domestic geographic
markets (Midwest, Western and Texas), as well as mapping to bond tables.
Actual loss ratios experienced in the future may vary from those estimated. The uncertainty occurs because
factors may exist which affect the determination of probable losses inherent in the loan portfolio and are not
necessarily captured by the application of estimated loss ratios or identified industry-specific risks. A portion of
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
the allowance is maintained to capture these probable losses and reflects management’s view that the allowance
should recognize the margin for error inherent in the process of estimating expected loan losses. Factors that
were considered in the evaluation of the adequacy of the Corporation’s allowance include the inherent
imprecision in the risk rating system and the risk associated with new customer relationships. The allowance
associated with the margin for inherent imprecision covers probable loan losses as a result of an inaccuracy in
assigning risk ratings or stale ratings which may not have been updated for recent negative trends in particular
credits. The allowance due to new business migration risk is based on an evaluation of the risk of rating
downgrades associated with loans that do not have a full year of payment history.
The total allowance for loan losses is available to absorb losses from any segment within the portfolio.
Unanticipated economic events, including political, economic and regulatory instability in countries where the
Corporation has loans, could cause changes in the credit characteristics of the portfolio and result in an
unanticipated increase in the allowance. Inclusion of other industry specific exposures in the allowance, as well
as significant increases in the current portfolio exposures, could also increase the amount of the allowance. Any
of these events, or some combination thereof, may result in the need for additional provision for loan losses in
order to maintain an allowance that complies with credit risk and accounting policies.
Loans deemed uncollectible are charged off and deducted from the allowance. The provision for loan losses
and recoveries on loans previously charged off are added to the allowance.
Allowance for Credit Losses on Lending-Related Commitments
The allowance for credit losses on lending-related commitments covers management’s assessment of
probable credit losses inherent in lending-related commitments, including unused commitments to extend
credit, letters of credit and financial guarantees. Lending-related commitments for which it is probable that the
commitment will be drawn (or sold) are reserved with the same estimated loss rates as loans, or with specific
reserves. In general, the probability of draw for letters of credit is considered certain once the credit becomes a
watch list credit (generally consistent with regulatory defined special mention, substandard and doubtful
accounts). Non-watch list letters of credits and all unfunded commitments have a lower probability of draw, to
which standard loan loss rates are applied. The allowance for credit losses on lending-related commitments is
included in ‘‘accrued expenses and other liabilities’’ on the consolidated balance sheets, with the corresponding
charge reflected in ‘‘provision for credit losses on lending-related commitments’’ in the noninterest expenses
section on the consolidated statements of income.
Nonperforming Assets
Nonperforming assets are comprised of loans, including loans held-for-sale, and debt securities 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 real estate which has been
acquired through foreclosure and is awaiting disposition.
Loans that have been restructured but yield a rate equal to or greater than the rate charged for new loans
with comparable risk and have met the requirements for accrual status are not reported as nonperforming assets.
Such loans continue to be evaluated for impairment for the remainder of the calendar year of the restructuring.
These loans may be excluded from the impairment assessment in the calendar years subsequent to the
restructuring, if not impaired based on the modified terms. See Note 4 for additional information on loan
impairment.
Residential mortgage loans are generally placed on nonaccrual status during the foreclosure process,
normally no later than 150 days past due. Other consumer loans are generally not placed on nonaccrual status
77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
and are charged off no later than 180 days past due, and earlier, if deemed uncollectible. Loans, other than
consumer loans, and debt securities 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 or debt security is placed on nonaccrual status, interest previously accrued but not
collected is charged against current income. Income on such loans and debt securities is then recognized only to
the extent that cash is received and where future collection of principal is probable. Generally, a loan or debt
security may be returned to accrual status when all delinquent principal and interest have been received and the
Corporation expects repayment of the remaining contractual principal and interest, or when the loan or debt
security is both well secured and in the process of collection.
A nonaccrual loan that is restructured will generally remain on nonaccrual after the restructuring for a
period of six months to demonstrate that the borrower can meet the restructured terms. However, sustained
payment performance prior to the restructuring or significant events that coincide with the restructuring are
included in assessing whether the borrower can meet the restructured terms. These factors may result in the loan
being returned to an accrual status at the time of restructuring or upon satisfaction of a shorter performance
period. If management is uncertain whether the borrower has the ability to meet the revised payment schedule,
the loan remains classified as nonaccrual.
Other real estate acquired is carried at the lower of cost or fair value, less 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 loan losses. Subsequent write-downs, operating expenses and losses upon sale, if any, are charged
to noninterest expenses.
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 Corporation owns and three to eight years
for furniture and equipment. Leasehold improvements are amortized over the terms of their respective leases, or
10 years, whichever is shorter.
Software
Capitalized software is stated at cost, less accumulated amortization. Capitalized software includes
purchased software and capitalizable application development costs associated with internally-developed
software. Amortization, computed on the straight-line method, is charged to operations over the estimated
useful life of the software, which is generally five years. Capitalized software is included in ‘‘accrued income and
other assets’’ on the consolidated balance sheets.
Goodwill and Other Intangible Assets
Goodwill and identified intangible assets that have an indefinite useful life are subject to impairment
testing, which is conducted annually, or on an interim basis if events or changes in circumstances between annual
tests indicate the assets might be impaired. The Corporation performs its annual impairment test for goodwill as
of July 1 of each year. The impairment test involves assigning tangible assets and liabilities, identified intangible
assets and goodwill to reporting units, which are a subset of the Corporation’s operating segments, and
comparing the fair value of each reporting unit to its carrying value. If the fair value is less than the carrying
value, a further test is required to measure the amount of impairment.
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The Corporation reviews finite-lived intangible assets and other long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable from
projected undiscounted net operating cash flows. If the projected undiscounted net operating cash flows are less
than the carrying amount, a loss is recognized to reduce the carrying amount to fair value.
Additional information regarding goodwill, other intangible assets and impairment policies can be found in
Note 8.
Nonmarketable Equity Securities
The Corporation has a portfolio of investments in private equity and venture capital funds. The majority of
these investments are not readily marketable and are reported in ‘‘accrued income and other assets’’ on the
consolidated balance sheets. The investments are individually reviewed for impairment on a quarterly basis by
comparing the carrying value to the estimated fair value. The amount by which the carrying value exceeds the
fair value that is determined to be other-than-temporary impairment is charged to current earnings and the
carrying value of the investment is written down accordingly.
Derivative Instruments
Derivative instruments are carried at fair value in either, ‘‘accrued income and other assets’’ or ‘‘accrued
expenses and other liabilities’’ on the consolidated balance sheets. The accounting for changes in the fair value
(i.e., gains or losses) of a derivative instrument is determined by whether it has been designated and qualifies as
part of a hedging relationship and, further, on the type of hedging relationship. For those derivative instruments
that are designated and qualify as hedging instruments, the Corporation designates the hedging instrument,
based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net
investment in a foreign operation. For derivative instruments designated and qualifying as a fair value hedge
(i.e., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof
that is attributable to a particular risk), the gain or loss on the derivative instrument, as well as the offsetting loss
or gain on the hedged item attributable to the hedged risk, are recognized in current earnings during the period
of the change in fair values. For derivative instruments that are designated and qualify as a cash flow hedge
(i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the
effective portion of the gain or loss on the derivative instrument is reported as a component of other
comprehensive income and reclassified into earnings in the same period or periods during which the hedged
transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative
change in the present value of future cash flows of the hedged item (i.e., the ineffective portion), if any, is
recognized in current earnings during the period of change. For derivative instruments that are designated and
qualify as a hedge of a net foreign currency investment in a foreign subsidiary, the gain or loss is reported in other
comprehensive income as part of the cumulative translation adjustment to the extent it is effective. For derivative
instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the
period of change.
If the Corporation determines that a derivative instrument has not been or will not continue to be highly
effective as a fair value or cash flow hedge, or that the hedge designation is no longer appropriate, hedge
accounting is discontinued. The derivative instrument will continue to be recorded in the consolidated balance
sheets at its fair value, with future changes in fair value recognized in noninterest income.
Foreign exchange futures and forward contracts, foreign currency options, interest rate caps, interest rate
swap agreements and energy derivative contracts executed as a service to customers are not designated as
hedging instruments and both the realized and unrealized gains and losses on these instruments are recognized
in noninterest income.
79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The Corporation holds a portfolio of warrants for nonmarketable equity securities. Most of these warrants
are from high technology, non-public companies obtained as part of the loan origination process. Warrants that
have a net exercise provision or a non-contingent put right embedded in the warrant agreement (primarily those
obtained prior to 2006) are required to be accounted for as derivatives and recorded at fair value. The initial fair
value of warrants obtained as part of the loan origination process is deferred and amortized into ‘‘interest and
fees on loans’’ on the consolidated statements of income over the life of the loan. The fair value of these warrants
is subsequently adjusted on a quarterly basis, with any changes in fair value recorded in ‘‘other noninterest
income’’ on the consolidated statements of income.
Further information on the Corporation’s derivative instruments is included in Note 20.
Standby and Commercial Letters of Credit and Financial Guarantees
Certain guarantee contracts or indemnification agreements issued or modified subsequent to December 31,
2002, that contingently require the Corporation, as guarantor, to make payments to the guaranteed party are
initially measured at fair value and included in ‘‘accrued expenses and other liabilities’’ on the consolidated
balance sheets. Further information on the Corporation’s obligations under guarantees is included in Note 20.
Loan Origination Fees and Costs
On January 1, 2008, the Corporation prospectively implemented a refinement in the application of SFAS
No. 91, ‘‘Accounting for Loan Origination Fees and Costs,’’ (SFAS 91), which resulted in the deferral and
amortization to net interest income of substantially all loan origination fees and costs over the life of the related
loan or over the commitment period as a yield adjustment. Prior to January 1, 2008, the Corporation deferred
and amortized business loan origination and commitment fees greater than $10 thousand and all Small Business
Administration, residential mortgage and consumer loan origination fees and costs over the life of the related
loan or over the commitment period as a yield adjustment. The impact of the refinement on 2008 results was a
reduction in net interest income of $17 million, a reduction in the net interest margin of 3 basis points, a
reduction in noninterest expenses of $44 million and an increase in net income of $17 million ($0.11 per diluted
share). Any adjustments to retroactively apply the refinement of SFAS 91 would not have been material to any
prior reporting periods.
Loan fees on unused commitments and net origination fees related to loans sold are recognized in
noninterest income.
Share-Based Compensation
In 2006, the Corporation adopted the provisions of SFAS No. 123 (revised 2004), ‘‘Share-Based Payment,’’
(SFAS 123(R)), using the modified-prospective transition method. The Corporation recognizes compensation
expense under SFAS 123(R) using the straight-line method over the requisite service period for all stock awards,
including those with graded vesting. Measurement and attribution of compensation cost for awards that were
granted prior to the date SFAS 123(R) was adopted continue to be based on the estimate of the grant-date fair
value and attribution method used under prior accounting guidance.
SFAS 123(R) requires that the expense associated with share-based compensation awards be recorded over
the requisite service period. The requisite service period is the period an employee is required to provide service
in order to vest in the award, which cannot extend beyond the retirement eligible date (the date at which the
employee is no longer required to perform any service to receive the share-based compensation). Prior to the
adoption of SFAS 123(R), the Corporation recorded the expense associated with share-based compensation
80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
awards over the explicit service period (vesting period). Upon retirement, any remaining unrecognized costs
related to share-based compensation awards retained after retirement were expensed.
The Corporation elected to adopt the alternative transition method provided in the Financial Accounting
Standards Board (FASB) Staff Position No. FAS 123(R)-3, ‘‘Transition Election Related to Accounting for Tax
Effects of Share-Based Payment Awards,’’ for calculating the tax effects of share-based compensation under
SFAS 123(R). The alternative transition method included simplified methods to establish the beginning balance
of the additional paid-in capital pool (APIC pool) related to the tax effects of employee share-based
compensation, and to determine the subsequent impact on the APIC pool and consolidated statements of cash
flows of the tax effects of employee share-based compensation awards that were outstanding and fully or
partially unvested upon adoption of SFAS 123(R).
Further information on the Corporation’s share-based compensation plans is included in Note 15.
Pension and Other Postretirement Costs
On December 31, 2006, the Corporation adopted the provisions of SFAS No. 158, ‘‘Employers’ Accounting
for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88,
106, and 132(R),’’ (SFAS 158), and recognized in its consolidated balance sheet the funded status of its defined
benefit pension and postretirement plans, measured as the difference between the fair value of plan assets and
the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation; for any other
postretirement plan, the benefit obligation is the accumulated benefit obligation. The Corporation also recorded
prior service costs, net actuarial losses and remaining transition obligations as components of accumulated other
comprehensive income (loss), net of tax, at December 31, 2006. Actuarial gains or losses and prior service costs
or credits that arise subsequent to December 31, 2006 are recognized as increases or decreases in other
comprehensive income (loss).
Pension costs are charged to ‘‘employee benefits’’ expense on the consolidated statements of income and are
funded consistent with the requirements of federal laws and regulations. Inherent in the determination of
pension costs are assumptions concerning future events that will affect the amount and timing of required
benefit payments under the plans. These assumptions include demographic assumptions such as retirement age
and death, a compensation rate increase, a discount rate used to determine the current benefit obligation and a
long-term expected return on plan assets. Net periodic pension expense includes service cost, interest cost based
on the assumed discount rate, an expected return on plan assets based on an actuarially derived market-related
value of assets, amortization of prior service cost and amortization of net actuarial gains or losses. The market-
related value used to determine the expected return on plan assets is based on fair value adjusted for the
difference between expected returns and actual asset performance. The asset gains and losses are incorporated in
the market-related value over a five-year period. Prior service costs include the impact of plan amendments on
the liabilities and are amortized over the future service periods of active employees expected to receive benefits
under the plan. Actuarial gains and losses result from experience different from that assumed and from changes
in assumptions (excluding asset gains and losses not yet reflected in market-related value). Amortization of
actuarial gains and losses is included as a component of net periodic pension cost for a year if the actuarial net
gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the market-related value of
plan assets. If amortization is required, the excess is amortized over the average remaining service period of
participating employees expected to receive benefits under the plan.
Postretirement benefits are recognized in ‘‘employee benefits’’ expense on the consolidated statements of
income during the average remaining service period of participating employees expected to receive benefits
under the plan or the average remaining future lifetime of retired participants currently receiving benefits under
the plan.
81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
For further information regarding the Corporation’s pension and other postretirement plans refer to
Note 16.
Income Taxes
The provision for income taxes is based on amounts reported in the consolidated statements of income
(after deducting non-taxable items, principally income on bank-owned life insurance, and deducting tax credits
related to investments on low income housing partnerships) and includes deferred income taxes on temporary
differences between the tax basis and financial reporting basis of assets and liabilities. Deferred tax assets are
evaluated for realization based on available evidence and assumptions made regarding future events. This
evaluation includes assumptions of future taxable income and other likely initiatives that could be undertaken. A
valuation allowance is provided when it is more-likely-than-not that some portion of the deferred tax asset will
not be realized. The provision for income taxes assigned to discontinued operations is based on statutory rates,
adjusted for permanent differences generated by those operations.
On January 1, 2007, the Corporation adopted the provisions of FASB Interpretation (FIN) No. 48,
‘‘Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109,’’ (FIN 48).
FIN 48 permitted the Corporation to change its accounting policy as to where interest and penalties on income
tax liabilities is classified in the consolidated statements of income. Effective January 1, 2007, the Corporation
prospectively changed its accounting policy to classify interest and penalties on income tax liabilities in the
‘‘provision for income taxes’’ on the consolidated statements of income. For periods prior to 2007, interest and
penalties on income tax liabilities remained classified in ‘‘other noninterest expenses’’ on the consolidated
statements of income. For a further discussion of FIN 48, refer to Note 17 to the consolidated financial
statements.
On January 1, 2008, the Corporation adopted EITF Issue No. 06-11 ‘‘Accounting for Income Tax Benefits
of Dividends on Share-Based Payment Awards’’ (EITF 06-11). EITF 06-11 requires the Corporation to
recognize the income tax benefit realized from dividends charged to retained earnings and paid to employees for
nonvested restricted stock awards as an increase to capital surplus. Prior to the adoption of EITF 06-11, the
income tax benefit for such dividends was recognized as a reduction of income tax expense.
Discontinued Operations
Components of the Corporation that have been or will be disposed of by sale, where the Corporation does
not have a significant continuing involvement in the operations after the disposal, are accounted for as
discontinued operations in all periods presented if significant to the consolidated financial statements. For
further information on discontinued operations, refer to Note 27.
Statements of Cash Flows
Cash and cash equivalents are defined as those amounts included in ‘‘cash and due from banks’’, ‘‘federal
funds sold and securities purchased under agreements to resell’’ and ‘‘interest-bearing deposits with banks’’ on
the consolidated balance sheets. Cash flows from discontinued operations are reported as separate line items
within cash flows from operating, investing and financing activities in the consolidated statements of cash flows.
Other Comprehensive Income (Loss)
The Corporation has elected to present information on comprehensive income in the consolidated
statements of changes in shareholders’ equity and in Note 13.
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Note 2 — Pending Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007), ‘‘Business Combinations,’’
(SFAS 141(R)), which replaces SFAS 141. SFAS 141(R) establishes principles and requirements for recognition
and measurement of assets, liabilities and any noncontrolling interest acquired due to a business combination.
Under SFAS 141(R) the entity that acquires the business (whether in a full or partial acquisition) may recognize
only the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition
date, measured at fair value. As such, an acquirer will not be permitted to recognize any allowance for loan losses
of the acquiree, if applicable. SFAS 141(R) requires the acquirer to recognize goodwill as of the acquisition date,
measured as a residual. Under SFAS 141(R), acquisition-related transaction and restructuring costs will be
expensed as incurred rather than treated as part of the acquisition cost and included in the amount recorded for
assets acquired. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. Accordingly, the
Corporation will apply the provisions of SFAS 141(R) for acquisitions completed after December 31, 2008.
In December 2007, the FASB issued SFAS No. 160, ‘‘Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB 51,’’ (SFAS 160), which defines noncontrolling interest as the portion of
equity in a subsidiary not attributable, directly or indirectly, to the parent. SFAS 160 requires the ownership
interests in subsidiaries held by parties other than the parent (previously referred to as minority interest) to be
clearly presented in the consolidated statement of financial position within equity, but separate from the parent’s
equity. The amount of consolidated net income attributable to the parent and to any noncontrolling interest
must be clearly presented on the face of the consolidated statement of income. Changes in the parent’s
ownership interest while the parent retains its controlling financial interest (greater than 50 percent ownership)
are to be accounted for as equity transactions. Upon a loss of control, any gain or loss on the interest sold will be
recognized in earnings. Additionally, any ownership interest retained will be remeasured at fair value on the date
control is lost, with any gain or loss recognized in earnings. SFAS 160 is effective for fiscal years beginning after
December 15, 2008. Accordingly, the Corporation will adopt the provisions of SFAS 160 in the first quarter
2009. The Corporation does not expect the adoption of the provisions of SFAS 160 to have a material effect on
the Corporation’s financial condition and results of operations.
In March 2008, the FASB issued SFAS No. 161, ‘‘Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133,’’ (SFAS 161). SFAS 161 applies to all derivative
instruments and related hedged items accounted for under SFAS No. 133, ‘‘Accounting for Derivative
Instruments and Hedging Activities,’’ (SFAS 133). SFAS 161 requires entities to provide greater transparency
about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and
related hedged items affect an entity’s financial position, results of operations and cash flows. To meet those
objectives, SFAS 161 requires (1) qualitative disclosures about objectives for using derivatives by primary
underlying risk exposure (e.g., interest rate, credit or foreign exchange rate) and by purpose or strategy (fair
value hedge, cash flow hedge, net investment hedge, and non-hedges), (2) information about the volume of
derivative activity in a flexible format that the preparer believes is the most relevant and practicable, (3) tabular
disclosures about balance sheet location and gross fair value amounts of derivative instruments, income
statement and other comprehensive income location of gain and loss amounts on derivative instruments by type
of contract, and (4) disclosures about credit-risk related contingent features in derivative agreements. SFAS 161
is effective for financial statements issued for fiscal years and interim periods beginning after November 15,
2008. Accordingly, the Corporation will adopt the provisions of SFAS 161 in the first quarter 2009. The
Corporation does not expect the adoption of the provisions of SFAS 161 to have a material effect on the
Corporation’s financial condition and results of operations.
83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
In April 2008, the FASB issued FSP No. FAS 142-3, ‘‘Determination of the Useful Life of Intangible
Assets,’’ (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing renewal
or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,
‘‘Goodwill and Other Intangible Assets,’’ (SFAS 142). The intent of FSP FAS 142-3 is to improve the consistency
between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows
used to measure the fair value of the asset under SFAS 141(R), ‘‘Business Combinations’’. FSP FAS 142-3 is
effective for fiscal years beginning after December 15, 2008. Accordingly, the Corporation will adopt the
provisions of FSP FAS 142-3 in the first quarter 2009. The Corporation does not expect the adoption of the
provisions of FSP FAS 142-3 to have a material effect on the Corporation’s financial condition and results of
operations.
