COMERICA INCORPORATED
2001 FORM 10-K
Securities and Exchange Commission
Washington, DC 20549
Form 10-K
Annual Report Pursuant
to Section 13 or 15(d) of
the Securities Exchange Act of 1934,
For the fiscal year ended December 31, 2001.
Commission file number 1-10706
Comerica Incorporated
Comerica Tower at Detroit Center
500 Woodward Avenue, MC 3391
Detroit, Michigan 48226
1-800-521-1190
Incorporated in the State of Delaware,
IRS Employer Identification No. 38-1998421.
Securities registered pursuant to Section 12(b) of the Act:
- Common Stock, $5 par value
- Rights to acquire Series D Preferred Stock, no par value
These securities are registered on the New York Stock Exchange.
Securities registered pursuant to Section 12(g) of the Act:
- 7 1/4 percent Subordinated Notes due in 2007.
- 9.98% Series B Capital Securities of Imperial Capital Trust I due 2026.*
- 7.60% Trust Preferred of Comerica Capital Trust I due 2050.
The registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
No disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is contained in the definitive proxy statement incorporated by reference in Part III of this Form 10-K.
At March 27, 2002, the registrant's common stock, $5 par value, held by nonaffiliates had an aggregate market value of $10,684,734,720.54 based on the closing price on the New York Stock Exchange on that date of $63.34 per share and 168,688,581 shares of common stock held by nonaffiliates. For purposes of this Form 10-K only, it has been assumed that all common shares Comerica's Trust Department holds for Comerica and Comerica's employee plans, and all common shares the registrant's directors and executive officers hold, are held by affiliates.
At March 27, 2002, the registrant had outstanding 178,735,252 shares of its common stock, $5 par value.
DOCUMENTS INCORPORATED
BY REFERENCE:
1. Parts I and II:
Items 1-8--Annual Report to Shareholders for the year ended December 31, 2001.
2. Part III:
Items 10-13--Proxy Statement for the Annual Meeting of Shareholders to be held
May 21, 2002.
PART I
ITEM 1. BUSINESS
GENERAL
Comerica Incorporated ("Comerica" or the "Corporation") is a multi-state financial services provider, incorporated under the laws of the State of Delaware, headquartered in Detroit, Michigan. Based on assets as of December 31, 2001, it was the 17th largest bank holding company in the United States and the largest bank holding company headquartered in Michigan in terms of both total assets and total deposits. Comerica was formed in 1973 to acquire the outstanding common stock of Comerica Bank (formerly Comerica Bank-Detroit), one of Michigan's oldest banks ("Comerica Bank"). Since that time, Comerica has acquired financial institutions in California, Texas and Florida, and, in 1997, formed Comerica Bank-Mexico, S.A. In 2001, Comerica established its Canadian branch and the assets and the majority of the liabilities of Comerica Bank-Canada were transferred to Comerica's Canadian branch. Comerica intends to dissolve the shell subsidiary, Comerica Bank-Canada in 2002. In 2001, Comerica also merged its two national banking
subsidiaries, Comerica Bank, National Association and Comerica Bank & Trust, National Association, with Comerica Bank & Trust, National Association as the surviving bank. On January 29, 2001, Comerica completed its acquisition of Imperial Bancorp, and as of September 29, 2001, Comerica merged its two California banking subsidiaries, Comerica Bank-California and Imperial Bank, with Comerica Bank-California as the surviving bank. As of December 31, 2001, Comerica owned directly or indirectly all the outstanding common stock of six banking and fifty-five non-banking subsidiaries. At December 31, 2001, Comerica had total assets of approximately $50.7 billion, total deposits of approximately $37.5 billion, total loans (net of unearned income) of approximately $41.2 billion and common shareholders' equity of approximately $4.8 billion.
BUSINESS STRATEGY
Comerica has strategically aligned its operations into three major lines of business: the Business Bank, the Individual Bank and the Investment Bank. The Business Bank is comprised of middle market lending, asset-based lending, large corporate banking, international financial services and speciality deposit gathering. 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 $10 million) and private banking. This line of business offers a variety of consumer products, including deposit accounts, installment loans, student loans, home equity lines of credit and residential mortgage loans. In addition, a full range of financial services is provided to small businesses and municipalities. Private lending and personal trust services are also provided to meet the personal financial needs of affluent individuals (as defined by individual net income or wealth).
The Investment Bank is responsible for the sale of mutual fund and annuity products, as well as life, disability and long-term care insurance products. This line of business also offers institutional trust products, retirement services and provides investment management and advisory services, investment banking and discount securities brokerage services.
Comerica has positioned itself to deliver financial services in its four primary geographic markets: Michigan, Texas, California and Florida, with operations in 19 other states, Canada and Mexico.
In addition to the three major lines of business, the Finance segment is also significant. The Finance segment includes Comerica's securities portfolio and asset and liability management activities. This segment is responsible for managing Comerica's funding, liquidity and capital needs, performing interest sensitivity gap and earnings simulation analysis and executing various strategies to manage Comerica's exposure to liquidity and interest rate risk.
SUPERVISION AND REGULATION
Banks, financial holding companies and financial institutions are highly regulated at both the state and federal level. Comerica is subject to supervision and regulation by the Federal Reserve Board ("FRB") under the Bank Holding Company Act of 1956, as amended (the "Act").
The Gramm-Leach-Bliley Act of 1999 expanded the activities in which a bank holding company, which is eligible to be a financial holding company, could engage. The conditions to be a financial holding company include the requirement that each deposit institution subsidiary of the holding company be well-capitalized and well-managed.
On December 19, 2000, Comerica became a financial holding company. As a
financial holding company, Comerica may affiliate with securities firms and
insurance companies and engage in other activities that are financial in nature.
Activities that are "financial in nature" include, but are not limited to:
securities underwriting; dealing and market marking; sponsoring mutual funds and
investment companies; insurance underwriting and agency; merchant banking;
travel agent services; real estate development; and activities that the FRB has
determined to be closely related to banking. A bank holding company that is not
also a financial holding company is limited to engaging in banking and such
other activities previously determined by the FRB to be closely related to
banking.
Comerica Bank is chartered by the State of Michigan and is supervised and regulated by the Division of Financial Institutions, Office of Financial and Insurance Services of the State of Michigan and the FRB. Comerica Bank-Texas is chartered by the State of Texas and is supervised and regulated by the Texas Department of Banking and the FRB. Comerica Bank & Trust, National Association is chartered under federal law and subject to supervision and regulation by the Office of the Comptroller of the Currency ("OCC"). Comerica Bank-California is chartered by the State of California and is supervised and regulated by the California Department of Financial Institutions and the FRB. Comerica Bank, Comerica Bank & Trust, National Association, Comerica Bank-California and Comerica Bank-Texas are members of the Federal Reserve System ("FRS"). The deposits of all the foregoing banks are insured by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC") to the extent provided by law. Comerica Bank-Mexico, S.A. is chartered under the laws of Mexico and is supervised and regulated by the Ministry of Finance and Public Credit, the Bank of Mexico, and the Mexican National Banking Commission. Comerica Bank-Canada is chartered under the laws of Ontario, Canada and is supervised and regulated by the Office of the Superintendent of Financial Institutions Canada and the Canada Deposit Insurance Corporation.
The FRB supervises non-banking activities conducted by companies owned by Comerica Bank, Comerica Bank-California and Comerica Bank-Texas and the OCC supervises non-banking activities conducted by companies owned by Comerica Bank & Trust, National Association. In addition, Comerica's non-banking subsidiaries are subject to supervision and regulation by various state and federal agencies, including, but not limited to, the National Association of Securities Dealers, Inc. (in the case of Comerica Securities, Inc. and Comerica Capital Markets Corporation), the Department of Insurance of the State of Michigan (in the case of Comerica Insurance Services,
Inc.), and the Securities and Exchange Commission (in the case of Munder Capital Management, the Corporation's investment advisory subsidiary).
No FRB approval is required for Comerica to acquire a company, other than a bank holding company or bank, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the FRB. Prior FRB approval is required before Comerica may acquire the beneficial ownership or control of more than 5% of the voting shares or substantially all of the assets of a bank holding company, bank or savings association. If any subsidiary bank of Comerica ceases to be "well capitalized" or "well managed" under applicable regulatory standards, the Federal Reserve Board may, among other actions, order Comerica to divest the subsidiary bank. Alternatively, Comerica may elect to conform its non-banking activities to those permissible for a bank holding company that is not also a financial holding company. If any subsidiary bank of Comerica receives a rating under the Community Reinvestment Act of 1977 of less than satisfactory, Comerica will be prohibited from engaging in new activities or acquiring companies other than bank holding companies, banks or savings associations.
Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act and Regulation W, limit borrowings by Comerica and its nonbank subsidiaries from its affiliate insured depository institutions, and also limit various other transactions between Comerica and its nonbank subsidiaries, on the one hand, and its affiliate insured depository institutions, on the other. For example, Section 23A of the Federal Reserve Act limits to no more than 10% of its total capital the aggregate outstanding amount of any insured depository institution's loans and other "covered transactions" with any particular nonbank affiliate, and limits to no more than 20% of its total capital the aggregate outstanding amount of any insured depository institution's covered transactions with all of its nonbank affiliates. Section 23A of the Federal Reserve Act also generally requires that an insured depository institution's loans to its nonbank affiliates be secured, and Section 23B of the Federal Reserve Act generally requires that an insured depository institution's transactions with its nonbank affiliates be on arms-length terms.
Set forth below are summaries of selected laws and regulations applicable to Comerica and its subsidiaries. The summaries are not complete and are qualified in their entirety by references to the particular statutes and regulations. A change in applicable law or regulation could have a material effect on the business of Comerica.
Interstate Banking and Branching
Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act"), a bank holding company became able to acquire banks in states other than its home state, without regard to the permissibility of such acquisition under state law, but subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company, prior to and following the proposed acquisition, control no more than ten percent of the total amount of deposits of insured depository institutions in the United States and no more than thirty percent of such deposits in that state (or such amount as established by state law).
The Interstate Act also authorizes banks to merge across state lines, thereby creating interstate branching. All of the states in which Comerica's banking subsidiaries are located allow interstate branching. Furthermore, under the Interstate Act, a bank is now able to open new branches in a state in which it does not already have banking operations if such state enacts a law permitting such de novo branching.
Since the provision permitting interstate bank acquisitions became effective, Comerica has had enhanced opportunities to acquire banks in any state subject to approval by the appropriate federal and state regulatory agencies. Under the Interstate Act, Comerica has the opportunity to consolidate its affiliate banks to create one bank with branches in more than one state, or to establish branches in different states, subject to any state "opt-in" and "opt-out" provisions.
Dividends
Comerica is a legal entity separate and distinct from its banking and other subsidiaries. Most of Comerica's revenues result from dividends its bank subsidiaries pay it. There are statutory and regulatory requirements applicable to the payment of dividends by subsidiary banks to Comerica as well as by Comerica to its shareholders. Certain, but not all, of these requirements are discussed below.
Each state bank subsidiary that is a member of the FRS and each national banking association is required by federal law to obtain the prior approval of the FRB or the OCC, as the case may be, for the declaration and payment of dividends, if the total of all dividends declared by the board of directors of such bank in any calendar year will exceed the total of (i) such bank's retained net income (as defined and interpreted by regulation) for that year plus (ii) the retained net income (as defined and interpreted by regulation) for the preceding two years, less any required transfers to surplus or to fund the retirement of preferred stock. Further, federal regulatory agencies can prohibit a banking institution or bank holding company from engaging in unsafe and unsound business practices and could prohibit the payment of dividends if such payment could be deemed an unsafe and unsound banking practice. In addition, Comerica's state bank subsidiaries are also subject to limitations under state law regarding the amount of earnings that may be paid out as dividends, and require prior approval for payments of dividends that exceed certain levels.
At January 1, 2002, Comerica's subsidiary banks, without obtaining prior governmental approvals, could declare aggregate dividends of approximately $641 million from retained net profits of the preceding two years, plus an amount approximately equal to the net profits (as measured under current regulations), if any, earned for the period from January 1, 2002 through the date of declaration. Comerica's subsidiary banks paid dividends of $580 million in 2001, $339 million in 2000, and $261 million in 1999.
Source of Strength
According to Federal Reserve Board policy, bank holding companies are expected to act as a source of strength to each subsidiary bank and to commit resources to support each subsidiary bank. This support may be required at times when a bank holding company may not be able to provide such support. Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance Act, in the event of a loss suffered or anticipated by the FDIC (either as a result of the default of a banking or thrift subsidiary or related to FDIC assistance provided to a subsidiary in danger of default) the other banking subsidiaries may be assessed for the FDIC's loss, subject to certain exceptions.
FDICIA
FDICIA substantially revised the bank regulatory and funding provisions of the Federal Deposit Insurance Act and made revisions to several other federal banking statutes. Among other things, FDICIA requires the federal banking agencies to take "prompt corrective action" in respect of depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital tiers: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." A depository institution's capital tier will depend upon where its capital levels are in relation to various relevant capital measures, which, among others, include a Tier 1 and total risk-based capital measure and a leverage ratio capital measure, and certain other factors.
Regulations establishing the specific capital tiers provide that, for a depository institution to be well capitalized it must have a total risk-based capital ratio of at least 10 percent, a Tier 1 risk-based capital ratio of at least 6 percent, a Tier 1 leverage ratio of at least 5 percent and not be subject to any specific capital order or directive. For an institution to be adequately capitalized it must have a total risk-based capital ratio of at least 8 percent, a Tier 1 risk-based capital ratio of at least 4 percent and a Tier 1 leverage ratio of at least 4 percent (and in some cases 3 percent). Under certain circumstances, the appropriate banking agency may treat a well capitalized, adequately capitalized or undercapitalized institution as if the institution were in the next lower capital category. As of December 31, 2001, each of the banking subsidiaries of Comerica were well capitalized under these regulations.
FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to limitations on growth and certain activities and are required to submit an acceptable capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. In addition, for a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee for a specific time period that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company under the guaranty is limited to the lesser of (i) an amount equal to 5
percent of the depository institution's total assets at the time it became undercapitalized, or (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit or implement an acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions are subject to a number of requirements and restrictions. Specifically, such a depository institution may be required to do one or more of the following: sell sufficient voting stock to become adequately capitalized, reduce the interest rates it pays on deposits, reduce its rate of asset growth, dismiss certain senior executive officers or directors, and stop accepting deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator or such other action as the FDIC and the applicable federal banking agency shall determine appropriate.
Under FDICIA, the FDIC is permitted to provide financial assistance to an insured bank before appointment of a conservator or receiver only if (i) such assistance would be the least costly method of meeting the FDIC's insurance obligations, (ii) grounds for appointment of a conservator or a receiver exist or are likely to exist in the future, (iii) it is unlikely that the bank can meet all capital standards without assistance and (iv) the bank's management has been competent, has complied with applicable laws, regulations, rules and supervisory directives and has not engaged in any insider dealing, speculative practice or other abusive activity.
FDICIA also contains a variety of other provisions that may affect the operations of depository institutions including reporting requirements, regulatory standards for real estate lending, "truth in savings" provisions, the requirement that a depository institution give 90 days prior notice to customers and regulatory authorities before closing any branch and a prohibition on the acceptance or renewal of brokered deposits by depository institutions that are not well capitalized or are adequately capitalized and have not received a waiver from the FDIC. Comerica's United States subsidiary banks are all well-capitalized and may accept brokered deposits.
Capital Requirements
The FRB imposes, on Comerica, risk-based capital requirements and guidelines, which are substantially similar to the capital requirements and guidelines imposed by the FRB, the OCC and the FDIC on depository institutions under their jurisdictions.
The FRB may set higher capital requirements for holding companies whose circumstances warrant it. For example, holding companies experiencing internal growth or making acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. The FRB also considers a "tangible Tier 1 leverage ratio" (deducting all intangibles) and other indications of capital strength in evaluating proposals for expansion or new activities.
The FRB, FDIC and OCC rules require Comerica to incorporate market and interest rate risk components into their risk-based capital standards. Under the market risk requirements, capital is allocated to support the amount of market risk related to a financial institution's ongoing trading activities.
As an additional means to identify problems in the financial management of depository institutions, FDICIA requires federal bank regulatory agencies to establish certain non-capital safety and soundness standards for institutions for which they are the primary federal regulator. The standards relate generally to operations and management, asset quality, interest rate exposure and executive compensation. The agencies are authorized to take action against institutions that fail to meet such standards.
FDIC Insurance Assessments
Comerica's subsidiary banks are subject to FDIC deposit insurance assessments. The FDIC operates a risk-based deposit premium assessment system under which each depository institution is placed in one of nine assessment categories based on certain capital and supervisory measures. The deposit insurance assessment schedule published by the FDIC for the assessment period commencing January 1, 1998, maintained the nine categories but provided for major reductions in the assessment rates for institutions insured by BIF. These reductions occurred because the balance in BIF had reached or surpassed the "designated reserve ratio" set by law for the balance in the fund to maintain with respect to BIF-insured deposits. The FDIC has continued these reduced assessment levels. There is legislation pending in a committee in the House of Representatives to change these assessment levels. It is uncertain if such legislation will be enacted and, if enacted, the form of such legislation.
Enforcement Powers of Federal Banking Agencies
The FRB and other federal banking agencies have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties and appoint a conservator or receiver. Failure to comply with applicable laws, regulations and supervisory agreements could subject Comerica or its banking subsidiaries, as well as officers and directors of these organizations, to administrative sanctions and potentially substantial civil penalties.
COMPETITION
Banking is a highly competitive business. The Michigan banking subsidiary of the Corporation competes primarily with Detroit and outstate Michigan banks for loans, deposits and trust accounts. Through its offices in Arizona, California, Colorado, Connecticut, Florida, Georgia, Indiana, Illinois, Nevada, and Texas, Comerica competes with other financial institutions for various types of loans.
At year-end 2001, Comerica was the largest financial holding company headquartered in Michigan in terms of total assets and deposits. Based on the Interstate Act as described above and the Gramm-Leach Bliley Act, Comerica believes that the level of competition in all geographic markets will increase in the future. Comerica's banking subsidiaries also face competition from other financial intermediaries, including savings and loan associations, consumer finance companies, leasing companies and credit unions.
EMPLOYEES
As of December 31, 2001, Comerica and its subsidiaries had 10,307 full-time and 1,485 part-time employees.
ITEM 2. PROPERTIES
The executive offices of the Corporation are located in the Comerica Tower at Detroit Center, 500 Woodward Avenue, Detroit, Michigan 48226. Comerica and its subsidiaries occupy 14 floors of the building, which is leased through Comerica Bank from an unaffiliated third party. This lease extends through January 2007. As of December 31, 2001, Comerica, through its banking affiliates, operates a total of 496 banking branches, trust services locations, and loan production or other financial services offices, in the States of Michigan, California, Texas and Florida. Of these, 212 were owned and 284 were leased. Affiliates also operate from leased spaces in Daphne, Alabama; Phoenix, Arizona; Denver Colorado; Darien, Connecticut; Oakbrook Terrace, Chicago and Barrington, Illinois; Indianapolis, Indiana; New Orleans, Louisiana; Boston, Massachusetts; Minneapolis, Minnesota; Durham and Charlotte, North Carolina; Red Bank, New Jersey; Las Vegas, Nevada; New York, New York; Beachwood, West Chester, Cincinnati and Toledo, Ohio; Portland, Oregon; King of Prussia, Pennsylvania; Knoxville and Memphis, Tennessee; Reston, Virginia; Bellevue, Kirkland and Olympia, Washington; Sao Paulo, Brazil; Mexico City, Mexico; Queretaro, Mexico; Monterey, Mexico; Wanchai, Hong Kong; and Toronto, Ontario, Canada.
The Corporation owns a check processing center in Livonia, Michigan; a ten-story building in the central business district of Detroit that houses certain departments of the Corporation and Comerica Bank; and a building in Auburn Hills, Michigan, used mainly for lending functions and operations.
In 1983, Comerica entered into a sale/leaseback agreement with an unaffiliated party covering an operations center which was built in Auburn Hills, Michigan, and now is occupied by various departments of the Corporation and Comerica Bank.
ITEM 3. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are parties to litigation and claims arising in the normal course of their activities. Although the amount of ultimate liability, if any, with respect to such matters cannot be determined with reasonable certainty, management, after consultation with legal counsel, believes that the litigation and claims, some of which are substantial, will not have a material adverse effect on the Corporation's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Corporation did not submit any matters for a shareholders' vote in the fourth quarter of 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Comerica Incorporated is traded on the New York Stock Exchange (NYSE Trading Symbol: CMA). At March 27, 2002, there were approximately 16,915 record holders of the Corporation's common stock.
Quarterly cash dividends were declared during 2001 and 2000, totaling $1.76 and $1.60 per common share per year, respectively. The following table sets forth, for the periods indicated, the high and low sale prices per share of the Corporation's common stock as reported on the NYSE Composite Transactions Tape for all quarters of 2001 and 2000.
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Dividend Dividend*
Quarter High Low Per Share Yield
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2001
Fourth $58.40 $44.02 $0.44 3.4%
Third 63.88 50.27 0.44 3.1
Second 62.75 50.73 0.44 3.1
First 65.15 53.00 0.44 3.0
2000
Fourth $61.13 $47.19 $0.40 3.0%
Third 59.44 45.00 0.40 3.1
Second 54.38 39.88 0.40 3.4
First 46.25 32.94 0.40 4.1
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* 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.
ITEM 6. SELECTED FINANCIAL DATA
The response to this item is included on page 23 of the Corporation's Annual Report to Shareholders for the year ended December 31, 2001, which page is hereby incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The response to this item includes the discussion set forth below and the information included under the caption "Financial Review and Report" on pages 23 through 41 of the Corporation's Annual Report to Shareholders for the year ended December 31, 2001, which pages are hereby incorporated by reference.
CONTRACTUAL OBLIGATIONS AND CREDIT-RELATED COMMITMENTS
As disclosed in the footnotes to the Consolidated Financial Statements incorporated by reference, the Corporation has certain obligations to make future payments under contracts and credit-related financial instruments and commitments. At December 31, 2001, aggregate contractual obligations and credit-related commitments are summarized as follows:
(in millions)
PAYMENTS DUE BY PERIOD
----------------------------------------------
Less 1 - 3 3 - 5 After 5
Contractual obligations Total Than Years Years Years
1 Year
===========================================================================================================================
Medium- and long-term debt $5,402 $1,558 $ 780 $ 185 $ 2,879
Leases and other noncancellable obligations 540 70 126 89 255
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Total contractual cash obligations $5,942 $1,628 $ 906 274 3,134
REMAINING MATURITY OF CREDIT-RELATED
COMMITMENTS
--------------------------------------------------------------
Credit-related commitments Less 1 - 3 3 - 5 After 5
Total Than Years Years Years
1 Year
===========================================================================================================================
Unused commitments to extend credit $28,695 $17,93 $7,244 3,300 $215
6
Standby letters of credit and financial guarantees 5,118 3,556 916 506 140
Commercial letters of credit 258 258 - - -
Credit default swaps 7 - 7 - -
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Total credit-related commitments $34,078 21,750 8,167 3,806 355
===========================================================================================================================
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The response to this item is included on pages 37 through 41 of the Corporation's Annual Report to Shareholders for the year ended December 31, 2001, which pages are hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included on pages 42 through 71 of the Corporation's Annual Report to Shareholders for the year ended December 31, 2001, which pages are hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item will be included under the sections captioned "Information About Nominees and Incumbent Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" of the Corporation's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 21, 2002, which sections are hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item will be included under the sections captioned "Compensation of Directors" and "Compensation of Executive Officers" of the Corporation's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 21, 2002, which sections are hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item will be included under the sections captioned "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" of the Corporation's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 21, 2002, which sections are hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item will be included under the sections captioned "Transactions of Directors and Executive Officers with Comerica" and "Information about Nominees and Incumbent Directors" of the Corporation's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 21, 2002, which sections are hereby incorporated by reference.
Comerica Incorporated and Subsidiaries
FORM 10-K CROSS-REFERENCE INDEX
Certain information required to be included in this Form 10-K is included in the 2001 Annual Report to Shareholders or in the 2002 Proxy Statement used in connection with the 2002 annual meeting of shareholders to be held on May 21, 2002.
The following cross-reference index shows the page location in the 2001 Annual Report or the section of the 2002 Proxy Statement of only that information which is to be incorporated by reference into this Form 10-K.
All other sections of the 2001 Annual Report or the 2002 Proxy Statement are not required in this Form 10-K and are not to be considered a part of this Form 10-K.
Page Number of 2001
Annual Report or Section
of 2002 Proxy Statement
PART I
ITEM 1. Business................................................................................Included herein
ITEM 2. Properties..............................................................................Included herein
ITEM 3. Legal Proceedings.......................................................................Included herein
ITEM 4. Submission of Matters to a Vote of Security Holders -- The Corporation did not submit any matters for the
shareholders' vote in the fourth quarter of 2001.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Security Holder Matters...............Included herein
ITEM 6. Selected Financial Data..............................................................................23
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............23-41
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk........................................37-41
ITEM 8. Financial Statements and Supplementary Data:
Comerica Incorporated and Subsidiaries
Consolidated Balance Sheets....................................................................42
Consolidated Statements of Income..............................................................43
Consolidated Statements of Changes in Shareholders' Equity.....................................44
Consolidated Statements of Cash Flows..........................................................45
Notes to Consolidated Financial Statements .................................................. 46-67
Report of Management.................................................................................68
Report of Independent Auditors.......................................................................68
Statistical Disclosure by Bank Holding Companies:
Analysis of Net Interest Income - Fully Taxable Equivalent ..........................................25
Rate-Volume Analysis - Fully Taxable Equivalent......................................................26
Analysis of the Allowance for Credit Losses..........................................................28
Analysis of Investment Securities and Loans..........................................................32
Loan Maturities and Interest Rate Sensitivity........................................................33
Allocation of the Allowance for Credit Losses........................................................33
Mexican Cross-Border Risk............................................................................33
Analysis of Investment Securities Portfolio - Fully Taxable Equivalent...............................34
Summary of Nonperforming Assets and Past Due Loans...................................................36
Schedule of Rate Sensitive Assets and Liabilities ...................................................38
Remaining Expected Maturity of Risk Management Interest Rate Swaps ..................................39
Deposits - Maturity Distribution of Domestic Certificates of Deposit of $100,000 and Over...........50
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.............Information About Nominees and Incumbent
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Directors, Executive Officers of the Corporation
and Section 16(a) Beneficial Ownership Reporting
Compliance
ITEM 11. Executive Compensation.................Compensation of Directors and Compensation of Executive Officers
ITEM 12. Security Ownership of Certain Beneficial Owners and Management............Security Ownership of Certain
Beneficial Owners and Security
Ownership of Management
ITEM 13. Certain Relationships and Related Transactions............................Transactions of Directors and
Executive Officers with Comerica
and Information about Nominees
and Incumbent Directors
|
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements: The financial statements that are filed as part of this report are listed under Item 8 in the Form 10-K Cross-Reference Index on page 12.
2. All of the schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are either not required under the related instruction, the required information is contained elsewhere in the Form 10-K, or the schedules are inapplicable and therefore have been omitted.
Exhibits:
Exhibit Document Number*
3.1(a) Restated Certificate of Incorporation of Comerica
Incorporated, as amended(1)
3.1(b) Certificate of Amendment to Restated Certificate of
Incorporation of Comerica Incorporated(2)
3.2 Amended and restated bylaws of Comerica Incorporated
(3)
4 Rights Agreement between Comerica Incorporated and
Comerica Bank(4)
10.1+ Comerica Incorporated Amended and Restated 1997
Long-Term Incentive Plan (restated 2001)
10.2+ Comerica Incorporated Amended and Restated
Management Incentive Plan (restated 2001)
10.3+ Comerica Incorporated Director Fee Deferral Plan(5)
10.4+ Benefit Equalization Plan for Employees of Comerica
Incorporated(5)
10.5+ Comerica Incorporated's Retirement Plan for
Non-Employee Directors(6)
10.6+ Manufacturers National Corporation's 1987 and 1989
Stock Option Plans for Key Employees(6)
10.7+ Manufacturers National Corporation's Executive
Incentive Plan(6)
10.8+ Manufacturers National Corporation's Key Employee
Retention Plan(6)
10.9+ Form of Employment Agreement (Exec. Off.)(7)
10.10+ Form of Director Indemnification Agreement between
Comerica Incorporated and its directors(4)
10.11+ Employment Continuation Agreement with Eugene A.
Miller(6)
10.12+ Employment Agreement with Ralph W. Babb, Jr. (8)
10.13+ Supplemental Pension and Retiree Medical Agreement
with Ralph W.
|
Babb, Jr.(9)
10.14+ Comerica Incorporated Deferred Compensation Plan,
1997 Amendment and Restatement(4)
10.17+ Form of Comerica Incorporated Senior Officer
Severance Plan between registrant and listed
officers, January 1, 1997(4)
10.18+ 1999 Comerica Incorporated Deferred Compensation
Plan, January 1, 1999 (3)
10.19+ 1999 Comerica Incorporated Deferred 3 Year ROE Award
Plan, January 1, 1999 (3)
10.20+ Amended and Restated Comerica Incorporated Stock
Option Plan For Non-Employee Directors, January 20,
2000 (3)
10.21+ Comerica Incorporated 1999 Discretionary Director
Fee Deferral Plan May 21, 1999 (3)
10.22+ Comerica Incorporated 1999 Common Stock Director Fee
Deferral Plan May 21, 1999 (3)
10.23+ 1986 Imperial Bancorp Stock Option Plan (as amended)
11 Statement regarding Computation of Per Share
Earnings(10)
13 Incorporated Sections of Registrant's 2001 Annual
Report to Shareholders
21 Subsidiaries of Registrant
23(a) Consent of Ernst & Young LLP
23(b) Consent of KPMG LLP
99.1 Independent Auditors' Report of KPMG LLP
|
(1) Filed as Exhibit 3.1 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996, and
incorporated herein by reference.
(2) Filed as Exhibit 3.1 to Registrant's Registrant Statement
on Form S-4, No. 333-51042.
(3) Filed as the same exhibit number to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1999,
and incorporated herein by reference.
(4) Filed as Exhibit 4 to Registrant's Current Report on Form
8-K dated June 18, 1996, regarding the Registrant's
Rights Agreement with Comerica Bank, and incorporated
herein by reference.
(5) Filed as the same exhibit number to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996,
and incorporated herein by reference.
(6) Filed as the same exhibit number to the Registrant's
Annual Report on Form 10-K for the year ended December
31, 1992 and incorporated herein by reference.
(7) Filed as Exhibit 10.9 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997 --
Commission File Number 1-10706 and incorporated herein by
reference.
(8) Filed as Exhibit 10.1 to Registrant's Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by
reference.
(9) Filed as Exhibit 10.2 to Registrant's Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by
reference.
(10) Incorporated by reference from Note 13 on page 53 of
Registrant's 2001 Annual Report to Shareholders
attached hereto as Exhibit 13.
+ Management compensation plan.
(b) The Corporation did not file any Current Reports on Form 8-K during the fourth quarter of 2001.
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized in the City of Detroit, State of Michigan on the 26th day of March, 2002.
COMERICA INCORPORATED
/s/ Eugene A. Miller ----------------------------------------------------- Eugene A. Miller Chairman /s/ Ralph W. Babb, Jr. ----------------------------------------------------- Ralph W. Babb, Jr. President and Chief Executive Officer Chief Financial Officer /s/ Marvin J. Elenbaas ----------------------------------------------------- Marvin J. Elenbaas Senior Vice President and Controller (Chief Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities indicated on the 26th day of March, 2002.
