1
EXHIBIT 13
FINANCIAL REVIEW AND REPORTS
24 2000 Financial Highlights
24 Earnings Performance
31 Strategic Lines of Business
33 Balance Sheet and Capital Funds Analysis
34 Risk Management
42 Consolidated Financial Statements
46 Notes to Consolidated Financial Statements
68 Report of Management
68 Report of Independent Auditors
69 Historical Review
2
2000 Annual Report 23
TABLE 1: SELECTED FINANCIAL DATA
Year Ended December 31
(dollar amounts in millions, except per share data) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS SUMMARY
Total interest income $ 3,262 $ 2,673 $ 2,617 $ 2,648 $ 2,563
Net interest income 1,659 1,547 1,461 1,443 1,412
Provision for credit losses 145 114 113 146 114
Securities gains/(losses) (1) 5 6 5 14
Noninterest income (excluding securities gains/(losses)) 827 712 597 523 493
Noninterest expenses 1,189 1,117 1,020 1,008 1,159
Net income 749 673 607 530 417
PER SHARE OF COMMON STOCK
Basic net income $ 4.68 $ 4.20 $ 3.79 $ 3.24 $ 2.41
Diluted net income 4.63 4.14 3.72 3.19 2.38
Cash dividends declared 1.60 1.44 1.28 1.15 1.01
Common shareholders' equity 23.94 20.60 17.94 16.02 14.70
Market value 59.38 46.69 68.19 60.17 34.92
YEAR-END BALANCES
Total assets $ 41,985 $38,653 $36,601 $36,292 $34,206
Total earning assets 38,903 36,046 33,427 33,104 31,110
Total loans 36,060 32,693 30,605 28,895 26,207
Total deposits 27,168 23,291 24,313 22,586 22,367
Total borrowings 10,166 11,348 8,862 10,479 8,731
Medium- and long-term debt 8,089 8,580 5,282 7,286 4,242
Common shareholders' equity 3,757 3,225 2,797 2,512 2,366
DAILY AVERAGE BALANCES
Total assets $ 40,320 $36,960 $34,987 $34,869 $34,195
Total earning assets 37,344 34,079 32,113 32,025 31,370
Total loans 34,376 31,560 28,599 27,209 25,352
Total deposits 24,692 22,519 22,253 21,946 22,258
Total borrowings 11,388 10,771 9,452 9,798 8,850
Medium- and long-term debt 8,125 7,289 6,032 5,980 4,745
Common shareholders' equity 3,460 2,999 2,617 2,408 2,554
RATIOS
Return on average assets 1.86% 1.82% 1.74% 1.52% 1.22%
Return on average common shareholders' equity 21.16 21.86 22.54 21.32 15.98
Efficiency ratio 47.74 49.35 49.39 51.04 60.36
Dividend payout ratio 35 35 34 36 42
Average common shareholders' equity as
a percent of average assets 8.58 8.11 7.48 6.91 7.47
====================================================================================================================================
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24 Comerica Incorporated
2000 FINANCIAL HIGHLIGHTS
CENTERED ON PERFORMANCE
- - Earned 21.16 percent on average common shareholders' equity, compared to
21.86 percent in 1999.
- - Returned 1.86 percent on average assets, compared to 1.82 percent in 1999.
- - Improved the efficiency ratio to 47.74 percent in 2000, solidifying
Comerica as one of the top performing commercial banks in terms of
efficiency.
REPORTED RECORD EARNINGS
- - Reported net income of $749 million, or $4.63 per common share, compared
with $673 million, or $4.14 per common share, in 1999.
SUSTAINED GROWTH
- - Generated a 12 percent increase in average business loans.
- - Averaged $40 billion in total assets, a nine percent increase from 1999.
- - Increased average shareholders' equity to $3.7 billion.
ENHANCED SHAREHOLDERS' RETURN
- - Raised the quarterly cash dividend 11 percent to $0.40 per share, an annual
rate of $1.60.
IMPLEMENTED KEY STRATEGIES
- - Announced the acquisition of Imperial Bancorp, a $7.4 billion banking
company in California, for $1.3 billion of common stock.
- - Announced an alliance to provide third party bankcard and revolving check
credit services to Comerica's customers and sold $457 million of loans in
connection with forming the alliance, recognizing a net gain of $48
million.
- - Formed alliances to provide personal trust services to alliance partner
clients across the United States.
- - Opened a new SBA lending office in New Orleans.
RETURN ON AVERAGE ASSETS
(IN PERCENTAGES)
[BAR GRAPH]
96 97 98 99 00
Comerica 1.22% 1.52% 1.74% 1.82% 1.86%
Industry Average 1.40% 1.31% 1.22% 1.39% 1.27%
EARNINGS PERFORMANCE
NET INTEREST INCOME
Net interest income is the difference between interest earned on assets,
including certain yield related fees, and interest paid on liabilities. Interest
expense includes the net interest income or expense associated with risk
management interest rate swaps. Adjustments are made to the yields on tax-exempt
assets in order to present tax-exempt income and fully taxable income on a
comparable basis. Net interest income on a fully taxable equivalent basis (FTE)
comprised 67 percent of net revenues in 2000, compared to 68 percent in 1999 and
71 percent in 1998.
NET INTEREST INCOME
[BAR GRAPH]
96 97 98 99 00
Net Interest Income (FTE) $1,427 $1,452 $1,468 $1,552 $1,663
Net Interest Margin (FTE) 4.54% 4.53% 4.57% 4.55% 4.45%
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2000 Annual Report 25
TABLE 2: ANALYSIS OF NET INTEREST INCOME -- FULLY TAXABLE EQUIVALENT
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
(dollar amounts in millions) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial loans $21,738 $1,934 8.90% $19,681 $1,516 7.70% $16,973 $ 1,365 8.04%
International loans 2,552 235 9.21 2,627 206 7.86 2,342 187 7.97
Real estate construction loans 2,009 188 9.37 1,364 116 8.48 989 91 9.24
Commercial mortgage loans 5,051 444 8.78 4,461 368 8.25 3,819 334 8.74
Residential mortgage loans 832 64 7.64 929 69 7.47 1,325 102 7.69
Consumer loans 1,395 127 9.08 1,816 181 9.98 2,575 263 10.20
Lease financing 799 47 5.95 682 47 6.84 576 44 7.65
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans (1) 34,376 3,039 8.84 31,560 2,503 7.93 28,599 2,386 8.34
Taxable securities 2,613 188 7.06 2,309 156 6.67 3,232 217 6.72
Securities exempt from
federal income taxes 57 5 8.91 94 8 9.09 139 12 9.16
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities 2,670 193 7.10 2,403 164 6.76 3,371 229 6.81
Short-term investments 298 34 11.20 116 11 8.85 143 9 6.25
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Total earning assets 37,344 3,266 8.73 34,079 2,678 7.85 32,113 2,624 8.17
Cash and due from banks 1,484 1,518 1,622
Allowance for credit losses (514) (463) (440)
Accrued income and other assets 2,006 1,826 1,692
- -------------------------------------- ------- ------- -------
Total assets $40,320 $36,960 $34,987
====================================== ======= ======= =======
Money market and NOW accounts $ 7,928 253 3.20 $ 7,664 208 2.71 $ 7,346 231 3.15
Savings deposits 1,380 23 1.65 1,513 24 1.59 1,584 28 1.79
Certificates of deposit 8,165 470 5.76 6,399 310 4.84 6,521 345 5.29
Foreign office deposits (2) 814 63 7.75 688 48 7.05 651 44 6.71
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 18,287 809 4.43 16,264 590 3.63 16,102 648 4.02
Short-term borrowings 3,263 212 6.49 3,482 179 5.14 3,420 186 5.43
Medium- and long-term debt 8,125 534 6.57 7,289 411 5.63 6,032 368 6.10
Other (3) -- 48 -- -- (54) -- -- (46) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing sources 29,675 1,603 5.40 27,035 1,126 4.16 25,554 1,156 4.52
Noninterest-bearing deposits 6,405 6,255 6,151
Accrued expenses and other liabilities 530 421 415
Preferred stock 250 250 250
Common shareholders' equity 3,460 2,999 2,617
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $40,320 $36,960 $34,987
====================================== ======= ======= =======
Net interest income/rate spread (FTE) $1,663 3.33 $1,552 3.69 $ 1,468 3.65
====== ====== =======
FTE adjustment (4) $ 4 $ 5 $ 7
====== ====== =======
Impact of net noninterest-bearing
sources of funds 1.12 0.86 0.92
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin (as a percent of
average earning assets) (FTE) 4.45% 4.55% 4.57%
====================================================================================================================================
(1) Nonaccrual loans are included in average balances reported and are used to
calculate rates.
(2) Includes substantially all deposits by foreign depositors; deposits are
primarily in excess of $100,000.
(3) Net interest rate swap (income)/expense. If swap (income)/expense were
allocated, average rates on total loans would have been 8.68% in 2000,
8.05% in 1999 and 8.43% in 1998; average rates on medium- and long-term
debt would have been 6.51% in 2000, 5.38% in 1999 and 5.76% in 1998; the
average rate on certificates of deposit would have been 5.72% in 2000.
(4) The FTE adjustment is computed using a federal income tax rate of 35%.
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26 Comerica Incorporated
TABLE 3: RATE-VOLUME ANALYSIS -- FULLY TAXABLE EQUIVALENT
2000 / 1999 1999 / 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Increase Increase Net Increase Increase Net
(Decrease) (Decrease) Increase (Decrease) (Decrease) Increase
(in millions) Due to Rate Due to Volume* (Decrease) Due to Rate Due to Volume* (Decrease)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income (FTE)
Commercial loans $ 235 $ 183 $ 418 $ (58) $ 209 $ 151
International loans 36 (7) 29 (3) 22 19
Real estate construction loans 12 60 72 (7) 32 25
Commercial mortgage loans 24 52 76 (19) 53 34
Residential mortgage loans 2 (7) (5) (3) (30) (33)
Consumer loans (16) (38) (54) (6) (76) (82)
Lease financing (7) 7 -- (4) 7 3
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans 286 250 536 (100) 217 117
Taxable securities 10 22 32 1 (62) (61)
Securities exempt from
federal income taxes -- (3) (3) -- (4) (4)
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities 10 19 29 1 (66) (65)
Short-term investments 1 22 23 5 (3) 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income (FTE) 297 291 588 (94) 148 54
Interest expense
Money market and
NOW accounts 37 8 45 (32) 9 (23)
Savings deposits 1 (2) (1) (3) (1) (4)
Certificates of deposit 58 102 160 (29) (6) (35)
Foreign office deposits 5 10 15 2 2 4
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 101 118 219 (62) 4 (58)
Short-term borrowings 48 (15) 33 (10) 3 (7)
Medium- and long-term debt 68 55 123 (28) 71 43
Other (1) 102 -- 102 (8) -- (8)
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 319 158 477 (108) 78 (30)
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (FTE) $ (22) $ 133 $ 111 $ 14 $ 70 $ 84
====================================================================================================================================
*Rate/volume variances are allocated to variances due to volume.
(1) Net interest rate swap (income)/expense.
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2000 Annual Report 27
Net interest income (FTE) increased seven percent to $1,663 million in 2000.
Contributing to this increase was a 10 percent increase in average earning
assets and an increase in noninterest-bearing sources of funds. Comerica (the
"Corporation") continued to generate strong growth in business loans in 2000.
Business loans averaged $32.1 billion in 2000, a significant increase of 12
percent from 1999. The increase in noninterest-bearing sources of funds was
primarily due to a $461 million increase in average shareholders' equity and a
$150 million increase in average noninterest-bearing deposits.
Net interest income (FTE) expressed as a percentage of average earning assets is
referred to as the net interest margin. For 2000, the net interest margin was
4.45 percent, a decline of 10 basis points from 4.55 percent in 1999. The net
interest margin was negatively impacted by slower growth in core deposit
balances than that of earning assets, resulting in a greater reliance on higher
cost certificates of deposits and medium- and long-term debt in the mix of
interest-bearing liabilities. This was partially offset by an increase in the
benefit to the net interest margin provided by interest-free sources of funds. A
greater reliance on higher cost purchased funds to support expected loan growth
will continue to put downward pressure on the net interest margin.
Comerica implements various asset and liability management tactics to minimize
exposure to net interest income risk. This risk represents the potential
reduction in net interest income that may result from a fluctuating economic
environment including changes to interest rates and portfolio growth rates. Such
actions include the management of earning assets, funding and capital. In
addition, off-balance sheet interest rate swap contracts are employed,
effectively fixing the yields on certain variable rate loans and altering the
interest rate characteristics of debt issued throughout the year. Refer to page
37 of this financial review for additional information regarding the
Corporation's asset and liability management policies.
In 1999, net interest income (FTE) increased six percent to $1,552 million.
Contributing to the increase over 1998 was a 10 percent increase in average
total loans and an increase in noninterest-bearing sources of funds, primarily
shareholders' equity. A significant increase in average commercial loans was
partially offset by planned reductions of investment securities, which decreased
on average by $1.0 billion, or 29 percent, from 1998, and planned runoff of
residential mortgage and consumer loans, which declined on an average basis by a
combined $1.2 billion from 1998. The net interest margin was relatively stable
in 1999, decreasing two basis points to 4.55 percent from 4.57 percent in 1998.
The decrease in the net interest margin in 1999 was partially due to a six basis
point decline in the impact of net noninterest-bearing sources of funds
resulting from an average yield environment which was lower in 1999 than 1998,
as well as changes in the mix of interest-bearing liabilities. This was offset
by a strategic repositioning within the earning assets portfolio, whereby
investment securities and residential mortgage and consumer loans were replaced
with commercial loans.
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
The provision for credit losses reflects management's evaluation of the adequacy
of the allowance for credit losses. The allowance for credit losses represents
management's assessment of probable losses inherent in the Corporation's loan
portfolio, including all binding commitments to lend. The allowance provides for
probable losses that have been identified with specific customer relationships
and for probable losses believed to be inherent but that have not been
specifically identified. The Corporation allocates the allowance for credit
losses to each loan category based on a defined methodology which has been in
use, without material change, for several years. Internal risk ratings are
assigned to each business loan at the time of approval and are subject to
subsequent periodic reviews by the senior management of the Credit Policy Group.
Business loans are defined as those belonging to the commercial, international,
real estate construction, commercial mortgage and lease financing categories. A
detailed credit quality review is performed quarterly on large business loans
which have deteriorated below certain levels of credit risk. A specific portion
of the allowance is allocated to such loans based upon this review. The portion
of the allowance allocated to the remaining business loans is determined by
applying projected loss ratios to each risk rating based on numerous factors
identified below. The portion of the allowance allocated to consumer loans is
determined by applying projected loss ratios to various segments of the loan
portfolio. Projected loss ratios incorporate factors such as recent charge-off
experience, current economic conditions and trends, geographic dispersion of
borrowers, and trends with respect to past due and nonaccrual amounts. The
allocated reserve was $373 million at December 31, 2000, an increase of $102
million from year-end 1999. This increase was attributable to an increase in the
specific portion of the allowance for certain large business loans with
deteriorated credit risk at December 31, 2000. Allocations to business loans, as
shown in Table 8, increased due to loan growth and changing credit
characteristics of the portfolio.
NET LOANS CHARGED OFF TO AVERAGE LOANS
(IN PERCENTAGES)
[BAR GRAPH]
96 97 98 99 00
Comerica 0.33% 0.33% 0.30% 0.29% 0.24%
Industry Average 0.51% 0.56% 0.48% 0.47% 0.59%
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28 Comerica Incorporated
TABLE 4: ANALYSIS OF THE ALLOWANCE FOR CREDIT LOSSES
Year Ended December 31
(dollar amounts in millions) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $476 $452 $424 $367 $ 341
Allowance of institutions purchased/sold -- -- -- -- (3)
Loans charged off
Domestic
Commercial 75 78 49 33 33
Real estate construction -- -- -- 1 1
Commercial mortgage 1 2 1 4 5
Residential mortgage -- -- -- -- 1
Consumer 11 31 65 92 86
Lease financing 1 -- 4 -- --
International 11 10 7 1 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans charged off 99 121 126 131 126
Recoveries
Domestic
Commercial 8 17 19 19 18
Real estate construction -- -- -- 1 1
Commercial mortgage 1 3 9 10 9
Consumer 7 10 13 12 13
Lease financing -- 1 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total recoveries 16 31 41 42 41
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans charged off 83 90 85 89 85
Provision for credit losses 145 114 113 146 114
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $538 $476 $452 $424 $ 367
====================================================================================================================================
Ratio of allowance for credit losses to total loans
at end of period 1.49% 1.46% 1.48% 1.47% 1.40%
Ratio of net loans charged off during the period
to average loans outstanding during the period 0.24% 0.29% 0.30% 0.33% 0.33%
====================================================================================================================================
Actual loss ratios experienced in the future could vary from those projected.
This uncertainty occurs because other factors affecting the determination of
probable losses inherent in the loan portfolio may exist which are not
necessarily captured by the application of historical loss ratios. To ensure a
higher degree of confidence, an unallocated allowance is also maintained. The
unallocated portion of the loss reserve reflects management's view that the
reserve should have a margin that recognizes the imprecision underlying the
process of estimating expected credit losses. Determination of the probable
losses inherent in the portfolio, which are not necessarily captured by the
allocation methodology discussed above, involves the exercise of judgment.
Factors which were considered in the evaluation of the adequacy of the
Corporation's unallocated reserve include portfolio exposures to the healthcare,
high technology and energy industries, customers engaged in sub-prime lending,
as well as Latin American transfer risks and the risk associated with new
customer relationships. The unallocated reserve was $165 million at December 31,
2000, a decrease of $40 million from 1999. An increase in allocated reserves for
healthcare and Indonesian customers resulted in a lesser need for unallocated
reserves for these customers and was the primary reason for the decline in the
unallocated reserve.
Management also considers industry norms and the expectations from ratings
agencies and banking regulators in determining the adequacy of the allowance.
The total allowance, including the unallocated amount, is available to absorb
losses from any segment within the portfolio.
The provision for credit losses was $145 million in 2000, compared to $114
million in 1999 and $113 million in 1998. Net charge-offs in 2000 were $83
million, or 0.24 percent of average total loans, compared to $90 million, or
0.29 percent, in 1999 and $85 million, or 0.30 percent, in 1998. An analysis of
the changes in the allowance for credit losses, including charge-offs and
recoveries by loan category, is presented in Table 4. Consumer net charge-offs
decreased from 1999 levels, primarily due to the sale of $457 million of
revolving check credit and bankcard loans in the first quarter of 2000. Net
charge-offs on business loans increased due to a decline in recoveries.
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2000 Annual Report 29
At December 31, 2000, the allowance for credit losses was $538 million, an
increase of $62 million from year-end 1999. The allowance as a percentage of
total loans increased to 1.49 percent from 1.46 percent at December 31, 1999. As
a percentage of nonperforming assets, the allowance was 197 percent at December
31, 2000, versus 262 percent at year-end 1999.
NONINTEREST INCOME
Year Ended December 31
(in millions) 2000 1999 1998
- --------------------------------------------------------------------------------
Fiduciary and investment management income $306 $241 $184
Service charges on deposit accounts 180 169 158
Commercial lending fees 56 49 43
Letter of credit fees 42 39 31
Securities gains/(losses) (1) 5 6
Net gain on sales of businesses 48 21 11
Other 197 184 170
- --------------------------------------------------------------------------------
Subtotal 828 708 603
Other significant nonrecurring items (2) 9 --
- --------------------------------------------------------------------------------
Total noninterest income $826 $717 $603
================================================================================
Noninterest income increased $109 million, or 15 percent, to $826 million in
2000, compared to $717 million in 1999 and $603 million in 1998. In 2000, the
Corporation announced an alliance to provide third party bankcard and revolving
check credit services to the Corporation's customers and sold $457 million of
loans in connection with forming the alliance. Comparisons between 2000 and 1999
for certain noninterest income and expense line items were impacted by the sale.
After adjusting for the divestiture, securities gains/(losses) and the
significant nonrecurring items discussed below, noninterest income increased 17
percent in 2000. Historical comparisons between 1999 and 1998 information for
certain noninterest income and noninterest expense line items were impacted by
the Corporation obtaining a majority interest in Munder Capital Management
("Munder"), an
NONINTEREST INCOME
(IN MILLIONS)
[BAR GRAPH]
96 97 98 99 00
Noninterest Income $507 $528 $603 $717 $826
(In Millions)
investment advisory subsidiary, and the sale of consumer loans and the mortgage
servicing business in 1998. Prior to the third quarter of 1998, the Corporation
accounted for its minority interest in Munder under the equity method, recording
the Corporation's pro-rata share of Munder net income in other noninterest
income.