In June 2008, the FASB issued FSP No. EITF 03-6-1, ‘‘Determining Whether Instruments Granted in
Share-Based Payment Transactions are Participating Securities,’’ (FSP EITF 03-6-1). FSP EITF 03-6-1 clarifies
that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend
equivalents are considered participating securities and should be included in the calculation of basic earnings
per share using the two-class method prescribed by SFAS 128, ‘‘Earnings Per Share.’’ FSP EITF 03-6-1 is
effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008.
All prior period earnings per share amounts presented are required to be adjusted retrospectively. Accordingly,
the Corporation will adopt the provisions of FSP EITF 03-6-1 in the first quarter 2009. The Corporation does
not expect the adoption of the provisions of FSP EITF 03-6-1 to have a material effect on the Corporation’s
financial condition and results of operations.
In December 2008, the FASB issued FSP No. FAS 132(R)-1, ‘‘Employers’ Disclosures about Postretirement
Benefit Plan Assets,’’ (FSP FAS 132(R)-1). FSP FAS 132(R)-1 amends SFAS No. 132(R), ‘‘Employers’
Disclosures about Pensions and Other Postretirement Benefits,’’ to require additional disclosures about assets
held in an employer’s defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 requires
(1) disclosure of the fair value of each major asset category, (2) employers to consider whether additional
categories or further disaggregation should be disclosed, (3) disclosure of the level within the fair value hierarchy
in which each major category of plan assets falls, using the guidance in SFAS 157, and (4) reconciliation of
beginning and ending balances of plan assets with fair values measured using significant unobservable inputs.
FSP FAS 132(R)-1 is effective for financial statements issued for fiscal years after December 15, 2009.
Accordingly, the Corporation will adopt the provisions of FSP FAS 132(R)-1 in its consolidated financial
statements for the year ended December 31, 2009. The Corporation does not expect the adoption of the
provisions of FSP FAS 132(R)-1 to have a material effect on the Corporation’s financial condition and results of
operations.
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Note 3 — Investment Securities
A summary of the Corporation’s investment securities available-for-sale follows:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(in millions)
December 31, 2008
U.S. Treasury and other Government agency securities . . . .
Government-sponsored enterprise securities * . . . . . . . . . .
State and municipal auction-rate securities . . . . . . . . . . . .
Other state and municipal securities . . . . . . . . . . . . . . . . .
Other auction-rate securities . . . . . . . . . . . . . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
79
7,624
67
2
1,112
112
Total investment securities available-for-sale . . . . . . . . . .
$8,996
December 31, 2007
U.S. Treasury and other Government agency securities . . . .
Government-sponsored enterprise securities * . . . . . . . . . .
State and municipal auction-rate securities . . . . . . . . . . . .
Other state and municipal securities . . . . . . . . . . . . . . . . .
Other auction-rate securities . . . . . . . . . . . . . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
36
6,178
—
3
—
92
Total investment securities available-for-sale . . . . . . . . . .
$6,309
$ —
242
—
—
—
—
$242
$ —
34
—
—
—
—
$ 34
$—
5
3
—
29
—
$37
$—
47
—
—
—
—
$47
$
79
7,861
64
2
1,083
112
$9,201
$
36
6,165
—
3
—
92
$6,296
*
Consists of mortgage-backed securities issued by government-sponsored enterprises.
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
A summary of the Corporation’s temporarily impaired investment securities available-for-sale follows:
Impaired
Less than 12 months
Over 12 months
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(in millions)
December 31, 2008
U.S. Treasury and other Government
agency securities . . . . . . . . . . . . . . . . .
$ —
$—
$ — $ — $ —
$—
Government-sponsored enterprise
securities . . . . . . . . . . . . . . . . . . . . . .
State and municipal auction-rate securities
Other state and municipal securities . . . . .
Other auction-rate securities . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . .
137
64
—
1,083
—
1
3
—
29
—
559
—
—
—
—
Total temporarily impaired securities . . .
$1,284
$33
$ 559
$
4
—
—
—
—
4
696
64
—
1,083
—
5
3
—
29
—
$1,843
$37
December 31, 2007
U.S. Treasury and other Government
agency securities . . . . . . . . . . . . . . . . .
$
5
$ — *
$
1
$ — * $
6
$ — *
Government-sponsored enterprise
securities . . . . . . . . . . . . . . . . . . . . . .
State and municipal auction-rate securities
Other state and municipal securities . . . . .
Other auction-rate securities . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . .
212
—
—
—
—
1
—
—
—
—
2,126
—
—
—
—
Total temporarily impaired securities . . .
$ 217
$ 1
$2,127
$
46
—
—
—
—
46
2,338
—
—
—
—
47
—
—
—
—
$2,344
$47
*
Unrealized losses less than $0.5 million.
At December 31, 2008, the Corporation had 849 securities in an unrealized loss position, including
61 AAA-rated Government-sponsored enterprise securities (i.e., FMNA, FHLMC) and 784 auction-rate
securities. The unrealized losses resulted from changes in market interest rates and liquidity, not a change in the
probability of contractual cash flows. The Corporation has the ability and intent to hold these available-for-sale
investment securities until maturity or market price recovery, and full collection of the amounts due according to
the contractual terms of the securities is expected; therefore, the Corporation does not consider these
investments to be other-than-temporarily impaired at December 31, 2008.
The table below summarizes the amortized cost and fair values of debt securities, by contractual maturity.
Securities with multiple maturity dates are classified in the period of final maturity. Expected maturities will
86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
differ from contractual maturities because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Contractual maturity
Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After one year through five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After five years through ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity and other nondebt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2008
Amortized
Cost
Fair
Value
(in millions)
$ 117
6
—
225
348
7,624
1,024
$ 117
6
—
211
334
7,861
1,006
Total securities available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,996
$9,201
Included in the contractual maturity distribution in the table above were auction-rate debt securities with
an amortized cost and fair value of $225 million and $211 million, respectively. Auction-rate preferred securities
having no contractual maturity with an amortized cost and fair value of $954 million and $936 million,
respectively, were included in ‘‘equity and other nondebt securities’’ in the above table. Auction-rate securities
are long-term, floating rate instruments for which interest rates are reset at periodic auctions. At each successful
auction, the Corporation has the option to sell the security at par value. Additionally, the issuers of auction-rate
securities generally have the right to redeem or refinance the debt. As a result, the expected life of auction-rate
securities may differ significantly from the contractual life.
Sales, calls and write-downs of investment securities available-for-sale resulted in realized gains and losses as
follows:
Years Ended
December 31
2008
2007
2006
Securities gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in millions)
$ 9
(2)
$68
(1)
Total net securities gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$67
$ 7
$ 2
(2)
$—
At December 31, 2008, investment securities having a carrying value of $6.1 billion were pledged where
permitted or required by law to secure $5.0 billion of liabilities, including public and other deposits, Federal
Home Loan Bank of Dallas (FHLB) advances and derivative instruments. This included securities of
$749 million pledged with the Federal Reserve Bank to secure actual treasury tax and loan borrowings of
$49 million at December 31, 2008, and potential borrowings of up to an additional $678 million. This also
included mortgage-backed securities of $3.2 billion pledged with the FHLB to secure advances of $3.2 billion at
December 31, 2008. The remaining pledged securities of $2.2 billion were primarily with state and local
government agencies to secure $1.8 billion of deposits and other liabilities.
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Note 4 — Nonperforming Assets
The following table summarizes nonperforming assets, which consist of nonaccrual loans, reduced-rate
loans and real estate acquired through foreclosure. 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 and real estate acquired through foreclosure is
included in ‘‘accrued income and other assets’’ on the consolidated balance sheets.
Nonaccrual loans:
Commercial
Real estate construction:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Real Estate business line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other business lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total real estate construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial mortgage:
Commercial Real Estate business line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other business lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduced-rate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreclosed property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31
2008
2007
(in millions)
$205
$ 75
429
5
434
132
130
262
7
6
1
2
917
—
917
66
161
6
167
66
75
141
1
3
—
4
391
13
404
19
Total nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$983
$423
Loans past due 90 days and still accruing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$125
$ 54
Gross interest income that would have been recorded had the nonaccrual and reduced-rate
loans performed in accordance with original terms . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 98
$ 56
Interest income recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 24
$ 20
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 are impaired.
Impaired business loans at December 31, 2008 were $904 million. Restructured loans which are performing
in accordance with their modified terms must be disclosed as impaired for the remainder of the calendar year of
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
the restructuring. There were no loans restructured during the year which met the requirements to be on accrual
status at December 31, 2008.
December 31
2008
2007
2006
Average impaired business loans for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$690
Total year-end nonaccrual business loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total year-end reduced-rate business loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans restructured during the year on accrual status at year-end . . . . . . . . . . . . . . .
$904
—
—
Total year-end impaired business loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$904
(in millions)
$264
$387
13
4
$404
$149
$209
—
—
$209
Year-end impaired business loans requiring an allowance . . . . . . . . . . . . . . . . . . . .
$807
$356
$195
Allowance allocated to impaired business loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
$175
$ 85
$ 34
Those impaired loans not requiring an allowance represent loans for which the fair value of expected
repayments or collateral exceeded the recorded investments in such loans. At December 31, 2008, substantially
all of the total impaired loans were 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 or observable market value.
Note 5 — Allowance for Loan Losses
An analysis of changes in the allowance for loan losses follows:
2008
2007
2006
Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries on loans previously charged-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(dollar amounts in
millions)
$ 493
(196)
47
$ 557
(500)
29
$516
(98)
38
Net loan charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(471)
686
(2)
(149)
212
1
(60)
37
—
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 770
$ 557
$493
As a percentage of total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.52% 1.10% 1.04%
89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Note 6 — Significant Group Concentrations of Credit Risk
Concentrations of both on-balance sheet and off-balance sheet credit risk are controlled and monitored as
part of credit policies. The Corporation is a regional financial services holding company with a geographic
concentration of its on-balance sheet and off-balance sheet activities in Michigan, California and Texas.
The Corporation has an industry concentration with the automotive industry. Loans to automotive dealers
and to borrowers involved with automotive production are reported as automotive, since management believes
these loans have similar economic characteristics that might cause them to react similarly to changes in economic
conditions. This aggregation involves the exercise of judgment. Included in automotive production are:
(a) original equipment manufacturers and Tier 1 and Tier 2 suppliers that produce components used in vehicles
and whose primary revenue source is automotive-related (‘‘primary’’ defined as greater than 50%) and (b) other
manufacturers that produce components used in vehicles and whose primary revenue source is automotive-
related. Loans less than $1 million and loans recorded in the Small Business division were excluded from the
definition. Outstanding loans and total exposure from loans, unused commitments and standby letters of credit
and financial guarantees to companies related to the automotive industry were as follows:
December 31
2008
2007
(in millions)
Automotive loans:
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dealer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,457
4,655
$ 1,806
5,384
Total automotive loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,112
$ 7,190
Total automotive exposure:
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dealer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,860
6,646
$ 3,704
7,336
Total automotive exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$9,506
$11,040
Further, the Corporation’s portfolio of commercial real estate loans, which includes real estate construction
and commercial mortgage loans, was as shown in the following table. Unused commitments on commercial real
estate loans were $3.5 billion and $5.2 billion at December 31, 2008 and 2007, respectively.
December 31
2008
2007
(in millions)
Real estate construction loans:
Commercial Real Estate business line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other business lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,831
646
$ 4,089
727
Total real estate construction loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,477
4,816
Commercial mortgage loans:
Commercial Real Estate business line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other business lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,619
8,870
1,377
8,671
Total commercial mortgage loans
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,489
10,048
Total commercial real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,966
$14,864
90
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Note 7 — Premises and Equipment
A summary of premises and equipment by major category follows:
December 31
2008
2007
(in millions)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
92
753
494
$
95
707
465
Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,339
(656)
1,267
(617)
Net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 683
$ 650
The Corporation conducts a portion of its business from leased facilities and leases certain equipment.
Rental expense of continuing operations for leased properties and equipment amounted to $76 million,
$65 million and $58 million in 2008, 2007 and 2006, respectively. As of December 31, 2008, future minimum
payments under operating leases and other long-term obligations were as follows:
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years
Ending
December 31
(in millions)
$101
86
72
60
55
490
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$864
Note 8 — Goodwill and Other Intangible Assets
Goodwill and identified intangible assets that have an indefinite useful life are subject to impairment
testing, which the Corporation conducts annually, or on an interim basis if events or changes in circumstances
between annual tests indicate the assets might be impaired. The annual test of goodwill and intangible assets that
have an indefinite life, performed as of July 1, 2008 and 2007, did not indicate that an impairment charge was
required. Additional impairment testing was conducted in the fourth quarter 2008, when general economic
conditions deteriorated significantly and the Corporation experienced a substantial decline in market
capitalization. The additional testing did not indicate that an impairment charge was required.
The carrying amount of goodwill for the years ended December 31, 2008, 2007 and 2006 are shown in the
following table. Amounts in all periods are based on business segments in effect at December 31, 2008.
Balances at December 31, 2008, 2007 and 2006 . . . . . . . . . . . . . . .
$90
$47
$13
$150
Business
Bank
Wealth &
Retail
Insitutional
Bank Management
Total
(in millions)
91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Note 9 — Deposits
At December 31, 2008, the scheduled maturities of certificates of deposit and other deposits with a stated
maturity were as follows:
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years
Ending
December 31
(in millions)
$15,014
1,324
105
47
39
41
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,570
A maturity distribution of domestic certificates of deposit of $100,000 and over follows:
December 31
2008
2007
(in millions)
Three months or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over three months to six months
Over six months to twelve months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over twelve months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,834
2,152
5,211
1,234
$ 4,509
2,846
1,577
2,275
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,431
$11,207
All foreign office time deposits of $470 million and $1.3 billion at December 31, 2008 and 2007,
respectively, were in denominations of $100,000 or more.
Note 10 — Short-Term Borrowings
Federal funds purchased and securities sold under agreements to repurchase generally mature within one to
four days from the transaction date. Other short-term borrowings, which may consist of Federal Reserve Term
Auction Facility borrowings, commercial paper, borrowed securities, term federal funds purchased, short-term
92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
notes and treasury tax and loan deposits, generally mature within one to 120 days from the transaction date. The
following table provides a summary of short-term borrowings.
December 31, 2008
Amount outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average interest rate at year-end . . . . . . . . . . . . . . . . . . .
Maximum month-end balance during the year . . . . . . . . . . . . . . . .
Average balance outstanding during the year . . . . . . . . . . . . . . . . .
Weighted average interest rate during the year . . . . . . . . . . . . . . . .
December 31, 2007
Amount outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average interest rate at year-end . . . . . . . . . . . . . . . . . . .
Maximum month-end balance during the year . . . . . . . . . . . . . . . .
Average balance outstanding during the year . . . . . . . . . . . . . . . . .
Weighted average interest rate during the year . . . . . . . . . . . . . . . .
December 31, 2006
Amount outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average interest rate at year-end . . . . . . . . . . . . . . . . . . .
Maximum month-end balance during the year . . . . . . . . . . . . . . . .
Average balance outstanding during the year . . . . . . . . . . . . . . . . .
Weighted average interest rate during the year . . . . . . . . . . . . . . . .
Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase
Other
Short-term
Borrowings
(dollar amounts in millions)
$ 696
0.37%
$3,617
2,105
2.20%
$1,749
1.84%
$1,985
1,854
5.04%
$ 561
5.04%
$ 595
2,130
4.92%
$1,053
0.40%
$3,046
1,658
2.43%
$1,058
3.87%
$1,191
226
5.21%
$
74
4.92%
$1,306
524
4.77%
At December 31, 2008, Comerica Bank (the Bank), a subsidiary of the Corporation, had pledged loans
totaling $13 billion which provided for up to $10 billion of collateralized borrowing with the Federal Reserve
Bank. At December 31, 2008, collateralized borrowings with the Federal Reserve Bank consisted of Term
Auction Facility borrowings of $1 billion.
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Note 11 — Medium- and Long-Term Debt
Medium- and long-term debt are summarized as follows:
Parent company
Subordinated notes:
4.80% subordinated note due 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.576% subordinated notes due 2037 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medium-term note:
Floating rate based on LIBOR indices due 2010 . . . . . . . . . . . . . . . . . . . . . . . . . .
Total parent company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsidiaries
Subordinated notes:
6.875% subordinated note due 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.00% subordinated note due 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.50% subordinated note due 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.125% subordinated note due 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.70% subordinated note due 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.75% subordinated notes due 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.20% subordinated notes due 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.375% subordinated note due 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.875% subordinated note due 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31
2008
2007
(in millions)
342
510
852
$ 308
510
818
150
1,002
—
—
101
149
286
701
592
207
246
150
968
100
253
102
156
261
667
513
185
198
Total subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,282
2,435
Medium-term notes:
Floating rate based on LIBOR indices due 2008 to 2012 . . . . . . . . . . . . . . . . . . . .
Floating rate based on PRIME indices due 2008 . . . . . . . . . . . . . . . . . . . . . . . . . .
Floating rate based on Federal Funds indices due 2009 . . . . . . . . . . . . . . . . . . . . .
3,669
4,318
— 1,000
100
100
Federal Home Loan Bank advances:
Floating rate based on LIBOR indices due 2009 to 2014 . . . . . . . . . . . . . . . . . . . .
8,000
—
Total subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,051
7,853
Total medium- and long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,053
$8,821
The carrying value of medium- and long-term debt has been adjusted to reflect the gain or loss attributable
to the risk hedged. Concurrent with or subsequent to the issuance of certain of the medium- and long-term debt
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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.
Principal Amount
of Debt
Converted
Base Rate
Base
Rate at
12/31/08
(dollar amounts in millions)
Parent company
4.80% subordinated note due 2015 . . . . . . . . . . . . . . . .
$300
6-month LIBOR
1.81%
Subsidiaries
Subordinated notes:
8.50% subordinated note due 2009 . . . . . . . . . . . . . . . .
5.70% subordinated note due 2014 . . . . . . . . . . . . . . . .
5.75% subordinated notes due 2016 . . . . . . . . . . . . . . . .
5.20% subordinated notes due 2017 . . . . . . . . . . . . . . . .
8.375% subordinated note due 2024 . . . . . . . . . . . . . . . .
7.875% subordinated note due 2026 . . . . . . . . . . . . . . . .
100
250
250
500
150
150
3-month LIBOR
6-month LIBOR
6-month LIBOR
6-month LIBOR
6-month LIBOR
6-month LIBOR
1.46
1.81
1.81
1.81
1.81
1.81
In February 2008, the Bank became a member of the Federal Home Loan Bank of Dallas, Texas (FHLB),
which provides short- and long-term funding collateralized by mortgage-related assets to its members. FHLB
advances bear interest at variable rates based on LIBOR and were secured by $4.8 billion of real estate-related
loans and $3.2 billion of mortgage-backed investment securities at December 31, 2008. The Bank used the
proceeds for general corporate purposes. The FHLB advances outstanding at December 31, 2008 are due from
2009 to 2014. The advances do not qualify as Tier 2 capital and are not insured by the Federal Deposit Insurance
Corporation (FDIC).
In July 2007, the Corporation issued $150 million of floating rate medium-term senior notes due July 27,
2010. The notes pay interest quarterly, beginning October 2007. The notes bear interest at a variable rate reset
each interest period based on three-month LIBOR plus 0.17%. The Corporation used the proceeds to repay the
$150 million 7.25% subordinated note due 2007. These medium-term notes do not qualify as Tier 2 capital and
are not insured by the FDIC.
In June 2007, the Corporation exercised its option to redeem a $55 million, 9.98% subordinated note,
which had an original maturity date of 2026.
In March 2007, the Bank issued $250 million of 5.75% subordinated notes under a series initiated in
November 2006. The notes pay interest semiannually, beginning May 2007, and mature November 21, 2016. The
Bank used the net proceeds for general corporate purposes.
In February 2007, the Corporation issued $515 million of 6.576% subordinated notes that relate to trust
preferred securities issued by an unconsolidated subsidiary. The notes pay interest semiannually, beginning
August 2007, through February 2032. Beginning February 2032, the notes will bear interest at an annual rate
based on LIBOR, payable monthly until the scheduled maturity date of February 20, 2037. The Corporation
used the proceeds for the redemption of a $350 million, 7.60% subordinated note due 2050 and to repurchase
additional shares of Comerica Incorporated common stock. The 6.576% subordinated notes qualify as Tier 1
capital. All other subordinated notes with maturities greater than one year qualify as Tier 2 capital.
The Corporation currently has a $15 billion medium-term senior note program. This program allows the
principal banking subsidiary to issue fixed or floating rate notes with maturities between one and 30 years. The
Bank did not issue any notes under the senior note program during the year ended December 31, 2008 and
issued a total of $3.4 billion of floating rate bank notes during the year ended December 31, 2007, using the
proceeds for general corporate purposes. The interest rate on the floating rate medium-term notes based on
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
LIBOR at December 31, 2008, ranged from one-month LIBOR plus 0.015% to three-month LIBOR plus
0.15%. The interest rate on the floating rate medium-term note based on the Federal Funds rate at
December 31, 2008 was Federal Funds plus 0.20%. The medium-term notes outstanding at December 31, 2008
are due from 2009 to 2012. The medium-term notes do not qualify as Tier 2 capital and are not insured by the
FDIC.