BY DIRECTORS
/s/ Ralph W. Babb, Jr. ----------------------------------------------------- Ralph W. Babb, Jr. /s/ Lillian Bauder ----------------------------------------------------- Lillian Bauder /s/ Joseph J. Buttigieg, III ----------------------------------------------------- Joseph J. Buttigieg, III /s/ James F. Cordes ----------------------------------------------------- James F. Cordes /s/ Peter D. Cummings ----------------------------------------------------- Peter D. Cummings /s/ J. Philip DiNapoli ----------------------------------------------------- J. Philip DiNapoli |
/s/ Anthony F. Earley, Jr. ----------------------------------------------------- Anthony F. Earley, Jr. /s/ Max M. Fisher ----------------------------------------------------- Max M. Fisher |
/s/ Todd W. Herrick ----------------------------------------------------- Todd W. Herrick /s/ David Baker Lewis ----------------------------------------------------- David Baker Lewis /s/ John D. Lewis ----------------------------------------------------- John D. Lewis /s/ Wayne B. Lyon ----------------------------------------------------- Wayne B. Lyon /s/ Eugene A. Miller ----------------------------------------------------- Eugene A. Miller /s/ Alfred A. Piergallini ----------------------------------------------------- Alfred A. Piergallini /s/ John W. Porter ----------------------------------------------------- John W. Porter |
/s/ Robert S. Taubman ----------------------------------------------------- Robert S. Taubman /s/ William P. Vititoe ----------------------------------------------------- William P. Vititoe /s/ Martin D. Walker ----------------------------------------------------- Martin D. Walker /s/ Patricia M. Wallington ----------------------------------------------------- Patricia M. Wallington /s/ Gail L. Warden ----------------------------------------------------- Gail L. Warden |
/s/ Kenneth L. Way ----------------------------------------------------- Kenneth L. Way |
Exhibit Index
Exhibit Exhibit
Number Description
------ -----------
10.1 Comerica Incorporated Amended and Restated 1997
Long-Term Incentive Plan (restated 2001)
10.2 Comerica Incorporated Amended and Restated Management
Incentive Plan (restated 2001)
10.23 1986 Imperial Bancorp Stock Option Plan (as amended)
13 Incorporated Sections of Registrant's 2001 Annual Report
to Shareholders
21 Subsidiaries of Registrant
23(a) Consent of Ernst & Young LLP
23(b) Consent of KPMG LLP
99.1 Independent Auditors' Report of KPMG LLP
|
EXHIBIT 10.1
AMENDED AND RESTATED
COMERICA INCORPORATED
1997 LONG-TERM INCENTIVE PLAN
SECTION 1. PURPOSE.
The purpose of Comerica's Long-Term Incentive Plan is to align the interests of employees of the Corporation selected to receive awards with those of shareholders by rewarding long term decision-making and actions for the betterment of the Corporation. Accordingly, eligible individuals may receive Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Awards and Other Stock-Based Awards. Ownership of the Corporation's stock assists in the attraction and retention of qualified employees, and provides them with additional incentive to devote their best efforts to pursue and sustain the Corporation's superior long-term performance. This enhances the value of the Corporation for the benefit of its shareholders.
SECTION 2. DEFINITIONS.
A. "Affiliate" means (i) any entity that is controlled by the Corporation, whether directly or indirectly, and (ii) any entity in which the Corporation has a significant equity interest, as determined by the Committee.
B. "Agreement" means a written agreement, in a form approved by the Committee, which sets forth the terms and conditions of an Award, including, but not limited to, Performance Period, Restriction Period, as appropriate. Agreements shall be subject to the express terms and conditions set forth herein, and to such other terms and conditions not inconsistent with the Plan as the Committee shall deem appropriate.
C. "Award" means an Option, a Stock Appreciation Right, a Restricted Stock Award, a Performance Award or an Other Stock-Based Award pursuant to the Plan. Each Award shall be evidenced by an Agreement.
D. "Award Recipient" means an Eligible Individual who has received an Award under the Plan.
E. "Beneficiary" means any person(s) designated by an Award Recipient on a beneficiary designation form, or, if no form, any person(s) entitled to receive any amounts owing to such Award Recipient under this Plan upon his or her death by reason of having been named in the Award Recipient's will or trust agreement or having qualified as a taker of the Award Recipient's property under the laws of intestacy. If an Award Recipient authorizes any person, in writing, to exercise such individual's Options or Stock Appreciation Rights following the Award Recipient's death, the term "Beneficiary" shall include any person in whose favor such Options or Stock Appreciation Rights are exercised by the person authorized to exercise the Options or Stock Appreciation Rights.
F. "Board" means the Board of Directors of Comerica Incorporated.
G. "Change of Control" shall have the meaning set forth in Exhibit A to this Plan.
H. "Code" means the Internal Revenue Code of 1986, as amended.
I. "Committee" means the committee appointed by the Board to administer the Plan as provided herein. Unless otherwise determined by the Board, the Compensation Committee of the Board shall be the Committee.
J. "Corporation" means Comerica Incorporated, a Delaware corporation, and its successors and assigns.
K. "Disabled" or "Disability" means "Totally Disabled" within the meaning of such term as set forth in the Long-Term Disability Plan of Comerica Incorporated (the provisions of which are incorporated herein by reference), or as the Committee shall determine based on information provided to it. However, with respect to the rules relating to Incentive Stock Options, the term "Disabled" shall mean disabled as that term is utilized in Sections 422 and 22(e)(3) of the Code, or any successor Code provisions relating to ISOs.
L. "Eligible Individual" means any employee of the Corporation or any Affiliate who the Committee determines to be an Eligible Individual. Notwithstanding the foregoing, an Eligible Individual for purposes of receipt of the grant of an ISO shall be limited to those individuals who are eligible to receive ISOs under rules set forth in the Code and applicable regulations.
M. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
N. "Fair Market Value" means the closing price of a Share on the New York Stock Exchange as reported on the Composite Tape as published in the Wall Street Journal; if, however, there is no trading of Shares on the date in question, then the closing price of the Shares as so reported, on the last preceding date on which there was trading shall instead be used to determine Fair Market Value. If Fair Market Value for any date in question cannot be determined as provided above, Fair Market Value shall be determined by the Committee by whatever method or means the members, in the good faith exercise of their discretion, at that time shall deem appropriate.
O. "Incentive Stock Option" or "ISO" means an Option granted pursuant to the Plan that meets the requirements of Section 422 of the Code, or any successor provision, and that is intended by the Committee to constitute an ISO.
P. "Nonqualified Stock Option" or "NQSO" means an Option granted pursuant to the Plan that is not intended to be an Incentive Stock Option.
Q. "Option" means a Nonqualified Stock Option or an Incentive Stock Option.
R. "Other Stock-Based Award" means any right granted under Section 6(E) of the Plan.
S. "Performance Award" means any Award made pursuant to Section 6(D) of the Plan.
T. "Performance Measures" means, with respect to each Award, the criteria and objectives, determined by the Committee, which must be met during the applicable Performance Period or Restriction Period, as the case may be, as a condition of the holder's vesting of, and receipt of payment with respect to, or retention of, such Award. Such criteria and objectives may include, (i) earnings per share, (ii) return equity measures (including, but not limited to, return on assets, equity or sales), (iii) net income (before or after taxes), (iv) cash flow (including, but not limited to, operating cash flow and free cash flow), (v) cash flow return on investments, which equals net cash flows divided by owner's equity, (vi) earnings before or after taxes, interest, depreciation and/or amortization, (vii) internal rate of return or increase in net present value, (viii) gross revenues, (ix) gross margins or (x) share price (including, but not limited to, growth measures and total shareholder return). The Performance Measures pertinent to any Award shall be established at the time of the making of such Award and shall be set forth in the Agreement covering such Award.
U. "Performance Period" means the period designated by the Committee during which the Performance Measures applicable to an Award shall be measured. The Performance Period shall be established on or before the time of the making of the Award, and the length of any Performance Period shall be within the discretion of the Committee.
V. "Plan" means the Amended and Restated Comerica Incorporated 1997 Long-Term Incentive Plan.
W. "Restriction Period" means the period designated by the Committee during which Shares of Restricted Stock remain forfeitable.
X. "Restricted Stock Award" means an award of Shares pursuant to Section 6(C) of the Plan subject to such restrictions as may be imposed by the Committee. Shares of restricted stock shall constitute issued and outstanding Shares for all corporate purposes.
Y. "Retirement" means retirement in accordance with the policies of the Corporation or Affiliate which employs the Award Recipient.
Z. "Shares" means shares of Common Stock, $5.00 par value, of the Corporation or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 8 of the Plan.
AA. "Stock Appreciation Right" or "SAR" means a right granted under
Section 6(B) of the Plan.
BB. "Tax Withholding Date" shall mean the earliest date the obligation to withhold tax with respect to an Award arises.
SECTION 3. STOCK SUBJECT TO THE PLAN.
Shares which may be issued pursuant to Awards under the Plan may be either authorized and unissued Shares, or authorized and issued Shares held in the Corporation's Treasury, Shares purchased in the open market or in private transactions or any combination of the foregoing. Subject to adjustment as provided in Section 8, there shall be reserved for issuance for the purpose of Awards under the Plan sixteen million (16,000,000) Shares. Not more than 15% of the Shares available for Awards may be utilized for Awards other than Options. However, Shares covered by Awards which are canceled or forfeited may be reutilized to make Awards. Not more than two million (2,000,000) Shares (subject to adjustment as provided in Section 8) shall be available for issuance pursuant to the exercise of Incentive Stock Options. The maximum number of Shares which may become subject to Awards to any Eligible Individual during any calendar year shall be the lesser of (i) 15% of the Shares available for Awards during such calendar year, or (ii) 350,000 Shares.
SECTION 4. ADMINISTRATION.
The Plan shall be administered by the Committee. In addition to any implied powers and duties that may be needed to carry out the provisions of the Plan, the Committee shall have all the powers vested in it by the terms of the Plan, including exclusive authority to select Eligible Individuals, to make Awards, to determine the type, size, terms and timing of Awards (which need not be uniform), to accelerate the vesting of awards in extraordinary circumstances, including the occurrence of a Change of Control of the Corporation or the termination of an Award Recipient's employment, to permit or prohibit the transfer of Awards, and to prescribe the form of the Agreements governing Awards.
The Committee may cancel all or any portion of any Award, whether or not vested
or deferred, as set forth below. Upon cancellation, the Award Recipient shall
forfeit the Award and any benefits attributable to such canceled Award or
portion thereof. The Committee may cancel an Award if, in its sole discretion,
the Committee determines in good faith that the Award Recipient has done any of
the following: (i) committed a felony; (ii) committed fraud; (iii) embezzled;
(iv) disclosed confidential information or trade secrets; (v) was terminated for
cause; (vi) engaged in any activity in competition with the business of the
Corporation or any subsidiary or affiliate of the Corporation; or (vii) engaged
in conduct that adversely affected the Corporation. The Executive Vice President
- Corporate Staff of the Corporation, or such other person designated from time
to time by the Chief Executive Officer of the Corporation (the "Delegate"),
shall have the power and authority to suspend all or any portion of any Award if
the Delegate makes in good faith the determination described in the preceding
sentence. Any such suspension of an Award shall remain in effect until the suspension shall be presented to and acted on by the Committee at its next meeting. This paragraph shall have no application for a two year period following a Change of Control of the Corporation.
The Committee may interpret the Plan and the Agreements entered into pursuant to the Plan, establish, amend and rescind rules and regulations relating to the Plan, make any other determinations it believes necessary or advisable in connection with the administration of the Plan, and correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Agreement in the manner and to the extent the Committee deems appropriate.
Determinations of the Committee shall be made by a majority vote of its members at a meeting at which a quorum is present or pursuant to a unanimous written consent of its members. A majority of the members of the Committee shall constitute a quorum. All Committee determinations shall be final, conclusive and binding on the Corporation, any Award Recipient, Beneficiary or other interested party.
The Committee may authorize any one or more of its members, or any officer of the Corporation, to execute and deliver documents on behalf of the Committee. No member of the Committee shall be liable for any action or omission in connection with the Plan, except for his or her own willful misconduct.
Section 5. Eligibility.
Awards may only be made to Eligible Individuals. No member of the Committee shall be eligible to receive an Award under the Plan.
Section 6. Awards.
A. Options. The Committee may grant Options to Eligible Individuals in accordance with the provisions of this subsection subject to such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine to be appropriate.
1. Exercise Price. The purchase price per Share under an Option shall be determined by the Committee; provided, however, that such purchase price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option, and such purchase price may not be decreased during the term of the Option other than pursuant to Section 8.
2. Option Term. The term of each Option shall be fixed by the Committee; provided, however, that the maximum term of each Nonqualified Stock Option shall be ten years.
3. Time and Manner of Exercise. The Committee shall determine the time or times
at which an Option may be exercised, and the manner in which (including, without limitation, cash, Shares, other securities, other Awards or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price) payment of the exercise price with respect thereto may be made, or deemed to have been made. Any form of "cashless" exercise of an Option which is legally permissible may be utilized under the Plan in connection with the exercise of an Option.
4. Employment Status.
a. Retirement. An Award Recipient's Retirement shall not affect any current Options other than those granted in the calendar year of Retirement. All current Options other than those granted in the year of Retirement shall continue to vest pursuant to the vesting schedule applicable to such Options and any vested Option (including any ISO held by an optionee who is not Disabled), held by such individual shall continue to be in full force and effect, provided the term of the Option has not otherwise expired, for the remainder of the term of the Option. All options granted in the year of Retirement which have not otherwise vested shall terminate upon the date of Retirement.
b. Disability. Upon the cessation of the Award Recipient's employment due to Disability, any Option held by such individual shall continue to be exercisable, provided the term of the Option has not otherwise expired, for a period of three years subsequent to the date of cessation of the Award Recipient's employment (or, in the case of any ISO held by an optionee who is Disabled, for a period of one year subsequent to such cessation date).
c. Termination of Employment. Upon the cessation of the Award Recipient's employment for any reason other than Retirement, Disability or death, any Option held by such individual shall continue to be exercisable, provided the term of the Option has not otherwise expired, for a period of ninety days after the date of termination of the Award Recipient's employment.
d. Death. Upon the Award Recipient's death (whether during his or her employment with the Corporation or an Affiliate or during any applicable post-termination exercise period), any Option held by such individual shall continue to be exercisable by the Beneficiary(ies) of the decedent, provided the term of the Option (as such term may have been shortened due to the Award Recipient's Retirement, Disability or termination of employment for any other reason) has not otherwise expired, for a period of one year after the date of the Award Recipient's death (or, in the case of ISOs, for a period of three months after the Award Recipient's death).
e. Extension or Reduction of Exercise Period. In any of the foregoing circumstances, the Committee may extend or shorten the exercise period, but may not extend any such period beyond the term of the Option as originally established (or, insofar as this paragraph relates to SARs, the term of the SAR as originally established). Further, with respect to ISOs, as a condition of any such extension, the holder shall be required to deliver to the Corporation a release which provides that such individual will hold the Corporation and/or Affiliate harmless with respect to any adverse tax consequences the individual may suffer by reason of any such extension.
5. Reload Options. With respect to Options granted pursuant to this Plan, the Committee may grant "reload" options pursuant to which grant the Award Recipient will receive a new Option when the payment of the exercise price of a previously granted Option is made by the delivery of Shares already owned by the Award Recipient pursuant to Section 6(A)(3) hereof, and/or when Shares are tendered or forfeited as payment of the amount required to be withheld under applicable income tax laws in connection with the exercise of an Option. Any such new Option shall be an Option to purchase the number of Shares not exceeding the sum of (A) the number of Shares tendered or forfeited to satisfy the purchase price upon the exercise of the previously-granted Option to which such "reload" option relates, and (B) the number of Shares tendered or forfeited as payment of the amount to be withheld under applicable income tax laws in connection with the exercise of the Option to which such "reload" option relates. Such "reload" Options shall have a per share exercise price equal to the Fair Market Value as of the date of grant of the Shares covered by such Option.
B. Stock Appreciation Rights. The Committee may grant Stock Appreciation
Rights to Eligible Individuals in accordance with the provisions of
this subsection subject to such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee shall
determine to be appropriate. A Stock Appreciation Right granted under
the Plan shall confer on the Award Recipient a right to receive upon
exercise thereof the excess of (i) the Fair Market Value of one Share
on the date of exercise (or, if the Committee shall so determine, at
any time during a specified period before or after the date of
exercise) over (ii) the grant price of the Stock Appreciation Right
as specified by the Committee, which price shall not be less than
100% of the Fair Market Value of one Share on the date of grant of
the Stock Appreciation Right. Subject to the terms of the Plan and
any applicable Agreement, the grant price, term, manner of exercise,
dates of exercise, methods of settlement and any other terms and
conditions of any Stock Appreciation Right shall be those determined
by the Committee. The Committee may impose such conditions or
restrictions on the exercise of any Stock Appreciation Right as it
may deem appropriate. Except as otherwise provided herein, any SAR
must be exercised during the period of the Award Recipient's
employment with the Corporation or Affiliate. The provisions of
Section 6(A)(4)(b)-(f) hereof shall apply for purposes of determining
the
exercise period in the event of the Award Recipient's Retirement, Disability, death or other termination of employment.
C. Restricted Stock. The Committee may make Restricted Stock Awards to Eligible Individuals in accordance with the provisions of this subsection subject to such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine to be appropriate.
1. Nature of Restrictions. Restricted Stock Awards shall be subject to such restrictions, including Performance Measures, as the Committee may impose (including, without limitation, any limitation on the right to vote a Share of restricted stock or the right to receive any dividend or other right or property with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate; provided, however, that the minimum Restriction Period with respect to a Restricted Stock Award that is made subject to restrictions which are performance-related shall be one year. In the event a Restricted Stock Award is made subject to restrictions which are not performance-related, the minimum Restriction Period shall be three years.
2. Stock Certificates. Shares of restricted stock under the Plan shall be evidenced by issuance of a stock certificate(s), which shall be held by the Corporation. Such certificate(s) shall be registered in the name of the Award Recipient and shall bear an appropriate legend which refers to the restrictions applicable to such Restricted Stock Award. Alternatively, shares of restricted stock under the Plan may be recorded in book entry form.
3. Forfeiture; Delivery of Shares. Except as otherwise determined by the Committee, upon termination of an Award Recipient's employment (as determined under criteria established by the Committee) during the applicable Restriction Period, all Shares of restricted stock shall be forfeited and reacquired by the Corporation. However, in such circumstances, the Committee may waive, in whole or in part, any or all remaining restrictions applicable to the Restricted Stock Award. Shares comprising any Restricted Stock Award held by the Corporation that are no longer subject to restrictions shall be delivered to the Award Recipient (or his or her Beneficiary) promptly after the applicable restrictions lapse or are waived.
D. Performance Awards. The Committee may grant Performance Awards to Eligible Individuals in accordance with the provisions of this subsection subject to such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine to be appropriate. A Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including, without limitation, restricted Shares), other securities, other Awards, or other property, and
(ii) shall confer on the Award Recipient the right to receive a payment upon the attainment of Performance Measures during any Performance Period the Committee may establish. The payment of any Performance Award (or any part of any Performance Award) in Shares (whether or not such Shares are restricted Shares), other securities, other Awards or other property shall be in lieu of a cash payment of such Performance Award (or such part thereof). Subject to the terms of the Plan and any applicable Award Agreement, the Performance Measures to be achieved during any Performance Period, the length of any Performance Period and the amount of any payment or transfer to be made pursuant to any Performance Award shall be determined by the Committee.
E. Other Stock-Based Awards. The Committee may grant Other Stock-Based Awards to Eligible Individuals in accordance with the provisions of this subsection and subject to such additional terms and conditions, including Performance Measures, not inconsistent with the provisions of the Plan, as the Committee shall determine. Other Stock-Based Awards may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purpose of the Plan; provided, however, that such grants must comply with applicable law.
F. General. Except as otherwise specified herein, the following provisions shall relate to Awards under the Plan:
1. Consideration for Awards. Awards shall be made without monetary consideration or for such minimal monetary consideration as may be required by applicable law.
2. Separate or Tandem Awards. Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, in fulfillment of, or in substitution for, any other Award or any award made under any plan of the Corporation or any Affiliate other than this Plan. Awards granted in addition to, or in tandem with, other Awards, or in addition to, or in tandem with, awards made under any such other plan of the Corporation or any Affiliate may be made either at the same time as, or at a different time from, the making of such other Awards or awards.
3. Forms of Payment under Awards. Subject to the terms of the Plan and of any applicable Agreement, payments or transfers to be made by the Corporation or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms as the Committee shall determine (including, without limitation, cash, Shares, other securities, other Awards or other property or any combination thereof), and may be made in a single payment or transfer, in installments or an a deferred basis, in each case in accordance with rules and
procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments.
4. Limits on Transfer of Awards. No Award and no right under any such Award shall be transferable by an Award Recipient otherwise than by will or by the laws of intestacy; provided, however, that, an Award Recipient may, in the manner established by the Committee, designate a Beneficiary to exercise the rights of the Award Recipient and to receive any property distributable with respect to any Award upon the death of the Award Recipient. Each Award or right under any Award shall be exercisable during the Award Recipient's lifetime only by the Award Recipient or, if permissible under applicable law, by the Award Recipient's guardian or legal representative. No Award or right under any such Award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance thereof shall be void and unenforceable against the Corporation or any Affiliate.
5. Term of Awards. Subject to any specific provisions of the Plan, the term of each Award shall be for such period as may be determined by the Committee.
6. Securities Law Restrictions. All certificates for Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such restrictions as the Committee may deem advisable under the Plan, or the rules, regulations and other requirements of the Securities and Exchange Commission, the New York Stock Exchange, any other exchange on which Shares may be eligible to be traded or any applicable federal or state securities laws, and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions.
7. Limitation on Awards. The maximum amount of compensation payable with respect to any Award to any Eligible Officer under the Plan which is settled in cash will not exceed $5,000,000 for any calendar year.
SECTION 7. WITHHOLDING OF TAXES.
The Corporation will, if required by applicable law, withhold the minimum statutory amount of Federal, state and/or local withholding taxes in connection with the exercise or vesting of an Award. Unless otherwise provided in the applicable Agreement, each Award Recipient may satisfy any such tax withholding obligation by any of the following means, or by a combination of such means: (i) a cash payment; (ii) by delivery to the Corporation of already-owned Shares which have been held by the individual for at least six months having a Fair Market Value, as of the Tax Withholding Date, sufficient to satisfy the amount of the withholding tax obligation arising from an exercise or vesting of an Award; (iii) by authorizing the Corporation to withhold from the Shares otherwise issuable to the individual pursuant to the exercise or
vesting of an Award, a number of shares having a Fair Market Value, as of the Tax Withholding Date, which will satisfy the amount of the withholding tax obligation; or (iv) by a combination of such methods of payment. If the amount requested is not paid, the Corporation may refuse to satisfy the Award.
SECTION 8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
In the event the number of outstanding Shares changes as a result of any stock split, stock dividend, recapitalization, merger, consolidation, reorganization, combination, or exchange of shares, split-up, split-off, spin-off, liquidation or other similar change in capitalization, or any distribution made to common stockholders other than cash dividends, the number or kind of shares that may be issued under the Plan pursuant to Section 3, and the number or kind of shares subject to, or the exercise price per share under, any outstanding Award, shall be automatically adjusted, and the Committee shall be authorized to make such other equitable adjustment of any Award or Shares issuable pursuant thereto, or in any Performance Measures relating to any Award, so that the value of the interest of the individual shall not be decreased by reason of the occurrence of such event. Any such adjustment shall be conclusive and binding.
SECTION 9. AMENDMENT AND TERMINATION.
The Committee may amend, modify or terminate the Plan, at any time, in such respects as it shall deem advisable. Any such amendment, modification or termination of the Plan shall not, without the consent of any Award Recipient, adversely affect his or her rights under an Award previously made. Any amendment by the Committee hereunder to reprice options granted under the Plan shall be subject to shareholder approval.
SECTION 10. MISCELLANEOUS PROVISIONS.
A. No employee or other person shall have any claim or right to receive an Award under the Plan.
B. Receipt of an Award shall not confer upon the Award Recipient any rights of a shareholder with respect to any Shares subject to such Award except as specifically provided in the Agreement relating to the Award.
C. The Plan, the making and exercise of Awards thereunder, and the obligations of the Corporation to satisfy Awards shall be subject to all applicable Federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required, and the Committee may impose any additional restrictions with respect to Awards in order to comply with any legal requirements applicable to Awards or to qualify for any exemption it may deem appropriate.
D. The expenses of the Plan shall be borne by the Corporation.
E. By accepting an Award under the Plan or payment pursuant to any Award, each Award Recipient, legal representative and Beneficiary shall be conclusively deemed to have indicated his or her acceptance and ratification of, and consent to, any action taken under the Plan by the Committee or the Corporation.
F. Awards under the Plan shall be binding upon the Corporation, its successors, and assigns.
G. Nothing in the Plan, or in any Agreement entered into pursuant to the Plan, shall confer on an Award Recipient any right to continue in the employ of the Corporation or any Affiliate, or in any way affect the Corporation's (or such Affiliate's) right to terminate the individual's employment without prior notice, at any time, for any reason or for no reason.
H. Participation in the Plan shall not affect an individual's eligibility to participate in any other benefit or incentive plan of the Corporation.
I. A breach by any Award Recipient, his or her Beneficiary(ies), or legal representative, of any restrictions, terms or conditions contained in the Plan, any Agreement, or otherwise established by the Committee with respect to any Award will, unless waived in whole or in part by the Committee, cause a forfeiture of such Award.
J. This amended 1997 Long-Term Incentive Plan, effective as of November 19, 1999, shall be further amended and restated, effective as of May 23, 2001, (subject to approval of the stockholders of the Corporation on May 22, 2001), and thereafter shall remain in effect until terminated in accordance with Section 9 hereof.
K. Except to the extent superseded by Federal law, the provisions of this Plan shall be interpreted and construed in accordance with the laws of the State of Delaware.
Compensation Committee Approved: March 26, 2001
Board Approved: March 27, 2001
Shareholders Approved: May 22, 2001
EXHIBIT A
CHANGE OF CONTROL
For the purpose of this Plan, a "Change of Control" shall mean:
l. The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then outstanding shares
of common stock of the Corporation (the "Outstanding Corporation
Common Stock") or (ii) the combined voting power of the then out
standing voting securities of the Corporation entitled to vote
generally in the election of directors (the "Outstanding Corporation
Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from the Corporation,
(ii) any acquisition by the Corporation, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by
the Corporation or any corporation controlled by the Corporation or
(iv) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection 3 of
this Exhibit A; or
2. Individuals who, as of the date hereof, constitute the Corporation's Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
3. Consummation of a reorganization, merger or consolidation or sale or
other
disposition of all or substantially all of the Corporation's assets (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the company resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the company resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the company resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
4. Approval by the Corporation's shareholders of a complete liquidation or dissolution of the Corporation.
EXHIBIT 10.2
AMENDED AND RESTATED
COMERICA INCORPORATED
MANAGEMENT INCENTIVE PLAN
SECTION 1. PURPOSE.
The purpose of the Comerica Incorporated Management Incentive Plan is to promote and advance the interests of Comerica Incorporated (the "Corporation") and its shareholders by enabling the Corporation to attract, retain and reward key employees of the Corporation and its Affiliates, and to qualify incentive compensation paid to Participants who are covered Employees as performance-based compensation within the meaning of Section 162(m) of the Code.
SECTION 2. DEFINITIONS.
The terms below shall have the following meanings:
A. "Affiliate" means (i) any entity that is controlled by the Corporation, whether directly or indirectly, and (ii) any entity in which the Corporation has a significant equity interest, as determined by the Committee.
B. "Annual Base Salary" means the participant's rate of annual salary as of the last December 1st occurring during the Performance Period.
C. "Board" means the Board of Directors of the Corporation.
D. "Code" means the Internal Revenue Code of 1986, as amended.
E. "Committee" means the committee appointed by the Board to administer the Plan as provided herein. Unless otherwise determined by the Board, the Compensation Committee of the Board shall be the Committee.
F. "Corporation" means Comerica Incorporated, a Delaware corporation, and its successors and assigns.
G. "Covered Employee" means a "covered employee" within the meaning of
Section 162(m) of the Code.
H. "Incentive Payment" means, with respect to each Participant, the amount he or she may receive for the applicable Performance Period as established by the Committee pursuant to the provisions of the Plan.
I. "Participant" means any employee of the Corporation or an Affiliate who is designated by the Committee as eligible to receive an Incentive Payment under the Plan.
J. "Performance Goals" means (i) earnings per share, (ii) return measures
(including, but not limited to, return on assets, equity or sales),
(iii) net income (before or after taxes), (iv) cash flow (including,
but not limited to, operating cash flow and free cash flow), (v) cash
flow return on investments, which equals net cash flows divided by
owner's equity, (vi) earnings before or after taxes, interest,
depreciation and/or amortization, (vii) internal rate of return or
increase in net present value, (viii) gross revenues, (ix) gross
margins or (x) share price (including, but not limited to, growth
measures and total shareholder return). Performance Goals with respect
to awards for employees who are not Covered Employees may also be
based on any other objective performance goals as may be established
by the Committee for a Performance Period. Performance Goals may be
absolute in their terms or measured against or in relationship to
other companies comparably, similarly or otherwise situated and may be
based on or adjusted for any other objective goals, events, or
occurrences established by the Committee for a Performance Period.
Such Performance Goals may be particular to a line of business,
subsidiary or other unit or may be based on the performance of the
Corporation generally. Such Performance Goals may cover such period as
may be specified by the Committee.
K. "Performance Period" means, with respect to any Incentive Payment, the period, not to be less than 12 months, specified by the Committee, including but not limited to, for a one-year performance period, the calendar year.
L. "Performance Targets" mean the specific measures which must be satisfied in connection with any Performance Goal prior to funding of any incentive pool.
M. "Plan" means the Amended and Restated Comerica Incorporated Management Incentive Plan.
SECTION 3. ADMINISTRATION.
The Plan shall be administered by the Committee. Subject to the express provisions of the Plan, the Committee shall have exclusive authority to interpret the Plan, to promulgate, amend, and rescind rules and regulations relating to it and to make all other determinations deemed necessary or advisable in connection with the administration of the Plan, including, but not limited to, determinations relating to eligibility, whether to make Incentive Payments, the terms of any such payments, the time or times at which Performance Goals are established, the Performance Periods to which Incentive Payments relate, and the actual dollar amount of any Incentive Payment. The determinations of the Committee pursuant to this authority shall be conclusive and binding.
The Committee may, in its discretion, authorize the Chief Executive Officer of the Corporation to act on its behalf, except with respect to matters relating to such Chief Executive Officer or which are required to be certified by a majority of the Committee under the Plan, or which are required to be handled exclusively by the Committee under Code Section 162(m) or the regulations promulgated thereunder.
SECTION 4. ESTABLISHMENT OF PERFORMANCE GOALS AND INCENTIVE PAYMENTS.
A. Establishment of Performance Goals. Prior to the earliest time required by Section 162(m) of the Code or the regulations thereunder, the Committee shall, in its sole discretion, for each such Performance Period, determine and establish in writing the following:
1. The Performance Goals applicable to the Performance Period; and
2. The Performance Targets pursuant to which the total amount which may be available for payment to all Participants as Incentive Payments based upon the relative level of attainment of the Performance Goals may be calculated.
B. Certification and Payment. After the end of each Performance Period, the Committee shall:
1. Certify in writing, prior to the unconditional payment of any Incentive Payment, the level of attainment of the Performance Goals for the Performance Period;
2. Determine the total amount available for Incentive Payments based on the relative level of attainment of such Performance Goals;
3. In its sole discretion, adjust the size of, or eliminate, the total amount available for Incentive Payments for the Performance Period; and
4. In its sole discretion, determine the share, if any, of the available amount to be paid to each Participant as that Participant's Incentive Payment, and authorize payment of such amount. In the case of a Participant who is a Covered Employee, the Committee shall not be authorized to increase the amount of the Incentive Payment for any Performance Period determined with respect to any such individual by reference to the applicable Performance Targets except to the extent permitted under Section 162(m) of the Code and regulations thereunder.