Fiduciary and investment management income, which includes investment advisory
revenue generated by Munder, increased $65 million, or 27 percent, in 2000,
compared to an increase of $57 million, or 30 percent, in 1999. After adjusting
for the Munder consolidation, the increase in 1999 over 1998 was 19 percent. The
increase in 2000 was primarily due to higher investment advisory fees at Munder,
which increased $64 million, or 105 percent, over 1999. The increase in Munder
revenue was principally due to growth, early in 2000, of average assets in
Munder's Internet and technology focused mutual funds. Munder's investment
advisory revenue in the fourth quarter 2000, was well below the amount recorded
during each of the first three quarters of the year, primarily due to a decline
in the technology sector of the stock market. Stock market performance resulted
in a decrease in assets under management at Munder to $48 billion at December
31, 2000, from $56 billion at year-end 1999. Personal and institutional trust
fees, on a combined basis, were stable when compared to 1999.
Service charges on deposit accounts increased $11 million, or six percent, in
2000 compared to an increase of $11 million, or seven percent, in 1999. This
increase was primarily attributable to continued strong growth in the sale of
new and existing cash management services to business customers during 2000. The
increase in 2000 was net of the negative impact of higher earnings credit
allowances provided to business customers.
Commercial lending fees increased $7 million, or 14 percent, in 2000 compared to
an increase of $6 million, or 13 percent, in 1999. A continued strong business
lending environment contributed to increases of $4 million, or 15 percent, in
commitment fees and $3 million, or 26 percent, in loan syndication and
participation agent fees.
Letter of credit fees increased $3 million, or nine percent, in 2000 compared to
an increase of $8 million, or 24 percent, in 1999. These increases were
primarily related to growth in middle-market commercial lending relationships
and strong demand for international trade services from new and existing
customers.
The Corporation recognized a net loss related to its investment securities
portfolio of $1 million in 2000, versus a net gain of $5 million in 1999.
Securities losses in 2000 included a $6 million write-down of low-income housing
investments where the underlying investment is accounted for under the cost
method.
Net gain on sales of businesses included a $48 million net gain on the sale of
revolving check credit and bankcard loans in 2000, a gain of $21 million on the
sale of ownership in an automated teller machine network provider in 1999 and an
$11 million net gain on the sale of the mortgage servicing business and consumer
loans in 1998.
Other noninterest income increased $2 million, or one percent, in 2000.
Excluding the impact of divestitures and significant
9
30 Comerica Incorporated
nonrecurring items from 2000 and 1999 results, other noninterest income
increased 14 percent. Higher levels of income from Munder's equity investment in
Framlington (a London, England based investment manager) and an increase in
brokerage service fees and foreign exchange income accounted for the majority of
this increase. Significant nonrecurring items in other noninterest income in
2000 included a $6 million gain from the demutualization of an insurance carrier
and $6 million of warrant gain income. Offsetting these gains was a $7 million
write-down of low-income housing investments which are being accounted for under
the equity method and a $7 million impairment on technology-related mutual fund
deferred distribution costs. Significant nonrecurring items in other noninterest
income in 1999 included a $9 million gain on the sale of a warrant obtained from
an equity ownership in a joint venture.
NONINTEREST EXPENSES
Year Ended December 31
(in millions) 2000 1999 1998
- --------------------------------------------------------------------------------
Salaries $ 593 $ 559 $ 500
Employee benefits 75 81 65
- --------------------------------------------------------------------------------
Total salaries and
employee benefits 668 640 565
Net occupancy expense 98 94 90
Equipment expense 59 61 60
Outside processing fee expense 49 48 43
Other 291 269 269
- --------------------------------------------------------------------------------
Subtotal 1,165 1,112 1,027
Restructuring charge/(credit) -- -- (7)
Other significant nonrecurring items 24 5 --
- --------------------------------------------------------------------------------
Total noninterest expenses $1,189 $1,117 $ 1,020
================================================================================
Noninterest expenses increased six percent to $1,189 million in 2000, compared
to $1,117 million in 1999 and $1,020 million in 1998. Excluding the effect of
divestitures and the significant nonrecurring items discussed below, noninterest
expenses increased six percent in 2000.
Total salaries expense increased $34 million, or six percent, in 2000 versus an
increase of $59 million, or 12 percent, in 1999. The increase in 2000 was
primarily due to annual merit increases and higher levels of incentives which
are tied to revenue growth. The number of full-time equivalent employees at
December 31, 2000, decreased by 234, or two percent, from year-end 1999,
primarily due to forming the bankcard and revolving check credit alliance.
Employee benefits expense decreased $6 million, or seven percent, in 2000 versus
an increase of $16 million, or 24 percent, in 1999. The decrease in 2000 was
primarily attributable to lower levels of pension expense due to favorable
changes in defined benefit plan assumptions as well as a reduction in long-term
disability expense. These decreases were partially offset by higher payroll tax
expense.
NONINTEREST EXPENSES
(IN MILLIONS)
[BAR GRAPH]
96 97 98 99 00
Noninterest Expenses $1,159 $1,008 $1,020 $1,117 $1,189
(In Millions)
Net occupancy and equipment expenses, on a combined basis, increased slightly to
$157 million in 2000, following an increase of $5 million, or three percent, in
1999.
Outside processing fees were virtually unchanged and totaled $49 million in
2000, $48 million in 1999 and $43 million in 1998.
Other noninterest expenses increased $41 million, or 15 percent, in 2000,
compared to a $5 million increase in 1999. Other noninterest expenses in 2000
included $12 million of interest associated with a preliminary settlement of
Federal tax years prior to 1993, a $6 million contribution to Comerica's
charitable foundation and $6 million of marketing costs to launch a new
closed-end fund. A $5 million contribution to Comerica's charitable foundation
was included in 1999 other noninterest expenses. Excluding divestitures and the
significant nonrecurring items described above, other noninterest expenses
increased 12 percent in 2000. Higher levels of advertising expense, due
principally to marketing costs for mutual funds was the primary contributor to
this increase.
The Corporation's efficiency ratio is defined as total noninterest expenses
divided by the sum of net interest revenue (FTE) and noninterest income,
excluding securities gains. The ratio improved 161 basis points to 47.74 percent
in 2000, compared to 49.35 percent in 1999 and 49.39 percent in 1998.
INCOME TAXES
The provision for income taxes was $402 million in 2000, compared to $360
million in 1999 and $324 million in 1998. The effective tax rate, computed by
dividing the provision for income taxes by income before taxes, was 34.9 percent
in 2000 and 1999. The effective tax rate in 1998 was 34.8 percent.
10
2000 Annual Report 31
TABLE 5: ANALYSIS OF INVESTMENT SECURITIES AND LOANS
December 31
(in millions) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities available for sale
U.S. government and agency securities $ 2,226 $ 2,275 $ 2,206 $ 3,239 $ 3,968
State and municipal securities 47 74 115 170 228
Other securities 405 390 391 597 604
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities available for sale $ 2,678 $ 2,739 $ 2,712 $ 4,006 $ 4,800
====================================================================================================================================
Commercial loans $22,729 $20,655 $19,086 $15,805 $13,520
International loans
Government and official institutions 2 10 12 6 11
Banks and other financial institutions 402 391 433 339 323
Other 2,167 2,172 2,268 1,740 1,372
- ------------------------------------------------------------------------------------------------------------------------------------
Total international loans 2,571 2,573 2,713 2,085 1,706
Real estate construction loans 2,310 1,709 1,080 941 751
Commercial mortgage loans 5,271 4,774 4,179 3,634 3,446
Residential mortgage loans 807 870 1,038 1,565 1,744
Consumer loans 1,437 1,351 1,862 4,348 4,634
Lease financing 935 761 647 517 406
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans $36,060 $32,693 $30,605 $28,895 $26,207
====================================================================================================================================
STRATEGIC LINES OF BUSINESS
The Corporation has strategically aligned its operations into three major lines
of business: the Business Bank, the Individual Bank and the Investment Bank.
These lines of business are differentiated based upon the products and services
provided. In addition to the three major lines of business, the Finance Division
is also reported as a segment. The Other category includes items not directly
associated with these lines of business. Note 22 on page 62 describes how these
segments were identified and presents financial results of these businesses for
the years ended December 31, 2000, 1999 and 1998.
The Business Bank's net income increased $51 million, or 15 percent, in 2000. An
increase in net interest income associated with strong loan growth of 12 percent
and a 12 percent increase in noninterest income were largely responsible for the
increase in net income. Loan growth was primarily in middle market lending,
asset based/specialty lending, commercial real estate and national dealer
services. Growth in average loans to large business customers was moderate,
while average international loans were flat. The increase in noninterest income
was primarily due to higher commercial deposit service charge income, commercial
lending fees and letter of credit fees. Noninterest expenses increased five
percent.
Individual Bank net income increased $53 million, or 20 percent, in 2000, a
substantial increase over 1999. Comparisons with 1999 were affected by forming
an alliance to offer bankcard and revolving check credit services to the
Corporation's customers. Net interest income increased $34 million, or five
percent, and was generated principally from a three percent growth in deposit
balances coupled with smaller rate increases in core deposits compared to
earning assets. Noninterest income increased $44 million, or 15 percent, and was
primarily due to a $48 million gain on the sale of $457 million of revolving
check credit and bankcard loans associated with forming the alliance mentioned
above. Noninterest expenses decreased $5 million, or one percent, primarily due
to reduced salaries expense also attributable to forming the alliance. Excluding
the $48 million gain and the impact of forming the alliance, total revenues
(FTE) in 2000 would have been $1,023 million, a three percent increase over
1999, while net income in 2000 would have increased eight percent to $287
million. Return on average assets and return on average common equity in 2000
would have been 1.61 percent and 38.57 percent, respectively.
Net income for the Investment Bank was $12 million in 2000, a decrease of 10
percent from 1999. Noninterest income rose $66 million, or 32 percent, from last
year. Significant growth in investment advisory and brokerage fees was reduced
by declines in institutional trust and retirement services fees. Noninterest
expense growth from revenue-related incentives for investment advisory fees and
inter-segment referrals, advertising and start-up expenses for new funds offset
much of the revenue increase.
The Finance Division's net income decreased $20 million in 2000, primarily due
to a $30 million decrease in net interest income. As interest rates increased
throughout 2000, interest income declined from swaps Finance used to hedge
interest rate risk in other business segments.
Net income for the Other category decreased $7 million in 2000. Noninterest
income in 1999 included a $21 million gain on the sale of the Corporation's
ownership in an ATM network provider. Partially offsetting the decline in
noninterest income was an $8 million decrease in the allowance for credit losses
not assigned to specific business lines.
11
32 Comerica Incorporated
TABLE 6: INTERNATIONAL CROSS-BORDER RISK
Governments Banks and
December 31 and Official Other Financial Commercial
(in millions) Institutions Institutions and Industrial Total
- --------------------------------------------------------------------------------------------------------------------
Mexico 2000 $ 9 $114 $503 $626
1999 15 150 426 591
1998 15 214 347 576
- --------------------------------------------------------------------------------------------------------------------
Canada 1998 -- -- 380 380
- --------------------------------------------------------------------------------------------------------------------
TABLE 7: LOAN MATURITIES AND INTEREST RATE SENSITIVITY
After One
December 31, 2000 Within But Within After
(in millions) One Year* Five Years Five Years Total
- ------------------------------------------------------------------------------------------------------------------------
Commercial loans $17,822 $ 3,917 $ 990 $22,729
Commercial mortgage loans 1,819 2,383 1,069 5,271
International loans 2,217 319 35 2,571
Real estate construction loans 1,718 479 113 2,310
- ------------------------------------------------------------------------------------------------------------------------
Total $23,576 $ 7,098 $ 2,207 $32,881
=========================================================================================================================
Loans maturing after one year
Predetermined interest rates $3,227 $1,864
Floating interest rates 3,871 343
Total $7,098 $2,207
=========================================================================================================================
*Includes demand loans, loans having no stated repayment schedule or maturity
and overdrafts.
TABLE 8: ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES
2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
December 31
(in millions) Amount % Amount % Amount % Amount % Amount %
- -------------------------------------------------------------------------------------------------------------------------
Commercial $226 63% $169 63% $131 62% $ 94 55% $ 98 52%
Real estate construction 6 6 6 5 4 4 7 3 6 3
Commercial mortgage 59 15 35 15 21 14 18 13 27 13
Residential mortgage -- 2 -- 3 -- 3 1 5 2 7
Consumer 7 4 18 4 48 6 116 15 120 18
Lease financing 5 3 8 2 6 2 1 2 1 1
International 70 7 35 8 17 9 5 7 3 6
Unallocated 165 -- 205 -- 225 -- 182 -- 110 --
- -------------------------------------------------------------------------------------------------------------------------
Total $538 100% $476 100% $452 100% $424 100% $367 100%
=========================================================================================================================
Amount - allocated allowance
% - loans outstanding as a percent of total loans
12
2000 Annual Report 33
BALANCE SHEET AND CAPITAL FUNDS ANALYSIS
Total assets were $42.0 billion at year-end 2000, an increase of $3.3 billion
from $38.7 billion at December 31, 1999. On an average basis, total assets
increased to $40.3 billion in 2000 from $37.0 billion in 1999. This increase was
funded primarily by deposits, which rose on average $2.2 billion and medium- and
long-term debt, which grew on average $836 million.
EARNING ASSETS
Total earning assets were $38.9 billion at December 31, 2000, representing a
$2.9 billion increase from $36.0 billion at year-end 1999. On an average basis,
total earning assets were $37.3 billion in 2000, compared to $34.1 billion in
1999. Commercial loans grew significantly in 2000, increasing on an average
basis by $2.1 billion, or 10 percent, from 1999. Average real estate
construction increased $645 million, or 47 percent, while average commercial
mortgage loans increased $590 million, or 13 percent. These increases are
attributable to successful execution of our core lending strategy, strong
customer relationships and continued economic strength in the commercial loan
markets.
International loans averaged $2.6 billion in 2000, a decline of $75 million, or
three percent, from 1999, as international economies were generally weaker than
the United States. Active risk management practices minimize 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 cross-border risk of that country. Mexican
cross-border risk of $626 million, or 1.49 percent of total assets, was the only
country with exposure exceeding 1.00 percent of total assets at December 31,
2000. Brazil was the only country with cross-border risk exposure between 0.75
and 1.00 percent of total assets at year-end 2000 with outstandings totaling
$329 million at December 31, 2000. Additional information on the Corporation's
Mexican cross-border risk is provided in Table 6 on page 32.
Average residential mortgage loans decreased $97 million, reflecting
management's decision to sell the majority of mortgage originations. Excluding
the decline in consumer loans attributable to the sale of $457 million of
bankcard and revolving check credit loans mentioned earlier, consumer loans
increased from growth in home equity lending.
Average investment securities rose to $2.7 billion in 2000, compared to $2.4
billion in 1999. Average U.S. government and agency securities increased $339
million, while average state and municipal securities decreased $37 million.
Increases in U.S. government and agency securities resulted from purchasing
investment securities to maintain the relative size of that portfolio, while the
tax exempt portfolio of state and municipal securities continued to decrease as
reduced tax advantages for these type of securities discouraged additional
investment. Average other securities declined $35 million, and consist primarily
of collateralized mortgage obligations (CMOs), Brady bonds and Eurobonds.
OTHER EARNING ASSETS
Short-term investments include interest-bearing deposits with banks, federal
funds sold and securities purchased under agreements to resell, trading
securities and loans held for sale. These investments provide a range of
maturities under one year to manage short-term investment requirements of the
Corporation. Interest-bearing deposits with banks are investments with banks in
developed countries or foreign banks' international banking facilities located
in the United States. Federal funds sold offer supplemental earning
opportunities and serve correspondent banks. Loans held for sale typically
represent residential mortgage loans that have been originated and which
management has decided to sell. Loans held for sale in 2000 also included the
revolving credit and bankcard loans which were sold during the year. These loans
had been reclassified to loans held for sale at the end of 1999 and remained
there until the date of sale. Average short-term investments increased to $298
million during 2000, from $116 million in 1999, primarily due to this
reclassification.
TABLE 9: MATURITY DISTRIBUTION OF DOMESTIC CERTIFICATES OF DEPOSIT OF $100,000
AND OVER
December 31
(in millions) 2000
- -------------------------------------------------
Three months or less $1,895
Over three months to six months 1,810
Over six months to twelve months 1,716
Over twelve months 338
- -------------------------------------------------
Total $5,759
=================================================
DEPOSITS AND BORROWED FUNDS
Average deposits increased $2.2 billion, or 10 percent, from 1999. Average
noninterest-bearing deposits grew $150 million, or two percent, from 1999,
primarily from the growth in commercial loan relationships. Average
interest-bearing transaction, savings and money market deposits increased one
percent during 2000, to $9.3 billion. Average certificates of deposit increased
$1.8 billion, or 28 percent, from 1999 and were primarily issued in
denominations in excess of $100,000 through brokers or to institutional
investors. Average foreign office time deposits increased $126 million over the
1999 level, mostly from deposits at Mexican and Canadian subsidiaries.
Average short-term borrowings decreased $219 million as deposit growth reduced
the need for these funding sources. Short-term borrowings include federal funds
purchased, securities sold under agreements to repurchase, commercial paper 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 expanding earning assets while providing
liquidity which mirrors the estimated duration of deposits. Long-term
subordinated notes further help maintain the subsidiary banks' total capital
ratio at a level that qualifies for the
13
34 Comerica Incorporated
lowest FDIC risk-based insurance premium. Medium-term debt increased on an
average basis by $766 million to fund earning asset growth. Average long-term
debt increased $70 million during 2000, primarily due to the issuance of $250
million of subordinated notes during the year. Further information on medium-
and long-term debt is included in Note 9 to the consolidated financial
statements on page 51.
CAPITAL
Shareholders' equity was $4.0 billion at December 31, 2000, up $533 million, or
15 percent from December 31, 1999. This increase was primarily due to $482
million of retained earnings, $23 million of common stock issued for employee
stock plans and $42 million in other comprehensive income, offset by a reduction
in equity of $14 million from the repurchase of common stock. In connection with
the merger announcement with Imperial Bancorp during the fourth quarter of 2000,
the board of directors of the Corporation rescinded its previous stock
repurchase authorization. Further information on the change in other
comprehensive income is provided in Note 11 on page 52.
The Corporation declared common dividends totaling $250 million, or $1.60 per
share, on net income applicable to common stock of $732 million. The dividend
payout ratio, calculated on a per share basis, was 35 percent in 2000 and 1999,
versus 34 percent in 1998.
At December 31, 2000, the Corporation and all of its banking subsidiaries
exceeded the capital ratios required for an institution to be considered "well
capitalized" by the standards developed under the Federal Deposit Insurance
Corporation Improvement Act of 1991. See Note 17 to the consolidated financial
statements on page 56 for the capital ratios.
RISK MANAGEMENT
The Corporation assumes various types of risk in the normal course of business.
The most significant risk exposures are from credit, interest rate, liquidity
and operations. The other commonly identified exposure, market risk, is not
significant as trading activities are limited. Comerica employs risk management
processes to identify, measure, monitor and control these risks.
CREDIT RISK
Credit represents the risk that a customer or counterparty may not perform in
accordance to contractual terms. Credit risk is inherent in the financial
services business and results from extending credit to customers, purchasing
securities and entering into off-balance sheet financial derivative instruments.
Policies and procedures for measuring and managing this risk are formulated,
approved and communicated throughout the Corporation. Credit executives,
independent from lending officers, are involved in the origination and
underwriting process to ensure adherence to risk policies and underwriting
standards. The Corporation also manages credit risk through diversification,
limiting exposure to any single industry environment or customer, selling
participations to third parties and requiring collateral.
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
borrowers financial condition and other real estate which has been acquired
primarily through foreclosure and is awaiting disposition. The Corporation's
policies regarding nonaccrual loans reflect the importance of identifying
troubled loans early.
NONPERFORMING ASSETS TO LOANS AND OTHER REAL ESTATE
(IN PERCENTAGES)
[BAR CHART]
96 97 98 99 00
COMERICA 0.53% 0.36% 0.39% 0.56% 0.76%
INDUSTRY AVERAGE 0.79% 0.71% 0.73% 0.64% 0.82%
14
2000 Annual Report 35
TABLE 10: ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO -- FULLY TAXABLE
EQUIVALENT
Maturity+
-------------------------------------------------------------------------------------
Weighted
December 31, 2000 Within 1 Year 1 - 5 Years 5 - 10 Years After 10 Years Total Average
(dollar amounts in ------------------------------------------------------------------------------------- Maturity
millions) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Yrs./Mos.