In the fourth quarter 2008, the Bank elected to participate in the voluntary Temporary Liquidity Guarantee
Program (the TLG Program) announced by the FDIC in October 2008. Under the TLG Program, all senior
unsecured debt issued between October 14, 2008 and June 30, 2009 with a maturity of more than 30 days is
guaranteed by the FDIC. The maximum amount that the Bank may issue under the TLG Program is $5.2 billion.
Debt guaranteed by the FDIC is backed by the full faith and credit of the United States. The FDIC guarantee
expires on the earlier of the maturity date of the debt or June 30, 2012. At December 31, 2008, there was
approximately $3 million of senior unsecured debt outstanding in the form of bank-to-bank deposits issued
under the TLG Program.
At December 31, 2008, the principal maturities of medium- and long-term debt were as follows:
Years Ending December 31
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in millions)
$ 3,675
2,600
1,375
1,370
2,150
3,515
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,685
Note 12 — Shareholders’ Equity
In November 2007, the Board of Directors of the Corporation (the Board) authorized the purchase up to
10 million shares of Comerica Incorporated outstanding common stock, in addition to the remaining unfilled
portion of November 2006 authorization. There is no expiration date for the Corporation’s share repurchase
program. Substantially all shares purchased as part of the Corporation’s publicly announced repurchase
program were transacted in the open market and were within the scope of Rule 10b-18, which provides a safe
harbor for purchases in a given day if an issuer of equity securities satisfies the manner, timing, price and volume
conditions of the rule when purchasing its own common shares in the open market. There were no open market
repurchases in 2008. Open market repurchases totaled 10.0 million shares and 6.6 million shares in the years
96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
ended December 31, 2007 and 2006, respectively. The following table summarizes the Corporation’s share
repurchase activity for the year ended December 31, 2008.
Total first quarter 2008 . . . . . . . .
Total second quarter 2008 . . . . . .
Total third quarter 2008 . . . . . . .
October 2008 . . . . . . . . . . . . . .
November 2008 . . . . . . . . . . . . .
December 2008 . . . . . . . . . . . . .
Total fourth quarter 2008 . . . . . .
Total 2008 . . . . . . . . . . . . . . .
Total Number of Shares
Purchased as Part of Publicly
Announced Repurchase Plans
or Programs
Remaining Share
Repurchase
Authorization (1)
Total Number
of Shares
Purchased (2)
Average Price
Paid Per Share
—
—
—
—
—
—
—
—
(shares in thousands)
12,576
12,576
12,576
12,576
12,576
12,576
12,576
12,576
18
24
16
6
—
—
6
64
$40.06
34.52
28.22
34.99
—
—
34.99
$34.58
(1) Maximum number of shares that may yet be purchased under the publicly announced plans or programs.
(2)
Includes shares purchased as part of publicly announced repurchase plans or programs, shares purchased
pursuant to deferred compensation plans and shares purchased from employees to pay for grant prices
and/or taxes related to stock option exercises and restricted stock vesting under the terms of an employee
share-based compensation plan.
In the fourth quarter 2008, the Corporation participated in the U.S. Department of Treasury (U.S.
Treasury) Capital Purchase Program (the Purchase Program) and received proceeds of $2.25 billion from the
U.S. Treasury. In return, the Corporation issued 2.25 million shares of Fixed Rate Cumulative Perpetual
Preferred Stock, Series F, without par value (Series F Preferred Shares) and granted a warrant to purchase
11.5 million shares of common stock at an exercise price of $29.40 per share to the U.S. Treasury. The Series F
Preferred Shares pay a cumulative dividend rate of five percent per annum on the liquidation preference of
$1,000 per share through November 2013, and a rate of nine percent per annum thereafter. The Series F
Preferred Shares are non-voting, other than class voting rights on matters that could adversely affect the shares.
The Series F Preferred Shares are redeemable on or after November 2011, at $1,000 per share, plus accrued and
unpaid dividends. Prior to November 2011, the Series F Preferred Shares may be redeemed at $1,000 per share,
plus accrued and unpaid dividends, with the proceeds from an offering of perpetual preferred or common stock
that qualifies as and may be included in Tier 1 capital (a ‘‘qualified equity offering’’) resulting in proceeds of not
less than $562.5 million. The U.S. Treasury may transfer the Series F Preferred Shares to a third party at any time.
The Series F Preferred Shares qualify as Tier 1 capital.
The warrant was immediately exercisable and is not subject to contractual restrictions on transfer, provided
that the U.S. Treasury may only exercise or transfer an aggregate of one-half of the warrant prior to the earlier of
the date on which the Corporation receives proceeds of not less than $2.25 billion from one or more qualified
equity offerings and December 31, 2009. The warrant qualifies as Tier 1 capital and expires in November 2018.
In the event the Corporation receives proceeds of not less than $2.25 billion from one or more qualified equity
offerings on or prior to December 31, 2009, the number of shares underlying the warrant then held by the U.S.
Treasury will be reduced by one-half.
The proceeds from the Purchase Program were allocated between the Series F Preferred Shares and the
related warrant based on relative fair value, which resulted in an initial carrying value of $2.1 billion for the
Series F Preferred Shares and $124 million for the warrant. The resulting discount to the Series F Preferred
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Shares of $124 million will accrete on a level yield basis over five years ending November 2013 and is being
recognized as additional preferred stock dividends. The cash dividend combined with the accretion of the
discount results in an effective preferred dividend rate of 6.3 percent. At December 31, 2008, accumulated
preferred stock dividends not declared for the Series F Preferred Shares, excluding the discount accretion
discussed above, totaled $15 million, or $6.53 per preferred share. The fair value assigned to the Series F
Preferred Shares was estimated using a discounted cash flow model. The discount rate used in the model was
based on yields on comparable publicly traded perpetual preferred stocks. The fair value assigned to the warrant
was based on a binomial model using several inputs, including risk-free rate, expected stock price volatility and
expected dividend yield. The risk-free interest rate assumption used in the binomial model was based on the
ten-year U. S. Treasury interest rate. The expected dividend yield was based on the historical and projected
dividend yield patterns of the Corporation’s common shares. Expected volatility assumptions considered both
the historical volatility of the Corporation’s common stock over a ten-year period and implied volatility based on
the most recent observed market transaction as of the valuation date.
Under the Purchase Program, the consent of the U.S. Treasury is required for any increase in common
dividends declared from the dividend rate in effect at the time of investment (quarterly dividend rate of $0.33
per share) and for any common share repurchases, other than common share repurchases in connection with any
benefit plan in the ordinary course of business, until November 2011, unless the Series F Preferred Shares have
been fully redeemed or the U.S. Treasury has transferred all the Series F Preferred Shares to third parties prior to
that date. In addition, all accrued and unpaid dividends on the Series F Preferred Shares must be declared and
the payment set aside for the benefit of the holders of the Series F Preferred Shares before any dividend may be
declared on the Corporation’s common stock and before any shares of the Corporation’s common stock may be
repurchased, other than share repurchases in connection with any benefit plan in the ordinary course of
business.
As required by the Purchase Program, the Corporation adopted the U.S. Treasury’s standards for executive
compensation and corporate governance for the period during which the U.S. Treasury holds equity issued
under the Purchase Program. These standards generally apply to the chief executive officer, chief financial
officer, plus the three most highly compensated executive officers. In addition, the Corporation agreed not to
deduct for tax purposes executive compensation in excess of $500,000 for each senior executive.
At December 31, 2008, the Corporation had 11.5 million shares of common stock reserved for the warrant
issued under the Purchase Program, 28.0 million shares of common stock reserved for stock option exercises
and 1.6 million shares of restricted stock outstanding to employees and directors under share-based
compensation plans.
Note 13 — Accumulated Other Comprehensive Income (Loss)
Other comprehensive income (loss) includes the change in net unrealized gains and losses on investment
securities available-for-sale, the change in accumulated net gains and losses on cash flow hedges, the change in
the accumulated foreign currency translation adjustment and the change in the accumulated defined benefit and
other postretirement plans adjustment. The consolidated statements of changes in shareholders’ equity include
only combined other comprehensive income (loss), net of tax. The following table presents reconciliations of the
components of accumulated other comprehensive income (loss) for the years ended December 31, 2008, 2007
and 2006. Total comprehensive income totaled $81 million, $833 million and $948 million for the years ended
December 31, 2008, 2007 and 2006, respectively. The $752 million decrease in total comprehensive income in
the year ended December 31, 2008, when compared to 2007, resulted principally from a decrease in net income
($473 million) and a decrease in the defined benefit and other postretirement benefit plans adjustment
($345 million), partially offset by an increase in net unrealized gains on investment securities available-for-sale
($88 million).
98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
For a further discussion of the effect of derivative instruments and the effects of deferred benefit and other
postretirement benefit plans on other comprehensive income (loss) refer to Notes 1, 16 and 20.
Years Ended
December 31
2008
2007
2006
(in millions)
Accumulated net unrealized losses on investment securities available-for-sale:
Balance at beginning of period, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (9)
$ (61)
$ (69)
Net unrealized holding gains arising during the period . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Reclassification adjustment for gains included in net income . . . . . . . . . . . . . . . . .
Change in net unrealized gains before income taxes
. . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in net unrealized gains on investment securities available-for-sale, net of tax . . . . . .
285
67
218
78
140
87
7
80
28
52
12
—
12
4
8
Balance at end of period, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 131
$ (9)
$ (61)
Accumulated net gains (losses) on cash flow hedges:
Balance at beginning of period, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Net cash flow hedge gains (losses) arising during the period . . . . . . . . . . . . . . . . . . . . .
Less: Reclassification adjustment for gains (losses) included in net income . . . . . . . . . . . .
Change in net cash flow hedge gains before income taxes . . . . . . . . . . . . . . . . . . . . . . .
Less: Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in net cash flow hedge gains, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
69
24
45
17
28
$ (48)
$ (91)
9
(67)
(58)
(124)
76
26
50
2
66
23
43
$ (48)
Balance at end of period, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 30
$
Accumulated foreign currency translation adjustment:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $ — $ (7)
Net translation gains (losses) arising during the period . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Reclassification adjustment for gains (losses) included in net income, due to sale of
foreign subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in foreign currency translation adjustment
. . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
(7)
7
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $ — $ —
Accumulated defined benefit pension and other postretirement plans adjustment:
Balance at beginning of period, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(170)
$(215)
$ (3)
Minimum pension liability adjustment arising during the period before income taxes
. . . . .
Less: Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in minimum pension liability, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SFAS 158 transition adjustment before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SFAS 158 transition adjustment, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net defined benefit pension and other postretirement adjustment arising during the period .
Less: Adjustment for amounts recognized as components of net periodic benefit cost during
the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in defined benefit and other postretirement plans adjustment before income taxes . .
Less: Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in defined benefit and other postretirement plans adjustment, net of tax . . . . . . . .
N/A
N/A
N/A
N/A
N/A
N/A
(488)
(18)
(470)
(170)
(300)
N/A
N/A
N/A
N/A
N/A
N/A
41
(5)
(2)
(3)
(327)
(118)
(209)
N/A
(30) N/A
71
26
45
N/A
N/A
N/A
Balance at end of period, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(470)
$(170)
$(215)
Total accumulated other comprehensive loss at end of period, net of tax . . . . . . . . . . . . . . . . .
$(309)
$(177)
$(324)
N/A — Not Applicable
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Note 14 — Net Income Per Common Share
Basic income from continuing operations and net income per common share are computed by dividing
income from continuing operations applicable to common stock and net income applicable to common stock,
respectively, by the weighted-average number of shares of common stock outstanding during the period. Diluted
income from continuing operations and net income per common share are computed by dividing income from
continuing operations applicable to common stock and net income applicable to common stock, respectively, by
the weighted-average number of shares, nonvested restricted 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 and a warrant, using the treasury stock
method. A computation of basic and diluted income from continuing operations and net income per common
share are presented in the following table.
Years Ended December 31
2008
2007
2006
(in millions, except per
share data)
Basic
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 212
17
$ 682
—
$ 782
—
Income from continuing operations applicable to common stock . . . . . . . . . . . .
$ 195
$ 682
$ 782
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 213
17
$ 686
—
$ 893
—
Net income applicable to common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 196
$ 686
$ 893
Average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
149
153
160
Basic income from continuing operations per common share . . . . . . . . . . . . . .
Basic net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1.30
1.31
$4.47
4.49
$4.88
5.57
Diluted
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 212
17
$ 682
—
$ 782
—
Income from continuing operations applicable to common stock . . . . . . . . . . . .
$ 195
$ 682
$ 782
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 213
17
$ 686
—
$ 893
—
Net income applicable to common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 196
$ 686
$ 893
Average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock equivalents:
Net effect of the assumed exercise of stock options . . . . . . . . . . . . . . . . . . .
Net effect of the assumed exercise of warrant . . . . . . . . . . . . . . . . . . . . . . .
149
2
—
—
153
1
1
—
160
1
1
—
Diluted average common shares
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
151
155
162
Diluted income from continuing operations per common share . . . . . . . . . . . . .
Diluted net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1.29
1.29
$4.40
4.43
$4.81
5.49
100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The following average outstanding options to purchase shares of common stock were not included in the
computation of diluted net income per common share because the exercise prices were greater than the average
market price of common shares for the year.
Average outstanding options . . . . . . . . . . . . . .
Range of exercise prices . . . . . . . . . . . . . . . . .
19.7
$33.69 – $71.58
(options in millions)
10.3
$56.00 – $71.58
6.0
$56.80 – $71.58
2008
2007
2006
Note 15 — Share-Based Compensation
Share-based compensation expense is charged to ‘‘salaries’’ expense, except for the Corporation’s Munder
subsidiary, which was sold in 2006, whose share-based compensation expense was charged to ‘‘income from
discontinued operations, net of tax,’’ on the consolidated statements of income. The components of share-based
compensation expense for all share-based compensation plans and related tax benefits are as follows:
Share-based compensation expense:
Comerica Incorporated share-based plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$59
Munder share-based plans * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —
$51
Total share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Related tax benefits recognized in net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$51
$19
$59
$21
$57
7
$64
$23
2008
2007
2006
(in millions)
*
Excludes $9 million of long-term incentive plan expense triggered by the 2006 sale of Munder.
The following table summarizes unrecognized compensation expense for all share-based plans:
Total unrecognized share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2008
(dollar amounts
in millions)
$ 45
Weighted-average expected recognition period (in years) . . . . . . . . . . . . . . . . . . . . . . . . .
2.4
The Corporation has share-based compensation plans under which it awards both shares of restricted stock
to key executive officers and key personnel, and stock options to executive officers, directors and key personnel
of the Corporation and its subsidiaries. Restricted stock vests over periods ranging from three to five years. Stock
options vest over periods ranging from one to four years. The maturity of each option is determined at the date of
grant; however, no options may be exercised later than ten years and one month from the date of grant. The
options may have restrictions regarding exercisability. The plans originally provided for a grant of up to
13.2 million common shares, plus shares under certain plans that are forfeited, expire or are cancelled. At
December 31, 2008, 8.7 million shares were available for grant.
The Corporation used a binomial model to value stock options granted in the periods presented. Option
valuation models require several inputs, including the expected stock price volatility, and changes in input
assumptions can materially affect the fair value estimates. The model used may not necessarily provide a reliable
single measure of the fair value of employee and director stock options. The risk-free interest rate assumption
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
used in the binomial option-pricing model as outlined in the table below was based on the federal ten-year
treasury interest rate. The expected dividend yield was based on the historical and projected dividend yield
patterns of the Corporation’s common shares. Expected volatility assumptions considered both the historical
volatility of the Corporation’s common stock over a ten-year period and implied volatility based on actively
traded options on the Corporation’s common stock with pricing terms and trade dates similar to the stock
options granted.
The fair value of options granted was estimated using the binomial option-pricing model with the following
weighted-average assumptions:
2008
2007
2006
Risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility factors of the market price of Comerica common stock . . . . .
Expected option life (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.73% 4.88% 4.69%
3.85
4.62
23
34
6.4
6.6
3.85
24
6.5
The weighted-average grant-date fair values per option share granted, based on the assumptions above,
were $9.54, $12.47 and $12.25 in 2008, 2007 and 2006, respectively.
A summary of the Corporation’s stock option activity and related information for the year ended
December 31, 2008 follows:
Weighted-Average
Number of
Options
(in thousands)
Exercise
Price
per Share
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
(in millions)
Outstanding — January 1, 2008 . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding — December 31, 2008 . . . . . . . . . . . . . . .
Outstanding, net of expected forfeitures —
December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable — December 31, 2008 . . . . . . . . . . . . . . . .
19,172
2,058
(1,954)
(42)
19,234
18,905
13,777
$56.56
37.26
66.83
29.84
$53.51
$53.60
$54.86
5.1
5.1
4
$—
$—
$—
The aggregate intrinsic value of outstanding options shown in the table above represents the total pretax
intrinsic value at December 31, 2008, based on the Corporation’s closing stock price of $19.85 at December 31,
2008. The total intrinsic value of stock options exercised was less than $0.5 million, $33 million and $26 million
for the years ended December 31, 2008, 2007 and 2006, respectively.
Cash received from the exercise of stock options during 2008, 2007 and 2006 totaled $1 million, $89 million
and $45 million, respectively. The net excess income tax benefit realized for the tax deductions from the exercise
of these options during the years ended December 31, 2008, 2007 and 2006 totaled less than $0.5 million,
$8 million and $8 million, respectively.
102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
A summary of the Corporation’s restricted stock activity and related information for 2008 follows:
Number
of Shares
(in thousands)
Weighted-Average
Grant-Date
Fair Value
per Share
Outstanding — January 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding — December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,326
565
(56)
(208)
1,627
$55.62
36.85
52.84
48.03
$50.17
The total fair value of restricted stock awards that fully vested during the years ended December 31, 2008,
2007 and 2006 was $7 million, $10 million and $8 million, respectively.
The Corporation expects to satisfy the exercise of stock options and future grants of restricted stock by
issuing shares of common stock out of treasury. At December 31, 2008, the Corporation held 28.2 million shares
in treasury.
For further information on the Corporation’s share-based compensation plans, refer to Note 1.
Note 16 — Employee Benefit Plans
Pension and Postretirement Benefit Plans
The Corporation has a qualified and a non-qualified defined benefit pension plan, which together, provide
benefits for substantially all full-time employees hired before January 1, 2007. Employee benefits expense
included pension expense of $20 million, $36 million and $39 million in the years ended December 31, 2008,
2007 and 2006, respectively, for the plans. Benefits under the defined benefit plans are based primarily on years
of service, age and compensation during the five highest paid consecutive calendar years occurring during the
last ten years before retirement. The defined benefit plans’ assets are invested in equity securities (including
certain collective investment funds and mutual investment funds), U.S. Treasury and other Government agency
securities, Government-sponsored enterprise securities, and corporate bonds and notes. The majority of these
assets have publicly quoted prices, which is the basis for determining fair value of plan assets.
On January 1, 2007, the Corporation added a defined contribution feature to its principal defined
contribution plan for the benefit of substantially all full-time employees hired on or after January 1, 2007. Under
the defined contribution feature, the Corporation makes an annual contribution to the individual account of
each eligible employee ranging from three to eight percent of annual compensation, determined based on
combined age and years of service. The contributions are invested based on employee investment elections. The
employee fully vests in the defined contribution account after three years of service. The plan feature, effective
January 1, 2007, requires one year of service before an employee is eligible to participate. As a result, no expense
was incurred for this plan feature for the year ended December 31, 2007. There was $2 million recognized in
employee benefits expense for this plan feature for the year ended December 31, 2008.
The Corporation’s postretirement benefit plan continues to provide postretirement health care and life
insurance benefits for retirees as of December 31, 1992. The plan also provides certain postretirement health
care and life insurance benefits for a limited number of retirees who retired prior to January 1, 2000. For all other
employees hired prior to January 1, 2000, a nominal benefit is provided. Employees hired on or after January 1,
2000 are not eligible to participate in the plan. The Corporation has funded the pre-1992 retiree plan benefits
with bank-owned life insurance.
103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The following table sets forth reconciliations of the projected benefit obligation and plan assets of the
Corporation’s qualified defined benefit pension plan, non-qualified defined benefit pension plan and
postretirement benefit plan. The Corporation used a measurement date of December 31, 2008 for these plans.
Qualified
Defined Benefit
Pension Plan
Non-Qualified
Defined Benefit
Pension Plan
Postretirement
Benefit Plan
2008
2007
2008
2007
2008
2007
(in millions)
Change in projected benefit obligation:
Projected benefit obligation at January 1 . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,037
28
66
73
(39)
—
$1,044
30
62
(63)
(36)
—
$ 140
4
8
8
(4)
—
$ 114
4
8
18
(4)
—
$ 81
—
5
4
(7)
(3)
Projected benefit obligation at December 31 . . . . . . . . .