C. Conditional Payments. The Committee may authorize a conditional payment of a Participant's Incentive Payment prior the end of a Performance Period based upon the Committee's good faith determination of the projected size of (i) the total amount which will become available for payment as Incentive Payments for the Performance Period, and (ii) the amount determined with respect to any such Participant by reference to the Performance Targets.
D. Other Applicable Rules.
1. Unless otherwise determined by the Committee with respect to any Covered Employee or by the Corporation's Chief Executive Officer with respect to any other Participant (unless otherwise required by applicable law), no payment pursuant to this Plan shall be made to a Participant unless the Participant is
employed by the Corporation or an Affiliate as of the date of
payment; provided, however, in the event of the Participant's
(i) retirement in accordance with the policies of the
Corporation or Affiliate which employs the Participant, (ii)
death, or (iii) disability (within the meaning of such term as
set forth in the Long-Term Disability Plan of Comerica
Incorporated or its successor, the provisions of which are
incorporated herein by reference, or as the Committee shall
determine based on information provided to it), the
Corporation shall pay the Participant an Incentive Payment for
the applicable Performance Period, which Incentive Payment
shall be prorated based on the number of months the
Participant was employed by the Corporation or an Affiliate
during the applicable Performance Period, in which the
Participant's retirement, death or disability occurred. In the
case of the Participant's retirement, such payment shall be
made at the end of the Performance Period during which the
Participant retired in the normal course of payments made to
all other participants, and in the case of the Participant's
death or disability, such payment shall be made as soon as is
administratively feasible following the date of the
Participant's death or disability.
2. Incentive Payments shall be subject to applicable federal, state and local withholding taxes and other applicable withholding in accordance with the Corporation's payroll practices as from time-to-time in effect.
3. The maximum amount which may become payable to any Covered Employee in any calendar year as an Incentive Payment with respect to all Performance Periods completed during such calendar year shall be the lesser of (i) 300% of such Participant's Annual Base Salary, or (ii) $5,000,000.
4. Incentive Payments calculated by reference to any Performance Periods shall be payable in cash, provided however, that such percentage as determined by the Committee shall automatically be invested on behalf of the recipient in shares of the Corporation's common stock, $5.00 par value per share ("Shares"). Any such Shares shall be subject to restrictions as may be determined by the Committee. In each case, Incentive Payments shall be made as soon as practical after the completion of the Performance Period. Notwithstanding anything in this Section 4(D)(4) to the contrary, if a Participant elects to defer receipt of all or any portion of an Incentive Payment under the provisions of any deferred compensation plan maintained by the Corporation, the provisions in this Plan (including the Provisions of this Section 4(D)(4)) regarding the timing and form of payment of Incentive Payments shall cease to apply to such deferred amounts and the provisions of the applicable deferred compensation plan shall govern the timing and form of payment of such deferred amounts.
5. A Participant shall have the right to defer any or all of any Incentive Payment as permitted under the provisions of any deferred compensation plan maintained by the Corporation. The Committee, in its sole discretion, may impose limitations on the percentage or dollar amount of any Participant
election to defer any Incentive Payment and may impose rules prohibiting the deferral of less than 100% of any Incentive Payment.
6. Until paid to a Participant, awards shall not be subject to the claims of creditors and may not be assigned, alienated, transferred or encumbered in any way other than by will or pursuant to laws of intestacy.
SECTION 5. AMENDMENT OR TERMINATION.
The Committee may amend, modify or terminate the Plan in any respect at any time without the consent of any Participant. Any such action may be taken without the approval of the Corporation's shareholders unless shareholder approval is required by applicable law. Termination of the Plan shall not affect any Incentive Payments earned prior to, but payable on or after, the date of termination, and any such payments shall continue to be subject to the terms of the Plan notwithstanding its termination.
SECTION 6. CHANGE OF CONTROL.
Notwithstanding any other provision hereof, in the event of a "Change of Control" of the Company as defined in the Comerica Incorporated Executive Officer Employment Agreements, the following provisions shall be applicable:
A. The Performance Periods then in effect will be deemed to have concluded on the date of the Change of Control of the Company and the total amount deemed to be available to fund the related incentive pools will be that proportion of the amount (based upon the number of months in such Performance Period elapsed through the date of Change of Control of the Company) which would be available for funding assuming the Corporation had attained Performance Goals at a level generating maximum funding for the Performance Periods; and
B. The Committee, in its sole discretion, will approve the share of the available amount payable to each Participant as that Participant's Incentive Payment (provided that in all events the entire available amount as calculated pursuant to Section 6(A) shall be paid to Participants as Incentive Payments), and payments shall be made to each Participant as soon thereafter as is practicable.
SECTION 7. EFFECTIVE DATE OF THE PLAN.
This amended Comerica Incorporated Management Incentive Plan, effective as of November 19, 1999, shall be further amended and restated, effective as of January 1, 2001, (subject to approval of the shareholders of the Corporation on May 22, 2001), and thereafter shall remain in effect until terminated in accordance with Section 5 hereof.
SECTION 8. GENERAL PROVISIONS.
A. The establishment of the Plan shall not confer upon any Participant any legal or equitable right against the Corporation or any Affiliate, except as expressly provided
in the Plan.
B. The Plan does not constitute an inducement or consideration for the employment of any Participant, nor is it a contract between the Corporation, or any Affiliate, and any Participant. Participation in the Plan shall not give a Participant any right to be retained in the employ of the Corporation or any Affiliate.
C. Nothing contained in this Plan shall prevent the Board or Committee from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required and such arrangements may be either generally applicable or applicable only in specific cases.
D. The Plan shall be governed, construed and administered in accordance with the laws of the State of Delaware except to the extent such laws may be superseded by federal law.
E. This Plan is intended to comply in all aspects with applicable law and regulation, including, with respect to those Participants who are Covered Employees, Section 162(m) of the Code. In case any one or more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law or regulation, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed in compliance with all applicable laws including, without limitation, Code Section 162(m), so as to carry out the intent of this Plan.
Compensation Committee Approved: March 26, 2001 Board Approved: March 27, 2001 Shareholders Approved: May 22, 1001
EXHIBIT 10.23
AMENDMENT TO
1986 IMPERIAL STOCK OPTION PLAN
OF
IMPERIAL BANCORP
The 1986 Imperial Stock Option Plan is amended to add a new Section 10.02, Sections 9.01 (Option Rights upon Termination of Employment) and 10.01(Option Rights Upon Death or Disability) are amended to be applicable to options granted prior to January 30, 2001 and Section 17.01 (Tax Withholding) is amended in its entirety. Accordingly, the new and amended Sections of the Plan shall read as follows:
"Section 9.01. OPTION RIGHTS UPON TERMINATION OF EMPLOYMENT. (APPLICABLE TO ALL OPTIONS GRANTED PRIOR TO JANUARY 30, 2001) If an optionee ceases to be an employee or a director of the Company or any of its subsidiary corporations for any reason other than death or permanent and total disability, the optionee's option shall immediately terminate; provided, however, that the Plan Administrators, in their absolute discretion, may provide at the time of the grant of an option that the option may be exercised (to the extent it remains unexercised on the date of termination) at any time within a period of up to ninety days following the date of termination, unless either the option or the Plan otherwise provides for earlier termination. The transfer of an employee from the employ of the Company to a subsidiary corporation, or vice versa, or from one subsidiary corporation to another, shall not be deemed to constitute a cessation of employment for purposes of this Plan.
Section 10.01. OPTION RIGHTS UPON DEATH OR DISABILITY. (APPLICABLE TO ALL OPTIONS GRANTED PRIOR TO JANUARY 30, 2001) Except as otherwise limited by the Plan Administrators at the time of the grant of an option, if an optionee dies or becomes permanently and totally disabled within the meeting of Section 105(d)(4) of the Code while an employee of or a director of the Company or any of its subsidiary corporations, or dies within three months after ceasing to be employee or director thereof, the optionee's option shall expire one year after the date of death or the date of permanent and total disability, unless either the option or the Plan otherwise provides for earlier termination. During this one year (or shorter) period, the option may be exercised, to the extent that it remains unexercised on the date of death or on the date of permanent and total disability, by the optionee, if living, or by the person or persons to whom the optionee's rights under the option shall pass by will or by the laws of descent and distribution, but only to the extent that the optionee is entitled to exercise the option at the date of death or date of permanent and total disability, as the case may be.
Section 10.02. OPTION RIGHTS UPON A CHANGE IN EMPLOYMENT STATUS.
(APPLICABLE TO ALL OPTIONS GRANTED ON OR AFTER JANUARY 30, 2001)
a. Retirement. An optionee's Retirement shall not affect any current options other than those granted in the calendar year of retirement. All current options other than those granted in the year of Retirement shall continue to vest pursuant to the vesting schedule applicable to such options and any vested option (including any ISO held by an optionee who is not Disabled), held by such individual shall continue to be in full force and effect, provided the term of the option has not otherwise expired, for the remainder of the term of the option. All options granted in the year of retirement which have not otherwise vested shall terminate upon the date of retirement.
b. Disability. Upon the cessation of the optionee's employment due to disability, any option held by such individual shall continue to be exercisable, provided the term of the option has not otherwise expired, for a period of three years subsequent to the date of cessation of the optionee's employment (or, in the case of any ISO held by an optionee who is disabled, for a period of one year subsequent to such cessation date).
c. Termination of Employment. Upon the cessation of the optionee's employment for any reason other than retirement, disability or death, any option held by such individual shall continue to be exercisable, provided the term of the option has not otherwise expired, for a period of ninety days after the date of termination of the optionee's employment.
d. Death. Upon the optionee's death (whether during his or her employment with the Company or an affiliate or during any applicable post-termination exercise period), any option held by such individual shall continue to be exercisable by the beneficiary(ies) of the decedent, provided the term of the option (as such term may have been shortened due to the optionee's retirement, disability or termination of employment for any other reason) has not otherwise expired, for a period of one year after the date of the optionee's death (or, in the case of ISOs, for a period of three months after the optionee's death).
e. Extension or Reduction of Exercise Period. In any of the foregoing circumstances, the Committee may extend or shorten the exercise period, but may not extend any such period beyond the term of the Option as originally established. Further, with respect to ISOs, as a condition of any such extension, the holder shall be required to deliver to the Company a release which provides that such individual will hold the Company and/or affiliate harmless with respect to any adverse tax consequences the individual may suffer by reason of any such extension.
Section 17.01 WITHHOLDING OF TAXES. The Company will, if required by applicable law, withhold the minimum statutory amount of Federal, state and/or local withholding taxes in connection with the exercise or vesting of an optionee. Unless otherwise provided in the applicable Agreement, each optionee may satisfy any such tax withholding obligation by any of the following means, or by a combination of such means: (i) a cash payment; (ii) by delivery to the Company of already-owned shares which have been held by the individual for at least six months having a fair market value, as of the tax withholding date, sufficient to satisfy the amount of the withholding tax obligation arising from an exercise or vesting of an optionee; (iii) by authorizing the Company to withhold from the Shares otherwise issuable to the individual pursuant to the exercise or vesting of an optionee, a number of shares having a fair market value, as of the tax withholding date, which will satisfy the amount of the withholding tax obligation; or (iv) by a combination of such methods of payment. If the amount requested is not paid, the Company may refuse to satisfy the Award."
AMENDMENT TO
THE 1986 STOCK OPTION PLAN
OF
IMPERIAL BANCORP
The 1986 Stock Option Plan of Imperial Bancorp is hereby amended as follows:
1. All references in the plan to the "Company's common stock" shall mean "Comerica common stock".
2. The maximum aggregate number of 5,365,016 authorized and unissued shares that may be optioned under sold under the Plan is hereby adjusted by the exchange ratio (.46) in the merger of Imperial with and into Comerica Holdings, Incorporated, a wholly-owned subsidiary of the Company so that the maximum aggregate number of authorized and unissued shares that may be optioned under sold under the Plan is 2,467,907.
1986 STOCK OPTION PLAN
OF
IMPERIAL BANCORP
(MERGED INTO COMERICA HOLDINGS INCORPORATED IN 2001)
Section 1.01 PURPOSE. The purpose of this 1986 Stock Option Plan of Imperial Bancorp (the "Plan") is to promote the growth and general prosperity of Imperial Bancorp, a California corporation (the "Company") and its subsidiary, Imperial Bank, a California banking corporation (the "Bank"), by permitting the Company to grant options to purchase shares of the Company's common stock ("shares"). The Plan is designed to help attract and retain superior personnel for positions of substantial responsibility with the Company and the Bank and to provide directors, officers and key employees with an additional incentive to contribute to the success of the Company and the Bank. Options granted pursuant to the provisions of the Plan may be either "incentive stock options," within the meaning of Section 422A of the Internal Revenue Code of 1954, as amended (the "Code"), or non-statutory stock options, as determined by the Plan Administrators and set forth in the stock option agreements. Options granted under this plan must be labeled either as an "incentive Stock Option" or a "Non-Statutory Stock Option." As used in the Plan, the terms "parent corporation" and "subsidiary corporation" shall have the meanings set forth in subsections (e) and (f), respectively, of Section 425 of the Code.
Section 2.01. ADMINISTRATION. The Plan shall be administered by the Compensation Committee to whom administration of the Plan has been designated by resolution of the Board of Directors, except as to options granted to members of the Compensation Committee, in which case, the Board of Directors shall act as a committee of the whole. The Compensation Committee shall consist of three individuals who constitute (i) Outside Directors within the meaning of Internal Revenue Code section 162 (m), and (ii) Disinterested Directors within the meaning of Rule 16b of the Securities and Exchange Commission. No person who serves on the Compensation Committee shall be eligible to receive incentive stock options under the Plan. The members of the Compensation Committee are herein referred to as the "Plan Administrators." Actions by the Plan Administrators shall be taken by a majority vote or by unanimous written consent. [As amended 1997]
Section 2.02 AUTHORITY OF PLAN ADMINISTRATORS. Subject to the provisions of the Plan, and with a view to effecting its purpose, the Plan Administrators shall have sole authority, in their absolute discretion, (a) to construe and interpret the Plan; (b) to define the terms used herein; (c) to prescribe, amend, and rescind rules and regulations relating to the Plan; (d) to determine the individuals to whom options to purchase shares shall be granted under the Plan; (e) to determine the time or times at which options shall be granted under the Plan; (f) to determine the number of shares subject to each option, the option price, the time or times at which the option becomes exercisable, and the duration of each option granted under the Plan; (g) to determine all of the other terms and conditions of options granted under the Plan, including any performance standards of the Company
established as conditions to the exercise of options; and (h) to make all other determinations necessary or advisable for the administration of the plan and do everything necessary or appropriate to administer the Plan. All decisions, determinations, and interpretations made by the Plan Administrators shall be binding and conclusive on all participants in the Plan and on their legal representatives, heirs and beneficiaries.
Section 2.03. TERMS, CONDITIONS, AND METHOD OF GRANT. The terms and conditions of options granted under the Plan may differ from one another as the Plan Administrators, in their absolute discretion, shall determine as long as all options granted under the Plan satisfy the requirements of the Plan. Whenever the Plan Administrators shall designate an employee or other individual to receive an option (the "optionee"), the Secretary or Assistant Secretary of the Company shall forthwith send notice thereof to the optionee, stating the number of shares covered by the option and the price per share. The date of notice shall be the date of granting the option to the optionee for all purposes of the Plan. The notice shall be accompanied by an option agreement (with a copy of the Plan attached) to be signed by the Company and by the optionee, which option agreement shall be in the form and shall contain such provisions consistent with the Plan as the Plan Administrators, acting with the benefit of legal counsel, shall consider advisable.
Section 3.01. MAXIMUM NUMBER OF SHARES SUBJECT TO THE PLAN. Subject to
the provisions of Section 13.01(a), the maximum aggregate number of authorized
and unissued shares that may be optioned and sold under the Plan is 650,000
[5,365,016 as amended and adjusted for stock dividends] shares. If any of the
options granted under the Plan expire or terminate for any reason before they
have been exercised in full, the unpurchased shares subject to those expired or
terminated options shall again be available for the purposes of the Plan. The
maximum number of shares subject to options that may be granted to any
individual under the Plan shall not exceed 200,000 shares in any one year
period. [As amended 1997]
Section 4.01. ELIGIBILITY AND PARTICIPATION. Only full-time, key employees of the Company or the Bank shall be eligible for selection by the Plan Administrators to receive incentive stock options and full-time, key employees and directors of the Company or the Bank shall be eligible to receive non-statutory stock options. For purposes of this Plan, the phrase "key employees" shall include officers, department heads, division managers, other employees having supervisory responsibilities, and those other employees as the Plan Administrators may specifically designate from time to time.
Section 5.01. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective upon its adoption by the Board of Directors of the Company subject to the receipt of the approval of the Plan required by Section 15.01. The Plan shall become in effect for a term of 20 years, unless sooner terminated under section 14.01. [As amended 1995]
Section 5.02. DURATION OF OPTIONS. Each option and all rights thereunder granted pursuant to the terms of the Plan shall expire on the date determined by the Plan Administrators, but in no event shall any option granted under the Plan expire later than the (10) years from the date on which
the option is granted. In addition, each option shall be subject to early termination as provided in the Plan. However, any non-statutory stock option granted to a director of the Company or the Bank shall expire five (5) years after the date of grant of such option.
Section 5.03. PURCHASE PRICE. The purchase price for shares acquired pursuant to the exercise (in whole or in part) of any incentive stock option granted under this Plan shall be not less than 100% of the fair market value of the shares at the time of the grant of the incentive stock option. The purchase price for shares acquired pursuant to the exercise (in whole or in part) of any non- statutory stock option granted under this Plan shall be not less than 100% of the fair market value of the shares at the time of the grant of the non-statutory stock option. Fair market value shall be determined by the Plan Administrators on the basis of those factors they deem in good faith to be appropriate; provided, however, that if at the time the determination is made the shares are admitted to trading on a national securities exchange, the fair market value of the shares shall be not less than the higher of (a) the mean between the high bid and asked prices reported for the shares on that exchange on the date or most recent trading day preceding the date on which the option is granted, or (b) the last reported sale price reported for the shares on that exchange on the date or most recent trading day preceding the date on which the option is granted. The phrase "national securities exchange" shall include the National Association of Securities Dealers Automated Quotation System and the over-the-counter market.
Section 5.04. TERM AND PURCHASE PRICE OF INCENTIVE STOCK OPTION GRANTED TO MORE THAN 10% SHAREHOLDER. Notwithstanding anything to the contrary in Sections 5.02 and 5.03, if an incentive stock option is to be granted to an employee of the Company or the Bank who at the time the option is granted owns (or under Section 425(d) of the Code is deemed to own) more than 10% of the total combined voting power of all classes of stock of the Company or of any parent corporation or subsidiary corporation of the Company, that option by its terms shall not be exercisable after the expiration of five (5) years after the date that option is granted, and the purchase price of the shares acquired pursuant to the exercise (in whole or in part) of that option shall be at least 110% of the fair market value (as determined under Section 5.03 by the Plan Administrators) of the shares subject to the option at the time the option is granted.
Section 5.05. MAXIMUM AMOUNT OF OPTIONS. The maximum aggregate fair
market value (determined as of the time the option is granted) of the shares for
which any employee of the Company or the Bank may be granted incentive stock
options in any calendar year under all stock option plans of the Company, or of
any parent corporation or subsidiary corporation of the Company, shall not
exceed $100,000 plus the amount of any "unused limit carryover" that may be
taken into account in that calendar year in accordance with the provisions of
Section 422A(c)(4) of the Code.
Section 6.01. EXERCISE OF OPTIONS. Each option shall be exercisable in one or more installments during its terms, and the right to exercise may be cumulative as determined by the Plan Administrators. No option may be exercised for a fraction of a share or other than on a business day of the Company. The full purchase price of any shares purchased shall be paid (i) in cash or by
certified or cashier's check payable to the order of the Company, or by a combination of cash or certified or cashier's check, at the time of exercise of the option, or (ii) at the discretion of the Plan Administrators and as permitted by law, by delivering the Company's shares already owned by the optionee or a combination of shares and cash or certified or cashiers checks.
Section 6.02. WRITTEN NOTICE REQUIRED. Any option granted pursuant to the terms of the Plan shall be considered exercised when written notice of that exercise, together with the investment representation described in Section 7.01, has been given to the Company at its principal executive office by the person entitled to exercise the option and full payment for the shares with respect to which the option is exercised has been received by the Company.
Section 6.03. [Deleted in 1987]
Section 6.04. VESTING OF NON-STATUTORY STOCK OPTIONS. Non-statutory stock options granted to directors of the Company or the Bank will vest as follows: 100% on granting. [As amended 1989]
Section 7.01. COMPLIANCE WITH STATE AND FEDERAL LAWS; DELIVERY OF SHARES. No shares shall be issued with respect to any option granted under the Plan unless the exercise of that option and the issuance and delivery of the shares pursuant to that exercise shall comply with all relevant provisions of state and federal laws, rules, and regulations, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to that compliance. If any law, or any regulation of the Securities and Exchange Commission, or of any other body having jurisdiction, shall require the Company or the optionee to take any action in connection with the shares specified in the optionee's notice, then the date for the delivery of the shares shall be postponed until the completion of the necessary action. The Plan Administrators shall require (to the extent required by or advisable under applicable laws, rules, and regulations) an optionee to furnish evidence satisfactory to the Company (including a written and signed representation letter and a consent to be bound by any transfer restrictions imposed by laws, legend condition, or otherwise) upon exercise of the option that the shares to be acquired are being purchased only for investment and without any present intention to sell or distribute the shares in violation of any law, rule, or regulation. Further, each optionee shall consent to the imposition of a legend on the stock certificate evidencing the shares subject to his or her option restricting their transferability as required by or advisable under applicable laws, rules and regulations.
Section 8.01. EMPLOYMENT OF OPTIONEE. Each optionee, if requested by the Plan Administrators, must agree in writing as a condition of the granting of his or her incentive stock option, that he or she will remain in the employ of the Company or any of its subsidiary corporations following the date of the granting of that option for a period specified by the Plan Administrators, which period shall in no event exceed three years. Nothing in the Plan or in any option granted hereunder shall confer upon any optionee (i) any right to continued employment by the Company or the Bank, or limit in any way the right of the employer at any time to terminate or alter the terms
of that employment or (ii) any right to sue the Company, or any subsidiary corporation for any adverse tax consequences in connection with the grant or exercise of any option or the disposition of any shares acquired pursuant to this Plan.
Section 9.01. OPTION RIGHTS UPON TERMINATION OF EMPLOYMENT. If an optionee ceases to be an employee or a director of the Company or any of its subsidiary corporations for any reason other than death or permanent and total disability, the optionee's option shall immediately terminate; provided, however, that the Plan Administrators, in their absolute discretion, may provide at the time of the grant of an option that the option may be exercised (to the extent it remains unexercised on the date of termination) at any time within a period of up to ninety days following the date of termination, unless either the option or the Plan otherwise provides for earlier termination. The transfer of an employee from the employ of the Company to a subsidiary corporation, or vice versa, or from one subsidiary corporation to another, shall not be deemed to constitute a cessation of employment for purposes of this Plan.
Section 10.01. OPTION RIGHTS UPON DEATH OR DISABILITY. Except as otherwise limited by the Plan Administrators at the time of the grant of an option, if an optionee dies or becomes permanently and totally disabled within the meeting of Section 105(d)(4) of the Code while an employee of or a director of the Company or any of its subsidiary corporations, or dies within three months after ceasing to be employee or director thereof, the optionee's option shall expire one year after the date of death or the date of permanent and total disability, unless either the option or the Plan otherwise provides for earlier termination. During this one year (or shorter) period, the option may be exercised, to the extent that it remains unexercised on the date of death or on the date of permanent and total disability, by the optionee, if living, or by the person or persons to whom the optionee's rights under the option shall pass by will or by the laws of descent and distribution, but only to the extent that the optionee is entitled to exercise the option at the date of death or date of permanent and total disability, as the case may be.
Section 11.01. NO PRIVILEGES OF OWNERSHIP. Notwithstanding the exercise of any option granted pursuant to the plan, no optionee shall have any of the rights or privileges of a shareholder of the Company in respect of any shares issuable upon the exercise of the option until the optionee becomes a shareholder of record.
Section 12.01. OPTIONS NOT TRANSFERABLE. Options granted pursuant to the terms of the Plan, other than those to directors which may be assignable at the director's request, may not be sold, pledged, assigned, or transferred in any manner, other than by will or the laws of descent or distribution, and may be exercised during the lifetime of an optionee only by that optionee.
Section 13.01. ADJUSTMENT TO NUMBER AND PURCHASE PRICE; ACCELERATION OF RIGHT TO EXERCISE OPTION; CANCELLATION OF OPTION. All options granted pursuant to the Plan shall be adjusted, modified, or canceled in the manner prescribed by this section.
(a) If the outstanding shares of the Company are increased, decreased, changed into, or
exchanged for a different number or kind of shares or securities through merger, consolidation, combination, exchange of shares, or other reorganization, recapitalization, reclassification, stock dividend, stock split, or reverse stock split, an appropriate and proportionate adjustment shall be made in the maximum number and kind of shares of stock as to which options may be granted under the Plan. A corresponding adjustment changing the number or kind of shares of stock allocated to unexercised options or portions thereof that were granted prior to any such change shall likewise be made. Any adjustments made pursuant to this Section 13.01 in outstanding options shall be made without change in the aggregate purchase price applicable to the unexercised portion of the option, but with a corresponding adjustment in the price for each share or other unit of any security covered by the option. Notwithstanding the foregoing provisions, there shall be no adjustment in the number of shares allocated to unexercised options if the outstanding shares of the Company are increased through the exchange of shares of common stock for outstanding shares of the Company's redeemable preferred stock.
(b) Upon the effective date of the dissolution or liquidation of the Company, or of a reorganization, merger, or consolidation of the Company with one or more other corporations in which the Company is not the surviving corporation, or of the transfer of substantially all of the assets or shares of the Company to another corporation, the Plan and any option theretofore granted hereunder shall terminate. In the event of such dissolution, liquidation, reorganization, merger, consolidation, transfer of assets, or transfer of stock, each optionee (or that person's estate or a person who acquired the right to exercise the option from the optionee by bequest of inheritance) shall be entitled, prior to the effective date of the consummation of any such transaction, to purchase, in whole or in part, the full number of shares under the option or options granted to the optionee would otherwise have been entitled to purchase during the remaining term of the option and without regard to any otherwise applicable restrictions set forth in the option delaying the immediate exercise of the option. To the extent that any such exercise relates to stock that is not otherwise available for purchase through the exercise of the option by the optionee at that time, the exercise pursuant to this Section 13.01(b) shall be contingent upon the consummation of that dissolution, liquidation, reorganization, merger, consolidation, sale, or transfer of assets or stock.
(c) Notwithstanding the foregoing, in the event of a complete liquidation of a subsidiary corporation, or in the event that such corporation ceases to be a subsidiary corporation as that term is defined herein, any unexercised options theretofore granted to an employee of the subsidiary corporation shall be deemed canceled unless the employee shall become employed by the Company or by any other subsidiary corporation on the occurrence of any such event.
Section 14.01. TERMINATION AND AMENDMENT OF PLAN. The Plan shall terminate in 2006, and no options shall be granted under the Plan after that date; provided, however, that termination of the Plan shall not terminate any option granted prior thereto, and options granted prior to termination of the Plan and existing at the time of termination of the Plan shall continue to be subject to all the terms and conditions of the Plan as if the Plan had not terminated. Subject to the limitation contained in Section 14.02, the Plan Administrations may at any time amend or revise the terms of the Plan (including the form and substance of the option agreements to be used hereunder), provided
that no amendment or revision shall (a) increase the maximum aggregate number of shares provided for in Section 3.01 that may be sold pursuant to options granted under the Plan except as required under the provisions of Section 13.01(a), (b) permit the granting of an option to anyone other than as provided in Section 4.01, (c) increase the maximum term provided for in Sections 5.02 and 5.04 of any option, or (d) change the minimum purchase price for the shares under Sections 5.03 and 5.04, unless approved by the unanimous written consent of the shareholders, or by the affirmative vote, in person or by proxy, of a majority of the outstanding voting stock of the Company at a duly held shareholder's meeting. [As amended 1995]
Section 14.02. PRIOR RIGHTS AND OBLIGATIONS. No amendment, suspension, or termination of the Plan shall, without the consent of the optionee, alter or impair any of that optionee's right or obligations under any option granted under the Plan prior to that amendment, suspension, or termination.
Section 15.01. APPROVAL OF SHAREHOLDERS. Within 12 months after its adoption by the Board of Directors of the Company, the Plan must be approved by the unanimous written consent of the shareholders, or by the affirmative vote, in person or by proxy, of a majority of the outstanding voting stock of the Company at a duly held shareholders' meeting. Options may be granted under the Plan prior to obtaining shareholder approval, but those options shall be contingent upon shareholder approval being obtained and may not be exercised prior to the receipt of shareholder approval.
Section 16.01. RESERVATION OF SHARES. During the term of the Plan, the Company will at all times reserve and keep available such number of shares as shall be sufficient to satisfy the requirements of the Plan. In addition, the Company will from time to time, as is necessary to accomplish the purposes of the Plan, seek to obtain from any regulatory agency having jurisdiction any requisite authority in order to grant options under the Plan and to issue and sell shares hereunder.
Section 17.01. TAX WITHHOLDING. The Company may make such provisions as it may deem appropriate for the withholding of any state or federal taxes which the Company determines is advisable to withhold in connection with any option or any other right, payment or settlement made under this Plan. The exercise of the option shall not be effective unless such withholding shall have been effected or obtained in a manner acceptable to the Company.
Section 18.01 SECTIONS-HEADINGS. The headings of the sections of the Plan are for convenience only and shall not be considered or referred to in resolving questions of interpretation. References to "Section" that are not followed by a section number and the phrase "of the Code" are references to sections of the Plan.
Section 19.01. ADOPTION. The Plan was adopted by a resolution duly adopted by the Board of Directors of the Company on June 19, 1986. Approved by Shareholder 1987. Amended 1987, 1988, 1989, 1990, 1992, 1993, 1995, 1996, 1997 and 1999.
EXHIBIT 13
TABLE 1: SELECTED FINANCIAL DATA
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 2001 2000 1999 1998 1997
------------------------------------------------------------------------------------------------------------------------
EARNINGS SUMMARY
Total interest income $ 3,393 $ 3,716 $ 3,097 $ 3,004 $ 2,959
Net interest income 2,102 2,004 1,817 1,720 1,645
Provision for credit losses 236 255 146 146 169
Securities gains 20 16 9 7 6
Noninterest income (excluding securities gains) 784 941 858 660 603
Noninterest expenses 1,559 1,484 1,359 1,237 1,177
Net income 710 791 759 651 586
--excluding 2001 merger-related and restructuring charges 842
PER SHARE OF COMMON STOCK
Basic net income $ 3.93 $ 4.38 $ 4.20 $ 3.58 $ 3.17
Diluted net income 3.88 4.31 4.13 3.51 3.11
--excluding 2001 merger-related and restructuring charges 4.61
Cash dividends declared 1.76 1.60 1.44 1.28 1.15
Common shareholders' equity 27.17 23.98 20.87 17.99 16.10
Market value 57.30 59.38 46.69 68.19 60.17
YEAR-END BALANCES
Total assets $50,732 $49,534 $45,510 $42,785 $41,018
Total earning assets 46,566 45,791 42,426 39,090 37,370
Total loans 41,196 40,170 36,305 34,053 31,681
Total deposits 37,570 33,854 29,196 29,883 26,761
Total borrowings 7,489 10,353 11,682 8,999 10,612
Medium- and long-term debt 5,503 8,259 8,757 5,358 7,363
Common shareholders' equity 4,807 4,250 3,698 3,178 2,864
DAILY AVERAGE BALANCES
Total assets $49,688 $46,877 $42,662 $39,969 $38,521
Total earning assets 45,722 43,364 39,247 36,599 35,275
Total loans 41,371 38,698 35,490 31,916 29,609
Total deposits 35,312 30,340 27,478 26,604 25,082
Total borrowings 8,782 11,621 11,003 9,626 9,929
Medium- and long-term debt 6,198 8,298 7,441 6,109 6,034
Common shareholders' equity 4,605 3,963 3,409 2,995 2,723
RATIOS
Return on average assets 1.43% 1.69% 1.78% 1.63% 1.52%
--excluding 2001 merger-related and restructuring charges 1.69
Return on average common shareholders' equity 15.16 19.52 21.78 21.16 20.88
--excluding 2001 merger-related and restructuring charges 18.03
Efficiency ratio 53.95 50.35 50.70 51.84 52.15
--excluding 2001 merger-related and restructuring charges 48.70
Dividend payout ratio 45 37 35 36 37
--excluding 2001 merger-related and restructuring charges 38
Average common shareholders' equity as a percentage
of average assets 9.27 8.45 7.99 7.49 7.07
|
2001 FINANCIAL HIGHLIGHTS
CENTERED ON PERFORMANCE
- Earned 15.16 percent on average common shareholders' equity (18.03 percent excluding merger-related and restructuring charges), compared to 19.52 percent in 2000.