- --------------------------------------------------------------------------------------------------------------------------
Available for sale
U.S. Treasury $ 3 5.88% $ 40 6.16% $ -- --% $ -- --% $ 43 6.14% 1/1
U.S. government
and agency 4 7.08 124 7.33 1,160 6.47 895 7.23 2,183 6.83 11/9
State and municipal
securities 12 5.78 25 6.29 9 6.08 1 6.38 47 6.12 3/3
Other bonds, notes
and debentures 8 6.44 183 9.41 40 8.54 33 8.21 264 9.04 5/0
Federal Reserve
Bank stock and
other investments* -- -- -- -- -- -- -- -- 141 -- --
- ------------------------------------------------------------------------------------------------------------------------
Total investment
securities available
for sale $27 6.16% $372 8.16% $1,209 6.53% $929 7.27% $2,678 7.04% 10/8
=========================================================================================================================
*Balances are excluded in the calculation of total yield.
+Based on final contractual maturity.
TABLE 11: SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS
December 31
(dollar amounts in millions) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
Nonperforming assets
Nonaccrual loans
Commercial loans $ 182 $ 99 $ 67 $ 53 $ 67
International loans 58 44 20 1 --
Real estate construction loans 5 -- 1 3 3
Commercial mortgage loans 15 10 7 11 23
Residential mortgage loans -- 1 3 4 5
Consumer loans 3 5 3 5 5
Lease financing 4 6 7 1 --
- -------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 267 165 108 78 103
Reduced-rate loans 1 7 8 8 8
- -------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 268 172 116 86 111
Other real estate 5 10 5 17 29
- -------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 273 $ 182 $ 121 $ 103 $ 140
=========================================================================================================================
Nonperforming loans as a percentage of total loans 0.74% 0.53% 0.38% 0.30% 0.42%
Nonperforming assets as a percentage of total loans
and other real estate 0.76% 0.56% 0.39% 0.36% 0.53%
Allowance for credit losses as a percentage of total
nonperforming assets 197% 262% 375% 413% 263%
Loans past due 90 days or more and still accruing $ 36 $ 48 $ 40 $ 53 $ 52
=========================================================================================================================
15
36 Comerica Incorporated
Consumer loans are charged off no later than 180 days past due, or earlier if
deemed uncollectible. Loans other than consumer are generally placed on
nonaccrual status when management determines that principal or interest may not
be fully collectible, but no later than 90 days past due on principal or
interest unless it is fully collateralized and in the process of collection.
Loan amounts in excess of probable future cash collections are charged off 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. 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 which 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 a return to accrual status are
generally not included in non-performing assets. However, such loans may be
required to be evaluated for impairment under Financial Accounting Standards
Board (FASB) Statement No. 114, "Accounting by Creditors for Impairment of a
Loan."
Nonperforming assets as a percent of total loans and other real estate were 0.76
percent and 0.56 percent at year-end 2000 and 1999, respectively.
Nonaccrual loans at December 31, 2000, increased 62 percent to $267 million from
$165 million at year-end 1999. Table 11 on page 35 provides additional detail on
nonperforming assets. No industry represented more than 15 percent of total
nonaccrual loans at December 31, 2000. The decline in reduced-rate loans, which
consisted primarily of below-market yield bankcard loans, resulted from the sale
of bankcard and revolving credit loans discussed previously. Loans past due 90
days or more and still on accrual status decreased $12 million from year-end
1999.
The nonaccrual loan table below indicates the percentage of nonaccrual loan
value to original contractual value which exhibits the degree to which loans
reported as nonaccrual have been charged off.
Other real estate owned (ORE) decreased $5 million.
NONACCRUAL LOANS
December 31
(dollar amounts in millions) 2000 1999
- --------------------------------------------------------
Carrying value $267 $165
Contractual value 401 244
Carrying value as a percentage
of contractual value 67% 68%
========================================================
CONCENTRATION OF CREDIT
Loans to companies and individuals involved with the automotive industry,
including suppliers, manufacturers and dealers, represented the largest
significant industry concentration at December 31, 2000. These loans totaled
$5.7 billion, or 16 percent of total loans at December 31, 2000, compared to
$4.8 billion, or 15 percent, at December 31, 1999. Included in these totals are
floor plan loans to automotive dealers of $2,064 million and $1,653 million at
December 31, 2000 and 1999, respectively. All other industry concentrations
individually represented less than 10 percent of total loans at year-end 2000.
The Corporation has successfully operated in the Michigan economy despite a loan
concentration and several downturns in the auto industry. The largest automotive
industry loan on nonaccrual status at December 31, 2000, was $6 million. The
largest automotive industry-related charge-off during the year was $5 million.
COMMERCIAL REAL ESTATE LENDING
The real estate construction loan portfolio contains loans primarily made to
long-time customers with satisfactory project completion experience. The
portfolio has approximately 1,375 loans, of which 63 percent have balances of
less than $1 million. The largest real estate construction loan has a balance of
approximately $34 million.
The commercial mortgage loan portfolio also consists primarily of loans to
long-time customers. Of the approximately 7,285 loans in the portfolio, 84
percent have balances under $1 million and the largest loan has a balance of
approximately $30 million. Of the $7.6 billion in total commercial mortgage and
real estate construction loans at December 31, 2000, 46 percent involved
owner-occupied properties. Additionally, the Corporation's policy requires a 75
percent or less loan-to-value ratio for all commercial mortgage and real estate
construction loans.
The geographic distribution of the real estate construction and commercial
mortgage loan portfolios is also an important factor in evaluating credit risk.
The following table indicates the diversification of the portfolios throughout
the markets served by the Corporation.
GEOGRAPHIC DISTRIBUTION
December 31, 2000 Real Estate Commercial
(in millions) Construction Mortgage
- --------------------------------------------------------
Michigan $1,095 $3,349
California 569 935
Texas 401 423
Florida 149 187
Other 96 377
- --------------------------------------------------------
Total $2,310 $5,271
========================================================
16
2000 Annual Report 37
INTEREST RATE RISK
Interest rate risk arises primarily through the Corporation's core business
activities of extending loans and accepting deposits. The Corporation actively
manages its material exposure to interest rate risk. The principal objective of
asset and liability management is to maximize net interest income while
operating within acceptable limits established for interest rate risk and
maintaining adequate levels of funding and liquidity. The Corporation utilizes
various on- and off-balance sheet financial instruments to manage the extent to
which net interest income may be affected by fluctuations in interest rates. The
board of directors authorizes the Asset Liability Policy Committee (ALPC) to
establish policies and risk limits pertaining to asset and liability management
activities. The ALPC, in addition to the board, monitors compliance with these
policies. The ALPC meets regularly to discuss asset and liability management
strategies and is comprised of executive and senior management from various
areas of the Corporation, including finance, lending, investments and deposit
gathering.
INTEREST RATE SENSITIVITY
Interest rate risk arises in the normal course of business due to differences in
the repricing and maturity characteristics of assets and liabilities. Since no
single measurement system satisfies all management objectives, a combination of
techniques is used to manage interest rate risk, including simulation analysis,
asset and liability repricing schedules and economic value of equity. The ALPC
regularly reviews the results of these interest rate risk measurements.
The Corporation frequently evaluates net interest income under various balance
sheet and interest rate scenarios. The results of these analyses provide the
information needed to assess the proper balance sheet structure. An unexpected
change in economic activity, whether domestically or internationally, could
translate into a materially different interest rate environment than currently
expected. Management evaluates "base" net interest income under what is believed
to be the most likely balance sheet structure and interest rate environment.
This "base" net interest income is then evaluated against interest rate
scenarios that increase and decrease 200 basis points from the most likely rate
environment. In addition, adjustments to asset prepayment levels, yield curves
and overall balance sheet mix and growth assumptions are made to be consistent
with each interest rate environment. These assumptions are inherently uncertain
and, as a result, the model cannot precisely predict the impact of higher or
lower interest rates on net interest income. Actual results may differ from
simulated results due to timing, magnitude and frequency of interest rate
changes and changes in market conditions and management strategies, among other
factors. Derivative financial instruments entered into for risk management
purposes are included in these analyses. The measurement of risk exposure at
year-end 2000 for a 200-basis-point decline in short-term interest rates
identified approximately $59 million, or three percent, of net interest income
at risk during 2001. If short-term interest rates rise 200 basis points, net
interest income at risk during 2001 would be approximately $10 million, or less
than one percent. Corresponding measures of risk exposure at year-end 1999 were
$52 million of net interest income at risk for a 200-basis-point decline in
interest rates and $30 million at risk for a 200-basis-point rise in interest
rates. Corporate policy limits adverse change to no more than five percent of
management's most likely net interest income forecast and the Corporation is
operating within this policy guideline.
Most assets and liabilities reprice either at maturity or in accordance with
their contractual terms. However, several balance sheet components demonstrate
characteristics that require adjustments to more accurately reflect repricing
and cash flow behavior. Assumptions based on historical pricing relationships
and anticipated market reactions are made to certain core deposit categories to
reflect the elasticity of the changes in the related interest rates relative to
changes in market interest rates. In addition, estimates are made concerning
early loan and security repayments. Prepayment assumptions are based on the
expertise of portfolio managers along with input from financial markets.
Consideration is given to current and future interest rate levels. While
management recognizes the limited ability of a traditional gap schedule to
accurately portray interest rate risk, adjustments are made to provide a more
accurate picture of the Corporation's interest rate risk profile. This
additional interest rate risk measurement tool provides a directional outlook on
the impact of changes in interest rates.
Interest rate sensitivity is measured as a percentage of earning assets. The
operating range for interest rate sensitivity, on an elasticity-adjusted basis,
is between an asset sensitive position of 10 percent of earning assets and a
liability sensitive position of 10 percent of earning assets.
Table 12 on page 38 shows the interest sensitivity gap as of year-end 2000 and
1999. The report reflects the contractual repricing and payment schedules of
assets and liabilities, including an estimate of all early loan and security
repayments which adds $585 million of rate sensitivity to the 2000 year-end gap.
In addition, the schedule includes an adjustment for the price elasticity on
certain core deposits.
The Corporation was in an asset sensitive position throughout most of 2000. The
Corporation had a one-year asset sensitive gap of $418 million, or one percent
of earning assets, as of December 31, 2000. This compares to a $487 million
asset sensitive gap, or one percent of earning assets, at December 31, 1999.
Management anticipates continued growth in asset sensitivity throughout 2001,
and will analyze both on- and off-balance sheet alternatives to hedge this
increased asset sensitivity to achieve the desired interest rate risk profile
for the Corporation.
The Corporation utilizes interest rate swaps predominantly as asset and
liability management tools with the overall objective of mitigating adverse
impact to net interest income from changes in interest rates. To accomplish this
objective, the Corporation uses interest rate swaps primarily to modify the
interest rate characteristics of certain assets and liabilities (e.g., from a
floating rate to a fixed rate, from a fixed rate to a floating rate, or from one
floating rate index to another). This strategy assists management in achieving
interest rate objectives.
17
38 Comerica Incorporated
TABLE 12: SCHEDULE OF RATE SENSITIVE ASSETS AND LIABILITIES
December 31, 2000 December 31, 1999
Interest Sensitivity Period Interest Sensitivity Period
- ------------------------------------------------------------------------------------------------------------------------------
Within Over Within Over
(dollar amounts in millions) One Year One Year Total One Year One Year Total
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ -- $ 1,497 $ 1,497 $ -- $ 1,202 $ 1,202
Short-term investments 162 3 165 612 1 613
Investment securities 789 1,889 2,678 843 1,896 2,739
Commercial loans (including lease financing) 21,802 1,862 23,664 19,573 1,843 21,416
International loans 2,440 131 2,571 2,523 50 2,573
Real estate related loans 5,563 2,825 8,388 4,502 2,851 7,353
Consumer loans 949 488 1,437 858 493 1,351
- -----------------------------------------------------------------------------------------------------------------------------
Total loans 30,754 5,306 36,060 27,456 5,237 32,693
Other assets 888 697 1,585 647 759 1,406
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $32,593 $ 9,392 $41,985 $29,558 $ 9,095 $38,653
=============================================================================================================================
LIABILITIES
Deposits
Noninterest-bearing $ 1,343 $ 5,472 $ 6,815 $ 959 $ 5,177 $ 6,136
Savings -- 1,316 1,316 -- 1,420 1,420
Money market and NOW 6,840 1,785 8,625 5,966 1,845 7,811
Certificates of deposit 8,718 1,270 9,988 5,546 1,031 6,577
Foreign office 424 -- 424 1,347 -- 1,347
- -----------------------------------------------------------------------------------------------------------------------------
Total deposits 17,325 9,843 27,168 13,818 9,473 23,291
Short-term borrowings 2,077 -- 2,077 2,768 -- 2,768
Medium- and long-term debt 6,539 1,550 8,089 7,269 1,311 8,580
Other liabilities 329 315 644 224 315 539
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 26,270 11,708 37,978 24,079 11,099 35,178
Shareholders' equity 10 3,997 4,007 (31) 3,506 3,475
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $26,280 $15,705 $41,985 $24,048 $ 14,605 $38,653
=============================================================================================================================
Sensitivity impact of interest rate swaps (7,630) 7,630 -- (7,409) 7,409 --
- -----------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap (1,317) 1,317 -- (1,899) 1,899 --
Gap as a percentage of earning assets (3)% 3% -- (5)% 5% --
Sensitivity impact from elasticity adjustments (1) 1,735 (1,735) -- 2,386 (2,386) --
- -----------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap with elasticity adjustments (1) $ 418 $ (418) -- $ 487 $ (487) --
Gap as a percentage of earning assets 1% (1)% -- 1% (1)% --
=============================================================================================================================
(1) Elasticity adjustments for NOW, savings and money market deposit accounts
are based on historical pricing relationships dating back to 1985 as well as
expected future pricing relationships.
18
2000 Annual Report 39
TABLE 13: REMAINING EXPECTED MATURITY OF RISK MANAGEMENT INTEREST RATE SWAPS
2006- Dec. 31,
(dollar amounts in millions) 2001 2002 2003 2004 2005 2026 Total 1999
- --------------------------------------------------------------------------------------------------------------------------
VARIABLE RATE ASSET DESIGNATION:
Receive fixed swaps
Generic $ 3,277 $2,850 $3,150 $-- $ -- $ -- $ 9,277 $6,800
Index amortizing -- -- -- -- -- -- -- 149
Weighted average: (1)
Receive rate 5.68% 7.14% 9.84% --% --% --% 7.55% 6.36%
Pay rate 6.72% 8.28% 9.50% --% --% --% 8.14% 6.71%
- -------------------------------------------------------------------------------------------------------------------------
FIXED RATE ASSET DESIGNATION:
Pay fixed swaps
Generic $ -- $ -- $ -- $-- $ -- $ -- $ -- $ 13
Index amortizing -- -- -- -- -- -- -- 7
Amortizing -- 1 -- -- -- -- 1 2
Weighted average: (2)
Receive rate --% 5.94% --% --% --% --% 5.94% 6.37%
Pay rate --% 6.05% --% --% --% --% 6.05% 5.93%
- -------------------------------------------------------------------------------------------------------------------------
FIXED RATE DEPOSIT DESIGNATION:
Generic receive fixed swaps $ 980 $ 73 $ -- $-- $ -- $ -- $ 1,053 $ 10
Weighted average: (1)
Receive rate 7.18% 7.58% --% --% --% --% 7.21% 5.16%
Pay rate 6.68% 6.71% --% --% --% --% 6.68% 5.01%
- -------------------------------------------------------------------------------------------------------------------------
MEDIUM- AND LONG-TERM
DEBT DESIGNATION:
Generic receive fixed swaps $ -- $ 150 $ -- $-- $ 250 $1,150 $ 1,550 $1,500
Weighted average: (1)
Receive rate --% 7.22% --% --% 7.04% 6.79% 6.87% 6.86%
Pay rate --% 6.76% --% --% 6.76% 6.74% 6.75% 5.95%
Floating/floating swaps $ 125 $ -- $ -- $-- $ -- $ -- $ 125 $ 37
Weighted average: (3)
Receive rate 6.72% --% --% --% --% --% 6.72% 5.93%
Pay rate 6.59% --% --% --% --% --% 6.59% 6.19%
- -------------------------------------------------------------------------------------------------------------------------
Total notional amount $ 4,382 $3,074 $3,150 $-- $ 250 $1,150 $12,006 $8,518
=========================================================================================================================
(1) Variable rates paid on receive fixed swaps are based on one-month and
three-month LIBOR or one-month CDOR rates in effect at December 31, 2000.
Variable rates received on pay fixed swaps are based on prime.
(2) Variable rate received is based on one-month CDOR at December 31, 2000.
(3) Variable rate paid is based on LIBOR at December 31, 2000, while variable
rate received is based on the three-month U.S. Treasury bill bond
equivalent rate.
19
40 Comerica Incorporated
RISK MANAGEMENT DERIVATIVE FINANCIAL INSTRUMENTS AND
FOREIGN EXCHANGE CONTRACTS
RISK MANAGEMENT NOTIONAL ACTIVITY
Interest Foreign
Rate Exchange
(in millions) Contracts Contracts Totals
- -------------------------------------------------------------
Balances at December 31, 1998 $ 6,884 $ 913 $ 7,797
Additions 3,677 10,491 14,168
Maturities/amortizations (667) (10,191) (10,858)
Terminations (1,376) -- (1,376)
- ------------------------------------------------------------
Balances at December 31, 1999 $ 8,518 $ 1,213 $ 9,731
Additions 4,679 6,296 10,975
Maturities/amortizations (1,183) (6,901) (8,084)
- ------------------------------------------------------------
Balances at December 31, 2000 $12,014 $ 608 $ 12,622
============================================================
The notional amount of risk management interest rate swaps totaled $12,006
million at December 31, 2000, and $8,518 million at December 31, 1999. The fair
value of risk management interest rate swaps at December 31, 2000, was an asset
of $166 million, compared to a liability of $155 million at December 31, 1999.
For the year ended December 31, 2000, risk management interest rate swaps
generated $48 million of net interest expense, compared to $54 million of net
interest income for the year ended December 31, 1999. These off-balance sheet
instruments represented 79 percent of total derivative financial instruments and
foreign exchange contracts, including commitments to purchase and sell
investment securities, at year-end 2000 and 78 percent at year-end 1999.
Table 13 on page 39 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, 2000. The swaps have been grouped by the assets and liabilities to
which they have been designated.
In addition to interest rate swaps, the Corporation employs various other types
of off-balance sheet derivative and foreign exchange contracts to mitigate
exposures to interest rate and foreign currency risks associated with specific
assets and liabilities (e.g., loans or deposits denominated in foreign
currencies). Such instruments 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
and foreign exchange contracts at December 31, 2000 and 1999, were $616 million
and $1,213 million, respectively.
Further information regarding risk management financial instruments and foreign
currency exchange contracts is provided in Notes 1, 9, 18 and 25.
CUSTOMER-INITIATED AND OTHER DERIVATIVE FINANCIAL INSTRUMENTS AND FOREIGN
EXCHANGE CONTRACTS
CUSTOMER-INITIATED AND OTHER NOTIONAL ACTIVITY
Interest Foreign
Rate Exchange
(in millions) Contracts Contracts Totals
- -------------------------------------------------------------
Balances at December 31, 1998 $ 681 $ 673 $ 1,354
Additions 133 31,004 31,137
Maturities/amortizations (251) (31,098) (31,349)
- -------------------------------------------------------------
Balances at December 31, 1999 $ 563 $ 579 $ 1,142
Additions 421 48,089 48,510
Maturities/amortizations (114) (46,928) (47,042)
- -------------------------------------------------------------
Balances at December 31, 2000 $ 870 $ 1,740 $ 2,610
=============================================================
On a limited basis, the Corporation writes interest rate caps and enters into
foreign exchange contracts and interest rate swaps to accommodate the needs of
customers requesting such services. Customer-initiated activity represented 17
percent at December 31, 2000 and 10 percent at December 31, 1999, of total
derivative and foreign exchange contracts, including commitments to purchase and
sell securities. Refer to Note 18 on page 57 for further information regarding
customer-initiated and other derivative financial instruments and foreign
exchange contracts.
LIQUIDITY RISK
Liquidity is the ability to meet financial obligations through the maturity or
sale of existing assets or acquisition of additional funds. Liquidity
requirements are satisfied with various funding sources, including a $15 billion
medium-term note program which allows the Michigan, California and Texas banks
to issue debt with maturities between one month and 15 years. The Michigan bank
has an additional $2 billion European note program. At year-end 2000, unissued
debt relating to the two programs totaled $10.5 billion. In addition, liquid
assets totaled $4.3 billion at December 31, 2000. The Corporation also had
available $23 billion from a collaterized borrowing account with the Federal
Reserve bank at year-end 2000. Purchased funds at December 31, 2000, excluding
certificates of deposit with maturities beyond one year and medium- and
long-term debt, approximated $7.9 billion.