$1,165
$1,037
$ 156
$ 140
$ 80
Change in plan assets:
Fair value of plan assets at January 1 . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,237
(293)
175
(39)
$1,184
89
—
(36)
$ — $ — $ 85
— (10)
6
4
(7)
(4)
—
4
(4)
Fair value of plan assets at December 31 . . . . . . . . . . .
$1,080
$1,237
$ — $ — $ 74
Accumulated benefit obligation . . . . . . . . . . . . . . . . . .
$1,031
$ 909
$ 131
$ 108
$ 80
Funded status at December 31 * . . . . . . . . . . . . . . . . .
$ (85) $ 200
$(156) $(140) $ (6)
$82
—
5
1
(8)
1
$81
$85
5
3
(8)
$85
$81
$ 4
*
Based on projected benefit obligation for pension plans and accumulated benefit obligation for
postretirement benefit plan.
The accumulated benefit obligation exceeded the fair value of plan assets for the non-qualified defined
benefit pension plan and the postretirement benefit plan at December 31, 2008. The non-qualified defined
benefit pension plan was the only pension plan with an accumulated benefit obligation in excess of the fair value
of plan assets at December 31, 2007 and 2006.
104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The following table details the amounts recognized in accumulated other comprehensive income (loss) at
December 31, 2008 and 2007, and changes for the years then ended, for the qualified defined benefit pension
plan, non-qualified defined benefit pension plan and postretirement benefit plan.
Qualified Defined Benefit
Pension Plan
Non-Qualified Defined Benefit
Pension Plan
Prior
Service
(Cost) Transition
Net
Prior
Service
(Cost) Transition
Net
Net Loss Credit Obligation Total Net Loss Credit Obligation Total
$(138)
59
$(24)
—
$— $(162)
59
—
$(31)
(18)
$ 8
—
$— $(23)
(18)
—
(in millions)
(15)
(6)
74
26
48
6
2
4
—
—
—
—
(21)
(6)
2
80
28
52
(12)
(4)
(8)
(2)
(1)
(1)
—
—
—
—
(4)
(14)
(5)
(9)
$ (90)
(466)
$(20)
—
$— $(110)
(466)
—
$(39)
(8)
$ 7
—
$— $(32)
(8)
—
Balance at December 31, 2006, net of tax . . . . .
Adjustment arising during the year . . . . . . . .
Less: Adjustment for amounts recognized as
components of net periodic benefit cost
during the year . . . . . . . . . . . . . . . . . . .
Change in amounts recognized in other
comprehensive income before income taxes . .
. . . . . . . . .
Less: Provision for income taxes
Change in amounts recognized in other
comprehensive income, net of tax . . . . . . . .
Balance at December 31, 2007, net of tax . . . . .
Adjustment arising during the year . . . . . . . .
Less: Adjustment for amounts recognized as
components of net periodic benefit cost
during the year . . . . . . . . . . . . . . . . . . .
(4)
(7)
Change in amounts recognized in other
comprehensive income before income taxes . .
. . . . . . . . .
Less: Provision for income taxes
(462)
(167)
Change in amounts recognized in other
comprehensive income, net of tax . . . . . . . .
(295)
7
3
4
—
—
—
—
(11)
(4)
2
(455)
(164)
(4)
(2)
(2)
—
(291)
(2)
(2)
—
—
—
—
(2)
(6)
(2)
(4)
Balance at December 31, 2008, net of tax . . . . .
$(385)
$(16)
$— $(401)
$(41)
$ 5
$— $(36)
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Balance at December 31, 2006, net of tax . . . . .
Adjustment arising during the year . . . . . . . .
Less: Adjustment for amounts recognized as
components of net periodic benefit cost
during the year . . . . . . . . . . . . . . . . . . .
Change in amounts recognized in other
comprehensive income before income taxes . .
. . . . . . . . .
Less: Provision for income taxes
Change in amounts recognized in other
comprehensive income, net of tax . . . . . . . .
Balance at December 31, 2007, net of tax . . . . .
Adjustment arising during the year . . . . . . . .
Less: Adjustment for amounts recognized as
components of net periodic benefit cost
during the year . . . . . . . . . . . . . . . . . . .
Postretirement Benefit Plan
Total
Prior
Service
(Cost) Transition
Net
Prior
Service
(Cost) Transition
Net
Net Loss Credit Obligation Total Net Loss Credit Obligation Total
$ (8)
—
$(6)
—
$(16)
—
(in millions)
$(30) $(177)
41
—
$(22)
—
$(16)
—
$(215)
41
—
—
—
—
$ (8)
(17)
(1)
(4)
(5)
(21)
(5)
(4)
(30)
1
1
—
$(6)
3
4
2
2
5
3
2
62
22
40
5
2
3
4
2
2
71
26
45
$(14)
—
$(28) $(137)
(491)
(14)
$(19)
3
$(14)
—
$(170)
(488)
(1)
—
(4)
(5)
(9)
(5)
(4)
(18)
Change in amounts recognized in other
comprehensive income before income taxes . .
. . . . . . . . .
Less: Provision for income taxes
(16)
(6)
Change in amounts recognized in other
comprehensive income, net of tax . . . . . . . .
(10)
3
1
2
4
1
3
(9)
(4)
(482)
(175)
(5)
(307)
8
4
4
4
1
3
(470)
(170)
(300)
Balance at December 31, 2008, net of tax . . . . .
$(18)
$(4)
$(11)
$(33) $(444)
$(15)
$(11)
$(470)
Components of net periodic benefit cost are as follows:
Qualified
Defined Benefit
Pension Plan
Non-Qualified
Defined Benefit
Pension Plan
Years Ended December 31
2008
2007
2006
2008
2007
2006
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service cost (credit) . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net loss
$ 28
66
(100)
7
4
$ 30
62
(93)
6
15
$ 4
9
$ 4
8
(in millions)
$ 4
$ 31
57
6
(89) — — —
(2)
5
(2)
4
(2)
6
6
21
Net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5
$ 20
$ 26
$15
$16
$13
Additional information:
Actual (loss) return on plan assets . . . . . . . . . . . . . . . . . . . . .
$(293) $ 89
$123
$— $— $—
106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Postretirement
Benefit Plan
Years Ended
December 31
2008
2007
2006
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5
(4)
4
—
(in millions)
$ 5
$ 5
(4)
(4)
4
4
1 —
1
1 —
Net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6
$ 6
$ 6
Additional information:
Actual (loss) return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(10) $ 5
$ 6
The estimated portion of balances remaining in accumulated other comprehensive income (loss) that are
expected to be recognized as a component of net periodic benefit cost in the year ended December 31, 2009 are
as follows.
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transition obligation . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost (credit) . . . . . . . . . . . . . . . . . . . . .
$38
—
6
(in millions)
$ 5
—
(2)
$1
4
1
Qualified
Non-Qualified
Defined Benefit Defined Benefit
Pension Plan
Pension Plan
Postretirement
Benefit Plan
Total
$44
$ 4
$ 5
Actuarial assumptions are reflected below. The discount rate and rate of compensation increase used to
determine the benefit obligation for each year shown is as of the end of the year. The discount rate, expected
return on plan assets and rate of compensation increase used to determine net cost for each year shown is as of
the beginning of the year.
Weighted-average assumptions used to determine year end benefit obligation:
Qualified and
Non-Qualified Defined
Benefit Pension Plans
Postretirement
Benefit Plan
December 31
2008
2007
2006
2008
2007
2006
6.03% 6.47% 5.89% 6.20% 6.15% 5.89%
4.00
4.00
4.00
Discount rate used in determining benefit obligation . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . .
107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Weighted-average assumptions used to determine net cost:
Qualified and
Non-Qualified Defined
Benefit Pension Plans
Postretirement
Benefit Plan
Years Ended December 31
2008
2007
2006
2008
2007
2006
Discount rate used in determining net cost . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . .
6.47% 5.89% 5.50% 6.15% 5.89% 5.50%
8.25
4.00
8.25
4.00
8.25
4.00
5.00
5.00
5.00
The long-term rate of return expected on plan assets is set after considering both long-term returns in the
general market and long-term returns experienced by the assets in the plan. The returns on the various asset
categories are blended to derive one long-term rate of return. The Corporation reviews its pension plan
assumptions on an annual basis with its actuarial consultants to determine if assumptions are reasonable and
adjusts the assumptions to reflect changes in future expectations.
Assumed healthcare and prescription drug cost trend rates:
Healthcare
Prescription
Drug
December 31
2008
2007
2008
2007
Cost trend rate assumed for next year . . . . . . . . . . . . . . . . . . . . . . . .
Rate that the cost trend rate gradually declines to . . . . . . . . . . . . . . . .
Year that the rate reaches the rate at which it is assumed to remain . . .
8.00% 6.50% 8.00% 8.00%
5.00
2028
5.00
2013
5.00
2013
5.00
2028
Assumed healthcare and prescription drug cost trend rates have a significant effect on the amounts reported
for the healthcare plans. A one-percentage point change in 2008 assumed healthcare and prescription drug cost
trend rates would have the following effects:
Effect on postretirement benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on total service and interest cost
$ 5
—
$(5)
—
One-Percentage-
Point
Increase Decrease
(in millions)
108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Plan Assets
The Corporation’s qualified defined benefit pension plan asset allocations at December 31, 2008 and 2007
and target allocation for 2009 are shown in the table below. There were no assets in the non-qualified defined
benefit pension plan. The postretirement benefit plan is fully invested in bank-owned life insurance policies.
Qualified Defined Benefit
Pension Plan
Target
Allocation
Percentage of
Plan Assets at
December 31
2009
2008
2007
Asset Category
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income, including cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alternative assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55-65% 51% * 61%
49 *
35-45
—
0
39
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100%
*
Reflects December 31, 2008, cash contribution of $175 million. Excluding this contribution, equity and
fixed income securities were 61% and 39% of plan assets, respectively.
The investment goals for the qualified defined benefit pension plan are to maintain a portfolio of assets of
appropriate liquidity and diversification; to generate investment returns (net of operating costs) that are
reasonably anticipated to maintain the plan’s fully funded status or to reduce a funding deficit, after taking into
account various factors, including reasonably anticipated future contributions and expense and the interest rate
sensitivity of the plan’s assets relative to that of the plan’s liabilities; and to generate investment returns (net of
operating costs) that meet or exceed a customized benchmark as defined in the plan investment policy.
Derivative instruments are permissible for hedging and transactional efficiency but only to the extent that the
derivative use enhances the efficient execution of the plan’s investment policy. Securities issued by the
Corporation and its subsidiaries are not eligible for use within this plan. The Corporation’s 2009 target allocation
percentages by asset category are noted in the table above.
Cash Flows
Estimated Future Employer Contributions
Qualified
Non-Qualified
Defined Benefit Defined Benefit
Pension Plan
Pension Plan
Postretirement
Benefit Plan *
(in millions)
Year Ended December 31
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$100
$7
$—
*
Estimated employer contributions in the postretirement benefit plan do not include settlements on death
claims.
109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Estimated Future Benefit Payments
Qualified
Non-Qualified
Defined Benefit Defined Benefit
Pension Plan
Pension Plan
Postretirement
Benefit Plan *
(in millions)
Years Ended December 31
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 43
46
48
52
56
343
$ 7
7
8
9
9
55
$ 8
8
8
8
8
36
*
Estimated benefit payments in the postretirement benefit plan are net of estimated Medicare subsidies.
Defined Contribution Plan
Substantially all of the Corporation’s employees are eligible to participate in the Corporation’s principal
defined contribution plan (a 401(k) plan). Under this plan, the Corporation makes matching cash contributions.
Effective January 1, 2007, the Corporation prospectively changed its core matching contribution to 100 percent
of the first four percent of qualified earnings contributed by employees (up to the current IRS compensation
limit), invested based on employee investment elections. Previously, the Corporation’s matches were based on a
declining percentage of employee contributions as well as a performance-based matching contribution. Under
the prior plan, the matching contributions were made in the stock of the Corporation and were restricted until
the end of the calendar year. Effective September 16, 2008, the Corporation eliminated Comerica Stock as an
investment option for future deposits including employee contributions, matching contributions and transfers.
Employee benefits expense included expense for the plans of $22 million, $20 million and $13 million in the
years ended December 31, 2008, 2007 and 2006, respectively.
Deferred Compensation Plan
The Corporation offers an optional deferred compensation plan under which certain employees may make
an irrevocable election to defer incentive compensation and/or a portion of base salary until retirement or
separation from the Corporation. The employee may direct deferred compensation into one or more deemed
investment options. Although not required to do so, the Corporation invests actual funds into the deemed
investments as directed by employees, resulting in a deferred compensation asset, recorded in ‘‘other short-term
investments’’ on the consolidated balance sheets, that offsets the liability to employees under the plan, recorded
in ‘‘accrued expenses and other liabilities.’’ The earnings from the deferred compensation asset are recorded in
‘‘interest on short-term investments’’ and ‘‘other noninterest income’’ and the related change in the liability to
employees under the plan is recorded in ‘‘salaries’’ expense on the consolidated statements of income.
Note 17 — Income Taxes and Tax-Related Items
The provision for federal income taxes is computed by applying the statutory federal income tax rate to
income before income taxes as reported in the consolidated financial statements after deducting non-taxable
items, principally income on bank-owned life insurance, and deducting tax credits related to investments in low
income housing partnerships. State and foreign taxes are then added to the federal tax provision.
In the ordinary course of business, the Corporation enters into certain transactions that have tax
consequences. From time to time, the Internal Revenue Service (IRS) questions and/or challenges the tax
110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
position taken by the Corporation with respect to those transactions. The Corporation believes that its tax
returns were filed based upon applicable statutes, regulations and case law in effect at the time of the
transactions. The IRS, an administrative authority or a court, if presented with the transactions, could disagree
with the Corporation’s interpretation of the tax law. After evaluating the risks and opportunities, the best
outcome may result in a settlement. The ultimate outcome for each position is not known.
On January 1, 2007, the Corporation adopted the provisions of FASB Interpretation No. 48, ‘‘Accounting
for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109,’’ (FIN 48). On December 31,
2008, the Corporation had unrecognized tax benefits of $70 million compared to unrecognized tax benefits of
$88 million at December 31, 2007. After consideration of the effect of the federal tax benefit available on
unrecognized state tax benefits, the total amount of unrecognized tax benefits that, if recognized, would affect
the Corporation’s effective tax rate was approximately $56 million at December 31, 2008, and $77 million at
December 31, 2007. Accrued interest and penalties were $85 million and $76 million at December 31, 2008 and
2007, respectively.
The Corporation recognized approximately $8 million and $5 million in interest and penalties on income
tax liabilities included in the ‘‘provision for income taxes’’ on the consolidated statements of income for the years
ended December 31, 2008 and 2007, respectively, and $38 million for the year ended December 31, 2006,
included in ‘‘other noninterest expenses’’ on the consolidated statements of income. The 2007 interest and
penalties on income tax liabilities were net of a $9 million reduction of interest resulting from settlement with the
IRS on a refund claim.
The amount of interest and penalties accrued at December 31, 2008 includes interest for unrecognized tax
benefits in addition to interest accrued for structured leasing transactions that are expected to be settled and
paid in the first quarter 2009. The Corporation engaged in certain types of structured leasing transactions that
the IRS disallowed. In the third quarter 2008 the IRS issued a settlement offer which the Corporation
subsequently accepted. The settlement will resolve all tax issues associated with structured leasing transactions
entered into by the Corporation.
In 2008 there was a decline in the unrecognized tax benefits due to settlements with tax authorities. In the
fourth quarter 2008, the Corporation executed a settlement with the IRS regarding disallowed foreign tax credits
related to a series of foreign borrowers. The Corporation expects to make a payment in the first quarter 2009
related to the settlement. For further information regarding the settlement refer to the table below.
A reconciliation of the beginning and ending amount of unrecognized tax benefit follows:
Balance at January 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases as a result of tax positions taken during a prior period . . . . . . . . . . . . . . . . . .
Increases as a result of tax positions taken during a current period . . . . . . . . . . . . . . . . .
Decreases as a result of a reclassification to deferred taxes taken during a current period .
Decreases related to settlements with tax authorities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases as a result of a lapse of the applicable statute of limitations . . . . . . . . . . . . . . .
Unrecognized
Tax Benefits
(in millions)
$ 88
3
26
(23)
(24)
—
Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 70
The Corporation has had discussions with various state tax authorities regarding prior year tax filings. The
Corporation anticipates that it is reasonably possible that settlements of various state tax return issues will result
111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
in a decrease in unrecognized tax benefits in the range of $35 million to $45 million within the next twelve
months.
Based on current knowledge and probability assessment of various potential outcomes, the Corporation
believes that current tax reserves, determined in accordance with FIN 48, are adequate to cover the matters
outlined above, and the amount of any incremental liability arising from these matters is not expected to have a
material adverse effect on the Corporation’s consolidated financial condition or results of operations.
Probabilities and outcomes are reviewed as events unfold, and adjustments to the reserves are made when
necessary.
The following tax years for significant jurisdictions remain subject to examination as of December 31, 2008:
Jurisdiction
Tax Years
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2001-2007
2004-2007
On January 1, 2007, the Corporation adopted the provisions of FASB Staff Position No. FAS 13-2,
‘‘Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes
Generated by a Leveraged Lease Transaction,’’ (FSP 13-2). FSP 13-2 requires a recalculation of the lease income
from the inception of a leveraged lease if, during the lease term, the expected timing of the income tax cash flows
generated from a leveraged lease is revised. In 2007 the Corporation recorded a one-time non-cash after-tax
charge to beginning retained earnings of $46 million to reflect changes in expected timing of the income tax cash
flows generated from affected leveraged leases (structured leasing transactions), which is expected to be
recognized as income over periods ranging from 4 years to 19 years.
In 2008 the Corporation reassessed the size and timing of the tax deductions related to the structured
leasing transactions discussed above which resulted in a $38 million ($24 million after-tax) charge to lease
income in the year ended December 31, 2008. The charges were taken in accordance with FSP 13-2 and, unless
the leases are terminated, will fully reverse over the next 19 years.
The current and deferred components of the provision for income taxes for continuing operations were as
follows:
Current
December 31
2008
2007
2006
(in millions)
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$126
10
22
$322
11
26
Total current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
158
359
$309
12
12
333
Deferred
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(86)
(13)
(99)
(51)
(2)
(53)
8
4
12
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 59
$306
$345
Income from continuing operations before income taxes of $271 million for the year ended December 31,
2008, included $34 million of foreign-source income.
112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Income from discontinued operations, net of tax, included a provision for income taxes on discontinued
operations of $1 million, $2 million and $73 million for the years ended December 31, 2008, 2007 and 2006,
respectively. The income tax provision on securities transactions was $23 million and $2 million for the years
ended December 31, 2008 and 2007, respectively, compared to a nominal tax provision in 2006.
The principal components of deferred tax assets and liabilities were as follows:
December 31
2008
2007
(in millions)
Deferred tax assets:
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred loan origination fees and costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auction-rate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other temporary differences, net
$ 279
21
175
17
6
31
29
68
$ 203
35
100
62
36
27
—
53
Total deferred tax assets before valuation allowance . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
626
(1)
625
516
(2)
514
Deferred tax liabilities:
Lease financing transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(580)
(16)
(646)
(14)
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(596)
(660)
Net deferred tax asset (liability)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 29
$(146)
Included in deferred tax assets are net state tax credit carryforwards of $5 million. The credits will expire in
2027.
At December 31, 2008, the Corporation had undistributed earnings of approximately $146 million related
to a foreign subsidiary. The Corporation intends to reinvest these earnings indefinitely. The amount of income
tax that would be due on these earnings if repatriated to the United States would be approximately $53 million.
113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
A reconciliation of expected income tax expense at the federal statutory rate of 35 percent to the
Corporation’s provision for income taxes for continuing operations and effective tax rate follows:
Years Ended December 31
2008
2007
2006
Amount
Rate
Amount
Rate
Amount
Rate
Tax based on federal statutory rate . . . . . . . . . . . . . . .
State income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Affordable housing and historic credits . . . . . . . . . . . .
Bank-owned life insurance . . . . . . . . . . . . . . . . . . . . .
Disallowance of foreign tax credit . . . . . . . . . . . . . . . .
Settlement of 1996-2000 IRS audit . . . . . . . . . . . . . . . .
Other changes in unrecognized tax benefits . . . . . . . . .
Interest on income tax liabilities . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 95
5
(45)
(15)
9
—
10
6
(6)
(dollar amounts in millions)
35.0% $346
16
2.0
(36)
(16.5)
(14)
(5.5)
—
3.2
—
—
—
3.7
3
2.0
(9)
(2.2)
35.0% $395
10
(31)
(15)
22
(16)
7
—
(27)
1.6
(3.6)
(1.4)
—
—
—
0.3
(0.9)
35.0%
0.9
(2.8)
(1.4)
2.0
(1.4)
0.6
—
(2.3)
Provision for income taxes . . . . . . . . . . . . . . . . . . . . .