- Returned 1.43 percent on average assets (1.69 percent excluding merger-related and restructuring charges), compared to 1.69 percent in 2000.
- Generated an efficiency ratio of 53.95 percent (48.70 percent excluding merger-related and restructuring charges), compared to 50.35 percent in 2000, evidence of Comerica's ongoing cost discipline.
REPORTED EARNINGS
- Reported net income of $710 million, or $3.88 per common share, compared to
$791 million, or $4.31 per common share for 2000.
- Excluding merger-related and restructuring charges, net income increased $51 million to $842 million, or $4.61 per common share, an increase of seven percent per common share compared to 2000.
SUSTAINED GROWTH
- Generated a seven percent increase in average business loans.
- Averaged $50 billion in total assets, a six percent increase from 2000.
- Increased average shareholders' equity to $4.8 billion.
ENHANCED SHAREHOLDERS' RETURN
- Raised the quarterly cash dividend 10 percent to $0.44 per share, an annual
rate of $1.76 per share.
- Strengthened core capital, as evidenced by Tier 1 common capital ratio increasing from 6.80 percent to 7.30 percent, after repurchasing 2.2 million shares in 2001.
IMPLEMENTED KEY STRATEGIES
- Completed the acquisition of Imperial Bancorp, a $7.4 billion banking company
acquired in 2001, creating one of the largest banking companies in California,
with assets of $14.8 billion.
- Integrated the operations and converted all systems of Imperial Bancorp into Comerica within nine months of closing.
RETURN ON AVERAGE ASSETS
(IN PERCENTAGES)
[BAR GRAPH]
YEAR 01 1.43%, 1.69%* 00 1.69% 99 1.78% 98 1.63% 97 1.52% |
* EXCLUDING 2001 MERGER-RELATED AND RESTRUCTURING CHARGES
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.
Adjustments are made to the yields on tax-exempt assets in order to present
tax-exempt income and fully taxable income on a comparable basis. Gains and
losses related to the effective portion of risk management interest rate swaps
that qualify as hedges are included with the interest income or expense of the
hedged asset when classified in earnings. Net interest income on a fully taxable
equivalent basis (FTE) comprised 72 percent when classified in earnings of net
revenues in 2001, compared to 68 percent in 2000 and 1999.
NET INTEREST INCOME
[BAR GRAPH]
YEAR NET INTEREST INCOME (FTE) NET INTEREST MARGIN (FTE) 01 $2,106 4.61% 00 $2,008 4.63% 99 $1,822 4.64% 98 $1,727 4.72% 97 $1,654 4.68% |
TABLE 2: ANALYSIS OF NET INTEREST INCOME --
FULLY TAXABLE EQUIVALENT
(DOLLAR AMOUNTS IN MILLIONS)
---------------------------------------------------------------------------------------------------------------
2001 2000
---------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------------------------------------------------------------------------------------------------------------
Commercial loans $26,401 $1,807 6.85% $25,313 $2,244 8.87%
International loans 2,800 207 7.38 2,552 235 9.21
Real estate construction loans 3,090 246 7.95 2,554 257 10.09
Commercial mortgage loans 5,695 435 7.65 5,142 453 8.80
Residential mortgage loans 795 60 7.59 833 64 7.64
Consumer loans 1,479 124 8.39 1,434 131 9.09
Lease financing 1,111 69 6.25 870 54 6.24
Business loan swap income (expense) -- 175 -- -- (57) --
---------------------------------------------------------------------------------------------------------------
Total loans (1) 41,371 3,123 7.55 38,698 3,381 8.74
Investment securities (2) 3,909 247 6.37 3,688 261 6.99
Short-term investments 442 27 6.02 978 78 7.97
---------------------------------------------------------------------------------------------------------------
Total earning assets 45,722 3,397 7.44 43,364 3,720 8.57
Cash and due from banks 1,835 1,842
Allowance for credit losses (654) (595)
Accrued income and other assets 2,785 2,266
-------------------------------------- ------- -------
Total assets $49,688 $46,877
====================================== ======= =======
Money market and NOW deposits $ 9,902 249 2.51 $ 9,188 295 3.21
Savings deposits 1,380 19 1.36 1,403 23 1.65
Certificates of deposit (3) 13,149 583 4.44 9,867 570 5.78
Foreign office time deposits (4) 628 37 5.97 814 63 7.75
---------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 25,059 888 3.54 21,272 951 4.47
Short-term borrowings 2,584 105 4.08 3,323 215 6.48
Medium- and long-term debt (3) 6,198 298 4.80 8,298 546 6.57
---------------------------------------------------------------------------------------------------------------
Total interest-bearing sources 33,841 1,291 3.82 32,893 1,712 5.20
Noninterest-bearing deposits 10,253 9,068
Accrued expenses and other liabilities 823 703
Preferred stock 166 250
Common shareholders' equity 4,605 3,963
-------------------------------------- ------- -----
Total liabilities and
shareholders' equity $49,688 $46,877
====================================== ======= =======
Net interest income/rate spread (FTE) $2,106 3.62 $2,008 3.37
====== ======
FTE adjustment (5) $ 4 $ 4
====== ======
Impact of net noninterest-bearing
sources of funds 0.99 1.26
--------------------------------------------------------------------------------------------------------------
Net interest margin (as a percentage
of average earning assets)(FTE) 4.61% 4.63%
===============================================================================================================
(DOLLAR AMOUNT IN MILLIONS)
------------------------------------------------------------------------------
1999
------------------------------------------------------------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE
------------------------------------------------------------------------------
Commercial loans $23,069 $1,778 7.71%
International loans 2,627 206 7.86
Real estate construction loans 1,729 159 9.21
Commercial mortgage loans 4,583 379 8.27
Residential mortgage loans 930 70 7.47
Consumer loans 1,853 184 9.95
Lease financing 699 49 6.91
Business loan swap income (expense) -- 36 --
------------------------------------------------------------------------------
Total loans (1) 35,490 2,861 8.06
Investment securities (2) 3,107 201 6.42
Short-term investments 650 40 6.06
------------------------------------------------------------------------------
Total earning assets 39,247 3,102 7.90
Cash and due from banks 1,896
Allowance for credit losses (531)
Accrued income and other assets 2,050
-------------------------------------- -------
Total assets $42,662
====================================== =======
Money market and NOW deposits $ 8,815 241 2.73
Savings deposits 1,541 25 1.59
Certificates of deposit (3) 7,773 379 4.88
Foreign office time deposits (4) 688 48 7.05
------------------------------------------------------------------------------
Total interest-bearing deposits 18,817 693 3.68
Short-term borrowings 3,562 183 5.14
Medium- and long-term debt (3) 7,441 404 5.44
------------------------------------------------------------------------------
Total interest-bearing sources 29,820 1,280 4.29
Noninterest-bearing deposits 8,661
Accrued expenses and other liabilities 522
Preferred stock 250
Common shareholders' equity 3,409
-------------------------------------- -------
Total liabilities and
shareholders' equity $42,662
====================================== =======
Net interest income/rate spread (FTE) $1,822 3.61
======
FTE adjustment (5) $ 5
======
Impact of net noninterest-bearing
sources of funds 1.03
--------------------------------------------------------------------------------
Net interest margin (as a percentage
of average earning assets)(FTE) 4.64%
================================================================================
|
(1) Nonaccrual loans are included in average balances reported and are used to
calculate rates.
(2) Average rate based on average historical cost.
(3) Certificates of deposit and medium- and long-term debt averages have been
adjusted to reflect the gain or loss attributable to the risk hedged by risk
management swaps that qualify as a fair value hedge.
(4) Includes substantially all deposits by foreign depositors; deposits are
primarily in excess of $100,000.
(5) The FTE adjustment is computed using a federal income tax rate of 35%.
TABLE 3: RATE-VOLUME ANALYSIS -- FULLY TAXABLE
EQUIVALENT
(IN MILLIONS)
-------------------------------------------------------------------------------------------------------------------------
2001/2000 2000/1999
-------------------------------------------------------------------------------------------------------------------------
INCREASE INCREASE NET INCREASE INCREASE NET
(DECREASE) (DECREASE) INCREASE (DECREASE) (DECREASE) INCREASE
DUE TO RATE DUE TO VOLUME* (DECREASE) DUE TO RATE DUE TO VOLUME* (DECREASE)
-------------------------------------------------------------------------------------------------------------------------
Interest income (FTE):
Loans:
Commercial loans $(511) $ 74 $(437) $ 267 $ 199 $ 466
International loans (47) 19 (28) 36 (7) 29
Real estate construction loans (54) 43 (11) 15 83 98
Commercial mortgage loans (60) 42 (18) 25 49 74
Residential mortgage loans (1) (3) (4) 2 (8) (6)
Consumer loans (10) 3 (7) (15) (38) (53)
Lease financing -- 15 15 (5) 10 5
Business loan swap
income (expense) 232 -- 232 (93) -- (93)
-------------------------------------------------------------------------------------------------------------------------
Total loans (451) 193 (258) 232 288 520
Investment securities (27) 13 (14) 19 41 60
Short-term investments (19) (32) (51) 8 30 38
-------------------------------------------------------------------------------------------------------------------------
Total interest income (FTE) (497) 174 (323) 259 359 618
Interest expense:
Money market and NOW deposits (64) 18 (46) 42 12 54
Savings deposits (4) -- (4) 1 (3) (2)
Certificates of deposit (132) 145 13 70 121 191
Foreign office time deposits (15) (11) (26) 5 10 15
-------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits (215) 152 (63) 118 140 258
Short -term borrowings (80) (30) (110) 48 (16) 32
Medium- and long-term debt (147) (101) (248) 85 57 142
-------------------------------------------------------------------------------------------------------------------------
Total interest expense (442) 21 (421) 251 181 432
-------------------------------------------------------------------------------------------------------------------------
Net interest income (FTE) $ (55) $ 153 $ 98 $ 8 $ 178 $ 186
=========================================================================================================================
|
*Rate/volume variances are allocated to variances due to volume.
Net interest income (FTE) increased five percent to $2,106 million in 2001. Contributing to this increase was a five percent increase in average earning assets and a 13 percent increase in average interest-free sources of funds. Comerica (the "Corporation") continued to generate growth in business loans in 2001. Business loans averaged $39.1 billion in 2001, an increase of seven percent from 2000. The increase in interest-free sources of funds was primarily due to a $1.2 billion increase in average noninterest-bearing deposits and a $558 million increase in average shareholders' equity.
Net interest income (FTE) expressed as a percentage of average earning assets is referred to as the net interest margin. For 2001, the net interest margin was 4.61 percent, remaining relatively stable when compared to 4.63 percent in 2000, despite the rapidly changing interest rate environment in 2000 and 2001. The net interest margin was negatively impacted by slower growth in lower cost core deposit balances than that of earning assets, resulting in a greater reliance on higher cost certificates of deposits in the mix of interest-bearing liabilities. Core deposits are defined as total deposits excluding brokered and institutional certificates of deposit and foreign office time deposits. Also contributing to the decline was a decrease in the benefit to the net interest margin provided by interest-free sources of funds. This rate-related decrease was partially offset by the increase in the average balances of interest-free sources of funds mentioned in the paragraph above.
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, interest rate swap contracts are employed, effectively fixing the yields on certain variable rate loans and altering the interest rate characteristics of deposits and debt issued throughout the year. Refer to the "Interest Rate Risk" section on page 37 of this financial review for additional information regarding the Corporation's asset and liability management policies.
In 2000, net interest income (FTE) increased 10 percent to $2,008 million. Contributing to the increase over 1999 was a 10 percent increase in average earning assets and an increase in interest-free sources of funds. The Corporation generated strong growth in business loans in 2000. Business loans averaged $36.4 billion in 2000, a significant increase of 11 percent from 1999. The increase in interest-free sources of funds was primarily due to a $554 million increase in average shareholders' equity and a $407 million increase in average noninterest-bearing deposits. The net interest margin decreased one basis point to 4.63 percent from 4.64 percent in 1999. The net interest margin in 2000 was negatively impacted by slower growth in lower cost 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 primarily offset by an increase in the benefit to the net interest margin provided by interest-free sources of funds.
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 in the loan portfolio, 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.
The Corporation defines business loans as those belonging to the commercial,
international, real estate construction, commercial mortgage and lease financing
categories. The Corporation performs a detailed credit quality review quarterly
on large business loans which have deteriorated below certain levels of credit
risk and allocates a specific portion of the allowance 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, and
trends with respect to past due and nonaccrual amounts. The allocated allowance
was $546 million at December 31, 2001, an increase of $103 million from year-end
2000. Allocations to business loans, as shown in Table 7 on page 33, increased
due to an increase in the specific portion of the allowance required as a result
of the quarterly credit quality review of certain large business loans with
deteriorated credit risk at December 31, 2001.
Actual loss ratios experienced in the future could vary from those projected. The 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. An unallocated allowance is maintained to capture these probable losses. The unallocated portion of the allowance reflects management's view that the allowance should recognize 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 allowance include portfolio exposures to the healthcare, high technology and energy industries, as well as Latin American transfer risks and the risk associated with new customer relationships. The unallocated
NET LOANS CHARGED OFF
TO AVERAGE LOANS
(IN PERCENTAGES)
[BAR GRAPH]
01 0.46% 00 0.50% 99 0.31% 98 0.34% 97 0.33% |
TABLE 4: ANALYSIS OF THE ALLOWANCE FOR CREDIT LOSSES
(DOLLAR AMOUNTS IN MILLIONS)
-----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 2001 2000 1999 1998 1997
-----------------------------------------------------------------------------------------------
Balance at beginning of period $ 608 $ 548 $ 515 $ 475 $ 403
Transfer to loans held for sale -- -- (4) -- --
Loans charged off:
Domestic
Commercial 200 200 101 70 42
Real estate construction 2 -- -- 2 2
Commercial mortgage 3 1 2 1 4
Consumer 5 11 31 65 92
Lease financing 7 1 -- 4 --
International 15 11 10 7 1
-----------------------------------------------------------------------------------------------
Total loans charged off 232 224 144 149 141
Recoveries:
Domestic
Commercial 35 21 21 21 20
Real estate construction -- -- -- -- 2
Commercial mortgage 1 1 3 9 10
Residential mortgage 1 -- -- -- --
Consumer 5 7 10 13 12
Lease financing 1 -- 1 -- --
-----------------------------------------------------------------------------------------------
Total recoveries 43 29 35 43 44
-----------------------------------------------------------------------------------------------
Net loans charged off 189 195 109 106 97
Provision for credit losses 236 255 146 146 169
-----------------------------------------------------------------------------------------------
Balance at end of period $ 655 $ 608 $ 548 $ 515 $ 475
===============================================================================================
Ratio of allowance for credit losses to total
loans at end of period 1.59% 1.51% 1.51% 1.51% 1.50%
Ratio of net loans charged off during the period
to average loans outstanding during the period 0.46% 0.50% 0.31% 0.34% 0.33%
===============================================================================================
|
allowance was $109 million at December 31, 2001, a decrease of $56 million from 2000. The unallocated allowance declined as some of the uncertainties in the portfolios noted above became clearer and resulted in allocations to specific credits.
Management also considers industry norms and the expectations from rating 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. Unanticipated economic events could cause changes in the credit characteristics of the portfolio and result in an unanticipated increase in the allocated allowance. Inclusion of other portfolio exposures in the unallocated allowance, as well as significant increases in the current portfolio exposures could increase the amount of the unallocated allowance. Either of these events, or some combination, may result in the need for additional provision for credit losses in order to maintain an allowance that complies with credit risk and accounting policies.
The provision for credit losses was $236 million in 2001, compared to $255 million and $146 million in 2000 and 1999, respectively. Included in the provision for credit losses in 2001 is a $25 million merger-related charge to conform the credit policies of Imperial with Comerica. Net charge-offs in 2001 were $189 million, or 0.46 percent of average total loans, compared to $195 million, or 0.50 percent, in 2000 and $109 million, or 0.31 percent, in 1999. Comparisons were affected by additional charge-offs taken in 2000 to align charge-off policies of Imperial with the Corporation. An analysis of the changes in the allowance for credit losses, including charge-offs and recoveries by loan category, is presented in Table 4. Charge-offs on business loans increased in part as a result of the slowing economy and its impact on the manufacturing sector. Consumer charge-offs declined as a result of the sale of $457 million of loans in the first quarter of 2000.
At December 31, 2001, the allowance for credit losses was $655 million, an increase of $47 million from year-end 2000. The allowance as a percentage of total loans was 1.59 percent at December 31, 2001 compared to 1.51 percent at December 31, 2000. As a percentage of nonperforming assets, the allowance was 105 percent at December 31, 2001, compared to 179 percent at year-end 2000. The allowance was 3.5 times and 3.1 times annual net charge-offs at December 31, 2001 and 2000, respectively.
NONINTEREST INCOME
(IN MILLIONS) ---------------------------------------------------------- YEAR ENDED DECEMBER 31 2001 2000 1999 ---------------------------------------------------------- Service charges on deposit $ 211 $ 189 $ 177 accounts Fiduciary income 180 181 183 Commercial lending fees 67 61 55 Letter of credit fees 58 52 46 Brokerage fees 44 44 36 Investment advisory revenue, net 12 119 61 Equity in earnings of unconsolidated subsidiaries 14 21 15 Other noninterest income 203 201 176 ---------------------------------------------------------- Subtotal 789 868 749 Warrant income 5 30 33 Securities gains 20 16 9 Net gain on sales of businesses 31 50 76 Significant unusual items (41) (7) -- Total noninterest income $804 $957 $867 ========================================================== |
Noninterest income decreased $153 million, or 16 percent, to $804 million in 2001, compared to $957 million in 2000 and $867 million in 1999. Comparisons to 1999 for certain noninterest income and expense line items were impacted by the sale of $457 million of consumer loans in the first quarter 2000. Excluding the effects of gains and losses on securities, warrant income, divestitures and the net gains on the sales of businesses, deferred distribution cost impairment charges and other unusual items mentioned below, noninterest income decreased four percent in 2001.
Service charges on deposit accounts increased $22 million, or 12 percent, in 2001 compared to an increase of $12 million, or seven percent, in 2000. This increase was attributable to continued strong growth in the sale of new and existing cash management services to business customers and the positive impact of lower earnings credit allowances provided to business customers in 2001. The increase in 2000 was net of the negative impact of higher earnings credit allowances provided to business customers.
Fiduciary income was relatively flat from 1999 to 2001. Personal and institutional trust fees are the two major components of this category. Comparisons to 1999 for fiduciary income were impacted by the sale of Imperial's trust business in the second quarter of 1999. Fiduciary income is based on services provided and assets managed. Fluctuations in the market values of the underlying assets, particularly equity securities, impact fiduciary income.
NONINTEREST INCOME
(IN MILLIONS)
[BAR GRAPH]
01 $804 00 $957 99 $867 98 $667 97 $609 |
Commercial lending fees increased $6 million, or 10 percent, in 2001 compared to an increase of $6 million, or 11 percent, in 2000. Continued commercial loan growth contributed to increases in loan commitment fees and loan syndication and participation agent fees, the two major components of this category.
Letter of credit fees increased $6 million, or 11 percent, in 2001 compared to an increase of $6 million, or 13 percent, in 2000. 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.
Brokerage fees remained flat at $44 million in 2001, compared to an increase of $8 million, or 23 percent in 2000. Brokerage fees include commissions from retail broker transactions and mutual fund sales.
Investment advisory income, which includes revenue generated by the Corporation's Munder Capital Management subsidiary ("Munder"), decreased $107 million, or 90 percent, in 2001, compared to an increase of $58 million, or 94 percent, in 2000. The 2001 decline reflects deferred distribution cost impairment charges totaling $40 million discussed more fully below and a $74 million decrease in investment advisory revenue, as the market values of technology-related stocks continued declining from record highs during the first quarter of 2000. The 2000 increase, excluding the $7 million deferred distribution cost impairment charge discussed below, was primarily due to higher investment advisory fees, which increased $65 million, or 105 percent, over 1999. Stock market performance, including the significant decline in the technology sector, resulted in a continued decrease in assets under management at Munder to $35 billion at December 31, 2001, from $40 billion at December 31, 2000, and $49 billion at year-end 1999.
The Corporation recorded deferred distribution cost impairment charges of $40 million in 2001 and $7 million in 2000. These charges resulted from a reassessment of the recoverability of unamortized commission costs paid to brokers for selling certain mutual fund shares, principally shares in the Corporation's Munder subsidiary's NetNet, International NetNet and Future Technology funds. Net asset values in these technology funds suffered significantly as market conditions weakened, declining 26 percent in the first quarter 2001 and over 45 percent during the third quarter 2001; the quarters in 2001 when impairment was recorded. These declines prompted a revaluation of expected future cash flows from the funds, which are based on a percentage of assets under management and early redemption fees over a prescribed number of years. Net remaining deferred distribution costs at December 31, 2001 were $33 million. The changes in deferred distribution costs are reflected in the table below. Given net asset values at December 31, 2001, it would take a decline in total assets under
DEFERRED DISTRIBUTION COSTS
(IN MILLIONS) ------------------------------------------------------------------- YEAR ENDED DECEMBER 31 2001 2000 1999 ------------------------------------------------------------------- Balances at beginning of period $ 86 $ 21 $--* Commissions paid to brokers 11 118 21 Redemption fees received (10) (12) -- Amortization of costs (14) (34) -- Impairment charge (40) (7) -- ------------------------------------------------------------------- Balances at end of period $ 33 $ 86 $ 21 =================================================================== |
* Deferred distribution costs prior to December 1999 were sold to a third party.
management at Munder of approximately 30 percent to trigger further impairment, which at that level would be approximately $4 million. Each additional five percent decline results in a further impairment of $2 million.
Equity in earnings of unconsolidated subsidiaries decreased $57 million in 2001, after remaining relatively flat in 2000. Excluding the impact of divestitures and significant unusual items from 2001 and 2000, equity in earnings of unconsolidated subsidiaries decreased $7 million, or 32 percent. Significant unusual items in equity in earnings of unconsolidated subsidiaries in 2001 included a $57 million charge related to long-term incentive plans at a United Kingdom subsidiary, Framlington (a London, England based investment manager), of which Munder is a minority owner. In May 2000, the announcement that the majority owner of Framlington was being acquired triggered a change-in-control provision, which fully vested all options and restricted shares held by employees of Framlington. In March 2001, all outstanding options held by employees were exercised and their shares mandatorily purchased by Framlington, requiring U.S. accounting recognition of the expense. In 2000, significant unusual items in equity in earnings of unconsolidated subsidiaries included a $7 million write-down of low-income housing investments which are being accounted for under the equity method.
Other noninterest income increased $18 million, or nine percent, in 2001 compared to an increase of $25 million, or 14 percent, in 2000. Significant unusual items in other noninterest income in 2001 included $11 million in net gains resulting from the purchase and subsequent sale, all within the first quarter, of interest rate derivative contracts which failed to meet the Corporation's risk-reduction criteria and a $5 million gain from the demutualization of an insurance carrier. In 2000, significant unusual items in other noninterest income included a $6 million gain from the demutualization of an insurance carrier, offset by a $6 million write-down of low-income housing investments which are being accounted for under the cost method. Comparisons of other noninterest income with prior years were impacted by the divestiture of Imperial's merchant bankcard business in the second quarter of 2001. The gain that resulted from the sale of Imperial's merchant bankcard business was included in merger-related and restructuring charges as the sale was required by an existing Comerica alliance agreement. Excluding the significant unusual items from 2001 and 2000 noted above, and the impact of divestitures, which resulted in a year over year decrease in other noninterest income of $14 million, noninterest income increased nine percent in 2001. The adoption of Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," on January 1, 2001, resulted in a transition adjustment that was insignificant. Hedge ineffectiveness on cash flow hedges of variable rate loans was not material. Refer to Note 1 and 20 of the financial statements for a further discussion of hedge ineffectiveness.
Warrant income was $5 million in 2001, $30 million in 2000, and $33 million in 1999. At December 31, 2001 the Corporation owned over 900 warrant positions compared to over 800 warrant positions at December 31, 2000. Unrealized gains for both periods were insignificant. The decrease in warrant income resulted from a reduction in the number of warrants that became marketable in 2001 as a result of a decrease in public offerings.
The Corporation recognized a net gain related to its investment securities portfolio of $20 million, $16 million, and $9 million in 2001, 2000 and 1999, respectively.
In 2001, net gain on the sales of businesses included a $21 million gain on the sale of Comerica's ownership in an automated teller machine (ATM) network provider and an $8 million gain from the sale of substantially all of the assets of a deposit-servicing subsidiary. In 2000, the sale of consumer loans resulted in a gain of $48 million. The net gain on sales of businesses in 1999 is principally comprised of a gain of $44 million from an initial public offering of the Corporation's majority-owned subsidiary, Official Payments Corporation ("OPAY") (Nasdaq: OPAY), a gain of $21 million on the sale of ownership in an ATM network provider and a $9 million gain on the sale of certain trust businesses.
NONINTEREST EXPENSES
(IN MILLIONS) ------------------------------------------------------------------------- YEAR ENDED DECEMBER 31 2001 2000 1999 ------------------------------------------------------------------------- Salaries $ 707 $ 748 $ 679 Employee benefits 102 103 99 ------------------------------------------------------------------------- Total salaries and employee benefits 809 851 778 Net occupancy expense 115 110 104 Equipment expense 70 76 73 Outside processing fee expense 61 59 60 Customer services 41 37 40 Other 316 327 299 ------------------------------------------------------------------------- Subtotal 1,412 1,460 1,354 Merger-related and restructuring 152 -- -- charges Other significant unusual items (5) 24 5 ------------------------------------------------------------------------- Total noninterest expenses $1,559 $1,484 $1,359 ========================================================================= |
Noninterest expenses increased five percent to $1,559 million in 2001, compared to $1,484 million in 2000 and $1,359 million in 1999. Excluding the effect of divestitures and the significant unusual items discussed below, noninterest expenses decreased two percent in 2001.
Total salaries expense decreased $41 million, or five percent, in 2001 versus an increase of $69 million, or 10 percent, in 2000. The decrease in 2001 was primarily due to lower levels of business unit incentives, which are tied to revenue growth. The increase in 2000 was primarily due to higher levels of incentives, which are tied to revenue growth and investments in staff in growth businesses.
Employee benefits expense decreased $1 million, or one percent in 2001 compared to a benefit level increase of $4 million, or four percent, in 2000. The decrease in 2001 was primarily due to increased earnings on company owned life insurance, partially offset by an increase in employee healthcare costs. The increase between 2000 and 1999 was primarily attributable to higher payroll taxes offset by lower levels of pension expense due to favorable changes in defined benefit plan assumptions as well as a reduction in long-term disability expense.
Net occupancy and equipment expenses, on a combined basis, decreased $1 million, or less than one percent, to $185 million in 2001, compared to the increase of $9 million, or five percent, in 2000.
Outside processing fees increased to $61 million in 2001, from $59 million in 2000 and $60 million in 1999. The impact of the divestiture of Imperial's merchant bankcard business in the second quarter of 2001 and the integration of Imperial's systems partially offset growth in this expense in 2001.
Customer service fees increased 11 percent to $41 million in 2001, from $37 million in 2000 and $40 million in 1999. Customer service fees represent expenses paid on behalf of customers to attract and retain certain noninterest-bearing deposit balances. The increase in 2001 resulted from larger balances in these noninterest-bearing deposits.
NONINTEREST EXPENSES
(IN MILLIONS)
[ ] EXCLUDING 2001 MERGER-RELATED AND
RESTRUCTURING CHARGES
01 $1,407, $1,559 00 $1,484 99 $1,359 98 $1,237 97 $1,177 |
The Corporation recorded merger-related and restructuring charges of $152 million in 2001. The restructuring charges included $148 million related to the first quarter 2001 acquisition of Imperial and $4 million at the Corporation's OPAY subsidiary. The OPAY restructuring charge is shown net of the portion of the charge attributable to the minority shareholders in OPAY. In addition to the above, the Corporation recorded a $25 million merger-related charge in 2001 that is included in the provision for credit losses to conform the credit policies of Imperial with Comerica. The integration with Imperial was completed in fourth quarter of 2001 and all merger-related and restructuring charges have been expensed. The Corporation expects to realize annual noninterest expense savings totaling $60 million from the integration, the full effect of which will begin to be realized in the first quarter of 2002. The OPAY restructuring is expected to significantly reduce the company's operating expenses and use of cash by incorporating newly developed technology; reduce marketing, administrative and communications costs; and reduce workforce. The restructuring is expected to result in a decrease in OPAY's operating expenses of $9 million dollars annually, beginning in 2002. For additional information on both restructuring charges, including their components, see Note 17 to the financial statements on page 56.
Other noninterest expenses decreased $40 million, or 11 percent, in 2001 compared to a $47 million increase, or 16 percent in 2000. Significant unusual items in other noninterest expenses in 2001 included $5 million in minority interest income in 2001 due to recording Munder's minority interest holders' share of the Framlington long-term incentive plans charge discussed in noninterest income. Minority interest income represented the portion of losses on consolidated subsidiaries that was allocated to minority shareholders. Significant unusual items in 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. Excluding divestitures and significant unusual items described above, other noninterest expenses decreased two percent in 2001.
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 decreased to 48.70 percent (excluding merger-related and restructuring charges) in 2001, compared to 50.35 percent in 2000 and 50.70 percent in 1999.
INCOME TAXES
The provision for income taxes was $401 million in 2001, compared to $431 million in 2000 and $420 million in 1999. The effective tax rate, computed by dividing the provision for income taxes by income before taxes, was 36.1 percent in 2001 and 35.3 percent in 2000 and 35.6 percent in 1999. Excluding the merger-related and restructuring charges, which included an adjustment of Imperial's tax liabilities and was not fully deductible, the effective tax rate was 34.6 percent. The rate in 2001 was affected by a $7 million tax benefit related to the Imperial Bancorp acquisition that was immediately recognizable, but only after Imperial became part of Comerica.
STRATEGIC LINES OF BUSINESS
The Corporation's operations are strategically aligned into three major lines of business: the Business Bank, the Individual Bank and the Investment Bank. These lines of business were 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 included items not directly associated with these lines of business or the Finance Division. Note 24 on page 63 describes how these segments were identified and presents financial results of these businesses for the years ended December 31, 2001, 2000 and 1999.