The parent company had available a $250 million commercial paper facility at
December 31, 2000, $170 million of which was unused. Another source of liquidity
for the parent company is dividends from its subsidiaries. As discussed in Note
17 on page 56, subsidiary banks are subject to regulation and may be limited in
their ability to pay dividends or transfer funds to the holding company. During
2001, the subsidiary banks can pay dividends up to $1,045 million plus current
year net profits without prior regulatory approval. One measure of current
parent company liquidity is investment in subsidiaries as a percent of
shareholders' equity. An amount over 100 percent represents the reliance on
subsidiary dividends to repay liabilities. As of December 31, 2000, the ratio
was 103 percent.
20
2000 Annual Report 41
OPERATIONAL RISK
Operational risk is the risk of unexpected losses attributable to human error,
system failures, fraud, unauthorized transactions and inadequate controls and
procedures. The Corporation mitigates this risk through a system of internal
controls that are designed to keep operating risks at appropriate levels. The
Corporation's internal audit and financial staff monitors and assesses the
overall effectiveness of the system of internal controls on an ongoing basis and
internal audit provides an opinion on the environment to management and the
Audit Committee. Operational losses are experienced by all companies and are
routinely incurred in business operations.
The internal audit staff independently supports an active Audit Committee
oversight process. The Audit Committee serves as an independent extension of the
Board of Directors. Routine and special meetings are scheduled periodically to
provide more detail on relevant operations risks.
OTHER MATTERS
This annual report and other documents filed by Comerica with the Securities and
Exchange Commission (SEC) include forward-looking statements as that term is
used in the securities laws. All statements regarding Comerica'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", "estimates", "seeks", "plans", "intends" and
similar expressions, as they relate to Comerica or its management, are intended
to identify forward-looking statements. Although Comerica believes that the
expectations reflected in these forward-looking statements are reasonable and
has based these expectations on Comerica's beliefs and assumptions it has made,
such expectations may prove incorrect. Numerous factors could cause variances in
these projections and their underlying assumptions. Such factors are changes in
interest rates, changes in industries where Comerica has a significant
concentration of loans, changes in the level of fee income, the impact of
Internet banking, the entry of new competitors into the banking industry as a
result of the enactment of the Gramm-Leach-Bliley Act of 1999, changes in
general economic conditions and related credit conditions and continuing
consolidations in the banking industry. Forward-looking statements speak only as
of the date they are made. Comerica does not undertake to update forward-looking
statements to reflect circumstances or events that occur after the date the
forward-looking statements are made.
21
42 Comerica Incorporated
CONSOLIDATED BALANCE SHEETS
COMERICA INCORPORATED AND SUBSIDIARIES
December 31
(in thousands, except share data) 2000 1999
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 1,496,705 $ 1,201,990
Short-term investments 165,364 612,959
Investment securities available for sale 2,677,762 2,739,464
Commercial loans 22,729,464 20,654,658
International loans 2,571,156 2,573,003
Real estate construction loans 2,310,399 1,709,261
Commercial mortgage loans 5,271,078 4,774,052
Residential mortgage loans 806,561 870,029
Consumer loans 1,436,773 1,350,725
Lease financing 934,914 761,550
- --------------------------------------------------------------------------------------------------------------------
Total loans 36,060,345 32,693,278
Less allowance for credit losses (538,110) (476,470)
- --------------------------------------------------------------------------------------------------------------------
Net loans 35,522,235 32,216,808
Premises and equipment 306,753 330,728
Customers' liability on acceptances outstanding 26,668 43,810
Accrued income and other assets 1,789,698 1,507,573
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 41,985,185 $ 38,653,332
====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits $ 6,814,935 $ 6,136,038
Interest-bearing deposits 20,353,077 17,155,365
- --------------------------------------------------------------------------------------------------------------------
Total deposits 27,168,012 23,291,403
Short-term borrowings 2,077,518 2,768,031
Acceptances outstanding 26,668 43,810
Accrued expenses and other liabilities 617,060 495,587
Medium- and long-term debt 8,088,661 8,579,857
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 37,977,919 35,178,688
Nonredeemable preferred stock--$50 stated value
Authorized--5,000,000 shares
Issued--5,000,000 shares in 2000 and 1999 250,000 250,000
Common stock--$5 par value
Authorized--325,000,000 shares
Issued--157,233,107 shares in 2000 and 1999 786,166 786,166
Capital surplus 43,354 35,092
Accumulated other comprehensive income 10,565 (31,702)
Retained earnings 2,937,296 2,485,204
Deferred compensation (3,704) (2,955)
Less cost of common stock in treasury--289,397 shares in 2000
and 715,496 shares in 1999 (16,411) (47,161)
- --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,007,266 3,474,644
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 41,985,185 $ 38,653,332
====================================================================================================================
See notes to consolidated financial statements.
22
2000 Annual Report 43
CONSOLIDATED STATEMENTS OF INCOME
COMERICA INCORPORATED AND SUBSIDIARIES
Year Ended December 31
(in thousands, except per share data) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 3,037,176 $ 2,500,978 $ 2,382,329
Interest on investment securities
Taxable 188,370 156,933 218,378
Exempt from federal income tax 2,864 4,647 7,252
- -------------------------------------------------------------------------------------------------------------
Total interest on investment securities 191,234 161,580 225,630
Interest on short-term investments 33,226 10,152 8,815
- -------------------------------------------------------------------------------------------------------------
Total interest income 3,261,636 2,672,710 2,616,774
INTEREST EXPENSE
Interest on deposits 809,585 590,335 647,825
Interest on short-term borrowings 211,686 179,133 185,711
Interest on medium- and long-term debt 533,853 410,367 367,777
Net interest rate swap (income)/expense 47,661 (54,266) (45,810)
- -------------------------------------------------------------------------------------------------------------
Total interest expense 1,602,785 1,125,569 1,155,503
- -------------------------------------------------------------------------------------------------------------
Net interest income 1,658,851 1,547,141 1,461,271
Provision for credit losses 145,000 114,000 113,000
- -------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 1,513,851 1,433,141 1,348,271
NONINTEREST INCOME
Fiduciary and investment management income 306,119 240,574 184,354
Service charges on deposit accounts 180,018 169,173 157,416
Commercial lending fees 55,918 48,887 43,326
Letter of credit fees 41,847 38,468 31,127
Securities gains/(losses) (810) 5,453 6,116
Net gain on sales of businesses 47,584 21,339 10,705
Other noninterest income 195,214 192,994 170,104
- -------------------------------------------------------------------------------------------------------------
Total noninterest income 825,890 716,888 603,148
NONINTEREST EXPENSES
Salaries and employee benefits 668,037 640,357 565,303
Net occupancy expense 97,750 93,728 89,911
Equipment expense 59,108 61,092 60,147
Outside processing fee expense 49,142 47,754 42,785
Restructuring charge/(credit) -- -- (6,840)
Other noninterest expenses 314,333 274,026 268,738
- -------------------------------------------------------------------------------------------------------------
Total noninterest expenses 1,188,370 1,116,957 1,020,044
- -------------------------------------------------------------------------------------------------------------
Income before income taxes 1,151,371 1,033,072 931,375
Provision for income taxes 402,045 360,483 324,299
- -------------------------------------------------------------------------------------------------------------
NET INCOME $ 749,326 $ 672,589 $ 607,076
=============================================================================================================
Net income applicable to common stock $ 732,226 $ 655,489 $ 589,976
=============================================================================================================
Basic net income per common share $ 4.68 $ 4.20 $ 3.79
Diluted net income per common share 4.63 4.14 3.72
Cash dividends declared on common stock $ 250,277 $ 224,837 $ 199,403
Dividends per common share $ 1.60 $ 1.44 $ 1.28
- -------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
23
44 Comerica Incorporated
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMERICA INCORPORATED AND SUBSIDIARIES
Non- Accumulated
redeemable Other Total
Preferred Common Capital Comprehensive Retained Deferred Treasury Shareholders'
(in thousands, except share data) Stock Stock Surplus Income Earnings Compensation Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
JANUARY 1, 1998 $250,000 $784,077 $ -- $ (1,937) $1,731,419 $ (1,783) $ -- $2,761,776
Net income for 1998 -- -- -- -- 607,076 -- -- 607,076
Other comprehensive income, net -- -- -- (4,518) -- -- -- (4,518)
of tax
Total comprehensive income -- -- -- -- -- -- -- 602,558
Cash dividends declared:
Preferred stock -- -- -- -- (17,100) -- -- (17,100)
Common stock -- -- -- -- (199,403) -- -- (199,403)
Purchase and retirement of 60,000
shares of common stock -- (300) (3,182) -- -- -- -- (3,482)
Purchase of 2,199,650 shares
of common stock -- -- -- -- -- -- (145,202) (145,202)
Issuance of common stock under
employee stock plans -- 2,388 27,831 -- (35,403) (4,604) 56,069 46,281
Amortization of deferred -- -- -- -- -- 1,185 -- 1,185
compensation
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1998 250,000 786,165 24,649 (6,455) 2,086,589 (5,202) (89,133) 3,046,613
Net income for 1999 -- -- -- -- 672,589 -- -- 672,589
Other comprehensive income, net -- -- -- (25,247) -- -- -- (25,247)
of tax
Total comprehensive income -- -- -- -- -- -- -- 647,342
Cash dividends declared:
Preferred stock -- -- -- -- (17,100) -- -- (17,100)
Common stock -- -- -- -- (224,837) -- -- (224,837)
Purchase of 44,082 shares
of common stock -- -- -- -- -- -- (2,885) (2,885)
Issuance of common stock under
employee stock plans -- 1 10,443 -- (32,037) 4 44,857 23,268
Amortization of deferred -- -- -- -- -- 2,243 -- 2,243
compensation
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1999 250,000 786,166 35,092 (31,702) 2,485,204 (2,955) (47,161) 3,474,644
Net income for 2000 -- -- -- -- 749,326 -- -- 749,326
Other comprehensive income, net -- -- -- 42,267 -- -- -- 42,267
of tax
Total comprehensive income -- -- -- -- -- -- -- 791,593
Cash dividends declared:
Preferred stock -- -- -- -- (17,100) -- -- (17,100)
Common stock -- -- -- -- (250,277) -- -- (250,277)
Purchase of 353,547 shares
of common stock -- -- -- -- -- -- (14,108) (14,108)
Issuance of common stock under
employee stock plan -- -- 8,262 -- (29,857) (2,645) 44,858 20,618
Amortization of deferred -- -- -- -- -- 1,896 -- 1,896
compensation
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 2000 $250,000 $786,166 $43,354 $ 10,565 $2,937,296 $ (3,704) $ (16,411) $4,007,266
===================================================================================================================================
( ) Indicates deduction.
See notes to consolidated financial statements.
24
2000 Annual Report 45
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMERICA INCORPORATED AND SUBSIDIARIES
Year Ended December 31
(in thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 749,326 $ 672,589 $ 607,076
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for credit losses 145,000 114,000 113,000
Depreciation 54,229 56,893 57,633
Restructuring charge -- -- (21,923)
Net (increase) decrease in trading account securities (45,246) (10,063) 2,796
Net (increase) decrease in assets held for sale 18,373 36,371 (5,236)
Net (increase) decrease in accrued income receivable (65,730) (44,716) 19,487
Net increase in accrued expenses 110,273 138,459 2,973
Net amortization of intangibles 36,643 33,921 30,414
Other, net (207,615) 39,096 (116,295)
- ----------------------------------------------------------------------------------------------------------------------------------
Total adjustments 45,927 363,961 82,849
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 795,253 1,036,550 689,925
INVESTING ACTIVITIES
Net increase in interest-bearing deposits with banks (2,846) (9,418) (1,184)
Net (increase) decrease in federal funds sold and securities
purchased under agreements to resell 8,527 (25,094) 96,941
Proceeds from sale of investment securities available for sale 326,726 335,611 111,511
Proceeds from maturity of investment securities available for sale 563,547 724,555 1,209,291
Purchases of investment securities available for sale (795,836) (1,175,726) (126,239)
Net increase in loans (other than loans purchased) (3,450,427) (2,671,100) (3,768,220)
Purchase of loans -- -- (1,115)
Fixed assets, net (30,254) (34,971) (35,609)
Net (increase) decrease in customers' liability on acceptances outstanding 17,142 (31,475) 6,057
Net cash provided by acquisitions/sales of businesses 439,711 -- 1,878,907
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,923,710) (2,887,618) (629,660)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 3,876,609 (1,021,730) 1,726,816
Net increase (decrease) in short-term borrowings (690,513) (812,122) 387,252
Net increase (decrease) in acceptances outstanding (17,142) 31,475 (6,057)
Proceeds from issuance of medium- and long-term debt 6,103,664 6,275,000 3,200,000
Repayments and purchases of medium- and long-term debt (6,594,860) (2,977,402) (5,212,498)
Proceeds from issuance of common stock 20,618 23,268 50,885
Purchase of common stock for treasury and retirement (14,108) (2,885) (148,684)
Dividends paid (261,096) (235,646) (211,966)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 2,423,172 1,279,958 (214,252)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and due from banks 294,715 (571,110) (153,987)
Cash and due from banks at beginning of year 1,201,990 1,773,100 1,927,087
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 1,496,705 $ 1,201,990 $ 1,773,100
==================================================================================================================================
Interest paid $ 1,560,229 $ 1,101,993 $ 1,188,599
==================================================================================================================================
Income taxes paid $ 366,365 $ 266,835 $ 256,880
==================================================================================================================================
Noncash investing and financing activities
Transfer from loans to loans held for sale $ -- $ 492,746 $ --
Loan transfers to other real estate 6,870 11,036 5,084
==================================================================================================================================
See notes to consolidated financial statements.
25
46 Comerica Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMERICA INCORPORATED AND SUBSIDIARIES
1 ACCOUNTING POLICIES
ORGANIZATION
Comerica Incorporated is a registered financial holding company headquartered in
Detroit, Michigan. The Corporation's principal lines of business are the
Business Bank, the Individual Bank and the Investment Bank. The core businesses
are tailored to each of the Corporation's four primary geographic markets:
Michigan, Texas, California and Florida.
The accounting and reporting policies of Comerica Incorporated and its
subsidiaries conform to accounting principles generally accepted in the United
States and prevailing practices within the banking industry. Management makes
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying footnotes. Actual results could differ from these
estimates.
The following is a summary of the more significant accounting and reporting
policies.
CONSOLIDATION
The consolidated financial statements include the accounts of the Corporation
and its subsidiaries after elimination of all significant intercompany accounts
and transactions. Prior years' financial statements are reclassified to conform
with current financial statement presentation.
For acquisitions accounted for as pooling-of-interests combinations, the
historical consolidated financial statements are restated to include the
accounts and results of operations. For acquisitions using the purchase method
of accounting, the assets acquired and liabilities assumed are adjusted to fair
market values at the date of acquisition, and the resulting net discount or
premium is accreted or amortized into income over the remaining lives of the
relevant assets and liabilities. Goodwill representing the excess of cost over
the net book value of identifiable assets acquired is amortized on a
straight-line basis over periods ranging from 10 to 25 years (weighted average
of 19 years). Core deposit intangible assets are amortized on an accelerated
method over 10 years.
IMPAIRMENT
The Corporation periodically evaluates long-lived assets, certain identifiable
intangibles, deferred costs and goodwill for indication of impairment in value.
When required, asset impairment is recorded.
LOANS HELD FOR SALE
Loans held for sale, normally mortgages, are carried at the lower of cost or
market. Market value is determined in the aggregate.
SECURITIES
Investment securities held to maturity are those securities which management has
the ability and positive intent to hold to maturity. Investment securities held
to maturity are stated at cost, adjusted for amortization of premium and
accretion of discount.
Investment securities that fail to meet the ability and positive intent criteria
are accounted for as securities available for sale, and stated at fair value
with unrealized gains and losses, net of income taxes, reported as a component
of shareholders' equity.
Trading account securities are carried at market value. Realized and unrealized
gains or losses on trading securities are included in noninterest income.
Gains or losses on the sale of securities are computed based on the adjusted
cost of the specific security.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation, computed on the straight-line method, is charged to
operations over the estimated useful lives of the assets. The estimated useful
lives are generally 10-33 years for premises that the company owns and 3-8 years
for furniture and equipment. Leasehold improvements are amortized over the terms
of their respective leases or 10 years, whichever is shorter.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses represents management's assessment of probable
losses inherent in the Corporation's on- and off-balance sheet credit portfolio.
The allowance provides for probable losses that have been identified with
specific customer relationships and for probable losses believed to be inherent
but that have not been specifically identified. The Corporation allocates the
allowance for credit losses to each loan category based on a defined
methodology, which has been in use, without material change, for several years.
Internal risk ratings are assigned to each business loan at the time of approval
and are subject to subsequent periodic reviews by the senior management of the
Credit Policy Group. Business loans are defined as those belonging to the
commercial, international, real estate construction, commercial mortgage and
lease financing categories. A detailed credit quality review is performed
quarterly on large business loans which have deteriorated below certain levels
of credit risk. A specific portion of the allowance is allocated to such loans
based upon this review. The portion of the allowance allocated to the remaining
business loans is determined by applying projected loss ratios to each risk
rating based on numerous factors identified below. The portion of the allowance
allocated to consumer loans is determined by applying projected loss ratios to
various segments of the loan portfolio. Projected loss ratios incorporate
factors such as recent loan loss experience, current economic conditions and
trends, geographic dispersion of borrowers, and trends with respect to past due
and nonaccrual amounts.
Management maintains an unallocated allowance to recognize the uncertainty and
imprecision underlying the process of estimating expected credit losses. This
uncertainty occurs because other factors affecting the determination of probable
losses inherent in the loan portfolio may exist which are not necessarily
captured by the application of historical loss ratios. Loans which are deemed
uncollectible are charged off and deducted from the allowance. The provision for
credit losses and recoveries on loans previously charged off are added to the
allowance.
26
2000 Annual Report 47
1 ACCOUNTING POLICIES (CONTINUED)
NONPERFORMING ASSETS
Nonperforming assets are comprised of loans for which the accrual of interest
has been discontinued, loans for which the terms have been renegotiated to less
than market rates due to a serious weakening of the borrower's financial
condition and other real estate which has been acquired primarily through
foreclosure and is awaiting disposition.
Loans which were 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 generally not reported as nonperforming assets. Such
loans are evaluated for impairment in the calendar year of the modifications.
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 on page 49 for additional information on loan impairment.
Consumer loans are generally not placed on nonaccrual status and are charged off
no later than 180 days past due, or earlier if deemed uncollectible. Loans other
than consumer are generally placed on nonaccrual status when principal or
interest is past due 90 days or more and/or when, in the opinion of management,
full collection of principal or interest is unlikely. At the time a loan is
placed on nonaccrual status, interest previously accrued but not collected is
charged against current income. Income on such loans is then recognized only to
the extent that cash is received and where future collection of principal is
probable. Generally, a loan may be returned to accrual status when all
delinquent principal and interest become current and the Corporation expects
repayment of the remaining contractual principal and interest or when the loan
is both well secured and in the process of collection. A nonaccrual loan that is
restructured will generally remain on nonaccrual 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 basis 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, minus estimated costs to sell. When the property is
acquired through foreclosure, any excess of the related loan balance over fair
value is charged to the allowance for credit losses. Subsequent write-downs,
operating expenses and losses upon sale, if any, are charged to noninterest
expenses.
STOCK-BASED COMPENSATION
The Corporation elected to continue to apply the disclosure only method in
accounting for its stock-based compensation plans. Information on the
Corporation's stock-based compensation plans is included in Note 13.
PENSION COSTS
Pension costs are charged to salaries and employee benefits expense and funded
consistent with the requirements of federal law and regulations.
POSTRETIREMENT BENEFITS
Postretirement benefits are recognized in the financial statements during the
employee's active service period.
DERIVATIVE FINANCIAL INSTRUMENTS AND FOREIGN EXCHANGE CONTRACTS
Interest rate and foreign exchange swaps, interest rate caps and floors, and
futures and forward contracts may be used to manage the Corporation's exposure
to interest rate and foreign currency risks. These instruments, with the
exception of futures and forwards, are accounted for on an accrual basis since
there is a high correlation with the on-balance sheet instrument being hedged.