$ 59
21.7% $306
31.0% $345
30.6%
Note 18 — Transactions with Related Parties
The Corporation’s banking subsidiaries have had, and expect to have in the future, transactions with the
Corporation’s directors and executive officers, companies with which these individuals are associated, and
certain related individuals. Such transactions were made in the ordinary course of business and included
extensions of credit, leases and professional services. With respect to extensions of credit, all 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, 2008, totaled $216 million at the beginning and $219 million at the end
of 2008. During 2008, new loans to related parties aggregated $293 million and repayments totaled $290 million.
Note 19 — Regulatory Capital and Reserve Requirements
Reserves required to be maintained and/or deposited with the Federal Reserve Bank were classified in cash
and due from banks through September 30, 2008, and were subsequently classified in interest-bearing deposits
with banks, coincident with date the Federal Reserve commenced paying interest on such balances. These
reserve balances vary, depending on the level of customer deposits in the Corporation’s banking subsidiaries.
The average required reserve balances were $292 million and $267 million for the years ended December 31,
2008 and 2007, respectively.
Banking regulations limit the transfer of assets in the form of dividends, loans or advances from the bank
subsidiaries to the parent company. Under the most restrictive of these regulations, the aggregate amount of
dividends which can be paid to the parent company without obtaining prior approval from bank regulatory
agencies approximated $62 million at January 1, 2009, plus 2009 net profits. Substantially all the assets of the
Corporation’s banking subsidiaries are restricted from transfer to the parent company of the Corporation in the
form of loans or advances.
Dividends declared to the parent company of the Corporation by its banking subsidiaries amounted to
$267 million, $614 million and $746 million in 2008, 2007 and 2006, respectively.
114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The Corporation and its U.S. banking subsidiaries are subject to various regulatory capital requirements
administered by federal and state banking agencies. Quantitative measures established by regulation to ensure
capital adequacy require the maintenance of minimum amounts and ratios of Tier 1 and total capital (as defined
in the regulations) to average and risk-weighted assets. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Corporation’s financial statements. At December 31, 2008 and 2007, the
Corporation and its U. S. banking subsidiaries exceeded the ratios required for an institution to be considered
‘‘well capitalized’’ (total risk-based capital, Tier 1 risk-based capital and leverage ratios greater than 10 percent,
six percent and five percent, respectively). There were no conditions or events since December 31, 2008 that
management believes have changed the capital adequacy classification of the Corporation or its U.S. banking
subsidiaries.
The Corporation participated in the U. S. Treasury Capital Purchase Program in the fourth quarter 2008
and issued preferred stock and a related warrant totaling $2.25 billion, which qualifies as Tier 1 capital and
significantly increased Tier 1 and total capital ratios for Comerica Incorporated (Consolidated). For more
information regarding the Capital Purchase Program, refer to Note 12 to the consolidated financial statements.
The following is a summary of the capital position of the Corporation and Comerica Bank, its significant banking
subsidiary.
Comerica
Incorporated
(Consolidated)
Comerica
Bank
(dollar amounts in
millions)
December 31, 2008
Tier 1 common capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital (minimum-$2.9 billion (Consolidated)) . . . . . . . . . . . . . . . . . . .
Total capital (minimum-$5.9 billion (Consolidated)) . . . . . . . . . . . . . . . . . . . .
Risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average assets (fourth quarter) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,181
7,805
10,774
73,207
66,309
$ 5,387
5,707
8,378
72,909
66,071
Tier 1 common capital to risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital to risk-weighted assets (minimum-4.0%) . . . . . . . . . . . . . . . . . .
Total capital to risk-weighted assets (minimum-8.0%) . . . . . . . . . . . . . . . . . . .
Tier 1 capital to average assets (minimum-3.0%) . . . . . . . . . . . . . . . . . . . . . .
7.08%
10.66
14.72
11.77
7.39%
7.83
11.49
8.64
December 31, 2007
Tier 1 common capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital (minimum-$3.0 billion (Consolidated)) . . . . . . . . . . . . . . . . . . .
Total capital (minimum-$6.0 billion (Consolidated)) . . . . . . . . . . . . . . . . . . . .
Risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average assets (fourth quarter) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,145
5,640
8,410
75,102
60,878
$ 5,408
5,728
8,185
74,919
60,660
Tier 1 common capital to risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital to risk-weighted assets (minimum-4.0%) . . . . . . . . . . . . . . . . . .
Total capital to risk-weighted assets (minimum-8.0%) . . . . . . . . . . . . . . . . . . .
Tier 1 capital to average assets (minimum-3.0%) . . . . . . . . . . . . . . . . . . . . . .
6.85%
7.51
11.20
9.26
7.22%
7.65
10.92
9.44
115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Note 20 — Derivative and Credit-Related Financial Instruments
In the normal course of business, the Corporation enters into various transactions involving derivative 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.
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 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
receivable, equipment or real estate.
Derivative instruments are traded over an organized exchange or negotiated over-the-counter. Credit risk
associated with exchange-traded contracts is typically assumed by the organized exchange. Over-the-counter
contracts are tailored to meet the needs of the counterparties involved and, therefore, contain a greater degree of
credit risk and liquidity risk than exchange-traded contracts, which have standardized terms and readily
available price information. The Corporation reduces exposure to credit and liquidity risks from
over-the-counter derivative instruments entered into for risk management purposes, and transactions entered
into to mitigate the market risk associated with customer-initiated transactions, by conducting such transactions
with investment grade domestic and foreign financial institutions and subjecting counterparties to credit
approvals, limits and monitoring procedures similar to those used in making other extensions of credit.
Market risk is the potential loss that may result from movements in interest or foreign currency rates and
energy commodity prices 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 instruments 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 derivative instruments held or issued for risk management purposes is generally offset by changes in
the value of rate sensitive assets or liabilities.
Derivative Instruments
The Corporation, as an end-user, employs a variety of 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 also may be 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.
For hedge relationships accounted for under SFAS 133 at inception of the hedge, the Corporation uses
either the short-cut method or applies dollar offset or statistical regression analysis to assess effectiveness. The
short-cut method is used for certain fair value hedges of medium- and long-term debt. This method allows for
the assumption of zero hedge ineffectiveness and eliminates the requirement to further assess hedge effectiveness
on these transactions. For SFAS 133 hedge relationships to which the Corporation does not apply the short-cut
method, either the dollar offset or statistical regression analysis is used at inception and for each reporting period
thereafter to assess whether the derivative used has been and is expected to be highly effective in offsetting
changes in the fair value or cash flows of the hedged item. All components of each derivative instrument’s gain or
116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
loss are included in the assessment of hedge effectiveness. Net hedge ineffectiveness is recorded in ‘‘other
noninterest income’’ on the consolidated statements of income.
The following table presents net hedge ineffectiveness gains (losses) by risk management hedge type:
Years Ended
December 31
2008
2007
2006
(in millions)
Cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1
2 —
Fair value hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —
$— $ 1
9
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9
$ 3
$ 1
As part of a fair value hedging strategy, the Corporation has entered into interest rate swap agreements for
interest rate risk management purposes. These interest rate swap agreements effectively modify the
Corporation’s exposure to interest rate risk by converting fixed rate debt to a floating rate. These agreements
involve the receipt of fixed rate interest amounts in exchange for floating rate interest payments over the life of
the agreement, without an exchange of the underlying principal amount.
During 2008, the Corporation terminated an interest rate swap with a notional amount of $150 million that
was designated as fair value hedge. The pre-tax gain of $35 million realized on the termination will be recognized
in net interest income over the remaining life of the related debt (15 years). The swap was replaced with another
interest rate swap with a notional amount of $150 million with a different counterparty.
As part of a cash flow hedging strategy, the Corporation entered into predominantly two-year interest rate
swap agreements (weighted average original maturity of 2.2 years) that effectively convert a portion of its existing
and forecasted floating rate loans to a fixed rate basis, thus reducing the impact of interest rate changes on future
interest income over the life of the agreements (currently over the next 27 months). Approximately three percent
($1.7 billion) of the Corporation’s outstanding loans were designated as hedged items to interest rate swap
agreements at December 31, 2008. For the year ended December 31, 2008, interest rate swap agreements
designated as cash flow hedges increased interest and fees on loans by $24 million, compared to a decrease of
$67 million for the year ended December 31, 2007. If interest rates, interest yield curves and notional amounts
remain at their current levels, the Corporation expects to reclassify $20 million of net gains, net of tax, on
derivative instruments that are designated as cash flow hedges from accumulated other comprehensive income
(loss) to earnings during the next twelve months due to receipt of variable interest associated with the existing
and forecasted floating rate loans.
Foreign exchange rate risk arises from changes in the value of certain assets and liabilities denominated in
foreign currencies. The Corporation employs cash instruments, such as investment securities, as well as
derivative instruments to manage exposure to these and other risks. In addition, the Corporation may use foreign
exchange forward and option contracts to protect the value of its foreign currency investment in foreign
subsidiaries. Realized and unrealized gains and losses from foreign exchange forward and option contracts used
to protect the value of investments in foreign subsidiaries are not included in the statement of income, but are
shown in the accumulated foreign currency translation adjustment account included in other comprehensive
income (loss), with the related amounts due to or from counterparties included in other liabilities or other assets.
The Corporation did not hold any forward foreign exchange contracts recognized in accumulated foreign
currency translation adjustment during the years ended December 31, 2008 and 2007.
117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Management believes these hedging strategies achieve the desired relationship between the rate maturities
of assets and funding sources which, in turn, reduce the overall exposure of net interest income to interest rate
risk, although, there can be no assurance that such strategies will be successful. The Corporation also may use
various other types of financial instruments to mitigate interest rate and foreign currency risks associated with
specific assets or liabilities. Such instruments include interest rate caps and floors, foreign exchange forward
contracts, investment securities, foreign exchange option contracts and foreign exchange cross-currency swaps.
The following table presents the composition of derivative instruments held or issued for risk management
purposes, excluding commitments, at December 31, 2008 and 2007. The fair values of all derivative instruments
are reflected in the consolidated balance sheets.
Notional/
Contract
Amount
Unrealized
Gains
Unrealized
Losses
Fair
Value
(in millions)
December 31, 2008
Risk management
Interest rate contracts:
Swaps — cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swaps — fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,700
1,700
Total interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . .
3,400
Foreign exchange contracts:
Spot and forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total foreign exchange contracts . . . . . . . . . . . . . . . . . . . . .
531
13
544
$ 50
346
396
5
3
8
$—
—
—
9
—
9
$ 50
346
396
(4)
3
(1)
Total risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,944
$404
$ 9
$395
December 31, 2007
Risk management
Interest rate contracts:
Swaps — cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swaps — fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,200
2,202
Total interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . .
5,402
Foreign exchange contracts:
Spot and forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total foreign exchange contracts . . . . . . . . . . . . . . . . . . . . .
528
21
549
$
3
142
145
4
1
5
$ 2
—
2
2
—
2
$
1
142
143
2
1
3
Total risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,951
$150
$ 4
$146
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.
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 maximum amount of this exposure is
represented by the gross unrealized gains on derivative instruments.
118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Bilateral collateral agreements with counterparties covered 53 percent and 63 percent of the notional
amount of interest rate derivative contracts at December 31, 2008 and 2007, respectively. These agreements
reduce credit risk by providing for the exchange of marketable investment securities to secure amounts due on
contracts in an unrealized gain position. In addition, at December 31, 2008, master netting arrangements had
been established with all interest rate swap counterparties and certain foreign exchange counterparties. These
arrangements effectively reduce credit risk by permitting settlement, on a net basis, of contracts entered into
with the same counterparty.
Fee income is earned from entering into various transactions, principally foreign exchange contracts,
interest rate contracts, and energy derivative contracts at the request of customers. The Corporation mitigates
market risk inherent in customer-initiated interest rate and energy contracts by taking offsetting positions,
except in those circumstances when the amount, tenor and/or contracted rate level results in negligible
economic risk, whereby the cost of purchasing an offsetting contract is not economically justifiable. For
customer-initiated foreign exchange contracts, the Corporation mitigates most of the inherent market risk by
taking offsetting positions and manages the remainder through individual foreign currency position limits and
aggregate value-at-risk limits. These limits are established annually and reviewed quarterly.
For those customer-initiated derivative contracts which were not offset or where the Corporation holds a
speculative position within the limits described above, the Corporation recognized $2 million of net gains in
2008 and $1 million of net gains in both 2007 and 2006, which were included in ‘‘other noninterest income’’ in
the consolidated statements of income. The fair value of derivative instruments held or issued in connection with
customer-initiated activities, including those customer-initiated derivative contracts where the Corporation does
not enter into an offsetting derivative contract position, is included in the following table.
119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The following table presents the composition of derivative instruments held or issued in connection with
customer-initiated and other activities.
Notional/
Contract
Amount
Unrealized
Gains
Unrealized
Losses
Fair
Value
(in millions)
December 31, 2008
Customer-initiated and other
Interest rate contracts:
Caps and floors written . . . . . . . . . . . . . . . . . . . . . . . . . . .
Caps and floors purchased . . . . . . . . . . . . . . . . . . . . . . . . .
Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,271
1,271
9,800
Total interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . .
12,342
Energy derivative contracts:
Caps and floors written . . . . . . . . . . . . . . . . . . . . . . . . . . .
Caps and floors purchased . . . . . . . . . . . . . . . . . . . . . . . . .
Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
634
634
877
Total energy derivative contracts . . . . . . . . . . . . . . . . . . . . .
2,145
Foreign exchange contracts:
Spot, forwards, futures and options . . . . . . . . . . . . . . . . . . .
Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total foreign exchange contracts . . . . . . . . . . . . . . . . . . . . .
2,695
28
2,723
$ —
14
410
424
—
84
101
185
101
1
102
$ 14
—
376
390
84
—
101
185
86
1
87
$(14)
14
34
34
(84)
84
—
—
15
—
15
Total customer-initiated and other . . . . . . . . . . . . . . . . . . . .
$17,210
$711
$662
$ 49
December 31, 2007
Customer-initiated and other
Interest rate contracts:
Caps and floors written . . . . . . . . . . . . . . . . . . . . . . . . . . .
Caps and floors purchased . . . . . . . . . . . . . . . . . . . . . . . . .
Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . .
$
851
851
6,806
8,508
Energy derivative contracts:
Caps and floors written . . . . . . . . . . . . . . . . . . . . . . . . . . .
Caps and floors purchased . . . . . . . . . . . . . . . . . . . . . . . . .
Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
410
410
661
$ —
5
110
115
—
43
61
$
5
—
89
94
43
—
61
Total energy derivative contracts . . . . . . . . . . . . . . . . . . . . .
1,481
104
104
Foreign exchange contracts:
Spot, forwards, futures and options . . . . . . . . . . . . . . . . . . .
Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total foreign exchange contracts . . . . . . . . . . . . . . . . . . . . .
2,707
8
2,715
34
—
34
29
—
29
$ (5)
5
21
21
(43)
43
—
—
5
—
5
Total customer-initiated and other . . . . . . . . . . . . . . . . . . . .
$12,704
$253
$227
$ 26
Fair values for customer-initiated and other derivative instruments represent the net unrealized gains or
losses on such contracts and are recorded in the consolidated balance sheets. The fair value of gross unrealized
gains on customer-initiated derivative instruments totaling $711 million at December 31, 2008 reflected credit-
120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
related adjustments totaling $6 million. Changes in fair value are recognized in the consolidated income
statements. The following table provides the average unrealized gains and unrealized losses and noninterest
income generated on customer-initiated and other interest rate contracts, energy derivative contracts and foreign
exchange contracts.
Average unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended
December 31
2008
2007
(in millions)
$137
$459
120
417
50
56
Detailed discussions of each class of derivative instruments held or issued by the Corporation for both risk
management and customer-initiated and other activities are as follows.
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, 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. All interest rate caps and floors entered into by the
Corporation are over-the-counter agreements.
Foreign Exchange Contracts
Foreign exchange contracts such as futures, forwards and options are primarily entered into as a service to
customers and to offset market risk arising from such positions. Futures and forward contracts require the
delivery or receipt of foreign currency at a specified date and exchange rate. Foreign currency options allow the
owner 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. The Corporation also uses foreign
exchange rate swaps and cross-currency swaps for risk management purposes.
Energy Derivative Contracts
The Corporation offers energy derivative contracts, including over-the-counter and NYMEX-based natural
gas and crude oil fixed rate swaps and options, as a service to customers seeking to hedge market risk in the
underlying products. Contract tenors are typically limited to three years to accommodate hedge requirements
121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
and are further limited to products that are liquid and available on demand. Energy derivative swaps are
over-the-counter agreements in which the Corporation and the counterparty periodically exchange fixed cash
payments for variable payments based upon a designated market price or index. Energy derivative option
contracts grant the option owner the right to buy or sell the underlying commodity for a predetermined price at
settlement date. Energy caps, floors and collars are option-based contracts that result in the buyer and seller of
the contract receiving or making cash payments based on the difference between a designated reference price
and the contracted strike price, applied to a notional amount. An option fee or premium is received by the
Corporation at inception for assuming the risk of unfavorable changes in energy commodity prices. Purchased
options contain both credit and market risk. Commodity options entered into by the Corporation are
over-the-counter agreements.
Warrants
The Corporation holds a portfolio of approximately 780 warrants for generally non-marketable equity
securities. These warrants are primarily from high technology, non-public companies obtained as part of the loan
origination process. As discussed in Note 1, warrants that have a net exercise provision embedded in the warrant
agreement are considered derivatives and are required to be recorded at fair value. Fair value for these warrants
(approximately 400 warrants at December 31, 2008 and 570 warrants at December 31, 2007) was approximately
$8 million at December 31, 2008 and $23 million at December 31, 2007, as estimated using a Black-Scholes
valuation model.
Commitments
The Corporation also enters into commitments to purchase or sell earning assets for risk management and
trading purposes. These transactions are similar in nature to forward contracts. The Corporation had
commitments to purchase investment securities for its available-for-sale and trading account portfolios totaling
$1.3 billion and $604 million at December 31, 2008 and 2007, respectively. Commitments to sell investment
securities related to the trading account totaled $10 million at December 31, 2008 and $4 million at
December 31, 2007. Outstanding commitments expose the Corporation to both credit and market risk.
Credit-Related Financial Instruments
The Corporation issues off-balance sheet financial instruments in connection with commercial and
consumer lending activities. The Corporation’s credit risk associated with these instruments is represented by
the contractual amounts indicated in the following table.
December 31
2008
2007
(in millions)
Unused commitments to extend credit:
Commercial and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bankcard, revolving check credit and equity access loan commitments . . . . . . . . . .
$25,901
2,124
$31,603
2,216
Total unused commitments to extend credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$28,025
$33,819
Standby letters of credit and financial guarantees:
Maturing within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturing after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,894
2,346
$ 4,344
2,556
Total standby letters of credit and financial guarantees . . . . . . . . . . . . . . . . . . . . .
$ 6,240
$ 6,900
Commercial letters of credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
156
$
234
122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The Corporation maintains an allowance to cover probable credit losses inherent in lending-related
commitments, including unused commitments to extend credit, letters of credit and financial guarantees. At
December 31, 2008 and 2007, the allowance for credit losses on lending-related commitments, which is recorded
in ‘‘accrued expenses and other liabilities’’ on the consolidated balance sheets, was $38 million and $21 million,
respectively.
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. Commercial and other unused commitments are primarily variable rate
commitments.
Standby and Commercial Letters of Credit and Financial Guarantees
Standby and commercial letters of credit represent conditional obligations of the Corporation which
guarantee the performance of a customer to a third party. Standby letters of credit are primarily issued to support
public and private borrowing arrangements, including commercial paper, bond financing and similar
transactions. These contracts expire in decreasing amounts through the year 2018. The Corporation may enter
into participation arrangements with third parties, which effectively reduce the maximum amount of future
payments which may be required under standby letters of credit. These risk participations covered $525 million
of the $6.2 billion standby letters of credit outstanding at December 31, 2008. Commercial letters of credit are
issued to finance foreign or domestic trade transactions and are short-term in nature. Financial guarantees of
$36 million at December 31, 2008 consisted of an indemnification agreement related to the sale of the
Corporation’s remaining ownership of Visa Inc. (Visa) shares and credit risk participation agreements, where the
Corporation, primarily as part of a syndicated lending arrangement, for a fee, guarantees a portion of the credit
risk on an interest rate swap agreement between the lead bank in the syndicate and the customer. In the event of
default by the customer, the Corporation would be required to pay the portion of the unpaid amount guaranteed
by the Corporation to the lead bank. At December 31, 2008, the estimated fair value of the Corporation’s credit
risk participation agreements where the Corporation is the guarantor was $32 million, and the estimated credit
exposure was $46 million. The estimated credit exposure includes the estimated credit risk as of December 31,
2008, in addition to an estimated increase in future risk for changes in interest rates in each remaining year of the
contract until maturity. In addition, the estimated credit exposure assumes the lead bank was unable to liquidate
assets of the customers. In the event of customer default, the lead bank has the ability to liquidate the assets of
the customer, in which case the lead bank would be required to return a percentage of recouped assets to the
participating banks. These credit risk participation agreements expire in decreasing amounts through the year
2016, with a weighted average remaining maturity on outstanding agreements of 2.2 years. Commercial letters of
credit are issued to finance foreign or domestic trade transactions and are short-term in nature. At December 31,
2008, the carrying value of the Corporation’s standby and commercial letters of credit and financial guarantees,
which are included in ‘‘accrued expenses and other liabilities’’ on the consolidated balance sheet, totaled
$84 million.