The Business Bank's net income increased $71 million, or 16 percent, in 2001. Net interest income increased $58 million, the provision for credit losses decreased $44 million and noninterest expenses decreased $30 million; offset by a $24 million decrease in noninterest income. The increase in net interest income was primarily due to loan growth, offset by a decrease in the spread between earning assets and the related funding costs. Loan growth of 6.5 percent was primarily driven by significant increases in middle-market lending and commercial real estate loans. Smaller increases in national dealer services, international, and asset based/specialty lending were offset by a decline in loans to large business customers. The decline in the provision for credit losses was affected by additional charge-offs in 2000 to align Imperial's charge-off policy with the Corporation's. The decrease in noninterest income was primarily due to lower warrant income, partially offset by an $8 million gain from the sale of substantially all of the assets of a deposit-servicing subsidiary. The decrease in noninterest expenses was primarily due to efficiencies realized from the Imperial merger.
Individual Bank net income decreased $38 million, or 12 percent, in 2001, a substantial decrease from 2000. Comparisons were affected by the sale of $457 million of consumer loans in early 2000. Net interest income decreased $13 million, or two percent, principally from a narrowing of spreads in certain deposit categories. The provision for credit losses increased $19 million, primarily from increases in the small business, indirect lending, revolving credit and private banking sectors, as the economy weakened loan quality. Noninterest income decreased $28 million, or eight percent, primarily due to the $48 million gain in 2000 from the sale of consumer loans. Partially offsetting this was a $9 million increase in service charges on deposit accounts. Noninterest expenses remained relatively flat. Excluding the $48 million gain and the impact of the sale of loans in 2000, total revenues (FTE) in 2001 would have increased $7 million, or one percent over 2000, while net income in 2001 would have decreased $7 million, or two percent. Return on average assets and return on average common equity in 2001 would have been 1.56 percent and 35.90 percent, respectively.
TABLE 5: ANALYSIS OF INVESTMENT SECURITIES AND LOANS
(IN MILLIONS)
-------------------------------------------------------------------------------------------------------
DECEMBER 31 2001 2000 1999 1998 1997
-------------------------------------------------------------------------------------------------------
Investment securities available for sale
U.S. government and agency securities $ 3,920 $ 3,135 $ 2,950 $ 2,882 $ 3,892
State and municipal securities 32 46 73 115 170
Other securities 339 710 760 410 613
-------------------------------------------------------------------------------------------------------
Total investment securities available for sale $ 4,291 $ 3,891 $ 3,783 $ 3,407 $ 4,675
=======================================================================================================
Commercial loans $25,176 $26,009 $23,629 $22,097 $18,152
International loans
Government and official institutions 9 2 10 12 6
Banks and other financial institutions 427 402 391 433 339
Commercial and industrial 2,579 2,167 2,172 2,268 1,740
-------------------------------------------------------------------------------------------------------
Total international loans 3,015 2,571 2,573 2,713 2,085
Real estate construction loans 3,258 2,915 2,167 1,339 1,116
Commercial mortgage loans 6,267 5,361 4,873 4,322 3,867
Residential mortgage loans 779 808 871 1,038 1,565
Consumer loans 1,484 1,477 1,389 1,897 4,379
Lease financing 1,217 1,029 803 647 517
-------------------------------------------------------------------------------------------------------
Total loans $41,196 $40,170 $36,305 $34,053 $31,681
=======================================================================================================
|
The net loss for the Investment Bank was $70 million in 2001, a decrease of $82 million from net income of $12 million in 2000. Noninterest income declined $171 million, or 64 percent, from last year. The 2001 decline reflected deferred distribution cost impairment charges totaling $40 million; a $74 million decrease in investment advisory revenue, as the market values of technology-related stocks continued declining from their record highs during the first quarter of 2000; and a $57 million charge related to long-term incentive plans at Framlington. Noninterest expenses decreased $36 million from lower revenue-related incentives for investment advisory fees and lower advertising costs.
The Finance Division's net income increased $58 million in 2001, primarily due to a $55 million increase in net interest income and a $48 million increase in noninterest income. Net interest income in the Finance Division increased due to improved spreads on securities from lower average funding costs in 2001, as well as centralization of interest risk management for Imperial into Finance in 2001. The increase in noninterest income was primarily due to $19 million in gains recorded in 2001, the majority of which resulted from the purchase and subsequent sale of interest rate derivatives contracts which failed to meet the Corporation's risk-reduction criteria, and a $9 million increase in gains from the sale of securities.
Net income for the Other category decreased $90 million in 2001. The 2001 decrease was primarily a result of the $148 million merger-related and restructuring charges related to the first quarter 2001 acquisition of Imperial included in noninterest expenses and the $25 million merger-related charge to conform the credit policies of Imperial with Comerica recorded in the provision for credit losses. Offsetting these charges was a $21 million gain from the sale of Comerica's ownership in an ATM network provider recorded in noninterest income in 2001.
BALANCE SHEET AND CAPITAL FUNDS ANALYSIS
Total assets were $50.7 billion at year-end 2001, an increase of $1.2 billion
from $49.5 billion at December 31, 2000. On an average basis, total assets
increased to $49.7 billion in 2001 from $46.9 billion in 2000. This increase was
funded primarily by deposits, which rose on average $5.0 billion, partially
offset by a reduction of medium- and long-term debt, which declined on average
$2.1 billion.
EARNING ASSETS
Total earning assets were $46.6 billion at December 31, 2001, representing a
$0.8 billion increase from $45.8 billion at year-end 2000. On an average basis,
total earning assets were $45.7 billion in 2001, compared to $43.4 billion in
2000. As a result of the weakening economy, business loan growth slowed in 2001,
increasing on an average basis by $2.7 billion, or seven percent, from 2000.
Certain business loan categories continued to show significant growth in 2001.
Average commercial loans increased $1.1 billion, or four percent, average
commercial mortgage loans increased $553 million, or 11 percent and real estate
construction increased $536 million, or 21 percent. These increases are
attributable to successful execution of the Corporation's core lending strategy
and strong customer relationships.
International loans averaged $2.8 billion in 2001, an increase of $248 million, or 10 percent, from 2000. International loan growth in 2001 was primarily in North America. 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 $858 million, or 1.69 percent of total assets, was the only country with exposure exceeding 1.00 percent of total assets at December 31, 2001. Additional information on the Corporation's Mexican cross-border risk is provided in Table 8 on page 33.
TABLE 6: LOAN MATURITIES AND INTEREST RATE SENSITIVITY
(IN MILLIONS)
-----------------------------------------------------------------------------------------------------------
AFTER ONE
WITHIN BUT WITHIN AFTER
DECEMBER 31, 2001 ONE YEAR* FIVE YEARS FIVE YEARS TOTAL
-----------------------------------------------------------------------------------------------------------
Commercial loans $19,411 $4,444 $1,321 $25,176
Commercial mortgage loans 2,132 2,887 1,248 6,267
International loans 2,666 326 23 3,015
Real estate construction loans 2,507 623 128 3,258
----------------------------------------------------------------------------------------------------------
Total $26,716 $8,280 $2,720 $37,716
==========================================================================================================
Loans maturing after one year
Predetermined interest rates $3,852 $2,442
Floating interest rates 4,428 278
----------------------------------------------------------------------------------------------------------
Total $8,280 $2,720
==========================================================================================================
|
* Includes demand loans, loans having no stated repayment schedule or maturity and overdrafts.
TABLE 7: ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES
(DOLLAR AMOUNTS IN MILLIONS)
-------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31 2001 2000 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
-------------------------------------------------------------------------------------------------------------------------------
Commercial $384 61% $290 65% $226 65% $182 65% $117 57%
Real estate construction 17 8 11 7 12 6 9 4 20 4
Commercial mortgage 61 15 59 13 35 14 21 13 18 12
Residential mortgage -- 2 -- 2 -- 2 -- 3 1 5
Consumer 11 4 8 4 18 4 48 5 116 14
Lease financing 9 3 5 3 8 2 6 2 1 2
International 64 7 70 6 35 7 17 8 5 6
Unallocated 109 165 214 232 197
------------------------------------------------------------------------------------------------------------------------------
Total $655 100% $608 100% $548 100% $515 100% $475 100%
==============================================================================================================================
|
Amount - allocated allowance
%- loans outstanding as a percent of total loans
TABLE 8: MEXICAN CROSS-BORDER RISK
(IN MILLIONS)
-------------------------------------------------------------------------------------------------------------------
GOVERNMENTS BANKS AND
AND OFFICIAL OTHER FINANCIAL COMMERCIAL
DECEMBER 31 INSTITUTIONS INSTITUTIONS AND INDUSTRIAL TOTAL
-------------------------------------------------------------------------------------------------------------------
2001 $ 6 $ 54 $798 $858
2000 9 114 503 626
1999 15 150 426 591
==================================================================================================================
|
TABLE 9: ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO--FULLY TAXABLE EQUIVALENT
(DOLLAR AMOUNTS IN MILLIONS)
----------------------------------------------------------------------------------------------------------------------
MATURITY+
----------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2001 WITHIN 1 YEAR 1 - 5 YEARS 5 - 10 YEARS AFTER 10 YEARS TOTAL WEIGHTED
---------------------------------------------------------------------------------------------------------------------- AVERAGE
MATURITY
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD YRS./MOS.
----------------------------------------------------------------------------------------------------------------------------------
Available for sale
U.S. Treasury $ 69 4.86% $-- --% $ -- --% $ -- --% $ 69 4.86% 0/5
U.S. government
and agency 92 6.72 385 6.21 693 6.16 2,681 6.26 3,851 6.25 18/7
State and municipal
securities 5 6.15 20 6.35 6 6.17 1 6.39 32 6.28 3/2
Other bonds, notes
and debentures 25 5.34 169 6.58 28 8.20 27 4.89 249 6.45 3/9
Other investments* -- -- -- -- -- -- 90 -- 90 -- --
-------------------------------------------------------------------------------------------------------------------------------
Total investment securities
available for sale $191 5.86% $574 6.32% $727 6.24% $2,799 6.25% $4,291 6.24% 17/3
===============================================================================================================================
|
* Balances are excluded in the calculation of total yield.
+ Based on final contractual maturity.
Average residential mortgage loans decreased $38 million, or five percent, from 2000, reflecting management's decision to sell the majority of mortgage originations. Growth in home equity lending generated a $45 million, or three percent, increase in consumer loans.
Average investment securities rose to $3.9 billion in 2001, compared to $3.7 billion in 2000. Average U.S. government and agency securities increased $399 million, while average state and municipal securities decreased $21 million. Increases in U.S. government and agency securities resulted from interest risk and balance sheet management decisions 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 decreased $157 million in 2001. Other securities at December 31, 2001, 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 and Small Business Administration loans that have been originated and which management has decided to sell. Loans held for sale in 2000 also included consumer loans which were sold during the year. Average short-term investments decreased to $442 million during 2001, from $978 million in 2000, due to the sale of consumer loans and a reduction in federal funds sold.
DEPOSITS AND BORROWED FUNDS
Average deposits were $35.3 billion during 2001, an increase of $5.0 billion, or 16 percent, from 2000. Average noninterest-bearing deposits grew $1.2 billion, or 13 percent, from 2000, from increased title and escrow company deposits, which benefit from high home mortgage financing and refinancing activity. Average interest-bearing transaction, savings and money market deposits increased seven percent during 2001, to $11.3 billion. Average certificates of deposit increased $3.3 billion, or 33 percent, from 2000. This increase was primarily from certificates of deposits issued in denominations in excess of $100,000 through brokers or to institutional investors. Average foreign office time deposits decreased $186 million from the 2000 level, due to the use of other more attractive sources of funding.
Average short-term borrowings decreased $739 million, as deposit growth reduced the need for these funding sources. Short-term borrowings include federal funds purchased, securities sold under agreement 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 Corporation's and subsidiary banks' total capital ratio at a level that qualifies for the lowest FDIC risk-based insurance premium. Medium- and long-term debt decreased on an average basis by $2.1 billion as deposit growth and slowing loan growth reduced the need for these funding sources.
In July 2001, Comerica issued $350 million of 7.60% Trust Preferred Securities which are classified in medium- and long-term debt. The securities pay cumulative dividends each quarter beginning October 1, 2001, and are callable any time after July 30, 2006. These trust preferred securities qualify as tier one capital for regulatory purposes. The Corporation used the proceeds from the issuance to redeem and retire in total the $250 million of preferred stock that was outstanding, and for other general corporate purposes.
Additionally, in December 2001, the Corporation, issued approximately $1 billion of medium-term debt as part of a privately placed secured financing transaction. As part of the transaction, the Corporation used a portfolio of approximately $1.2 billion of auto dealer floor plan loans as collateral. The overcollateralization of the issuance provided for a preferred credit rating status. The debt issuance provided an additional source of funding for the Corporation, and the proceeds were used to replace other sources of funding and for general corporate purposes. Further information on medium-and long-term debt is included in Note 10 on page 51 to the consolidated financial statements.
CAPITAL
Shareholders' equity was $4.8 billion at December 31, 2001, up $307 million, or seven percent from December 31, 2000. This increase was primarily due to $385 million of retained earnings, $80 million of common stock issued for employee stock plans and $214 million in other comprehensive income, offset by a reduction in equity of $121 million from repurchasing 2,198,700 shares of common stock. The Corporation has approximately 8.8 million additional shares authorized for repurchase by the Board of Directors' current resolutions. Shareholders' equity was also reduced in 2001 by the retirement of $250 million of preferred stock discussed above. Further information on the change in other comprehensive income is provided in Note 12 to the consolidated financial statements on page 44.
The Corporation declared common dividends totaling $313 million, or $1.76 per share, on net income applicable to common stock of $698 million. The dividend payout ratio, excluding merger-related and restructuring charges and calculated on a per share basis, was 38 percent in 2001 versus 37 percent in 2000 and 35 percent in 1999.
At December 31, 2001, 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 19 to the consolidated financial statements on page 57 for the capital ratios.
RISK MANAGEMENT
The Corporation assumes various types of risk in the normal course of business. The most significant risk exposures are from credit, interest rate, liquidity, market and operations. 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 financial derivative instruments. Policies and procedures for measuring and managing this risk are formulated, approved and communicated throughout the Corporation. Credit executives, independent from lending officers, are involved in the origination and underwriting process to ensure adherence to risk policies and underwriting standards. The Corporation also manages credit risk through diversification, limiting exposure to any single industry or customer, selling participations to third parties, syndicating loans 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
borrower's 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 GRAPH]
1.52% 01
0.84% 00
0.59% 99
0.48% 98
0.44% 97
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 nonperforming assets. However, such loans may be required to be evaluated for impairment. Refer to Note 4 of the financial statements on page 49 for a further discussion of impaired loans.
Nonperforming assets as a percent of total loans and other real estate were 1.52 percent and 0.84 percent at year-end 2001 and 2000, respectively.
TABLE 10: SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS
(DOLLAR AMOUNTS IN MILLIONS)
---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31 2001 2000 1999 1998 1997
---------------------------------------------------------------------------------------------------------------------------
Nonperforming assets
Nonaccrual loans
Commercial loans $467 $233 $116 $ 97 $ 62
International loans 109 69 55 20 1
Real estate construction loans 10 5 -- 2 5
Commercial mortgage loans 18 17 10 7 11
Residential mortgage loans -- -- 1 3 4
Consumer loans 5 3 5 3 5
Lease financing 8 4 6 7 1
-------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 617 331 193 139 89
Reduced-rate loans -- 2 9 18 32
-------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 617 333 202 157 121
Other real estate 10 6 11 7 20
-------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $627 $339 $213 $164 $141
=========================================================================================================================
Nonperforming loans as a percentage of total loans 1.50% 0.83% 0.56% 0.46% 0.38%
Nonperforming assets as a percentage of total loans
and other real estate 1.52% 0.84% 0.59% 0.48% 0.44%
Allowance for credit losses as a percentage of total
nonperforming assets 105% 179% 257% 314% 337%
Loans past due 90 days or more and still accruing $ 44 $ 36 $ 48 $ 44 $ 56
=========================================================================================================================
|
Nonaccrual loans at December 31, 2001, increased 86 percent to $617 million from $331 million at year-end 2000. Other real estate owned (ORE) increased $4 million. Loans past due 90 days or more and still on accrual status increased $8 million from year-end 2000. Table 10 provides additional detail on nonperforming assets.
The nonaccrual loan table below indicates the percentage of nonaccrual loan value to original contract value, which exhibits the degree to which loans reported as nonaccrual have been charged off.
NONACCRUAL LOANS
(DOLLAR AMOUNTS IN MILLIONS)
------------------------------------------------------------------------------ DECEMBER 31 2001 2000 ------------------------------------------------------------------------------ Carrying value $617 $331 Contractual value 826 499 Carrying value as a percentage of contractual value 75% 66% ============================================================================== |
CONCENTRATION OF CREDIT
Loans to companies and individuals involved with the automotive industry represented the largest significant industry concentration at December 31, 2001. These loans totaled $6.1 billion, or 15 percent, of total loans at December 31, 2001, compared to $5.7 billion, or 14 percent, at December 31, 2000. Included in these totals are floor plan loans to automotive dealers of $1.9 billion and $2.1 billion at December 31, 2001 and 2000, respectively. All other industry concentrations individually represented less than 10 percent of total loans at year-end 2001.
Nonperforming assets to companies and individuals involved with the automotive industry comprised approximately seven percent of total nonperforming assets at December 31, 2001. The largest automotive industry loan on nonaccrual status at December 31, 2001, was $11 million. The largest automotive industry-related charge-off during the year was $6 million. The Corporation has successfully operated in the Michigan economy despite a loan concentration and several downturns in the auto industry.
COMMERCIAL REAL ESTATE LENDING
The real estate construction loan portfolio contains loans primarily made to long-time customers with satisfactory completion experience. The portfolio has approximately 1,680 loans, of which 42 percent had balances less than $1 million at December 31, 2001. The largest real estate construction loan had a balance of approximately $29 million.
Total commercial mortgage loans totaled $6.3 billion at December 31, 2001. This portfolio had 7,715 loans, of which 81 percent had balances of less than $1 million at December 31, 2001. The largest loan in this portfolio had a balance of approximately $30 million. Of the $9.5 billion in total commercial mortgage and real estate construction loans at December 31, 2001, 45 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 real estate construction and commercial mortgage loan borrowers is an important factor in evaluating credit risk. The following table indicates, by address of borrower, the diversification of the Corporation's real estate construction and commercial mortgage loan portfolio.
GEOGRAPHIC DISTRIBUTION OF BORROWERS
(IN MILLIONS)
------------------------------------------------------------
REAL ESTATE COMMERCIAL
DECEMBER 31, 2001 CONSTRUCTION MORTGAGE
------------------------------------------------------------
Michigan $1,364 $3,787
California 1,139 1,107
Texas 445 591
Florida 166 243
Other 144 539
-----------------------------------------------------------
Total $3,258 $6,267
===========================================================
|
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 types of financial instruments to manage the extent to which net interest income may be affected by fluctuations in interest rates. The Board of Directors, upon recommendations of the Risk Asset Quality Review Committee, establishes policies and risk limits pertaining to asset and liability management activities. The Board, with the assistance of the Risk Asset Quality Review Committee and the Asset and Liability Policy Committee (ALPC), monitors compliance with these policies. The ALPC meets regularly to discuss and review 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, using simulation analysis as its principal risk management technique. 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 2001, for a 200 basis-point decline in short-term interest rates identified approximately $80 million, or four percent, of net interest income at risk during 2002. If short-term interest rates rise 200 basis points, net interest income would be enhanced during 2002 by approximately $39 million, or two percent. Corresponding measures of risk exposure for year end 2000 were $51 million of net interest income at risk for a 200 basis-point decline in rates and a $6 million enhancement of net interest income for a 200 basis-point rise in 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 rudimentary 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 11 on page 38 shows the interest sensitivity gap as of year-end 2001 and 2000. 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 $800 million of rate sensitivity to the 2001 year-end gap. In addition, the schedule includes an adjustment for the price elasticity on certain core deposits.
Using this methodology, the Corporation was in a liability sensitive position throughout most of 2001. The Corporation had a one-year liability sensitive gap of $1,502 million, or three percent of earning assets, as of December 31, 2001. This compares to a $1,370 million asset sensitive gap, or three percent of earning assets, at December 31, 2000. Management anticipates growth in asset sensitivity throughout 2002, which will reduce and/or eliminate the current liability sensitive position.
The Corporation utilizes investment securities and derivative instruments, predominantly interest rate swaps, as asset and liability management tools with the overall objective of mitigating the adverse impact to net interest income from changes in interest rates. These swaps primarily 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.
TABLE 11: SCHEDULE OF RATE SENSITIVE ASSETS AND
LIABILITIES
(DOLLAR AMOUNTS IN MILLIONS)
----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2001 DECEMBER 31, 2000
INTEREST SENSITIVITY PERIOD INTEREST SENSITIVITY PERIOD
----------------------------------------------------------------------------------------------------------------------------------
WITHIN OVER WITHIN OVER
ONE YEAR ONE YEAR TOTAL ONE YEAR ONE YEAR TOTAL
----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ -- $ 1,925 $ 1,925 $ -- $ 1,931 $ 1,931
Short-term investments 1,072 7 1,079 1,727 3 1,730
Investment securities 1,343 2,948 4,291 1,863 2,028 3,891
Commercial loans (including lease financing) 24,104 2,289 26,393 24,947 2,091 27,038
International loans 2,889 126 3,015 2,440 131 2,571
Real estate related loans 7,044 3,260 10,304 6,217 2,867 9,084
Consumer loans 1,018 466 1,484 989 488 1,477
----------------------------------------------------------------------------------------------------------------------------------
Total loans 35,055 6,141 41,196 34,593 5,577 40,170
Other assets 1,275 966 2,241 888 924 1,812
----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 38,745 $ 11,987 $ 50,732 $ 39,071 $ 10,463 $ 49,534
==================================================================================================================================
LIABILITIES
Deposits
Noninterest-bearing deposits $ 5,596 $ 7,000 $ 12,596 $ 3,772 $ 6,417 $ 10,189
Savings deposits 414 1,298 1,712 -- 1,340 1,340
Money market and NOW deposits 8,214 2,208 10,422 7,618 2,303 9,921
Certificates of deposit 11,430 882 12,312 10,698 1,282 11,980
Foreign office time deposits 528 -- 528 424 -- 424
----------------------------------------------------------------------------------------------------------------------------------
Total deposits 26,182 11,388 37,570 22,512 11,342 33,854
Short-term borrowings 1,986 -- 1,986 2,093 -- 2,093
Medium- and long-term debt 3,598 1,905 5,503 6,546 1,713 8,259
Other liabilities 450 416 866 329 499 828
----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 32,216 13,709 45,925 31,480 13,554 45,034
Shareholders' equity 226 4,581 4,807 10 4,490 4,500
----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 32,442 $ 18,290 $ 50,732 $ 31,490 $ 18,044 $ 49,534
==================================================================================================================================
Sensitivity impact of interest rate swaps $ (9,654) $ 9,654 -- $ (7,946) $ 7,946 --
----------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap $ (3,351) $ 3,351 -- $ (365) $ 365 --
Gap as a percentage of earning assets (7)% 7% -- (1)% 1% --
Sensitivity impact from elasticity
adjustments (1) 1,849 (1,849) -- 1,735 (1,735) --
----------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap with elasticity
adjustments(1) $ (1,502) $ 1,502 -- $ 1,370 $ (1,370) --
Gap as a percentage of earning assets (3)% 3% -- 3% (3)% --
==================================================================================================================================
|
(1) Elasticity adjustments for NOW, savings and money market deposit accounts are based on expected future pricing relationships as well as historical pricing relationships dating back to 1985.
TABLE 12: REMAINING EXPECTED MATURITY
OF RISK MANAGEMENT INTEREST RATE SWAPS
(DOLLAR AMOUNTS IN MILLIONS)
-----------------------------------------------------------------------------------------------------------------------------------
2007- DEC. 31,
2002 2003 2004 2005 2006 2026 Total 2000
-----------------------------------------------------------------------------------------------------------------------------------
VARIABLE RATE ASSET DESIGNATION:
Generic receive fixed swaps $ 2,919 $4,750 $2,000 $ 900 $ 500 $ -- $ 11,069 $ 9,277
Weighted average: (1)
Receive rate 7.03% 8.31% 7.57% 7.76% 5.83% --% 7.68% 7.55%
Pay rate 3.65% 4.09% 4.76% 4.77% 2.38% --% 4.07% 8.14%
-----------------------------------------------------------------------------------------------------------------------------------
FIXED RATE ASSET DESIGNATION:
Pay fixed swaps
Generic $ 34 $ -- $ -- $ -- $ -- $ -- $ 34 $ 98
Amortizing 1 -- -- -- -- -- 1 1
Weighted average: (2)
Receive rate 2.22% --% --% --% --% --% 2.22% 6.70%
Pay rate 2.56% --% --% --% --% --% 2.56% 6.79%
-----------------------------------------------------------------------------------------------------------------------------------
FIXED RATE DEPOSIT DESIGNATION:
Generic receive fixed swaps $ 1,743 $ -- $ -- $ -- $ -- $ -- $ 1,743 $ 1,378
Weighted average: (1)
Receive rate 4.87% --% --% --% --% --% 4.87% 7.19%
Pay rate 2.00% --% --% --% --% --% 2.00% 6.66%
-----------------------------------------------------------------------------------------------------------------------------------
MEDIUM- AND LONG-TERM
DEBT DESIGNATION:
Generic receive fixed swaps $ 150 $ -- $ -- $ 250 $ -- $1,250 $ 1,650 $ 1,715
Weighted average: (1)
Receive rate 7.22% --% --% 7.04% --% 6.73% 6.82% 6.83%
Pay rate 2.37% --% --% 2.01% --% 2.82% 2.66% 6.76%
Floating/floating swaps $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 125
Weighted average:
Receive rate --% --% --% --% --% --% --% 6.72%
Pay rate --% --% --% --% --% --% --% 6.59%
-----------------------------------------------------------------------------------------------------------------------------------
Total notional amount $ 4,847 $4,750 $2,000 $1,150 $ 500 $1,250 $ 14,497 $12,594
===================================================================================================================================
|
(1) Variable rates paid on receive fixed swaps are based on one-month and three-month LIBOR or one-month Canadian Deposit Offer Rate (CDOR) effective December 31, 2001. Variable rates received on pay fixed swaps are based on prime.
(2) Variable rate received is based on one-month CDOR at December 31, 2001.
RISK MANAGEMENT DERIVATIVE FINANCIAL
INSTRUMENTS AND FOREIGN EXCHANGE CONTRACTS
RISK MANAGEMENT NOTIONAL ACTIVITY
(IN MILLIONS)
-----------------------------------------------------------------------
INTEREST FOREIGN
RATE EXCHANGE
CONTRACTS CONTRACTS TOTALS
-----------------------------------------------------------------------
Balances at December 31, 1999 $ 16,996 $ 1,213 $ 18,209
Additions 10,886 8,850 19,736
Maturities/amortizations (9,230) (9,455) (18,685)
-----------------------------------------------------------------------
Balances at December 31, 2000 18,652 608 19,260
Additions 8,255 13,797 22,052
Maturities/amortizations (6,330) (13,585) (19,915)
Terminations (6,080) -- (6,080)
-----------------------------------------------------------------------
Balances at December 31, 2001 $ 14,497 $ 820 $ 15,317
=======================================================================
|
The notional amount of risk management interest rate swaps totaled $14.5 billion at December 31, 2001, and $12.6 billion at December 31, 2000. The fair value of risk management interest rate swaps was an asset of $571 million at December 31, 2001, compared to an asset of $173 million at December 31, 2000. For the year ended December 31, 2001, risk management interest rate swaps generated $238 million of net interest income, compared to $48 million of net interest expense for the year ended December 31, 2000.
Table 12 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, 2001. Swaps have been grouped by the asset and liability designation.
In addition to interest rate swaps, the Corporation employs various other types of derivatives 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 derivatives and foreign exchange contracts at December 31, 2001 and 2000, were $820 million and $6.7 billion, respectively. Interest rate floor contracts with a weighted average strike price of 5.73% represent $5.0 billion of the $6.7 billion of notional amounts at December 31, 2000. These interest rate floor contracts were terminated in the first quarter of 2001 because these Imperial contracts did not meet the Corporation's policies for risk management hedges.
Further information regarding risk management financial instruments and foreign currency exchange contracts is provided in Notes 1, 10, and 20.
CUSTOMER-INITIATED AND OTHER DERIVATIVE FINANCIAL
INSTRUMENTS AND FOREIGN
EXCHANGE CONTRACTS
CUSTOMER-INITIATED AND OTHER NOTIONAL ACTIVITY
(IN MILLIONS)
-----------------------------------------------------------------------
INTEREST FOREIGN
RATE EXCHANGE
CONTRACTS CONTRACTS TOTALS
-----------------------------------------------------------------------
Balances at December 31, 1999 $ 563 $ 707 $ 1,270
Additions 488 50,643 51,131
Maturities/amortizations (181) (49,473) (49,654)
-----------------------------------------------------------------------
Balances at December 31, 2000 870 1,877 2,747
Additions 1,485 48,426 49,911
Maturities/amortizations (471) (47,614) (48,085)
Terminations (186) -- (186)
-----------------------------------------------------------------------
Balances at December 31, 2001 $ 1,698 $ 2,689 $ 4,387
=======================================================================
|
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 22 percent at December 31, 2001 and 12 percent at December 31, 2000, of total derivative and foreign exchange contracts, including commitments to purchase and sell securities. Refer to Note 20 of the financial statements on page 58 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. The Corporation has various financial obligations, including contractual obligations and commercial commitments.
The Corporation has contractual obligations that require future cash payments. The amount of payments required under medium- and long-term debt obligations, noncancellable property and equipment leases and other significant noncancellable contractual obligations in 2002 is $1.6 billion. Refer to Notes 7 and 10 of the financial statements on pages 50 and 51 for a further discussion of these contractual obligations.
The Corporation also has other commercial commitments that may impact liquidity. These commitments include commitments to purchase earning assets, commitments to fund venture capital investments, unused commitments to extend credit, standby letters of credit and financial guarantees, commercial letters of credit and credit default swaps. The total amount of these commercial commitments at December 31, 2001 was $34 billion. Since many of these commitments expire without being drawn upon, the total amount of these commercial commitments does not necessarily represent the future cash requirements of the Corporation. Refer to Note 20 and the Market Risk section of the Financial Review on page 41 for a further discussion of these commercial commitments.
Liquidity requirements are satisfied with various funding sources. First, the Corporation accesses the purchased funds market each day to meet funding needs. Purchased funds at December 31, 2001, comprised of certificates of deposits $100,000 and over that mature in less than one year, foreign office time deposits and short-term borrowings, approximated $10.4 billion. Second, a $15 billion medium-term note program 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 2001, unissued debt relating to the two programs totaled $14.6 billion. A third source was liquid assets, which totaled $7.3 billion at December 31, 2001. Additionally, the Corporation also had available $16 billion from a collaterized borrowing account with the Federal Reserve Bank at year-end 2001.
The parent company had available a $250 million commercial paper facility at December 31, 2001, $110 million of which was unused. Another source of liquidity for the parent company is dividends from its subsidiaries. As discussed in Note 19 to the financial statements on page 57, subsidiary banks are subject to regulation and may be limited in their ability to pay dividends or transfer funds to the holding company. During 2002, the subsidiary banks can pay dividends up to $641 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, 2001, the ratio was 112 percent.
MARKET RISK
The Corporation's market risk related to trading instruments is not significant as trading activities are limited. Certain of the Corporation's noninterest income, including fiduciary income, investment advisory revenue and brokerage fees are at risk to changes in equity markets and to fluctuations in the market value of assets managed.
The Corporation also has a portfolio of direct and indirect (through funds) private equity and venture capital investments, and has made commitments to fund additional investments in future periods. These investments are at risk to changes in equity markets, general economic conditions and many other factors. The majority of these investments are not marketable, and are included in other assets. The investments are reviewed for impairment on a quarterly basis, by comparing the carrying value to the estimated fair value. Fair value is generally estimated by reviewing information provided by the investee, and obtained through other public sources where available. The lack of an independent source to validate fair value estimates is an inherent limitation in the valuation process. The amount by which the carrying value exceeds the fair value, that is determined to be other than temporary impairment, is charged to current earnings and the carrying value of the investment is written down accordingly. At December 31, the Corporation had approximately $114 million of direct and indirect private equity and venture capital investments and had made commitments to fund an additional $140 million of such investments in future periods.