If this correlation ceases to exist, the existing unrealized gain or loss is
amortized over the remaining term of the instrument, and future changes in fair
value are accounted for in noninterest income or expense. Net interest income or
expense, including premiums paid or received, is recognized over the life of the
contract and reported as an adjustment to interest expense. Realized gains and
losses on futures and forwards are generally deferred and amortized over the
life of the contract as an adjustment to net interest income. Gains or losses on
early termination of risk management derivative financial instruments are
deferred and amortized as an adjustment to the yields of the related assets or
liabilities over their remaining contractual life. If the designated asset or
liability matures, or is disposed of or extinguished, any unrealized gains or
losses on the related derivative instrument are recognized currently and
reported as an adjustment to interest expense.
Foreign exchange futures and forward contracts, foreign currency options,
interest rate caps and interest rate swap agreements executed as a service to
customers are accounted for on a fair value basis. As a result, the fair values
of these instruments are recorded in the consolidated balance sheet with both
realized and unrealized gains and losses recognized currently in noninterest
income.
INCOME TAXES
Provisions for income taxes are based on amounts reported in the statements of
income (after exclusion of nontaxable income such as interest on state and
municipal securities) and include deferred income taxes on temporary differences
between the tax basis and financial reporting basis of assets and liabilities.
STATEMENTS OF CASH FLOWS
For the purpose of presentation in the statements of cash flows, cash and cash
equivalents are defined as those amounts included in the balance sheet caption,
"Cash and due from banks."
DEFERRED COSTS
Certain mutual fund costs are capitalized when paid and amortized over the
period that fees contractually recoup the deferred costs. The net of fees and
amortization is recorded in noninterest income.
27
48 Comerica Incorporated
LOAN ORIGINATION FEES AND COSTS
Loan origination and commitment fees are deferred and recognized over the life
of the related loan or over the commitment period as a yield adjustment. Loan
fees on unused commitments and fees related to loans sold are recognized
currently as noninterest income.
OTHER COMPREHENSIVE INCOME
The Corporation has elected to present information on comprehensive income in
the Consolidated Statements of Changes in Shareholders' Equity on page 44 and in
Note 11.
2 ACQUISITIONS
On November 1, 2000, the Corporation and Imperial Bancorp announced a definitive
agreement to merge through an exchange of shares. Under the terms of the
agreement, Imperial shareholders received 0.46 shares of Comerica common stock
for each share of Imperial common stock. The combined company will have assets
of approximately $50 billion. The merger was completed in January 2001 and was
accounted for as a pooling of interests. The Corporation anticipates incurring a
pre-tax, merger-related and restructuring charge of approximately $169 million
($119 million after-tax) in 2001 in connection with the acquisition.
The financial information presented in this annual report is for Comerica
Incorporated only. A summary of unaudited pro forma financial information for
Comerica Incorporated and Imperial Bancorp is shown at right. The unaudited
financial information is not indicative of the results that would have been
realized had the entities been a single company during these periods, nor is it
indicative of the actual results the combined company will report in the future.
(in millions, except per share data)
Year Ended December 31, 2000 1999 1998
- ------------------------------------------------------------
Total average assets $46,877 $42,662 $39,969
Net interest income 2,004 1,817 1,720
Noninterest income 958 867 667
Noninterest expenses 1,486 1,359 1,237
Net income 791 759 651
Diluted earnings per share $4.31 $4.13 $3.51
- ------------------------------------------------------------
During 1998, Comerica purchased a majority interest in Munder
Capital Management, an investment advisory firm. Net income for
the third and fourth quarter of 1998 included the consolidated
financial results of Munder. The Corporation's minority
interest in periods prior to the third quarter of 1998 was
accounted for under the equity method. Intangible assets
increased $133 million as a result of the consolidation. The
fair market value of total assets acquired and total liabilities
assumed was not material.
3 INVESTMENT SECURITIES
Information concerning investment securities as shown in the consolidated
balance sheets of the Corporation was as follows:
Gross Gross
Unrealized Unrealized Estimated
(in thousands) Cost Gains Losses Fair Value
- --------------------------------------------------------------------------
December 31, 2000
U.S. government and
agency securities $2,209,623 $ 22,476 $ 6,019 $2,226,080
State and municipal
securities 44,920 1,417 40 46,297
Other securities 413,244 2,033 9,892 405,385
- -------------------------------------------------------------------------
Total securities
available
for sale $2,667,787 $ 25,926 $ 15,951 $2,677,762
=========================================================================
December 31, 1999
U.S. government and
agency securities $2,317,530 $ 1,458 $ 43,459 $2,275,529
State and municipal
securities 72,054 1,764 122 73,696
Other securities 400,260 2,580 12,601 390,239
- -------------------------------------------------------------------------
Total securities
available
for sale $2,789,844 $ 5,802 $ 56,182 $2,739,464
=========================================================================
The cost and estimated fair values of debt securities by contractual maturity
were as follows (securities with multiple maturity dates are classified in the
period of final maturity). Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
December 31, 2000 Estimated
(in thousands) Cost Fair Value
- ------------------------------------------------------------------
Contractual maturity
Within one year $ 16,731 $ 17,605
Over one year to five years 246,078 246,443
Over five years to ten years 51,775 49,615
Over ten years 36,657 31,315
- ------------------------------------------------------------------
Subtotal securities 351,241 344,978
Mortgage-backed securities 2,175,568 2,191,673
Equity and other nondebt securities 140,978 141,111
- ------------------------------------------------------------------
Total securities available for sale $2,667,787 $2,677,762
==================================================================
28
2000 Annual Report 49
3 INVESTMENT SECURITIES (CONTINUED)
Sales, calls and write-downs of investment securities available
for sale resulted in realized gains and losses as follows:
Year Ended December 31
(in thousands) 2000 1999
- -----------------------------------------------------------
Securities gains $6,482 $5,535
Securities losses (826) (82)
Write-down of low income
housing investments (6,466) --
- -----------------------------------------------------------
Total $ (810) $5,453
===========================================================
Assets, principally securities, carried at approximately $1.5 billion at
December 31, 2000, were pledged to secure public deposits (including State of
Michigan deposits of $73 million at December 31, 2000) and for other purposes as
required by law.
4 NONPERFORMING ASSETS
The following table summarizes nonperforming assets and loans which are
contractually past due 90 days or more as to interest or principal payments.
Nonperforming assets consist of nonaccrual loans, reduced-rate loans and other
real estate. Nonaccrual loans are those on which interest is not being
recognized. Reduced-rate loans are those on which interest has been renegotiated
to lower than market rates because of the weakened financial condition of the
borrower.
Nonaccrual and reduced-rate loans are included in loans on the consolidated
balance sheet.
December 31
(in thousands) 2000 1999
- -------------------------------------------------------------------
Nonaccrual loans
Commercial loans $182,153 $ 99,620
International loans 57,929 44,046
Real estate construction loans 4,542 249
Commercial mortgage loans 15,528 9,620
Residential mortgage loans 166 572
Consumer loans 3,080 5,356
Lease financing 3,837 5,630
- -------------------------------------------------------------------
Total 267,235 165,093
Reduced-rate loans 348 7,347
- -------------------------------------------------------------------
Total nonperforming loans 267,583 172,440
Other real estate 5,052 9,595
- -------------------------------------------------------------------
Total nonperforming assets $272,635 $182,035
===================================================================
Loans past due 90 days and still accruing $ 35,820 $ 47,676
===================================================================
Gross interest income that would
have been recorded had the
nonaccrual and reduced-rate
loans performed in accordance
with original terms $ 35,954 $ 19,467
===================================================================
Interest income recognized $ 7,330 $ 2,158
===================================================================
A loan is impaired when it is probable that payment of interest and principal
will not be made in accordance with the contractual terms of the loan agreement.
Consistent with this definition, all nonaccrual and reduced-rate loans (with the
exception of residential mortgage and consumer loans) are impaired.
Impaired loans at December 31, 2000, were $284 million, $20 million of which
were formerly on nonaccrual status, but were restructured and met the
requirements to be restored to an accrual basis. These loans are performing in
accordance with their modified terms, but, in accordance with impaired loan
disclosures must continue to be disclosed as impaired for the remainder of the
calendar year of the restructuring.
December 31
(in thousands) 2000 1999 1998
- ---------------------------------------------------------------------------
Average impaired loans for the year $229,419 $146,070 $ 85,500
Total period-end impaired loans 284,442 159,165 101,417
Period-end impaired loans
requiring an allowance 250,522 155,828 87,494
Impairment allowance 99,420 51,753 21,951
Those impaired loans not requiring an allowance represent loans for which the
fair value exceeded the recorded investment in the loan. Forty-two percent of
the total impaired loans at December 31, 2000, are evaluated based on fair value
of related collateral. Remaining loan impairment is based on the present value
of expected future cash flows discounted at the loan's effective interest rate.
29
50 Comerica Incorporated
5 ALLOWANCE FOR CREDIT LOSSES
An analysis of changes in the allowance for credit losses follows:
(in thousands) 2000 1999 1998
- -------------------------------------------------------------------
Balance at January 1 $476,470 $ 452,409 $ 424,147
Loans charged off (99,537) (120,976) (125,627)
Recoveries on loans previously
charged off 16,232 31,004 40,889
- -------------------------------------------------------------------
Net loans charged off (83,305) (89,972) (84,738)
Provision for credit losses 145,000 114,000 113,000
Foreign currency translation
adjustment (55) 33 --
- -------------------------------------------------------------------
Balance at December 31 $538,110 $ 476,470 $ 452,409
===================================================================
As a percent of total loans 1.49% 1.46% 1.48%
===================================================================
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 holding company with a geographic concentration of its
on-balance sheet and off-balance sheet activities centered in Michigan. In
addition, the Corporation has an industry concentration with the automotive
industry, which includes manufacturers and their finance subsidiaries,
suppliers, dealers and company executives.
At December 31, 2000 and 1999, exposure from loan commitments and guarantees to
companies related to the automotive industry totaled $10.6 billion and $8.9
billion, respectively.
Additionally, commercial real estate loans, including commercial mortgages and
construction loans, totaled $7.6 billion in 2000 and $6.5 billion in 1999.
Approximately $3.5 billion of commercial real estate and real estate
construction loans at December 31, 2000, involved owner-occupied properties.
Those borrowers are involved in business activities other than real estate, and
the sources of repayment are not dependent on the performance of the real estate
market.
7 PREMISES AND EQUIPMENT AND OTHER NONCANCELLABLE OBLIGATIONS
A summary of premises and equipment at December 31 by major category follows:
(in thousands) 2000 1999
- -------------------------------------------------------------
Land $ 53,113 $ 49,464
Buildings and improvements 351,987 351,458
Furniture and equipment 310,058 320,565
- -------------------------------------------------------------
Total cost 715,158 721,487
Less accumulated depreciation and
amortization (408,405) (390,759)
- -------------------------------------------------------------
Net book value $306,753 $330,728
=============================================================
Rental expense for leased properties and equipment amounted to $41 million in
2000, $42 million in 1999 and $41 million in 1998. Future minimum payments under
noncancellable obligations are as follows:
(in thousands)
- -------------------------------------------
2001 $ 49,239
2002 43,209
2003 41,685
2004 37,411
2005 33,058
2006 and later 265,866
===========================================
8 SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to four days from the transaction date. Other
borrowed funds, consisting of commercial paper, borrowed securities, term
federal funds purchased, short-term notes and treasury tax and loan deposits,
generally mature within one to 120 days from the transaction date. The following
is a summary of short-term borrowings at December 31, 2000 and 1999.
30
2000 Annual Report 51
8 SHORT-TERM BORROWINGS (CONTINUED)
Federal Funds Purchased and Other
Securities Sold Under Borrowed
(in thousands) Agreements to Repurchase Funds
- ----------------------------------------------------------------------
December 31, 2000
Amount outstanding at
year-end $1,638,591 $ 438,927
Weighted average
interest rate at year-end 6.37% 5.51%
December 31, 1999
Amount outstanding at
year-end $1,332,397 $1,435,634
Weighted average
interest rate at year-end 4.40% 4.50%
======================================================================
At December 31, 2000, the parent company had available a $250 million commercial
paper facility of which $80 million was outstanding. This facility is supported
by a $200 million line of credit agreement. Under the current agreement the line
will expire in May of 2001.
At December 31, 2000, the Corporation's subsidiary banks had pledged loans
totaling $30.6 billion to secure a collateralized borrowing account with the
Federal Reserve Bank.
9 MEDIUM- AND LONG-TERM DEBT
Medium- and long-term debt consisted of the following at December 31:
(in thousands) 2000 1999
- -----------------------------------------------------------------
Parent Company
7.25% subordinated notes due 2007 $ 157,414 $ 158,543
Subsidiaries
Subordinated notes:
7.25% subordinated notes due 2007 198,703 198,502
8.375% subordinated notes due 2024 155,071 155,287
7.25% subordinated notes due 2002 149,719 149,561
6.875% subordinated notes due 2008 103,272 103,729
7.125% subordinated notes due 2013 154,486 154,834
7.875% subordinated notes due 2026 172,346 173,217
6.00% subordinated notes due 2008 248,238 248,010
7.65% subordinated notes due 2010 248,385 --
- -----------------------------------------------------------------
Total subordinated notes 1,430,220 1,183,140
Medium-term notes:
Floating rate based on LIBOR indices 5,042,222 5,762,320
Floating rate based on Treasury indices 125,000 37,000
Floating rate based on Prime indices 1,320,964 1,224,993
Fixed rate notes with interest rate
of 6.65% -- 199,944
- -----------------------------------------------------------------
Total medium-term notes 6,488,186 7,224,257
Notes payable 12,841 13,917
- -----------------------------------------------------------------
Total subsidiaries 7,931,247 8,421,314
=================================================================
Total medium- and long-term debt $8,088,661 $8,579,857
=================================================================
Concurrent with the issuance of certain of the medium- and long-term debt
presented above, the Corporation entered into interest rate swap agreements to
convert the stated rate of the debt to a rate based on the indices identified in
the following table.
Principal Amount Base
of Debt Rate at
(in thousands) Converted Base Rate 12/31/00
- ---------------------------------------------------------------------------
Parent company
7.25% subordinated notes $150,000 6-month LIBOR 6.21%
Subsidiaries
Subordinated notes:
7.25% subordinated notes $200,000 6-month LIBOR 6.21%
8.375% subordinated notes 150,000 6-month LIBOR 6.21%
7.25% subordinated notes 150,000 6-month LIBOR 6.21%
6.875% subordinated notes 100,000 6-month LIBOR 6.21%
6.00% subordinated notes 250,000 6-month LIBOR 6.21%
7.125% subordinated notes 150,000 6-month LIBOR 6.21%
7.875% subordinated notes 150,000 6-month LIBOR 6.21%
7.65% subordinated notes 250,000 3-month LIBOR 6.44%
Medium-term notes:
Floating rate based on
Treasury indices 125,000 1-month LIBOR 6.64%
=========================================================================
All subordinated notes and debentures with maturities greater than one year
qualify as Tier 2 capital.
The Corporation currently has two medium-term note programs: a senior note
program and a European note program. Under these programs, certain bank
subsidiaries may offer an aggregate principal amount of up to $17.0 billion. The
notes can be issued as fixed or floating rate notes and with terms from one
month to 15 years. The interest rates on the floating rate medium-term notes
based on LIBOR ranged from three-month LIBOR plus 0.07% to one-month LIBOR plus
0.20%. The notes are due from 2001 to 2005. The interest rate on the floating
rate medium-term notes based on U.S. Treasury indices is equal to the
three-month U.S. Treasury bill bond equivalent rate plus 0.67%. The notes are
due in 2001. The medium-term notes do not qualify as Tier 2 capital and are not
insured by the FDIC. The principal maturities of medium- and long-term debt are
as follows:
(in thousands)
- --------------------------------------------
2001 $5,255,697
2002 985,137
2003 132,309
2004 102,330
2005 187,366
2006 and later 1,425,822
============================================
31
52 Comerica Incorporated
10 SHAREHOLDERS' EQUITY
The board of directors had authorized the repurchase of up to 40.5 million
shares of Comerica Incorporated common stock for general corporate purposes,
acquisitions and employee benefit plans. In connection with the Imperial Bancorp
acquisition, the board of directors of the Corporation rescinded its previous
authorization.
At December 31, 2000, the Corporation had reserved 11.3 million shares of common
stock for issuance to employees and directors under the long-term incentive
plans.
The Corporation issued 5 million shares of Fixed/Adjustable Rate Noncumulative
Preferred Stock, Series E, with a stated value of $50 per share in 1996.
Dividends are payable quarterly, at a rate of 6.84% per annum through July 1,
2001. Thereafter, the rate will be equal to 0.625% plus an effective rate, but
not less than 7.34% nor greater than 13.34%. The effective rate will be equal to
the highest of the Treasury Bill Rate, the Ten Year Constant Treasury Maturity
Rate and the Thirty Year Constant Treasury Maturity Rate (as defined in the
prospectus). The Corporation, at its option after regulatory approval, may
redeem all or part of the outstanding shares on or after July 1, 2001.
11 OTHER COMPREHENSIVE INCOME
Other comprehensive income includes the change in unrealized gains and losses on
investment securities available for sale and the change in the accumulated
foreign currency translation adjustment. The Consolidated Statements of Changes
in Shareholders' Equity includes only combined, net of tax, other comprehensive
income. The following presents reconciliations of the components of accumulated
other comprehensive income for the years ended December 31, 2000, 1999 and 1998.
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------
(in thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) on investment securities available for sale:
Balance at beginning of year $(32,717) $ (7,688) $ (970)
Net unrealized holding gains (losses) arising during the period 59,499 (33,815) (3,835)
Less: Reclassification adjustment for gains (losses) included in net income (810) 5,453 6,116
- ------------------------------------------------------------------------------------------------------------------
Change in net unrealized gains (losses) before income taxes 60,309 (39,268) (9,951)
Provision for income taxes 21,108 (14,239) (3,233)
- ------------------------------------------------------------------------------------------------------------------
Change in net unrealized gains (losses) on investment securities available 39,201 (25,029) (6,718)
for sale, net of tax
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31 $ 6,484 $(32,717) $ (7,688)
Accumulated foreign currency translation adjustment:
Balance at beginning of year 1,015 $ 1,233 $ (967)
Net translation gains (losses) arising during the period 3,066 (218) 2,200
Less: Reclassification adjustment for gains (losses) included in net income -- -- --
- ------------------------------------------------------------------------------------------------------------------
Change in translation adjustment before income taxes 3,066 (218) 2,200
Provision for income taxes -- -- --
- ------------------------------------------------------------------------------------------------------------------
Change in foreign currency translation adjustment, net of tax 3,066 (218) 2,200
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31 $ 4,081 $ 1,015 $ 1,233
- ------------------------------------------------------------------------------------------------------------------
Total accumulated other comprehensive income, net of taxes, at December 31 $ 10,565 $(31,702) $ (6,455)
==================================================================================================================
32
2000 Annual Report 53
12 NET INCOME PER COMMON SHARE
Basic net income per common share is computed by dividing net income applicable
to common stock by the weighted average number of shares of common stock
outstanding during the period. Diluted net income per common share is computed
by dividing net income applicable to common stock by the weighted average number
of shares, nonvested stock and dilutive common stock equivalents outstanding
during the period. Common stock equivalents consist of common stock issuable
under the assumed exercise of stock options granted under the Corporation's
stock plans, using the treasury stock method. A computation of earnings per
share follows:
Year Ended December 31
(in thousands, except per share data) 2000 1999 1998
- ----------------------------------------------------------------------
Basic
Average shares outstanding 156,398 156,094 155,859
======================================================================
Net income $749,326 $672,589 $607,076
Less preferred stock dividends 17,100 17,100 17,100
- ----------------------------------------------------------------------
Net income applicable to
common stock $732,226 $655,489 $589,976
======================================================================
Basic net income per
common share $ 4.68 $ 4.20 $ 3.79
======================================================================
Diluted
Average shares outstanding 156,398 156,094 155,859
Nonvested stock 159 167 191
Common stock equivalents
Net effect of the assumed
exercise of stock options 1,718 2,136 2,707
- ----------------------------------------------------------------------
Diluted average shares 158,275 158,397 158,757
======================================================================
Net income $749,326 $672,589 $607,076
Less preferred stock dividends 17,100 17,100 17,100
- ----------------------------------------------------------------------
Net income applicable to
common stock $732,226 $655,489 $589,976
======================================================================
Diluted net income per
common share $ 4.63 $ 4.14 $ 3.72
======================================================================
13 LONG-TERM INCENTIVE PLANS
The Corporation has long-term incentive plans under which it has awarded both
shares of restricted stock to key executive officers and stock options to
executive officers, directors and key personnel of the Corporation and its
subsidiaries. The Corporation has elected to follow the disclosure only method
in accounting for its employee and director stock options. Under Accounting
Principles Board (APB) Opinion No. 25, no compensation expense is recognized
because the exercise price of the Corporation's employee and director stock
options equals the market price of the underlying stock on the date of grant.