The following table presents a summary of total internally classified watch list standby and commercial
letters of credit and financial guarantees (generally consistent with regulatory defined special mention,
substandard and doubtful) at December 31, 2008 and 2007. The Corporation manages credit risk through
123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
underwriting, periodically reviewing and approving its credit exposures using Board committee approved credit
policies and guidelines.
Total watch list standby and commerical letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . .
As a percentage of total outstanding standby and commercial letters of credit . . . . . . . . . . . .
December 31
2008
(dollar
amounts in
millions)
$277.0
4.3%
Total watch list financial guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As a percentage of total outstanding financial guarantees . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
—%
Note 21 — Contingent Liabilities
Legal Proceedings
The Corporation and certain of its subsidiaries are subject to various pending and threatened legal
proceedings arising out of the normal course of business or operations. In view of the inherent difficulty of
predicting the outcome of such matters, the Corporation cannot state what the eventual outcome of these
matters will be. However, based on current knowledge and after consultation with legal counsel, management
believes that current reserves, determined in accordance with SFAS 5, ‘‘Accounting for Contingencies,’’
(SFAS 5), are adequate and the amount of any incremental liability arising from these matters is not expected to
have a material adverse effect on the Corporation’s consolidated financial condition. For information regarding
income tax contingencies, refer to Note 17.
Note 22 — Variable Interest Entities (VIE’s)
The Corporation evaluates its interest in certain entities to determine if these entities meet the definition of
a VIE, and whether the Corporation was the primary beneficiary and should consolidate the entity based on the
variable interests it held. The following provides a summary of the VIE’s in which the Corporation has a
significant interest.
The Corporation owns 100% of the common stock of an entity formed in 2007 to issue trust preferred
securities. This entity meets the definition of a VIE, but the Corporation is not the primary beneficiary as the
expected losses and residual returns of the trust are absorbed by the trust preferred stock holders. The trust
preferred securities held by this entity ($500 million at December 31, 2008) are classified as subordinated debt
and qualify as Tier 1 capital. The Corporation is not exposed to loss related to this VIE.
The Corporation has limited partnership interests in three other venture capital funds, which were acquired
in 1998, 1999 and 2001, where the general partner (an employee of the Corporation) in these three partnerships
is considered a related party to the Corporation. These three entities meet the definition of a VIE, however, the
Corporation is not the primary beneficiary of the entities as the majority of variable interests are expected to
accrue to the nonaffiliated limited partners. As such, the Corporation accounts for its interest in these
partnerships on the cost method. These three entities had approximately $124 million in assets at December 31,
2008. Exposure to loss as a result of involvement with these three entities at December 31, 2008 was limited to
approximately $5 million of book basis of the Corporation’s investments and approximately $2 million of
commitments for future investments.
The Corporation, as a limited partner, also holds an insignificant ownership percentage interest in 133 other
venture capital and private equity investment partnerships where the Corporation is not related to the general
124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
partner. While these entities may meet the definition of a VIE, the Corporation is not the primary beneficiary of
any of these entities as a result of its insignificant ownership percentage interest. The Corporation accounts for
its interests in these partnerships on the cost method, and exposure to loss as a result of involvement with these
entities at December 31, 2008 was limited to approximately $60 million of book basis of the Corporation’s
investments and approximately $34 million of commitments for future investments.
Two limited liability subsidiaries of the Corporation are the general partners in two investment fund
partnerships, formed in 1999 and 2003. These subsidiaries manage the investments held by these funds. These
two investment partnerships meet the definition of a VIE. In the investment fund partnership formed in 1999,
the Corporation is not the primary beneficiary of the entity as the majority of the variable interests are expected
to accrue to the nonaffiliated limited partners. As such, the Corporation accounts for its indirect interests in this
partnership on the cost method. This investment partnership had approximately $48 million in assets at
December 31, 2008 and was structured so that the Corporation’s exposure to loss as a result of its interest should
be limited to the book basis of the Corporation’s investment in the limited liability subsidiary, which was
insignificant at December 31, 2008. In the investment fund partnership formed in 2003, the Corporation is the
primary beneficiary and consolidates the entity as the majority of the variable interests are expected to accrue to
the Corporation. This investment partnership had assets of approximately $7 million at December 31, 2008 and
was structured so that the Corporation’s exposure to loss as a result of its interest should be limited to the book
basis of the Corporation’s investment in the limited liability subsidiary, which was insignificant at December 31,
2008.
The Corporation has a significant limited partner interest in 20 low income housing tax credit/historic
rehabilitation tax credit partnerships, acquired at various times from 1992 to 2007. These entities meet the
definition of a VIE. However, the Corporation is not the primary beneficiary of the entities as the majority of the
variable interests are expected to accrue to the nonaffiliated limited partners. The Corporation accounts for its
interest in these partnerships on the cost or equity method. These entities had approximately $150 million in
assets at December 31, 2008. Exposure to loss as a result of its involvement with these entities at December 31,
2008 was limited to approximately $12 million of book basis of the Corporation’s investment, which includes
unused commitments for future investments.
The Corporation, as a limited partner, also holds an insignificant ownership percentage interest in 113 other
low income housing tax credit/historic rehabilitation tax credit partnerships. While these entities may meet the
definition of a VIE, the Corporation is not the primary beneficiary of any of these entities as a result of its
insignificant ownership percentage interest. As such, the Corporation accounts for its interest in these
partnerships on the cost or equity method. Exposure to loss as a result of its involvement with these entities at
December 31, 2008 was limited to approximately $333 million of book basis of the Corporation’s investment,
which includes unused commitments for future investments.
For further information on the company’s consolidation policy, see Note 1.
Note 23 — Fair Value
The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and
liabilities and to determine fair value disclosures. Securities available-for-sale, trading securities, derivatives and
certain liabilities are recorded at fair value on a recurring basis. Additionally, from time to time, the Corporation
may be required to record at fair value other assets on a nonrecurring basis, such as loans held-for-sale, loans held
for investment and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve
application of lower of cost or market accounting or write-downs of individual assets.
125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Fair Value Hierarchy
Under SFAS 157, the Corporation groups assets and liabilities at fair value in three levels, based on the
markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair
value. These levels are:
Level 1 Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2 Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for
identical or similar instruments in markets that are not active, and model-based valuation
techniques for which all significant assumptions are observable in the market.
Level 3 Valuation is generated from model-based techniques that use at least one significant assumption
not observable in the market. These unobservable assumptions reflect estimates of assumptions
that market participants would use in pricing the asset or liability. Valuation techniques include
use of option pricing models, discounted cash flow models and similar techniques.
Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.
Investment Securities Available-for-Sale:
Investment securities available-for-sale are recorded at fair
value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are
not available, fair values are measured using independent pricing models or other model-based valuation
techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment
assumptions and other factors such as credit loss and liquidity assumptions. Level 1 securities include those
traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by
dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities primarily
include mortgage-backed securities issued by government-sponsored entities. Securities classified as Level 3
represent securities in less liquid markets, including auction-rate securities and other securities requiring a
significant management assumptions when determining the fair value. For further information regarding
auction-rate securities, refer to Notes 3 and 28 to the consolidated financial statements.
Trading Securities and Associated Liabilities: Securities held for trading purposes are recorded at fair
value and included in ‘‘other short-term investments’’ on the consolidated balance sheets. Level 1 securities held
for trading purposes include assets related to employee deferred compensation plans, which are invested in
mutual funds and other securities traded on an active exchange. Deferred compensation liabilities, also classified
as Level 1, are carried at the fair value of the obligation to the employee, which corresponds to the fair value of
the invested assets. Level 2 securities include municipal bonds and mortgage-backed securities issued by
government-sponsored entities and corporate debt securities. Securities classified as Level 3 include securities in
less liquid markets and securities not rated by a credit agency at December 31, 2008. The valuation method for
trading securities is the same as the method used for investment securities classified as available-for-sale,
discussed above.
Loans Held-for-Sale: Loans held-for-sale, included in ‘‘other short-term investments’’ on the consolidated
balance sheets, are carried at the lower of cost or market value. The fair value of loans held-for-sale is based on
what secondary markets are currently offering for portfolios with similar characteristics. As such, the
Corporation classifies loans subjected to nonrecurring fair value adjustments as Level 2.
Loans: The Corporation does not record loans at fair value on a recurring basis. However, loans for which
it is probable that payment of interest and principal will not be made in accordance with the contractual terms of
the loan agreement are considered impaired. Once loans are identified as impaired, management measures
impairment in accordance with SFAS 114, ‘‘Accounting by Creditors for Impairment of a Loan,’’ (SFAS 114) and
126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
establishes an allowance for loan losses. The allowance, based on the fair value of impaired loans, is estimated
using one of several methods, including collateral value, market value of similar debt, enterprise value,
liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans
for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.
At December 31, 2008, substantially all of the total impaired loans were evaluated based on the fair value of the
collateral. Impaired loans where an allowance is established based on the fair value of collateral require
classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market
price or a current appraised value, the Corporation records the impaired loan as nonrecurring Level 2. When a
current appraised value is not available or management determines the fair value of the collateral is further
impaired below the appraised value and there is no observable market price, the Corporation records the
impaired loan as nonrecurring Level 3.
Derivative Assets and Liabilities: Substantially all of the derivative instruments held or issued by the
Corporation for risk management or customer-initiated activities are traded in over-the-counter markets where
quoted market prices are not readily available. For those derivatives, the Corporation measures fair value using
internally developed models that use primarily market observable inputs, such as yield curves and option
volatilities, and include the value associated with counterparty credit risk. As such, the Corporation classifies
those derivative instruments as Level 2. Examples of Level 2 derivatives are interest rate swaps, energy and
foreign exchange derivative contracts.
The Corporation also holds a portfolio of warrants for generally non-marketable equity securities. These
warrants are primarily from high technology, non-public companies obtained as part of the loan origination
process. Warrants which contain a net exercise provision are required to be accounted for as derivatives and
recorded at fair value. Fair value is determined using a Black-Scholes valuation model, which has five inputs:
risk-free rate, expected life, volatility, exercise price, and the per share market value of the underlying company.
Where sufficient financial data existed, a market approach method was utilized to estimate the current value of
the underlying company. When quoted market values were not available, an index method was utilized. The
estimated fair value of the underlying securities for warrants requiring valuation at fair value were adjusted for
discounts related to lack of liquidity. The Corporation classifies warrants accounted for as derivatives in
recurring Level 3.
Financial Guarantees: A liability under an indemnification agreement related to the sale of the
Corporation’s remaining ownership of Visa shares is a financial guarantee recorded at fair value and included in
‘‘other liabilities’’ on the consolidated balance sheets. The fair value of the indemnification agreement was
determined using a probability weighted estimate of cash flows under various scenarios. As such, the
Corporation classifies this financial guarantee as recurring Level 3.
Foreclosed Assets: Upon transfer from the loan portfolio, foreclosed assets are adjusted to and
subsequently carried at the lower of carrying value or fair value. Fair value is based upon independent market
prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair
value of the collateral is based on an observable market price or a current appraised value, the Corporation
records the foreclosed asset as nonrecurring Level 2. When a current appraised value is not available or
management determines the fair value of the collateral is further impaired below the appraised value and there is
no observable market price, the Corporation records the foreclosed asset as nonrecurring Level 3.
Nonmarketable Equity Securities: The Corporation has a portfolio of indirect (through funds) private
equity and venture capital investments. The majority of these investments are not readily marketable. The
investments are individually reviewed for impairment on a quarterly basis by comparing the carrying value to the
estimated fair value. The Corporation bases its estimates of fair value for the majority of its indirect private equity
127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
and venture capital investments on the percentage ownership in the fair value of the entire fund, as reported by
the fund’s management. For those funds where fair value is not reported by the fund’s management, the
Corporation derives the fair value of the fund by estimating the fair value of each underlying investment in the
fund. The lack of an independent source to validate fair value estimates, including the impact of future capital
calls and transfer restrictions, is an inherent limitation in the valuation process. The Corporation classifies
nonmarketable equity securities subjected to nonrecurring fair value adjustments as Level 3.
Loan Servicing Rights: Loan servicing rights are subject to impairment testing. A valuation model, which
utilizes a discounted cash flow analysis using interest rates and prepayment speed assumptions currently quoted
for comparable instruments and a discount rate determined by management, is used for impairment testing. If
the valuation model reflects a value less than the carrying value, loan servicing rights are adjusted to fair value
through a valuation allowance as determined by the model. As such, the Corporation classifies loan servicing
rights subjected to nonrecurring fair value adjustments as Level 3.
Goodwill and Other Intangible Assets: Goodwill and identified intangible assets are subject to
impairment testing. The Corporation utilizes both a comparable market multiple analysis and discounted cash
flow to determine the fair value of the reporting units. The Corporation currently applies more weight to the
discounted cash flow given the current market conditions. Both valuation models require a significant degree of
management judgment. In the event the fair value as determined by the valuation model is less than the carrying
value, goodwill may be impaired. If the testing resulted in impairment, the Corporation would classify goodwill
and other intangible assets subjected to nonrecurring fair value adjustments as Level 3. Additional information
regarding goodwill, other intangible assets and impairment policies can be found in Note 8.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring
basis.
December 31, 2008
Total
Level 1
Level 2
Level 3
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities available-for-sale . . . . . . . . . . . . . . . . . . . . . .
Derivative assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
124
9,201
1,123
(in millions)
$
10
$ 80
149
7,899
— 1,115
$
34
1,153
8
Total assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,448
$229
$9,024
$1,195
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
671
85
756
$ — $ 671
—
80
$ —
5
$ 80
$ 671
$
5
(1)
Includes liabilities associated with deferred compensation plans and financial guarantees.
The table below provides a reconciliation of changes during the period in Level 3 assets and liabilities
measured at fair value on a recurring basis at January 1, 2008 and December 31, 2008. The increase in trading
securities reflected the purchase of non-rated municipal and corporate bonds. The increase in investment
securities available-for-sale was primarily due to the Corporation’s purchase of auction-rate securities. The
decrease in derivative assets was impacted by fair value adjustments and settlements of warrants. Other Level 3
128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
liabilities included a liability under an indemnification agreement related to the sale of the Corporation’s
remaining ownership of Visa shares, discussed in ‘‘Financial Guarantees’’ above.
Recurring Level 3 Assets and Liabilities
Trading
Securities
Balance at January 1, 2008 . . . . . . . . . . . . . . . . . . . . . .
$—
Net realized/unrealized gains (losses):
Recorded in earnings-realized . . . . . . . . . . . . . . . . .
Recorded in earnings-unrealized . . . . . . . . . . . . . . .
Recorded in other comprehensive income . . . . . . . .
Purchases, sales, issuances and settlements, net
. . . . . .
Transfers in and/or out of Level 3 . . . . . . . . . . . . . . .
—
—
—
31
3
Year Ended December 31, 2008
Investment
Securities
Available-for-Sale
Derivative
Assets
(Warrants)
(in millions)
3
$23
$
—
4
(32)
1,178
—
2
(9)
—
(8)
—
Other
Liabilities
$—
—
(5)
—
—
—
Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . .
$34
$1,153
$ 8
$ 5
The table below presents the income statement classification of the Level 3 gains and losses due to changes
in fair value, including both realized and unrealized gains and losses, recorded in earnings, as shown in the table
above.
Recurring Level 3 Assets and Liabilities
Trading
Securities
Year Ended December 31, 2008
Investment
Securities
Available-for-Sale
Derivative
Assets
(Warrants)
(in millions)
Other
Liabilities
Classification of realized/unrealized gains (losses)
recorded in earnings:
Other noninterest income . . . . . . . . . . . . . . . . . . .
Net securities gains (losses)
. . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$—
—
—
$—
$—
—
4
$ 4
$(7)
—
—
$(7)
$—
(5)
—
$(5)
The table below summarizes the changes in unrealized gains and losses recorded in earnings for the year
ended December 31, 2008 for recurring Level 3 assets and liabilities that were still held at December 31, 2008.
Recurring Level 3 Assets and Liabilities
Trading
Securities
Year Ended December 31, 2008
Derivative
Assets
(Warrants)
Investment
Securities
Available-for-Sale
(in millions)
Other
Liabilities
Changes in unrealized gains (losses) recorded in earnings
relating to assets still held at December 31, 2008:
Other noninterest income . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Net securities gains (losses)
Discontinued operations . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$—
—
—
$—
$—
—
4
$ 4
$(9)
—
—
$(9)
$—
(5)
—
$(5)
129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
The Corporation may be required, from time to time, to measure certain assets at fair value on a
nonrecurring basis. These include assets that are measured at the lower of cost or market that were recognized at
fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included
in the table below.
December 31, 2008
Total
Level 1
Level 2
Level 3
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets (1)
$ 904
153
(in millions)
$—
—
$— $ 904
148
5
Total assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,057
$—
$ 5
$1,052
Total liabilities at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $—
$— $ —
(1)
Includes private equity investments, loans held-for-sale, loan servicing rights and foreclosed assets.
Note 24 — Estimated Fair Value of Financial Instruments
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 available, 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 necessarily indicate amounts which could be realized in a current exchange. Furthermore, as the
Corporation typically holds 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 believes the imprecision of an estimate
could be significant.
Following is a description of the methods and assumptions used in estimating fair value disclosures for
financial instruments not recorded at fair value in their entirety on a recurring basis on the Corporation’s
consolidated balance sheets. For further information regarding the fair value of financial instruments recorded at
fair value on a recurring basis under SFAS 157, refer to Note 23.
Cash and due from banks, federal funds sold and securities purchased under agreements to resell and
interest-bearing deposits with banks: The carrying amount approximates the estimated fair value of these
instruments.
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 commitments or the current
market values of similar loans.
Loans: Domestic business loans consist of commercial, real estate construction, commercial mortgage
and equipment lease financing loans. The estimated fair value of the Corporation’s variable rate domestic
business loans is represented by the 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
130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
value of fixed rate domestic business loans is calculated using a discounted cash flow model. The resulting
amounts are adjusted to estimate the effect of changes in the credit quality of borrowers since the loans were
originated. International loans consist primarily of short-term trade-related loans, variable rate loans or loans
which have no cross-border risk due to the existence of domestic guarantors or liquid collateral. The estimated
fair value of the Corporation’s international loan portfolio is represented by its carrying value, adjusted by an
amount which estimates the effect on fair value of changes in the credit quality of borrowers or guarantors. Retail
loans consist of residential mortgage, home equity and other consumer loans. The estimated fair value of
residential mortgage loans is based on discounted contractual cash flows adjusted for expected prepayments.
For home equity and other consumer loans, the estimated fair values are calculated using a discounted cash flow
model. 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 and acceptances outstanding: The carrying amount
approximates the estimated fair value.
Loan servicing rights: The estimated fair value is based on a discounted cash flow analysis, 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.
Short-term borrowings: The carrying amount of federal funds purchased, securities sold under
agreements to repurchase and other short-term borrowings approximates 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.
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 executed. 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 practicable to estimate a representational fair value for these
items.
131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The carrying amount and estimated fair value of the Corporation’s financial instruments are as follows:
Assets
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold and securities purchased under agreements
to resell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . . .
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total short-term investments . . . . . . . . . . . . . . . . . . . . . .
December 31
2008
2007
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
(in millions)
$
913
$
913
$ 1,440
$ 1,440
202
2,308
124
34
158
202
2,308
124
34
158
36
38
118
217
335
36
38
118
217
335
Investment securities available-for-sale . . . . . . . . . . . . . . . . . . .
9,201
9,201
6,296
6,296
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . .
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customers’ liability on acceptances outstanding . . . . . . . . . . . .
Loan servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Demand deposits (noninterest-bearing) . . . . . . . . . . . . . . . . . .
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medium- and long-term debt . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative instruments
Risk management:
Unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer-initiated and other:
Unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit-related financial instruments . . . . . . . . . . . . . . . . . . . .
50,505
(770)
49,735
14
11
11,701
30,254
41,955
1,749
14
15,053
404
(9)
711
(662)
8
(98)
50,855
—
50,855
14
11
11,701
30,392
42,093
1,749
14
13,995
404
(9)
711
(662)
8
(136)
50,743
(557)
50,186
48
12
11,920
32,358
44,278
2,807
48
8,821
150
(4)
253
(227)
23
(110)
50,681
—
50,681
48
12
11,920
32,357
44,277
2,807
48
8,492
150
(4)
253
(227)
23
(125)
132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Note 25 — Business Segment Information
The Corporation has strategically aligned its operations into three major business segments: the Business
Bank, the Retail Bank, and Wealth & Institutional Management. These business segments are differentiated
based on the type of customer and the related products and services provided. In addition to the three major
business segments, the Finance Division is also reported as a segment. Business segment results are produced by
the Corporation’s internal management accounting system. This system measures financial results based on the
internal business unit structure of the Corporation. Information presented is not necessarily comparable with
similar information for any other financial institution. The management accounting system assigns balance sheet
and income statement items to each business segment using certain methodologies, which are regularly reviewed
and refined. For comparability purposes, amounts in all periods are based on business segments and
methodologies in effect at December 31, 2008. 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.