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, including unknown risks and uncertainties, 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, changes in accounting treatment affecting the value of assets, Comerica's ability to implement its strategic initiatives, the impact of the September 11, 2001, terrorist attacks or of any subsequent terrorist activities or of any actions taken in response to or as a result of those attacks or activities, 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 facts, circumstances, assumptions or events which may have changed after the date the forward-looking statements are made.
CONSOLIDATED BALANCE SHEETS
COMERICA INCORPORATED AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT SHARE DATA)
----------------------------------------------------------------------------------------------------------------
DECEMBER 31 2001 2000
----------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 1,925,262 $ 1,930,682
Short-term investments 1,078,799 1,730,158
Investment securities available for sale 4,290,724 3,890,725
Commercial loans 25,176,000 26,009,336
International loans 3,015,463 2,571,156
Real estate construction loans 3,257,549 2,915,168
Commercial mortgage loans 6,266,939 5,360,601
Residential mortgage loans 779,116 807,064
Consumer loans 1,483,961 1,477,135
Lease financing 1,217,314 1,029,164
----------------------------------------------------------------------------------------------------------------
Total loans 41,196,342 40,169,624
Less allowance for credit losses (655,094) (608,110)
----------------------------------------------------------------------------------------------------------------
Net loans 40,541,248 39,561,514
Premises and equipment 352,814 347,962
Customers' liability on acceptances outstanding 28,589 26,668
Accrued income and other assets 2,514,537 2,046,347
----------------------------------------------------------------------------------------------------------------
Total assets $ 50,731,973 $ 49,534,056
================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits $ 12,596,255 $ 10,188,475
Interest-bearing deposits 24,974,124 23,665,808
----------------------------------------------------------------------------------------------------------------
Total deposits 37,570,379 33,854,283
Short-term borrowings 1,986,263 2,093,381
Acceptances outstanding 28,589 26,668
Accrued expenses and other liabilities 836,767 800,386
Medium- and long-term debt 5,502,511 8,259,179
----------------------------------------------------------------------------------------------------------------
Total liabilities 45,924,509 45,033,897
Nonredeemable preferred stock - $50 stated value
Authorized - 5,000,000 shares
Issued - 5,000,000 shares at 12/31/00 -- 250,000
Common stock - $5 par value
Authorized - 325,000,000 shares
Issued - 178,749,198 shares at 12/31/01 and 177,703,678 shares at 12/31/00 893,746 888,519
Capital surplus 345,156 301,414
Unearned employee stock ownership plan stock - 131,954 shares at 12/31/01
and 176,462 shares at 12/31/00 (5,037) (6,750)
Accumulated other comprehensive income 225,617 12,097
Retained earnings 3,447,974 3,085,784
Deferred compensation (9,205) (14,494)
Less cost of common stock in treasury - 1,674,659 shares at 12/31/01
and 289,397 shares at 12/31/00 (90,787) (16,411)
----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,807,464 4,500,159
----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 50,731,973 $ 49,534,056
================================================================================================================
|
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
COMERICA INCORPORATED AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 2001 2000 1999
------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 3,120,806 $ 3,379,271 $ 2,859,053
Interest on investment securities 246,288 259,333 198,901
Interest on short-term investments 26,453 77,749 39,317
------------------------------------------------------------------------------------------------------------
Total interest income 3,393,547 3,716,353 3,097,271
INTEREST EXPENSE
Interest on deposits 888,262 951,281 692,808
Interest on short-term borrowings 105,336 215,372 183,124
Interest on medium- and long-term debt 297,611 545,531 404,463
------------------------------------------------------------------------------------------------------------
Total interest expense 1,291,209 1,712,184 1,280,395
------------------------------------------------------------------------------------------------------------
Net interest income 2,102,338 2,004,169 1,816,876
Provision for credit losses 236,000 254,800 146,220
------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 1,866,338 1,749,369 1,670,656
NONINTEREST INCOME
Service charges on deposit accounts 210,780 188,828 176,639
Fiduciary income 180,123 180,860 182,754
Commercial lending fees 67,022 60,682 54,659
Letter of credit fees 57,424 51,960 46,116
Brokerage fees 44,422 44,055 35,942
Investment advisory revenue, net 11,848 118,511 61,202
Equity in earnings of unconsolidated subsidiaries (43,057) 14,021 14,716
Warrant income 4,552 29,861 33,033
Securities gains 19,763 16,295 8,675
Net gain on sales of businesses 31,233 50,299 76,387
Other noninterest income 219,222 201,309 176,891
------------------------------------------------------------------------------------------------------------
Total noninterest income 803,332 956,681 867,014
NONINTEREST EXPENSES
Salaries and employee benefits 809,483 851,456 777,539
Net occupancy expense 114,548 110,126 104,308
Equipment expense 70,278 76,532 73,217
Outside processing fee expense 61,034 58,541 60,207
Customer services 40,985 36,882 40,263
Merger-related and restructuring charges 151,715 -- --
Other noninterest expenses 310,990 350,986 303,374
------------------------------------------------------------------------------------------------------------
Total noninterest expenses 1,559,033 1,484,523 1,358,908
------------------------------------------------------------------------------------------------------------
Income before income taxes 1,110,637 1,221,527 1,178,762
Provision for income taxes 401,059 430,792 419,347
------------------------------------------------------------------------------------------------------------
NET INCOME $ 709,578 $ 790,735 $ 759,415
============================================================================================================
Net income applicable to common stock $ 697,970 $ 773,635 $ 742,315
============================================================================================================
Basic net income per common share $ 3.93 $ 4.38 $ 4.20
Diluted net income per common share 3.88 4.31 4.13
Cash dividends declared on common stock $ 313,202 $ 250,277 $ 224,837
Dividends per common share $ 1.76 $ 1.60 $ 1.44
============================================================================================================
|
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY -- COMERICA INCORPORATED AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT SHARE DATA)
------------------------------------------------------------------------------------------
UNEARNED
NON- EMPLOYEE
REDEEMABLE STOCK
PREFERRED COMMON CAPITAL OWNERSHIP
STOCK STOCK SURPLUS PLAN SHARES
------------------------------------------------------------------------------------------
BALANCES AT
JANUARY 1, 1999 $ 250,000 $ 882,452 $ 152,795 $ --
Net income for 1999 -- -- -- --
Other comprehensive
income, net of tax -- -- -- --
Total comprehensive income -- -- -- --
Cash dividends declared:
Preferred stock -- -- -- --
Common stock -- -- -- --
Purchase and retirement
of 254,213 shares
of common stock -- (1,284) (8,069) --
Purchase of 44,082 shares
of common stock -- -- -- --
Common stock dividend -- 7,712 44,993 --
Issuance of common stock
under employee stock plans -- 573 12,067 (3,750)
Amortization of
deferred compensation,
net of minority interest -- -- 24,215 --
------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1999 250,000 889,453 226,001 (3,750)
Net income for 2000 -- -- -- --
Other comprehensive
income, net of tax -- -- -- --
Total comprehensive income -- -- -- --
Cash dividends declared:
Preferred stock -- -- -- --
Common stock -- -- -- --
Purchase and retirement
of 930,212 shares
of common stock -- (4,651) (31,645) --
Purchase of 353,547 shares
of common stock -- -- -- --
Common stock dividend -- -- 84,906 --
Issuance of common stock
under employee stock plans -- 3,717 22,152 (3,000)
Amortization of
deferred compensation,
net of minority interest -- -- -- --
------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 2000 250,000 888,519 301,414 (6,750)
Net income for 2001 -- -- -- --
Other comprehensive
income, net of tax -- -- -- --
Total comprehensive income -- -- -- --
Redemption of preferred stock (250,000) -- -- --
Cash dividends declared:
Preferred stock -- -- -- --
Common stock -- -- -- --
Purchase of 2,198,700 shares
of common stock -- -- -- --
Issuance of common stock
under employee stock plans -- 5,227 43,742 1,713
Amortization of
deferred compensation,
net of minority interest -- -- -- --
------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 2001 $ -- $ 893,746 $ 345,156 $ (5,037)
==========================================================================================
-------------------------------------------------------------------------------------------------------------
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE RETAINED DEFERRED TREASURY SHAREHOLDERS'
INCOME EARNINGS COMPENSATION STOCK EQUITY
-------------------------------------------------------------------------------------------------------------
BALANCES AT
JANUARY 1, 1999 $ (6,970) $ 2,244,493 $ (5,202) $ (89,133) $ 3,428,435
Net income for 1999 -- 759,415 -- -- 759,415
Other comprehensive
income, net of tax (14,734) -- -- -- (14,734)
---------------
Total comprehensive income -- -- -- -- 744,681
Cash dividends declared:
Preferred stock -- (17,100) -- -- (17,100)
Common stock -- (224,837) -- -- (224,837)
Purchase and retirement
of 254,213 shares
of common stock -- -- -- -- (9,353)
Purchase of 44,082 shares
of common stock -- -- -- (2,885) (2,885)
Common stock dividend -- (52,724) -- -- (19)
Issuance of common stock
under employee stock plans -- (32,037) 4 44,857 21,714
Amortization of
deferred compensation,
net of minority interest -- -- (16,800) -- 7,415
------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1999 (21,704) 2,677,210 (21,998) (47,161) 3,948,051
Net income for 2000 -- 790,735 -- -- 790,735
Other comprehensive
income, net of tax 33,801 -- -- -- 33,801
---------------
Total comprehensive income -- -- -- -- 824,536
Cash dividends declared:
Preferred stock -- (17,100) -- -- (17,100)
Common stock -- (250,277) -- -- (250,277)
Purchase and retirement
of 930,212 shares
of common stock -- -- -- -- (36,296)
Purchase of 353,547 shares
of common stock -- -- -- (14,108) (14,108)
Common stock dividend -- (84,927) -- -- (21)
Issuance of common stock
under employee stock plans -- (29,857) (3,278) 44,858 34,592
Amortization of
deferred compensation,
net of minority interest -- -- 10,782 -- 10,782
------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 2000 12,097 3,085,784 (14,494) (16,411) 4,500,159
Net income for 2001 -- 709,578 -- -- 709,578
Other comprehensive
income, net of tax 213,520 -- -- -- 213,520
---------------
Total comprehensive income -- -- -- -- 923,098
Redemption of preferred stock -- -- -- -- (250,000)
Cash dividends declared:
Preferred stock -- (11,608) -- -- (11,608)
Common stock -- (313,202) -- -- (313,202)
Purchase of 2,198,700 shares
of common stock -- -- -- (120,630) (120,630)
Issuance of common stock
under employee stock plans -- (22,578) (9,072) 46,254 65,286
Amortization of
deferred compensation,
net of minority interest -- -- 14,361 -- 14,361
------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 2001 $ 225,617 $ 3,447,974 $ (9,205) $ (90,787) $ 4,807,464
============================================================================================================
|
( ) Indicates deduction.
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMERICA INCORPORATED AND SUBSIDIARIES
(IN THOUSANDS)
----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 2001 2000 1999
----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 709,578 $ 790,735 $ 759,415
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for credit losses 236,000 254,800 146,220
Depreciation 63,354 70,988 74,768
Merger-related and restructuring charges 54,634 -- --
Net (increase) decrease in trading account securities 3,436 (12,410) (46,854)
Net (increase) decrease in assets held for sale (130,352) (33,385) 53,568
Net (increase) decrease in accrued income receivable 134,233 (80,923) (42,321)
Net increase in accrued expenses 34,734 110,273 138,459
Gain on the sale of businesses (31,233) (50,299) (76,387)
Net amortization of intangibles 34,491 36,643 33,921
Other, net (107,845) (146,594) 112,196
----------------------------------------------------------------------------------------------------------------------
Total adjustments 291,452 149,093 393,570
----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,001,030 939,828 1,152,985
INVESTING ACTIVITIES
Net increase in interest-bearing deposits with banks (27,222) (2,846) (9,418)
Net (increase) decrease in federal funds sold and securities purchased
under agreements to resell 805,497 176,527 (134,094)
Proceeds from sale of investment securities available for sale 2,386,202 6,298,862 1,921,554
Proceeds from maturity of investment securities available for sale 1,303,982 827,426 3,965,212
Purchases of investment securities available for sale (4,188,934) (7,200,262) (6,328,161)
Net increase in loans (1,221,673) (4,032,060) (2,918,339)
Fixed assets, net (68,206) (45,903) (55,825)
Net increase in company owned life insurance (167,677) (29,018) (46,521)
Net (increase) decrease in customers' liability on acceptances outstanding (1,921) 17,142 (31,475)
Net cash provided by acquisition/sale of businesses 45,463 442,426 69,512
----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,134,489) (3,547,706) (3,567,555)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 3,703,865 4,658,280 (686,777)
Net decrease in short-term borrowings (107,118) (831,313) (716,060)
Net increase (decrease) in acceptances outstanding 1,921 (17,142) 31,475
Proceeds from issuance of medium- and long-term debt 2,081,233 6,103,664 6,373,364
Repayments and purchases of medium- and long-term debt (4,932,466) (6,604,430) (2,981,672)
Redemption of preferred stock (250,000) -- --
Proceeds from issuance of common stock and other capital transactions 65,286 37,240 29,347
Purchase of common stock for treasury and retirement (120,630) (56,403) (18,118)
Dividends paid (314,052) (261,096) (235,646)
----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 128,039 3,028,800 1,795,913
----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and due from banks (5,420) 420,922 (618,657)
Cash and due from banks at beginning of year 1,930,682 1,509,760 2,128,417
----------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 1,925,262 $ 1,930,682 $ 1,509,760
======================================================================================================================
Interest paid $ 1,419,884 $ 1,718,365 $ 1,210,598
======================================================================================================================
Income taxes paid $ 344,249 $ 379,250 $ 347,933
======================================================================================================================
Noncash investing and financing activities
Loan transfers to other real estate $ 12,505 $ 6,870 $ 11,430
Transfer from loans to loans held for sale -- -- 620,280
======================================================================================================================
|
See notes to consolidated financial statements.
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. Statement of Financial Accounting Standards (SFAS) No. 141 "Business Combinations" (issued June 2001), eliminated the pooling-of-interests method for acquisitions initiated after June 30, 2001. 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). Beginning in 2002, as required by SFAS No. 142 "Goodwill and Other Intangible Assets" (issued June 2001), goodwill will no longer be amortized, but will be subject to annual impairment tests. Other intangible assets that do not have an indefinite life will continue to be amortized over its useful lives. 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 and Small Business Administration loans, 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 non-interest 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 credit portfolio. The allowance provides for probable losses that have been identified with specific customer relationships and for probable losses believed to be inherent in the loan portfolio, but that have not been specifically identified. 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, 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.
Management also considers industry norms and the expectations from rating 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.
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 continue to be evaluated for impairment for the remainder of 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 have been received 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 intrinsic value method in accounting for its stock-based compensation plans. Information on the Corporation's stock-based compensation plans is included in Note 14 on page 53.
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
Beginning January 1, 2001, derivative instruments are carried at fair value as either other assets or liabilities on the balance sheet. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument is determined by whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Corporation designates the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments designated and qualifying as a fair value hedge (i.e., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings during the period of the change in fair values. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item (i.e. the ineffective portion), if any, is recognized in current earnings during the period of change. For derivative instruments that are designated and qualify as a hedge of a net investment in a foreign currency, the gain or loss is reported in other comprehensive income as part of the cumulative translation adjustment to the extent it is effective. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change.
In 2000, the fair value of interest rate and foreign exchange swaps, interest rate caps and floors and futures and forward contracts used to hedge the Corporation's interest rate and foreign currency risk was not reflected on the balance sheet. These instruments, with the exception of futures and forward contracts, were accounted for on an accrual basis since there was a high correlation with the on-balance sheet instrument being hedged.
Foreign exchange futures and forward contracts, foreign currency options, interest rate caps and interest rate swap agreements executed as a service to customers are not designated as hedging instruments and both the realized and unrealized gains and losses on these instruments are recognized 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. Deferred taxes are reduced, if necessary, by the amount of such benefits that are not expected to be realized based on available evidence.
1 ACCOUNTING POLICIES (CONTINUED)
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 DISTRIBUTION COSTS
Certain mutual fund distribution costs are capitalized when paid and amortized over six years. Fees that contractually recoup the deferred costs are received over a 6 - 8 year period. The net of fees and amortization is recorded in noninterest income.
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 12 on page 52.
2 ACQUISITIONS
In January 2001, the Corporation merged with Imperial Bancorp (Imperial), a $7 billion (assets) bank holding company, through an exchange of 0.46 shares of Comerica common stock for each share of Imperial common stock. The Corporation issued 21 million shares of common stock as part of the transaction. The financial information presented in this annual report is restated to include the accounts and results of operations of Imperial, which was accounted for as a pooling-of-interests combination. The Corporation incurred a pre-tax, merger-related and restructuring charge of $173 million ($128 million after-tax) in 2001 in connection with the acquisition. As of December 31, 2001, all merger-related expenses have been incurred.
At December 31, 2001, the Corporation owned 12 million shares, or approximately 55%, of the outstanding common stock of Official Payment Corporation ("OPAY")(Nasdaq: OPAY). OPAY completed an initial public offering ("IPO") on November 23, 1999, of 5 million shares of common stock priced at $15 per share. As a result of the offering, the Corporation's ownership percentage of OPAY's common stock decreased from 80% to approximately 56% of total outstanding shares. The Corporation recognized a $44 million pre-tax gain in 1999 representing the increase in its basis in OPAY stock due to the IPO. The gain is reflected in "Net gain on sale of businesses" in the Consolidated Statements of Income.
3 INVESTMENT SECURITIES
Information concerning investment securities as shown in the consolidated balance sheets of the Corporation was as follows:
(IN THOUSANDS)
--------------------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 2001 COST GAINS LOSSES FAIR VALUE
--------------------------------------------------------------------------------
U.S. government and
agency securities $3,879,206 $ 47,535 $ 6,903 $3,919,838
State and municipal
securities 30,935 1,200 4 32,131
Other securities 355,344 1,141 17,730 338,755
--------------------------------------------------------------------------------
Total securities
available for sale $4,265,485 $ 49,876 $ 24,637 $4,290,724
================================================================================
DECEMBER 31, 2000
U.S. government and
agency securities $3,120,561 $ 22,476 $ 8,417 $3,134,620
State and municipal
securities 44,920 1,417 40 46,297
Other securities 713,101 6,599 9,892 709,808
--------------------------------------------------------------------------------
Total securities
available for sale $3,878,582 $ 30,492 $ 18,349 $3,890,725
================================================================================
|
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.
(IN THOUSANDS)
--------------------------------------------------------------------------------
ESTIMATED
DECEMBER 31, 2001 COST FAIR VALUE
--------------------------------------------------------------------------------
Contractual maturity
Within one year $ 188,685 $ 191,044
Over one year to five years 193,067 189,032
Over five years to ten years 36,527 33,502
Over ten years 35,824 27,366
--------------------------------------------------------------------------------
Subtotal securities 454,103 440,944
Mortgage-backed securities 3,721,019 3,759,379
Equity and other nondebt securities 90,363 90,401
--------------------------------------------------------------------------------
Total securities available for sale $4,265,485 $4,290,724
================================================================================
|
Sales, calls and write-downs of investment securities available for sale resulted in realized gains and losses as follows:
(IN THOUSANDS)
--------------------------------------------------------
YEAR ENDED DECEMBER 31 2001 2000
--------------------------------------------------------
Securities gains $29,453 $20,152
Securities losses (9,690) (3,857)
--------------------------------------------------------
Total $19,763 $16,295
========================================================
|
Assets, principally securities, carried at approximately $1.9 billion at December 31, 2001, were pledged to secure public deposits (including State of Michigan deposits of $122 million at December 31, 2001) 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.
(IN THOUSANDS)
--------------------------------------------------------------------------------
DECEMBER 31 2001 2000
--------------------------------------------------------------------------------
Nonaccrual loans
Commercial loans $467,078 $233,408
International loans 109,349 68,911
Real estate construction loans 9,751 4,542
Commercial mortgage loans 17,891 17,398
Residential mortgage loans 323 185
Consumer loans 4,727 3,080
Lease financing 7,349 3,837
--------------------------------------------------------------------------------
Total 616,468 331,361
Reduced-rate loans 219 2,306
--------------------------------------------------------------------------------
Total nonperforming loans 616,687 333,667
Other real estate 10,104 5,577
--------------------------------------------------------------------------------
Total nonperforming assets $626,791 $339,244
================================================================================
Loans past due 90 days and still accruing $ 44,089 $ 36,176
================================================================================
Gross interest income that would have been
recorded had the nonaccrual and reduced-rate
loans performed in accordance with original terms $ 60,867 $ 41,733
================================================================================
Interest income recognized $ 16,958 $ 7,934
================================================================================
|
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, 2001, were $674 million, $62 million of which were formerly on nonaccrual status, but were restructured and met the requirements to be restored to an accrual basis. These restructured 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. Excluding these restructured loans, impaired loans related to business loans remaining on nonaccrual status totaled $611 million at December 31, 2001.
(IN THOUSANDS) -------------------------------------------------------------------------------- DECEMBER 31 2001 2000 1999 -------------------------------------------------------------------------------- Average impaired loans for the year $548,662 $292,665 $209,480 ================================================================================ Total period-end impaired loans $673,812 $364,895 $199,922 Less: Loans returned to accrual status during the year (62,394) (36,799) (13,168) -------------------------------------------------------------------------------- Total period-end nonaccrual business loans $611,418 $328,096 $186,754 ================================================================================ Period-end impaired loans requiring an allowance $561,681 $277,159 $184,607 ================================================================================ Impairment allowance $228,417 $104,107 $ 61,913 ================================================================================ |
Those impaired loans not requiring an allowance represent loans for which the fair value exceeded the recorded investment in the loan. Thirty-one percent of the total impaired loans at December 31, 2001, 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.
5 ALLOWANCE FOR CREDIT LOSSES
An analysis of changes in the allowance for credit losses follows:
(DOLLAR AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------
2001 2000 1999
--------------------------------------------------------------------------------
Balance at January 1 $ 608,110 $ 548,147 $ 515,058
Loans charged off (231,600) (223,527) (143,727)
Recoveries on loans previously
charged off 42,764 28,745 34,563
--------------------------------------------------------------------------------
Net loans charged off (188,836) (194,782) (109,164)
Provision for credit losses 236,000 254,800 146,220
Transfer to loans held for sale -- -- (4,000)
Foreign currency translation
adjustment (180) (55) 33
--------------------------------------------------------------------------------
Balance at December 31 $ 655,094 $ 608,110 $ 548,147
================================================================================
As a percent of total loans 1.59% 1.51% 1.51%
================================================================================
|
The provision for credit losses in 2001 included a $25 million merger-related charge to conform the credit policies of Imperial with Comerica.
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 in Michigan. In addition, the Corporation has an industry concentration with the automotive industry.
At December 31, 2001 and 2000, exposure from loan commitments and guarantees to companies related to the automotive industry totaled $11.2 billion and $10.6 billion, respectively. Additionally, commercial real estate loans, including commercial mortgages and construction loans, totaled $9.5 billion at December 31, 2001 and $8.3 billion at year-end 2000. Approximately $4.3 billion of commercial real estate and real estate construction loans at December 31, 2001, 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 & EQUIPMENT & OTHER NONCANCELLABLE OBLIGATIONS
A summary of premises and equipment at December 31 by major category follows:
(IN THOUSANDS)
--------------------------------------------------------------------------------
2001 2000
--------------------------------------------------------------------------------
Land $ 55,565 $ 54,878
Buildings and improvements 391,059 379,019
Furniture and equipment 383,299 384,452
--------------------------------------------------------------------------------
Total cost 829,923 818,349
Less accumulated depreciation and amortization (477,109) (470,387)
--------------------------------------------------------------------------------
Net book value $352,814 $ 347,962
================================================================================
|
Rental expense for leased properties and equipment amounted to $55 million in 2001, $51 million in 2000 and $50 million in 1999. Future minimum payments under noncancellable obligations are as follows:
(IN THOUSANDS) -------------------------------------------------------------------------------- 2002 $69,453 2003 67,848 2004 58,210 2005 50,467 2006 38,384 2007 and later 255,401 ================================================================================ |
8 DEPOSITS
A maturity distribution of domestic certificates of deposits of $100,000 and over at December 31 follows:
(IN MILLIONS)
--------------------------------------------------------------------------------
2001 2000
--------------------------------------------------------------------------------
Three months or less $4,387 $3,206
Over three months to six months 1,513 2,028
Over six months to twelve months 1,946 2,061
Over twelve months 501 349
--------------------------------------------------------------------------------
Total $8,347 $7,644
================================================================================
|
9 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
(IN THOUSANDS)
--------------------------------------------------------------------------------
FEDERAL FUNDS PURCHASED AND OTHER
SECURITIES SOLD UNDER BORROWED
DECEMBER 31, 2001 AGREEMENTS TO REPURCHASE FUNDS
--------------------------------------------------------------------------------
Amount outstanding at year-end $1,693,447 $ 292,816
Weighted average interest rate at year-end 1.64% 1.81%
DECEMBER 31, 2000
Amount outstanding at year-end $1,640,006 $453,375
Weighted average interest rate at year-end 6.37% 5.51%
DECEMBER 31, 1999
Amount outstanding at year-end $1,387,536 $1,537,158
Weighted average interest rate at year-end 4.43% 4.45%
================================================================================
|
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 table at left provides a summary of short-term borrowings at December 31, 2001 and 2000.
At December 31, 2001, the parent company had available a $250 million commercial paper facility of which $140 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 2002.
At December 31, 2001, the Corporation's subsidiary banks had pledged loans totaling $21.8 billion to secure a $16 billion collateralized borrowing account with the Federal Reserve Bank.
10 MEDIUM- & LONG- TERM DEBT
Medium- and long-term debt consisted of the following at December 31:
(IN THOUSANDS)
--------------------------------------------------------------------------------
2001 2000
--------------------------------------------------------------------------------
Parent Company
7.25% subordinated notes due 2007 $ 156,288 $ 157,414
Subsidiaries
Subordinated notes:
7.25% subordinated notes due 2007 215,747 198,703
8.375% subordinated notes due 2024 179,152 155,071
7.25% subordinated notes due 2002 186,774 149,719
6.875% subordinated notes due 2008 107,642 103,272
7.125% subordinated notes due 2013 155,490 154,486
7.875% subordinated notes due 2026 168,029 172,346
6.00% subordinated notes due 2008 256,031 248,238
7.65% subordinated notes due 2010 267,661 248,385
8.50% subordinated notes due 2009 102,234 99,474
--------------------------------------------------------------------------------
Total subordinated notes 1,638,760 1,529,694
Medium-term notes:
Floating rate based on LIBOR indices 2,355,618 5,048,972
Floating rate based on Treasury indices -- 125,000
Floating rate based on Prime indices -- 1,320,964
--------------------------------------------------------------------------------
Total medium-term notes 2,355,618 6,494,936
Variable rate secured debt financings
due 2007 956,260 --
Notes payable -- 13,445
9.98% trust preferred securities due 2026 56,234 63,690
7.60% trust preferred securities due 2050 339,351 --
--------------------------------------------------------------------------------
Total subsidiaries 5,346,223 8,101,765
--------------------------------------------------------------------------------
Total medium- and long-term debt $5,502,511 $8,259,179
================================================================================
|
The carrying value of medium- and long-term debt in 2001 has been adjusted to reflect the gain or loss attributable to the risk hedged by risk management interest rate swaps that qualify as fair value hedges. 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.
(DOLLAR AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------
PRINCIPAL AMOUNT BASE
OF DEBT RATE AT
CONVERTED BASE RATE 12/31/01
--------------------------------------------------------------------------------
Parent company
7.25% subordinated notes $150,000 6-month LIBOR 2.01%
Subsidiaries
Subordinated notes:
7.25% subordinated notes $200,000 6-month LIBOR 2.01%
8.375% subordinated notes 150,000 6-month LIBOR 2.01%
7.25% subordinated notes 150,000 6-month LIBOR 2.01%
6.875% subordinated notes 100,000 6-month LIBOR 2.01%
6.00% subordinated notes 250,000 6-month LIBOR 2.01%
7.125% subordinated notes 150,000 6-month LIBOR 2.01%
7.875% subordinated notes 150,000 6-month LIBOR 2.01%
7.65% subordinated notes 250,000 3-month LIBOR 1.91%
8.50% subordinated notes 100,000 3-month LIBOR 1.91%
================================================================================
|
All subordinated notes 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 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 2002 to 2005. There are no floating rate notes outstanding based on Treasury or Prime indices at December 31, 2001. The medium-term notes do not qualify as Tier 2 capital and are not insured by the FDIC. In July 2001, Comerica issued $350 million of 7.60% Trust Preferred Securities which are classified in medium- and long-term debt. The securities pay interest each quarter beginning October 1, 2001, and are callable any time after July 30, 2006. The Corporation used the proceeds from the issuance to redeem and retire in total the $250 million of preferred stock that was outstanding and for other general corporate purposes. The Corporation also has $55 million of 9.98% trust preferred securities classified in medium- and long-term debt at December 31, 2001. The securities pay interest semi-annually in June and December, and are callable anytime after June 30, 2007. The Corporation purchased and retired $10 million of these securities in 2001.
In December 2001, the Corporation privately placed approximately $1 billion of variable rate notes as part of a secured financing transaction. The Corporation utilized approximately $1.2 billion of dealer floor plan loans as collateral in conjunction with this transaction. The over-collateralization of the issuance provided for a preferred credit rating status. The secured financing includes $904 million of deferred payment notes bearing interest at the rate of 30 basis points plus a commercial paper reference rate, and $60 million of deferred payment notes based on one-month LIBOR. The interest rate on each of these note issuances is reset monthly. The $904 deferred payment notes, which may be redeemed upon the occurence of certain conditions, mature in December 2007. Interest will accrue on the $60 million deferred payment notes until January 2007, at which time the notes become redeemable by the holder. These 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)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2002 $1,558,000
2003 680,000
2004 100,000
2005 185,000
2006 --
2007 and later 2,879,000
================================================================================
|
11 SHAREHOLDERS' EQUITY
In October 2000, in connection with the Imperial acquisition, the Board of Directors of the Corporation rescinded the then existing share repurchase program. In March 2001, the Board approved a one million (1,000,000) share repurchase program, which was completed in the third quarter 2001. In August 2001, the Board authorized the repurchase of up to an additional ten million (10,000,000) shares of Comerica Incorporated outstanding common stock. At December 31, 2001, 1.2 million shares had been repurchased under this program.
At December 31, 2001, the Corporation had reserved 29.0 million shares of common stock for issuance to employees and directors under the long-term incentive plans.
In August 2001, the Corporation retired 5 million shares of Fixed/Adjustable Rate Noncumulative Preferred Stock, Series E, with a stated value of $50 per share.
12 OTHER COMPREHENSIVE INCOME
Other comprehensive income includes the change in unrealized gains and losses on investment securities available for sale, the change in accumulated net gains and losses on cash flow hedges 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, 2001, 2000 and 1999.
The adoption of Statement No. 133 on January 1, 2001 resulted in a cumulative effect of an accounting change of $65 million, $42 million net of tax, included in other comprehensive income. For a further discussion of the effect of derivative instruments on other comprehensive income see Notes 1 and 20 to the consolidated financial statements.