The maturity of each option is determined at the date of grant; however, no
options may be exercised later than ten years from the date of grant. The
options may have restrictions regarding exercisability. A majority of the
Corporation's options vest over a four-year period.
Pro forma information regarding net income and earnings per share was determined
as if the Corporation had accounted for its employee and director stock options
under the fair value method. The fair value of options was estimated at the date
of grant using a Black-Scholes option pricing model. The Black-Scholes model was
developed for use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the expected
stock price volatility. The model may not necessarily provide a reliable single
measure of the fair value of employee and director stock options. The
Corporation's employee and director stock options have characteristics
significantly different from those of traded options and changes in the
subjective input assumptions can materially affect the fair value estimate.
The fair value of the options was estimated using an option valuation model with
the following weighted-average assumptions:
2000 1999 1998
- ------------------------------------------------------------
Risk-free interest rate 6.46% 5.15% 5.54%
Expected dividend yield 2.84% 3.24% 3.45%
Expected volatility factors of
the market price of Comerica
common stock 28% 24% 21%
Expected option life (in years) 4.8 4.8 4.3
- ------------------------------------------------------------
Had compensation cost for the Corporation's stock-based compensation plans been
determined in accordance with the fair value provisions, net income and earnings
per share would have been as follows:
(in thousands,
except per share data) 2000 1999 1998
- ------------------------------------------------------------
Pro forma net income $715,336 $639,169 $578,335
Pro forma earnings per share:
Basic $4.57 $4.09 $3.71
Diluted 4.52 4.04 3.64
============================================================
33
54 Comerica Incorporated
13 LONG-TERM INCENTIVE PLANS (CONTINUED)
Average per Share
- ------------------------------------------------------------------------------------------
Exercise Market
Number Price Price
- ------------------------------------------------------------------------------------------
Outstanding--December 31, 1997 7,637,343 $24.77 $60.17
Granted 2,058,542 71.37 71.37
Cancelled (232,617) 42.92 64.33
Exercised (1,213,818) 21.33 64.07
Expired --
- ------------------------------------------------------------------------------------------
Outstanding--December 31, 1998 8,249,450 $36.39 $68.19
Granted 2,237,754 66.63 66.63
Cancelled (202,392) 63.00 58.69
Exercised (680,664) 18.86 62.76
Expired --
- ------------------------------------------------------------------------------------------
Outstanding--December 31, 1999 9,604,148 $44.12 $46.69
Granted 2,437,684 41.95 41.95
Cancelled (179,781) 60.36 49.58
Exercised (715,104) 17.31 49.99
Expired --
- ------------------------------------------------------------------------------------------
Outstanding--December 31, 2000 11,146,947 $45.11 $59.38
==========================================================================================
Exercisable--December 31, 2000 6,613,643
Available for grant--December 31, 2000 142,316
==========================================================================================
The following table summarizes information about stock options
outstanding at December 31, 2000:
Outstanding Exercisable
- ---------------------------------------------------------------------------------------------------
Average Average
Exercise Average Exercise Exercise
Price Range Shares Life (a) Price Shares Price
- ---------------------------------------------------------------------------------------------------
$ 9.83 - $19.00 1,359,931 3.8 $18.23 1,359,931 $18.23
19.83 - 35.33 1,992,364 4.0 23.77 1,988,614 23.75
40.09 - 58.44 3,854,534 8.1 41.33 1,213,527 40.98
60.31 - 66.81 2,155,613 8.2 66.61 959,260 66.41
68.44 - 71.58 1,784,505 7.2 71.58 1,092,311 71.58
- ---------------------------------------------------------------------------------------------------
Total 11,146,947 6.7 $45.11 6,613,643 $39.86
- ---------------------------------------------------------------------------------------------------
(a) Average contractual life remaining in years.
14 EMPLOYEE BENEFIT PLANS
The Corporation has a defined benefit pension plan in effect for substantially
all full-time employees. Staff expense includes income of $7.9 million in 2000,
$0.8 million in 1999 and $3.0 million in 1998 for the plan. Benefits under the
plan 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 plan's assets primarily consist of units of certain
collective investment funds administered by Munder Capital Management, equity
securities, U.S. government and agency securities and corporate bonds and notes.
The Corporation's postretirement benefits plan continues postretirement health
care and life insurance benefits for retirees as of December 31, 1992, provides
a phase-out for employees over 50 as of that date. The Corporation has funded
the plan with a company-owned life insurance contract.
The tables below set forth reconciliations of the Corporation's pension and
postretirement plan obligations and plan assets:
Defined Benefit Postretirement
Pension Plan Benefit Plan
- -----------------------------------------------------------------------------------------------------
(in thousands) 2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at January 1 $ 509,686 $ 542,941 $ 74,562 $ 80,710
Service cost 13,531 15,387 79 256
Interest cost 42,839 38,118 5,541 5,308
Amendments 25,696 -- -- --
Actuarial (gain)/loss 22,294 (63,598) 2,892 (4,995)
Benefits paid (23,419) (23,162) (7,122) (6,717)
- -----------------------------------------------------------------------------------------------------
Benefit obligation
at December 31 $ 590,627 $ 509,686 $ 75,952 $ 74,562
=====================================================================================================
CHANGE IN PLAN ASSETS:
Fair value of plan assets at
January 1 $ 651,782 $ 628,194 $ 84,391 $ 88,312
Actual return on plan assets 2,656 46,750 5,136 (1,475)
Employer contributions -- -- 3,306 4,271
Benefits paid (23,419) (23,162) (7,122) (6,717)
- -----------------------------------------------------------------------------------------------------
Fair value of plan assets at
December 31 $ 631,019 $ 651,782 $ 85,711 $ 84,391
=====================================================================================================
34
2000 Annual Report 55
14 EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status of the defined benefit pension
and postretirement plan and amounts recognized on the Corporation's balance
sheet:
Defined Benefit Postretirement
Pension Plan Benefit Plan
- --------------------------------------------------------------------------------------------------
(in thousands) 2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------
Funded status at December 31 $ 40,393 $ 142,096 $ 9,758 $ 9,829
Unrecognized net (gain)/loss (24,927) (106,068) 3,282 (4,701)
Unrecognized net transition
(asset)/obligation (856) (5,690) 51,388 59,850
Unrecognized prior service cost 21,597 (2,072) -- --
- --------------------------------------------------------------------------------------------------
Prepaid benefit cost $ 36,207 $ 28,266 $ 64,428 $ 64,978
==================================================================================================
Components of net periodic benefit cost/(income):
Defined Benefit Pension Plan
(in thousands) 2000 1999 1998
- ---------------------------------------------------------------------------------------------
Service cost $ 13,531 $ 15,387 $ 13,924
Interest cost 42,839 38,118 36,039
Expected return on plan assets (60,920) (51,241) (48,887)
Amortization of unrecognized
transition asset (4,834) (4,834) (4,834)
Amortization of unrecognized
prior service cost 2,026 (322) (331)
Amortization of unrecognized
net (gain)/loss (584) 2,132 1,071
- ---------------------------------------------------------------------------------------------
Net periodic benefit income $ (7,942) $ (760) $ (3,018)
=============================================================================================
Postretirement Benefit Plan
(in thousands) 2000 1999 1998
- ---------------------------------------------------------------------------------------------
Service cost $ 79 $ 256 $ 262
Interest cost 5,541 5,308 5,509
Expected return on plan assets (6,069) (5,935) (5,829)
Amortization of unrecognized
transition obligation 4,305 4,628 4,628
- ---------------------------------------------------------------------------------------------
Net periodic benefit cost $ 3,856 $ 4,257 $ 4,570
=============================================================================================
Actuarial assumptions were as follows:
Defined Benefit Pension Plan 2000 1999 1998
- ------------------------------------------------------------------------------------------
Discount rate used in determining
benefit obligation 7.9% 8.0% 7.0%
Long-term rate of return on assets 10.0% 9.3% 9.0%
Rate of compensation increase 5.0% 5.0% 5.0%
==========================================================================================
Postretirement Benefit Plan 2000 1999 1998
- ------------------------------------------------------------------------------------------
Discount rate used in determining
benefit obligation 7.9% 8.0% 7.0%
Long-term rate of return on assets 6.7% 6.7% 6.7%
==========================================================================================
The health care and prescription drug cost trend rates projected for 2000
were nine percent and eleven percent, respectively. Each health care cost trend
rate is assumed to gradually decrease to five percent by the year 2007.
Increasing each health care rate by one percentage point would increase the
accumulated postretirement benefit obligation by $5 million at December 31,
2000, and the aggregate of the service and interest cost components by $359
thousand for the year ended December 31, 2000. Decreasing each health care rate
by one percentage point would decrease the accumulated postretirement benefit
obligation by $5 million at December 31, 2000, and the aggregate of the service
and interest cost components by $317 thousand for the year ended December 31,
2000.
The Corporation also maintains defined contribution plans (including 401(k)
plans) for various groups of its employees. All of the Corporation's salaried
and regular part-time employees are eligible to participate in one or more of
the plans. The Corporation makes matching contributions, most of which are based
on a declining percentage of employee contributions (currently, maximum per
employee is $1,000) as well as a performance-based matching contribution based
on the Corporation's financial performance. Staff expense includes expense of
$14.2 million in 2000, $11.7 million in 1999 and $11.1 million in 1998 for the
plans.
15 INCOME TAXES
The current and deferred components of income taxes were as follows:
(in thousands) 2000 1999 1998
- ---------------------------------------------------------------------------------------------
Currently payable
Federal $339,683 $287,776 $245,486
Foreign 16,120 22,797 27,263
State and local 20,464 10,174 13,847
- ---------------------------------------------------------------------------------------------
376,267 320,747 286,596
Deferred federal, state and local 25,778 39,736 37,703
- ---------------------------------------------------------------------------------------------
Total $402,045 $360,483 $324,299
=============================================================================================
There were $(0.3) million, $1.9 million and $2.1 million of income tax
provision/(benefit) on securities transactions in 2000, 1999 and 1998,
respectively.
35
56 Comerica Incorporated
15 INCOME TAXES (CONTINUED)
The principal components of deferred tax (assets)/liabilities
at December 31 were as follows:
(in thousands) 2000 1999
- ------------------------------------------------------------------------
Deferred tax assets:
Allowance for credit losses $(170,110) $(150,025)
Allowance for depreciation (3,302) --
Deferred loan origination fees and costs (34,959) (31,424)
Investment securities available for sale -- (17,458)
Employee benefits (13,743) (8,259)
Other deferred tax assets (104,791) (88,885)
- ------------------------------------------------------------------------
Total deferred tax assets $(326,905) $(296,051)
Deferred tax liabilities:
Lease financing transactions $ 306,639 $ 229,086
Allowance for depreciation -- 2,871
Investment securities available for sale 3,492 --
Other deferred tax liabilities 50,789 51,443
- ------------------------------------------------------------------------
Total deferred tax liabilities 360,920 283,400
- ------------------------------------------------------------------------
Net deferred tax (asset)/liability $ 34,015 $ (12,651)
========================================================================
The provision for income taxes differs from that computed by applying the
federal statutory rate of 35 percent for the reasons in the following analysis:
(in thousands) 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
- --------------------------------------------------------------------------------------------------------------------------------
Tax based on federal statutory rate $ 402,980 35.0% $ 361,575 35.0% $ 325,981 35.0%
Effect of tax-exempt interest income (1,619) (0.1) (2,737) (0.3) (4,039) (0.4)
Bank owned life insurance (11,553) (1.0) (11,054) (1.1) (10,651) (1.2)
Goodwill 7,557 0.6 7,584 0.8 7,559 0.8
Other 4,680 0.4 5,115 0.5 5,449 0.6
- --------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $ 402,045 34.9% $ 360,483 34.9% $ 324,299 34.8%
================================================================================================================================
16 TRANSACTIONS WITH RELATED PARTIES
The bank subsidiaries have had, and expect to have in the future, transactions
with the Corporation's directors and their affiliates. Such transactions were
made in the ordinary course of business and included extensions of credit, all
of which were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other customers and did not, in management's opinion, involve more than
normal risk of collectibility or present other unfavorable features. The
aggregate amount of loans attributable to persons who were related parties at
December 31, 2000, approximated $368 million at the beginning and $450 million
at the end of 2000. During 2000, new loans to related parties aggregated $710
million and repayments totaled $628 million.
17 REGULATORY CAPITAL AND BANKING SUBSIDIARIES
Banking regulations limit the transfer of assets in the form of dividends, loans
or advances from the bank subsidiaries to the Corporation. Under the most
restrictive of these regulations, the aggregate amount of dividends which can be
paid to the Corporation without obtaining prior approval from bank regulatory
agencies approximated $1,045 million at January 1, 2001, plus current year's
earnings. Substantially all the assets of the Corporation's subsidiaries are
restricted from transfer to the Corporation in the form of loans or advances.
Dividends paid to the Corporation by its banking subsidiaries amounted to $339
million in 2000, $261 million in 1999 and $442 million in 1998.
The Corporation and its banking subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies. Quantitative
measures established by regulation to ensure capital adequacy require the
maintenance of minimum amounts and ratios of Tier 1 and total capital (as
defined in the regulations) to average and risk-weighted assets. At December 31,
2000 and 1999, the Corporation and all of its banking subsidiaries exceeded the
ratios required for an institution to be considered "well capitalized" (total
capital ratio greater than 10 percent). The following is a summary of the
capital position of the Corporation and its significant banking subsidiaries.
36
2000 Annual Report 57
17 REGULATORY CAPITAL AND BANKING SUBSIDIARIES (CONTINUED)
Comerica Inc. Comerica Comerica Bank- Comerica Bank-
(in thousands) (Consolidated) Bank Texas California
- --------------------------------------------------------------------------------------------------------------------------
December 31, 2000
Tier 1 capital $ 3,649,809 $ 2,923,331 $ 370,520 $ 482,292
Total capital 5,649,080 4,600,732 519,976 695,433
Tier 1 capital to average assets (minimum-3.0%) 8.90% 8.91% 9.95% 8.95%
Tier 1 capital to risk-weighted assets (minimum-4.0%) 7.11 7.09 9.43 7.26
Total capital to risk-weighted assets (minimum-8.0%) 11.00 11.16 13.23 10.46
December 31, 1999
Tier 1 capital $ 3,179,790 $ 2,614,284 $ 358,200 $ 382,339
Total capital 4,903,202 4,046,166 452,678 576,282
Tier 1 capital to average assets (minimum-3.0%) 8.39% 8.53% 9.59% 8.60%
Tier 1 capital to risk-weighted assets (minimum-4.0%) 6.95 7.00 10.12 7.48
Total capital to risk-weighted assets (minimum-8.0%) 10.72 10.83 12.79 11.27
- --------------------------------------------------------------------------------------------------------------------------
18 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Corporation enters into various
off-balance sheet transactions involving derivative financial instruments,
foreign exchange contracts and credit-related financial instruments to manage
exposure to fluctuations in interest rate, foreign currency and other market
risks and to meet the financing needs of customers. These financial instruments
involve, to varying degrees, elements of credit and market risk in excess of the
amount reflected in the consolidated balance sheets.
Credit risk is the possible loss that may occur in the event of nonperformance
by the counterparty to a financial instrument. The Corporation attempts to
minimize credit risk arising from off-balance sheet financial instruments by
evaluating the creditworthiness of each counterparty, adhering to the same
credit approval process used for traditional lending activities. Counterparty
risk limits and monitoring procedures have also been established to facilitate
the management of credit risk. Collateral is obtained, if deemed necessary,
based on the results of management's credit evaluation. Collateral varies, but
may include cash, investment securities, accounts receivable, inventory,
property, plant and equipment or real estate.
Derivative financial instruments and foreign exchange contracts are traded over
an organized exchange or negotiated over-the-counter. Credit risk associated
with exchange-traded contracts is typically assumed by the organized exchange.
Over-the-counter contracts are tailored to meet the needs of the 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 and foreign exchange contracts
by conducting such transactions with investment-grade domestic and foreign
investment banks or commercial banks.
Market risk is the potential loss that may result from movements in interest or
foreign currency rates which cause an unfavorable change in the value of a
financial instrument. The Corporation manages this risk by establishing monetary
exposure limits and monitoring compliance with those limits. Market risk arising
from derivative and foreign exchange positions entered into on behalf of
customers is reflected in the consolidated financial statements and may be
mitigated by entering into offsetting transactions. Market risk inherent in
off-balance sheet derivative and foreign exchange contracts held or issued for
risk management purposes is generally offset by changes in the value of rate
sensitive on-balance sheet assets or liabilities.
DERIVATIVE FINANCIAL INSTRUMENTS AND FOREIGN EXCHANGE CONTRACTS
The Corporation, as an end-user, employs a variety of off-balance sheet
financial instruments for risk management purposes. Activity related to these
instruments is centered predominantly in the interest rate markets and mainly
involves interest rate swaps. Various other types of instruments are also used
to manage exposures to market risks, including interest rate caps and floors,
total return swaps, foreign exchange forward contracts and foreign exchange swap
agreements. Refer to the section entitled "Risk Management Derivative Financial
Instruments and Foreign Exchange Contracts" in the financial review on page 40
for further information about the Corporation's objectives for using such
instruments.
The following table presents the composition of off-balance sheet derivative
financial instruments and foreign exchange contracts, excluding commitments,
held or issued for risk management purposes at December 31, 2000 and 1999.
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.
37
58 Comerica Incorporated
18 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
Notional/
Contract Unrealized Unrealized Fair
(in millions) Amount Gains Losses Value
- ------------------------------------------------------------------------------------------------
December 31, 2000
Risk management
Interest rate contracts:
Swaps $12,006 $ 197 $ (31) $ 166
Floors purchased 8 -- -- --
Foreign exchange
contracts:
Spot and forwards 493 18 (6) 12
Swaps 115 1 (13) (12)
- ------------------------------------------------------------------------------------------------
Total foreign
exchange contracts 608 19 (19) --
- ------------------------------------------------------------------------------------------------
Total risk
management $12,622 $ 216 $ (50) $ 166
================================================================================================
December 31, 1999
Risk management
Interest rate swaps $ 8,518 $ 17 $ (172) $ (155)
Foreign exchange
contracts:
Spot and forwards 1,098 33 (23) 10
Swaps 115 -- (5) (5)
- ------------------------------------------------------------------------------------------------
Total foreign
exchange contracts 1,213 33 (28) 5
- ------------------------------------------------------------------------------------------------
Total risk
management $ 9,731 $ 50 $ (200) $ (150)
================================================================================================
During 1999, the Corporation terminated a portion of its portfolio of index
amortizing interest rate swaps. The notional amount of these swaps totaled
$1,376 million. The gain resulting from early termination was deferred and is
being amortized over the remaining expected life of the swaps at time of
termination.
Credit risk, which excludes the effects of any collateral or netting
arrangements, is measured as the cost to replace, at current market rates,
contracts in a profitable position. The amount of this exposure is represented
by the gross unrealized gains on derivative and foreign exchange contracts.
Bilateral collateral agreements with counterparties covered 95 percent of the
notional amount of interest rate derivative contracts at December 31, 2000 and
1999. 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, 2000, master netting
arrangements had been established with all interest rate swap counterparties and
certain foreign exchange counterparties. These arrangements effectively reduce
credit risk by permitting settlement, on a net basis, of contracts entered into
with the same counterparty. The Corporation has not experienced any material
credit losses associated with derivative or foreign exchange contracts.
On a limited scale, fee income is earned from entering into various
transactions, principally foreign exchange contracts and interest rate caps, at
the request of customers. The Corporation does not speculate in derivative
financial instruments for the purpose of profiting in the short-term from
favorable movements in market rates.
Fair values for customer-initiated and other derivative and foreign exchange
contracts represent the net unrealized gains or losses on such contracts and are
recorded in the consolidated balance sheets. Changes in fair value are
recognized in the consolidated income statements. For the year ended December
31, 2000, unrealized gains and unrealized losses on customer-initiated and other
foreign exchange contracts averaged $26 million and $19 million, respectively.
For the year ended December 31, 1999, unrealized gains and unrealized losses
averaged $19 million and $15 million, respectively. These contracts also
generated noninterest income of $9 million in 2000 and $10 million in 1999.
Average positive and negative fair values and income related to
customer-initiated and other interest rate contracts were not material for 2000
and 1999.
The following table presents the composition of off-balance sheet derivative
financial instruments and foreign exchange contracts held or issued in
connection with customer-initiated and other activities at December 31, 2000 and
1999.