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 allowance for loan losses is allocated to both large business
and certain large personal purpose consumer and residential mortgage loans that have deteriorated below
certain levels of credit risk based on a non-standard, specifically calculated amount. Additional loan loss reserves
are allocated based on industry-specific risk and are maintained to capture probable losses due to the inherent
imprecision in the risk rating system and new business migration risk not captured in the credit scores of
individual loans. For other business loans, the allowance for loan losses is recorded in business units based on the
credit score of each loan outstanding. For other consumer and residential mortgage loans, it is allocated based on
applying estimated loss ratios to various segments of the loan portfolio. The related loan loss provision is
assigned based on the amount necessary to maintain an allowance for loan losses adequate for each product
category. Noninterest income and expenses directly attributable to a line of business are assigned to that business
segment. Direct expenses incurred by areas whose services support the overall Corporation are allocated to the
business segments 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 50 percent based on the ratio of the business segment’s
noninterest expenses to total noninterest expenses incurred by all business segments and 50 percent based on
the ratio of the business segment’s attributed equity to total attributed equity of all business segments. Equity is
attributed based on credit, operational and interest rate risks. Most of the equity attributed relates to credit risk,
which is determined based on the credit score and expected remaining life of each loan, letter of credit and
unused commitment recorded in the business units. Operational risk is allocated based on loans and letters of
credit, deposit balances, non-earning assets, trust assets under management, certain noninterest income items,
and the nature and extent of expenses incurred by business units. Virtually all interest rate risk is assigned to
Finance, as are the Corporation’s hedging activities.
The following discussion provides information about the activities of each business segment. A discussion
of the financial results and the factors impacting 2008 performance can be found in the section entitled
‘‘Business Segments’’ in the financial review.
The Business Bank is primarily comprised of the following businesses: middle market, commercial real
estate, national dealer services, international finance, global corporate, leasing, financial services, and technology
and life sciences. This business segment 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, international trade finance, letters of credit, foreign
exchange management services and loan syndication services.
133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The Retail Bank includes small business banking and personal financial services, consisting of consumer
lending, consumer deposit gathering and mortgage loan origination. In addition to a full range of financial
services provided to small business customers, this business segment offers a variety of consumer products,
including deposit accounts, installment loans, credit cards, student loans, home equity lines of credit and
residential mortgage loans.
Wealth & Institutional Management offers products and services consisting of fiduciary services, private
banking, retirement services, investment management and advisory services, investment banking and discount
securities brokerage services. This business segment also offers the sale of annuity products, as well as life,
disability and long-term care insurance products.
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 analysis and executing various strategies to manage the Corporation’s exposure to
liquidity, interest rate risk and foreign exchange risk.
The Other category includes discontinued operations, the income and expense impact of equity and cash,
tax benefits not assigned to specific business segments and miscellaneous other expenses of a corporate nature.
Business segment financial results are as follows:
Year Ended December 31, 2008
Business
Bank
Wealth &
Institutional
Retail
Bank Management * Finance Other
Total
(dollar amounts in millions)
Earnings summary:
Net interest income (expense) (FTE)
Provision for loan losses . . . . . . . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . .
Noninterest expenses . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes (FTE) . . . . .
Income from discontinued operations, net of tax .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . $
. . . . . . . . . $ 1,277 $
543
302
709
90
—
237 $
566
123
258
645
22
—
34
$ 148
25
292
422
(3)
—
(4)
$
$ (147) $ (23) $ 1,821
686
893
1,751
65
1
213
(5)
(27)
(36)
(2)
1
(6) $
—
68
11
(42)
—
(48) $
$
64
392 $
Net credit-related charge-offs . . . . . . . . . . . . . . . $
Selected average balances:
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,794 $ 7,074
6,342
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,966
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,961
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Attributed equity . . . . . . . . . . . . . . . . . . . . . . .
676
Statistical data:
Return on average assets (1) . . . . . . . . . . . . . . . .
Return on average attributed equity . . . . . . . . . .
Net interest margin (2) . . . . . . . . . . . . . . . . . . .
Efficiency ratio . . . . . . . . . . . . . . . . . . . . . . . . .
40,867
15,005
15,719
3,277
4.98
3.33
83.21
$
16
$ — $ — $
472
$4,689
4,542
2,433
2,451
336
$10,003 $1,625 $65,185
51,765
42,003
59,743
5,442
1
7,239
23,880
926
13
360
732
227
0.33%
0.57% 0.19% (0.09)% N/M N/M
3.79
N/M N/M
(1.31)
7.25
N/M N/M
3.22
3.02
3.11
N/M N/M 66.17
96.97
45.28
*
2008 included an $88 million net charge ($56 million, after-tax) related to the repurchase of auction-rate securities from customers.
134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Year Ended December 31, 2007
Business
Bank
Wealth &
Institutional
Retail
Bank Management Finance Other
Total
(dollar amounts in millions)
Earnings summary:
Net interest income (expense) (FTE)
Provision for loan losses . . . . . . . . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expenses . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes (FTE) . . . . . .
Income from discontinued operations, net of tax . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
. . . . . . . . . . $ 1,349 $
178
291
709
237
—
516 $
670
41
220
654
67
—
128
$ 145
(3)
283
322
39
—
70
$
$ (133) $ (25) $ 2,006
212
888
1,691
309
4
686
—
65
10
(40)
—
(38) $
(4)
29
(4)
6
4
10 $
$
34
117 $
Net credit-related charge-offs . . . . . . . . . . . . . . . . $
Selected average balances:
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,762 $ 6,880
6,134
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,156
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,170
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Attributed equity . . . . . . . . . . . . . . . . . . . . . . . .
850
Statistical data:
Return on average assets (1) . . . . . . . . . . . . . . . . .
Return on average attributed equity . . . . . . . . . . .
Net interest margin (2) . . . . . . . . . . . . . . . . . . . .
Efficiency ratio . . . . . . . . . . . . . . . . . . . . . . . . . .
39,721
16,253
17,090
2,936
$
2
$ — $ — $
153
$4,096
3,937
2,386
2,392
332
$ 5,669 $1,167 $58,574
22
49,821
(35) 41,934
53,504
322
5,070
325
7
6,174
16,530
627
1.27% 0.71% 1.71% N/M N/M
21.15
17.57
3.66
3.39
75.17
43.49
N/M N/M 13.52
N/M N/M
3.66
N/M N/M 58.58
15.04
3.91
73.43
1.17%
Year Ended December 31, 2006
Business
Bank
Wealth &
Institutional
Retail
Bank Management Finance Other
Total
(dollar amounts in millions)
Earnings summary:
Net interest income (expense) (FTE)
Provision for loan losses . . . . . . . . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expenses . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes (FTE) . . . . . .
Income from discontinued operations, net of tax . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $
. . . . . . . . . . $ 1,330 $
14
305
741
283
—
597 $
691
23
210
607
92
—
179
$ 147
1
259
313
31
—
61
$
$ (163) $ (19) $ 1,986
37
855
1,674
348
111
893
(1)
—
18
63
(1)
14
(55)
(3)
— 111
(59) $ 115 $
$
35
37 $
Net credit-related charge-offs . . . . . . . . . . . . . . . . $
Selected average balances:
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $39,263 $ 6,787
6,084
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,807
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,809
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Attributed equity . . . . . . . . . . . . . . . . . . . . . . . .
831
Statistical data:
Return on average assets (1) . . . . . . . . . . . . . . . . .
Return on average attributed equity . . . . . . . . . . .
Net interest margin (2) . . . . . . . . . . . . . . . . . . . .
Efficiency ratio . . . . . . . . . . . . . . . . . . . . . . . . . .
38,081
17,775
18,678
2,639
21.48
4.11
67.46
$ — $ — $ — $
72
$3,677
3,534
2,394
2,392
299
$ 5,271 $1,581 $56,579
33
47,750
(88) 42,074
51,403
326
5,176
908
18
5,186
13,198
499
1.52% 1.01% 1.67% N/M N/M
20.50
22.61
4.15
3.49
77.06
45.35
N/M N/M 17.24
3.79
N/M N/M
N/M N/M 58.92
1.58%
Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.
(1)
(2) Net interest margin is calculated based on the greater of average earning assets or average deposits and purchased funds.
FTE — Fully Taxable Equivalent
N/M — Not Meaningful
135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The Corporation’s management accounting system also produces market segment results for the
Corporation’s four primary geographic markets: Midwest, Western, Texas, and Florida. In addition to the four
primary geographic markets, Other Markets and International are also reported as market segments. Market
segment results are provided as supplemental information to the business segment results and may not meet all
operating segment criteria as set forth in SFAS No. 131, ‘‘Disclosures about Segments of an Enterprise and
Related Information’’ (SFAS 131). The following discussion provides information about the activities of each
market segment. A discussion of the financial results and the factors impacting 2008 performance can be found
in the section entitled ‘‘Geographic Market Segments’’ in the financial review.
The Midwest market consists of operations located in the states of Michigan, Ohio and Illinois. Currently,
Michigan operations represent the significant majority of this geographic market.
The Western market consists of the states of California, Arizona, Nevada, Colorado and Washington.
Currently, California operations represent the significant majority of the Western market.
The Texas and Florida markets consist of operations located in the states of Texas and Florida, respectively.
Other Markets include businesses with a national perspective, the Corporation’s investment management
and trust alliance businesses as well as activities in all other markets in which the Corporation has operations,
except for the International market, as described below.
The International market represents the activity of the Corporation’s international finance division, which
provides banking services primarily to foreign-owned, North American-based companies and secondarily to
international operations of North American-based companies.
The Finance & Other Businesses segment includes the Corporation’s securities portfolio, asset and liability
management activities, discontinued operations, the income and expense impact of equity and cash not assigned
to specific business/market segments, tax benefits not assigned to specific business/market segments and
miscellaneous other expenses of a corporate nature. This segment includes responsibility for managing the
Corporation’s funding, liquidity and capital needs, performing interest sensitivity analysis and executing various
strategies to manage the Corporation’s exposure to liquidity, interest rate risk and foreign exchange risk.
The Corporation’s total revenues from customers and long-lived assets (excluding certain intangible assets)
located in foreign countries in which the Corporation holds assets were less than five percent of the
Corporation’s consolidated revenues and long-lived assets (excluding certain intangible assets) in each of the
years ended December 31, 2008, 2007 and 2006.
136
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Market segment financial results are as follows:
Year Ended December 31, 2008
Other
Finance &
Other
Midwest Western Texas Florida Markets * International Businesses
Total
(dollar amounts in millions)
Earnings summary:
Net interest income (expense) (FTE) . . . $
Provision for loan losses . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . .
Noninterest expenses . . . . . . . . . . . . .
Provision (benefit) for income taxes
(FTE)
. . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations,
net of tax . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . $
776 $
155
524
808
668 $ 292 $
379
139
448
51
94
246
47
40
16
43
$ 147
62
48
190
127
(1)
36
(6)
(65)
—
210 $
—
(19) $
—
—
53 $ (14) $
—
8
26
$
$
$
61
4
31
41
18
—
29
1
$
$
$
(170) $ 1,821
686
893
1,751
(5)
41
(25)
(44)
1
(54) $
— $
65
1
213
472
27
25 $
241 $
152 $
Net credit-related charge-offs . . . . . . . . $
Selected average balances:
Assets . . . . . . . . . . . . . . . . . . . . . . . $19,786 $16,841 $8,039 $1,896
1,892
Loans . . . . . . . . . . . . . . . . . . . . . . .
288
. . . . . . . . . . . . . . . . . . . . .
Deposits
283
Liabilities . . . . . . . . . . . . . . . . . . . . .
Attributed equity . . . . . . . . . . . . . . . .
130
Statistical data:
Return on average assets (1)
. . . . . . . .
Return on average attributed equity . . . .
Net interest margin (2) . . . . . . . . . . . .
Efficiency ratio . . . . . . . . . . . . . . . . .
1.06% (0.11)% 0.66% (0.72)% 0.18%
12.74
4.04
64.96
8.48 (10.49)
2.46
3.73
68.26
64.57
19,061
16,040
16,672
1,639
16,551
11,917
11,893
1,339
7,776
4,023
4,040
627
(1.41)
4.02
55.75
2.06
3.45
99.47
$
$4,623
4,217
1,374
1,479
396
$2,372
2,254
762
764
158
$ 11,628 $65,185
51,765
42,003
59,743
5,442
14
7,599
24,612
1,153
1.24%
18.53
2.64
44.26
N/M
N/M
N/M
N/M
0.33%
3.79
3.02
66.17
*
2008 included an $88 million net charge ($56 million, after-tax) related to the repurchase of auction-rate securities from customers.
Year Ended December 31, 2007
Other
Finance &
Other
Midwest Western Texas Florida Markets International Businesses
Total
(dollar amounts in millions)
Earnings summary:
Net interest income (expense) (FTE) . . . . $
Provision for loan losses . . . . . . . . . . . .
Noninterest income . . . . . . . . . . . . . . .
Noninterest expenses . . . . . . . . . . . . . .
Provision (benefit) for income taxes (FTE)
Income from discontinued operations, net
of tax . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss)
. . . . . . . . . . . . . . . . $
888 $
88
471
818
158
—
295 $
739 $ 287 $
108
130
454
116
8
86
235
45
46 $ 136
16
11
55
14
96
38
(7)
4
—
191 $
—
85 $
—
7 $
—
86
9 $
2 $
28 $
110 $
Net credit-related charge-offs (recoveries) . $
Selected average balances:
Assets . . . . . . . . . . . . . . . . . . . . . . . . $19,133 $17,069 $7,106 $1,688 $4,490
4,081
Loans . . . . . . . . . . . . . . . . . . . . . . . .
1,433
Deposits
. . . . . . . . . . . . . . . . . . . . . .
1,550
Liabilities . . . . . . . . . . . . . . . . . . . . . .
335
Attributed equity . . . . . . . . . . . . . . . . .
Statistical data:
Return on average assets (1) . . . . . . . . . .
Return on average attributed equity . . . . .
Net interest margin (2) . . . . . . . . . . . . .
Efficiency ratio . . . . . . . . . . . . . . . . . .
1.55% 1.12% 1.19% 0.40% 1.92% 2.22%
17.18
4.76
60.32
18,558
15,772
16,437
1,723
16,530
13,325
13,361
1,212
1,672
286
287
97
6,827
3,884
3,901
595
25.70
3.33
50.20
32.05
3.10
42.93
14.22
4.18
63.05
6.91
2.76
64.27
15.73
4.47
52.31
10
$
$
$
68
(15)
38
44
27
—
50
(6)
$2,252
2,124
1,095
1,116
156
$
$
$
(158) $ 2,006
212
888
1,691
309
(4)
94
6
(34)
4
(28) $
— $
4
686
153
$ 6,836 $58,574
49,821
41,934
53,504
5,070
29
6,139
16,852
952
N/M
N/M
N/M
N/M
1.17%
13.52
3.66
58.58
137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Year Ended December 31, 2006
Other
Finance &
Other
Midwest Western
Texas
Florida Markets International Businesses
Total
(dollar amounts in millions)
Earnings summary:
Net interest income (expense)
(FTE)
. . . . . . . . . . . . . . . . . . $
Provision for loan losses . . . . . . .
Noninterest income . . . . . . . . . . .
. . . . . . . . .
Noninterest expenses
Provision (benefit) for income
taxes (FTE)
. . . . . . . . . . . . . .
Income from discontinued
936 $
78
452
806
742 $ 265 $
(32)
160
450
(3)
76
216
42 $ 117
6
3
52
14
105
34
165
186
43
6
(11)
operations, net of tax . . . . . . . .
Net income . . . . . . . . . . . . . . . . $
—
339 $
—
298 $
—
85 $
—
13 $
—
69
7 $
1 $
48 $
Net credit-related charge-offs . . . . $
Selected average balances:
Assets . . . . . . . . . . . . . . . . . . . . $19,370 $16,445 $6,175 $1,528 $4,008
3,621
Loans . . . . . . . . . . . . . . . . . . . .
1,304
Deposits . . . . . . . . . . . . . . . . . .
1,428
Liabilities . . . . . . . . . . . . . . . . . .
Attributed equity . . . . . . . . . . . .
278
Statistical data:
Return on average assets (1) . . . . .
Return on average attributed
18,714
16,010
16,685
1,623
15,882
14,592
14,657
1,102
1,508
306
308
80
5,911
3,699
3,709
529
2 $
13
$
$
$
66
(14)
20
50
17
—
33
1
$
$
$
(182) $ 1,986
37
855
1,674
(1)
81
13
(58)
111
56 $
— $
348
111
893
72
$2,201
2,063
1,065
1,092
157
$ 6,852 $56,579
47,750
42,074
51,403
5,176
51
5,098
13,524
1,407
1.75% 1.81% 1.38% 0.86% 1.71% 1.48% N/M
1.58%
equity . . . . . . . . . . . . . . . . . .
Net interest margin (2) . . . . . . . .
Efficiency ratio . . . . . . . . . . . . . .
20.91
4.99
58.13
27.02
4.66
49.94
16.11
4.46
63.27
16.25
2.80
61.09
24.68
3.21
61.86
20.76
3.10
58.69
N/M 17.24
N/M
3.79
N/M 58.92
Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.
(1)
(2) Net interest margin is calculated based on the greater of average earning assets or average deposits and purchased funds.
FTE — Fully Taxable Equivalent
N/M — Not Meaningful
138
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Note 26 — Parent Company Financial Statements
BALANCE SHEETS — COMERICA INCORPORATED
ASSETS
Cash and due from subsidiary bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments with subsidiary bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries, principally banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31
2008
2007
(in millions,
except share data)
$
11
2,329
80
5,690
5
210
$
1
224
102
5,840
4
166
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,325
$ 6,337
LIABILITIES AND SHAREHOLDERS’ EQUITY
Medium- and long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,002
171
$
968
252
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,173
1,220
Fixed rate cumulative perpetual preferred stock, series F, no par value, $1,000
liquidation preference per share:
Authorized — 2,250,000 shares
Issued — 2,250,000 shares at 12/31/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,129
—
Common stock — $5 par value:
Authorized — 325,000,000 shares
Issued — 178,735,252 shares at 12/31/08 and 12/31/07 . . . . . . . . . . . . . . . . . . .
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less cost of common stock in treasury — 28,244,967 shares at 12/31/08 and
894
722
(309)
5,345
894
564
(177)
5,497
28,747,097 shares at 12/31/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,629)
(1,661)
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,152
5,117
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,325
$ 6,337
139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
STATEMENTS OF INCOME — COMERICA INCORPORATED
Years Ended
December 31
2008
2007
2006
(in millions)
INCOME
Income from subsidiaries
Dividends from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$267
4
156
(32)
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
395
EXPENSES
Interest on medium- and long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noninterest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50
74
8
1
55
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
188
$614
15
149
15
793
$746
13
178
13
950
60
108
7
1
51
227
52
113
2
1
46
214
Income before provision (benefit) for income taxes and equity in undistributed
earnings of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before equity in undistributed earnings of subsidiaries . . . . . . . . . . . . . . . .
Equity in undistributed earnings of subsidiaries, principally banks (including
207
(25)
232
566
(22)
588
736
(6)
742
discontinued operations) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(19)
98
151
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
213
17
686
—
893
—
Net income applicable to common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$196
$686
$893
140
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
STATEMENTS OF CASH FLOWS — COMERICA INCORPORATED
Years Ended
December 31
2008
2007
2006
(in millions)
$ 213
$ 686
$ 893
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Undistributed losses (earnings) of subsidiaries, principally banks (including
discontinued operations) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and software amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based compensation arrangements . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
1
18
(10)
—
19
(98)
1
20
(15)
(9)
49
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . .
260
634
INVESTING ACTIVITIES
Net proceeds from private equity and venture capital investments . . . . . . . . . . .
Capital transactions with subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . . . . .
FINANCING ACTIVITIES
Proceeds from issuance of medium- and long-term debt . . . . . . . . . . . . . . . . . .
Repayment of medium- and long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of preferred stock and related warrants . . . . . . . . . . . . .
Purchase of common stock for treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . .
Excess tax benefits from share-based compensation arrangements
2
—
(2)
—
3
(62)
(1)
(60)
—
665
— (510)
89
—
(580)
(390)
9
1
2,250
(1)
(395)
—
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,855
(717)
(151)
1
21
6
(9)
43
804
3
(6)
(1)
(4)
—
—
45
—
(384)
(377)
9
(707)
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,115
225
$2,340
(143)
368
$ 225
93
275
$ 368
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes recovered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
51
$ 57
$ 50
(3) $ (39) $ —
Note 27 — Sales of Businesses/Discontinued Operations
In December 2006, the Corporation sold its ownership interest in Munder to an investor group. The sale,
including associated costs and assigned goodwill, resulted in a net after-tax gain of $108 million, or $0.67 per
average annual diluted share, in 2006. The sale agreement included an interest-bearing contingent note with an
initial principal amount of $70 million, which will be realized if the Corporation’s client-related revenues earned
by Munder remain consistent with 2006 levels of approximately $17 million per year for the five years following
the closing of the transaction (2007-2011). The principal amount of the note may be increased to a maximum of
141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
$80 million or decreased to as low as zero, depending on the level of such revenues earned in the five years
following the closing. Repayment of the principal is scheduled to begin after the sixth anniversary of the closing
of the transaction from Munder’s excess cash flows, as defined in the sale agreement. The note matures in
December 2013. Future gains related to the contingent note are expected to be recognized periodically through
the fourth quarter 2011 as targets for the Corporation’s client-related revenues earned by Munder are achieved.