(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 2001 2000 1999
--------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) on investment securities available for sale:
Balance at beginning of year $ 8,016 $ (22,719) $ (8,203)
Net unrealized holding gains (losses) arising during the period 31,901 61,996 (12,452)
Less: Reclassification adjustment for gains (losses) included
in net income 19,763 16,295 8,675
--------------------------------------------------------------------------------------------------------------------
Change in net unrealized gains (losses) before income taxes 12,138 45,701 (21,127)
Provision for income taxes 4,248 14,966 (6,611)
--------------------------------------------------------------------------------------------------------------------
Change in net unrealized gains (losses) on investment securities
available for sale, net of tax 7,890 30,735 (14,516)
--------------------------------------------------------------------------------------------------------------------
Balance at December 31 $ 15,906 $ 8,016 $ (22,719)
Accumulated net gains (losses) on cash flow hedges:
Balance at beginning of year $ -- $ -- $ --
Transition adjustment upon adoption of accounting standard 64,705 -- --
Net cash flow hedge gains (losses) arising during the period 432,744 -- --
Less: Reclassification adjustment for gains (losses) included
in net income 174,618 -- --
--------------------------------------------------------------------------------------------------------------------
Change in cash flow hedges before income taxes 322,831 -- --
Provision for income taxes 112,991 -- --
--------------------------------------------------------------------------------------------------------------------
Change in cash flow hedges, net of tax 209,840 -- --
--------------------------------------------------------------------------------------------------------------------
Balance at December 31 $ 209,840 $ -- $ --
Accumulated foreign currency translation adjustment:
Balance at beginning of year $ 4,081 $ 1,015 $ 1,233
Net translation gains (losses) arising during the period (4,853) 3,066 (218)
Less: Reclassification adjustment for gains (losses) included
in net income (643) -- --
--------------------------------------------------------------------------------------------------------------------
Change in translation adjustment before income taxes (4,210) 3,066 (218)
Provision for income taxes -- -- --
--------------------------------------------------------------------------------------------------------------------
Change in foreign currency translation adjustment, net of tax (4,210) 3,066 (218)
--------------------------------------------------------------------------------------------------------------------
Balance at December 31 $ (129) $ 4,081 $ 1,015
--------------------------------------------------------------------------------------------------------------------
Total accumulated other comprehensive income, net of taxes,
at December 31 $ 225,617 $ 12,097 $ (21,704)
====================================================================================================================
|
13 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. Unallocated employee stock ownership plan shares are not included in average shares outstanding. A computation of earnings per share is presented at right.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 2001 2000 1999
----------------------------------------------------------------------------------------------
Basic
Average shares outstanding 177,665 176,826 176,771
==============================================================================================
Net income $709,578 $790,735 $759,415
Less preferred stock dividends 11,608 17,100 17,100
----------------------------------------------------------------------------------------------
Net income applicable to common stock $697,970 $773,635 $742,315
==============================================================================================
Basic net income per common share $ 3.93 $ 4.38 $ 4.20
==============================================================================================
Diluted
Average shares outstanding 177,665 176,826 176,771
Nonvested stock 238 159 167
Common stock equivalents
Net effect of the assumed
exercise of stock options 2,121 2,395 2,863
----------------------------------------------------------------------------------------------
Diluted average shares 180,024 179,380 179,801
==============================================================================================
Net income $709,578 $790,735 $759,415
Less preferred stock dividends 11,608 17,100 17,100
----------------------------------------------------------------------------------------------
Net income applicable to common stock $697,970 $773,635 $742,315
==============================================================================================
Diluted net income per common share $ 3.88 $ 4.31 $ 4.13
==============================================================================================
|
14 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 intrinsic value method in accounting for its employee and director stock options when the exercise price 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:
---------------------------------------------------------------------------
2001 2000 1999
---------------------------------------------------------------------------
Risk-free interest rate 4.88% 6.46% 5.15%
Expected dividend yield 2.66% 2.84% 3.24%
Expected volatility factors of the market
price of Comerica common stock 31% 28% 24%
Expected option life (in years) 4.8 4.8 4.8
============================================================================
|
--------------------------------------------------------------------------------
AVERAGE PER SHARE
EXERCISE MARKET
NUMBER PRICE PRICE
--------------------------------------------------------------------------------
Outstanding - December 31, 1998 10,234,956 $ 33.26 $68.19
Granted 2,388,392 64.86 66.63
Cancelled (259,697) 56.27 58.69
Exercised (801,136) 18.44 62.76
Expired --
--------------------------------------------------------------------------------
Outstanding - December 31, 1999 11,562,515 $ 40.32 $46.69
Granted 2,781,847 42.53 41.95
Cancelled (261,986) 50.92 49.58
Exercised (1,522,564) 17.16 17.31
Expired --
--------------------------------------------------------------------------------
Outstanding - December 31, 2000 12,559,812 $ 43.38 $59.38
Granted 2,566,441 52.00 52.00
Cancelled (269,735) 54.32 64.74
Exercised (1,757,074) 28.71 59.70
Expired --
--------------------------------------------------------------------------------
Outstanding - December 31, 2001 13,099,444 $ 46.81 $57.30
================================================================================
Exercisable - December 31, 2000 8,026,508 $ 39.09
Exercisable - December 31, 2001 8,159,135 43.13
Available for grant - December 31, 2001 15,893,000
================================================================================
|
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)
--------------------------------------------------------------------------------
2001 2000 1999
--------------------------------------------------------------------------------
Pro forma net income applicable
to common stock $653,266 $747,700 $719,598
Pro forma earnings per share:
Basic $ 3.68 $ 4.23 $ 4.07
Diluted 3.63 4.17 4.00
================================================================================
|
14 LONG-TERM INCENTIVE PLANS (CONTINUED)
The pro forma net income and earnings per share presented on the previous page includes the compensation cost associated with options to acquire OPAY stock granted to employees of the Corporation's OPAY subsidiary. Other disclosures provided in this note do not include information related to the OPAY stock option plan. Pro forma net income applicable to common and earnings per share in 2001 was affected by the accelerated vesting of former Imperial and OPAY stock options as a result of the Imperial acquisition.
The table to the right summarizes information about stock options outstanding at December 31, 2001:
----------------------------------------------------------------------------
OUTSTANDING EXERCISABLE
----------------------------------------------------------------------------
AVERAGE AVERAGE
EXERCISE AVERAGE EXERCISE EXERCISE
PRICE RANGE SHARES LIFE (A) PRICE SHARES PRICE
----------------------------------------------------------------------------
$ 5.87 - $18.75 1,272,196 2.9 $17.75 1,272,196 $17.75
19.83 - 37.74 1,893,037 3.7 24.84 1,893,037 24.84
40.09 - 49.81 3,520,206 7.2 41.42 2,213,548 41.36
50.17 - 59.24 2,606,273 9.3 54.58 88,863 53.16
60.31 - 66.81 2,076,506 7.2 66.59 1,300,885 66.52
68.44 - 71.58 1,731,226 6.2 71.58 1,390,606 71.58
----------------------------------------------------------------------------
Total 13,099,444 6.6 46.81 8,159,135 43.13
============================================================================
|
(a) Average contractual life remaining in years.
In 2001, the Corporation awarded 162 thousand shares of restricted stock. The fair value of these shares at grant date was $9 million.
15 EMPLOYEE BENEFIT PLANS
The Corporation has a defined benefit pension plan in effect for substantially all full-time employees. Staff expense includes income of $1.4 million in 2001, $7.9 million in 2000 and $0.8 million in 1999 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, and life insurance only for retirees after 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:
(IN THOUSANDS)
---------------------------------------------------------------------------------------------------
DEFINED BENEFIT POSTRETIREMENT
PENSION PLAN BENEFIT PLAN
---------------------------------------------------------------------------------------------------
2001 2000 2001 2000
---------------------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at January 1 $ 590,627 $ 509,686 $ 75,952 $ 74,562
Service cost 15,548 13,531 88 79
Interest cost 46,998 42,839 5,708 5,541
Amendments -- 25,696 -- --
Actuarial (gain) loss 65,164 22,294 1,853 2,892
Benefits paid (25,042) (23,419) (6,112) (7,122)
---------------------------------------------------------------------------------------------------
Benefit obligation at
December 31 $ 693,295 $ 590,627 $ 77,489 $ 75,952
===================================================================================================
Change in plan assets:
Fair value of plan assets at
January 1 $ 631,019 $ 651,782 $ 85,711 $ 84,391
Actual return on plan assets (33,829) 2,656 637 5,136
Employer contributions 36,600 -- 3,089 3,306
Benefits paid (25,042) (23,419) (6,112) (7,122)
---------------------------------------------------------------------------------------------------
Fair value of plan assets at
December 31 $ 608,748 $ 631,019 $ 83,325 $ 85,711
===================================================================================================
|
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:
(IN THOUSANDS)
-----------------------------------------------------------------------------------------------
DEFINED BENEFIT POSTRETIREMENT
PENSION PLAN BENEFIT PLAN
-----------------------------------------------------------------------------------------------
2001 2000 2001 2000
-----------------------------------------------------------------------------------------------
Funded status at
December 31 $ (84,547) $ 40,393 $ 5,836 $ 9,758
Unrecognized net (gain) loss 139,142 (24,927) 10,606 3,282
Unrecognized net transition
(asset) obligation 19,576 (856) 47,083 51,388
Unrecognized prior service
cost -- 21,597 -- --
-----------------------------------------------------------------------------------------------
Prepaid benefit cost $ 74,171 $ 36,207 $ 63,525 $ 64,428
===============================================================================================
|
The change in funding status of the defined benefit pension plan from 2000 to 2001 is a result of lower than expected investment performance in 2001. Future contributions to the plan and improved earnings performance of the plan is expected to return the plan to a fully funded status. The Corporation has met or exceeded all minimum funding standards for the defined benefit pension plan.
Components of net periodic benefit cost (income):
DEFINED BENEFIT PENSION PLAN
(IN THOUSANDS)
----------------------------------------------------------------------------------
2001 2000 1999
----------------------------------------------------------------------------------
Service cost $ 15,548 $ 13,531 $ 15,387
Interest cost 46,999 42,839 38,118
Expected return on plan assets (67,145) (60,920) (51,241)
Amortization of unrecognized
transition asset 2,069 (4,834) (4,834)
Amortization of unrecognized prior
service cost 2,021 2,026 (322)
Amortization of unrecognized net
(gain) loss (856) (584) 2,132
----------------------------------------------------------------------------------
Net periodic benefit income $ (1,364) $ (7,942) $ (760)
==================================================================================
|
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:
(IN THOUSANDS)
-----------------------------------------------------------------------------------------------
DEFINED BENEFIT POSTRETIREMENT
PENSION PLAN BENEFIT PLAN
-----------------------------------------------------------------------------------------------
2001 2000 2001 2000
-----------------------------------------------------------------------------------------------
Funded status at
December 31 $ (84,547) $ 40,393 $ 5,836 $ 9,758
Unrecognized net (gain) loss 139,142 (24,927) 10,606 3,282
Unrecognized net transition
(asset) obligation 19,576 (856) 47,083 51,388
Unrecognized prior service
cost -- 21,597 -- --
-----------------------------------------------------------------------------------------------
Prepaid benefit cost $ 74,171 $ 36,207 $ 63,525 $ 64,428
===============================================================================================
|
The change in funding status of the defined benefit pension plan from 2000 to 2001 is a result of lower than expected investment performance in 2001. Future contributions to the plan and improved earnings performance of the plan is expected to return the plan to a fully funded status. The Corporation has met or exceeded all minimum funding standards for the defined benefit pension plan.
Components of net periodic benefit cost (income):
DEFINED BENEFIT PENSION PLAN
(IN THOUSANDS)
----------------------------------------------------------------------------------
2001 2000 1999
----------------------------------------------------------------------------------
Service cost $ 15,548 $ 13,531 $ 15,387
Interest cost 46,999 42,839 38,118
Expected return on plan assets (67,145) (60,920) (51,241)
Amortization of unrecognized
transition asset 2,069 (4,834) (4,834)
Amortization of unrecognized prior
service cost 2,021 2,026 (322)
Amortization of unrecognized net
(gain) loss (856) (584) 2,132
----------------------------------------------------------------------------------
Net periodic benefit income $ (1,364) $ (7,942) $ (760)
==================================================================================
|
15 EMPLOYEE BENEFIT PLANS (CONTINUED)
POSTRETIREMENT BENEFIT PLAN
(IN THOUSANDS)
--------------------------------------------------------------------------
2001 2000 1999
--------------------------------------------------------------------------
Service cost $ 88 $ 79 $ 256
Interest cost 5,708 5,541 5,308
Expected return on plan assets (6,109) (6,069) (5,935)
Amortization of unrecognized
transition obligation 4,306 4,305 4,628
--------------------------------------------------------------------------
Net periodic benefit cost $ 3,993 $ 3,856 $ 4,257
|
Actuarial assumptions were as follows:
DEFINED BENEFIT PENSION PLAN
--------------------------------------------------------------------------------
2001 2000 1999
--------------------------------------------------------------------------------
Discount rate used in determining
benefit obligation 7.4% 7.9% 8.0%
Long-term rate of return on assets 10.0% 10.0% 9.3%
Rate of compensation increase 5.0% 5.0% 5.0%
|
POSTRETIREMENT BENEFIT PLAN
-----------------------------------------------------------------------
2001 2000 1999
-----------------------------------------------------------------------
Discount rate used in determining
benefit obligation 7.4% 7.9% 8.0%
Long-term rate of return on assets 6.7% 6.7% 6.7%
=======================================================================
|
The health care and prescription drug cost trend rates projected for 2001 were eight percent and 10 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 $6 million at December 31, 2001, and the aggregate of the service and interest cost components by $418 thousand for the year ended December 31, 2001. Decreasing each health care rate by one percentage point would decrease the accumulated postretirement benefit obligation by $5 million at December 31, 2001, and the aggregate of the service and interest cost components by $367 thousand for the year ended December 31, 2001.
The Corporation also maintains defined contribution plans (including 401(k) plans) for various groups of its employees. All of the Corporation's 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 $16.6 million in 2001, $18.7 million in 2000 and $16.7 million in 1999 for the plans.
Prior to the merger, Imperial maintained an employee stock ownership plan ("ESOP") for certain employees. Imperial recorded compensation expense equal to the fair value of the shares allocated under the plan. The contributions to the plan are discretionary. At December 31, 2000 the plan was externally leveraged. Imperial borrowed $6 million from a correspondent bank in 1999 and an additional $6 million in 2000 to fund the purchase of 133,723 and 165,227 shares of common stock, respectively, for contribution to the ESOP. In 2001 the plan was converted to an internally leveraged plan and merged into the Corporation's 401(k) plan. Shares are released to the ESOP as principal and interest payments are made on the loans. In 2001, a total of 44,508 shares of common stock, with a cost basis of $1.7 million, were released to the ESOP. For 2000, a total of 70,183 shares, with a cost basis of $3.0 million, were released to the ESOP. At December 31, 2001 and 2000, unearned compensation related to the ESOP of $5.0 million and $6.8 million, respectively, was reflected as a reduction of shareholders' equity. The fair value of unallocated ESOP shares totaled $7.6 million and $10.5 million at December 31, 2001 and 2000, respectively.
Prior to the merger, Imperial also maintained a Deferred Compensation Plan ("DC Plan") to provide specified benefits to certain employees and directors. The DC Plan allowed participants to defer all or a portion of their salary and bonus. Imperial matched from 0% to 50% of certain participants' deferrals under the plan. The match percentage was 25% for 2001 and 50% for 2000 and 1999. The expense related to funding the deferred compensation match totaled $0.6 million, $5.1 million and $3.0 million for the years ended December 31, 2001, 2000 and 1999, respectively. The plan was merged into the Corporation's deferred compensation plan at June 30, 2001. No additional matching contributions are paid to participants under the terms of the merged plan.
16 INCOME TAXES
The current and deferred components of income taxes were as follows:
(IN THOUSANDS)
--------------------------------------------------------------------------------
2001 2000 1999
--------------------------------------------------------------------------------
Currently payable
Federal $305,153 $360,514 $337,127
Foreign 17,570 16,120 22,797
State and local 33,723 20,809 31,019
--------------------------------------------------------------------------------
356,446 397,443 390,943
Deferred federal, state and local 44,613 33,349 28,404
--------------------------------------------------------------------------------
Total $401,059 $430,792 $419,347
================================================================================
|
There were $6.9 million, $4.4 million and $3.8 million of income tax provision on securities transactions in 2001, 2000 and 1999, respectively.
The principal components of deferred tax assets and liabilities at December 31 is presented at right:
(IN THOUSANDS)
--------------------------------------------------------------------------------
1001 2000
--------------------------------------------------------------------------------
Deferred tax assets:
Allowance for credit losses $214,307 $195,425
Allowance for depreciation 9,642 3,302
Deferred loan origination fees and costs 33,413 31,617
Employee benefits 37,712 30,627
Other temporary differences, net 85,217 52,109
--------------------------------------------------------------------------------
Total deferred tax assets $380,291 $313,080
Deferred tax liabilities:
Lease financing transactions $423,456 $310,624
OPAY 11,919 13,029
Other comprehensive income 122,324 4,251
--------------------------------------------------------------------------------
Total deferred tax liabilities 557,699 327,904
--------------------------------------------------------------------------------
Net deferred tax liability $177,408 $ 14,824
================================================================================
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16 INCOME TAXES (CONTINUED)
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)
-------------------------------------------------------------------------------------------------------------
2001 2000 1999
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------------------------------------------------------------------------------------------------------------
Tax based on federal statutory rate $ 388,723 35.0% $ 427,535 35.0% $ 412,567 35.0%
Effect of tax-exempt interest income (1,807) (0.2) (1,917) (0.2) (2,856) (0.2)
State income taxes 24,275 2.2 18,419 1.5 15,561 1.3
Company owned life insurance (13,475) (1.2) (11,553) (0.9) (11,054) (0.9)
Goodwill 7,189 0.6 7,557 0.6 7,584 0.6
Merger-related tax liability adjustment (6,853) (0.6) -- -- -- --
Other 3,007 0.3 (9,249) (0.7) (2,455) (0.2)
-------------------------------------------------------------------------------------------------------------
Provision for income taxes $ 401,059 36.1% $ 430,792 35.3% $ 419,347 35.6%
=============================================================================================================
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17 MERGER-RELATED AND RESTRUCTURING CHARGES
IMPERIAL BANCORP RESTRUCTURING
The Corporation recorded a restructuring charge of $173 million in 2001 related to the acquisition of Imperial Bancorp. The components of this charge, which included $25 million recorded in the provision for credit losses and $148 million recorded in noninterest expenses, are shown in the table below. The integration with Imperial was completed in the fourth quarter of 2001. No additional Imperial-related restructuring charges are expected.
Employee termination costs included the cost of severance, outplacement and other benefits associated with the involuntary termination of employees, primarily senior management and employees in corporate support and data processing functions. A total of 352 employees were terminated in 2001 as part of the restructuring plan. Other employee-related costs include cash payments related to change in control provisions in employment contracts and retention bonuses.
The charge related to conforming policies represents costs associated with conforming the credit and accounting policies of Imperial with those of the Corporation. Of the $36 million charge associated with conforming policies, $25 million was included in the provision for credit losses on the statement of income in the first quarter of 2001. The remaining amount related primarily to a gain on the sale of Imperial's merchant bankcard business, required under an existing Comerica alliance agreement, and conforming commercial equipment lease residual values policies.
The Corporation incurred facilities and operations charges associated with closing excess facilities and replacing signage.
Other merger-related restructuring costs were primarily comprised of investment banking, accounting, consulting and legal fees.
OFFICIAL PAYMENTS CORPORATION (OPAY) RESTRUCTURING
The Corporation recorded a restructuring charge of $4 million in the fourth quarter of 2001 related to its subsidiary, Official Payments Corporation (OPAY), designed to significantly reduce operating expenses and its use of cash. The OPAY restructuring charge is shown net of the portion of the charge attributable to the minority shareholders in OPAY. As part of the restructuring program, OPAY will incorporate newly developed technology into its operations resulting in reductions in salaries and benefits, marketing, administrative and telecommunications costs. No additional restructuring charges are expected as part of this plan.
The restructuring charge included employee termination costs of $1 million which covered the cost of severance, outplacement and other benefits associated with the involuntary termination of
RESTRUCTURING RESERVE ANALYSIS
(IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------------------------
OTHER FACILITIES
EMPLOYEE EMPLOYEE- CONFORMING AND IMPERIAL OPAY COMBINED
TERMINATION RELATED POLICIES OPERATIONS OTHER TOTAL TOTAL TOTAL
------------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 2001 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Provision expense charged to
operating expense 35,200 49,200 35,900 23,500 28,900 172,700 4,000 176,700
Cash outlays (29,900) (36,000) -- (2,500) (28,400) (96,800) (300) (97,100)
Noncash write-downs and other -- (11,100) (35,900) (21,000) -- (68,000) (1,500) (69,500)
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $ 5,300 $ 2,100 $ -- $ -- $ 500 $ 7,900 $ 2,200 $ 10,100
====================================================================================================================================
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17 MERGER-RELATED AND RESTRUCTURING CHARGES (CONTINUED)
employees, primarily in corporate support and product development areas. A total of 44 employees are expected to be severed as part of the restructuring plan, 33 of which occurred during the fourth quarter. The remaining employee severances will occur during 2002.
The remainder of the charge was for facilities and operations charges of $3 million associated with asset write-downs and lease terminations for excess facilities and equipment disposed of as part of the restructuring effort.
18 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, 2001, totaled $401 million at the beginning and $406 million at the end of 2001. During 2001, new loans to related parties aggregated $448 million and repayments totaled $443 million.
19 REGULATORY CAPITAL & 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 $641 million at January 1, 2002, 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 $580 million in 2001, $339 million in 2000 and $261 million in 1999.
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. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements. At December 31, 2001 and 2000, 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.
(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------------
COMERICA INC. COMERICA COMERICA BANK- COMERICA BANK-
DECEMBER 31, 2001 (CONSOLIDATED) BANK TEXAS CALIFORNIA
--------------------------------------------------------------------------------------------------------------------------
Tier 1 common capital $4,282,890 $2,946,887 $401,797 $1,174,524
Tier 1 capital 4,678,475 3,166,887 401,797 1,174,524
Total capital 6,860,542 4,880,733 548,680 1,570,924
Tier 1 common capital to risk-weighted assets 7.30% 6.99% 9.02% 8.94%
Tier 1 capital to risk-weighted assets (minimum-4.0%) 7.98 7.52 9.02 8.94
Total capital to risk-weighted assets (minimum-8.0%) 11.70 11.58 12.31 11.96
Tier 1 capital to average assets (minimum-3.0%) 9.36 8.90 10.42 8.66
DECEMBER 31, 2000
Tier 1 common capital $3,914,196 $2,923,331 $370,520 $ 980,768
Tier 1 capital 4,230,159 2,923,331 370,520 996,768
Total capital 6,398,904 4,600,732 519,976 1,378,907
Tier 1 common capital to risk-weighted assets 6.80% 7.09% 9.43% 7.65%
Tier 1 capital to risk-weighted assets (minimum-4.0%) 7.35 7.09 9.43 7.78
Total capital to risk-weighted assets (minimum-8.0%) 11.11 11.16 13.23 10.76
Tier 1 capital to average assets (minimum-3.0%) 8.74 8.91 9.95 8.17
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20 DERIVATIVE AND CREDIT-RELATED FINANCIAL INSTRUMENTS AND FOREIGN EXCHANGE CONTRACTS
In the normal course of business, the Corporation enters into various 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.
Credit risk is the possible loss that may occur in the event of non-performance by the counterparty to a financial instrument. The Corporation attempts to minimize credit risk arising from financial instruments by evaluating the creditworthiness of each counterparty, adhering to the same credit approval process used for traditional lending activities. Counterparty risk limits and monitoring procedures have also been established to facilitate the management of credit risk. Collateral is obtained, if deemed necessary, based on the results of management's credit evaluation. Collateral varies, but may include cash, investment securities, accounts receivable, 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 derivative and foreign exchange contracts held or issued for risk management purposes is generally offset by changes in the value of rate sensitive assets or liabilities.
DERIVATIVE FINANCIAL INSTRUMENTS AND
FOREIGN EXCHANGE CONTRACTS
The Corporation, as an end-user, employs a variety of financial instruments for risk management purposes. Activity related to these instruments is centered predominantly in the interest rate markets and mainly involves interest rate swaps. Various other types of instruments 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. As part of a fair value hedging strategy, the Corporation has entered into interest rate swap agreements for interest rate risk management purposes. The interest rate swap agreements utilized, effectively modify the Corporation's exposure to interest rate risk by converting fixed-rate deposits and debt to a floating rate. These agreements involve the receipt of fixed rate of interest amounts in exchange for floating rate interest payments over the life of the agreement, without an exchange of the underlying principal amount. No ineffectiveness was required to be recorded on these hedging instruments in the statement of income for the year ended December 31, 2001. As part of a cash flow hedging strategy, the Corporation entered into predominantly 3-year interest rate swap agreements that effectively convert a portion of its existing and forecasted floating-rate loans to a fixed-rate basis, thus reducing the impact of interest rate changes on future interest income over the next three years. Approximately 27% ($11 billion) of the Corporation's outstanding loans were designated as the hedged items to interest rate swap agreements at December 31, 2001. For the year ended December 31, 2001, interest rate swap agreements designated as cash flow hedges increased interest and fees on loans by $175 million. Hedge ineffectiveness that resulted from cash flow hedges of variable rate loans was not material. If interest rates and interest curves remain at their current levels, the Corporation expects to reclassify $198 million of net gains on derivative instruments, that are designated as cash flow hedges, from accumulated other comprehensive income to earnings during the next twelve months due to receipt of variable interest associated with the existing and forecasted floating-rate loans. In addition, the Corporation uses forward foreign exchange contracts to protect the value of its foreign subsidiaries. Realized and unrealized gains and losses from these hedges are not included in the statement of income, but are shown in the accumulated foreign currency translation adjustment account included in other comprehensive income, with the related amounts due to or from counterparties included in other liabilities or other assets. During the year ended December 31, 2001 and 2000, the Corporation recognized immaterial amounts of net gains in accumulated foreign currency translation adjustment, related to the forward foreign exchange contracts.
The Corporation also uses various other types of financial instruments to mitigate interest rate and foreign currency risks associated with specific assets or liabilities. Such instruments include interest rate caps and floors, foreign exchange forward contracts, and foreign exchange cross-currency swaps.
The following table presents the composition of derivative financial instruments and foreign exchange contracts, excluding commitments, held or issued for risk management purposes at December 31, 2001 and 2000. In 2001, the fair values of all derivatives and foreign exchange contracts are reflected in the consolidated balance sheets, as required by SFAS No. 133. In 2000, only the fair values of customer-initiated and other derivatives and foreign exchange contracts are reflected in the consolidated balance sheets.
20 DERIVATIVE AND CREDIT-RELATED FINANCIAL INSTRUMENTS AND FOREIGN EXCHANGE CONTRACTS (CONTINUED)
(IN MILLIONS)
-----------------------------------------------------------------------------------
NOTIONAL/
CONTRACT UNREALIZED UNREALIZED FAIR
DECEMBER 31, 2001 AMOUNT GAINS LOSSES VALUE
-----------------------------------------------------------------------------------
Risk management
Interest rate contracts:
Swaps $14,497 $573 $ (2) $571
Foreign exchange contracts:
Spot and forwards 535 10 (4) 6
Swaps 285 2 (17) (15)
-----------------------------------------------------------------------------------
Total foreign
exchange contracts 820 12 (21) (9)
-----------------------------------------------------------------------------------
Total risk management $15,317 $585 $(23) $562
===================================================================================
DECEMBER 31, 2000
Risk management
Interest rate contracts:
Swaps $12,594 $ 206 $(33) $173
Options, caps and
floors purchased 6,058 10 (1) 9
-----------------------------------------------------------------------------------
Total interest rate
contracts 18,652 216 (34) 182
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 $19,260 $ 235 $(53) $182
===================================================================================
|
Notional amounts, which represent the extent of involvement in the derivatives market, are generally used to determine the contractual cash flows required in accordance with the terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts subject to credit or market risk and are not reflected in the consolidated balance sheets.
Credit risk, which excludes the effects of any collateral or netting arrangements, is measured as the cost to replace, at current market rates, contracts in a profitable position. The amount of this exposure is represented by the gross unrealized gains on derivative and foreign exchange contracts.
Bilateral collateral agreements with counterparties covered 92 percent and 95 percent of the notional amount of interest rate derivative contracts at December 31, 2001 and 2000, respectively. These agreements reduce credit risk by providing for the exchange of marketable investment securities to secure amounts due on contracts in an unrealized gain position. In addition, at December 31, 2001, 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 contracts at the request of customers. Market risk inherent in customer contracts is often mitigated by taking offsetting positions. The Corporation generally 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, 2001, unrealized gains and unrealized losses on customer-initiated and other foreign exchange contracts averaged $43 million and $39 million, respectively. For the year ended December 31, 2000, unrealized gains and unrealized losses averaged $26 million and $19 million, respectively. These contracts also generated noninterest income of $21 million in 2001 and $9 million in 2000. Average positive and negative fair values and income related to customer-initiated and other interest rate contracts were not material for 2001 and 2000.
The following table presents the composition of derivative financial instruments and foreign exchange contracts held or issued in connection with customer-initiated and other activities at December 31, 2001 and 2000.
(IN MILLIONS)
-----------------------------------------------------------------------------------------------------
NOTIONAL/
CONTRACT UNREALIZED UNREALIZED FAIR
DECEMBER 31, 2001 AMOUNT GAINS LOSSES VALUE
-----------------------------------------------------------------------------------------------------
Customer-initiated and other
Interest rate contracts:
Caps and floors written $ 365 $ -- $ (4) $ (4)
Caps and floors
purchased 352 4 -- 4
Swaps 981 14 (13) 1
-----------------------------------------------------------------------------------------------------
Total interest rate
contracts 1,698 18 (17) 1
Foreign exchange contracts:
Spot, forwards, futures
and options 2,323 35 (29) 6
Swaps 366 2 (1) 1
-----------------------------------------------------------------------------------------------------
Total foreign
exchange contracts 2,689 37 (30) 7
-----------------------------------------------------------------------------------------------------
Total customer-initiated
and other $4,387 $ 55 $ (47) $ 8
=====================================================================================================
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 1,827 26 (19) 7
Swaps 50 -- -- --
-----------------------------------------------------------------------------------------------------
Total foreign
exchange contracts 1,877 26 (19) 7
-----------------------------------------------------------------------------------------------------
Total customer-initiated
and other $2,747 $ 32 $ (24) $ 8
=====================================================================================================
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20 DERIVATIVE AND CREDIT-RELATED FINANCIAL INSTRUMENTS AND FOREIGN EXCHANGE CONTRACTS (CONTINUED)
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.
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, 2001 and 2000. Commitments to purchase and sell investment securities for the Corporation's trading account totaled $11 million and $10 million, respectively, at December 31, 2001 and $1 million and $2 million, respectively, at December 31, 2000. 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)
-------------------------------------------------------------------------
2001 2000
-------------------------------------------------------------------------
Unused commitments to extend credit $28,695 $28,625
Standby letters of credit and financial guarantees 5,118 4,692
Commercial letters of credit 258 305
Credit default swaps 7 44
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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 bankcard, revolving check credit and equity access loan commitments of $1 billion at December 31, 2001 and 2000. Other unused commitments, primarily variable rate, totaled $28 billion at December 31, 2001 and 2000.
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 $1,562 million and $1,338 million at December 31, 2001 and 2000, respectively. The remaining standby letters of credit and financial guarantees, which mature within one year, totaled $3,556 million and $2,997 million at December 31, 2001 and 2000, 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 $7 million and $44 million at December 31, 2001 and 2000, respectively.
21 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.
22 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 $212 million and $201 million for the years ended December 31, 2001 and 2000, respectively.
23 ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosure of the estimated fair values of financial instruments, which differ from carrying values, often requires the use of estimates. In cases where quoted market values are not available, the Corporation uses present value techniques and other valuation methods to estimate the fair values of its financial instruments. These valuation methods require considerable judgment, and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used. Accordingly, the estimates provided herein do not necessarily indicate amounts which could be realized in a current exchange. Furthermore, as the Corporation 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 believes the imprecision of an estimate could be significant.