Notional/
Contract Unrealized Unrealized Fair
(in millions) Amount Gains Losses Value
- -------------------------------------------------------------------------------------------------------------
December 31, 2000
Customer-initiated and other
Interest rate contracts:
Caps and floors written $ 198 $ -- $ (1) $ (1)
Caps and floors purchased 179 1 -- 1
Swaps 493 5 (4) 1
- -------------------------------------------------------------------------------------------------------------
Total interest rate
contracts 870 6 (5) 1
Foreign exchange contracts:
Spot, forwards, futures
and options 1,690 26 (18) 8
Swaps 50 -- -- --
Total customer-initiated
and other $2,610 $ 32 $ (23) $ 9
=============================================================================================================
December 31, 1999
Customer-initiated and other
Interest rate contracts:
Caps and floors written $ 166 $ -- $ (1) $ (1)
Caps and floors purchased 141 1 -- 1
Swaps 256 2 (2) --
- -------------------------------------------------------------------------------------------------------------
Total interest rate
contracts 563 3 (3) --
Foreign exchange contracts:
Spot, forwards, futures
and options 579 14 (11) 3
- -------------------------------------------------------------------------------------------------------------
Total customer-initiated
and other $1,142 $ 17 $ (14) $ 3
=============================================================================================================
Detailed discussions of each class of derivative financial instruments and
foreign exchange contracts held or issued by the Corporation for both risk
management and customer-initiated and other activities are as follows.
38
2000 Annual Report 59
18 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
INTEREST RATE SWAPS
Interest rate swaps are agreements in which two parties periodically
exchange fixed cash payments for variable payments based on a designated market
rate or index (or variable payments based on two different rates or indices for
basis swaps), applied to a specified notional amount until a stated maturity.
The Corporation's swap agreements are structured such that variable payments are
primarily based on prime, one-month LIBOR or three-month LIBOR. These
instruments are principally negotiated over-the-counter and are subject to
credit risk, market risk and liquidity risk.
INTEREST RATE OPTIONS, INCLUDING CAPS AND FLOORS
Option contracts grant the option holder the right to buy or sell an underlying
financial instrument for a predetermined price before the contract expires.
Interest rate caps and floors are option-based contracts which entitle the buyer
to receive cash payments based on the difference between a designated reference
rate and the strike price, applied to a notional amount. Written options,
primarily caps, expose the Corporation to market risk but not credit risk. A fee
is received at inception for assuming the risk of unfavorable changes in
interest rates. Purchased options contain both credit and market risk; however,
market risk is limited to the fee paid. Options are either exchange-traded or
negotiated over-the-counter. All interest rate caps and floors are
over-the-counter agreements.
FOREIGN EXCHANGE CONTRACTS
The Corporation uses foreign exchange rate swaps, including generic receive
variable swaps and cross-currency swaps, for risk management purposes. Generic
receive variable swaps involve payment, in a foreign currency, of the difference
between a contractually fixed exchange rate and an average exchange rate
determined at settlement, applied to a notional amount. Cross-currency swaps
involve the exchange of both interest and principal amounts in two different
currencies. Other foreign exchange contracts such as futures, forwards and
options are primarily entered into as a service to 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 holder to purchase or sell a foreign
currency at a specified date and price. Foreign exchange futures are
exchange-traded, while forwards, swaps and most options are negotiated
over-the-counter. Foreign exchange contracts expose the Corporation to both
market risk and credit risk.
COMMITMENTS
The Corporation also enters into commitments to purchase or sell earning assets
for risk management purposes. These transactions, which are similar in nature to
forward contracts, did not have a material impact on the consolidated financial
statements for the years ended December 31, 2000 and 1999. Commitments to
purchase and sell investment securities for the Corporation's trading account
totaled $3 million and $4 million at December 31, 2000 and 1999, respectively.
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.
Credit risk associated with these instruments is represented by the contractual
amounts indicated in the following table:
(in millions) 2000 1999
- ----------------------------------------------------------------------------------------------
Unused commitments to extend credit $24,695 $24,230
Standby letters of credit and financial guarantees 4,335 4,064
Commercial letters of credit 255 232
Credit default swaps 44 44
==============================================================================================
UNUSED COMMITMENTS TO EXTEND CREDIT
Commitments to extend credit are legally binding agreements to lend to a
customer, provided there is no violation of any condition established in the
contract. These commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many commitments
expire without being drawn upon, the total contractual amount of commitments
does not necessarily represent future cash requirements of the Corporation.
Total unused commitments to extend credit included variable-and fixed-rate
bankcard, revolving check credit and equity access loan commitments of $1
billion at December 31, 2000 and $3 billion at December 31, 1999. The decline in
these commitments was attributable to forming the bankcard and revolving check
credit alliance as discussed in the financial review on page 29. Other unused
commitments, primarily variable rate, totaled $24 billion at December 31, 2000
and $21 billion at December 31, 1999.
STANDBY AND COMMERCIAL LETTERS OF CREDIT AND FINANCIAL GUARANTEES
Standby and commercial letters of credit and financial guarantees represent
conditional obligations of the Corporation which guarantee the performance of a
customer to a third party. Standby letters of credit and financial guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions. Long-term
standby letters of credit and financial guarantees, defined as those maturing
beyond one year, expire in decreasing amounts through the year 2012, and were
$1,338 million and $1,475 million at December 31, 2000 and 1999, respectively.
The remaining standby letters of credit and financial guarantees, which mature
within one year, totaled $2,997 million and $2,589 million at December 31, 2000
and 1999, respectively. Commercial letters of credit are issued to finance
foreign or domestic trade transactions.
CREDIT DEFAULT SWAPS
Credit default swaps allow the Corporation to diversify its loan portfolio by
assuming credit exposure from different borrowers or industries without actually
extending credit in the form of a loan. Credit risk associated with credit
default swaps was $44 million at December 31, 2000 and 1999.
39
60 Comerica Incorporated
19 CONTINGENT LIABILITIES
The Corporation and its subsidiaries are parties to litigation and claims
arising in the normal course of their activities. The amount of ultimate
liability, if any, with respect to such matters, or the likelihood or impact of
future claims that may be brought against the Corporation, cannot be determined
with reasonable certainty. Management, after consultation with legal counsel,
believes that the litigation and claims, some of which are substantial, will not
have a material adverse effect on the Corporation's consolidated financial
position.
20 USAGE RESTRICTIONS
Cash and due from banks may include amounts required to be deposited with the
Federal Reserve Bank. These reserve balances vary, depending on the level of
customer deposits in the Corporation's subsidiary banks. The average amount of
these reserves was $162 million and $203 million for the years ended December
31, 2000 and 1999, respectively.
21 ESTIMATED FAIR VALUES 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 normally intends to hold the majority of its
financial instruments until maturity, it does not expect to realize many of the
estimated amounts disclosed. The disclosures also do not include estimated fair
value amounts for items which are not defined as financial instruments, but
which have significant value. These include such items as core deposit
intangibles, the future earnings potential of significant customer relationships
and the value of trust operations and other fee generating businesses. The
Corporation does not believe that it would be practicable to estimate a
representational fair value for these types of items.
The Corporation used the following methods and assumptions:
Cash and short-term investments: The carrying amount approximates the estimated
fair value of these instruments, which consist of cash and due from banks,
interest-bearing deposits with banks and federal funds sold.
Trading account securities: These securities are carried at quoted market value
or the market value for comparable securities, which represents estimated fair
value.
Loans held for sale: The market value of these loans represents estimated fair
value or estimated net selling price. The market value is determined on the
basis of existing forward commitments or the market values of similar loans.
Investment securities: The market value of investment securities, which is based
on quoted market values or the market values for comparable securities,
represents estimated fair value.
Domestic business loans: These consist of commercial, real estate construction,
commercial mortgage and equipment lease financing loans. The estimated fair
value of the Corporation's variable rate commercial loans is represented by
their carrying value, adjusted by an amount which estimates the change in fair
value caused by changes in the credit quality of borrowers since the loans were
originated. The estimated fair value of fixed rate commercial loans is
calculated by discounting the contractual cash flows of the loans using year-end
origination rates derived from the Treasury yield curve or other representative
bases. The resulting amounts are adjusted to estimate the effect of changes in
the credit quality of borrowers since the loans were originated.
International loans: The estimated fair value of the Corporation's short-term
international loans which consist of trade-related loans, or loans which have no
cross-border risk due to the existence of domestic guarantors or liquid
collateral, is represented by their carrying value, adjusted by an amount which
estimates the effect on fair value of changes in the credit quality of borrowers
or guarantors. The estimated fair value of long-term international loans is
based on the quoted market values of these loans or on the market values of
international loans with similar characteristics.
Retail loans: This category consists of residential mortgage, consumer and auto
lease financing loans. The estimated fair value of residential mortgage loans is
based on discounted contractual cash flows or market values of similar loans
sold in conjunction with securitized transactions. For consumer loans, the
estimated fair values are calculated by discounting the contractual cash flows
of the loans using rates representative of year-end origination rates. The
resulting amounts are adjusted to estimate the effect of changes in the credit
quality of borrowers since the loans were originated.
Customers' liability on acceptances outstanding: The carrying amount
approximates the estimated fair value.
Loan servicing rights: The estimated fair value is a discounted cash flow
analyses, using interest rates and prepayment speed assumptions currently quoted
for comparable instruments.
40
2000 Annual Report 61
21 ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Deposit liabilities: The estimated fair value of demand deposits, consisting of
checking, savings and certain money market deposit accounts, is represented by
the amounts payable on demand. The carrying amount of deposits in 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 borrowings approximates
estimated fair value.
Acceptances outstanding: The carrying amount approximates the estimated fair
value.
Medium- and long-term debt: The estimated fair value of the Corporation's
variable rate medium- and long-term debt is represented by its carrying value.
The estimated fair value of the fixed rate medium- and long-term debt is based
on quoted market values. If quoted market values are not available, the
estimated fair value is based on the market values of debt with similar
characteristics.
Derivative financial instruments and foreign exchange contracts: The estimated
fair value of interest rate swaps represents the amount the Corporation would
receive or pay to terminate or otherwise settle the contracts at the balance
sheet date, taking into consideration current unrealized gains and losses on
open contracts. The estimated fair value of foreign exchange futures and forward
contracts and commitments to purchase or sell financial instruments is based on
quoted market prices. The estimated fair value of interest rate and foreign
currency options (including interest rate caps and floors) is determined using
option pricing models.
Credit-related financial instruments: The estimated fair value of unused
commitments to extend credit and standby and commercial letters of credit is
represented by the estimated cost to terminate or otherwise settle the
obligations with the counterparties. This amount is approximated by the fees
currently charged to enter into similar arrangements, considering the remaining
terms of the agreements and any changes in the credit quality of counterparties
since the agreements were entered into. This estimate of fair value does not
take into account the significant value of the customer relationships and the
future earnings potential involved in such arrangements as the Corporation does
not believe that it would be practicable to estimate a representational fair
value for these items.
The estimated fair values of the Corporation's financial instruments at December
31, 2000 and 1999 are as follows:
2000 1999
- -----------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
(in millions) Amount Fair Value Amount Fair Value
- -----------------------------------------------------------------------------------------------
ASSETS
Cash and short-term
investments $ 1,583 $ 1,583 $ 1,294 $ 1,294
Trading account
securities 62 62 16 16
Loans held for sale 17 18 505 535
Investment securities
available for sale 2,678 2,678 2,739 2,739
Commercial loans 22,729 22,575 20,655 20,444
International loans 2,571 2,501 2,573 2,538
Real estate construction
loans 2,310 2,321 1,709 1,710
Commercial mortgage
loans 5,271 5,239 4,774 4,674
Residential mortgage
loans 807 818 870 866
Consumer loans 1,437 1,460 1,351 1,321
Lease financing 935 992 761 753
- -----------------------------------------------------------------------------------------------
Total loans 36,060 35,906 32,693 32,306
Less allowance for
credit losses (538) -- (476) --
- -----------------------------------------------------------------------------------------------
Net loans 35,522 35,906 32,217 32,306
Customers' liability on
acceptances
outstanding 27 27 44 44
Loan servicing rights 4 4 5 5
LIABILITIES
Demand deposits
(noninterest-bearing) 6,815 6,815 6,136 6,136
Interest-bearing
deposits 20,353 20,444 17,155 17,137
- -----------------------------------------------------------------------------------------------
Total deposits 27,168 27,259 23,291 23,273
Short-term borrowings 2,078 2,078 2,768 2,768
Acceptances
outstanding 27 27 44 44
Medium- and
long-term debt 8,089 8,020 8,580 8,490
OFF-BALANCE SHEET
FINANCIAL INSTRUMENTS
Derivative financial instruments and
foreign exchange
contracts
Risk management:
Unrealized gains 3 216 -- 50
Unrealized losses -- (50) (1) (200)
Customer-initiated
and other:
Unrealized gains 32 32 17 17
Unrealized losses (23) (23) (14) (14)
Credit-related financial
instruments -- (24) -- (15)
===============================================================================================
41
62 Comerica Incorporated
22 BUSINESS SEGMENT INFORMATION
The Corporation has strategically aligned its operations into three major lines
of business: the Business Bank, the Individual Bank and the Investment Bank.
These lines of business are differentiated based on the products and services
provided. Lines of business results are produced by the Corporation's internal
management accounting system. This system measures financial results based on
the internal organizational structure of the Corporation. Information presented
is not necessarily comparable with similar information for any other financial
institution. The management accounting system assigns balance sheet and income
statement items to each line of business using certain methodologies which are
constantly being refined. For comparability purposes, amounts in all periods are
based on methodologies in effect at December 31, 2000. These methodologies,
which are briefly summarized in the following paragraph, may be modified as
management accounting systems are enhanced and changes occur in the
organizational structure or product lines. In addition to the three major lines
of business, the Finance Division is also reported as a segment.
The Corporation's internal funds transfer pricing system records cost of funds
or credit for funds using a combination of matched maturity funding for certain
assets and liabilities and a blended rate based on various maturities for the
remaining assets and liabilities. The credit loss provision is assigned based on
the amount necessary to maintain an allowance for credit losses adequate for
that line of business. Noninterest income and expenses directly attributable to
a line of business are assigned to that business. Direct expenses incurred by
areas whose services support the overall Corporation are allocated to the
business lines as follows: Product processing expenditures are allocated based
on standard unit costs applied to actual volume measurements; administrative
expenses are allocated based on estimated time expended; and corporate overhead
is assigned based on the ratio of a line of business' noninterest expenses to
total noninterest expenses incurred by all business lines. Common equity is
allocated based on credit, operational and business risks.
The following discussion provides information about the activities of each line
of business. A discussion of the financial results and the factors impacting
2000 performance can be found in the section entitled "Strategic Lines of
Business" in the financial review on page 31.
The Business Bank is comprised of middle market lending, asset-based lending,
large corporate banking and international financial services. This line of
business meets the needs of medium-size businesses, multinational corporations
and governmental entities by offering various products and services, including
commercial loans and lines of credit, deposits, cash management, capital market
products, international trade finance, letters of credit, foreign exchange
management services and loan syndication services.
The Individual Bank includes consumer lending, consumer deposit gathering,
mortgage loan origination and servicing, small business banking (annual sales
under $5 million) and private banking. This line of business offers a variety of
consumer products, including deposit accounts, direct and indirect installment
loans, credit cards, home equity lines of credit and residential mortgage loans.
In addition, a full range of financial services is provided to small businesses
and municipalities. Private lending and personal trust services are also
provided to meet the personal financial needs of affluent individuals (as
defined by individual net income or wealth).
The Investment Bank is responsible for the sale of mutual fund and annuity
products, as well as life, disability and long-term care insurance products.
This line of business also offers institutional trust products, retirement
services and provides investment management and advisory services (including
Munder), investment banking and discount securities brokerage services.
The Finance segment includes the Corporation's securities portfolio and asset
and liability management activities. This segment is responsible for managing
the Corporation's funding, liquidity and capital needs, performing interest
sensitivity gap and earnings simulation analysis and executing various
strategies to manage the Corporation's exposure to interest rate risk.
The Other category includes divested business lines, the income and expense
impact of cash and credit loss reserves not assigned to specific business lines,
miscellaneous other items of a corporate nature and certain direct expenses not
allocated to business lines.
42
2000 Annual Report 63
22 BUSINESS SEGMENT INFORMATION (CONTINUED)
Lines of business/segment financial results were as follows:
Business Bank Individual Bank Investment Bank*
- ------------------------------------------------------------------------------------------------------------------------------------
(dollar amounts in millions) 2000 1999 1998 2000 1999 1998 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS SUMMARY
Net interest income (FTE) $ 961 $ 853 $ 746 $ 734 $ 699 $ 679 $ (10) $ (5) $ (3)
Provision for credit losses 181 149 79 1 (6) (14) -- -- --
Noninterest income 216 193 154 338 294 300 267 201 146
Noninterest expenses 356 339 308 588 593 586 234 176 128
Provision for income
taxes (FTE) 233 202 185 165 141 142 11 7 5
Net income (loss) 407 356 328 318 265 265 12 13 10
SELECTED AVERAGE
BALANCES
Assets $ 29,011 $ 26,120 $ 22,908 $ 6,938 $ 7,042 $ 7,651 $ 408 $ 247 $ 141
Loans 27,996 25,021 21,555 6,466 6,584 7,076 52 -- 1
Deposits 5,087 4,529 4,332 17,808 17,332 17,213 37 24 34
Common equity 2,068 1,604 1,340 742 715 736 282 197 121
STATISTICAL DATA
Return on average assets 1.40% 1.36% 1.43% 1.71% 1.47% 1.47% 2.70% 5.43% 6.68%
Return on average
common equity 19.71 22.16 24.49 42.78 37.08 35.98 4.26 6.80 7.79
Efficiency ratio 30.30 32.47 34.32 54.53 59.74 59.89 90.95 89.37 89.38
Finance Other Total
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 2000 1999 1998 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS SUMMARY
Net interest income (FTE) $ (23) $ 7 $ 47 $ 1 $ (2) $ -- $ 1,663 $ 1,552 $ 1,469
Provision for credit losses -- -- -- (37) (29) 48 145 114 113
Noninterest income 6 8 7 (1) 21 (4) 826 717 603
Noninterest expenses 2 3 3 9 6 (5) 1,189 1,117 1,020
Provision for income
taxes (FTE) (7) 4 18 4 11 (18) 406 365 332
Net income (loss) (12) 8 33 24 31 (29) 749 673 607
SELECTED AVERAGE
BALANCES
Assets $ 3,898 $ 3,730 $ 4,320 $ 65 $ (179) $ (33) $ 40,320 $ 36,960 $34,987
Loans 544 481 280 (682) (526) (313) 34,376 31,560 28,599
Deposits 1,706 569 704 54 65 (30) 24,692 22,519 22,253
Common equity 372 315 333 (4) 168 87 3,460 2,999 2,617
STATISTICAL DATA
Return on average assets (0.08)% 0.06% 0.28% n/m% n/m% n/m% 1.86% 1.82% 1.74%
Return on average
common equity (3.32) 2.41 10.01 n/m n/m n/m 21.16 21.86 22.54
Efficiency ratio (12.43) 24.17 5.73 n/m n/m n/m 47.74 49.35 49.39
====================================================================================================================================
* Included in noninterest expenses are fees internally transferred to other
lines of business for referrals to the Investment Bank. If excluded,
Investment Bank net income would have been $26 million in 2000, $22 million
in 1999 and $15 million in 1998. Return on average common equity would have
been 9.32% in 2000, 11.38% in 1999 and 11.99% in 1998.