As a result of the sale transaction, the Corporation reported Munder as a discontinued operation in all
periods presented. The assets and liabilities related to the discontinued operations of Munder are not material
and have not been reclassified on the consolidated balance sheets.
The income from discontinued operations recorded in 2008 reflected the recognition of contingent gains
and adjustments to the initial gain recorded at the closing of the Munder sale transaction. The components of net
income from discontinued operations for the years ended December 31, 2008, 2007 and 2006, respectively, were
as follows:
2008
2007
2006
(in millions,
except per share data)
Income from discontinued operations before income taxes and cumulative effect of
change in accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Income from discontinued operations before cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of change in accounting principle, net of taxes . . . . . . . . . . . . .
Net income from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2
1
1
—
1
$
$
6
2
$ 196
77
4
—
4
119
(8)
$ 111
Basic earnings per common share:
Income from discontinued operations before cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income from discontinued operations
$0.01
0.01
$0.03
0.03
$0.74
0.69
Diluted earnings per common share:
Income from discontinued operations before cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income from discontinued operations
— 0.03
— 0.03
0.73
0.68
During the third quarter 2006, the Corporation completed the sale of its Mexican bank charter. Included in
‘‘net gain (loss) on sales of businesses’’ on the consolidated statements of income is a net loss on the sale of
$12 million, which is reflected in the Corporation’s Business Bank business segment and International
geographic market segment. As part of the sale transaction, the Corporation transferred $24 million of loans and
$18 million of liabilities to the buyer.
In the fourth quarter 2006, the Corporation decided to sell a portfolio of loans related to manufactured
housing, located primarily in Michigan and Ohio. In accordance with SFAS 144, ‘‘Accounting for the
Impairment or Disposal of Long-Lived Assets,’’ approximately $74 million of loans were classified as
held-for-sale, which were included in ‘‘other short-term investments’’ on the consolidated balance sheet at
December 31, 2006. The Corporation recorded a $9 million charge-off to adjust the loans classified as
held-for-sale to fair value. During the first quarter 2007, the Corporation completed the sale and transferred the
$74 million of loans to the buyer for substantially the fair value recorded at December 31, 2006.
142
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Note 28 — Repurchase of Auction-Rate Securities
On September 18, 2008, the Corporation announced an offer to repurchase, at par, auction-rate securities
(ARS) held by certain retail and institutional clients that were purchased through Comerica Securities, a broker/
dealer subsidiary of Comerica Bank. ARS that were the subject of functioning auctions or current calls or
redemptions were not eligible for repurchase. The repurchase offers commenced in October 2008 and
concluded in December 2008.
The following table summarizes ARS repurchase activity for the year ended December 31, 2008.
At September 18, 2008 announcement . . . . . . . . . .
Fourth quarter 2008 ARS activity:
ARS Eligible for
Repurchase
Par Value
Fair Value
$ 1,533
$ 1,440
ARS Repurchased
Repurchase
Charge (1)
Fair
Value (2)
Securities
Gains
(in millions)
$(96)
$ —
$ —
Repurchased from customers . . . . . . . . . . . . . . .
Called or redeemed subsequent to repurchase . . .
Unrealized losses (3) . . . . . . . . . . . . . . . . . . . . .
Not redeemed by customers (4) . . . . . . . . . . . . .
(1,345)
—
—
(188)
(1,259)
—
—
(181)
—
—
—
8
1,259
(80)
(32)
—
—
4
—
—
At December 31, 2008 . . . . . . . . . . . . . . . . . . . . .
$ — $ —
$(88)
$1,147
$ 4
(1) Recorded in ‘‘litigation and operational losses’’ on the consolidated statements of income. Includes the
difference between cost (par value) and fair value of the securities repurchased and other repurchase-
related charges.
(2) Recorded in ‘‘investment securities available-for-sale’’ on the consolidated balance sheets.
(3) Declines in fair value subsequent to repurchase recognized in accumulated other comprehensive loss.
(4)
Includes ARS called by the issuer or redeemed at auction by customers prior to repurchase as well as ARS
not submitted to the Corporation for repurchase by customers.
143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Note 29 — Summary of Quarterly Financial Statements (Unaudited)
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.
2008
Fourth
Quarter Quarter Quarter Quarter
Second
Third
First
(in millions, except per share data)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 716
285
$ 735
269
$ 737
295
$ 863
387
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net securities gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income (excluding net securities gains) . . . . . . . . . . . . . .
Noninterest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income applicable to common stock . . . . . . . . . . . . . . . . . . . . .
$
431
192
4
170
411
(17)
19
1
20
17
3
466
165
27
213
514
—
27
1
28
—
442
170
14
228
423
35
56
—
56
—
476
159
22
215
403
41
110
(1)
109
—
$ 28
$ 56
$ 109
Basic earnings per common share:
. . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.01
0.02
$0.18
0.19
$0.37
0.37
$0.74
0.73
Diluted earnings per common share:
Income from continuing operations
. . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.01
0.02
0.18
0.19
0.37
0.37
0.73
0.73
144
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
2007
Fourth
Quarter Quarter Quarter Quarter
Second
Third
First
(in millions, except per share data)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 944
455
$ 952
449
$ 933
424
$ 901
399
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net securities gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income (excluding net securities gains) . . . . . . . . . . . . . .
Noninterest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net of tax . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
489
108
3
227
450
44
117
2
119
—
503
45
4
226
423
85
180
1
181
—
509
36
—
225
411
91
196
—
196
—
502
23
—
203
407
86
189
1
190
—
Net income applicable to common stock . . . . . . . . . . . . . . . . . . . . .
$ 119
$ 181
$ 196
$ 190
Basic earnings per common share:
Income from continuing operations
. . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.78
0.80
$1.18
1.20
$1.28
1.28
$1.21
1.21
Diluted earnings per common share:
Income from continuing operations
. . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.77
0.79
1.17
1.18
1.25
1.25
1.19
1.19
145
REPORT OF MANAGEMENT
The management of Comerica Incorporated (the Corporation) is responsible for the accompanying
consolidated financial statements and all other financial information in this Annual Report. The consolidated
financial statements have been prepared in conformity with U.S. 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 consolidated
financial statements.
In meeting its responsibility for the reliability of the consolidated financial statements, management
develops and maintains effective internal controls, including those over financial reporting, as defined in the
Securities and Exchange Act of 1934, as amended. The Corporation’s internal control over financial reporting
includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the Corporation; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated
financial statements in conformity with U.S. generally accepted accounting principles, and that receipts and
expenditures of the Corporation are made only in accordance with authorizations of management and directors
of the Corporation; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Corporation’s assets that could have a material effect on the
consolidated financial statements.
Management assessed, with participation of the Corporation’s Chief Executive Officer and Chief Financial
Officer, internal control over financial reporting as it relates to the Corporation’s consolidated financial
statements presented in conformity with U.S. generally accepted accounting principles as of December 31, 2008.
The assessment was based on criteria for effective internal control over financial reporting described in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this assessment, management determined that internal control over financial
reporting is effective as it relates to the Corporation’s consolidated financial statements presented in conformity
with U.S. generally accepted accounting principles as of December 31, 2008.
Because of inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
The consolidated financial statements as of December 31, 2008 were audited by Ernst & Young LLP, an
independent registered public accounting firm. The audit was conducted in accordance with the standards of
the Public Company Accounting Oversight Board (United States), which required the independent public
accountants to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement and whether effective internal control over financial reporting is maintained in all material
respects.
The Corporation’s Board of Directors oversees management’s internal control over financial reporting and
financial reporting responsibilities through its Audit Committee as well as various other committees. The Audit
Committee, which consists of directors who are not officers or employees of the Corporation, meets regularly
with management, internal audit and the independent public accountants to assure that the Audit Committee,
management, internal auditors and the independent public accountants are carrying out their responsibilities,
and to review auditing, internal control and financial reporting matters.
Ralph W. Babb Jr.
Chairman, President and
Chief Executive Officer
Elizabeth S. Acton
Executive Vice President and
Chief Financial Officer
Marvin J. Elenbaas
Senior Vice President and
Chief Accounting Officer
146
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Comerica Incorporated
We have audited Comerica Incorporated’s internal control over financial reporting as of December 31,
2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). Comerica Incorporated’s
management is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Report
of Management. Our responsibility is to express an opinion on the Corporation’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the Corporation are being made only in accordance with authorizations of management and directors of the
Corporation; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Corporation’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Comerica Incorporated maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the 2008 consolidated financial statements of Comerica Incorporated and subsidiaries
and our report dated February 20, 2009 expressed an unqualified opinion thereon.
22MAR200710122600
Dallas, Texas
February 20, 2009
147
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Comerica Incorporated
We have audited the accompanying consolidated balance sheets of Comerica Incorporated and subsidiaries
as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2008. 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 the standards of the Public Company Accounting Oversight
Board (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 examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Comerica Incorporated and subsidiaries at December 31, 2008 and 2007, and
the consolidated results of their operations and their cash flows for each of the three years in the period ended
December 31, 2008, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Comerica Incorporated’s internal control over financial reporting as of December 31,
2008, based on criteria established in ‘‘Internal Control-Integrated Framework’’ issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2009, expressed an
unqualified opinion thereon.
22MAR200710122600
Dallas, Texas
February 20, 2009
148
HISTORICAL REVIEW — AVERAGE BALANCE SHEETS
Comerica Incorporated and Subsidiaries
CONSOLIDATED FINANCIAL INFORMATION
Years Ended December 31
2008
2007
2006
2005
2004
(in millions)
ASSETS
Cash and due from banks
. . . . . . . . . . . . . . . . . . . .
$ 1,185
$ 1,352
$ 1,557
$ 1,721
$ 1,685
Federal funds sold and securities purchased under
agreements to resell
. . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits with banks . . . . . . . . . . . . .
Other short-term investments . . . . . . . . . . . . . . . . . .
93
219
244
164
15
241
283
110
156
390
30
135
Investment securities available-for-sale . . . . . . . . . . . .
8,101
4,447
3,992
3,861
Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate construction loans . . . . . . . . . . . . . . . . . .
Commercial mortgage loans . . . . . . . . . . . . . . . . . . .
Residential mortgage loans . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer loans
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allowance for loan losses . . . . . . . . . . . . . . . . . .
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Accrued income and other assets
28,870
4,715
10,411
1,886
2,559
1,356
1,968
51,765
(691)
51,074
4,269
28,132
4,552
9,771
1,814
2,367
1,302
1,883
49,821
(520)
49,301
3,054
27,341
3,905
9,278
1,570
2,533
1,314
1,809
47,750
(499)
47,251
3,230
24,575
3,194
8,566
1,388
2,696
1,283
2,114
43,816
(623)
43,193
3,176
1,695
25
201
4,321
22,139
3,264
7,991
1,237
2,668
1,272
2,162
40,733
(787)
39,946
3,075
Total assets
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$65,185
$58,574
$56,579
$52,506
$50,948
LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . .
$10,623
31,380
$11,287
30,647
$13,135
28,939
$15,007
25,633
$14,122
26,023
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . .
Medium- and long-term debt . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . .
42,003
3,763
1,520
12,457
59,743
5,442
41,934
2,080
1,293
8,197
53,504
5,070
42,074
2,654
1,268
5,407
51,403
5,176
40,640
1,451
1,132
4,186
47,409
5,097
40,145
275
947
4,540
45,907
5,041
Total liabilities and shareholders’ equity . . . . . . .
$65,185
$58,574
$56,579
$52,506
$50,948
149
HISTORICAL REVIEW — STATEMENTS OF INCOME
Comerica Incorporated and Subsidiaries
CONSOLIDATED FINANCIAL INFORMATION
Years Ended December 31
2008
2007
2006
2005
2004
(in millions, except per share data)
INTEREST INCOME
Interest and fees on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,649
389
13
$3,501
206
23
$3,216
174
32
$2,554
148
24
$2,055
147
36
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,051
3,730
3,422
2,726
2,238
INTEREST EXPENSE
Interest on deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on medium- and long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income after provision for loan losses . . . . . . . . . . . . . . . . . .
NONINTEREST INCOME
Service charges on deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiduciary income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial lending fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Letter of credit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Card fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brokerage fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank-owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net securities gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net gain (loss) on sales of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from lawsuit settlement
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NONINTEREST EXPENSES
Salaries
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outside processing fee expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Litigation and operational losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses on lending-related commitments . . . . . . . . . . . . . . . .
Other noninterest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
734
87
415
1,236
1,815
686
1,129
229
199
69
69
58
42
40
38
67
—
—
82
893
781
194
975
156
62
104
76
13
103
18
244
Total noninterest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,751
Income from continuing operations before income taxes
Provision for income taxes
. . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . .
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
271
59
212
1
213
17
1,167
105
455
1,727
2,003
212
1,791
221
199
75
63
54
43
40
36
7
3
—
147
888
844
193
1,037
138
60
91
63
43
18
(1)
242
1,691
988
306
682
4
686
—
1,005
130
304
1,439
1,983
37
1,946
548
52
170
770
1,956
(47)
2,003
315
4
108
427
1,811
64
1,747
218
180
65
64
46
40
38
40
—
(12)
47
129
855
823
184
1,007
125
55
85
56
47
11
5
283
1,674
1,127
345
782
111
893
—
218
174
63
70
39
36
37
38
—
1
—
143
819
786
178
964
118
53
77
49
69
14
18
251
231
166
55
66
32
36
37
34
—
7
—
144
808
736
154
890
122
54
67
43
23
24
(12)
247
1,613
1,209
393
816
45
861
—
1,458
1,097
349
748
9
757
—
Net income applicable to common stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 196
$ 686
$ 893
$ 861
$ 757
Basic earnings per common share:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1.30
1.31
$ 4.47
4.49
$ 4.88
5.57
$ 4.90
5.17
$ 4.36
4.41
Diluted earnings per common share:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared on common stock . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . . . .
1.29
1.29
348
2.31
4.40
4.43
393
2.56
4.81
5.49
380
2.36
4.84
5.11
367
2.20
4.31
4.36
356
2.08
150
HISTORICAL REVIEW — STATISTICAL DATA
Comerica Incorporated and Subsidiaries
CONSOLIDATED FINANCIAL INFORMATION
Years Ended December 31
2008
2007
2006
2005
2004
AVERAGE RATES (FULLY TAXABLE EQUIVALENT BASIS)
Federal funds sold and securities purchased under agreements to resell
Interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . . . . . .
Other short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities available-for-sale . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial loans
Real estate construction loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer loans
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income as a percentage of earning assets . . . . . . . . . . . .
Domestic deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits in foreign offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medium- and long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense as a percentage of interest-bearing sources . . . . .
Interest rate spread . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of net noninterest-bearing sources of funds . . . . . . . . . . . . .
2.08% 5.28% 5.15% 3.29% 1.36%
5.86
0.61
7.26
3.98
6.99
5.69
9.97
6.62
4.00
5.75
4.83
5.08
4.89
5.57
5.94
5.08
0.59
5.13
5.13
5.06
2.33
2.77
2.34
2.30
3.33
2.59
2.47
0.55
4.56
7.25
8.21
7.26
6.13
7.00
3.04
7.06
7.03
6.82
3.77
4.85
3.81
5.06
5.55
4.22
2.60
1.06
4.22
6.87
8.61
7.27
6.02
7.13
4.00
7.01
6.74
6.53
3.42
4.82
3.47
4.89
5.63
3.89
2.64
1.15
3.76
5.62
7.23
6.23
5.74
5.89
3.81
5.98
5.84
5.65
2.07
4.18
2.14
3.59
4.05
2.46
3.19
0.87
3.36
4.22
5.43
5.19
5.68
4.73
4.06
4.69
5.05
4.76
1.17
2.60
1.21
1.25
2.39
1.38
3.38
0.48
Net interest margin as a percentage of earning assets . . . . . . . . . . . .
3.02% 3.66% 3.79% 4.06% 3.86%
RATIOS
Return on average common shareholders’ equity . . . . . . . . . . . . . . .
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Efficiency ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 common capital as a percentage of risk-weighted assets . . . . . .
Tier 1 capital as a percentage of risk-weighted assets . . . . . . . . . . . .
Total capital as a percentage of risk-weighted assets . . . . . . . . . . . . .
. . . . . . . .
Tangible common equity as a percentage of tangible assets
PER COMMON SHARE DATA
Book value at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market value at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market value for the year
3.79% 13.52% 17.24% 16.90% 15.03%
1.58
0.33
58.92
66.17
7.54
7.08
8.03
10.66
11.64
14,72
8.62
7.21
1.49
55.60
8.13
8.77
12.75
9.39
1.17
58.58
6.85
7.51
11.20
7.97
1.64
58.01
7.78
8.38
11.65
9.16
$ 33.31
19.85
$ 34.12
43.53
$ 32.70
58.68
$ 31.11
56.76
$ 29.94
61.02
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45.19
15.05
63.89
39.62
60.10
50.12
63.38
53.17
63.80
50.45
OTHER DATA (share data in millions)
Average common shares outstanding — basic . . . . . . . . . . . . . . . . .
Average common shares outstanding — diluted . . . . . . . . . . . . . . .
Number of banking centers . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of employees (full-time equivalent)
149
151
439
153
155
417
160
162
393
167
169
383
172
174
379
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,186
—
10,782
—
10,700
—
10,636
180
10,720
172
151
Shareholder Information
Stock
Comerica’s common stock trades on the New York Stock Exchange
(NYSE) under the symbol CMA.
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 financial data.
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:
Written Requests:
Wells Fargo
Shareowner Services
P.O. Box 64854
St. Paul, MN 55164-0854
(877) 536-3551
Certified/Overnight Mail:
Wells Fargo
Shareowner Services
161 North Concord Exchange
South St. Paul, MN 55075-1139
(877) 536-3551
stocktransfer@wellsfargo.com
shareowneronline.com
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.
Stock Prices, Dividends and Yields
Quarter
High
Low
Dividends
Per Share
Dividend
Yield*
2008
Fourth
Third
Second
First
2007
Fourth
Third
Second
First
$37.01
43.99
40.62
45.19
$54.88
61.34
63.89
63.39
$15.05
19.31
25.61
34.51
$39.62
50.26
58.18
56.77
$0.33
0.66
0.66
0.66
$0.64
0.64
0.64
0.64
5.1%
8.3
8.0
6.6
5.4%
4.6
4.2
4.3
* 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.
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 commissions or service charges. Participating
shareholders also may invest up to $10,000 in additional funds each
month 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.
For a discussion of restrictions on increasing common dividends, see
the “Capital” section of the “Balance Sheet and Capital Funds Analysis”
on page 39 and Note 12 to the consolidated financial statements on
pages 96-98. Comerica has announced that it will be paying a quarterly
cash dividend for common stock of five cents ($0.05) per share, payable
April 1, 2009 to common stock shareholders of record on March 15, 2009.
As of January 31, 2009, there were 13,231 holders of record of Comerica’s
common stock.
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.
Form 10-K
A copy of Comerica’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2008, as filed with the Securities and Exchange
Commission, will be provided without charge upon written request to
the Secretary of the Corporation at the address listed on the back cover.
Officer Certifications
On June 11, 2008, Comerica’s Chief Executive Officer submitted his
annual certification to the New York Stock Exchange stating that he was
not aware of any violation by Comerica of the Exchange’s corporate
governance listing standards. Comerica filed the certifications by its
Chief Executive Officer and Chief Financial Officer required by Section
302 of the Sarbanes-Oxley Act of 2002 as exhibits to its Annual Report
on Form 10-K for the fiscal year ended December 31, 2008.
Community Reinvestment Act (CRA) Performance
Comerica is committed to meeting the credit needs of the communities
it serves. Comerica’s overall CRA rating is “Outstanding.”
Equal Employment Opportunity
Comerica is committed to its affirmative action program and practices,
which ensure uniform treatment of employees without regard to ancestry,
race, color, religion, sex, national origin, age, physical or mental disability,
medical condition, veteran status, marital status, pregnancy, weight,
height or sexual orientation.
Corporate Ethics
The Corporate Governance section of Comerica’s website at
www.comerica.com includes the following codes of ethics: Senior
Financial Officer Code of Ethics, Code of Business Conduct and Ethics
for Employees, and Code of Business Conduct and Ethics for Members
of the Board of Directors. Comerica will also disclose in that website
section any amendments or waivers to the Senior Financial Officer Code
of Ethics within four business days of such an event.
General Information
Directory Services (800) 521-1190
Product Information (800) 292-1300
Comerica Corporate Headquarters
Comerica Bank Tower
1717 Main Street
Dallas, Texas 75201
www.comerica.com