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 and consumer 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 and 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.
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.
23 ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Short-term borrowings: The carrying amount of federal funds purchased, securities sold under agreements to repurchase and other borrowings approximates estimated fair value.
Medium- and long-term debt: The estimated fair value of the Corporation's variable rate medium- and long-term debt is represented by its carrying value. The estimated fair value of the fixed rate medium- and long-term debt is based on quoted market values. If quoted market values are not available, the estimated fair value is based on the market values of debt with similar characteristics.
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. Beginning January 1, 2001, all derivative financial instruments and foreign exchange contracts are carried at fair value on the balance sheet.
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, 2001 and 2000 are as follows:
(IN MILLIONS)
---------------------------------------------------------------------------------------------------
2001 2000
---------------------------------------------------------------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------------------------------------------------------------------------------------------------
ASSETS
Cash and short-term
investments $ 2,620 $ 2,620 $ 3,404 $ 3,404
Trading account
securities 101 101 104 104
Loans held for sale 283 284 153 158
Investment securities
available for sale 4,291 4,291 3,891 3,891
Commercial loans 25,176 24,897 26,009 25,673
International loans 3,015 2,952 2,571 2,501
Real estate construction loans 3,258 3,262 2,915 2,926
Commercial mortgage loans 6,267 6,285 5,361 5,323
Residential mortgage loans 779 785 808 818
Consumer loans 1,484 1,468 1,477 1,500
Lease financing 1,217 1,208 1,029 1,086
---------------------------------------------------------------------------------------------------
Total loans 41,196 40,857 40,170 39,827
Less allowance for credit losses (655) -- (608) --
---------------------------------------------------------------------------------------------------
Net loans 40,541 40,857 39,562 39,827
Customers' liability on
acceptances outstanding 29 29 27 27
Loan servicing rights 9 9 7 7
LIABILITIES
Demand deposits
(noninterest-bearing) 12,596 12,596 10,188 10,188
Interest-bearing deposits 24,974 25,070 23,666 23,760
---------------------------------------------------------------------------------------------------
Total deposits 37,570 37,666 33,854 33,948
Short-term borrowings 1,986 1,986 2,093 2,093
Acceptances outstanding 29 29 27 27
Medium- and long-term
debt 5,503 5,490 8,259 8,209
DERIVATIVE
FINANCIAL
INSTRUMENTS
AND FOREIGN
EXCHANGE
CONTRACTS
Risk management:
Unrealized gains 585 585 7 235
Unrealized losses (23) (23) -- (53)
Customer-initiated and other:
Unrealized gains 55 55 35 32
Unrealized losses (47) (47) (27) (24)
CREDIT-RELATED
FINANCIAL
INSTRUMENTS -- (28) -- (89)
===================================================================================================
|
24 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, 2001. 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. Equity, (common equity plus Tier 1 qualifying trust preferred securities) 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 2001 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, international financial services and specialty deposit gathering. 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, small business banking (annual sales under $10 million) and private banking. This line of business offers a variety of consumer products, including deposit accounts, installment loans, credit cards, student loans, 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 institutional trust products, retirement services and provides investment management and advisory services (including Munder), investment banking and discount securities brokerage services. This line of business also offers the sale of mutual fund and annuity products, as well as life, disability and long-term care insurance products.
The Finance segment includes the Corporation's securities portfolio and asset and liability management activities. This segment is responsible for managing the Corporation's funding, liquidity and capital needs, performing interest sensitivity 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 and miscellaneous other items of a corporate nature.
24 BUSINESS SEGMENT INFORMATION (CONTINUED)
Lines of business/segment financial results were as follows:
(DOLLAR AMOUNTS IN MILLIONS)
------------------------------------------------------------------------------------------------------------------------------------
BUSINESS BANK INDIVIDUAL BANK INVESTMENT BANK*
------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
EARNINGS SUMMARY
Net interest income (FTE) $ 1,333 $ 1,275 $ 1,120 $ 738 $ 751 $ 707 $ (6) $ (10) $ (4)
Provision for credit losses 245 289 180 22 3 (5) -- -- --
Noninterest income 293 317 330 324 352 300 96 267 202
Noninterest expenses 572 602 559 616 612 604 197 233 176
Provision for income taxes (FTE) 294 257 265 141 167 141 (37) 12 9
Net income (loss) 515 444 446 283 321 267 (70) 12 13
SELECTED AVERAGE
BALANCES
Assets $ 35,648 $ 33,458 $ 30,424 $ 7,881 $ 7,202 $ 7,163 $ 398 $ 408 $ 247
Loans 34,080 31,987 28,800 7,269 6,658 6,690 22 53 --
Deposits 11,171 9,629 8,631 18,405 17,959 17,418 72 37 24
Allocated equity 2,798 2,428 1,958 894 809 745 267 282 197
STATISTICAL DATA
Return on average assets 1.44% 1.33% 1.47% 1.46% 1.71% 1.46% (17.28)% 2.70% 5.43%
Return on average allocated equity 18.40 18.29 22.80 31.63 39.72 35.78 (26.27) 4.26 6.80
Efficiency ratio 35.06 37.86 38.64 57.94 55.46 59.97 220.28 90.95 89.37
|
(DOLLAR AMOUNTS IN MILLIONS)
------------------------------------------------------------------------------------------------------------------------------------
FINANCE OTHER TOTAL
------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
EARNINGS SUMMARY
Net interest income (FTE) $ 42 $ (13) $ 2 $ (1) $ 5 $ (3) $ 2,106 $ 2,008 $ 1,822
Provision for credit losses -- -- -- (31) (37) (29) 236 255 146
Noninterest income 66 18 11 25 3 24 804 957 867
Noninterest expenses 8 4 4 166 33 16 1,559 1,484 1,359
Provision for income taxes (FTE) 42 1 2 (35) (2) 8 405 435 425
Net income (loss) 58 -- 7 (76) 14 26 710 791 759
SELECTED AVERAGE
BALANCES
Assets $ 4,230 $ 4,312 $ 3,615 $ 1,531 $ 1,497 $ 1,213 $49,688 $46,877 $42,662
Loans -- -- -- -- -- -- 41,371 38,698 35,490
Deposits 5,564 2,596 1,296 100 119 109 35,312 30,340 27,478
Allocated equity 752 399 335 (106) 45 174 4,605 3,963 3,409
STATISTICAL DATA
Return on average assets 0.33% (0.01)% 0.05% n/m% n/m% n/m% 1.43% 1.69% 1.78%
Return on average allocated equity 7.70 (0.21) 1.95 n/m n/m n/m 15.16 19.52 21.78
Efficiency ratio 9.10 (35.72) 49.18 n/m n/m n/m 53.95 50.35 50.70
|
* 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 $(63) million in 2001, $26 million in 2000 and $22 million in 1999. Return on average allocated equity would have been (23.39)% in 2001, 9.31% in 2000 and 11.38% in 1999.
n/m - not meaningful
25 PARENT COMPANY FINANCIAL STATEMENTS
BALANCE SHEETS - COMERICA INCORPORATED
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31 2001 2000
---------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from subsidiary bank $ 101,117 $ 9,918
Time deposits with banks 100 100
Short-term investments with subsidiary bank 12,000 112,000
Investment securities available for sale -- 47,262
Investment in subsidiaries, principally banks 5,371,101 4,634,579
Premises and equipment 3,052 3,391
Other assets 187,974 66,009
---------------------------------------------------------------------------------------------------------
Total assets $ 5,675,344 $ 4,873,259
=========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Commercial paper $ 139,909 $ 79,985
Long-term debt 156,288 157,414
Subordinated debt issued to and advances from subsidiaries 359,670 4,453
Other liabilities 212,013 131,248
---------------------------------------------------------------------------------------------------------
Total liabilities 867,880 373,100
Nonredeemable preferred stock - $50 stated value
Authorized - 5,000,000 shares
Issued - 5,000,000 shares at 12/31/00 -- 250,000
Common stock - $5 par value
Authorized - 325,000,000 shares
Issued - 178,749,198 shares at 12/31/01 and 177,703,678 shares at 12/31/00 893,746 888,519
Capital surplus 345,156 301,414
Unearned employee stock ownership plan shares - 131,954 shares at 12/31/01
and 176,462 shares at 12/31/00 (5,037) (6,750)
Accumulated other comprehensive income 225,617 12,097
Retained earnings 3,447,974 3,085,784
Deferred compensation (9,205) (14,494)
Less cost of common stock in treasury - 1,674,659 shares at 12/31/01
and 289,397 shares at 12/31/00 (90,787) (16,411)
---------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,807,464 4,500,159
---------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 5,675,344 $ 4,873,259
=========================================================================================================
|
STATEMENTS OF INCOME - COMERICA INCORPORATED
(IN THOUSANDS)
------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 2001 2000 1999
------------------------------------------------------------------------------------------------------
INCOME
Income from subsidiaries
Dividends from subsidiaries $ 579,719 $ 339,060 $ 260,603
Other interest income 2,121 6,464 808
Intercompany management fees 131,901 97,865 93,414
Other interest income -- 123 347
Other noninterest income 23,520 1,572 24,354
------------------------------------------------------------------------------------------------------
Total income 737,261 445,084 379,526
EXPENSES
Interest on commercial paper 3,940 5,432 4,976
Interest on long-term debt 7,590 10,140 11,535
Interest on subordinated debt issued to subsidiaries 12,671 -- --
Salaries and employee benefits 69,442 63,258 64,580
Occupancy expense 4,132 4,238 5,840
Equipment expense 1,175 1,721 1,572
Other noninterest expenses 22,003 35,131 29,730
------------------------------------------------------------------------------------------------------
Total expenses 120,953 119,920 118,233
------------------------------------------------------------------------------------------------------
Income before income taxes and equity in undistributed net income
of subsidiaries 616,308 325,164 261,293
Provision for income taxes 12,219 (4,528) 349
------------------------------------------------------------------------------------------------------
604,089 329,692 260,944
Equity in undistributed net income of subsidiaries, principally
banks 105,489 461,043 498,471
------------------------------------------------------------------------------------------------------
NET INCOME $ 709,578 $ 790,735 $ 759,415
======================================================================================================
|
25 PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS - COMERICA INCORPORATED
(IN THOUSANDS)
------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 2001 2000 1999
------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 709,578 $ 790,735 $ 759,415
Adjustments to reconcile net income to net cash provided
by operating activities
Undistributed earnings of subsidiaries, principally banks (105,489) (461,043) (498,471)
Gain on the sale of business (21,420) -- (21,339)
Depreciation 1,264 1,458 1,404
Other, net 18,348 4,513 12,729
------------------------------------------------------------------------------------------------------
Total adjustments (107,297) (455,072) (505,677)
------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 602,281 335,663 253,738
INVESTING ACTIVITIES
Purchase of investment securities available for sale -- (24,432) (7,687)
Proceeds from sale of investment securities available for sale -- 2,176 2,580
Proceeds from sales of fixed assets and other real estate 35 30 115
Purchases of fixed assets (909) (614) (316)
Net (increase) decrease in short-term investment with
subsidiary bank 100,000 (42,200) (47,300)
Net increase in private equity and venture capital investments (23,345) -- --
Net cash provided by sale of business 33,463 -- 14,432
Capital transactions with subsidiaries (421,190) (10,750) (5,610)
------------------------------------------------------------------------------------------------------
Net cash used in investing activities (311,946) (75,790) (43,786)
FINANCING ACTIVITIES
Net increase in subordinated debt issued to and advances
from subsidiaries 360,260 571 3,882
Repayments and purchases of long-term debt -- (1,129) (76,096)
Net increase in commercial paper 60,000 5,109 74,877
Proceeds from issuance of common stocks 65,286 20,618 23,268
Purchase of common stock for treasury and retirement (120,630) (14,108) (2,885)
Redemption of preferred stock (250,000) -- --
Dividends paid (314,052) (261,096) (235,646)
------------------------------------------------------------------------------------------------------
Net cash used in financing activities (199,136) (250,035) (212,600)
------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash on deposit at bank subsidiary 91,199 9,838 (2,648)
Cash on deposit at bank subsidiary at beginning of year 9,918 80 2,728
------------------------------------------------------------------------------------------------------
Cash on deposit at bank subsidiary at end of year $ 101,117 $ 9,918 $ 80
======================================================================================================
Interest paid $ 19,428 $ 16,251 $ 19,184
======================================================================================================
Income taxes paid (recovered) $ 16,815 $ (5,990) $ (9,807)
======================================================================================================
|
26 SUMMARY OF QUARTERLY FINANCIAL STATEMENTS
The following quarterly information is unaudited. However, in the opinion of management, the information reflects all adjustments which are necessary for the fair presentation of the results of operations for the periods presented.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
----------------------------------------------------------------------------------------------------------------------------
2001
----------------------------------------------------------------------------------------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
----------------------------------------------------------------------------------------------------------------------------
Interest income $ 755,012 $ 823,421 $ 874,654 $ 940,460
Interest expense 218,886 296,882 347,273 428,168
Net interest income 536,126 526,539 527,381 512,292
Provision for credit losses (1) 69,000 58,000 37,000 72,000
Securities gains (losses) (2,766) (468) (747) 23,744
Noninterest income (excluding securities gains (losses)) 218,058 215,610 203,663 146,238
Merger-related and restructuring charges 25,043 18,246 14,122 94,304
Noninterest expenses, excluding merger-related and
restructuring charges 346,387 346,568 358,690 355,673
Net income 198,979 208,535 208,472 93,592
-- excluding merger-related and restructuring charges 217,222 219,118 216,663 188,703
Basic net income per common share $ 1.12 $ 1.16 $ 1.15 $ 0.50
Diluted net income per common share 1.11 1.14 1.13 0.50
-- excluding merger-related and restructuring charges 1.21 1.20 1.18 1.02
----------------------------------------------------------------------------------------------------------------------------
2000
----------------------------------------------------------------------------------------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
----------------------------------------------------------------------------------------------------------------------------
Interest income $ 985,231 $ 948,974 $ 910,729 $ 871,419
Interest expense 466,032 445,292 413,036 387,824
Net interest income 519,199 503,682 497,693 483,595
Provision for credit losses 88,006 43,300 56,600 66,894
Securities gains (losses) 2,285 1,316 7,257 5,437
Noninterest income (excluding securities gains (losses)) 213,725 242,685 234,593 249,383
Noninterest expenses 376,082 375,404 366,242 366,795
Net income 172,596 215,058 206,050 197,031
Basic net income per common share $ 0.95 $ 1.19 $ 1.14 $ 1.09
Diluted net income per common share 0.94 1.17 1.12 1.08
============================================================================================================================
|
(1) First quarter 2001 includes a $25 million merger-related charge to conform the credit policies of Imperial with Comerica.
27 PENDING ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets". The Corporation adopted SFAS 141 in 2001 and will adopt SFAS 142 in 2002. Under the new rules, the pooling-of-interest method of accounting was eliminated for all business combinations initiated after June 30, 2001. In addition, beginning in 2002, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets that do not have an indefinite life will continue to be amortized over their useful lives.
The Corporation's application of the nonamortization provisions of the Statement is expected to result in an annual increase in net income of $28 million, or approximately $0.16 per share. The Corporation performed the first required impairment test of goodwill and indefinite lived intangible assets, as of January 1, 2002. Based on this test, the Corporation will not be required to record a transition adjustment upon adoption.
In addition, in July 2001 the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations" The Statement covers legal obligations that are identifiable by the entity upon acquisition and construction, and during the operating life of a long-lived asset. Identified retirement obligations would be recorded as a liability with a corresponding amount capitalized as part of the asset's carrying amount. The capitalized retirement cost asset would be amortized to expense over the asset's useful life. The Statement is effective January 1, 2003 for calendar year companies. The Corporation does not believe that the impact of adoption of SFAS No. 143 will have a material impact on the Corporation's financial position or results of operations.
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 /s/ Ralph W. Babb Jr. Ralph W. Babb Jr. President and Chief Executive Officer 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, 2001 and the related consolidated statements of income, changes in shareholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides 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, 2001 and the consolidated results of their operations and their cash flows for the year then ended in conformity accounting principles generally accepted in the United States.
We previously audited and reported on the consolidated balance sheet of Comerica Incorporated and subsidiaries as of December 31, 2000 and the related consolidated statements of income, changes in shareholders' equity, and cash flows for the years ended December 31, 2000 and 1999, prior to their restatement for the 2001 pooling of interests as described in Note 2 to the consolidated financial statements. The contribution of Comerica Incorporated to total assets, revenues, and net income represented 85%, 86%, and 95% of the respective 2000 restated totals and the contribution to revenue and net income represented 86% and 89% of the respective 1999 restated totals. Financial statements of the other pooled company included in the 2000 and 1999 restated consolidated statements were audited and reported on separately by other auditors. We also have audited, as to combination only, the accompanying consolidated balance sheet as of December 31, 2000 and the related consolidated statements of income, shareholders' equity, and cash flows for the years ended December 31, 2000 and 1999, after restatement for the 2001 pooling of interests; in our opinion, such consolidated financial statements have been properly combined on the basis described in Note 2 to the consolidated financial statements.
/s/ Ernst & Young LLP Detroit, Michigan January 16, 2002 |
HISTORICAL REVIEW -- AVERAGE BALANCE SHEETS
COMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
(IN MILLIONS)
--------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
--------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 1,835 $ 1,842 $ 1,896 $ 1,963 $ 1,956
Short-term investments 442 978 650 642 410
Investment securities 3,909 3,688 3,107 4,041 5,256
Commercial loans 26,401 25,313 23,069 19,850 16,143
International loans 2,800 2,552 2,627 2,342 1,952
Real estate construction loans 3,090 2,554 1,729 1,200 997
Commercial mortgage loans 5,695 5,142 4,583 4,011 3,883
Residential mortgage loans 795 833 930 1,331 1,676
Consumer loans 1,479 1,434 1,853 2,606 4,510
Lease financing 1,111 870 699 576 448
--------------------------------------------------------------------------------------------------------
Total loans 41,371 38,698 35,490 31,916 29,609
Less allowance for credit losses (654) (595) (531) (498) (447)
--------------------------------------------------------------------------------------------------------
Net loans 40,717 38,103 34,959 31,418 29,162
Accrued income and other assets 2,785 2,266 2,050 1,905 1,737
--------------------------------------------------------------------------------------------------------
Total assets $ 49,688 $ 46,877 $ 42,662 $ 39,969 $ 38,521
========================================================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Noninterest-bearing deposits $ 10,253 $ 9,068 $ 8,661 $ 8,445 $ 7,306
Interest-bearing deposits 25,059 21,272 18,817 18,159 17,776
--------------------------------------------------------------------------------------------------------
Total deposits 35,312 30,340 27,478 26,604 25,082
Short-term borrowings 2,584 3,323 3,562 3,517 3,895
Accrued expenses and other liabilities 823 703 522 494 537
Medium- and long-term debt 6,198 8,298 7,441 6,109 6,034
--------------------------------------------------------------------------------------------------------
Total liabilities 44,917 42,664 39,003 36,724 35,548
Shareholders' equity 4,771 4,213 3,659 3,245 2,973
--------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 49,688 $ 46,877 $ 42,662 $ 39,969 $ 38,521
========================================================================================================
|
HISTORICAL REVIEW -- STATEMENTS OF INCOME
COMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
----------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 3,121 $ 3,379 $ 2,859 $ 2,706 $ 2,579
Interest on investment securities 246 259 199 263 355
Interest on short-term investments 26 78 39 35 25
----------------------------------------------------------------------------------------------------------------------
Total interest income 3,393 3,716 3,097 3,004 2,959
INTEREST EXPENSE
Interest on deposits 888 951 693 739 746
Interest on short-term borrowings 105 215 183 191 213
Interest on medium- and long-term debt 298 546 404 354 355
----------------------------------------------------------------------------------------------------------------------
Total interest expense 1,291 1,712 1,280 1,284 1,314
----------------------------------------------------------------------------------------------------------------------
Net interest income 2,102 2,004 1,817 1,720 1,645
Provision for credit losses 236 255 146 146 169
----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 1,866 1,749 1,671 1,574 1,476
NONINTEREST INCOME
Service charges on deposit accounts 211 189 177 164 147
Fiduciary income 180 181 183 175 155
Commercial lending fees 67 61 55 58 34
Letter of credit fees 58 52 46 31 34
Brokerage fees 44 44 36 46 20
Investment advisory revenue, net 12 119 61 18 --
Equity in earnings of unconsolidated subsidiaries (43) 14 15 (6) 30
Warrant income 5 30 33 22 4
Securities gains 20 16 9 7 6
Net gain on sales of businesses 31 50 76 11 25
Other noninterest income 219 201 176 141 154
----------------------------------------------------------------------------------------------------------------------
Total noninterest income 804 957 867 667 609
NONINTEREST EXPENSES
Salaries and employee benefits 809 851 778 680 624
Net occupancy expense 115 110 104 100 98
Equipment expense 70 76 73 70 71
Outside processing fee expense 61 59 60 53 48
Customer services 41 37 40 50 38
Merger-related and restructuring charges 152 -- -- (7) --
Other noninterest expenses 311 351 304 291 298
----------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 1,559 1,484 1,359 1,237 1,177
----------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,111 1,222 1,179 1,004 908
Provision for income taxes 401 431 420 353 322
----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 710 $ 791 $ 759 $ 651 $ 586
======================================================================================================================
Net income applicable to common stock $ 698 $ 774 $ 742 $ 634 $ 568
======================================================================================================================
Basic net income per common share $ 3.93 $ 4.38 $ 4.20 $ 3.58 $ 3.17
Diluted net income per common share $ 3.88 $ 4.31 $ 4.13 $ 3.51 $ 3.11
Cash dividends declared on common stock $ 313 $ 250 $ 225 $ 199 $ 181
Dividends per common share $ 1.76 $ 1.60 $ 1.44 $ 1.28 $ 1.15
======================================================================================================================
|
HISTORICAL REVIEW -- STATISTICAL DATA
COMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------------------------------------------------------------------------------------------------------------------
AVERAGE RATES
(FULLY TAXABLE EQUIVALENT BASIS)
Short-term investments 6.02% 7.97% 6.06% 5.61% 6.05%
Investment securities 6.37 6.99 6.42 6.61 6.83
Commercial loans 6.85 8.87 7.71 8.12 8.41
International loans 7.38 9.21 7.86 7.97 7.07
Real estate construction loans 7.95 10.09 9.21 9.94 10.00
Commercial mortgage loans 7.65 8.80 8.27 8.76 9.05
Residential mortgage loans 7.59 7.64 7.47 7.70 7.90
Consumer loans 8.39 9.09 9.95 10.19 9.81
Lease financing 6.25 6.24 6.91 7.65 7.49
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Total loans 7.55 8.74 8.06 8.48 8.72
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Interest income as a percent of earning assets 7.44 8.57 7.90 8.23 8.40
Domestic deposits 3.48 4.34 3.55 3.97 4.13
Deposits in foreign offices 5.97 7.75 7.05 6.71 5.68
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Total interest-bearing deposits 3.54 4.47 3.68 4.07 4.20
Short-term borrowings 4.08 6.48 5.14 5.43 5.47
Medium- and long-term debt 4.80 6.57 5.44 5.80 5.88
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Interest expense as a percent of interest-bearing sources 3.82 5.20 4.29 4.62 4.74
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Interest rate spread 3.62 3.37 3.61 3.61 3.66
Impact of net noninterest-bearing sources of funds 0.99 1.26 1.03 1.11 1.02
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Net interest margin as a percent of earning assets 4.61 4.63 4.64 4.72 4.68
RETURN ON AVERAGE COMMON
SHAREHOLDERS' EQUITY 15.16 19.52 21.78 21.16 20.88
RETURN ON AVERAGE ASSETS 1.43 1.69 1.78 1.63 1.52
EFFICIENCY RATIO 53.95 50.35 50.70 51.84 52.15
PER SHARE DATA
Book value at year-end $ 27.17 $ 23.98 $ 20.87 $ 17.99 $ 16.10
Market value at year-end 57.30 59.38 46.69 68.19 60.17
Market value - high and low for year 65-44 61-33 70-44 73-47 62-34
OTHER DATA
Number of banking offices 342 354 348 348 362
Number of employees (full-time equivalent) 11,406 11,444 11,484 11,363 10,972
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EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
As of December 31, 2001
State or Jurisdiction of
Incorporation or
Name Organization
---- -------------------------
Comerica Investment Services, Inc. Michigan
Comerica Capital Markets Corporation Michigan
Comerica Insurance Services, Inc. Michigan
Comerica Insurance Group, Inc. Michigan
Comerica Securities, Inc. Michigan
Wilson, Kemp & Associates, Inc. Michigan
WAM Holdings, Inc. Delaware
WAM Holdings II, Inc. Delaware
Comerica Financial Incorporated Michigan
(f/n/a/ Comerica AutoLease, Inc.)
Comerica 10A Financial LLC Michigan
(f/n/a Project 10A, LLC)
VRB Corp. Michigan
Comerica International Corporation U.S.
Comerica Trust Company of Bermuda, Ltd. Bermuda
CMA Insurance Services of Texas Incorporated Texas
(f/k/a CMA Insurance Services, Inc.)
Comerica Holdings Incorporated Delaware
CMT Holdings, Inc. Texas
Comerica Merchant Services, Inc. Delaware
Interstate Select Insurance Services, Inc. California
Comerica Assurance Ltd. Bermuda
Comerica Reinsurance Company, Ltd. British Virgin Islands
Comerica Properties Corporation Michigan
Professional Life Underwriters Services, Inc. Michigan
Comerica Trade Services Limited Hong Kong
Comerica Leasing Corporation Michigan
Comerica Management Company Michigan
Comerica Equities Incorporated Delaware
Comerica West Incorporated Delaware
Comerica West Financial Incorporated Delaware
Comerica West Enterprises Incorporated Delaware
Munder Capital Management Delaware
Munder UK, L.L.C. Delaware
Comerica Bank-Mexico, S.A. Mexico
Comerica Bank-California California
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Comerica Bank-Texas Texas Comerica Bank& Trust, National Association United States Comerica Bank-Canada Canada Comerica Bank Michigan Imperial Capital Trust I Delaware ROC Technologies, Inc. Delaware Imperial Bank Realty Company, Incorporated California Imperial Trade Services Ltd. Hong Kong Imperial Asset Advisors, Inc. California Imperial Asset Management, Inc. California Pacific Bancard Association, Inc. California Imperial International Bank California Comerica Ventures Incorporated California (f/n/a Imperial Ventures, Inc.) Imperial International, Inc. California Imperial Management, Inc. California Imperial Capital Markets Group, Inc. California Imperial Financial Group, Inc. California Comerica do Brasil Participacoes e Servicos Ltda. Brazil Comerica Coastal Incorporated Delaware Comerica Preferred Capital, LLC Delaware Comerica Dealer Finance, LLC Delaware Comerica Auto Floor Plan, LLC Delaware DFP Cayman LP Cayman Islands DFP Luxembourg S.A. Luxembourg Comerica Capital Advisors Incorporated Delaware Comerica Capital Trust I Delaware Comerica Capital Trust II Delaware Official Payments Corp. Delaware |
EXHIBIT 23.A
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements listed below of our report on the consolidated financial statements of Comerica Incorporated and subsidiaries dated January 16, 2002, included in this Annual Report on Form 10-K for the year ended December 31, 2001:
Registration Statement No. 33-42485 on Form S-8 dated August 29, 1991
Registration Statement No. 33-45500 on Form S-8 dated February 11, 1992
Registration Statement No. 33-49964 on Form S-8 dated July 23, 1992
Registration Statement No. 33-49966 on Form S-8 dated July 23, 1992
Registration Statement No. 33-53220 on Form S-8 dated October 13, 1992
Registration Statement No. 33-53222 on Form S-8 dated October 13, 1992
Registration Statement No. 33-58823 on Form S-8 dated April 26, 1995
Registration Statement No. 33-58837 on Form S-8 dated April 26, 1995
Registration Statement No. 33-58841 on Form S-8 dated April 26, 1995
Registration Statement No. 33-65457 on Form S-8 dated December 29, 1995
Registration Statement No. 33-65459 on Form S-8 dated December 29, 1995
Registration Statement No. 333-00839 on Form S-8 dated February 9, 1996
Registration Statement No. 333-24569 on Form S-8 dated April 4, 1997
Registration Statement No. 333-24567 on Form S-8 dated April 4, 1997
Registration Statement No. 333-24565 on Form S-8 dated April 4, 1997
Registration Statement No. 333-24555 on Form S-8 dated April 4, 1997
Registration Statement No. 333-37061 on Form S-8 dated October 2, 1997
Registration Statement No. 333-48118 on Form S-8 dated October 18, 2000
Registration Statement No. 333-48120 on Form S-8 dated October 18, 2000
Registration Statement No. 333-48122 on Form S-8 dated October 18, 2000
Registration Statement No. 333-48124 on Form S-8 dated October 18, 2000
Registration Statement No. 333-48126 on Form S-8 dated October 18, 2000
Registration Statement No. 333-50966 on Form S-8 dated November 30, 2000
Registration Statement No. 333-51042 on Form S-8 to Form S-4 dated February 6, 2001
/s/ Ernst & Young LLP March 25, 2002 Detroit, Michigan |
EXHIBIT 23(b)
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements listed below of our report on the consolidated balance sheet of Imperial Bancorp and subsidiaries as of December 31, 2000, and the related consolidated statements of income, changes in shareholders' equity and comprehensive income, and cash flows for each of the years in the two-year period ended December 31, 2000, dated January 26, 2001, included in Comerica's Annual Report on Form 10-K for the year ended December 31, 2001:
Registration Statement No. 33-42485 on Form S-8 dated August 29, 1991
Registration Statement No. 33-45500 on Form S-8 dated February 11, 1992
Registration Statement No. 33-49964 on Form S-8 dated July 23, 1992
Registration Statement No. 33-49966 on Form S-8 dated July 23, 1992
Registration Statement No. 33-53220 on Form S-8 dated October 13, 1992
Registration Statement No. 33-53222 on Form S-8 dated October 13, 1992
Registration Statement No. 33-58823 on Form S-8 dated April 26, 1995
Registration Statement No. 33-58837 on Form S-8 dated April 26, 1995
Registration Statement No. 33-58841 on Form S-8 dated April 26, 1995
Registration Statement No. 33-65457 on Form S-8 dated December 29, 1995
Registration Statement No. 33-65459 on Form S-8 dated December 29, 1995
Registration Statement No. 333-00839 on Form S-8 dated February 9, 1996
Registration Statement No. 333-24569 on Form S-8 dated April 4, 1997
Registration Statement No. 333-24567 on Form S-8 dated April 4, 1997
Registration Statement No. 333-24565 on Form S-8 dated April 4, 1997
Registration Statement No. 333-24555 on Form S-8 dated April 4, 1997
Registration Statement No. 333-37061 on Form S-8 dated October 2, 1997
Registration Statement No. 333-48118 on Form S-8 dated October 18, 2000
Registration Statement No. 333-48120 on Form S-8 dated October 18, 2000
Registration Statement No. 333-48122 on Form S-8 dated October 18, 2000
Registration Statement No. 333-48124 on Form S-8 dated October 18, 2000
Registration Statement No. 333-48126 on Form S-8 dated October 18, 2000
Registration Statement No. 333-50966 on Form S-8 dated November 30, 2000
Registration Statement No. 333-51042 on Form S-8 to Form S-4 dated February 6, 2001
/s/ KPMG LLP March 29, 2002 Los Angeles, California |
EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Imperial Bancorp and subsidiaries:
We have audited the consolidated balance sheet of Imperial Bancorp and subsidiaries (the Company) as of December 31, 2000, and the related consolidated statements of income, changes in shareholders' equity and comprehensive income and cash flows for each of the years in the two-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Imperial Bancorp and subsidiaries as of December 31, 2000, and the results of their operations and their cash flows, for each of the years in the two-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP Los Angeles, California January 26, 2001 |