n/m - not meaningful
43
64 Comerica Incorporated
23 PARENT COMPANY FINANCIAL STATEMENTS
BALANCE SHEETS--Comerica Incorporated
December 31 (in thousands, except share data) 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 9,918 $ 80
Time deposits with banks 112,100 69,900
Investment securities available for sale 47,262 27,505
Investment in subsidiaries, principally banks 4,141,686 3,669,435
Premises and equipment 3,391 4,335
Other assets 66,009 55,900
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 4,380,366 $ 3,827,155
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Commercial paper $ 79,985 $ 74,877
Long-term debt 157,414 158,543
Advances from nonbanking subsidiaries 4,453 3,882
Other liabilities 131,248 115,209
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 373,100 352,511
Nonredeemable preferred stock--$50 stated value
Authorized--5,000,000 shares
Issued--5,000,000 shares in 2000 and 1999 250,000 250,000
Common stock--$5 par value
Authorized--325,000,000 shares
Issued--157,233,107 shares in 2000 and 1999 786,166 786,166
Capital surplus 43,354 35,092
Accumulated other comprehensive income 10,565 (31,702)
Retained earnings 2,937,296 2,485,204
Deferred compensation (3,704) (2,955)
Less cost of common stock in treasury--289,397 shares in 2000 and 715,496 shares in 1999 (16,411) (47,161)
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,007,266 3,474,644
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 4,380,366 $ 3,827,155
====================================================================================================================================
STATEMENTS OF INCOME--Comerica Incorporated
Year Ended December 31 (in thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME
Income from subsidiaries
Dividends from subsidiaries $ 339,060 $ 260,603 $ 442,495
Other interest income 6,464 808 3,899
Intercompany management fees 97,865 93,414 157,393
Other interest income 123 347 545
Other noninterest income 1,572 24,354 2,628
- ------------------------------------------------------------------------------------------------------------------------------------
Total income 445,084 379,526 606,960
EXPENSES
Interest on long-term debt and other borrowed funds 15,178 17,193 22,214
Net interest rate swap (income)/expense 394 (682) (1,648)
Salaries and employee benefits 63,258 64,580 61,583
Occupancy expense 4,238 5,840 6,630
Equipment expense 1,721 1,572 1,873
Other noninterest expenses 35,131 29,730 36,102
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 119,920 118,233 126,754
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and equity
in undistributed net income of subsidiaries 325,164 261,293 480,206
Income tax expense/(credit) (4,528) 349 13,279
- ------------------------------------------------------------------------------------------------------------------------------------
329,692 260,944 466,927
Equity in undistributed net income of subsidiaries, principally banks 419,634 411,645 140,149
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 749,326 $ 672,589 $ 607,076
====================================================================================================================================
44
2000 Annual Report 65
23 PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS--Comerica Incorporated
Year Ended December 31 (in thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 749,326 $ 672,589 $ 607,076
Adjustments to reconcile net income to
net cash provided by operating activities
Undistributed earnings of
subsidiaries, principally banks (419,634) (411,645) (140,149)
Depreciation 1,458 1,404 1,755
Restructuring charge -- -- (6,008)
Other, net 4,513 5,822 4,908
- ----------------------------------------------------------------------------------------------------
Total adjustments (413,663) (404,419) (139,494)
- ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 335,663 268,170 467,582
INVESTING ACTIVITIES
Purchase of investment securities available for sale (24,432) (7,687) (11,640)
Proceeds from sale of investment securities available for sale 2,176 2,580 1,983
Proceeds from sales of fixed assets and other real estate 30 115 136
Purchases of fixed assets (614) (316) (1,222)
Net (increase) decrease in bank time deposits (42,200) (47,300) 57,800
Capital transactions with subsidiaries (10,750) (5,610) (134,752)
- ----------------------------------------------------------------------------------------------------
Net cash used in investing activities (75,790) (58,218) (87,695)
FINANCING ACTIVITIES
Net increase (decrease) in advances from subsidiaries 571 3,882 (4,054)
Repayments and purchases of long-term debt (1,129) (76,096) (63,712)
Net increase in short-term borrowings 5,109 74,877 --
Proceeds from issuance of common stock 20,618 23,268 50,885
Purchase of common stock for treasury and retirement (14,108) (2,885) (148,684)
Dividends paid (261,096) (235,646) (211,966)
- ----------------------------------------------------------------------------------------------------
Net cash used in financing activities (250,035) (212,600) (377,531)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash on deposit at bank subsidiary 9,838 (2,648) 2,356
Cash on deposit at bank subsidiary at beginning of year 80 2,728 372
- ----------------------------------------------------------------------------------------------------
Cash on deposit at bank subsidiary at end of year $ 9,918 $ 80 $ 2,728
====================================================================================================
Interest paid $ 16,251 $ 19,184 $ 15,290
====================================================================================================
Income taxes recovered $ 5,990 $ 9,807 $ 975
====================================================================================================
45
66 Comerica Incorporated
24 SUMMARY OF QUARTERLY FINANCIAL INFORMATION
The following quarterly information is unaudited. However, in the opinion of
management, the information reflects all adjustments which are necessary for the
fair presentation of the results of operations for the periods presented.
2000
- --------------------------------------------------------------------------------------------------------
(in thousands, Fourth Third Second First
except per share data) Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------
Interest income $866,693 $835,403 $799,675 $759,865
Interest expense 438,910 421,248 387,705 354,922
Net interest income 427,783 414,155 411,970 404,943
Provision for credit losses 32,000 24,000 34,000 55,000
Securities gains/(losses) (1,431) (742) 1,110 253
Noninterest income
(excluding securities gains/(losses)) 199,295 205,538 201,423 220,444
Noninterest expenses 294,945 301,539 295,863 296,023
Net income 194,218 191,841 185,551 177,716
Basic net income per common share $ 1.21 $ 1.20 $ 1.16 $ 1.11
Diluted net income per common share 1.20 1.18 1.15 1.10
1999
- --------------------------------------------------------------------------------------------------------
(in thousands, Fourth Third Second First
except per share data) Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------
Interest income $729,838 $671,936 $641,501 $629,435
Interest expense 321,563 281,544 261,859 260,603
Net interest income 408,275 390,392 379,642 368,832
Provision for credit losses 45,000 21,000 28,000 20,000
Securities gains 3,512 49 690 1,202
Noninterest income
(excluding securities gains) 191,356 170,426 193,961 155,692
Noninterest expenses 287,813 276,850 288,880 263,414
Net income 175,681 170,414 167,382 159,112
Basic net income per common share $ 1.10 $ 1.06 $ 1.04 $ 0.99
Diluted net income per common share 1.08 1.05 1.03 0.98
========================================================================================================
46
2000 Annual Report 67
25 PENDING ACCOUNTING PRONOUNCEMENTS
In June 1998, The Financial Accounting Standards Board issued Statement No. 133
(SFAS 133), "Accounting for Derivative Instruments and Hedging Activities," as
amended by Statements No. 137 and 138, which the Corporation adopted effective
January 1, 2001. The Statement will require the Corporation to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value in net income. If the derivative is a hedge,
depending on the nature of the hedge, the change in the fair value of the
derivative will either be offset against the change in fair value of the hedged
assets, liabilities or firm commitments through net income or recognized in
other comprehensive income until the hedged item is recognized in net income.
The ineffective portion of a derivative's change in fair value will be
immediately recognized in net income.
The Corporation utilizes interest rate swaps predominantly as asset and
liability management tools with the overall objective of mitigating adverse
impacts to net interest income from changes in interest rates. Interest rate
swaps that are used to hedge the variable cash flows from loans will be
accounted for as cash flow hedges upon adoption of SFAS 133. The Corporation
also utilizes interest rate swaps to hedge fixed rate deposits and medium- and
long-term debt. These swaps will be accounted for as fair value hedges upon
adoption of SFAS 133.
The Corporation utilizes foreign exchange forward contracts and foreign exchange
swap agreements to manage risk associated with foreign denominated assets and
liabilities. The gains or losses recognized on foreign exchange contracts
related to foreign denominated assets and liabilities provide an offset to the
transaction gain or loss recognized from remeasurement of the asset or liability
in the Corporation's functional currency. The Corporation has foreign exchange
contracts hedging the foreign currency exposure of its net investment in foreign
operations. These qualify for hedge accounting treatment under SFAS 133 and the
effective portion of these hedges will continue to be recorded in other
comprehensive income as an offset to the currency translation adjustment that
arises upon consolidation of the foreign operation.
Based on the Corporation's derivative positions at the January 1, 2001 adoption
date, the Corporation will report a loss from the cumulative effect of adoption
of approximately $1 million and an increase in other comprehensive income of $42
million.
47
68 Comerica Incorporated
REPORT OF MANAGEMENT
Management is responsible for the accompanying financial statements and all
other financial information in this Annual Report. The financial statements have
been prepared in conformity with accounting principles generally accepted in the
United States and include amounts which of necessity are based on management's
best estimates and judgments and give due consideration to materiality. The
other financial information herein is consistent with that in the financial
statements.
In meeting its responsibility for the reliability of the financial statements,
management develops and maintains systems of internal accounting controls. These
controls are designed to provide reasonable assurance that assets are
safeguarded and transactions are executed and recorded in accordance with
management's authorization. The concept of reasonable assurance is based on the
recognition that the cost of internal accounting control systems should not
exceed the related benefits. The systems of control are continually monitored by
the internal auditors whose work is closely coordinated with and supplements in
many instances the work of independent auditors.
The financial statements have been audited by independent auditors Ernst & Young
LLP. Their role is to render an independent professional opinion on management's
financial statements based upon performance of procedures they deem appropriate
under auditing standards generally accepted in the United States.
The Corporation's Board of Directors oversees management's internal control and
financial reporting responsibilities through its Audit & Legal Committee as well
as various other committees. The Audit & Legal Committee, which consists of
directors who are not officers or employees of the Corporation, meets
periodically with management and internal and independent auditors to assure
that they and the Committee are carrying out their responsibilities, and to
review auditing, internal control and financial reporting matters.
/s/ Eugene A. Miller
Eugene A. Miller
Chairman, President and Chief Executive Officer
/s/ Ralph W. Babb Jr.
Ralph W. Babb Jr.
Vice Chairman and Chief Financial Officer
/s/ Marvin J. Elenbaas
Marvin J. Elenbaas
Senior Vice President and Controller
REPORT OF INDEPENDENT AUDITORS
Board of Directors,
Comerica Incorporated
We have audited the accompanying consolidated balance sheets of Comerica
Incorporated and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes 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, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Detroit, Michigan
January 22, 2001
48
2000 Annual Report 69
HISTORICAL REVIEW -- AVERAGE BALANCE SHEETS
COMERICA INCORPORATED AND SUBSIDIARIES
Consolidated Financial Information
(in millions) 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 1,484 $ 1,518 $ 1,622 $ 1,686 $ 1,576
Short-term investments 298 116 143 129 195
Investment securities 2,670 2,403 3,371 4,687 5,823
Commercial loans 21,738 19,681 16,973 14,234 12,686
International loans 2,552 2,627 2,342 1,953 1,541
Real estate construction loans 2,009 1,364 989 866 707
Commercial mortgage loans 5,051 4,461 3,819 3,547 3,483
Residential mortgage loans 832 929 1,325 1,676 1,960
Consumer loans 1,395 1,816 2,575 4,486 4,624
Lease financing 799 682 576 447 351
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans 34,376 31,560 28,599 27,209 25,352
Less allowance for credit losses (514) (463) (440) (402) (361)
- ---------------------------------------------------------------------------------------------------------------------------------
Net loans 33,862 31,097 28,159 26,807 24,991
Accrued income and other assets 2,006 1,826 1,692 1,560 1,610
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 40,320 $ 36,960 $ 34,987 $ 34,869 $ 34,195
=================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits $ 6,405 $ 6,255 $ 6,151 $ 5,815 $ 5,589
Interest-bearing deposits 18,287 16,264 16,102 16,131 16,669
- ---------------------------------------------------------------------------------------------------------------------------------
Total deposits 24,692 22,519 22,253 21,946 22,258
Short-term borrowings 3,263 3,482 3,420 3,818 4,105
Accrued expenses and other liabilities 530 421 415 467 400
Medium- and long-term debt 8,125 7,289 6,032 5,980 4,745
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 36,610 33,711 32,120 32,211 31,508
Shareholders' equity 3,710 3,249 2,867 2,658 2,687
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 40,320 $ 36,960 $ 34,987 $ 34,869 $ 34,195
=================================================================================================================================
49
70 Comerica Incorporated
HISTORICAL REVIEW -- STATEMENTS OF INCOME
COMERICA INCORPORATED AND SUBSIDIARIES
Consolidated Financial Information
(in millions, except per share data) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 3,037 $ 2,501 $ 2,382 $ 2,318 $ 2,161
Interest on investment securities
Taxable 189 157 219 310 372
Exempt from federal income tax 3 5 7 11 18
- -----------------------------------------------------------------------------------------------------------------------------
Total interest on investment securities 192 162 226 321 390
Interest on short-term investments 33 10 9 9 12
- -----------------------------------------------------------------------------------------------------------------------------
Total interest income 3,262 2,673 2,617 2,648 2,563
INTEREST EXPENSE
Interest on deposits 809 590 648 673 686
Interest on short-term borrowings 212 179 186 209 219
Interest on medium- and long-term debt 534 411 368 374 295
Net interest rate swap (income)/expense 48 (54) (46) (51) (49)
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,603 1,126 1,156 1,205 1,151
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income 1,659 1,547 1,461 1,443 1,412
Provision for credit losses 145 114 113 146 114
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for credit losses 1,514 1,433 1,348 1,297 1,298
NONINTEREST INCOME
Fiduciary and investment management income 306 241 184 147 133
Service charges on deposit accounts 180 169 158 141 140
Commercial lending fees 56 49 43 32 23
Letter of credit fees 42 39 31 26 22
Securities gains/(losses) (1) 5 6 5 14
Net gain on sales of businesses 48 21 11 20 10
Other noninterest income 195 193 170 157 165
- -----------------------------------------------------------------------------------------------------------------------------
Total noninterest income 826 717 603 528 507
NONINTEREST EXPENSES
Salaries and employee benefits 668 640 565 539 561
Net occupancy expense 98 94 90 89 99
Equipment expense 59 61 60 62 69
Outside processing fee expense 49 48 43 42 42
Restructuring charge -- -- (7) -- 90
Other noninterest expenses 315 274 269 276 298
- -----------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 1,189 1,117 1,020 1,008 1,159
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,151 1,033 931 817 646
Provision for income taxes 402 360 324 287 229
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 749 $ 673 $ 607 $ 530 $ 417
=============================================================================================================================
Net income applicable to common stock $ 732 $ 655 $ 590 $ 513 $ 408
=============================================================================================================================
Basic net income per common share $ 4.68 $ 4.20 $ 3.79 $ 3.24 $ 2.41
Diluted net income per common share 4.63 4.14 3.72 3.19 2.38
Cash dividends declared on common stock $ 250 $ 225 $ 199 $ 181 $ 170
Dividends per common share $ 1.60 $ 1.44 $ 1.28 $ 1.15 $ 1.01
- -----------------------------------------------------------------------------------------------------------------------------
50
2000 Annual Report 71
HISTORICAL REVIEW -- STATISTICAL DATA
COMERICA INCORPORATED AND SUBSIDIARIES
Consolidated Financial Information 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
AVERAGE RATES (FULLY TAXABLE EQUIVALENT BASIS)
Short-term investments 11.20% 8.85% 6.25% 6.59% 6.23%
Investment securities 7.10 6.76 6.81 6.94 6.79
Commercial loans 8.90 7.70 8.04 8.25 8.21
International loans 9.21 7.86 7.97 7.07 6.64
Real estate construction loans 9.37 8.48 9.24 9.38 9.22
Commercial mortgage loans 8.78 8.25 8.74 9.08 9.29
Residential mortgage loans 7.64 7.47 7.69 7.90 7.83
Consumer loans 9.08 9.98 10.20 9.81 9.88
Lease financing 5.95 6.84 7.65 7.48 6.82
- --------------------------------------------------------------------------------------------------------------
Total loans 8.84 7.93 8.34 8.53 8.54
- --------------------------------------------------------------------------------------------------------------
Interest income as a percent of earning assets 8.73 7.85 8.17 8.29 8.20
Domestic deposits 4.27 3.48 3.91 4.09 4.04
Deposits in foreign offices 7.75 7.05 6.71 5.68 5.46
- --------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 4.43 3.63 4.02 4.17 4.11
Short-term borrowings 6.49 5.14 5.43 5.47 5.33
Medium- and long-term debt 6.57 5.63 6.10 6.26 6.22
- --------------------------------------------------------------------------------------------------------------
Interest expense as a percent of
interest-bearing sources 5.40 4.16 4.52 4.65 4.51
- --------------------------------------------------------------------------------------------------------------
Interest rate spread 3.33 3.69 3.65 3.64 3.69
Impact of net noninterest-bearing
sources of funds 1.12 0.86 0.92 0.89 0.85
- --------------------------------------------------------------------------------------------------------------
Net interest margin as a percent of
earning assets 4.45 4.55 4.57 4.53 4.54
RETURN ON AVERAGE COMMON SHAREHOLDERS' EQUITY 21.16 21.86 22.54 21.32 15.98
RETURN ON AVERAGE ASSETS 1.86 1.82 1.74 1.52 1.22
EFFICIENCY RATIO 47.74 49.35 49.39 51.04 60.36
PER SHARE DATA
Book value at year-end $ 23.94 $ 20.60 $ 17.94 $ 16.02 $ 14.70
Market value at year-end 59.38 46.69 68.19 60.17 34.92
Market value--high and low for year 61-33 70-44 73-47 62-34 39-24
OTHER DATA
Number of banking offices 338 332 334 350 358
Number of employees (full-time equivalent) 10,000 10,234 10,134 9,960 11,079
- --------------------------------------------------------------------------------------------------------------
51
72 Comerica Incorporated
SHAREHOLDER INFORMATION
STOCK
Comerica's stock trades on the New York Stock Exchange (NYSE) under the symbol
CMA.
SHAREHOLDER ASSISTANCE
Inquiries related to shareholder records, change of name, address or ownership
of stock, and lost or stolen stock certificates should be directed to the
transfer agent and registrar:
Wells Fargo Shareowner Services
P.O. Box 64854
St. Paul, Minnesota 55164-0854
(800) 468-9716
stocktransfer@wellsfargo.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.
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 $3,000 in additional funds each quarter for the purchase of
additional shares. A brochure describing the plan in detail and an authorization
form can be requested from the transfer agent shown above.
DIVIDEND DIRECT DEPOSIT
Common shareholders of Comerica may have their dividends deposited into their
savings or checking account at any bank that is a member of the National
Automated Clearing House (ACH) system. Information describing this service and
an authorization form can be requested from the transfer agent shown above.
DIVIDEND PAYMENTS
Subject to approval of the board of directors, dividends customarily are paid on
Comerica's common stock on or about January 1, April 1, July 1 and October 1.
ANNUAL MEETING
The Annual Meeting of Shareholders of Comerica Incorporated will be held on
Tuesday, May 22, 2001, at 9:30 a.m. at the Detroit Institute of Arts, 5200
Woodward Avenue, Detroit, Michigan.
FORM 10-K
A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-K, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, MAY BE OBTAINED WITHOUT CHARGE UPON WRITTEN
REQUEST TO THE SECRETARY OF THE CORPORATION AT THE ADDRESS LISTED AT THE BOTTOM
OF THIS PAGE.
STOCK PRICES, DIVIDENDS AND YIELDS
Dividend Dividend*
Quarter High Low Per Share Yield
- --------------------------------------------------------
2000
Fourth $61.13 $47.19 $0.40 2.9%
Third 59.44 45.00 0.40 3.0
Second 54.38 39.88 0.40 3.4
First 46.25 32.94 0.40 4.1
- --------------------------------------------------------
1999
Fourth $61.38 $44.00 $0.36 2.7%
Third 61.63 47.63 0.36 2.6
Second 66.63 57.31 0.36 2.3
First 70.00 58.94 0.36 2.2
- --------------------------------------------------------
* Dividend yield is calculated by annualizing the quarterly dividend per share
and dividing by an average of the high and low price in the quarter.
At January 31, 2001, there were 18,639 holders of record of the Corporation's
common stock.
INVESTOR RELATIONS ON THE INTERNET
Go to www.comerica.com to find the latest investor relations information about
Comerica, including stock quotes, news releases and customized financial data.
COMMUNITY REINVESTMENT ACT (CRA) PERFORMANCE
Comerica is committed to meeting the credit needs of the communities it serves.
Following are the most recent CRA ratings for Comerica subsidiaries:
Comerica Bank (Michigan) Outstanding
Comerica Bank-Texas Satisfactory
Comerica Bank-California Satisfactory
Comerica Bank, N.A. Outstanding
EQUAL EMPLOYMENT OPPORTUNITY
Comerica is committed to its affirmative action program and practices which
ensure uniform treatment of employees without regard to race, creed, color, age,
national origin, religion, handicap, marital status, veteran status, weight,
height or sex.
PRODUCT INFORMATION CENTER
If you have any questions about Comerica's products and services, please contact
our Product Information Center at (800) 292-1300.
CAREER OPPORTUNITIES
Go to www.comericajobs.com to find the latest information about career
opportunities at Comerica.
Comerica Incorporated, Comerica Tower at Detroit Center, 500 Woodward
Avenue, MC 3391, Detroit, Michigan 48226 (248) 371-5000
(metro Detroit) - (800) 521-1190 (outside Detroit area) - www.comerica.com
MEDIA CONTACT: Sharon R. McMurray, (313) 222-4881
INVESTOR CONTACT: Judith S. Love, (313) 222-2840